Power of Dividend Growth 2011 (and beyond)

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BRIAN5000
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Re: Power of Dividend Growth 2011 (and beyond)

Post by BRIAN5000 »

Perceptive question. Thanks for the interest
Any feedback you provide may help me or others.

What I'm trying to do is run my portfolio on basic portfolio management techniques I'm not trying to reinvent the wheel. For me sometimes these are hard to figure out but something you said made me look at my portfolio a bit different and it may help. Sometimes I compare my portfolio to a smaller one and try to figure out what I would do and if it makes sense to do the same thing with a larger portfolio. Then you got me thinking what are most portfolio calculations based on. A "normal" retirement portfolio may be a 60/40 equity fixed income split with a minimum sector allocation of 10% and a max of 30%. Somebody with a max sector allocation of 30% in a 60/40 portfolio has almost twice as much "risk" dollar wise as someone with 30% in a 35/65 portfolio.
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Re: Power of Dividend Growth 2011 (and beyond)

Post by parvus »

This is one of the new institutional investing trends. In a 60/40 portfolio, 90% of your risk (=volatility) is on the equity side. Risk parity suggests a leveraged bond portfolio, which is very hard for non-institutional investors to do.
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Re: Power of Dividend Growth 2011 (and beyond)

Post by SQRT »

Risk parity concept seems a little complicated for simple me. Seems like we are talking in basis points ie very small enhancement for lots of effort. Or is it just an intellectual exercise for people with lots of time and a keen interest? As you say maybe just institutional?
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Re: Power of Dividend Growth 2011 (and beyond)

Post by parvus »

Intellectual exercises are geared to beating a performance-based benchmark to win bonuses, which alas, is beyond the reach of retail investors.

For retail investors, risk means losing money. It could involve discussion about the sustainability of a 4% withdrawal rate. It could involve discussion about the lifecycle/lifetime savings hypothesis. Intellectual exercises might provide insight into how one should conduct one's life, or is that should have?
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Re: Power of Dividend Growth 2011 (and beyond)

Post by Sensei »

Hello,

Risk means different things to different people, so a couple of comments on the 'risk parity' approach to portfolios.

1. For any financially forward-thinking person, the greatest and first risk to be considered is running out of money in retirement. This should take into consideration inflation. From that point of view, equities beat bonds hands down for building wealth and therefore should be the main focus in either a bear or bull market especially in the accumulation phase. Of course, being in the latter situation, my preference is high quality equities with sustainable dividends.

2. I consider bonds to be very risky investments at this point. We are waiting for the 'rising interest rate' shoe to drop in which case a lot of bonds and bond funds will drop. In my case, without the protection of Canadian tax-shelters, they are tax-inefficient.

3. If you are content with the yields of bonds right now, and holding (or can hold) individual bonds until maturity or a favorable exit point, then you won't get any quibble from me.
Cheers

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Re: Power of Dividend Growth 2011 (and beyond)

Post by Peculiar_Investor »

This discussion seems to be drifting away from dividend growth and towards Risk = ??
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Re: Power of Dividend Growth 2011 (and beyond)

Post by Sensei »

Hi,

I found something that I thought I would share with those that do not already know of it.

The most recent video report on TDW was with Eric Sappenfield of Epoch Investment Partners. I found the video in itself quite unexpectedly interesting, so I went on to investigate Epoch Investment Partner's website. Really, really good and many things are really well explained in a series of videos (not sound bytes). I especially liked the 9% Solution. Also, I think based on what I have heard and read so far, it would be a good place to scavenge for stock ideas. I'll be at it again tomorrow. Enjoy!

Epoch Investment Partners
Cheers

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Re: Power of Dividend Growth 2011 (and beyond)

Post by Taggart »

Sensei wrote:Hi,

I found something that I thought I would share with those that do not already know of it.

The most recent video report on TDW was with Eric Sappenfield of Epoch Investment Partners. I found the video in itself quite unexpectedly interesting, so I went on to investigate Epoch Investment Partner's website. Really, really good and many things are really well explained in a series of videos (not sound bytes). I especially liked the 9% Solution. Also, I think based on what I have heard and read so far, it would be a good place to scavenge for stock ideas. I'll be at it again tomorrow. Enjoy!

