Investing

Investing Idea - Dividend Growth

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I think CM52 has a valid point: why worry about dividends specifically rather than total return? I don't see any value in "not touching the principal": whether you take profit in the form of dividends or by selling stocks makes no difference from the perspective of total return.

If you two are going to continue your argument, I'd like to hear more about whether Rod's strategy (in this thread) is performing better or worse than the index (keeping in mind that it might be too short of a time period to make an adequate long-term assessment).

If Rod's strategy is underperforming the index, as CM52 asserts, then I'd like to hear Rod's perspective on why: bad picks/method of evaluating these companies? waiting for a downturn in the market to shine? more "safe" strategy at the expense of slightly lower returns? or do you really have a weird obsession where you're trying to maximize dividends even if you're getting inferior total return?
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Feb 4, 2015
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Canada, Eh!!
^^ Rod will reply better however I believe he is not trying to maximize dividends but rather maximize his holdings with companies that are growing dividends at a greater then average rate and consistently paying dividends. As an example I believe V with 0.74 % yield is more likely a Rod stock then the higher yielding but worse growing dividend GME at 6.74%.

A business that can do that over time will capital appreciate as well.

Identifying these companies early AND investing in them early means that eventually your cost will be of little concern as dividends have taken over... just ask Buffett about KO!!

Just my opinion... still learning [with mistakes] and trading several models.
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Nov 30, 2010
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Breaking my own rule: another 10 minutes invested.

As georvu and others have pointed out, different people have different goals, risk tolerance, and cash flow requirements when it comes to their investing methodologies. There is no "right way" and depending on the person "total return" is actually not at the top of the priorities list (but it probably is for most).

This whole argument started with a challenge that this DVI portfolio underperforms the market. Enough data has been presented that a reader can make an informed decision to the result. There's no point trying to justify any further as CM52 won't be swayed into thinking he's wrong.

We can continue to discuss the rationale of pursuing this type of strategy versus one that aims to maximize total return but keep it civil. RFD investing is a place for rational discussion, a place where individuals share strategies to grow their net worth. Whether rodbarc's DGI portfolio beats the market or not doesn't matter, he's contributing to the community. Without people like him, RFD wouldn't have an active investing forum.

So CM52, be more respectful to your fellow forum mates, and keep your snarkiness to yourself. It would be a shame for the community to lose contributors like rodbarc, but little lost for a rude poster like you.
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CM52 wrote: You are such a broken record. But please, invent some returns from other portfolios that no one is going to validate to avoid the topic of this thread. This portfolio underperforms the market. You just said it does. It's nice that people like you believe that a dividend stream is somehow more important than total return. Enjoy your cash flow. I'll enjoy my higher cash flow.
Can't say what's your background - where accept that Rod is trying to educate the pro-sumers. You seem to be a smart guy so you should know better the following from portfolio management practices:
* "One study suggests that more than 91.5% of a portfolio’s return is attributable to its mix of asset classes. In this study, individual stock selection and market timing accounted for less than 7% of a diversified portfolio’s return."
* "A widely cited study of pension plan managers said that 91.5% of the difference between one portfolio’s performance and another’s are explained by asset allocation."

So you talk about Total Return, I can talk about RAROC where the biggest issue is that wealth management is contextual - it needs total assessment of taxation, life-needs, family situation and objectives. The investment part is just execution - so what Rod does is only part of the whole food-chain of activities to manage your wealth end-to-end. These other ones are hard to put on a recipe

Do I make sense?
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blargy35 wrote: ...
These are different strategies aimed at different goals, since not every investor has the same objectives. It's pointless to compare them. Neither are better or worse, just different.

To your question:
blargy35 wrote: why worry about dividends specifically rather than total return?
Because I can count on growing dividends every single year regardless if market crashes. I can't say the same about capital appreciation, which is the other variable for total return. Therefore. total return might be negative in recession years, such as 2001, 2008 and many other years for the Canadian market, which are driven by volatile sectors such as resources. Since dividends will replace my salary, I can't afford to have less income when the market crashes. I could sell more shares to produce the same income, but my income wouldn't last as long as originally planned. And I don't want to sell more shares to produce that income simply because the market tanked - many of these companies are trading for less than they're worth. As I intend to achieve financial independency by when I'm 45, look how many years I will need a steady growing income to replace my salary until I pass away. I simply couldn't do it with indexing (I might continue to work, but if I choose not too, or just choose something a part-time close to home, then I will need a reliable growing stream of income to sustain my cost of living).

