Newbie Canadian Dividend Portfolio

Asset allocation, risk, diversification and rebalancing. Pros/cons of hiring a financial advisor. Seeking advice on your portfolio?
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NormR
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Re: Newbie Canadian Dividend Portfolio

Post by NormR »

BRIAN5000 wrote:It would be interesting, to me anyway, that if someone had good back-testing capabilities to see how Canadian stocks with an SPP & OCP & a discount performed* over the long term against the TSX index. Do these three or even two of the three have any predictive power?
I don't know of a back tester with SPP, etc info in it.
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Re: Newbie Canadian Dividend Portfolio

Post by BRIAN5000 »

Did a very quick look here http://www.dripprimer.ca/canadiandriplist I thought there used to be about 21 IIRC.
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Re: Newbie Canadian Dividend Portfolio

Post by OnlyMyOpinion »

BRIAN5000 wrote:... If an investor had 500 shares ($41850) of BMO ($83.70) with a 3% discount ($3.44 dividend) wouldn't that work out to acquiring less than one extra share per year, maybe my math is wrong?
With 500 shares you'd be paid $0.86/sh/qtr or $430. That would buy 5 shares at current $83.70 (trading acc, no discount, whole shares).
I don't know that DRIPers claim superior performance to other investing, I don't. It's something we started years ago and continue to be satisfied with. For us it's a 'passive' way of reinvesting regularly and tax efficiently into a decent dividend yield (4.1% currently) with no fees. Our BMO holding spins off $6,400/yr and buys 19-21 shares/qtr since we don't currently need the income. Tracking ACB is painless with a spreadsheet and a keyword search ('montreal') through the pdf statements every year or two to bring up dividend payments and drip details. Our common shares are also far from the only thing we invest in.
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Re: Newbie Canadian Dividend Portfolio

Post by 2 yen »

Shakespeare wrote:I would also suggest bank-limiting to 1/3 while the list is being populated.
Agreed. We actually might go lower, if that's possible.

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Re: Newbie Canadian Dividend Portfolio

Post by BRIAN5000 »

OnlyMyOpinion wrote:
BRIAN5000 wrote:... If an investor had 500 shares ($41850) of BMO ($83.70) with a 3% discount ($3.44 dividend) wouldn't that work out to acquiring less than one extra share per year, maybe my math is wrong?
With 500 shares you'd be paid $0.86/sh/qtr or $430. That would buy 5 shares at current $83.70 (trading acc, no discount, whole shares).
I don't know that DRIPers claim superior performance to other investing, I don't. It's something we started years ago and continue to be satisfied with. For us it's a 'passive' way of reinvesting regularly and tax efficiently into a decent dividend yield (4.1% currently) with no fees. Our BMO holding spins off $6,400/yr and buys 19-21 shares/qtr since we don't currently need the income. Tracking ACB is painless with a spreadsheet and a keyword search ('montreal') through the pdf statements every year or two to bring up dividend payments and drip details. Our common shares are also far from the only thing we invest in.
Not really what I meant, yes you get $430 as a total dividend, let's say you got a 3% discount, you don't really but just say you did how many more shares would you get with a 3% discount if you owned 500 shares?
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Re: Newbie Canadian Dividend Portfolio

Post by OnlyMyOpinion »

BRIAN5000 wrote:... Not really what I meant, yes you get $430 as a total dividend, let's say you got a 3% discount, you don't really but just say you did how many more shares would you get with a 3% discount if you owned 500 shares?
Sorry, I completely misunderstood your question.
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Re: Newbie Canadian Dividend Portfolio

Post by StuBee »

BRIAN5000 wrote:Not really what I meant, yes you get $430 as a total dividend, let's say you got a 3% discount, you don't really but just say you did how many more shares would you get with a 3% discount if you owned 500 shares?
Mathematically, DRIP's are extremely powerful. Your question relates to the increased benefit due to a discount on the shares that are purchased with the DRIP.
The best way to look at it is (I think) theoretical. Afterwards, each reader is free to correct the theoretical with the practical.

Total return of a one time equity investment is exponential. The growth rate is (theoretically) the sum of retained earnings and the dividend. Both the retained earnings and the dividend are growing over time (hence the exponential component) because of the (by definition) reinvestment of retained earnings.

With a DRIP, the dividend once born is not dead money. Each dividend (which is born out of an exponential process) provides a new source of growth which is also exponential (since it is purchasing new shares of the original investment). Here we see the real power of the DRIP: Exponential growth of exponential growth.

