How Can One Trade Be Both Good For Me And Bad For Me? [View article]
Robert,
What happened? You have come across as the most logical, orderly thinker of practically all of us. You've pissed off DG critics, based on the rail-straight direction and steadfastness of your comments. Your single-mindedness of purpose drove them nuts. And now you are fretting over trading?
Maybe it's a mid-life crisis thing. I'd call it a 7-year itch, but I don't think you've been dividend growth investing for 7 years.
Maybe you should split your portfolio into a couple of separate ones. In one, you can be the straight-arrow dividend growth investor. In the new second one, you can satisfy your trading jones. Chocolate one day, vanilla the next, then back to chocolate. You can track Spain, analyze unemploymnet trends, watch CNBC, and have a ball. Just recognize it for what it is!
It's a beautiful day today, go outside and soak in some sun. The market will open on Monday just like always.
How Can One Trade Be Both Good For Me And Bad For Me? [View article]
Hi, I'm going to harp on goals again. Tim's comment is excellent, but the undefined references to margins of safety leave me uneasy. Just as I get uncomfortable with MPT's narrow-minded definition of "risk," I am uncomfortable with a narrow definition of "margin of safety." The issue is safety to what?
I realize that the term originated with (or was popularized by) Benjamin Graham, and that he was talking only in terms of prices. But the term can also be applied to dividends. Remember the Dividends in Danger series? Some dividends simply are not as reliable or predictable as others. I am not saying that IBM's dividend is necessarily unsafe (I don't know, I have not researched IBM), but as you point out in the article, IBM is unlikely to maintain its high DGR indefinitely. So its DGR is unsafe. It is risky to build an investment decision around an unlikely future of constantly high dividend increases.
Just trying to broaden the thinking here. As I said earlier, I would view the trades through the lenses of your own goals, and hopefully your goals have a timeframe established for them.
How Can One Trade Be Both Good For Me And Bad For Me? [View article]
Robert,
I've been wondering where to jump in with a comment, so I picked here. First of all thanks for writing a great, clear article that presents different lenses to view the same trade.
The reason I jumped in here is because of this statement you made above: "I want IBM." To me, that's the key issue: Why did you want IBM so bad?
Did you foresee great capital gains? Want to participate in a higher DGR (even at the expense of lower yield)? Do you just admire the company? Think it has tremendous growth prosects?
I'm thinking the "why" tells you how to evaluate the trade. Knowing the why helps you answer the question whether the trade advanced your own goal(s).
Remember the hierarchy of goals, objectives, strategies, and tactics? Making the trade was a tactic. Look above that particular transaction to determine whether it fit your strategy(ies), and ultimately whether it figures to advance your goals.
Chowder's rule about making no trades unless they immediately advance the income stream: You said that was a "good rule." Why? It may be a good rule for chowder, but is it a good rule for you? Again, you will need to examine your goals and strategies to answer that question. Maybe your goals are built around where you want to be 15-20 years from now, and an immediate decrease in income makes sense for you if it will put you closer to your 20-year goal 20 years from now. Only you can answer that question.
That said, I've never made a trade that did not conform to chowder's rule. But that's me, not you.
In the past year or two, there seems to have been an increasing emphasis on high DGRs in preference to current yield. This is not a moral question; there is no right or wrong. But there is mathematics. Assuming a DG stock does not decrease its dividend, a higher current yield is locked in; it's the lowest yield on cost that you will ever get on that stock. For myself, I'd rather have that number be higher. I'd rather lock in a 4% minimum yield on cost than a 2% minimum yield on cost.
The math continues, of course, when you figure in DGRs. Here's the thing though. While your initial yield is locked in, future DGRs are unknowable. They are about as speculative as prices. We can all make educated guesses, but in the end, they are guesses.
I guess that's why I tend, all else equal, to go for the higher initial yield when making my selections, and why I observe a minimum yield for any purchase (that has varied between 2.5% and 3.0% since I have been doing this).
