Power of Dividend Growth

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JaydoubleU
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Post by JaydoubleU »

The unique approach in Bunyip's dividend growth strategy is that he buys when funds are available at market price. He doesn't use limit orders or attempt to find a market bottom. This approach is different from the classic value one in which the investor tries to purchase stocks when they are value priced, that price being determined by a measure of current vs. historical yield or a Graham number. He has commented that in the very long term, the price you pay today won't really make a huge difference.

And he's right. If you take a 3% yield and a 4% yield and assume a 10% annual dividend growth rate, after 20 years the numbers aren't really all that far apart (20.18% vs 26.9%). The key variable here is TIME and the longer you hold off, waiting for the value price, the longer you postpone the compounding miracle. This is my thinking here.

But he isn't entirely innocent of market timing. He bought TRP shares just after they had cut the dividend, and he has also stated that he would buy BMO if they cut the dividend. The assumption is that the stock price would tumble, providing a buying opportunity, and that the dividend (and stock price) would be restored in time.

So he does look for buying opportunities. Still, his strategy of investing is long, long term and relatively stress / hassle free. I occasionally refer back to jungleguy's interview to remind myself how a successful investing philosophy works.
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Post by Sensei »

Actually, when I read the interview, I wasn't expecting much. I think I was pretty skeptical about dividend investing. But, it was the first time that dividends really made sense. It was one of those, 'Ohhhhhhh... I get it now. I see where these guys are coming from.' I perhaps can't follow his approach to the letter. For one thing, my investment horizon is limited, so higher starting yields are more important I think. Circumstances vary, of course. I certainly mark bunyip as my starting point.

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Post by Taggart »

Investors Chronicle

1 December 2008

The search for income

One item in the above article caught my eye.

According to recent Citigroup research, over the last five bear markets share price performance has tended to correlate closely with dividend changes: stocks with higher-than-average dividend growth tended to outperform.
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Post by Dividend Growth Investor »

I wouldn't buy after a dividend cut. I could buy after the cut is repealed and the dividend is growing again however..

By the way, who is Bunyip?
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Post by 2 yen »

Dividend...I would buy after a cut. Especially if it is a firm that has been nailed by the credit swaps, like all the big Canadian banks. For example, BNS would have to cut if one just used their quarterly per share profit this time of 28 cents. That doesn't sustain a $1.96 dividend. I realize this is overly simplistic, however.
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Post by Taggart »

Dividend Growth Investor wrote: By the way, who is Bunyip?
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bunyip

Post by Sensei »

Hi,

Jungle Guy (Financial Jungle blog) did an interview with Bunyip on January 28, 2008. Just search for 'bunyip'.

It was after reading that interview that I really got into dividend investing and I think it's my final investing strategy although I only have ever had two including dividend investing :o My first love was fund investing and I still have four modest portfolios in the U.K. and Luxembourg. My answer for an RRSP I guess as a non-res.

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Managing your dividend portfolio

Post by Sensei »

I've been wondering recently about how to manage my dividend portfolio better, especially how much of each stock one should own. Here are two ways I can think of:

1. Buy an equal dollar value of several stocks and keep your adjusted cost base equal.
-this assume you will have cash to add from time to time and you add to the cost base in equal amounts regardless of the current value of the stock
(this is the idea I started with and am now wondering about)

1a. Or would you buy different dollar values of certain stocks? And why?

2. Buy a certain dollar value of stock and when the current value is less than the ACB, top up.
-this assumes that the dividend rate is the same and you believe the rate will stay the same and / or rise
-it is a good company to begin with

Let's leave sector diversification out of it for now.

Thanks if you can help out.
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Post by Michael D »

Why balance by ACB? You may have to make decisions based on real-market fluctuations. Something may be in the tank because it deserves to be there.

Also (thinking back to the BCE/Nortel influence on the Canadian index) market value must be addressed if one large holding becomes too large (over 10% of portfolio) where ACB would not indicate so.
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Post by scomac »

I try to work on the equal weighting principle holding "x" number of stocks at roughly the same weighting in the portfolio on a market value basis. If the stock gets above twice the assigned weighting, then I would sell it down by half. Likewise, if a stock dropped off to half or less of its assigned weighting, then it would be reviewed and a decision made as to whether to sell what was left or add to it and bring it back up to the target level.