Epoch Investment Partners
I remember checking up on this one a few years ago. The results are a bit of a mixed bag. If you look at their Epoch Global Equity Shareholder Yield Fund, they've managed to beaten their benchmark over 5 years. If you look at the equivalent up here in Canada that follows the same investing theme, Global High Dividend Advantage Fund, then this one trails the index in CDN dollars over the same time period.

Both funds are referred to in Bill Priest's 2007 book, "Free Cash Flow and Shareholder Yield".
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Re: Power of Dividend Growth 2011 (and beyond)

Post by Sensei »

Hi,

Taggart wrote:
I remember checking up on this one a few years ago. The results are a bit of a mixed bag. If you look at their Epoch Global Equity Shareholder Yield Fund, they've managed to beaten their benchmark over 5 years. If you look at the equivalent up here in Canada that follows the same investing theme, Global High Dividend Advantage Fund, then this one trails the index in CDN dollars over the same time period.

Both funds are referred to in Bill Priest's 2007 book, "Free Cash Flow and Shareholder Yield".
Good to know. I checked both of the funds you mention and that is correct. We might also note that actively managed funds rarely beat the market. I'm interested in the book, and I may buy or borrow it if I can.

However, that is not why I look a mutual fund websites. I'm not allowed to by funds in Canada or the US anyway. I scan them to see what their managers are buying. (Trick I learned from JaydoubleU, btw). This strategy has been quite successful and my favorite site is Miller Howard Investments Made a lot of money off some of their choices. This one caught my attention because it explains a methodology for choosing companies which is close to my own, but better. More than anything, it made it clear that I need to learn how to read financial statements better than now.
Cheers

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Re: Power of Dividend Growth 2011 (and beyond)

Post by ig17 »

I took a quick look. My first impression: they run too many funds. That's a yellow flag.

The game is all too common. Seed X funds. Run them for a while. Kill or merge the losers. Claim exceptional stock picking ability by promoting the remaining winners.
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Re: Power of Dividend Growth 2011 (and beyond)

Post by Sensei »

ig17 wrote:
I took a quick look. My first impression: they run too many funds. That's a yellow flag.

The game is all too common. Seed X funds. Run them for a while. Kill or merge the losers. Claim exceptional stock picking ability by promoting the remaining winners.
Maybe you are right, but off topic and nothing to do with my post, so don't quote me out of context! Clearly, you didn't read my post carefully if at all. .

I reiterate, I can't buy funds in Canada or the US even if I wanted to, and/so I'm not promoting the funds or company. Second time I've written this.

I AM interested in discussing the educational value of the website investment philosophy embodied in the presentations, what people thought of the TDW interview, and also if the ideas apply to your dividend investing. If you do have time to do what I did (watch and listen) and still think the methodology (not the company) is a load of horse petoutie then I'm all ears. I'm also interested in hearing about any other websites people like to scan, assuming that you use the same strategy.
Cheers

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Re: Power of Dividend Growth 2011 (and beyond)

Post by Taggart »

I recall back in the early 90's Morningstar mailed out a monthly subscription service for ADR's. Format was very similar to Value Line's which was mostly American stocks with a few ADR's. Lots of great data in the Morningstar version, and enjoyed going through them at the time each and every month. However, when I look back on that period of time a lot of it was all meaningless. It seemed most of the ADR's were unlisted on the OTC pink sheets, and after a few small test forays I gave up on that idea. I still clung to the notion of using the listed ADR's for many years after, until it finally dawned on me that I couldn't build a decent diversified ex-North America portfolio with the limited selection of dividend growth stocks available. I looked at deep value as well, ala Ben Graham, but I'm glad I didn't push too much into that, since it was way beyond my abilities as an investor.

Just to give an idea, of one of the many investing themes I've tried since the early 80's, but fell flat.
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Re: Power of Dividend Growth 2011 (and beyond)

Post by Taggart »

Taggart wrote:
Both funds are referred to in Bill Priest's 2007 book, "Free Cash Flow and Shareholder Yield".
Sensei wrote: I'm interested in the book, and I may buy or borrow it if I can.
You may also be interested in reading anything you can get your hands on from Kenneth Hackel. I still remember watching him once on Wall Street Week back in the 1980's and he knows cash flow analysis inside out. Not easy reading though. He now runs an investment firm called CT Capital LLC.
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Re: Power of Dividend Growth 2011 (and beyond)

Post by Taggart »

At the end of this month Brian Rogers, portfolio manager for T. Rowe Price Equity Income Fund, will be stepping down to retire. He's been running the fund since 1985. I personally have mixed feelings about it, since I've been following this manager for many years now. Actually watched an interview with him for the first time on Louis Rukeyser's "Wall Street Week".

