Investing

Why Dividend Investing is not a great idea

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  • Sep 24th, 2020 5:53 pm
Deal Fanatic
Jul 1, 2007
8424 posts
1457 upvotes
treva84 wrote: It is interesting how many big Canadian div payers are basically regulated monopolies. I scratch my head with why they are ignored by many international investors. Like, why would wouldn't Warren Buffett buy shares in a company like TD, RY, CP, CNR, many Canadian utilities, or the Canadian telecoms.

Edit - I haven't done the calculation, but imagine WEB bought RY or TD in 1988 instead of KO. From what I've quickly been able to google, KO CAGR is 11% while RY has been 14%.
Warren Buffett buys when he sees good value. He doesn't see good value in Canadian banks, telcos, utils. Growth is an important input in Ben Graham's value formula, and if WB believes these companies to have no or negative growth trajectories, he'll stay away. P/Es of 10-15 might seem cheap relative to growth stocks, but they're incredibly expensive for zero-growth companies.
Money Smarts Blog wrote: I agree with the previous posters, especially Thalo. {And} Thalo's advice is spot on.
Member
Jul 30, 2012
416 posts
404 upvotes
One of my themes is to own investments in monopoly / oligopolies where I have (and others) little choice but to pay for the services. If I have to own a cell phone, I'm going to own a telecom stock(s), if I have to use an online brokerage platform, I'm going to own a Bank(s), if I have to use electricity/heat, I'm going to own a utility, etc. It's how I justify getting a "return of capital" via dividends on utilities & "services" that are basically staples / non-discretionary spends.
BardoonD52881 wrote: This seems like giving money to the people that whip you, and further imprisoning other people into that cycle. You can decide who to support with your capital, not limited to Canadian oligopolies.
Yes, one can support and invest in US oligopolies that whip as well and 15% tax Canadians on any dividends they might pay, but I'm sure you don't own shares or use any AAPL, GOOGL, MSFT, AMZN, NFLX, EBAY, PYPL, etc products or services Winking Face I do have investments in these, of course because of the same logic in owning oligopolies on the CAD side.

You can otherwise invest in startups & weed stocks with a 10% chance of getting your money back, let alone hitting a home run.

As you say, one can decide who to support. No "free lunch" without risk of some kind (oligopoly or other) for retail investors. I prefer to get something back through investment from the companies that are taking my money, my privacy, etc and they all do somewhere along the line - even RFD!.

To avoid the hypocrisy, one can avoid the stock market altogether and enjoy the "one way" street these companies charge or take from users. That's not my strategy.
Deal Addict
Jul 23, 2007
4135 posts
2202 upvotes
I personally don't use technology all that much, at least not in terms of the latest and the greatest. Only the necessities. I just let my companies I own be, in terms of what technology they decide to acquire in order to run their own business.

I own multiple Canadian companies in each sector and It didn't happen overnight, but once the banks, pipelines, telecoms and power utilities start paying you larger monthly or quarterly dividends higher than their bills/fees it becomes a win win situation for the investor. Just keeps getting better each year.

As for Buffett, I can't read his mind, and usually it comes out later as to the why's, but he obviously felt if he wanted value then it was reflected in the five large Japanese trading conglomerates he recently bought into. Obviously Buffett doesn't shy away from a company issuing dividends to their investors since the dividend yields on these five corporations range in yield from 2.6 to 5.8%.

Taken from Norm Rothery's ndir site.

Why Buffett Bought Japanese Stocks
[OP]
Deal Addict
Nov 9, 2013
3906 posts
3590 upvotes
Edmonton, AB
Thalo wrote: Warren Buffett buys when he sees good value. He doesn't see good value in Canadian banks, telcos, utils. Growth is an important input in Ben Graham's value formula, and if WB believes these companies to have no or negative growth trajectories, he'll stay away. P/Es of 10-15 might seem cheap relative to growth stocks, but they're incredibly expensive for zero-growth companies.
You’re saying that, over the last 30 years (when WEB bought KO) the Canadian banking sector hasn’t grown fundamentals?
Keep calm and go long
[OP]
Deal Addict
Nov 9, 2013
3906 posts
3590 upvotes
Edmonton, AB
BardoonD52881 wrote: As a dividend investor I suppose it would be good. But I think that might be one of the reasons why its not such a great idea, You are hosing your customers and leading to a lack of innovation which will come back to haunt you eventually.
You’re right in that dominance can breed complacency. Nonetheless a few can be innovative (boils down to management) - ie RY expanding and highlighting its digital footprint; Telus investing in TeleHealth.
Keep calm and go long
Newbie
Jul 22, 2018
68 posts
34 upvotes
DealRNothing wrote:
Yes, one can support and invest in US oligopolies that whip as well and 15% tax Canadians on any dividends they might pay, but I'm sure you don't own shares or use any AAPL, GOOGL, MSFT, AMZN, NFLX, EBAY, PYPL, etc products or services Winking Face I do have investments in these, of course because of the same logic in owning oligopolies on the CAD side.

