Philosophy of dividend investing?

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MarketLost
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Re: Philosophy of dividend investing?

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Taggart wrote: Every day of my life I take John Bogle's message to heart in anything I do including investing.

"The enemy of a good plan is the search for the perfect plan."
I hate to be pedantic, but this wasn't Bogle, rather it was Clausewitz, and the quote is actually

The enemy of a good plan is the dream a perfect plan
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Re: Philosophy of dividend investing?

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ghariton wrote:Another piece by Larry Swedroe, on the irrelevance of dividends.

This time he notes that people have been trying to develop better stock valuation models for a long time. We have had CAPM. Fama-French 3-factor models, Carhart's four factor model (including momentum), and a wide variety of less notorious factor models. Yet none of these models include dividends (or dividend policy) as a separate factor. To the degree that dividends are important, their importance is subsumed by value, and to a lesser extent the other factors.

Swedroe makes the further point that, in the U.S., investors are pursuing dividend-bearing stocks to a degree that the prices of these have gotten out of line with the over all market. Hence, he speculates, in the next little while, returns on dividend-bearers will likely be lower than for the market as a whole.

George
I'm not a pure dividend investor, but I noticed in reading the article you link to there's a heavy emphasis on what the theory says the markets should look like, and why everyone else has it wrong. I find this to be the hallmark of economists who are arguing the wrong side of reality. I especially chuckle when I read about how it defies economic theory because economics is based on rational choices. The Homo Economicus model is likely the biggest falsehood that economics espouses because it clearly flies in the face of all reality, yet Swedroe still argues it. Again, it seems to be a habit of economists to argue bad theory instead of what is in front of them.
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Re: Philosophy of dividend investing?

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MarketLost wrote:I'm not a pure dividend investor,
Haven't heard that term before, can you tell us what a "Pure Dividend Investor" means?

I suppose someone who invests in growth only stocks that pay no dividend wouldn't be considered a dividend investor at all. I invest in only Canadian stocks that pay a dividend, and consider myself a dividend investor, but some stocks are considered to be a "must-have" in most Canadian portfolios, and if they happen to pay a meager dividend along with some expected capital growth, then if you own them are you really a dividend investor?

Do you consider it someone that only buys stocks that pay a dividend above a certain percentage? 1% or 2% or 3%?

I consider myself a dividend investor, but I own CNR with a 1.77% dividend, CTC-A at 1.70%, SAP at 1.39% and MRU at 1.25%?

Am I a "Pure Dividend Investor"?

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Re: Philosophy of dividend investing?

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like_to_retire wrote:
MarketLost wrote:I'm not a pure dividend investor,
Haven't heard that term before, can you tell us what a "Pure Dividend Investor" means?

I suppose someone who invests in growth only stocks that pay no dividend wouldn't be considered a dividend investor at all. I invest in only Canadian stocks that pay a dividend, and consider myself a dividend investor, but some stocks are considered to be a "must-have" in most Canadian portfolios, and if they happen to pay a meager dividend along with some expected capital growth, then if you own them are you really a dividend investor?

Do you consider it someone that only buys stocks that pay a dividend above a certain percentage? 1% or 2% or 3%?

I consider myself a dividend investor, but I own CNR with a 1.77% dividend, CTC-A at 1.70%, SAP at 1.39% and MRU at 1.25%?

Am I a "Pure Dividend Investor"?

ltr
To me a pure dividend investor is one who invests in stocks to get an income stream, and that anything else is a bonus. I contrast this to other investor for whom dividends are part of their total returns, or those who are only looking for growth. In my case, I only own dividend stocks, but > 99% of my trades are done selling short options to collect premiums, which I then use to buy dividend paying stocks. My goal is to eventually have enough dividends to produce a livable income stream in retirement. Currently, I would put my premiums at about 60% of what I earn in my account, while the remainder is from dividends.

I use this term because I've been on other forums where debates like these seem to split into those who invest purely for dividends, and those who think that its nuts to do so. The reality is that many people, like me, won't buy a stock without a dividend, but that doesn't mean that is all I do.
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Re: Philosophy of dividend investing?

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MarketLost wrote:The reality is that many people, like me, won't buy a stock without a dividend, but that doesn't mean that is all I do.
Interesting. For me, my sloppy rule is that I won't buy a stock unless it pays at least a 1% dividend. Weird, and no justification for it, but that's the way it is.

I wonder what others use as a rule of thumb?

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Re: Philosophy of dividend investing?

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like_to_retire wrote:I wonder what others use as a rule of thumb?
Until the early 2000s, while in accumulation stage, I refused to buy stocks that paid any dividends. Why add to my tax burden? Rather go for growth stocks that would eventually (my choice of timing) pay out in capital gains, some big, some small, some negative, over decades I was satisfied with averages.