Therefore, I'm honestly more interested in growing my dividend income streams over the coming decades, since I plan to never sell shares when I retire. The types of companies I own stakes in have long histories of success, high credit ratings and outstanding balance sheets, so I can count on their dividends every year (buy I can't count on capital appreciation every year).
blargy35 wrote: I don't see any value in "not touching the principal": whether you take profit in the form of dividends or by selling stocks makes no difference from the perspective of total return.
I disagree - your money can only last so long if you have to keep selling shares to produce your income. Meanwhile, once my portfolio reaches the desired amount for income, it goes on auto-pilot producing the required amount for my expenses, always growing above inflation - I could retire at that point and not care how long I would live and need the income.
blargy35 wrote: If you two are going to continue your argument, I'd like to hear more about whether Rod's strategy (in this thread) is performing better or worse than the index (keeping in mind that it might be too short of a time period to make an adequate long-term assessment).
I don't want to continue the argument for 2 unrelated strategies that do not share the same goals. To your question: my goal is dividend growth. That's what I care to track. When compared to the market, it has performed better than the index because the ETFs that replicate the index doesn't grow dividends at the same reliable and consistent rate than a portfolio constructed with stocks that has dividend growth baked in their business model. Last year, Canadian ETFs produced a lower dividend than 2015. If I was retired, I'd have to sell shares to meet my income needs. But if I was retired with my DGI portfolio, I could enjoy a paycheque increase above inflation on the same year that the index paid a lower dividend. Hence, my portfolio exceeded the index from an income growth perspective and it continues to meet my goals, while the index does not. Like BRK, my portfolio (or any DGI portfolio for that matter) does not outperform the index every year, from a total return perspective. A lot of that is by design. But since dividends grow and payout ratio stays the same, capital appreciation follows, but that's secondary to DGI because the goal is to never sell any share.

If you index, what is the plan when you approach retirement? How early do you switch to fixed income, and what if in that year or the year before the market has crashed? DGI doesn't need to worry about that, because the focus is on growth of income.

Another pespective: a $1MM port that yields 6% (which started early, with an initial yield of 2% or 3%, but which has been growing every year to the point that the portfolio yield is 6%), produces $60,000 of income (and it will continue growing that income). That's a decent liquid amount to retire. How big an index portfolio would have to be to produce the same income for 45 years? (I'm assuming a scenario of retiring at 45 and living until 90). Can't do it with indexing. Can do with DGI. I wouldn't care if a portfolio that can sustain me for 45 years underperforms the index.

blargy35 wrote: If Rod's strategy is underperforming the index, as CM52 asserts, then I'd like to hear Rod's perspective on why: bad picks/method of evaluating these companies?
We don't need to be good stock pickers. We only need to be able to recognize good companies, companies that are financially sound and buy them when they appear to be selling at a decent value, and then slowly add to them over time whenever those valuations reappear.

The companies are always evaluated the same way. Investing always requires a future forecast. And forecasting and making estimates are always made regarding what is unknown to us. But in time, the answers will become clear because they will become known. In this regard, all investing does require certain leaps of faith. However, forecasting the future should not be a mere guess either. We should attempt to gather all the facts that we can, draw our conclusions based on those facts, and then continuously monitor future results as they unfold. A consistent methodology to seek for quality will lead to superior returns because a portfolio's return is directly related to the operating performance of these businesses. It won't work 100% of the times, but it will in the majority and long term. Quality and valuation can be calculated with a high degree of certainty and anyone can learn.
blargy35 wrote: waiting for a downturn in the market to shine?
That's timing the market, and I only do it when trading, not investing. Every month I deploy capital to something, without worrying what the market might or might not do. Many times it will cause me to buy before a disappointing earnings or before a crash.

We can't control price fluctuations, but we can control the quality of the companies we purchase. The higher the quality, the more confident I am that the company will bounce back on any price drops. The market can stay irrational for a long time (greedy or fearful), which can explains underperformance at certain times.

blargy35 wrote: more "safe" strategy at the expense of slightly lower returns?
In many cases, yes. As I posted earlier, I own a lot of utilities, telecom and staple companies that will not outperform the market. However, I'm ok with that, because they will continue to generate a decent raise on my paycheque, including during bad years. Furthermore, I don't plan to sell any shares, so it's not my goal to focus on capital appreciation (although quality and valuation will make it happen for me). I could have a higher capital appreciation with growth stocks, and that's what my trading models are for (the goal is to profit for the short term), but it's a lot harder to succeed at that, because as soon as that growth slows down, they are harshly penalized, and no company can have exceptional growth forever.


