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Craig Lehman

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  • Dividend Growth: Managing Income, Reducing Total Return [View article]
    To recall an old commercial -- "Stop! You're both right!"

    Yes, if you concentrate only on those dividend growth stocks WITH HIGH CURRENT YIELDS, you will probably underform the SPY -- but that isn't what dividend growth investing says. Just contemplate the meaning of the words. Dividend growers can be high yielders with low dividend growth, OR low yielders with high dividend growth -- like, e.g., your THI (or lots of others with their dividend yield printed in red on the CCC list, to indicate a yield less than 2%. Other examples would be ROST, GWW, CVS, and the two newest additions to the Dow, NKE and V.) Overall, the research shows that strong dividend growers ARE strong total return stocks.

    Your emphasis on total return also ignores risk. When dividend growers fail to match the total return of SPY, it is often because they have lower beta. Lower risk is certainly a defensible choice, and nobody has done anything wrong just because they haven't taken on as much risk as you want them to by holding SPY or SDY. There is a dividend growth portfolio for every risk profile, but they won't all produce the same return.
    Mar 5 12:39 PM | 14 Likes Like |Link to Comment
  • Beware Phantom Dividend Cuts [View article]
    Ah, LB, all those brilliant articles on portfolio strategy and CEFs, how can you do this to us?

    Let me grant for the sake of argument that an increase in income for lower-paid workers would be good for the economy. If so, I would suggest, *all* Americans should put something in the pot to achieve the worthy goal. This can easily be done through the tax code, e.g. by increasing the earned income tax credit, or simply instituting a "negative income tax" that sets a floor under everyone's income.

    But why should we finance this worthy objective by singling out the small class of industries that employ low-wage workers (and their customers) to bear the entire burden? Metaphorically, you want to finance your goal by placing a special tax on hamburgers! Not only does this leave high-wage industries and their customers paying less than their fair share toward the worthy goal, it also puts pressure on the low-wage employers to employ fewer of the very people you want to benefit.

    I note in closing that this is the very same tack that has been taken with the ACA. How do we finance the worthy goal of providing health care for all? Why, don't raise tax rates a couple percent on *everyone*, so that we all pull together to achieve the objective! Instead, single out young people, and make them pay extra for insurance that they don't want, and except for catastrophic, don't need. That's fair!

    Now, I can join you in wishing for a Congress that takes its job seriously -- but they could start by redesigning the tax code so that it isn't riddled with these special benefits financed by special taxes that single out narrow groups of businesses and individuals for extra punishment or reward.
    Dec 10 01:10 PM | 14 Likes Like |Link to Comment
  • DIY Dividend Investors Club (Part 1): Is It Possible To Build A Portfolio In This Market? [View article]
    I kinda liked the imagery of a "crap suit."
    Jun 3 11:32 AM | 11 Likes Like |Link to Comment
  • I Love My 'Magic Pants' And My Partners Wear Them Proudly [View article]

    Hear, hear. Excellent comment. I'm going to take this opportunity to mention three pet peeves.

    First, there is nothing wrong with disagreement. It isn't "professional courtesy" not to comment on someone else's article; if you have some financial knowledge, and have a good reason to disagree with something someone says on a financial subject, it would be professional malpractice NOT to comment.

    Second, all this academia-bashing makes me feel like I'm listening to Duck Dynasty, not reading Seeking Alpha. To take an entire profession and contemptuously dismiss anything that someone from that profession might say, simply because of its origin, is unbelievable arrogance. Newton? Einstein? Curie? Salk? Adam Smith? Pay them no mind; they're stupid academics! I'm a former academic myself, and not particularly proud of it, because I think there is a lot wrong with academic priorities, particularly at some of the major public universities. But pretending that anything that comes out of academia (or, horrors, MODERN academia) can be instantaneously dismissed because of its origin, or because academics are sometimes wrong, just like all the rest of us, is the mark of an ignorant fool.