After the tech bubble I got the religion of diversification as broadly as possible, i.e. I purchase broad market indexes. Some pay dividends, some not, I don't look. I think that using dividend payout ratios as a screen arbitrarily reduces one's diversification opportunities, and so is unwise. But we've had this conversation before, and I doubt either one of us will convert the other...

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Re: Philosophy of dividend investing?

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like_to_retire wrote:
MarketLost wrote:The reality is that many people, like me, won't buy a stock without a dividend, but that doesn't mean that is all I do.
Interesting. For me, my sloppy rule is that I won't buy a stock unless it pays at least a 1% dividend. Weird, and no justification for it, but that's the way it is.

I wonder what others use as a rule of thumb?

ltr
I don't have a rule of thumb, but I generally only buy stocks in the range of a minimum 1% dividend. When I started buying dividend stocks years ago, I wouldn't consider anything below 3%. However I learned that if I wanted to diversify into industrials, I needed to consider stocks with 1% dividend. I own a few stocks paying around 1% (Stella Jones, CCL, Waste Connections, Metro, Saputo, CNR). When I look at total return over that past 3 years, the 6 low dividend stocks are my top performers (as compared to the rest of my dividend paying stocks).
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Re: Philosophy of dividend investing?

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ghariton wrote: ...Some pay dividends, some not, I don't look. I think that using dividend payout ratios as a screen arbitrarily reduces one's diversification opportunities, and so is unwise. But we've had this conversation before, and I doubt either one of us will convert the other...

George
In the end it will all come down to an investor's own set of unique preferences. I know there are investors that will only buy index funds, and anything else, in their mind, is the wrong way to invest. I also know others who think that's way too boring, and want to trade early and often. Many of them think indexing is for people who lack the skill to beat the index, and some of them are quite good obtaining Alpha. Me, I like to collect option premiums and use it to buy an income stream.

The pragmatist in me thinks its all good, as long as you're comfortable, and it works for you.
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Re: Philosophy of dividend investing?

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ghariton wrote:I think that using dividend payout ratios as a screen arbitrarily reduces one's diversification opportunities, and so is unwise.
Is this really what you meant to say?

Or did you mean "using dividend yields/minimum dividend yields as a screen" which, I think, is a *little* more sensible and more in line with your past opinions. :)
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Re: Philosophy of dividend investing?

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like_to_retire wrote: I wonder what others use as a rule of thumb?
ltr
I'm looking for dividend growth rather than dividend yield. I like to see at least 10% growth.

I also like to see earning growth that is similar.

I find I can hold these stocks longer as they tend to be less volatile.
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Re: Philosophy of dividend investing?

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like_to_retire wrote:
MarketLost wrote:The reality is that many people, like me, won't buy a stock without a dividend, but that doesn't mean that is all I do.
Interesting. For me, my sloppy rule is that I won't buy a stock unless it pays at least a 1% dividend. Weird, and no justification for it, but that's the way it is.

I wonder what others use as a rule of thumb?

ltr
For me, dividends are irrelevant: I'm far more interested in the total after-tax cash profit that is (theoretically) available to equity holders. It's Buffett's concept of Owner Earnings, in which he defined as:

(a) reported earnings plus

(b) depreciation, depletion, amortization, and certain other non-cash charges

(c) the average annual amount of capitalized expenditures for plant and equipment, etc. that the business requires to fully maintain its long-term competitive position and its unit volume. (If the business requires additional working capital to maintain its competitive position and unit volume, the increment also should be included in (c)


Of course, there is a degree of subjectivity to how one calculates this, so some might find it not very useful.

However, I do believe that this helps get to the heart of where dividends come from: from a portion (or sometimes all) of the pure after-tax cash profits a company generates. So if this is where the value of a company springs from, to me it makes no sense to focus strictly on one portion of where value is derived rather than where it fundamentally arises from.

Royal Bank (+4% dividend yield) or Lululemon (no dividend), it doesn't matter to me as long as the price I am paying for the cash stream - and the projected future growth of that cash stream - seems compelling relative to other opportunities available.

I'll take dividends, I'll take no dividends: it doesn't at all matter to me. I think when one gets solely focused on just the dividend, you *can* run the risk of missing the forest for the trees.
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Re: Philosophy of dividend investing?

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SkaSka wrote:I'll take dividends, I'll take no dividends: it doesn't at all matter to me.
Can I ask if you're retired or in accumulation stage?

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Re: Philosophy of dividend investing?

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like_to_retire wrote:
SkaSka wrote:I'll take dividends, I'll take no dividends: it doesn't at all matter to me.
Can I ask if you're retired or in accumulation stage?

ltr
Accumulation stage.

I understand that receiving cash dividends every month or every quarter can have a "psychological benefit" for those in either accumulation stage or draw-down stage, and that in it of itself is beneficial if it will allow one to "stay the course".

