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chowder

chowder
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  • Frothy Market, Impending Correction - What's A Dividend Growth Investor To Do? [View article]
    Most investors fail to reach their income objectives because they didn't have that objective from the start.

    The theory is that they will go for growth and the growth will be there when they need it, and at that time they will seek income producing investments.

    That strategy failed miserably for those who were ready to retire in 2006, 2007, 2008 and 2009. Many had to try to go back to work or simply put off retirement.

    Waiting until you're ready to retire isn't a good time to find out your strategy was unsuccessful all along.

    How about those ready to retire now?

    Many new income investors are forced to chase yield in order to achieve their income objectives. Many of those people are reading this comment. I've seen their comments on SA as they try to adjust their income holdings to something more high quality.

    The S&P 500 is overvalued. After a lifetime of investing in undervalued companies, are those same people going to change over into overvalued companies?

    Over the last 5 years the market has an annual rate of return of 15.9%. Are we to assume the market will grow at an annual rate of 15.9% over the next 5 years? ... Is this the time to switch from a lifetime of growth to income investing for the best possible results? Something is better than nothing of course, but I'm sure the anxiety level is quite high for those who must do it.

    My attitude is that I don't need the income now. However, I can use that income to purchase other income producing companies and use the income from those companies to buy even more.

    Since the end result is going to be income anyway, I'm suggesting that people start from the beginning to insure it will be there, and you'll be doing it at a time when you can afford to be conservative. You don't need to take on the risks of those who didn't start managing for income years before they needed it.
    Aug 9 08:44 AM | 7 Likes Like |Link to Comment
  • I Feel Like A Thief Buying IBM At Today's Low Valuation [View article]
    IBM seems to be having quite a few problems and as a result of that, it is selling at a discount to fair value according to most sources.

    Part of my approach to dividend growth investing is to look for companies who are financially strong, yet struggling at the time I decide to start accumulating.

    I recall a few years ago when PG was losing business to generic brands, showing no organic growth and having foreign currency problems which negatively affected earnings. The talk at the time was that PG was a dinosaur and people wouldn't touch it. ... I kept accumulating.

    Value Line had them rated 1 for safety which meant they were financially strong enough to weather the bad times and they had a history of overcoming adversity. ... That play was highly successful.

    I held JNJ while recall after recall after recall came in. People were dumping JNJ and most people on SA wouldn't touch it with a 10 foot pole. ... I kept accumulating.

    Value Line also rated JNJ a 1 for safety and they to had a history of overcoming adversity. ... That play was also successful.

    Earlier this year I looked at IBM and I saw that most research firms showed they were undervalued and selling at a double digit discount to fair value. I also noted that Value Line had them rated 1 for safety and gave them a Financial Strength rating of A++.

    I can't think of a better time to build a position in a financially strong company than when it's selling at a double digit discount to fair value.

    I'm not looking at the short term earnings or revenue streams. I wouldn't mind if price stagnated for the next 3 years as I want to continue building a position in this company in one of the portfolios I manage.

    I'm not concerned about the share buyback program either. I would expect a well-run company to purchase shares when they are as undervalued as IBM. If they were buying them back at fair value or worse, we'd be complaining about that.

    Morningstar gives IBM an "Exemplary" rating for Stewardship. Most companies don't have that "quality" rating of their management team. So, I'll give IBM the benefit of the doubt.

    IBM may need a new CEO, I don't know. I do know that the boards of PG and JNJ did change their's and I was properly positioned prior to the move, so I benefited as a result.

    My greatest expectation for IBM is to continue growing the dividend, and I'll be happy if that dividend growth exceeds 8% per year, and it's certainly doing better than that.
    Aug 9 08:02 AM | 10 Likes Like |Link to Comment
  • Frothy Market, Impending Correction - What's A Dividend Growth Investor To Do? [View article]
    cross, return on investment isn't my goal. Having the necessary funds at retirement is, regardless of how they are achieved.

    I measure our performance by the amount of income our assets generate. You may wish to measure your investments by how much they go up. I measure by how much income they produce.

    In my investing process, an asset is only as valuable as the amount of income it generates. The more income it throws off, the more valuable it will become over time.