    Finally, let's drop these attempts to portray ourselves as being "logical," a la Mr. Spock on Star Trek. I've *taught* logic, and it's really not very hard to understand what it's about. STATEMENTS are true or false; ARGUMENTS (the subject matter of logic) are valid or invalid, meaning that the truth of the premisses guarantees the truth of the conclusion. Someone who argues that "Congressman Jones believes in free public education; All Communists believe in free public education; Therefore Congressman Jones is a Communist" is being "illogical", i.e. offering an invalid argument, because the truth of the premisses doesn't guarantee the truth of the conclusion. Very few authors here on SA are "illogical" in this sense. What Swedroe and Carneavale both do is make valid arguments containing controversial STATEMENTS. But logic has nothing to do with the question of WHAT statements are true. Swedroe and Carneavale can debate each others' premisses all they want, but neither is being "illogical."

    FWIW, I think Swedroe is technically correct, but that nothing he says shows that dividend growth investing isn't the most practical and efficient way for small investors to practice total return investing. (I offered a comment to this effect on Swedroe's article, but he didn't bother to reply.) I think Alan is correct: both sides are talking past one another here, leavened with a good bit of arrogance and rudeness.
    Mar 20 12:36 PM | 11 Likes Like |Link to Comment
  • The Numbers Are In! [View article]
    Given that an average 75% per year of actively-managed mutual funds fail to outperform a simple S & P index fund, I think there is a *very good* chance INZ can outperform a mutual fund manager. Doctors performing appendectomies have a lot better track record than portfolio managers, because the steps for successfully performing this surgery are well-understood, and involve far fewer variables than stock-picking. So are the steps for managing a dividend-growth portfolio.
    Jul 5 12:46 PM | 8 Likes Like |Link to Comment
  • The 3% Yield Club: 25 Non-REIT, Non-MLP Dividend Stocks Yielding Over 3% (Part 1) [View article]
    As you build these 20- or 25-stock lists (3% Yield Club, DIY Investors Club, The All-Aristocrat Team, the All-Defensive Team, The Dividend Growth All-Stars, etc, etc) there seems to be an awful lot of overlap. It's also hard to get an overall impression of any one list, or compare it to another, because they are always dribbled out in these 5-stock articles, evidently designed to increase page views. I would appreciate something fresh.
    Jul 4 11:17 AM | 8 Likes Like |Link to Comment
  • Retirement Strategy: My 'Buy The Dips Portfolio': When To Add, When To Sell, And My Ultimate Format [View article]
    Oh, hell, "who knows" is not an answer. There are some stocks in our family that have been owned for more than 50 years and have a post-split cost basis in the single digits. Over that time, they've risen at least several hundred percent. Presumably your "rules" would exclude cases like that -- which means that you *need* a time parameter. 100% in 6 months is one thing, 100% in 600 months is clearly quite another. Otherwise your rules are either completely vacuous, or mechanically recommend selling shares stocks which have risen steadily over the years without getting ahead of themselves or getting out of proportion in a portfolio.

    Obviously, you spun out your rules without thinking them through, figuring that condescension was an adequate response to any question about their utter vagueness. It's not an approach for which I have high "regard."
    Jun 3 08:57 PM | 8 Likes Like |Link to Comment
  • Will The Allure Of Dividend Growth Continue? [View article]
    "In a nutshell: Dividend growth stocks remain what they always have been--investments for oldsters."


    I beg to differ, although I am a borderline oldster.

    If your objective is to *live on* dividend income from relatively high-yielding DG stocks, then yes, the strategy is for oldsters. But to my mind, an equally important feature of DG stocks is that consistent dividend growth -- regardless of the percentage yield -- is one of the best predictors you can find of price appreciation and total return. This point has probably been best articulated by SA contributor Rising Dividend Investing (Greg Donaldson); see e.g. Donaldson has commented to me in correspondence that some his firm's very best selections have been quite low yielders with strong and steady dividend growth (think of the names on the CCC list whose less-than-2% yields are printed in red.)

    Now, some of the "Growthers" will yell and scream about heresy, but to me, the words "Dividend Growth" mean exactly what they say, no more and no less. For example, in a reply to my comment on a recent article of yours, you indicated your pleasure with last year's performance by VF Corp, a less-than-2% yielder, but a 41-year dividend champion and a *very strong* dividend grower. Seems to me that VFC is a fine DG stock for both youngsters, and oldsters who are willing to derive some discretionary income from harvesting capital gains. You just can't read "DG" as meaning "higher-yielding DG." In my view, a proper DG portfolio participates in all parts of the yield spectrum, and simply tilts average yield up or down depending on age.