Finally, what is the influence of a discount on the shares purchased through the drip? I believe all that it means is that your dividend yield is a little higher (a very very small difference). This means that it is not a further exponential component which is being added but only a simple component. In your example, for the price of 33 shares (if the dividend is worth that much) you are getting 34 shares.

If the dividend yield is 4%, with the discount it is 4% multiplied by approximately (1+.03) which equals 4.12%.

In conclusion, a dividend discount is a plus but its effect pales in significance compared to the remainder of the DRIP process.

I have not answered your question but I hope that some food for thought has been provided.

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Re: Newbie Canadian Dividend Portfolio

Post by BRIAN5000 »

I have not answered your question but I hope that some food for thought has been provided.
Thanks! Don' think there is to many things in your post I agree with 100% maybe 50%.

Where you used "exponential" squaring, cubing etc. I may use the word incremental.
Not really what I meant, yes you get $430 as a total dividend, let's say you got a 3% discount, you don't really but just say you did how many more shares would you get with a 3% discount if you owned 500 shares?
Did you come up with a number? How many shares on a $40 ish thousand portfolio, would it make a difference, would it make a difference on a portfolio starting at $0?

Is there and "easier better way" buying shares on a monthly or quarterly basis would let the OP get used to using his brokerage's software, at least till they change it again, there's value in that I think. (don't underestimate things I/you/we take for granted that a newbie wouldn't know)

On portfolio starting from "$0" how long would it take for a drip to add value? (need to buy one share and register it $60 +?, now you have a brokerage account and a Computershare account)
On a large portfolio say generating $40,000+ dividends per year does it make sense to drip all those dividends back or could you use those dividends for rebalancing, bargain hunting or other purposes, I prefer the latter. Dripping is auto pilot but pseudo drips are as well the additional benefit of fractional shares is again incremental not exponential.
On still larger portfolio's holding shares at Computershare and at a broker may add another insurer other than CIPF, something I need to look into. I need to maybe read some old threads.http://www.financialwisdomforum.org/for ... 3&start=25
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Re: Newbie Canadian Dividend Portfolio

Post by cannew »

OnlyMyOpinion wrote:I don't know that DRIPers claim superior performance to other investing, I don't. It's something we started years ago and continue to be satisfied with. For us it's a 'passive' way of reinvesting regularly and tax efficiently into a decent dividend yield (4.1% currently) with no fees. Our BMO holding spins off $6,400/yr and buys 19-21 shares/qtr since we don't currently need the income. Tracking ACB is painless with a spreadsheet and a keyword search ('montreal') through the pdf statements every year or two to bring up dividend payments and drip details. Our common shares are also far from the only thing we invest in.
I'm sure your Yield on Investment is much higher than 4.1%. My wife has BMO in a drip and her yield on total investment (principals plus reinvested dividends) is 6.19%.
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Re: Newbie Canadian Dividend Portfolio

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cannew wrote:I'm sure your Yield on Investment is much higher than 4.1%. My wife has BMO in a drip and her yield on total investment (principals plus reinvested dividends) is 6.19%.
On a forward looking basis, yield on cost is an irrelevant indicator, bragging rights aside.
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Re: Newbie Canadian Dividend Portfolio

Post by AltaRed »

adrian2 wrote:
cannew wrote:On a forward looking basis, yield on cost is an irrelevant indicator, bragging rights aside.
It is amazing how often this still seems to come up but it is akin to RE prices, i.e. how much a person's house is currently worth relative to cost is not relevant either but is a hugely popular pasttime.
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Re: Newbie Canadian Dividend Portfolio

Post by BRIAN5000 »

bragging rights aside.
Let me check 19.8% on TRP but only 9.9% on BMO
:thumbsup:

That's not at all what "OnlyMyOpinion" was saying anyway.
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Re: Newbie Canadian Dividend Portfolio

Post by adrian2 »

BRIAN5000 wrote:That's not at all what "OnlyMyOpinion" was saying anyway.
I was replying to / quoting cannew.
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Re: Newbie Canadian Dividend Portfolio

Post by like_to_retire »

AltaRed wrote:
adrian2 wrote:
cannew wrote:On a forward looking basis, yield on cost is an irrelevant indicator, bragging rights aside.
It is amazing how often this still seems to come up but it is akin to RE prices, i.e. how much a person's house is currently worth relative to cost is not relevant either but is a hugely popular pasttime.
I know you guys like to malign yield-on--cost (YOC), but I certainly have it, and use it, in my spreadsheets as an important metric to compare against yield-on-market (YOM). It's useful to draw attention to how well a company is performing with respect to dividend increases and share growth. If the share price is consistently increasing over time and the dividend is tracking to keep a proportional payout ratio, then it is revealed with a well behaved YOC and YOM. If either is out of whack you'll know pretty quick with these are metrics in your spreadsheet. I certainly use them both and think they both have their place.