And of course, all investors have different needs: some want/need a regular, monthly cash stream via dividends for various reasons.

Theoretically, it makes sense to me that one should be going to the fundamental source of where value - be it dividends, share buybacks, etc - springs from rather than focusing on just one component of value.

But that may just be my own subjective stance based on my current stage in my investing life, my level of modest knowledge, and personal temperament. I don't advocate that I know the ultimate answer to how one should invest in a stock. However, I do find it very interesting to think about where fundamental value arises from.
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Re: Philosophy of dividend investing?

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SkaSka wrote:I understand that receiving cash dividends every month or every quarter can have a "psychological benefit" for those in either accumulation stage or draw-down stage, and that in it of itself is beneficial if it will allow one to "stay the course".

And of course, all investors have different needs: some want/need a regular, monthly cash stream via dividends for various reasons.

Theoretically, it makes sense to me that one should be going to the fundamental source of where value - be it dividends, share buybacks, etc - springs from rather than focusing on just one component of value.

But that may just be my own subjective stance based on my current stage in my investing life, my level of modest knowledge, and personal temperament. I don't advocate that I know the ultimate answer to how one should invest in a stock. However, I do find it very interesting to think about where fundamental value arises from.
Many of us, George and I included, have been beating on the Total Return (proxy for earnings/cash flow stream growth) drum for a long time. It is particularly important for those who HAVE to draw down capital at ~4+% SWR in retirement because they do not have sufficient financial resources 'to just live off the income'.

Dividend junkies here who repeat themselves ad nauseum about living only off the income stream often do not disclose that they have sufficient capital to be able to do that. It is a very nice thing (simplicity/comfort/certainty/reliability) to be able to focus almost exclusively on dividend yield and/or dividend growth investing to be able to do that but it does not apply to the vast majority of investors/retirees. It is a disservice as part of the 'financial education' component of this forum to those investors who don't have the means to accomplish that goal.
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Re: Philosophy of dividend investing?

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AltaRed wrote:It is a disservice as part of the 'financial education' component of this forum to those investors who don't have the means to accomplish that goal.
It may also be a disservice to the readers to not mention that if they will require a certain income in retirement (and whether they are able to get all of that from dividends or a mix of dividends and capital drawdown), that they should be aware of the rather devastating effect a market drop in share prices could have on their capital during those times.

I get it, it's total return we're interested in and it doesn't really matter during accumulation where the total return comes from, but it's a different story in withdrawal stage. If you don't like dividends and stick with growth only stocks, you may not be happy when you have to sell at depressed prices to get your income. Generally companies continue to generate their dividends and are loath to drop them even in tough times.

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Re: Philosophy of dividend investing?

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Dividend junkies here who repeat themselves ad nauseum about living only off the income stream often do not disclose that they have sufficient capital to be able to do that. It is a very nice thing (simplicity/comfort/certainty/reliability) to be able to focus almost exclusively on dividend yield and/or dividend growth investing to be able to do that but it does not apply to the vast majority of investors/retirees. It is a disservice as part of the 'financial education' component of this forum to those investors who don't have the means to accomplish that goal.
+1 :thumbsup:
often do not disclose
I'm for meaningful disclosure, if not a lot of this repetition is meaningless. The one that irks me is to buy only 12 Canadian stocks but not willing to disclose which 12 so we could maybe have a meaningful discussion around those choices, idiotic to keep repeating this.
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Re: Philosophy of dividend investing?

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I wonder though if this thread was called "Philosophy of technical analysis?" would we consider any post advocating technical analysis a disservice to the educational component of this forum?
I'm all for good advice and meaningful disclosure ..but I don't feel compelled to crap all over T.A. despite my personal opinion of it.
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Re: Philosophy of dividend investing?

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Every investor come retirement does need to understand the vagarities of the markets, including the devastating effects of equity drawdown on a portfolio when markets are depressed. But that is what the concept of SWR is all about and what Monte Carlo scenarios are meant to demonstrate. The most important thing here is most retirees cannot avoid capital drawdown so they need realistic dialogue and understanding of 'what ifs' on what outcomes various asset allocations might provide, what range of outcomes might occur, and how to mitigate the worse effects. It is not okay to simply say 'don't draw down capital'. It is necessary to educate on 'how to draw down capital' when/if required.

Added: Descartes, no one is crapping on dividend investing. I trend toward dividend paying stocks for my Canadian equity allocation myself. I like the certainty of that dividend stream too. It is the promotion of the exclusivity of dividend investing as the 'holy grail' that is the disservice. There are a few posters here (and who also post elsewhere) that repeat themselves ad nauseum on that mantra which, in a few cases, actually comes off as nothing more than 'bragging rights'.
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Re: Philosophy of dividend investing?

