Power of Dividend Growth 2011 (and beyond)

Discuss your favourite picks, broker, and trading or investment style.
Locked
User avatar
kcowan
Veteran Contributor
Veteran Contributor
Posts: 16033
Joined: 18 Apr 2006 20:33
Location: Pacific latitude 20/49

Re: Power of Dividend Growth 2011 (and beyond)

Post by kcowan »

brad911 wrote:A number of anomalies presented themselves in regards to the explosive rise in mortgage business growth but how that wasn't translating to expected changes on the balance sheets. It was as simple as adding one and two, but networking with a number of peers here to see where the numbers made sense.
OK that is true in the normal case. But what about them selling these off to CMHC? That was totally legal.
For the fun of it...Keith
User avatar
brad911
Veteran Contributor
Veteran Contributor
Posts: 1150
Joined: 29 Jan 2007 16:45
Location: London ON
Contact:

Re: Power of Dividend Growth 2011 (and beyond)

Post by brad911 »

That was totally legal, I agree. The concern was....

Firstly that the securitization of mortgages (regardless of quality) was accelerating leaving a large gap in accountability for the underlying quality of the assets and an inflated ROE for the banks as they basically were generating higher income with minimal risk. Secondly a suspicion that even with their mobile mortgage specialists and branch employees we didn't feel confident all this business was being generated by the banks alone on their own. There was a suggestion that some of the banks might be involved in a referral set up in order to generate this extra business with compensation and transparency in the grey area.
Triage Investing Blog - A Source for Value & Dividend Investing and Business Fundamentals
User avatar
kcowan
Veteran Contributor
Veteran Contributor
Posts: 16033
Joined: 18 Apr 2006 20:33
Location: Pacific latitude 20/49

Re: Power of Dividend Growth 2011 (and beyond)

Post by kcowan »

Brad
That concern is a good reason for you to stay away from the stock. But it has nothing to do with the balance sheet.

The balance sheet is changed by offloading the assets. As long as they stay away from Enron or Greek transactions.
For the fun of it...Keith
JaydoubleU
Veteran Contributor
Veteran Contributor
Posts: 3103
Joined: 13 Sep 2007 22:52

Re: Power of Dividend Growth 2011 (and beyond)

Post by JaydoubleU »

What do others make of high yield dividend stocks that DON'T raise their dividends?

I own a couple such as DR and AFN which have good business models, appear to be well-managed, and have done quite well, but they don't raise at all. In fact, a 10-year total return comparison on TD and DR gives me 6.70% and 6.78%, respectively. DR has a smokin' ROE of 24% vs 12.3% for TD. (figures from globeinvestor).

I am just wondering if I should focus exclusively on dividend growers--which are said to outperform--or stick with my barebell approach of high dividend growth (eg ENB, TD, AQN) and high yield (eg AFN, DR)
User avatar
AltaRed
Veteran Contributor
Veteran Contributor
Posts: 33398
Joined: 05 Mar 2005 20:04
Location: Ogopogo Land

Re: Power of Dividend Growth 2011 (and beyond)

Post by AltaRed »

I think I would prefer medium dividend growth overall at about twice the inflation rate on a BT basis... e.g. 5% or so. Would assure me of continued cash flow to meet my 'retired' needs while suggesting a sustainable business model. I think high dividend growth has to come home to roost eventually as corporate growth/earnings growth stalls. High yield without growth suggests to me that management no longer has a vision for growth, is cashing out the company, and will eventually succumb to the express freight coming down the tracks.
Imagefiniki, the Canadian financial wiki The go-to place to bolster your financial freedom
User avatar
Shakespeare
Veteran Contributor
Veteran Contributor
Posts: 23396
Joined: 15 Feb 2005 23:25
Location: Calgary, AB

Re: Power of Dividend Growth 2011 (and beyond)

Post by Shakespeare »

I figure generally around 3-5%, buying some at 6% and selling at, say, 4% (trading around a central position). My TFSA is 4.0%.
Sic transit gloria mundi. Tuesday is usually worse. - Robert A. Heinlein, Starman Jones
User avatar
AltaRed
Veteran Contributor
Veteran Contributor
Posts: 33398
Joined: 05 Mar 2005 20:04
Location: Ogopogo Land

Re: Power of Dividend Growth 2011 (and beyond)

Post by AltaRed »

I was meaning growth in dividend rate, not yield. But I do agree with your 3-5% yield range.
Imagefiniki, the Canadian financial wiki The go-to place to bolster your financial freedom
JaydoubleU
Veteran Contributor
Veteran Contributor
Posts: 3103
Joined: 13 Sep 2007 22:52

Re: Power of Dividend Growth 2011 (and beyond)

Post by JaydoubleU »

I understood you meant growth rate and Shakes meant target yield.