You can otherwise invest in startups & weed stocks with a 10% chance of getting your money back, let alone hitting a home run.

As you say, one can decide who to support. No "free lunch" without risk of some kind (oligopoly or other) for retail investors. I prefer to get something back through investment from the companies that are taking my money, my privacy, etc and they all do somewhere along the line - even RFD!.

To avoid the hypocrisy, one can avoid the stock market altogether and enjoy the "one way" street these companies charge or take from users. That's not my strategy.
I do have exposure to those companies through S&P 500. It doesn't really feel like an oligopoly using their services as a customer Its like they each have a better product for their customers in their respective fields to gain high market share.

Do the tech companies buy out smaller ones ala facebook and instagram. Ya they do but its doesnt feel like the customer necessarily gets taken advantage of. You dont want to use Apple phones or google search engines. No problem use something else, people use them for their preference. The monopoly they hold is over the developers that use each platform ala app store.

While the Canadian oligopolies like you said are essential, everyone needs banking/phones.

For some reason oligopolies leave a bad taste in my mouth over even monopolies. I shudder at the thought of a group of companies shaking hands over keeping shitter service and higher charges across throughout the board and than having the government complacent in imposing oligopolies wishes.
Deal Fanatic
Jul 1, 2007
8424 posts
1457 upvotes
treva84 wrote: You’re saying that, over the last 30 years (when WEB bought KO) the Canadian banking sector hasn’t grown fundamentals?
Maybe they have, but how does that pertain to their prospects and valuation in the present?
Money Smarts Blog wrote: I agree with the previous posters, especially Thalo. {And} Thalo's advice is spot on.
[OP]
Deal Addict
Nov 9, 2013
3906 posts
3590 upvotes
Edmonton, AB
Thalo wrote: Maybe they have, but how does that pertain to their prospects and valuation in the present?
It doesn't. My example was historical (i.e. when WEB bought KO) not based on present.

Even so, in the past 5 years RY has grown earnings at ~ 7-8% annualized in a declining rate environment. Will this stay moving forward? I don't know, ultimately we'll find out.
Keep calm and go long
Deal Fanatic
Jul 1, 2007
8424 posts
1457 upvotes
treva84 wrote: It doesn't. My example was historical (i.e. when WEB bought KO) not based on present.

Even so, in the past 5 years RY has grown earnings at ~ 7-8% annualized in a declining rate environment. Will this stay moving forward? I don't know, ultimately we'll find out.
There's absolutely no reason to believe that 7-8% growth will continue in the future. Where's it supposed to come from? More customers? They're only bleeding 'em. Higher fees? They did that last time. Bigger share of a crowded market?
Money Smarts Blog wrote: I agree with the previous posters, especially Thalo. {And} Thalo's advice is spot on.
Deal Addict
Jul 23, 2007
4135 posts
2202 upvotes
I never know what's going to happen from one year to the next but what I do know is that if one company falters in paying investors dividend increases there will be others in the portfolio to take it's place, or I'll find something else on the TSX. I always do. Sometimes I may get a little concerned about how a company in our portfolio is operating, but usually the management seems to eventually find a way to improve and turn things around and that's what I expect. The competitive nature of business along with always moving slowly into this unknown future. Something I've dealt with as an investor for the last few decades and I'm still standing.
Member
May 2, 2014
254 posts
55 upvotes
Toronto
i should have read this forum before investing in oceanfront property in Arizona Neutral Face

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