Power of Dividend Growth 2011 (and beyond)

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Re: Power of Dividend Growth 2011 (and beyond)

Post by AltaRed » 11 Oct 2017 12:22

This tread (being dividend growth) is talking specifically about equity itself and so that became the focus.

Equity is the area that takes the most management. Equities are not static. They have to be monitored on a fairly constant basis for a variety of reasons that can materially impact valuations. FI doesn't really take any material effort in my opinion and so it gets shunted to the side. Thus whether equity is 30%, 60% or 100% of one's portfolio, I still don't see why one would necessarily change the number of holdings in their equity allocation. In my opinion, unless one wants to spend an awful lot of time working on their portfolios, it does not make sense to 'run a personalized mutual fund'.

Added: To reinforce why I say FI doesn't take much time.....I have about 10-12 holdings in my FI allocation....all based on about a 6 (maybe 7) year ladder. One of my corporate bonds got called yesterday. I just happened to see that by chance when I checked my accounts today. Otherwise it might have sat in cash for a week or more. Simple decision: Go to the FI tab, select Corporates, select 6-10 years grouping (to get 2023/2024), select A or BBB, and look at the 20 or so offerings and pick one (but not REITs). A total of 15 minutes spent to re-invest the proceeds.
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Re: Power of Dividend Growth 2011 (and beyond)

Post by Taggart » 11 Oct 2017 15:44

We're all different, but personally I don't spend anymore time on the portfolio of dividend growth stocks than I do on our indexed portfolios. I've been running it this way on automatic for many years now. No big deal.

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Re: Power of Dividend Growth 2011 (and beyond)

Post by AltaRed » 11 Oct 2017 20:54

Taggart wrote:
11 Oct 2017 15:44
We're all different, but personally I don't spend anymore time on the portfolio of dividend growth stocks than I do on our indexed portfolios. I've been running it this way on automatic for many years now. No big deal.
It appears I conduct more oversight on my equities than some. Probably once every 4-6 weeks I look to see what valuation trends are in place for my holdings, and I selectively look at news items related to my holdings that pop up in Quicken et al. I also tend to look at MD&A highlights every now and then, albeit not every quarter. I only look at FI when something matures.
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Re: Power of Dividend Growth 2011 (and beyond)

Post by BRIAN5000 » 12 Oct 2017 14:56

Thus whether equity is 30%, 60% or 100% of one's portfolio, I still don't see why one would necessarily change the number of holdings in their equity allocation.
Not what I'm saying surely you must understand that.

Three all Canadian portfolios all shown using the same conventions, I think.

Top 24 stocks only XIU, My Portfolio (Dumb Beta) and Mawer Canadian Equity. All stocks in green are contained in XIU. I wish I had long term accurate performance numbers.

Mawer states - The Fund invests primarily in securities of larger capitalization Canadian companies. .....Investors seeking long-term, above average growth who can tolerate equity volatility. Medium to high risk. Mer @ 1.2%

The stated intention of my portfolio - 25% more income, 25% less volatility, compared to XIU chance to meet or if lucky beat the XIU index. Mer now about zero
three portfolios 2.png
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Re: Power of Dividend Growth 2011 (and beyond)

Post by AltaRed » 12 Oct 2017 15:54

I do get what you are saying Brian and you can beat the index with a 'high graded' index emulation. I accept that. So can many others with a smaller number of positions across a number of sectors while at the same time, avoiding small weightings that don't really move the needle. It's a matter of diminishing 'impact' as you extend the tail past a certain point, e.g. less than 1% weighting (as an example). I'll leave it at that. We all do what seems to work best for each of us.
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Re: Power of Dividend Growth 2011 (and beyond)

Post by Profit not Prophet » 11 Nov 2017 09:39

Really really off topic but wanted to say how sloppy the Financial Post is. The story linked above for art has a photo that is almost 4000x6000 pixels and comes in at over 7 megs. Crazy. We used to get files out at under 100k. :) Rant off. :)

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Re: Power of Dividend Growth 2011 (and beyond)

Post by Taggart » 20 Nov 2017 04:21

Canadian equity sector investing in the non-registered account has served me well for the last few years. This is Portfolio 2 which got started in 2003. Portfolio 1 which was more international in scope with U.S. stocks and ADR's included got completely sold off in 1999.