    I don't care what the return on investment is YTD, 3 or 5 year. I haven't tried to figure it out since it is immaterial to me, although I do know the portfolio value at all times.

    I do know that I am generating double digit growth in income every year. My objective is to double the income flow every 4-5 years regardless of market conditions.

    In 2012 the income growth was 16.8%. ... In 2013 the income growth was 19.8%. ... In 2014, year over year through the end of July, income growth is 23.3%.

    That's what I am trying to accomplish, and as long as I continue to achieve those numbers, the market will recognize those assets and bid share prices higher, so I don't worry about share prices.

    If I were trying to invest the way you appear to invest, I would be taking a different approach.

    My income growth, if I must say so myself, is most likely on par with the best of them. I will continue my attempt to see that this type of income growth is consistent and ongoing. Every investment decision I make is geared to this.
    Aug 9 07:15 AM | 9 Likes Like |Link to Comment
  • A Dividend Growth Portfolio For New Investors And Retirees Yielding 4.8%, Part 1 [View article]
    I know all of Bill's symbols except U. I'm thinking that was a mistake.
    Aug 9 07:00 AM | 2 Likes Like |Link to Comment
  • A Dividend Growth Portfolio For New Investors And Retirees Yielding 4.8%, Part 1 [View article]
    >>> Do you know something about GSK that kept you from investing in it? <<<

    In my case, what has kept me from investing in drug companies, other than JNJ, is that dividend growth, and the dividend itself is at long-term risk due to patent expiration's.

    I'm not saying owning drug companies can't be a good investment from a cap appreciation point of view, or a shorter term hold while taking advantage of the dividend growth or yield while it's there, but in my case I'm looking for companies where the odds of long-term dividend growth have a higher probability of success.
    Aug 9 06:56 AM | 1 Like Like |Link to Comment
  • I Feel Like A Thief Buying IBM At Today's Low Valuation [View article]
    >>> IBM is cheap for a reason and the reason is that the company is underperforming - badly. <<<

    I think that's the point actually. The only way to purchase a high quality company at a discount to fair value is when they are under-performing.

    Since IBM has a history of finding a way to survive, I don't see why that can't continue.

    S&P says IBM is selling at a 33% discount to fair value, M* says the discount is 12.7%. In either case, I look to purchase high quality companies when both of those firms confirm at least a 10% discount to fair value, and the only way to achieve that is when the company is facing headwinds.

    If we wait until the company is operating on all cylinders, you'll be looking at a company selling at a premium to fair value.
    Aug 8 01:44 PM | 22 Likes Like |Link to Comment
  • Correction Arrived Early For Walgreen - So Now What After Only OK Dividend Hike? [View article]
    BoomBoom, since the yield on WAG is just 2.2%, it would have to meet the Modified Chowder Rule number of 15 as opposed to 12. The dividend growth is the critical aspect in low yielding stocks when it comes to income flows.

    WAG would have needed a 12.8% dividend growth raise to stay on schedule. A 7% increase isn't enough for me to purchase the company, but if I owned it, and I don't, it would be enough for me to keep it. The dividend growth would have to drop below 5% for me to discard WAG.

    Over the last 5 years the operating earnings growth was 10.2%. Prior to the recent news, the next 5 years earnings were being projected at an annual rate of 15.1%.

    I would have assumed that a 50% growth rate in earnings would help show some cap appreciation to make up for the lower dividend growth rates, but we'll see how it plays out in the coming weeks.
    Aug 8 10:56 AM | 5 Likes Like |Link to Comment
  • Correction Arrived Early For Walgreen - So Now What After Only OK Dividend Hike? [View article]
    That nice dividend increase would have been offset by the nice Swiss foreign tax assigned to the dividend.

    I do realize some of that can be recouped at tax time, but I prefer dividends to be reinvested and put to work immediately as opposed to saving a few dollars at tax time.

    If they went to a tax friendly country, that would have been better for me. ... Ha!
    Aug 8 10:44 AM | 4 Likes Like |Link to Comment
  • A Dividend Growth Portfolio For New Investors And Retirees Yielding 4.8%, Part 1 [View article]
    @crazty ... Most of the distribution from MLP's are what is known as return of capital - ROC.

