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Robert Allan Schwartz
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I'm a computer programmer and teacher of computer programming. I am self-employed, and manage my own SEP/IRA and investments for retirement. My personal investing goal is to own a portfolio of dividend growth companies such that: 1) The overall portfolio dividend income is sufficient to pay for... More
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  • If I Overpay Now, Will I Regret It Later? 18 comments
    Aug 1, 2012 5:11 PM

    The summer after my junior year in college, I travelled in Scandinavia. I found a lovely little art museum called the Louisiana Museum, in Humlebæk, Denmark. In the gift shop was a highly colorful painting by an artist named Ay-O. The price was $100, which was a lot of money for a college student in 1976. I was willing to spend that much to buy it, but I wasn't willing to pay the additional cost of shipping it home. I couldn't carry it with me, and I didn't want to pay to ship it, so I didn't buy it.

    I have regretted that decision ever since 1976, and the money I saved was not worth the cost of my regrets.

    I thought I had learned my lesson when, a year after my wife and I were married, we began looking for a house. We found one we liked. We put in an offer near the top of what we could afford. The broker told us that our offer had been out-bid, and recommended that we offer an additional $10,000. My wife and I were reluctant to go that high, but we really loved the house. I grabbed a calculator, and quickly computed that $10,000 divided by 10,950 days (30 years * 365 days per year (I was willing to ignore leap-years J)) was 91 cents per day. I asked my wife if she loved the house enough to spend an extra 91 cents per day; she said she did; we raised our bid, bought the house, and have happily lived in the house for many years now.

    Recently I realized that I had not learned my lesson. In late April, reports surfaced of Walmart's alleged bribery in Mexico. The stock dropped from $62.45/share on April 20, to a low of $57.36 on April 25, before it started climbing again. When I saw it drop below $58.00, I got greedy, and put in a limit order at $57.00. The price never got that low, the limit order didn't execute, and I didn't get WMT at my price. I should have just put in a market order, and bought WMT at $58.00.

    I have regretted that decision since then, and the money I saved was not worth the cost of my regrets.

    I recently wrote an article called, "What Do I Want To Buy? When Should I Buy It?". In the article, I described my rules concerning which companies to buy. A candidate has to have a minimum of 10 consecutive years of rising dividends; each dividend increase has to be 5% or more; the current yield at the time of the purchase has to be 3% or more; etc.

    The good news is, any company that passes my tests is likely to be a good dividend growth company for many years.

    The bad news is, I might be missing out on other good dividend growth companies that don't pass my strict tests.

    For example:

    The following Dividend Champions have raised their dividends high enough and long enough to pass some of my tests, but their current yield is below 3%, and they are currently overvalued:

     

     

     

     

    Name Ticker DF list dividend current price current yield
    RAVEN INDUSTRIES INC RAVN champions $0.42 $35.10 1.20
    FAMILY DOLLAR STORES FDO champions $0.84 $66.66 1.26
    MCCORMICK & CO-NON VTG SHRS MKC champions $1.24 $61.30 2.02
    COLGATE-PALMOLIVE CO CL champions $2.48 $107.26 2.31
    COCA-COLA CO/THE KO champions $2.04 $80.14 2.55

    The following Dividend Contenders have raised their dividends high enough and long enough to pass some of my tests, but their current yield is below 3%, and they are currently overvalued:

     

     

     

     

    Name Ticker DF list dividend current price current yield
    ROPER INDUSTRIES INC ROP contenders $0.55 $98.62 0.56
    ROYAL GOLD INC RGLD contenders $0.60 $75.73 0.79
    ROSS STORES INC ROST contenders $0.56 $67.35 0.83
    TJX COMPANIES INC TJX contenders $0.46 $44.80 1.03
    CASEY'S GENERAL STORES INC CASY contenders $0.66 $58.52 1.13
    NOVO-NORDISK A/S-SPONS ADR NVO contenders $1.83 $154.12 1.19
    EXPEDITORS INTL WASH INC EXPD contenders $0.56 $36.26 1.54
    FASTENAL CO FAST contenders $0.76 $44.30 1.72
    APTARGROUP INC ATR contenders $0.88 $50.87 1.73
    PRAXAIR INC PX contenders $2.20 $106.58 2.06
    AQUA AMERICA INC WTR contenders $0.66 $26.77 2.47
    ATLANTIC TELE-NETWORK INC ATNI contenders $0.92 $35.17 2.62
    ENBRIDGE INC ENB contenders $1.13 $41.98 2.69

    Should I buy some of these overvalued companies now, because (like buying my house) in the future, I will be glad that I overpaid a little?

    Or should I not buy these companies now, because (like not buying WMT) in the future, the money I saved will not be worth the cost of my regrets?

