How To Deal With Overvaluation Of A DGI Holding [View article]
I also have same line of thoughts some times. For example, PM has raised 35% this year. Should one sell bcoz that's equivalent to 3-4 years of average market return so move to something cheaper? This is always a hard decision and this is where discipline comes to play.
Personally myself, if presented an option of 35% gain I would take it and look for other DGI candidate thats undervalued according top FAST graphs.
In Canada, no withholding for US dividends in retirement account (RRSP only, not TFSA). But dividends in regular account has a 15% withholding, but can be claimed back by filing foreign tax credit. It might be the same in US for Canadian stocks.
No Capital gains tax withheld by IRA for US securities traded by someone in Canada. Just Canadian CG taxes. might be same other way around.
The Rational Case For Dividend Growth Investing (Part 1) [View article]
Investing in dividend paying stocks is widely practised in Canada as well. Main reason is the favourable taxing (only for dividends paid by Canadian enterprises) . For low to middle income earners, the rate is close to zero. And in some provinces (eg. British Columbia) low income earners get more money back from government than they pay bcoz of the way dividend is taxed. Most provinces have recently changed their tax policy in recent years to make sure they don't pay the citizens more than they pay in taxes. Still the rates are super low compared to US.
Here are some rates for Comparison for Alberta (where I live) and BC: Wages--------------Tax Rate Alberta first $42,707------(-0.03%) up to $85,414------( 9.63%)
BC first $37,013------(-6.84%) up to $42,707------(-3.2%) up to $74,028 -----(6.46%)
The rates creep up as the wages go up. In BC for wages over $132,406, the rate is 25.78%.
I am okay with this set up. I am okay with even the changes proposed by Obama for higher dividend taxes for high wage earners. (not starting a controversy, just my opinion).
In retirement if the current rates prevail a couple each getting 20K/yr in dividend and 10k/yr from RRSP (like 401K) pretty much pays no tax. That is 60k a year tax free living. Not bad. This is not including the in CPP (social security) payments and withdrawals from TFSA (Roth IRA equivalent)
This is why I am sticking to DGI style. Someday when i retire, hopefully tax rates don't change much, I will be able to live with my dividend income paying virtually no tax.
Dividends Vs. Buybacks: Putting The Debate To Bed [View article]
In a recent study by ME, I find that dividend policy suits an investor like me than share buy back.
Like DVK's strategy, I would collect the accumulated dividends till they reach a certain threshold (say $1000) and invest in one of the DG shares. This is like share buy back by the investor (in the sense that the total money invested in a certain share goes up albeit at the expense of more shares).
The best part about this strategy is that the investor can buy back shares of a company with good valuation unlike company share buybacks which mostly happens when the share has run up in price.
Growing Dividends And Getting Richer With Colgate-Palmolive [View article]
mdpath : You write this glowing article about CL but you don't even own it or plan to take a position. Weird, really weird.
Warren Buffett says Index funds are better for most investors. Do we complain he doesn't know what he is talking about since he doesn't own index funds?
The article is well written about a great company that many DG investors would love to get in at a good price point. He is a college student who seems to have a great grasps of important things (investing) than most I have seen. I have taught at University in USA for 10 years and average kid cant get simple math right. Tim is one of the very few who understands DGI this early in life and its going to reward him.
Dividend Growth Vs. Fixed Income Challenge: Can You Grow Dividends On Fixed Income? [View article]
Great article 5+
I also liked your previous article "Navigating the Wild, Wonderful World of Canadian Corporations (Formerly Trusts)" Since I live in Canada now it was really useful. But unfortunately when I lived in the US (till 2010) I did not focus on dividend growth stocks. Now I learnt about it, I try to find the same strategy for Canadian stocks but very few with a long track of dividend increases.
Your point here is a good eye opener for hard core income investors. May be they are comfortable going that route but good to know the cons in that strategy and adjust a little to make their portfolio return to beat dreaded inflation.
One thing that stumped me in the first spreadsheet :
You invested equal $ in both common and preferred. They gave out diff dividend $ each year. You tried to reinvest part of the div from pref to keep up with the increase in dividend from common shares. I get that.
But shouldn't the amount reinvested = (total pref Div$ - total common Div $).
That way one gets same income every year from both cases.
Eg: 2007 : Dividends from Pref = $3,587.94 Dividends from common = $1,487.48
So to keep the income same, the pref investor would keep $1,487.48 and reinvest the rest.
But again, even this is true for short term (few years). Over a long horizon the DGI (with healthy Div growth) will beat the fixed income handily. Not to mention the coomon shares price increase, which should happen for growing dividends.