My primary focus is on quality and valuation. Dividend growth (not dividend yield) comes second. However, I have companies that pays low dividends and barely grow them. I own them for some income, but mostly important, for their quality and what I paid when I considered fairly valued.

Every day that we receive a dividend is another reminder of the viability and predictability of this type of income stream. Every time a company pays us to own their stock is a reinforcement of our original decision to buy that share.
Dividends paid by solid companies with long histories of increasing them are the predictable foundation upon which a retiree and near-retiree can build a comfortable and secure retirement.


Rod
Build a comprehensive portfolio based on Investing and Trading strategies. Check out these threads and join the discussion:

Investing strategy based on dividend growth

Trading strategy based on Graham principles.
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rodbarc wrote: If you index, what is the plan when you approach retirement? How early do you switch to fixed income, and what if in that year or the year before the market has crashed? DGI doesn't need to worry about that, because the focus is on growth of income.
Cash wedge. There're many articles and modified strategies, here's one for example: https://retirehappy.ca/protecting-your- ... ock-market . And since ‘yield on cost’ is a myth and buying fairly or undervalued companies doesn't guarantee better returns, technically, I think CM52 is correct: if during the accumulation stage one strategy is more likely to generate higher total returns, that should be the focus. Or at least clear to all who follow this strategy - that they might be better off indexing or employing growth/momentum strategies during bull markets. As I'm pretty sure at least some are here to beat the indexes - which is not a guarantee :)
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Mar 20, 2017
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Simple question, Rod: If you had the following two options, which would you pick?

A. 10% annual returns in the form of dividends
B. 20% annual returns in the form of capital appreciation
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Feb 1, 2015
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MB
freilona wrote: if during the accumulation stage one strategy is more likely to generate higher total returns, that should be the focus. Or at least clear to all who follow this strategy - that they might be better off indexing or employing growth/momentum strategies during bull markets. As I'm pretty sure at least some are here to beat the indexes - which is not a guarantee
I'm not trading the following port, but isn't it what Rodbarc is trying to achieve with his Trading idea- Based on Graham (TSX)?

No need to oppose different philosophies. Pick the one(s) that best suits your temperament and stick to the plan.
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catoun wrote: No need to oppose different philosophies. Pick the one(s) that best suits your temperament and stick to the plan.
Exactly this. I've been following the RFD investing forum for about 5? years and from the help of everyone (as well as my own mistakes) figured out the type of temperament I have, and the style of strategy I should pursue. When I started, I had no strategy, no knowledge in technical analysis, and no goals but to "make money".

Bought my first index ETF in 2013 (CCP). My first "trading portfolio" in 2015. My first penny stock in 2016 (some regrets). 5 years later I've started to test my own ideas, read company financial sheets, and developed a portfolio I am comfortable with. I will continue to visit this forum to learn, and hopefully when you "regulars" are retired, I'll share my own experiences. Maybe help a newbie find his/her way in the markets.

Because, ya know, real estate is getting mighty expensive. Salaries alone just doesn't cut it anymore.
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blargy35 wrote: Simple question, Rod: If you had the following two options, which would you pick?

A. 10% annual returns in the form of dividends
B. 20% annual returns in the form of capital appreciation
This is not a bad question, but I think the %s are too skewed.
Or suggests that A has no captial appreciation whatsoever, and B pays no dividends.

In actuality, I think the %s between the two are much closer, making A a much more reasonable choice.

Disclaimer: I'd pick B myself, since I aim for capital appreciation.
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catoun wrote: No need to oppose different philosophies. Pick the one(s) that best suits your temperament and stick to the plan.
I did (and still have both, index ETFs and individual stocks :)) What I am opposing is not philosophies, but contradicting statements:
rodbarc wrote: Here is the math to why holding VCN (or an index ETF) will never come close to this strategy:
...
Do the math - there's a reason why such diligence pays off in the long run. Buying VCN takes no effort or thinking, but such convenience comes with the cost of sacrificing performance for the reasons above
Vs.
rodbarc wrote: Berkshire (an DGI) always underperforms the index in bull markets and do better in flat and bear markets. However, when the market turns flat or bear, capital gains are diminished, while dividends keep growing. The longer one is doing DGI, the lesser it matters if it will underperform the index, because it puts the investor in a position to never sell their stocks to meet their required income - which will keep growing, regardless if the market goes flat or crash again. Combine that with some growth investing and (serious) trading then one has a winning portfolio for any market condition.
I understand Rod's goals - and don't see what's so bad if some of the followers review theirs (based on the only math and evidence that matters - their own portfolios' performance)
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blargy35 wrote: Simple question, Rod: If you had the following two options, which would you pick?