As a practical example, a balanced portfolio that was 50:50 equity/fixed income might hold 20 equal weighted stocks at roughly 2.5% of assets each. In the above example, the threshold to rebalance would be 1.25% on the downside and 5% on the upside. The weightings would be based on market value rather than ACB.
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Re: Managing your dividend portfolio

Post by Taggart »

Sensei wrote: Let's leave sector diversification out of it for now.
When you're ready to talk about sector diversification, let me know, then I can throw in my two pence, for what it's worth.
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Post by Sensei »

Hi,

Hmmm. I'll chew on that for a while.

What would you do with a stock that rises in MV, but the dividend rises in tandem so the current yield stays the same?

Any thoughts on how to deal with high yielding stocks (MBT) for example vs. low yielding but rapid rate growth stocks for example the way MFC once was (I don't know what it is now).

Separate income port vs. dividend achievers port? All in the same portfolio?

(I'll get to sector diversification eventually, Tag!)

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Post by scomac »

Sensei wrote:
What would you do with a stock that rises in MV, but the dividend rises in tandem so the current yield stays the same?
Yield is irrelevant in the way that I manage weightings. There is an implied assumption that a high yield/low growth stock will require that some of the dividend be directed into reinvestment over time where as the low yield/high growth stock would appreciate at a rate adequate to maintain its weighting due to the reinvestment of earnings by management. It won't always work out like that in actual practice, so periodically the portfolio manager will be required to rebalance.
Separate income port vs. dividend achievers port? All in the same portfolio?
You can set things up however you feel most comfortable. Regardless of the number of accounts that one might have holding equities, I would manage them as a single portfolio. It's important to look at the big picture when managing one's financial assets and therefore IPS needs to be implemented on a total asset basis rather than an account by account basis.
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Post by BRIAN5000 »

What would you do with a stock that rises in MV, but the dividend rises in tandem so the current yield stays the same?
Buy more.
Any thoughts on how to deal with high yielding stocks (MBT) for example vs. low yielding but rapid rate growth stocks for example the way MFC once was (I don't know what it is now).
Whats wrong with having some high yielders ? There dividends may not grow but they give a nice base dividend income to your portfolio that you can use to buy either more of MBT or more of your dividend growers. In this mess were in now it was nice to have that income.
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Re: Pot pourri

Post by schmuck »

scomac wrote: Dividendinvestors.ca provides all the pertinent, company specific, information on a single site that can be retrieved by entering the appropriate symbol in the "Quote" function.
Thanks for the link scomac.
Lots of great info there, but I wonder if anyone else is confused about some of those numbers....eg: the 9.10% yield for PWF had me scratching my head, as most other recent info shows a 6.33% yield.

Anyway, if the info is reliable, it seems to me that Methanex (MX) with a PE of 3.0, a payout ratio of 16%, a debt/equity of 54%, EPS of a whopping 43%, and other sources showing even a higher yield, would have to be a SCREAMING BUY....gotta check those numbers. Looks too good to be true.
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Re: Pot pourri

Post by northbeach »

schmuck wrote:
scomac wrote: Dividendinvestors.ca provides all the pertinent, company specific, information on a single site that can be retrieved by entering the appropriate symbol in the "Quote" function.
Thanks for the link scomac.
Lots of great info there, but I wonder if anyone else is confused about some of those numbers....eg: the 9.10% yield for PWF had me scratching my head, as most other recent info shows a 6.33% yield.

Anyway, if the info is reliable, it seems to me that Methanex (MX) with a PE of 3.0, a payout ratio of 16%, a debt/equity of 54%, EPS of a whopping 43%, and other sources showing even a higher yield, would have to be a SCREAMING BUY....gotta check those numbers. Looks too good to be true.
DividendInvestors takes the last quarterly dividend paid to calculate the P/E ration. In this case it uses the Dec 29, 2008 ex date which apparently pays 0.5050. They then multiply by 4 and divide by the current stock price. Note, I have not checked to see if the 50.5 cents is accurate.

http://dividendinvestors.ca/historical.php?no=972

I believe GlobeInvestor takes the previous 4 quarters of dividends and add them up, then divides against the current stock price.
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Post by scomac »

The dividend rate for PWF is incorrect. The declared dividend for shareholders of record on Dec. 31, 2008 is $.35/share. This implies an annual dividend rate of $1.40/share which would provide a current yield of 6.3% based on the closing price of $22.10.
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Post by JaydoubleU »

I thought about starting a new thread for this question, but decided to put it here.