I might be missing something more profound. May be you or others ( DVK, Fish, Corsetti) could let me know what I am missing.
Thanks for the great article. I am looking to park some cash in preferreds and this gives me some perspective.
The strategy is a great one if a person is well aware of options trading. I myself utilize both naked puts and covered calls, but one needs to know their limitations regarding emotions.
I will never touch a stock like GM myself, let alone options.
I do not mind if my stock gets called away at the price I sold the CC for. But not the case for everyone. Similarly, selling NP can be dangerous. I always sell on the stock I want to own so its a great, but very underutilized, strategy.
Great article for someone who is not using options to boost returns. But do not jump right away selling options, try to do paper trade and understand the way options work. If done with discipline, options are great to boost the returns, even when one is conservative.
Bank Of Montreal: Go North Of The Border For This 5% Yielder [View article]
great stock. Also Bank of Nova Scotia (BNS) is also a great investment. BNS has a better play in latin america. With the population growth and emerging middle class, its a great play.
Being in Canada, its awesome to own div paying stocks. Super low tax rate for average Canadian income.
Both are good yield play, although BMO has better yield right now.
And the canadian banks did not cut their dividend during the crisis which is a good sign. Wish I bought them then, yield was north of 8% .
The Rational Case For Dividend Growth Investing (Part 2) [View article]
Koyunbaba, its great to see you find DGI strategy after your investments went south. Some people just give up on the market.
I remember in 2006 I was visiting my friends parents for Thanksgiving . It was actually a small town near Joplin, MO. One of my friends buddy, who works in local construction, was saying about 5k he lost in a stock he invested based on a tip from his broker. He actually put 2k more after the initial 3k when the stock went south. Had no idea what that company he invested was doing. Based on that experience he was saying how he will never go back to investing. A couple of his friends were agreeing with him. It was neither my place nor I was as savy as now to explain him about investing in DG stocks.
I see how people lose money and some never return to invest bcoz of bad experience, particularly with brokers.
Which Is Better, Initial High Yield Or Accelerated Dividend Growth? [View article]
DVK, I think the "Return = Y+ DG" comes from Gordon Growth Model. http://bit.ly/t0y6PR
It is also used in several books. Although it is widely recognized, i tried to set up spreadsheet to test it but do not get the same results as the formula.
But what works definitely is a good Yield + healthy DGR.
Dividend Investing And 'Payback': Why It Pays To Watch Closely [View article]
Rodger,
I also like a stock to stay flat and go up in price after many years. That way I accumulate more through DRIP. That's why I am not interested in XOM right now. Every Div$ I get buys only very few stocks bcoz the price has gone up so much.
you said: Give me a growing yield and stagnant stock price any day!
What I was trying to say is, if we have a stock at 3% yield and 3% DG and we use the income for retirement then the raise in dividend is just matching inflation and does not increase your purchasing power. What if the inflation spiked to 4%. The owner has to cut down expenses bcoz his monthly paycheck from that stock buys him less than 10 years ago.
I would like a growing yield above inflation rate and not just any growing yield.
This is why I like companies like KO, PG, JNJ etc... I am happy with an average of 7% growth. Any higher dividend growth is a bonus.
This is the best thing I learnt in the last few months after reading "Single Best investment" and couple of article in SA. I never looked at PG, JNJ, KO before. Before, when i saw JNJ chart all i could think was a paltry yield (~3 - 3.5%) and the stock goes up and down but stayed in the same price range in 10 years.
Now when i see the market drop, i am drooling for these stocks to buy them at a good yield of 3.5 -4%. And the best part is, now I want my stocks to stay in same price range or don't mind going lower bcoz I can accumulate more. I finally realized that eventually, with my time horizon, the price will go up since earnings and raw Div $ go up.
Its one thing to know how compounding works but a completely an eye opener to realize its true value.
Alright, time to get ready for football Saturday. First Northwestern at Nebraska & of course LSU-Bama later.
How To Deal With Overvaluation Of A DGI Holding [View article]
if you are really confused about whether to sell MCD bcoz you have profit then you can use the covered call option or even simple sell half and wait. If it goes up the remaining half gained more. If it goes down buy the same amount you sold and decrease your cost basis. I would go with the second option since covered calls, or options in general, are not yielding very good since volatility is low. For some one selling options we want more volatility which boost the option premium.