A. 10% annual returns in the form of dividends
B. 20% annual returns in the form of capital appreciation
Neither - I'd pick the one with highest total return.

Regarding B: can you guarantee it? In real life, if the other variables value of total return were zero, I'd pick A if I was investing and B if was trading.


Rod
Build a comprehensive portfolio based on Investing and Trading strategies. Check out these threads and join the discussion:

Investing strategy based on dividend growth

Trading strategy based on Graham principles.
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freilona wrote: Cash wedge. There're many articles and modified strategies, here's one for example: https://retirehappy.ca/protecting-your- ... ock-market . And since ‘yield on cost’ is a myth and buying fairly or undervalued companies doesn't guarantee better returns, technically, I think CM52 is correct: if during the accumulation stage one strategy is more likely to generate higher total returns, that should be the focus. Or at least clear to all who follow this strategy - that they might be better off indexing or employing growth/momentum strategies during bull markets. As I'm pretty sure at least some are here to beat the indexes - which is not a guarantee :)
How does one implement the cash wedge strategy? According to the article, money for 0-3 years are on HISA; then:

"The medium-term basket is for money that won’t be needed for about three to six years. Your goal here is conservative growth. You need to choose investments whose growth is more muted, and are such that they’ll rebound better if there is a market downturn."

So what investments are those? Sounds like a big percentage of that bucket needs to be in fixed income, because if I'm in 2004, that conservative growth fund would be down a lot in coming 2008. The only protection is high exposure to fixed income (or maybe a basket of specific sector ETFs). Then how large one's portfolio need to be to last 45 years? Just curious, what typical funds are used in this bucket, and if one had them in 2004, how did they look like in 2008? Regarding the rebound, was that better too?

Regarding the long term bucket:
"The long-term money goes into growth-oriented investments. If you have six years or more then you have time to ride out volatility."

So if this is 1994, the growth-oriented funds in that bucket (assuming SPY with dividends reinvested) had a 5.39% annualized returns until 2001. And in 2001, that growth oriented funds had an annualized return of 2.19% from 2001 to 2008. If the growh-oriented fund is not 100% in SPY, then which funds can be used and how did they fare during these periods?

Unless I'm missing something, that's a poor strategy. I rather have a mix of different asset types ETFs and withdraw when rebalancing profits (and dividends). For example, an implementation like Harry Browne's permanent portfolio (cash, long term bonds, gold and equities distributed equally, to cover for inflation, recession, deflation and prosperity).

BTW, I didn't say yield on cost, I said portfolio yield. If my portfolio today produces $60k in income and it's worth $1MM, it's current yield is 6% (yield on cost is irrelevant to this point). That was just to illustrate that one doesn't need a large portfolio to have a $60K income, for example. In other words, the goal was not for the portfolio to be worth $X to retire, but instead, producing $Y of income. That's wht the goal of DGI portfolios is to have a higher dividend CAGR than the index.


Rod
Build a comprehensive portfolio based on Investing and Trading strategies. Check out these threads and join the discussion:

Investing strategy based on dividend growth

Trading strategy based on Graham principles.
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Canada, Eh!!
Lets all agree that there is various ways to invest.

Index, Value, Dividends, Sector, Currency, Country... etc.

This forum is about DGI.

We should question Rod's picks although unlike many [myself included] he includes his rationale/logic for a particular stock in quite detail. Any question needs to be in same robust detail that was given in support for the stock. That will further our investment education.

To question versus another investment approach does not add anything when it is explicitly stated what the objective is and how it is to be reached.

Let's all get back to discussing DGI stocks. Smiling Face With Open Mouth
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IPL took a bit of a tumble today (down to 27.60 before recovering). How do you guys feel about the 6.4 mil shares held by CNR? Price overhang until the 6 month hold ends?
:idea: :) :lol: :razz: :D

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