    My kudos to Adam for this and his previous article on constructive critical analysis of DG investing.
    Feb 15 08:18 PM | 8 Likes Like |Link to Comment
  • Is It [Low D]? [View article]
    What do I do if my excitement over receiving a dividend check lasts more than four hours?
    Dec 18 12:42 PM | 8 Likes Like |Link to Comment
  • Retiree: What Role Should High Yield Play In A Distribution Stage Portfolio? [View article]
    My approach to retirement investing is defense first. Given that perspective (which others may not share), I ask the following questions:

    1) How much yearly income do I need from my portfolio to live at a level of comfort that I find minimally acceptable? Call this amount N.

    2) What is the lowest-risk way to generate N? (For the purposes of this discussion, let’s fictionally limit the universe of possible sources of income to stocks.)

    3) Do I have the assets to implement this method?

    If the answer to question 3 is Yes, then it seems obvious (again, to me, as a defense-first investor) that what I want to do is start with a list of income-producing stocks, order them from least to most risky, and choose a suitably diversified group of stocks from the top of the list. Of course, such an ordering can’t be completely precise, and will depend on my definition of risk, but it seems clear that dividend champions or contenders with a moderate payout ratio will dominate the top of this list. Probably many of them will be utilities or consumer staples companies. Probably the average yield of this list will be in the 2.5-to-4% range, perhaps slightly more, in the current economic environment. Call this the core defensive portfolio.

    But what if the answer to question 3 is No? Then, it seems to me, I return to question 2, determine the next least risky way to generate N, and check the answer to question 3 again. Only if I have to repeat this process many times before being able to answer Yes will my core defensive portfolio contain many high-yield stocks. Of course, as Adam Aloisi, Clanson, and others correctly point out, not all high-yielding stocks are risky in proportion to their yield. But few if any of “the usual suspects” (we all know who we’re talking about here) will be part of the core defensive portfolio.

    Now, after the core defensive portfolio is established, I’m willing to consider almost anything for my “gravy” portfolio, though a discussion of this topic is beyond the scope of this comment. But it seems to me that these discussions of high-yielding stocks often take place in a vacuum. People seldom specify whether their recommendations are for the core portfolio or the gravy portfolio (supposing they accept that distinction.)

    So, Bob, my questions are: Do you accept the conceptual scheme of putting a core defensive portfolio first? If so, do you, roughly speaking, rank your selections by risk? Were the stocks you mentioned implicitly for a core portfolio, or for gravy? If the former, yours is indeed a cautionary tale. If the latter, I don’t think your selections were all entirely unreasonable.
    Dec 1 02:13 PM | 8 Likes Like |Link to Comment
  • Why I'm Selling Microsoft [View article]
    >First, the company's share price has risen astronomically. In just the last 5 months, for example, shares of Microsoft (MSFT) are up almost 35%. Has the company's value increased commensurate with its price rise? It would be difficult to argue that it has.<

    35% [about $8] is "astronomical"? What if it was undervalued to begin with? Absent any attempt to independently determine fair value -- let alone discuss MSFT's other business lines besides Windows and Office -- it's pretty much idle speculation.
    May 28 02:16 PM | 8 Likes Like |Link to Comment
  • New Web TV May Boost Intel In The Long Term [View article]
    "Intel is currently trading at price multiples that are not reasonable for profitable investing."

    Intel currently trades at a historically very low multiple, i.e. around 9. Is the author saying it should be even lower? Generally speaking, it's when stocks trade at very HIGH multiples that they're "not reasonable for profitable investing." I can't make any sense of this remark.
    Jan 6 03:42 AM | 8 Likes Like |Link to Comment
  • You Are Responsible For Your Investing Decisions [View article]
    While I completely agree with the thrust of this essay (and appreciate the many fine comments people have made before I woke up, on the west coast), I do think the idea that you can be 100% sure that you know ALL relevant facts about an investment, and then invest ONLY in such opportunities, is a bit of an idealization. Even the most conscientious DD is going to miss something from time to time. And, on the other hand, when you are talking about an "analyzed to death" company like JNJ, which generates multiple articles almost every day here on SA, the likelihood of hours of your own DD turning up something new is virtually nil.