After seeing what happened with Tech and Telecom in the early 2000's and then the Financials in 2008 to early 2009, I felt it was time in 2010 to make a major change to the portfolio, in order to bring down the risk level. Financials have been cut back from about 50% of the portfolio to 15%. Five other sectors the same percentage. Telecom is down to the final 10% of the portfolio and since Rogers stopped increasing it's dividend a few years ago, that now leaves me with only two other options for this particular sector. I have a target allocation to each stock in the portfolio set at 5% max, although I'll sometimes let a stock run a little beyond that.

I focus on both dividend growth and yield, but yield is still secondary. Only dog in the portfolio of 28 stocks over the last two years has been HCG (sold last spring). Other than that, no turnover, which is sooo important in a taxable portfolio. Wish it could be like that each and every year, but not always possible.

Primary focus is still the same as it's always been. Increasing our dividend income each year. Secondary, but I'll take it when it comes, we actually get some capital growth in the portfolio. So far, so good.

Still waiting for the next major bear market to see if anything else needs patching up in the portfolio, after the storm.

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Re: Power of Dividend Growth 2011 (and beyond)

Post by SQRT » 20 Nov 2017 08:33

Taggart: good for you. But 2010 would have been a bad time to reduce financial weighting, I think? I have a similar philosophy but not so averse to financials. My divs are about 50% of retirement income with pension the rest. Only have taxable accounts. Divs have just about doubled since the 08/09 recession and are currently growing at about 8% per year. This covers inflation on the whole income nicely. Haven’t bought anything new in about 2 years.

The real upside has been capital appreciation. Portfolio has grown a fair bit so have started to liquidate relatively small amounts of stock, maybe 1-2% per year, plan to continue to do this as long as the markets are strong. When we get the inevitable bear market, I will just revert to spending divs.

I am well aware of all the financial theory that proves that divs don’t matter. Also, it is obvious that for high earners divs are not tax efficient (32-40% on divs much less for cap gains). Nevertheless, looks like our strategy is working pretty well.

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Re: Power of Dividend Growth 2011 (and beyond)

Post by Taggart » 20 Nov 2017 15:19

SQRT wrote:
20 Nov 2017 08:33
Taggart: good for you. But 2010 would have been a bad time to reduce financial weighting, I think? I have a similar philosophy but not so averse to financials. My divs are about 50% of retirement income with pension the rest. Only have taxable accounts. Divs have just about doubled since the 08/09 recession and are currently growing at about 8% per year. This covers inflation on the whole income nicely. Haven’t bought anything new in about 2 years.

The real upside has been capital appreciation. Portfolio has grown a fair bit so have started to liquidate relatively small amounts of stock, maybe 1-2% per year, plan to continue to do this as long as the markets are strong. When we get the inevitable bear market, I will just revert to spending divs.

I am well aware of all the financial theory that proves that divs don’t matter. Also, it is obvious that for high earners divs are not tax efficient (32-40% on divs much less for cap gains). Nevertheless, looks like our strategy is working pretty well.
Hi SQRT,

Yes, it would seem that 2010 would be a bad time to reduce financial weighting, but I looked back at my records from the broker, and it didn't seem to affect me in a big way. 2010 was the first year since 2003 where the income from dividends went down, but only by about $200 or so. I have bought and sold a number of stocks since 2010, but each and every year the dividends are larger than the previous year. Dividend income showing in 2016 is double what it was in 2010.

Yes, I completely agree with you, our strategy is working pretty well, but one thing's that's never changed while investing for the last three and a half decades, is that I'm always wary about the future.