How To Deal With Overvaluation Of A DGI Holding [View article]
RAS, i stopped putting much thought into the after buying/ selling process. Now i learnt to be happy with my buys or sells after I started DGI process. I cannot be time it right all the time but I have learnt that I don't have to. Just buy solid companies at good valuation, not necessarily at the cheapest level and have discipline to sit back and let it compound.
How To Deal With Overvaluation Of A DGI Holding [View article]
I like the idea of trimming except I don't have very many stocks to do that. with my capital I buy max 200 shares and hence sell 2 option contracts. Trimming is good when you use covered call. Sell CC option for half the shares you have, if called away sell naked puts. If executed you end up with same shares you started with may be with a lower cost basis.
How To Deal With Overvaluation Of A DGI Holding [View article]
Personally myself, if presented an option of 35% gain I would take it and look for other DGI candidate thats undervalued according top FAST graphs.
Warren Buffett's Fundamental Strategies For Investment Success [View article]
I know. he kept a whopping 1% of his wealth to himself and pledged only 99% of his billions of $ for charity.
why don't you donate at least 0.01% more of your wealth than he did and then talk about the oracle.
after all, you can make it up with your AAPL in future.
The Rational Case For Dividend Growth Investing (Part 1) [View article]
But no withholding in retirement accounts.
In Canada, no withholding for US dividends in retirement account (RRSP only, not TFSA). But dividends in regular account has a 15% withholding, but can be claimed back by filing foreign tax credit. It might be the same in US for Canadian stocks.
No Capital gains tax withheld by IRA for US securities traded by someone in Canada. Just Canadian CG taxes. might be same other way around.
The Rational Case For Dividend Growth Investing (Part 1) [View article]
Here are some rates for Comparison for Alberta (where I live) and BC:
Wages--------------Tax Rate
Alberta
first $42,707------(-0.03%)
up to $85,414------( 9.63%)
BC
first $37,013------(-6.84%)
up to $42,707------(-3.2%)
up to $74,028 -----(6.46%)
The rates creep up as the wages go up. In BC for wages over $132,406, the rate is 25.78%.
I am okay with this set up. I am okay with even the changes proposed by Obama for higher dividend taxes for high wage earners. (not starting a controversy, just my opinion).
In retirement if the current rates prevail a couple each getting 20K/yr in dividend and 10k/yr from RRSP (like 401K) pretty much pays no tax. That is 60k a year tax free living. Not bad. This is not including the in CPP (social security) payments and withdrawals from TFSA (Roth IRA equivalent)
This is why I am sticking to DGI style. Someday when i retire, hopefully tax rates don't change much, I will be able to live with my dividend income paying virtually no tax.
Dividends Vs. Buybacks: Putting The Debate To Bed [View article]
Like DVK's strategy, I would collect the accumulated dividends till they reach a certain threshold (say $1000) and invest in one of the DG shares. This is like share buy back by the investor (in the sense that the total money invested in a certain share goes up albeit at the expense of more shares).
The best part about this strategy is that the investor can buy back shares of a company with good valuation unlike company share buybacks which mostly happens when the share has run up in price.
Growing Dividends And Getting Richer With Colgate-Palmolive [View article]
Warren Buffett says Index funds are better for most investors. Do we complain he doesn't know what he is talking about since he doesn't own index funds?
The article is well written about a great company that many DG investors would love to get in at a good price point. He is a college student who seems to have a great grasps of important things (investing) than most I have seen. I have taught at University in USA for 10 years and average kid cant get simple math right. Tim is one of the very few who understands DGI this early in life and its going to reward him.
I am waiting for a good entry point for CL.
Here is a good analysis of CL by Chuck Carnevale
http://seekingalpha.co...
Dividend Growth Vs. Fixed Income Challenge: Can You Grow Dividends On Fixed Income? [View article]
I also liked your previous article "Navigating the Wild, Wonderful World of Canadian Corporations (Formerly Trusts)" Since I live in Canada now it was really useful. But unfortunately when I lived in the US (till 2010) I did not focus on dividend growth stocks. Now I learnt about it, I try to find the same strategy for Canadian stocks but very few with a long track of dividend increases.
Your point here is a good eye opener for hard core income investors. May be they are comfortable going that route but good to know the cons in that strategy and adjust a little to make their portfolio return to beat dreaded inflation.
One thing that stumped me in the first spreadsheet :
You invested equal $ in both common and preferred. They gave out diff dividend $ each year. You tried to reinvest part of the div from pref to keep up with the increase in dividend from common shares. I get that.
But shouldn't the amount reinvested = (total pref Div$ - total common Div $).
That way one gets same income every year from both cases.