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Re: Newbie Canadian Dividend Portfolio

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like_to_retire wrote:If the share price is consistently increasing over time and the dividend is tracking to keep a proportional payout ratio, then it is revealed with a well behaved YOC and YOM. If either is out of whack you'll know pretty quick with these are metrics in your spreadsheet. I certainly use them both and think they both have their place.

ltr
Obviously different metrics for different folks. What I'd rather know is total return over time, or perhaps a bit more granular: 1) share appreciation, and 2) dividend growth rate. I cannot figure out what comparing YOC and YOM tells me.
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Re: Newbie Canadian Dividend Portfolio

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AltaRed wrote:Obviously different metrics for different folks. What I'd rather know is total return over time, or perhaps a bit more granular: 1) share appreciation, and 2) dividend growth rate. I cannot figure out what comparing YOC and YOM tells me.
Total Return is somewhat less important to income ivestors, but I feel YOC and YOM are telling you the same thing as you get from your #1 and #2 granular metrics. It's just a quick way in a spreadsheet to see how a dividend stock is doing. Here's the thing. If I buy a stock and it pays out 80% of its earnings, and continues to increase its dividend, then that 80% payout will rise higher and higher unless the earnings keep up. The company needs to keep increasing its earnings along with dividend growth to keep their payout ratio constant. Dividend growth can only come from Earnings per share growth.

If I buy a stock at $10 with a dividend of $0.50, then the YOC and YOM are 5.0% at that time.
If the dividend increases at 4% each year for 10 years and the earnings are there to back it up such that the share price also increases at 4% per year, then I'll be getting a dividend of $0.74 and the share price will be $14.80. Yes, I could calculate Total Return and Dividend growth, but I could also have the spreadsheet show a YOM of 5.0% (same as 10 years ago) and a YOC of 7.4%. See how fast this reveals that the YOM has remained the same at 5.0% over the 10 years revealing the earnings growth and the fact that the YOC is 7.4% shows the dividend growth at a glance.

But as you say, different metrics for different folks, but it doesn't mean that YOC is useless. I suppose as a standalone value it may be used as a bragging metric, but for fixed income investors there's also a feeling that things are going right. I could have invested a fixed sum of $10,000 in GIC's, and in 5 years I'll have a YOC that aligns with the rate I had 5 years ago. Low risk, but not too exciting. If I invested in a dividend growth stock, and the stars aligned, I may have a YOC that's much, much higher. It's a useful metric to use as a comparison.

EDIT. I've been trying to come up with thoughts on why comparing YOC and YOM is interesting because you're having trouble with it. If I see YOM rising up toward YOC in my spreadsheet, it's a quick indicator that the share growth is low and the company may be increasing the dividend without the earnings growth to back it up. Bad news and it may be time to take a closer look.
Or, perhaps the YOM is dropping while the YOC is rising is a great indicator that the share price is rising faster than the dividend, and so they are not passing the earnings growth onto the investors and it may be time to take a look at why that is happening.

It's always interesting to open ourselves up to new ideas even though we feel we know what we know, but I'm always interested in entertaining anything new. I'm always playing with the math to see if I can come up with anything new that may help me out. It may just be a flag to send me to a company site to see what's going on.

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Re: Newbie Canadian Dividend Portfolio

Post by BRIAN5000 »

I've been trying to come up with thoughts on why comparing YOC and YOM is interesting because you're having trouble with it.
Will it help me compare two stocks to decide which to buy?

I have equal amounts of TRP & ENB
TRP YOC 19.9% YOM 3.74%
ENB YOC 10.8% YOM 4%

Which was/is/will be a more attractive stock to buy some more of now hypothetically*?

* I have enough of both at this time
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Re: Newbie Canadian Dividend Portfolio

Post by like_to_retire »

BRIAN5000 wrote:
I've been trying to come up with thoughts on why comparing YOC and YOM is interesting because you're having trouble with it.
Will it help me compare two stocks to decide which to buy?

