Folks, David is doing perfect work within CCC list. May be somebody can start International-CCC list where local currency DG companies will be listed? SDS
Chesnut Thank you for good article. I do not understand your statement "Spreading MLPs across multiple tax-deferred accounts is one way to minimize (but not eliminate) the UBTI threat. " As far as I remember UBTI>1000$ is taxable in tax-deferred account. So according to you investor can avoid taxes if investor had UBTI = 2K$ but spread MLPs between 3 tax-deferred accounts (so in each account UBTI<1000$). Is it really correct? (Or I'd put the same question in non-polite form - "Is IRS so stupid?") SDS
David, Thank you for update. IMO it is not fair to penalize a foreign company for currency exchange rate. May be non-US companies should be in a special sheet. SDS
Dividend Growth Investing And The Importance Of Diversification [View article]
Folks I really surprise that some investors doesn't know statistics 101. Statistics works for any RANDOM portfolio in the way that event (e.g. dividend cut) probability does NOT depend on the portfolio size. Any small portfolio should have big deviations from the average in both directions (less or more cuts), any big RANDOM portfolio should behave very similar to stats data.
We /investors/ pretend to be wise and do good selection of stocks in NON_RANDOM portfolio while MPT points that humans are not always smarter than random choices. I guess the true is somewhere between.
The trick is that it is possible to build relatively large portfolio /let's name it smart/ with 100+ stocks where the PROBABILITY of an event (i.e. cut) will be the same as in a random portfolio but EFFECT of the event on smart portfolio will be smaller than on random one. I'll expand my blog on coherent risk or write new one on diversification for dividend investors when time allows but main idea is posted already (but it seems not well spelled) in http://bit.ly/102frew. Meantime Artzner's paper I refer to explains the concept (but it is written for mathematicians). SDS
Dividend Growth Investing And The Importance Of Diversification [View article]
Robert, Any statistics 101 course shows that the probability of an event does NOT depend on sample size for any randomly chosen sample from any set of objects. For this case cut probability /or frequency/ is independent on number of stocks in a random portfolio. SDS
Will we see dividend cuts (Nov 6, 2011)? [View instapost]
I briefly check the stocks I mentioned early with companies in David Fish's CCC list (ver 4/30/13) and dividata.com graphs:
NWFL HIFS DV BMRC BDMS HAS TRI - continue DG (they are in the CCC list); ACI AVP OTT VALU ITT AINV BSI PTNR - did cut dividends (note: OTT did it in quite "fancy" style); AM STRA CBK KEQU MDC NYB RRD- froze dividends (MDC paid special div at the end of 2012); SFL - unclear dividends history.
Dividend Growth Investing And The Importance Of Diversification [View article]
Folks,
A dividend investor might make 2 kinds of mistakes: a) correctly predict cut and do not react; b) incorrectly predict cut and do react. In both case the investor loose some money or at least opportunity.
Prediction of cut is an interesting topic (see e.g., http://seekingalpha.co...) /see also below/ but the author tells about unpredictable cuts. For random portfolio probability and effect of the unpredictable cut do NOT depend on portfolio size. Again the probability of the unpredictable cut does NOT depend on portfolio size for any (?) non-random portfolio. But if risk coherency is implemented in a non-random (i.e. smart) portfolio the effect of the unpredictable cut reduces with portfolio size.
The unpredictable cut reminds a Black Swan but fortunately most (~60% - 85%) of dividend cuts can be predicted. For example, Jeff Paul posted simple -20% price rule (http://seekingalpha.co...) which works reasonably well. David Van Knapp had very useful set of articles "Dividends in Danger?" (see e.g. http://seekingalpha.co...) couple years ago in SA. It seems useful to renew such posts ( see also http://seekingalpha.co...).
Dividend Growth Investing And The Importance Of Diversification [View article]
Chowder ETFs are quite transparent but some long-term investors can diversify cheaper with stocks then through ETFs - see http://seekingalpha.co... SDS
Dividend Growth Investing And The Importance Of Diversification [View article]
As Chowder I faced few dividend cuts (GE, BP, banks). Although some cuts might be predicted, others not. IMO it is important not to panic at the cut because recoveries (of dividend and stock price) are possible (http://seekingalpha.co...). The cut event gives a strong pulse to re-evaluate company and the same DD should be applied as at purchase event. SDS
Dividend Growth Investing And The Importance Of Diversification [View article]
Folks, I'm talking about the author's assumption and smart vs. random diversification. I provided links to my SA blog posts that explain my position - please check them. In short: 1) Author is correct that a single failure is terrible for very concentrated portfolio. But this is obvious - imagine equal-weighted portfolio from 2 stocks there 1 company closes doors. But author takes the number of failures (3) from a thin air - in reality average dividend cut probability is ~ 4%. 2) Author assumes that NUMBER of failures is independent on the portfolio size. Some commentators assumes that PROBABILITY of failure is independent on the portfolio size. For RANDOM portfolio probability assumption is more realistic than number assumption. 3) Diversification reduces risk for "smart" portfolio and keeps it the same for random portfolio. A "smart" portfolio can be built using coherency of risk.
Dividend Growth Investing And The Importance Of Diversification [View article]
Dan, Your assumption that number of cuts is constant doesn't sound correct. Another naive diversification keeps cut probability constant. IMO proper diversification should increase risk coherence (http://bit.ly/102frew) in a way that cut probability reduces with number of holdings in a DGi portfolio. SDS
In Search Of Income: Consider Mid And Small Caps [View article]
Dividend Champions For May 2013 [View article]
David is doing perfect work within CCC list. May be somebody can start International-CCC list where local currency DG companies will be listed?