We often hear about how difficult it is for an active fund to beat an index but the long term returns seem to be very much time dependent.

According to Morningstar, this equity income fund had a 15 year total return of 6.66% while the S&P 500 could only manage a 4.76% over the same number of years.

Ten year returns are quite reversed though.

T. Rowe Price Equity Income 6.77%

S&P 500 Total Return 7.69%

Obviously looking at the returns in Morningstar this fund has been lagging against the index in every time period for the last ten years.

Could Rogers have eventually turned things around? With his departure into retirement, we'll never know now.
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Re: Power of Dividend Growth 2011 (and beyond)

Post by Sensei »

Hi,
You may also be interested in reading anything you can get your hands on from Kenneth Hackel. I still remember watching him once on Wall Street Week back in the 1980's and he knows cash flow analysis inside out. Not easy reading though. He now runs an investment firm called CT Capital LLC.
I just ordered Kenneth Hackel's Security Valuation and Risk Analysis (2010). Not sure why, but the hardcover version was 1740 yen or less than $17. Thanks for the suggestion.
Cheers

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Re: Power of Dividend Growth 2011 (and beyond)

Post by Taggart »

Sensei wrote:Hi,
You may also be interested in reading anything you can get your hands on from Kenneth Hackel. I still remember watching him once on Wall Street Week back in the 1980's and he knows cash flow analysis inside out. Not easy reading though. He now runs an investment firm called CT Capital LLC.
I just ordered Kenneth Hackel's Security Valuation and Risk Analysis (2010). Not sure why, but the hardcover version was 1740 yen or less than $17. Thanks for the suggestion.
Sensei:

That book goes for around $50 USD new on Amazon, so that is indeed a bargain for what you paid. Hope you find it worthwhile.
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Re: Power of Dividend Growth 2011 (and beyond)

Post by Sensei »

Hi,

I do indeed now have the book in hand and yes it was that price 1740 yen. A stroke of good fortune and it does look interesting, if a little a little above my current investment knowledge. Interestingly, I checked again just now and they've repriced it to 3302 yen (still cheap) which is less than the Kindle version. :? at 5594 yen.
Cheers

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Re: Power of Dividend Growth 2011 (and beyond)

Post by Taggart »

So far, my strategy of only buying Canadian equities that have historically increased their dividends on an annual basis seems to have been successful. I've only ignored that rule for two companies I own, in a portfolio of thirty +, and they were exceptions because they were good enough to give special dividends to investors every few years. So everything's clicking as it should and I have no plans to change my rules on the buy side.

However, I've decided to rein in a bit on the sell side. In most cases, I've sold as soon as there's been any dividend cut or threat off such and I don't expect that to change. Usually a steady dividend grower decides not to increase it's dividend for one of two reasons. The company is having problems or management would prefer to use the cash for other means within the business (i.e. Husky). Either way I've lost interest in continuing to hold. It's not just the equities I own that I learn from, but also those for which I don't have a holding, but observe nevertheless. I'm usually inclined to give a company a lot of leeway if their dividend flatlines, and not sell until early in the third year of no dividend growth. In light of recent events, I think I'll change that to a sell in the early part of the second year where there's been no dividend increase, and in some cases I may even pull the trigger quicker than that.

Anyone have their own rules or strategies? Always interested to hear how other investors implement their's on the buy and sell side.
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Re: Power of Dividend Growth 2011 (and beyond)

Post by SQRT »

Taggart: any reason why you didn't disclose your 2014 total returns?
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Re: Power of Dividend Growth 2011 (and beyond)

Post by Taggart »

SQRT wrote:Taggart: any reason why you didn't disclose your 2014 total returns?
Easy answer. I've never kept track of the portfolio yearly returns. My wife and I are both retired, and as long as the portfolio and other income sources, allow us to continue living our chosen lifestyle, with some some savings leftover for re-investment, we're both happy. I don't need any more than that.
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Re: Power of Dividend Growth 2011 (and beyond)

Post by AltaRed »

I have no specific rules on dividend investing other than the stock pay a dividend. Total return is the more important criteria. I will hold a stock indefinitely with no dividend growth if I am being rewarded with capital appreciation. That said, capital appreciation without dividend growth for long periods would be a rare bird. FWIW, I have no records of when any of my stocks last had a dividend increase because I do not flag that specifically.