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Re: Power of Dividend Growth 2011 (and beyond)

Post by Thegipper » 20 Nov 2017 20:30

SQRT wrote:
20 Nov 2017 08:33
Taggart: good for you. But 2010 would have been a bad time to reduce financial weighting, I think? I have a similar philosophy but not so averse to financials. My divs are about 50% of retirement income with pension the rest. Only have taxable accounts. Divs have just about doubled since the 08/09 recession and are currently growing at about 8% per year. This covers inflation on the whole income nicely. Haven’t bought anything new in about 2 years.

The real upside has been capital appreciation. Portfolio has grown a fair bit so have started to liquidate relatively small amounts of stock, maybe 1-2% per year, plan to continue to do this as long as the markets are strong. When we get the inevitable bear market, I will just revert to spending divs.

I am well aware of all the financial theory that proves that divs don’t matter. Also, it is obvious that for high earners divs are not tax efficient (32-40% on divs much less for cap gains). Nevertheless, looks like our strategy is working pretty well.
thank you for sharing your experience. I just converted our TFSAs into pure dividend stocks. I was wondering what might be reasonable for annual dividend increases. I was thinking 5% would be a good number. I will quite pleased if it works out to 8%.

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Re: Power of Dividend Growth 2011 (and beyond)

Post by SQRT » 21 Nov 2017 06:14

Thegipper wrote:
20 Nov 2017 20:30
SQRT wrote:
20 Nov 2017 08:33
Taggart: good for you. But 2010 would have been a bad time to reduce financial weighting, I think? I have a similar philosophy but not so averse to financials. My divs are about 50% of retirement income with pension the rest. Only have taxable accounts. Divs have just about doubled since the 08/09 recession and are currently growing at about 8% per year. This covers inflation on the whole income nicely. Haven’t bought anything new in about 2 years.

The real upside has been capital appreciation. Portfolio has grown a fair bit so have started to liquidate relatively small amounts of stock, maybe 1-2% per year, plan to continue to do this as long as the markets are strong. When we get the inevitable bear market, I will just revert to spending divs.

I am well aware of all the financial theory that proves that divs don’t matter. Also, it is obvious that for high earners divs are not tax efficient (32-40% on divs much less for cap gains). Nevertheless, looks like our strategy is working pretty well.
thank you for sharing your experience. I just converted our TFSAs into pure dividend stocks. I was wondering what might be reasonable for annual dividend increases. I was thinking 5% would be a good number. I will quite pleased if it works out to 8%.
Depends on which stocks/sectors. My portfolio is heavily weighted in banks which have increased their divs faster than some other sectors. Pipes have increased quite a bit as well. My div growth stategy (weighted towards banks) has outperformed the TSX by about 3% annually since inception(1997). So far this year it is about 6.5%.

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Re: Power of Dividend Growth 2011 (and beyond)

Post by Peculiar_Investor » 12 Dec 2017 14:56

Another viewpoint on the matter of dividends, The Hidden Stock Market Price of Falling for the Dividend Ruse - Bloomberg
Bloomberg wrote:A favorite theory of financial economists is that stock dividends are a mirage, bait conjured by companies to create the illusion of free money. Research from the University of Chicago and Boston College says almost everyone falls for it.

Consider a $100 stock that pays a $10 dividend -- it falls to $90, just as if it paid nothing and the owner sold 10 percent of his shares in the market. Same difference, and yet the study found the allure of the corporate payout incites all kinds of costly behavior among investors.

<snip>

“We wanted to show there is a general misconception about what a stock dividend is,” Hartzmark said by phone. “There is mental trap when investors think about dividends as a separate source of income that’s unrelated to the stock’s capital gains.”
For those who want to read further, the underlying research paper is The Dividend Disconnect.
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Re: Power of Dividend Growth 2011 (and beyond)

Post by SQRT » 12 Dec 2017 15:21

Peculiar_Investor wrote:
12 Dec 2017 14:56
Another viewpoint on the matter of dividends, The Hidden Stock Market Price of Falling for the Dividend Ruse - Bloomberg
Bloomberg wrote:A favorite theory of financial economists is that stock dividends are a mirage, bait conjured by companies to create the illusion of free money. Research from the University of Chicago and Boston College says almost everyone falls for it.