As always, best of luck. It will all work out in the end.
James Altucher: Why The Stock Market Is A Sucker's Game Right Now (And What Stocks I Own) [View article]
I'm reading. This strategy is totally different. I have nothing of substance to add.
Whether the market is rigged or not makes little difference when you are investing for income from dividends. The market does not determine dividends, the companies themselves do. You can still find stocks that are undervalued, purchase them, monitor them, and collect the dividends over long periods of time. Capital gains seem to happen too. I'm not trying to out-trade professional traders or HFT algorithms.
The next time you make an insightful comment about dividend investing, let me know. I think it will be your first. By the way, name calling ("zealots") went out of style some time ago. Perhaps you did not get the memo.
James Altucher: Why The Stock Market Is A Sucker's Game Right Now (And What Stocks I Own) [View article]
>>"However, the management understands better than any one about the value of the company. They buy back due to a good value with respect to how to use the company's cash such as giving dividends, plowing back to research/development... They also in theory consider the total return of the investor (tax rates...)."<<
Well, that may be the ideal case. Probably 1 in 10 buybacks comes close to that model. Many are made at overvalued prices, destroying shareholder value in the process.
The Buyback Kings, Part 2: Is Wal-Mart A Smart Shopper When It Repurchases Shares? [View article]
No, it could be a combination. The dividend pool may grow too. Say the company increases its earnings by 8%. Then if it keeps the same payout ratio, its dividend per share would also increase by 8%. If at the same time, the company repurchases shares, that same dividend pool combined with the share buyback might increase the dividend per share by 10% compared to the year before. There are several moving parts. Dave
The Buyback Kings, Part 2: Is Wal-Mart A Smart Shopper When It Repurchases Shares? [View article]
>>"I will also calculate dividend expense saved for dividend-paying companies to show how much more money the company will have to reinvest as a result of the buybacks, and calculate it as follows: (Estimated Shares to Be Bought Back * Annual Dividends Per Share)"<<
I think it is vewry good for you to examine the efficiency of buybacks. Thank you.
I do have trouble with the quoted calculation. It seems to presume that if shares were not bought back, the company would pay the same dividend pewr share on all shares outstanding. I have seen versions of this same point in some other articles.
That does not seem like a warranted assumption. It is far more likely that the company (WMT in this instance) creates a total dividend pool. Then the dividend per share payout is determined by divideing the total in that pool by the number of shares outstanding. This seems far more likely than the company determining how much it is going to pay out per share, then multiplying by the number of shares outstanding to determine the total payout pool.
Actually my guess is that the company keeps its eyes on several targets at once - payout per share, payout ratio, total dividend pool,total repurchase pool, percentage increase in dividend per share - a arrives at a blended result for all of them taken together.
Not All Dividend Increases Are The Same: 2 Dividend Trends That Can Make A Difference [View article]
>>"Management is more concerned with meeting their qtrly earnings targets and their bonuses/stock options than consistently paying out increased yearly dividends."<<
Good managements are concerned with every metric of corporate success. There are >400 companies that have increased their dividends every year for 5 years or more, and >100 of them have done it for 25 years or more.
You can't paint every company with such a broad brush. If you are not willing to look at companies individually and anaylze them one at a time, dividend growth investing is probably not for you.