SDS
What Happens When You Sell An MLP? [View article]
Thank you for good article. I do not understand your statement "Spreading MLPs across multiple tax-deferred accounts is one way to minimize (but not eliminate) the UBTI threat. "
As far as I remember UBTI>1000$ is taxable in tax-deferred account.
So according to you investor can avoid taxes if investor had UBTI = 2K$ but spread MLPs between 3 tax-deferred accounts (so in each account UBTI<1000$). Is it really correct? (Or I'd put the same question in non-polite form - "Is IRS so stupid?")
SDS
Dividend Champions For May 2013 [View article]
Thank you for update. IMO it is not fair to penalize a foreign company for currency exchange rate. May be non-US companies should be in a special sheet.
SDS
Dividend Growth Investing And The Importance Of Diversification [View article]
I really surprise that some investors doesn't know statistics 101.
Statistics works for any RANDOM portfolio in the way that event (e.g. dividend cut) probability does NOT depend on the portfolio size. Any small portfolio should have big deviations from the average in both directions (less or more cuts), any big RANDOM portfolio should behave very similar to stats data.
We /investors/ pretend to be wise and do good selection of stocks in NON_RANDOM portfolio while MPT points that humans are not always smarter than random choices. I guess the true is somewhere between.
The trick is that it is possible to build relatively large portfolio /let's name it smart/ with 100+ stocks where the PROBABILITY of an event (i.e. cut) will be the same as in a random portfolio but EFFECT of the event on smart portfolio will be smaller than on random one. I'll expand my blog on coherent risk or write new one on diversification for dividend investors when time allows but main idea is posted already (but it seems not well spelled) in http://bit.ly/102frew. Meantime Artzner's paper I refer to explains the concept (but it is written for mathematicians).
SDS
Dividend Growth Investing And The Importance Of Diversification [View article]
please see my early reply to Robert's comment
SDS
Dividend Growth Investing And The Importance Of Diversification [View article]
Dividend Growth Investing And The Importance Of Diversification [View article]
Any statistics 101 course shows that the probability of an event does NOT depend on sample size for any randomly chosen sample from any set of objects. For this case cut probability /or frequency/ is independent on number of stocks in a random portfolio.
SDS
Will we see dividend cuts (Nov 6, 2011)? [View instapost]
NWFL HIFS DV BMRC BDMS HAS TRI - continue DG (they are in the CCC list);
ACI AVP OTT VALU ITT AINV BSI PTNR - did cut dividends (note: OTT did it in quite "fancy" style);
AM STRA CBK KEQU MDC NYB RRD- froze dividends (MDC paid special div at the end of 2012);
SFL - unclear dividends history.
I didn't check prices of these stocks this time.
SDS
Dividend Growth Investing And The Importance Of Diversification [View article]
A dividend investor might make 2 kinds of mistakes:
a) correctly predict cut and do not react;
b) incorrectly predict cut and do react.
In both case the investor loose some money or at least opportunity.
Prediction of cut is an interesting topic (see e.g., http://seekingalpha.co...) /see also below/ but the author tells about unpredictable cuts. For random portfolio probability and effect of the unpredictable cut do NOT depend on portfolio size. Again the probability of the unpredictable cut does NOT depend on portfolio size for any (?) non-random portfolio. But if risk coherency is implemented in a non-random (i.e. smart) portfolio the effect of the unpredictable cut reduces with portfolio size.
The unpredictable cut reminds a Black Swan but fortunately most (~60% - 85%) of dividend cuts can be predicted. For example, Jeff Paul posted simple -20% price rule (http://seekingalpha.co...) which works reasonably well. David Van Knapp had very useful set of articles "Dividends in Danger?" (see e.g. http://seekingalpha.co...) couple years ago in SA. It seems useful to renew such posts ( see also http://seekingalpha.co...).
SDS
Dividend Growth Investing And The Importance Of Diversification [View article]
ETFs are quite transparent but some long-term investors can diversify cheaper with stocks then through ETFs - see http://seekingalpha.co...
SDS
Dividend Growth Investing And The Importance Of Diversification [View article]
SDS
Dividend Growth Investing And The Importance Of Diversification [View article]
I'm talking about the author's assumption and smart vs. random diversification. I provided links to my SA blog posts that explain my position - please check them. In short:
1) Author is correct that a single failure is terrible for very concentrated portfolio. But this is obvious - imagine equal-weighted portfolio from 2 stocks there 1 company closes doors. But author takes the number of failures (3) from a thin air - in reality average dividend cut probability is ~ 4%.
2) Author assumes that NUMBER of failures is independent on the portfolio size. Some commentators assumes that PROBABILITY of failure is independent on the portfolio size. For RANDOM portfolio probability assumption is more realistic than number assumption.
3) Diversification reduces risk for "smart" portfolio and keeps it the same for random portfolio. A "smart" portfolio can be built using coherency of risk.
SDS
Dividend Growth Investing And The Importance Of Diversification [View article]
Dividend Growth Investing And The Importance Of Diversification [View article]
Your assumption that number of cuts is constant doesn't sound correct. Another naive diversification keeps cut probability constant. IMO proper diversification should increase risk coherence (http://bit.ly/102frew) in a way that cut probability reduces with number of holdings in a DGi portfolio.
SDS