Consider a $100 stock that pays a $10 dividend -- it falls to $90, just as if it paid nothing and the owner sold 10 percent of his shares in the market. Same difference, and yet the study found the allure of the corporate payout incites all kinds of costly behavior among investors.

<snip>
Yes, I am familiar with the research. First came across it when I did my Finance MBA in the 70’s. Then again when I got my CFA in the 90’s. When working I would raise this from time to time with bank investors and other bank execs. They didn’t want to hear any of that.

The fact is, they are difficult to avoid in Canada, most of the Best companies pay them and div payers (for whatever reason) have outperformed the TSX by a lot for a long time. My biggest beef with receiving divs is the high tax cost (for high earners anyway). Great tax deal for people earning under about $70k though.
Last edited by SQRT on 12 Dec 2017 15:23, edited 1 time in total.

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Re: Power of Dividend Growth 2011 (and beyond)

Post by Taggart » 14 Dec 2017 07:05

Nowadays, I tend to just ignore most of these research papers that want to drag down dividends as an investment strategy. Nothing whatsoever in the Bloomberg article about "dividend growth investing" which is what this thread is all about. All I know is I've been doing this for many years now, and the more I do it and the simpler I make it, the better I do. It's just a case of investing any savings available, re-investing your dividends into stocks exhibiting dividend growth and letting compounding have it's effect in the portfolio over an investment lifetime. That's all it is. I don't have and I don't need a university education to do that. Just simple arithmetic I learned in grade school.

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Re: Power of Dividend Growth 2011 (and beyond)

Post by kcowan » 14 Dec 2017 16:32

I think the example focuses on total return. I agree that you must keep an eye on total return in any dividend strategy. One the total return equals the dividend return then it goes on my watch list.
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Re: Power of Dividend Growth 2011 (and beyond)

Post by JaydoubleU » 14 Dec 2017 17:48

I agree with Taggart. Dividend Growth investing simply works. DG investors may focus too much on the dividends, but dividends are only reflecting growing EPS or cash flow, which indicates the companies are performing well. (We are always cautious about those who are paying dividends they can't really afford or those with rising debt levels, but that's the trick, isn't it). Companies that are growing EPS and dividends will steadily rise in price, so there's your total return.

Dividends are currently paying most of my bills. I am glad I don't have to sell my stocks to create income--I don't trust myself to know when or what to sell--sell winners and lose them, or sell losers and depend on claiming tax losses? My dividend income rises every quarter, without fail, and it is comforting to be able to collect them even if markets are swooning.

Dividend growth stocks are usually established companies and not marijuana start-ups or Bitcoin frenzy types. There's way too much buzz and uncertainty in those for me :)

I have always found it interesting that Berkshire Hathaway doesn't pay dividends, but BRK's portfolio is largely invested in dividend growth stocks.

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Re: Power of Dividend Growth 2011 (and beyond)

Post by AltaRed » 14 Dec 2017 17:58

A not so good chart of the dividend history of XIU http://www.dividendchannel.com/symbol/xiu.ca/ The overall trend is up, but there are years of stagnation and/or decreases. Granted if one restricted oneself to Dividend Aristocrats, that would/could a little different.
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Re: Power of Dividend Growth 2011 (and beyond)

Post by StuBee » 14 Dec 2017 21:57

Thanks for that info Altared.

By comparing 2001 to 2017 (removing the obvious outliers) the yearly distribution has risen from 20 cents to about 64 cents. This comes out to a compound return of about 7.5%!!!

Very respectable dividend growth IMHO.