Not All Dividend Increases Are The Same: 2 Dividend Trends That Can Make A Difference [View article]
Yes: Long PEP. If their rate of dividend growth continues downward for a few more years, say to 2-3% per year, I would consider selling it for that. I did sell some earlier this year to lighten up its proportion in my portfolio. At 6% growth, it is well ahead of the rate of inflation. Dave
Many Of My Dividend Growth Stocks Have Become Overvalued, What Do I Do Now? [View article]
Robert, The DGI club is open to all, even you. Selling or trimming an overvalued stock Is SOP for many of us, although usually the outcome is an immediate increase in the dividend stream, not a decrease. Whatever. If you "improved" your portfolio (you are the judge), you done good. Have a Kool-Aid and some fried Spam. Dave
Many Of My Dividend Growth Stocks Have Become Overvalued, What Do I Do Now? [View article]
Chuck, it seems appropriate here to reiterate the difference between timing the market and "timing" a good entry point (or exit point) for a particular stock. The difference goes back to looking at each stock individually rather than in groups, which can obscure single-stock opportunities. Valuation becomes key when looking at individual stocks. Dave
Many Of My Dividend Growth Stocks Have Become Overvalued, What Do I Do Now? [View article]
Chowder, That's a good use of Value Line, although I confess that I do not know how they calculate or determine their safety rating. "Safety" of what, do you know? Possibly related, do you think the agencies' rating of credit-worthiness is transferable to equities? Dave
Many Of My Dividend Growth Stocks Have Become Overvalued, What Do I Do Now? [View article]
Robert and Mike, I think you should combine your principles: When you get the urge to sell, exercise instead. Both your portfolio and your body will be better off. And after you exercise, your mind will be clearer. Dave
How Can One Trade Be Both Good For Me And Bad For Me? [View article]
What happened? You have come across as the most logical, orderly thinker of practically all of us. You've pissed off DG critics, based on the rail-straight direction and steadfastness of your comments. Your single-mindedness of purpose drove them nuts. And now you are fretting over trading?
Maybe it's a mid-life crisis thing. I'd call it a 7-year itch, but I don't think you've been dividend growth investing for 7 years.
Maybe you should split your portfolio into a couple of separate ones. In one, you can be the straight-arrow dividend growth investor. In the new second one, you can satisfy your trading jones. Chocolate one day, vanilla the next, then back to chocolate. You can track Spain, analyze unemploymnet trends, watch CNBC, and have a ball. Just recognize it for what it is!
It's a beautiful day today, go outside and soak in some sun. The market will open on Monday just like always.
Dave
How Can One Trade Be Both Good For Me And Bad For Me? [View article]
I realize that the term originated with (or was popularized by) Benjamin Graham, and that he was talking only in terms of prices. But the term can also be applied to dividends. Remember the Dividends in Danger series? Some dividends simply are not as reliable or predictable as others. I am not saying that IBM's dividend is necessarily unsafe (I don't know, I have not researched IBM), but as you point out in the article, IBM is unlikely to maintain its high DGR indefinitely. So its DGR is unsafe. It is risky to build an investment decision around an unlikely future of constantly high dividend increases.
Just trying to broaden the thinking here. As I said earlier, I would view the trades through the lenses of your own goals, and hopefully your goals have a timeframe established for them.
Dave
How Can One Trade Be Both Good For Me And Bad For Me? [View article]
I've been wondering where to jump in with a comment, so I picked here. First of all thanks for writing a great, clear article that presents different lenses to view the same trade.
The reason I jumped in here is because of this statement you made above: "I want IBM." To me, that's the key issue: Why did you want IBM so bad?
Did you foresee great capital gains? Want to participate in a higher DGR (even at the expense of lower yield)? Do you just admire the company? Think it has tremendous growth prosects?
I'm thinking the "why" tells you how to evaluate the trade. Knowing the why helps you answer the question whether the trade advanced your own goal(s).
Remember the hierarchy of goals, objectives, strategies, and tactics? Making the trade was a tactic. Look above that particular transaction to determine whether it fit your strategy(ies), and ultimately whether it figures to advance your goals.
Chowder's rule about making no trades unless they immediately advance the income stream: You said that was a "good rule." Why? It may be a good rule for chowder, but is it a good rule for you? Again, you will need to examine your goals and strategies to answer that question. Maybe your goals are built around where you want to be 15-20 years from now, and an immediate decrease in income makes sense for you if it will put you closer to your 20-year goal 20 years from now. Only you can answer that question.
That said, I've never made a trade that did not conform to chowder's rule. But that's me, not you.