Likewise, I do not necessarily cut and run at the first sign of a dividend cut, because again it depends on the total return of a stock AND a dividend cut usually means the price of a stock has already taken a beating. I do not arbitrarily take capital losses. I would have to check my records but I believe POT is an example of that.

Added: my only record of dividend increases is to compare the dividend income lines on my T1 Generals each year.
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Re: Power of Dividend Growth 2011 (and beyond)

Post by StuBee »

SQRT wrote:Taggart: any reason why you didn't disclose your 2014 total returns?
Modesty?? :lol:

For Taggart,
Taggart wrote:In light of recent events, I think I'll change that to a sell in the early part of the second year where there's been no dividend increase, and in some cases I may even pull the trigger quicker than that.
A little quick don't you think??? With that approach, I would have sold RY (ACB 12$) in December of 2009. Since then, there have been 7 dividend increases and the shares have increased by nearly 50%...

I still have my PWF and half of my SLF even though they have not raised in over 6 years. I am content with the current yields of around 4% in each case. I consider the overall yield growth of my dividend portfolio to be more important than the growth of each individual security. Yesterday's laggard can become tomorrows star. Our nominal growth per year over the last 5 years in dividend income is a bit above 4% with real growth closer to 2.5% (no new money and no stretching for yield). 2015 dividend income growth will be exceptional (due to ENB's 30% dividend increase announcement...)
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Re: Power of Dividend Growth 2011 (and beyond)

Post by Taggart »

AltaRed wrote: FWIW, I have no records of when any of my stocks last had a dividend increase because I do not flag that specifically.
That I do keep a record of in a spreadsheet.

AltaRed wrote:Added: my only record of dividend increases is to compare the dividend income lines on my T1 Generals each year.
Yep, I do that too.
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Re: Power of Dividend Growth 2011 (and beyond)

Post by Taggart »

StuBee wrote:

A little quick don't you think??? With that approach, I would have sold RY (ACB 12$) in December of 2009. Since then, there have been 7 dividend increases and the shares have increased by nearly 50%...

I still have my PWF and half of my SLF even though they have not raised in over 6 years. I am content with the current yields of around 4% in each case. I consider the overall yield growth of my dividend portfolio to be more important than the growth of each individual security. Yesterday's laggard can become tomorrows star. Our nominal growth per year over the last 5 years in dividend income is a bit above 4% with real growth closer to 2.5% (no new money and no stretching for yield). 2015 dividend income growth will be exceptional (due to ENB's 30% dividend increase announcement...)
Yes, you got me there Stubee, at least partially. I was selling financials at the time, to get this sector down from a near 50% down to a now more modest target of 14% in the taxable portfolio. The insurance companies I sold outright once I heard analysts say they didn't expect any dividend increases from them for a number of years into the future. No regrets from me on that score. In fact, the only regret from me is when I do something stupid. The last stock that made me feel that way was YLO. I learned a valuable lesson there I hope to never repeat.
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Re: Power of Dividend Growth 2011 (and beyond)

Post by scomac »

I'm finding that rules while good guidelines in theory need flexibility.

I always used to require a growing dividend until I discovered that you could manufacture you're own dividend growth through strategies like pairs trading.

I used to require a dividend until I realized that although Couche Tarde was technically a dividend payer and a growing one at that the dividend wasn't really enough to buy much more than a cup of coffee. The only way to realize an adequate return was to take capital gains. Since then I've removed the dividend requirement and now have one stock that doesn't pay a dividend at all.

I routinely harvest capital losses once they are of sufficient size, typically that is 15% to 25% down on the position depending upon size. I think this is really important as you never know just how low a stock can go and believe me I've experienced that first hand. We're seeing it again now with the crash in energy shares. It's free money; you may as well take it because some day you'll have a capital gain you can apply that loss against.
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