    And so, I think the best way to bridge the gap between the impossible ideal of perfect due diligence and what can be expected of an independent individual investor is to limit risk through 1) broad diversification (I would say 50 or so stocks) and 2) gradual buy-in before taking a full position. One thing I notice about myself, and I bet it is true of most people, is that I NEVER know as much about a company before I buy it as do after I start accumulating it. That being the case -- plus the fact that I know that I am sometimes a little careless and will probably never get over it -- I am not going to worry about slightly imperfect DD, or hold myself to doing more than a couple hours of research before I take an initial position.

    And of course, all this is easy to say after 40 years or so of experience in the stock market. Of course I'm a lot better at it now (and since discovering SA and DGI) than I was before. But I see no way to get from there to here without having consciously acted on the basis of imperfect DD and learned from experience.
    Jul 3 11:53 AM | 7 Likes Like |Link to Comment
  • Retirement Strategy: The Active Manager Takes Action, While The Passive Manager Remains Passive [View article]
    "Why should we sit with it [GM] and concern ourselves? We already own Ford (F) and we just do not need the headache. "

    Why on earth did a portfolio with only 14 positions own two US auto stocks in the first place?
    Apr 6 11:34 AM | 7 Likes Like |Link to Comment
  • How One Retiree Is Muddling Through Dividend Investing: Part VIII - A Year Later [View article]
    Hi Martin,

    I agree with DVK's characterization of your RTN as "a legacy holding determined by emotion", but I don't see that as a sufficient reason to sweep the issue under the rug. Way-outsized holdings are *dangerous.* Suppose RTN suffered a BP-type calamity; would you really want to see the value of an asset that amounts to nearly 20% of your portfolio cut in half? It's by far the biggest issue in your holdings; REIT positions that amount to <1% of your portfolio are hardly worth worrying about by comparison. Seems to me that RTN is where you *have* to force yourself to start, whether or not it's emotionally agreeable. RTN is a fine company; but so are most of the other 500 companies on the CCC list.

    I have dealt, and am still dealing with, similar legacy issues in the family portfolios I manage. My solution is to sell off a little each year, sort of dollar-cost-averaging in reverse. In this way you harvest some profits while still minimizing capital gains taxation in any given year. These positions may never come down to average size, but every little bit sold reduces the risk involved. E.g., if you got your RTN position down to only 2/3rds of what it is, you would still own a good chunk of it while raising cash that could be used for diversification. And that would be significant progress.

    Other random thoughts: 1) 3.59% of the portfolio in utilities still seems like a pretty low allocation in a defensive, income-oriented portfolio. 2) If you are thinking in terms of sector allocation, telecoms like T, VOD, VZ are really a very different kettle of fish than techs like CA and INTC (see the S & P list of sectors.) You don't break out a percentage allocation of the individual positions in this area, but there are certainly other good-yielding opportunities in "old tech" besides INTC. 3) Again on the issue of sector diversification, have you considered any Canadian banks? They yield around 4% and as a group are far less risky than their US counterparts; see e.g. [and many other fine articles by Bob Johnson on defensive/income portfolios.] By filing form 1116, you pay no more tax on Canadian dividends than you do on US companies -- as opposed to the 25% you are paying on Total. 4) Yet again on the issue of sector diversification, there are so many excellent, good-yielding buys in energy these days that a 4.4% allocation in an income portfolio seems a little low.

    In short, of your four closing bullet points, I agree with Bob Wells that the REIT allocation, spread over 10 companies, doesn't see outrageously high for an income portfolio. I would say that trimming around the edges with positions that represent <1% of your portfolio isn't that important one way or the other, and the same would go with your BDCs. BDCs scare me, but 2 or 3% allocated to the solidest (see and articles by BDC Buzz) doesn't seem like an outrageous gamble. I don't hold bonds and have no intelligent opinion on munis. And your final objective, spreading out into more DG stocks while keeping a close eye on sector allocation, seems exactly right.
    Mar 22 02:03 PM | 7 Likes Like |Link to Comment