In the past year or two, there seems to have been an increasing emphasis on high DGRs in preference to current yield. This is not a moral question; there is no right or wrong. But there is mathematics. Assuming a DG stock does not decrease its dividend, a higher current yield is locked in; it's the lowest yield on cost that you will ever get on that stock. For myself, I'd rather have that number be higher. I'd rather lock in a 4% minimum yield on cost than a 2% minimum yield on cost.
The math continues, of course, when you figure in DGRs. Here's the thing though. While your initial yield is locked in, future DGRs are unknowable. They are about as speculative as prices. We can all make educated guesses, but in the end, they are guesses.
I guess that's why I tend, all else equal, to go for the higher initial yield when making my selections, and why I observe a minimum yield for any purchase (that has varied between 2.5% and 3.0% since I have been doing this).
As always, best of luck. It will all work out in the end.
Dave
James Altucher: Why The Stock Market Is A Sucker's Game Right Now (And What Stocks I Own) [View article]
Whether the market is rigged or not makes little difference when you are investing for income from dividends. The market does not determine dividends, the companies themselves do. You can still find stocks that are undervalued, purchase them, monitor them, and collect the dividends over long periods of time. Capital gains seem to happen too. I'm not trying to out-trade professional traders or HFT algorithms.
The next time you make an insightful comment about dividend investing, let me know. I think it will be your first. By the way, name calling ("zealots") went out of style some time ago. Perhaps you did not get the memo.
Dave
James Altucher: Why The Stock Market Is A Sucker's Game Right Now (And What Stocks I Own) [View article]
Well, that may be the ideal case. Probably 1 in 10 buybacks comes close to that model. Many are made at overvalued prices, destroying shareholder value in the process.
Dave
The Buyback Kings, Part 2: Is Wal-Mart A Smart Shopper When It Repurchases Shares? [View article]
Dave
The Buyback Kings, Part 2: Is Wal-Mart A Smart Shopper When It Repurchases Shares? [View article]
(Estimated Shares to Be Bought Back * Annual Dividends Per Share)"<<
I think it is vewry good for you to examine the efficiency of buybacks. Thank you.
I do have trouble with the quoted calculation. It seems to presume that if shares were not bought back, the company would pay the same dividend pewr share on all shares outstanding. I have seen versions of this same point in some other articles.
That does not seem like a warranted assumption. It is far more likely that the company (WMT in this instance) creates a total dividend pool. Then the dividend per share payout is determined by divideing the total in that pool by the number of shares outstanding. This seems far more likely than the company determining how much it is going to pay out per share, then multiplying by the number of shares outstanding to determine the total payout pool.
Actually my guess is that the company keeps its eyes on several targets at once - payout per share, payout ratio, total dividend pool,total repurchase pool, percentage increase in dividend per share - a arrives at a blended result for all of them taken together.
Dave
Not All Dividend Increases Are The Same: 2 Dividend Trends That Can Make A Difference [View article]
Good managements are concerned with every metric of corporate success. There are >400 companies that have increased their dividends every year for 5 years or more, and >100 of them have done it for 25 years or more.
You can't paint every company with such a broad brush. If you are not willing to look at companies individually and anaylze them one at a time, dividend growth investing is probably not for you.
Dave
Not All Dividend Increases Are The Same: 2 Dividend Trends That Can Make A Difference [View article]
Dave
Not All Dividend Increases Are The Same: 2 Dividend Trends That Can Make A Difference [View article]
Dave
Many Of My Dividend Growth Stocks Have Become Overvalued, What Do I Do Now? [View article]
Dave
Damn, I'm getting pretty good with this iPad.
Many Of My Dividend Growth Stocks Have Become Overvalued, What Do I Do Now? [View article]
Dave
Many Of My Dividend Growth Stocks Have Become Overvalued, What Do I Do Now? [View article]
Dave
Many Of My Dividend Growth Stocks Have Become Overvalued, What Do I Do Now? [View article]
Dave
Many Of My Dividend Growth Stocks Have Become Overvalued, What Do I Do Now? [View article]
Dave