I have equal amounts of TRP & ENB
TRP YOC 19.9% YOM 3.74%
ENB YOC 10.8% YOM 4%

Which was/is/will be a more attractive stock to buy some more of now hypothetically*?

* I have enough of both at this time
Of course (just like Total Return and Dividend Growth comparisons) YOC and YOM require time invested to make any sense. I'm sure you already know this though - right?.

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Re: Newbie Canadian Dividend Portfolio

Post by BRIAN5000 »

Of course (just like Total Return and Dividend Growth comparisons) YOC and YOM require time invested to make any sense. I'm sure you already know this though - right?.
So I need a column in my spreadsheet with the time I bought each what if I bought over different time periods.

Pick a time frame, 5 years?
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Re: Newbie Canadian Dividend Portfolio

Post by like_to_retire »

BRIAN5000 wrote:Will it help me compare two stocks to decide which to buy?
C'mon Brian, you know better than this.

If I tell you the Total Return and Dividend growth over two different time periods for two different stocks, can you tell me which one to buy?

Total Return, Dividend Growth, YOC, YOM are all metrics along with many others used to evaluate how your stocks are doing in a spreadsheet. You can decide if they're useful or not. I think I've explained my position on YOC to show it isn't the useless figure many make it out to be. I'll leave it at that.

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Re: Newbie Canadian Dividend Portfolio

Post by MarketLost »

StuBee wrote:If memory serves me well, a board lot is 100 shares. Strictly speaking, does such a concept still exist?

Given the description as supplied by the OP, I imagine that the choice of companies will be limited to large Caps that are very liquid. In this case, there is no reason that I can think of why the number of shares must be divisible by 100.
Now I feel old. :(

I started trading in '86, and buying odd lots was actively discouraged, and that's putting it mildly. If you were trading widely-helds then your broker could have some stocks in their inventory, and would allow you to buy them, but they didn't make a habit of it. Mostly, they just held your order until they could collect enough to make a proper board order, and put that through. Needless to say you couldn't do a limit order with it. Even today they are treated differently, so I stick with board lots, it seems to work well.
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Re: Newbie Canadian Dividend Portfolio

Post by MarketLost »

AltaRed wrote:I pretty much agree with Scomac that the individual needs to be mentored to do the homework for him/herself. I'd also suggest that starting off with an ETF is the best way to go because stock picking/purchases should be a bit more opportunistic than operating on a robotic program without due regard for the fundamentals. That is part of the learning process.

It is also influenced by the chosen brokerage's fee and commissions schedule. Most (if not all?) brokerages have account minimums to avoid account fees and/or $7-10 commissions.
Maybe it's just me, but I don't even think it's worth trying to pick individual stocks unless you have at least $50K. As you mention, it's a lot of fees to do it, and it's also hard to buy a lot of the better dividend financials without spending a lot.
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Re: Newbie Canadian Dividend Portfolio

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MarketLost wrote:I started trading in '86, and buying odd lots was actively discouraged, and that's putting it mildly. If you were trading widely-helds then your broker could have some stocks in their inventory, and would allow you to buy them, but they didn't make a habit of it. Mostly, they just held your order until they could collect enough to make a proper board order, and put that through. Needless to say you couldn't do a limit order with it. Even today they are treated differently, so I stick with board lots, it seems to work well.
Care to enumerate the disadvantages of buying an odd lot nowadays? I can't think of anything major.
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Re: Newbie Canadian Dividend Portfolio

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adrian2 wrote: Care to enumerate the disadvantages of buying an odd lot nowadays? I can't think of anything major.
I didn't mean to imply there were any major disadvantages, just that they are handled differently. For one they don't show up in the bid/ask, they have to be matched with a buyer through an ECN, and there could be a long delay filling them. I also am not sure that you can do a limit order, but then again, I don't do them so that part I'm not sure of. I also like board lots because most of my transactions are done through selling naked puts or covered calls. If you don't worry about this type of activity then the disadvantages are rather innocuous.
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Re: Newbie Canadian Dividend Portfolio

Post by adrian2 »

MarketLost wrote:I also am not sure that you can do a limit order, but then again, I don't do them so that part I'm not sure of.
You can definitely place a limit order for an odd lot.
MarketLost wrote:I also like board lots because most of my transactions are done through selling naked puts or covered calls. If you don't worry about this type of activity then the disadvantages are rather innocuous.
I do those, too, but in rare cases I trade odd lots.
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