***Unfortunately, its distribution yield is only about 2.6%
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Re: Power of Dividend Growth 2011 (and beyond)

Post by AltaRed » 14 Dec 2017 22:51

StuBee wrote:
14 Dec 2017 21:57
***Unfortunately, its distribution yield is only about 2.6%
Why unfortunate? Distribution yield is only part of total return. If dividends have grown by a CAGR of about 7.5%, then in a "directional" way so has EPS and share price appreciation (as JaydoubleU articulated). That is what really counts, no?
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Re: Power of Dividend Growth 2011 (and beyond)

Post by Taggart » 15 Dec 2017 07:49

So far, this year, of the 28 Canadian dividend growth equities I own, only three did not increase their dividends. Shaw Communications, Rogers Communications and Gluskin Sheff. I've also only had one stock sold this year, Home Capital Group. Not exactly high portfolio turnover. In January I'll receive our portfolio statement. I expect the total income from dividends will increase compared to last year at this time. As always, income increase in our portfolio is primary. Any cap gains are secondary. Nice to have, but based on financial history, I don't expect to always get, at least not in real terms.

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Re: Power of Dividend Growth 2011 (and beyond)

Post by StuBee » 15 Dec 2017 08:04

AltaRed wrote:
14 Dec 2017 22:51
StuBee wrote:
14 Dec 2017 21:57
***Unfortunately, its distribution yield is only about 2.6%
Why unfortunate? Distribution yield is only part of total return. If dividends have grown by a CAGR of about 7.5%, then in a "directional" way so has EPS and share price appreciation (as JaydoubleU articulated). That is what really counts, no?
Agreed.

It is simply a question of personal preference. Indeed a lower yield permits (or implies) a higher growth on yield if we take into account the Gordon Growth Model (Total return is equal to the sum of yield and growth on yield)

I prefer a bit more NOW (as in a higher current yield) even if it reduces the growth potential of the income stream. My dividend portfolio yields about 4% and is growing at about 5% (4+5=9). XIU yields about 2.5% and is growing at 7.5% (2.5+7.5=10).
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Re: Power of Dividend Growth 2011 (and beyond)

Post by SQRT » 15 Dec 2017 09:10

It’s been a pretty good run for sure. Using Jan 1 2010 as the starting point my div growth portfolio has more than doubled in market value despite cashing out about 12% of the opening value. Divs have grown by 83% despite the cash out. Yield in 2010 was 3.86% and is currently about 3.46%. I calculate cap appreciation at about 10.1% CAGR over this period. Adding in divs total return is about 13.7% CAGR. Not sure what the TSX total return CAGR since Jan 1, 2010 is, but I think I am quite a bit ahead?

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Re: Power of Dividend Growth 2011 (and beyond)

Post by JaydoubleU » 15 Dec 2017 10:39

A not so good chart of the dividend history of XIU http://www.dividendchannel.com/symbol/xiu.ca/ The overall trend is up, but there are years of stagnation and/or decreases. Granted if one restricted oneself to Dividend Aristocrats, that would/could a little different.
Or take a long term chart of RY. The graph shows a classic pattern of long term compound investing. Meanwhile, dividends have risen from 0.135 per quarter to 0.91 per quarter from 2000 to present, (which is as far back as I can find on the RBC website, but I'm sure others can show us the data going back decades earlier.) I am confident a growth of dividends chart would closely mirror growth of EPS and stock price. In other words, the dividend growth formula is just another way of evaluating a stock: yield + annual growth rate of dividends = annual rate of return. Buying in periods of weakness will enhance returns, and buying near tops will reduce them.

http://phx.corporate-ir.net/phoenix.zht ... avaapplet=

**To see the long term chart, select All Data in Time Frame. The same chart can be seen for any bank. Globeinvestor used to allow comparisons so that you could plot a bank against 4 other banks and the index or any other stocks and view it in a Max time frame; perhaps this feature is still available to subscribers.

(sorry for that long link...how does one collapse these into a single, highlighted word?)

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Re: Power of Dividend Growth 2011 (and beyond)

Post by BRIAN5000 » 15 Dec 2017 10:51

Gluskin Sheff did not raise there dividend but they did have a very nice special dividend. Seems like they do this a lot?
Last edited by BRIAN5000 on 16 Dec 2017 11:29, edited 1 time in total.
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