    I have no idea. :-(

    What do you think?

    Disclosure: I am long KO, WMT.

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Comments (18)
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  • David Fish
    , contributor
    Comments (9255) | Send Message
     
    You pose a tough question and any answer might be different for everyone. Maybe what you need to do is establish some kind of rule to "force" yourself in some way, whether it is industry diversification, a laxer yield requirement, or even to just stop looking at companies that don't fit...;)
    1 Aug 2012, 06:32 PM Reply Like
  • Robert Allan Schwartz
    , contributor
    Comments (20509) | Send Message
     
    Author’s reply » Dave, the only good news is that I have been able to resist the "siren lure" of those overvalued companies right now. So far, as has been noticed by DVK, I always seem to be able to find at least one candidate that passes all my tests, so I'm not "desperate" nor do I have "itchy fingers". :-)
    2 Aug 2012, 06:54 AM Reply Like
  • SDS (Seductive Dividend Sto...
    , contributor
    Comments (4389) | Send Message
     
    I never buy above price I consider good for stock but price is not fixed number. I'll write why in "Single Factor Dividend Income Model. Part 2. Yo complexity" later on.
    1 Aug 2012, 08:18 PM Reply Like
  • Miz Magic DiviDogs
    , contributor
    Comments (5138) | Send Message
     
    Maybe you could go with a 2 out of 3 rule if everything else is stellar, and put it on probation for a period of time. If if doesn't live up to your expectations in 6 months (or whatever), then it gets cut.

     

    I know buying stocks isn't quite the same, but most people regret what they didn't do more often than what they did do. I have a very similar story regarding an exquisite sculpture I passed up for right around $100 for various reasons except it was local enough. I don't generally buy anything like that, but I couldn't stop thinking about it. When I finally decided I should go back and get it, it was gone, of course. Thirty years later and I still regret not buying it.

     

    Miz
    1 Aug 2012, 10:51 PM Reply Like
  • Robert Allan Schwartz
    , contributor
    Comments (20509) | Send Message
     
    Author’s reply » Miz, I so empathize with your experience and with your feelings.

     

    At least you and I are not spending 30 years regretting that we murdered someone. :-)
    2 Aug 2012, 06:56 AM Reply Like
  • Miz Magic DiviDogs
    , contributor
    Comments (5138) | Send Message
     
    Ack! Nooo! Not the kind of regret I meant!!
    2 Aug 2012, 09:38 AM Reply Like
  • Martin Schwoerer
    , contributor
    Comments (260) | Send Message
     
    There's a big question in this excellent instablog, and a little one as well. First, are your rules too rigid? Rules applied to emotions and to relationships should not be so rigid. You love a painting, you would get incalculable satisfaction from seeing it every day for years, so you should buy it. A house is also an emotional thing but too many people in the last decade or so have fallen in love with a house, subsequently getting an experience, albeit not the one they had hoped for.

     

    For financial investments, rules should be a lot tighter. Will you attain great emotional satisfaction from owning a particular stock? I think the more heathy attitude is satisfaction in seeing a yearly total return of 5%, 6% or 8%. Anybody who feels happy because he owns a piece of something should perhaps start with a hobby, or buy a dog.

     

    The bigger question is: how to deal with regrets? Which of course is connected to the even bigger question: how to live properly? But I have blathered enough here already.
    2 Aug 2012, 02:32 AM Reply Like
  • Robert Allan Schwartz
    , contributor
    Comments (20509) | Send Message
     
    Author’s reply » Martin, I agree that feelings about art and home should be different from feelings about investments. And you're right that I'm glad that I am not in the situation of many homeowners - underwater and behind on the payments. :-(
    2 Aug 2012, 06:57 AM Reply Like
  • Guitar Man
    , contributor
    Comments (227) | Send Message
     
    Robert,

     

    Excellent article illustrating a choice many investors face with regularity.

     

    One must have their own set of rules to abide by (minimum dividend, valuation, etc) when investing, and must stick with their own self-imposed rules. However, here's another slant on this:

     

    If there's a name that you feel you really want to own - yet are unsure of the right price or timing - begin with half of your normal position. If the stock moves higher, your only lament is that you could have owned more, but you don't because you only took a half
    position. However, if you take a half position to start, and the stock moves lower (to whatever price you've decided you'd add more), you may then round out to a full position and be satisfied that you waited on part of your position. This is a hedge, plain and simple, because we don't know where our stocks are going to go near-term.

     

    You can't take a half-position when buying a home :-) but you certainly have that option when investing in stocks. Best of luck!
    2 Aug 2012, 06:49 AM Reply Like
  • Robert Allan Schwartz
    , contributor
    Comments (20509) | Send Message
     
    Author’s reply » Hi Guitar Man,

     

    That is good advice - thank you!