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BRIAN5000 wrote:he one that irks me is to buy only 12 Canadian stocks but not willing to disclose which 12 so we could maybe have a meaningful discussion around those choices, idiotic to keep repeating this.
Brian5000, you must realize that revealing all your stock picks in your portfolio is considered somewhat personal, and not something many want to reveal. Most will discuss any individual stock at length, but ask for their entire stable is like asking a poker player to reveal their hand. It ain't gonna happen.

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Re: Philosophy of dividend investing?

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like_to_retire wrote:It ain't gonna happen.
:thumbsup: It is actually meaningless to anyone else. Some of one's holdings may have tiny ACBs making the current hold a 'hostage', others may be based on a sectoral hunch, or an interest rate bet, or a currency bet, or a political outcome. I don't care what others hold in aggregate either. It would be a distraction.

I do have interest in the rationale for some individual (Canadian stock) picks and continue to learn from the opinions of others. I have no interest whatsoever in ex-Canada picks since my strategy is to index ex-Canada.
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Re: Philosophy of dividend investing?

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but ask for their entire stable is like asking a poker player to reveal their hand. It ain't gonna happen.
Perfect analogy

Even a poker player must reveal his hand in a showdown when called if he wants to win the pot. He can muck his cards if he wants and the pot will go to the calling player who won't have to reveal their cards. This may happen when a player was bluffing "or if an investor has no reasonable academic grounds to support their choices", "got lucky in their limited choices" or are too stuck in their old ways to consider new products/strategies.

In general discusions, I think it's ok to hide behind whatever it is you think you're hiding from. IIRC most of these posts were in threads when newbies were asking for help. They should be shown the courtesy or learning chance to evaluate the purposed strategy.

If you remember and if IIRC Stubee posted his eight holdings, I said blah blah he went blah blah blah nor harm no foul, as far as I know no one got upset or worried. So we get some insight into what Stubee is doing and consider if this is appropriate for our/my/their purposes.
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Re: Philosophy of dividend investing?

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AltaRed wrote:Dividend junkies here who repeat themselves ad nauseum about living only off the income stream often do not disclose that they have sufficient capital to be able to do that. It is a very nice thing (simplicity/comfort/certainty/reliability) to be able to focus almost exclusively on dividend yield and/or dividend growth investing to be able to do that but it does not apply to the vast majority of investors/retirees.
After reviewing the 13 pages of this thread, I can happily say that I am not one of those non-disclosers!!! And, FWIW, I actually humbled myself sufficiently to disclose, on another thread, my Canadian dividend portfolio.

My own approach is to "focus almost exclusively on dividend yield and/or dividend growth" in my Canadian dividend portfolio. It is from the remainder that I am withdrawing capital. This withdrawal is unavoidable since my portfolio does not have sufficient heft to do otherwise.

I deny that I am a "dividend junkie" since this (derogatory) term implies wrong behaviour of which I consider myself innocent.

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Re: Philosophy of dividend investing?

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I actually humbled myself sufficiently to disclose, on another thread, my Canadian dividend portfolio.
I didn't find your post humbling, brave maybe, to be willing to put yourself out there so others can learn myself included. I had actually hoped there would have been more comments on your portfolio.
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Re: Philosophy of dividend investing?

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Well, here's the list I send to Yahoo for my spreadsheet - but not the dollar amounts :wink:
(Hint: VT, at 20% portfolio basis, is the largest holding. NA, at .4%, the smallest. Equity total is 55.6%.)
AQN.TO
BCE.TO
BEP-UN.TO
BIP-UN.TO
BMO.TO
BNS.TO
CM.TO
CU.TO
EMA.TO
ENB.TO
ENF.TO
FTS.TO
NA.TO
PWF.TO
RY.TO
SAP.TO
SJR-B.TO
TD.TO
TRP.TO
T.TO
VT
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Re: Philosophy of dividend investing?

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StuBee wrote:My own approach is to "focus almost exclusively on dividend yield and/or dividend growth" in my Canadian dividend portfolio. It is from the remainder that I am withdrawing capital. This withdrawal is unavoidable since my portfolio does not have sufficient heft to do otherwise.

I deny that I am a "dividend junkie" since this (derogatory) term implies wrong behaviour of which I consider myself innocent.

StuBee
FWIW, I've never considered you a dividend junkie, which by definition generally means 'to the exclusion of all else' in investing behaviour. The few I am thinking of already know who they are. :wink:

P.S. I've disclosed before that every one of my individual Canadian holdings pays a dividend/distribution, so I am a (Cdn) dividend investor. But yield is not my focus. I would rather see considerable growth in earnings and cash flow, and from that share appreciation and dividend growth will occur. For example, my 'musings' about what to do with PWF. Share price has gone nowehere and I am not sure their ongoing attempted re-invention of themselves into more fintech and millenial wealth management will offset their flatlined primary businesses.
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