Eg: 2007 :
Dividends from Pref = $3,587.94
Dividends from common = $1,487.48
So to keep the income same, the pref investor would keep $1,487.48 and reinvest the rest.
I tried it here (using your setup. Thanks):
http://bit.ly/rZiBNd
and the scenario is different.
But again, even this is true for short term (few years). Over a long horizon the DGI (with healthy Div growth) will beat the fixed income handily. Not to mention the coomon shares price increase, which should happen for growing dividends.
I might be missing something more profound. May be you or others ( DVK, Fish, Corsetti) could let me know what I am missing.
Thanks for the great article. I am looking to park some cash in preferreds and this gives me some perspective.
Sell In May And Do Not Go Away [View article]
I will never touch a stock like GM myself, let alone options.
I do not mind if my stock gets called away at the price I sold the CC for. But not the case for everyone. Similarly, selling NP can be dangerous. I always sell on the stock I want to own so its a great, but very underutilized, strategy.
Great article for someone who is not using options to boost returns. But do not jump right away selling options, try to do paper trade and understand the way options work. If done with discipline, options are great to boost the returns, even when one is conservative.
Bank Of Montreal: Go North Of The Border For This 5% Yielder [View article]
Being in Canada, its awesome to own div paying stocks. Super low tax rate for average Canadian income.
Both are good yield play, although BMO has better yield right now.
And the canadian banks did not cut their dividend during the crisis which is a good sign. Wish I bought them then, yield was north of 8% .
The Rational Case For Dividend Growth Investing (Part 2) [View article]
its great to see you find DGI strategy after your investments went south. Some people just give up on the market.
I remember in 2006 I was visiting my friends parents for Thanksgiving . It was actually a small town near Joplin, MO. One of my friends buddy, who works in local construction, was saying about 5k he lost in a stock he invested based on a tip from his broker. He actually put 2k more after the initial 3k when the stock went south. Had no idea what that company he invested was doing. Based on that experience he was saying how he will never go back to investing. A couple of his friends were agreeing with him. It was neither my place nor I was as savy as now to explain him about investing in DG stocks.
I see how people lose money and some never return to invest bcoz of bad experience, particularly with brokers.
Which Is Better, Initial High Yield Or Accelerated Dividend Growth? [View article]
I think the "Return = Y+ DG" comes from Gordon Growth Model. http://bit.ly/t0y6PR
It is also used in several books. Although it is widely recognized, i tried to set up spreadsheet to test it but do not get the same results as the formula.
But what works definitely is a good Yield + healthy DGR.
Dividend Investing And 'Payback': Why It Pays To Watch Closely [View article]
I also like a stock to stay flat and go up in price after many years. That way I accumulate more through DRIP. That's why I am not interested in XOM right now. Every Div$ I get buys only very few stocks bcoz the price has gone up so much.
you said: Give me a growing yield and stagnant stock price any day!
What I was trying to say is, if we have a stock at 3% yield and 3% DG and we use the income for retirement then the raise in dividend is just matching inflation and does not increase your purchasing power. What if the inflation spiked to 4%. The owner has to cut down expenses bcoz his monthly paycheck from that stock buys him less than 10 years ago.
I would like a growing yield above inflation rate and not just any growing yield.
This is why I like companies like KO, PG, JNJ etc... I am happy with an average of 7% growth. Any higher dividend growth is a bonus.
This is the best thing I learnt in the last few months after reading "Single Best investment" and couple of article in SA. I never looked at PG, JNJ, KO before. Before, when i saw JNJ chart all i could think was a paltry yield (~3 - 3.5%) and the stock goes up and down but stayed in the same price range in 10 years.
Now when i see the market drop, i am drooling for these stocks to buy them at a good yield of 3.5 -4%. And the best part is, now I want my stocks to stay in same price range or don't mind going lower bcoz I can accumulate more. I finally realized that eventually, with my time horizon, the price will go up since earnings and raw Div $ go up.
Its one thing to know how compounding works but a completely an eye opener to realize its true value.
Alright, time to get ready for football Saturday.
First Northwestern at Nebraska & of course LSU-Bama later.
How To Deal With Overvaluation Of A DGI Holding [View article]
How To Deal With Overvaluation Of A DGI Holding [View article]
i stopped putting much thought into the after buying/ selling process. Now i learnt to be happy with my buys or sells after I started DGI process. I cannot be time it right all the time but I have learnt that I don't have to. Just buy solid companies at good valuation, not necessarily at the cheapest level and have discipline to sit back and let it compound.
How To Deal With Overvaluation Of A DGI Holding [View article]