In 2009, where do you see the greatest odds of a dividend increase? Decrease? Hold? Let's stick with Canadian stocks first.

I think next year will see increases from TRI, TRP, FTS, POW, PWF and RCI.B among those I own.

The banks will hold through 2009. I expect MBT, RUS and RET.A to also hold.

Very unsure about HSE. Cash flow must have plunged this quarter. I'm going to suggest that they will cut, if prices do not rebound to at least $70 in Q1.

Care to suggest any others? Increase, hold, or decrease.
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Post by 2 yen »

COS has to decrease. CIBC may well have to. Then it's real estate - how will the REIT's hold up? Jay..I know you mainly mean true dividends, but some of the trusts will cut I think.
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Post by Sensei »

Hi,

The Canadian banks make me quite nervous in my short experience with owning any. This new stock offer from RY is obviously going to lower the stock price and raise the dividend yield. There is a point where yield passes from being attractive to unsustainable as happened with the U.S. and U.K. experience just traversed by some of us.

Also, if they feel they need to raise new money, there would seem like little possibility of bank div increases. Hold at best.

I'd say pretty static for most other sectors too. OTOH, oil might just take off again. Oil, the commodity, is way undervalued in my view and just the very cheapness of it might stimulate many other sectors and increase demand. Chances are that HSE might raise or hold (if I'm right of course).

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Post by brad911 »

JaydoubleU wrote:In 2009, where do you see the greatest odds of a dividend increase?
Definitely RCI.B, TRI & the Powers (POW/PWF).
SC and SAP are two others, as well as MRU.A & EMP.A. While I might not see much from the banks I've positioned my portfolio I think in a decent way to receive increases despite weakness in other companies I hold.
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Post by investor99 »

Certainly going to be interesting to see how all of this dividend activity pans out. I think the most likely raises will come from:

Rogers
Shoppers
Saputo
Fortis
TRP
Telus
Toromont
Metro

I think at least a few firms will surprise with raises in 2009. Perhaps:
TD
RY
BNS
IGM
CP
CNR
Loblaw
SLF
GWO
MFC

Cuts (hope there isn't many but maybe:
Husky
BCE - stealth cut
I'd be surprised to see any CAD bank cut
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Post by Locke »

Given the yields on the banks right now vs historical. It's as if you already been given this year's and next year's dividend increases.

If the companies in my portfolio hold, I'd be satisfied given the constraints in the market and cash flow.

Speaking of which, companies with the best/stable cash flow most likely to increase
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Post by JaydoubleU »

Well, FTS already announced an increase of 4%, so that's that. I had been expecting their announcement early next year.

4% . . . :? Better than a kick in the arse, I suppose. We'll take it :)

The trouble with all these share issues is that the payout ratios go UP. Banks are already at the high end of their ratios, and several are well over. BMO has never cut, but it isn't impossible. The bank with the lowest ratio is TD, I think. It may be the most likely to raise.
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Post by Dividend Growth Investor »

JaydoubleU wrote:Well, FTS already announced an increase of 4%, so that's that. I had been expecting their announcement early next year.

4% . . . :? Better than a kick in the arse, I suppose. We'll take it :)

The trouble with all these share issues is that the payout ratios go UP. Banks are already at the high end of their ratios, and several are well over. BMO has never cut, but it isn't impossible. The bank with the lowest ratio is TD, I think. It may be the most likely to raise.
I agree with you on TD. That's why it's the only canadian bank I would be adding to in this environment. I would also like it if the can $ rose against the Us $..

If you are not happy with FTS 4% increase.. One of my utilities, Con Edison (ED) increased their divs by less than 1%.. If you are looking for current income however they are a pretty decent high-yielder..
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