     

    Maybe someone will figure out a way to buy half a home, and we'll credit you with inventing the concept! :-)
    2 Aug 2012, 06:58 AM Reply Like
  • sneaker1404
    , contributor
    Comments (453) | Send Message
     
    I like Guitar Man's advice, which has worked very well for me (although I buy in thirds not halves).

     

    Also, it's human nature to watch stocks (companies) you own far more closely than those on your watch-list, so when the opportunity does come along, odds are you have put more research / time into the company and have more confidence on the following purchases.
    10 Aug 2012, 08:28 AM Reply Like
  • Steve in TN
    , contributor
    Comments (717) | Send Message
     
    There are still many good dividend growth companies that are under valued and fairly valued. Those are the ones I'm concentrating on.
    The Walmart experience that you had was something I wrestled with also, but for different reasons. WMT fell almost 7% in Feb. as well as in April and I considered adding to my position but didn't buy because the overall market was charging ahead on it's way to post-crash highs. I was concerned that when the market did correct that WMT would follow along and fall further. An obvious beginner's mistake on my part, although I'm not a beginning investor.
    The lesson learned is that in most cases if a excellent div. growth company falls for a temporary reason and is fairly or under valued, buy it.

     

    Robert, thanks for your contributions to this site.
    2 Aug 2012, 11:43 AM Reply Like
  • Robert Allan Schwartz
    , contributor
    Comments (20509) | Send Message
     
    Author’s reply » Steve, your experience teaches me a lesson - it doesn't matter what "the market" is doing, it only matters what the company I am interested in is doing.

     

    Thanks for sharing!

     

    Robert
    2 Aug 2012, 12:47 PM Reply Like
  • jknasin
    , contributor
    Comments (33) | Send Message
     
    I was looking at WMT when it was in the 50s also. In the end I decided I would purchase once it reached 3% yield, which it of course did not do.

     

    I don't regret the decision at all. No one could have foreseen its price appreciation, and the fact that it's now at $74 is irrelevant to me even if I had purchased it at $58, because its dividend is unchanged in that time. I am not looking for price appreciation, and there are plenty of other great dividend growers with yields above 3% for me to purchase.
    2 Aug 2012, 02:59 PM Reply Like
  • Robert Allan Schwartz
    , contributor
    Comments (20509) | Send Message
     
    Author’s reply » I agree that I am far more interested in income than in capital gain. However, I do care about buying only when a company is undervalued or fairly-valued.
    2 Aug 2012, 03:52 PM Reply Like
  • HiloBeMagical
    , contributor
    Comments (732) | Send Message
     
    "Should I buy some of these overvalued companies now, because (like buying my house) in the future, I will be glad that I overpaid a little?"

     

    Many, much smarter than I have said, "you make money when you buy, not when you sell".

     

    The "return" I get from my house is the joy I get from living in it. The return I get from my stocks is y i e l d.

     

    Your bride was willing to pay 91 cents a day extra for that unique house because, (for her), it had "added value" beyond price appreciation (yield).

     

    The only _truly_ equivalent analogy to your house example that I can imagine would be if you decided to wallpaper your den with stock certificates, and the ones you're thinking of overpaying for are prettier than the certificates from companies that are more fairly valued on the market.

     

    Then they would have yield _and_ "added value". ;)

     

    Which means that question you asked all those years ago still applies:

     

    "Honey, do you like these stock certificates enough to overpay for them so we can make the den prettier?"

     

    What a fun thread... :)

     

    All the best,
    Hilo
    3 Aug 2012, 04:25 PM Reply Like
  • Robert Allan Schwartz
    , contributor
    Comments (20509) | Send Message
     
    Author’s reply » Hilo, I own exactly one stock certificate (the rest are all DRS); it is for one share of stock in a company that no longer exists; my girlfriend at the time was a stockbroker, and she bought me a share as a birthday gift. Sadly, the girlfriend and the company are both long gone ... :-)
    3 Aug 2012, 04:34 PM Reply Like
  • Penny Lane
    , contributor
    Comments (78) | Send Message
     
    One of my first purchases was MCD when it was nearing $100. I very carefully studied the stock and its history and decided to buy. Later on I bought again when it went over $100. Then it fell and fell much: below 80. If I were to listen to "stoploss advice" and "8%-drop advice", I would have gotta sell it. I did not and now I think it was a good decision to stick to it. I think I will keep it "forever" and hope that after a few years the purchase price would seem indifferent.
    However, if you think a stock is overpriced, don't buy it. Obviously you may be wrong, price can go to any direction but I would listen to my heart and buy only if I am confident that the price is good. (I was confident with MCD, and I failed, but such is life:)
    18 Feb 2013, 05:06 PM Reply Like
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