Investing

This is why I index

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[OP]
Deal Addict
Nov 9, 2013
1738 posts
539 upvotes
Edmonton, AB

This is why I index

This year I decided to try a core and explore strategy - my core holdings are index funds, but I decided to explore some dividend growth investing in my TFSA.

My criteria for my dividend stocks:
- Must trade on TSX in CAD
- Must have history of consistently growing dividend
- Dividend must be sustainable based on pay out ratio.
- No more than 2 stocks per sector
- Must be large cap.

I have tried to buy on dips, but not necessarily done intense valuation analysis. My current holdings are - T, CNR, RY, CWB, SU, ACO.X. My best performer is CWB which, today, is up 9% since I bought it in March. My worst performer is CNR which is down 9% since buying in Jan and then again in March.

Relative to the TSX (blue line), I am currently under preforming:
[IMG]http://i.imgur.com/V5dhiFS.png[/IMG]


(the 2% target is arbitrary, it's there by default with TDW)
__________________________________



Now, these are paper losses and I have no intention on selling. Of course, the time I've been invested is short, things may change in the future, yadda yadda yadda. Despite the losses, I don't plan to sell any of these positions for decades.

What have I learned about myself since starting this explore strategy?
- Buying individual equities is stressful. I fret if I am making the right decision to buy the stock, even though I know in the long term it probably won't matter much.
- I'm constantly checking the day to day value of my stocks, even though it doesn't matter
- I sometimes read forums and news paper articles looking for that "hot tip" for the next stock which I never did before
- When reading about the hot stock, I sometimes find my mind rationalizing why I should buy it, even though it doesn't meet my criteria

Given all this, I greatly prefer the set it and forget it of indexing. I think my stock buying / stock picking days are behind me.
171 replies
Sr. Member
Nov 28, 2010
827 posts
104 upvotes
Brampton
I too am a bit wary of trying to pick individual stocks. I currently own intc, td, bce. Last year was great for intc, but double digit red this year. Otherwise, the rest of my holdings are series d rbc mutual funds, etfs, Tangerine motual fund, Tangerine gic, and td e-series indexes.
Deal Expert
Feb 29, 2008
15555 posts
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Montreal
There is no magic in dividend growth stocks. Many will argue that paying dividend will compromise capital appreciation. The reason dividend growth stocks do well in Canada, is that they tend to be the strongest businesses to begin with. The TSX 60 is a good proxy for solid dividend paying companies.

Have you looked at some of the dividend ETFs? The high MERs scared me away.
Deal Addict
Jul 23, 2007
3178 posts
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I don't have a problem with either index investing or buying and holding individual Canadian dividend growth stocks which is probably why I do both strategies.
[OP]
Deal Addict
Nov 9, 2013
1738 posts
539 upvotes
Edmonton, AB
mr_raider wrote:
May 15th, 2015 6:00 pm
There is no magic in dividend growth stocks. Many will argue that paying dividend will compromise capital appreciation. The reason dividend growth stocks do well in Canada, is that they tend to be the strongest businesses to begin with. The TSX 60 is a good proxy for solid dividend paying companies.

Have you looked at some of the dividend ETFs? The high MERs scared me away.
No, it's the MER that I'm trying to avoid. Besides, they are usually comprised of financials which are already a heavy weight in the TSX index fund I own anyways.
Deal Addict
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Dec 14, 2010
4150 posts
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A strategy should be employed based on the goals that one wants to achieve. I personally prefer dividend investing over index, simply because my goal is towards growing income replacement, and I find a lot easier achieving that with individual stocks instead of the index.

OP, your criteria had the metrics for quality, but you must take valuation into account. Paying more than you should for a business will impair performance. But since one is investing for the long term, the performance in such short period shouldn't matter.

Also, your portfolio doesn't have all sectors. There are 10 sectors, and your port covers 4. So comparing it to an index that has all 10 sectors is not fair.