    ROC is not considered earned income, thus is not taxed initially. What it does is it lowers your cost basis, and if held long enough, you can get to a zero cost basis where at that time distributions will be taxed.

    Since ROC is not taxed initially, it's why MLP's are better suited for non-retirement accounts.
    Aug 8 10:32 AM | 6 Likes Like |Link to Comment
  • A Dividend Growth Portfolio For New Investors And Retirees Yielding 4.8%, Part 1 [View article]
    @aretailguy ... I respectfully disagree with you.

    I'm not opposed to having growth type companies in the portfolio like GOOG, CELG and AMGN for example, but I'm a firm believer in building a solid foundation, a core if you will, of high quality blue chip companies that pay and grow dividends.

    Anything we attempt to build over decades should have a solid foundation. I manage several portfolio's for young people. all under 30 and each portfolio started out with companies like D, JNJ, PG, KO and MCD just for example.

    The most powerful tool a young person has is the power of compounding. Receiving the dividends and enjoying the dividend growth from these companies will have a tremendous impact on the portfolio over 30-40 years, especially when those dividends are reinvested. The longer the compounding period, the more impact the results years from now.

    Once the core is in place, then the goal is to start adding some growth like CELG, which I think looks like a good choice, but only after that solid foundation is in place.
    Aug 8 05:50 AM | 23 Likes Like |Link to Comment
  • Frothy Market, Impending Correction - What's A Dividend Growth Investor To Do? [View article]
    >>> Where were you able to gleam this info on S&P's rating of WAG, or any other company for that matter. <<<

    I can get their accuracy ratings on most companies. With some companies they rate well, others they don't.

    This feature is offered through Fidelity.
    Aug 7 04:50 PM | 3 Likes Like |Link to Comment
  • Frothy Market, Impending Correction - What's A Dividend Growth Investor To Do? [View article]
    Just a note, the "new" button doesn't capture all new comments.

    I see where 10 "new" comments show up, yet if I look at date and time, I see many more that never got designated as new.

    It's taking me longer to go through these comment streams now, but I check the date and time on each comment.
    Aug 7 04:09 PM | 3 Likes Like |Link to Comment
  • Frothy Market, Impending Correction - What's A Dividend Growth Investor To Do? [View article]
    cross, I don't know when my son is going to retire. I have the portfolio set up as an age 65 default, but it's up to him.

    He's 29 now and at age 38 he qualifies for a full pension, that pension providing 50% of his income at the time, and it will be paid for life.

    His goal at age 38 will be to find another job that will provide a pension after 20 years and at age 58 hopefully will have 2 pensions plus his investments.

    As to defining total return, I respect your definition of it, but I'm not going to be that technical about semantics. The goal is to have $3 Million and it doesn't matter to me how that is achieved. If at some point it means contributing more cash, then so be it. If it comes from the growth of his positions and the dividend growth, all the better.

    His portfolio isn't designed to compare to market returns. It's designed to start growing an income stream now and to watch it grow over the years through high quality companies.
    Aug 7 04:04 PM | 10 Likes Like |Link to Comment
  • Frothy Market, Impending Correction - What's A Dividend Growth Investor To Do? [View article]
    @Dividends#1 ... I simply don't wish to go through the editorial process. I write what I have to say and that's it.

    SA wants to please a larger number of folks, so you have to say things a certain way, and I appreciate that, but I'm not interested in reaching a larger number of folks. I figure it it's worth reading, people will find it through word of mouth.
    Aug 7 03:53 PM | 8 Likes Like |Link to Comment
  • Frothy Market, Impending Correction - What's A Dividend Growth Investor To Do? [View article]
    "Frothy Market, Impending Correction - What's A Dividend Growth Investor To Do?"

    I'll continue to collect my dividends.

    August may be down for the market, but my portfolio will set a new all-time high in dividend income.

    I don't care what the market does for the next quarter, but I'll bet a dollar to a doughnut that my dividend income three months from now will establish yet another all-time high.

    Market goes up, I get paid. Market goes down, I get paid more. ... Win-win babee!
    Aug 7 08:15 AM | 11 Likes Like |Link to Comment
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