Rod
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Dec 26, 2010
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treva84 wrote:
May 15th, 2015 7:39 pm
No, it's the MER that I'm trying to avoid. Besides, they are usually comprised of financials which are already a heavy weight in the TSX index fund I own anyways.
This is the way I always looked at it. I can buy the TSX or TSX 60, save the MER and get close to dividend fund output... if that was what I wanted to do.
Indexer, non-yield chasing, low cost, broad based, as simple as possible investor.
Sr. Member
Feb 1, 2015
594 posts
128 upvotes
MB
Same strategy than you Treva; except that I estimate a valuation range. A correction doesn't necessarily mean that a stock has reached a fair valuation. Even at a fair price, It might drop more.
I also try to complement the Cdn index fund as much as possible; thus avoiding the financial and oil/energy sector in my picks. Over time, I might gradually switch to dividend stocks.

It's true that the whole process could be stressful; but I also find it super interesting.
Deal Addict
Jul 23, 2007
3178 posts
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Since just after the 2008-09 financial crisis, I've been doing sector investing in my own portfolio of individual Canadian stocks, but it's not crucial to do so. Tom Connolly has been investing solely in Canadian dividend growth stocks without controlling sectors for the past thirty years now, and I'm sure he's doing fine.
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Jul 19, 2003
7374 posts
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I don't find the gains of the index acceptable this year either. Might as well just have put it in a GIC or HISA promo (near 3%) and absolutely not worry about it.

We may also see the index lose a ton of percentage points once the rates are finally hiked by the Feds. And then your stock lineup will trounce the index for 2015. The year isn't over!
[OP]
Deal Addict
Nov 9, 2013
1738 posts
539 upvotes
Edmonton, AB
rodbarc wrote:
May 15th, 2015 7:51 pm
A strategy should be employed based on the goals that one wants to achieve. I personally prefer dividend investing over index, simply because my goal is towards growing income replacement, and I find a lot easier achieving that with individual stocks instead of the index.

OP, your criteria had the metrics for quality, but you must take valuation into account. Paying more than you should for a business will impair performance. But since one is investing for the long term, the performance in such short period shouldn't matter.

Also, your portfolio doesn't have all sectors. There are 10 sectors, and your port covers 4. So comparing it to an index that has all 10 sectors is not fair.

Rod
My goal is total return - either via capital appreciation, dividends, or both.

I should further add that I created this thread partly because no body every talks about their stock picks they are unhappy with, and partly as a reflection into my own disposition as an investor. I'm not trying to make quantitate statements about how one strategy is better than the other (if I posted this thread a month ago I would be out performing the index); rather I'm making qualitative statements about implementing one strategy over another.
Deal Expert
Feb 29, 2008
15555 posts
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Montreal
masterhapposai wrote:
May 16th, 2015 8:42 am
I don't find the gains of the index acceptable this year either. Might as well just have put it in a GIC or HISA promo (near 3%) and absolutely not worry about it.

We may also see the index lose a ton of percentage points once the rates are finally hiked by the Feds. And then your stock lineup will trounce the index for 2015. The year isn't over!

That depends on your point of view. If you had a well diversified portfolio, holding both us and international indices, they would have exploded in value as the dollar tanked the last 6 months. My US and world funds have been throwing of massive distributions.

But I've been invested in the market since 2002.
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Jul 19, 2003
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mr_raider wrote:
May 16th, 2015 11:56 am
That depends on your point of view. If you had a well diversified portfolio, holding both us and international indices, they would have exploded in value as the dollar tanked the last 6 months. My US and world funds have been throwing of massive distributions.

But I've been invested in the market since 2002.
Yeah the Canadian index was horrible this year and U.S is great if you're Canadian and sold it just before the USD drop about a month or so ago.

But, far as I can tell people are actually in the red right now if they bought during tax return, which many people do. Unless they invested in emerging market funds like this one:
https://personal.vanguard.com/us/funds/ ... IntExt=INT
Sr. Member
Feb 1, 2015
594 posts
128 upvotes
MB
Yes, Int'l & US indexes have been doing very well if you bought at the beginning of the year. Example with the TD e-series funds (YTD):
- International: +15.85%
- US: +7.26%
- Canada: +3.63%
- Cdn Bonds: +0.34%

My bonds are in negative territory after contributing to my RRSP just before the deadline.
Deal Addict
Oct 29, 2010
4094 posts
553 upvotes
For the same time period as the OP, my Mawer Balanced Fund did +5.54% while my Mawer Global Small Cap did +14.11%

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