I also gather you both frown on high yield without dividend growth.
User avatar
Shakespeare
Veteran Contributor
Veteran Contributor
Posts: 23396
Joined: 15 Feb 2005 23:25
Location: Calgary, AB

Re: Power of Dividend Growth 2011 (and beyond)

Post by Shakespeare »

It usually leads to capital depletion.
Sic transit gloria mundi. Tuesday is usually worse. - Robert A. Heinlein, Starman Jones
Thegipper
Veteran Contributor
Veteran Contributor
Posts: 3477
Joined: 14 Mar 2015 16:58

Re: Power of Dividend Growth 2011 (and beyond)

Post by Thegipper »

I will take stocks with a lower dividend who have exceptional growth metrics, a high return on equity and have solid moat protection. I would much prefer a company with a 2% dividend with these metrics then a stock with a 5% dividend and very slow growth metrics.
User avatar
AltaRed
Veteran Contributor
Veteran Contributor
Posts: 33398
Joined: 05 Mar 2005 20:04
Location: Ogopogo Land

Re: Power of Dividend Growth 2011 (and beyond)

Post by AltaRed »

Thegipper wrote:I will take stocks with a lower dividend who have exceptional growth metrics, a high return on equity and have solid moat protection. I would much prefer a company with a 2% dividend with these metrics then a stock with a 5% dividend and very slow growth metrics.
That can work as well provided one can accept a number of spectacular implosions (explosions?) in one's portfolio along the way OR better yet, knowing when to get out. We've had a number of those, e.g. Nortel, Enron, Valeant, WorldCom. Explosive growth is often a house of cards that has little in the way of foundation and often one move away from disaster at any given time. The key is whether the moat is real or imaginary and when does it change from real to imaginary.
Imagefiniki, the Canadian financial wiki The go-to place to bolster your financial freedom
BRIAN5000
Veteran Contributor
Veteran Contributor
Posts: 9064
Joined: 08 Jun 2007 23:27

Re: Power of Dividend Growth 2011 (and beyond)

Post by BRIAN5000 »

Code: Select all

   INCOME >5% Solid Div / Low Div Grwth  		  	  	   30%
	INCOME & GROWTH 3 - 5 % Div Solid Div / Div Grwth	     60%
	GROWTH   < 3% div / Div Grwth	      				  	   10%
I break my portfolio down into three different categories for dividend growth with a weighting in each which reflects my risk tolerance and need for growth and income.

A couple in the Income category which had been good for a long while have blown up, TA & MBT.
Also a couple in the I & G category have plummeted HSE, CVE
And let's not forget one that had done well and paid a dividend in the growth sector that is now yuk BBD.b

So much for planning.
This information is believed to be from reliable sources but may include rumor and speculation. Accuracy is not guaranteed
User avatar
AltaRed
Veteran Contributor
Veteran Contributor
Posts: 33398
Joined: 05 Mar 2005 20:04
Location: Ogopogo Land

Re: Power of Dividend Growth 2011 (and beyond)

Post by AltaRed »

I wouldn't beat yourself up on HSE and CVE..... You bought cyclical commodities perhaps believing they were I&G.
Imagefiniki, the Canadian financial wiki The go-to place to bolster your financial freedom
BRIAN5000
Veteran Contributor
Veteran Contributor
Posts: 9064
Joined: 08 Jun 2007 23:27

Re: Power of Dividend Growth 2011 (and beyond)

Post by BRIAN5000 »

You bought cyclical commodities perhaps believing they were I&G.
Underestimation of the cyclicality, 30% ok no sweat, 60 to 90% downward spiral yikes :(

Suncor is more my type of stock.
This information is believed to be from reliable sources but may include rumor and speculation. Accuracy is not guaranteed
JaydoubleU
Veteran Contributor
Veteran Contributor
Posts: 3103
Joined: 13 Sep 2007 22:52

Re: Power of Dividend Growth 2011 (and beyond)

Post by JaydoubleU »

I will take stocks with a lower dividend who have exceptional growth metrics, a high return on equity and have solid moat protection. I would much prefer a company with a 2% dividend with these metrics then a stock with a 5% dividend and very slow growth metrics.
I understand why you want growth. If I was 30 years old, my portfolio would be leaning that way. But what if you are recently retired or near-retirement, and you want to generate a high amount of cash flow to live on, with some growth to protect against inflation.

You invest $100,000 @ 2% and you get $2000 a year, albeit rising quickly.

Invest $100,000 @ 5% and you have $5000 a year. Bird in the hand?

My approach has been to invest, say, $50,000 @ 4%, with a 5-10% dividend growth rate, and $50,000 @ 6-7%, with little or no dividend growth. I get (roughly) $5250 in current income (stock A pays 4%, stock B pays 6.5%), but rising to $5450, $5670, $5912 . . . assuming stock A rises at 10%.

Eventually, I know, the higher dividend growth will prevail, but it takes a long time for 2% to become 6% yield on cost (actually, about 12 years; ignoring capital gains. We don't want to have to sell.)

Show me the flaw in my thinking!
User avatar
brad911
Veteran Contributor
Veteran Contributor
Posts: 1150
Joined: 29 Jan 2007 16:45
Location: London ON
Contact:

Re: Power of Dividend Growth 2011 (and beyond)

Post by brad911 »

I consider my portfolio to be made up of 3 categories for dividend stocks; High dividend growth, medium and low.

When I first constructed the portfolio the high dividend growth stocks were SC (Shoppers), CNR, CP, MRU, SAP and a few others. Low yields, but rising at 6-8% per year consistently with good balance sheets and improving business metrics/fundamentals. I saw these as the accelerators (fuel) for trying to increase my annual cashflow growth rate and had them at about 40% of the portfolio (along with other similar stocks).
Next was the mid-tier which was mostly the banks, insurers, some pipelines. They were raising at around 4% per year and made up another 40% of the portfolio. These were always the meat and potatoes of the cashflow; consistent, boring, set it and forget it.
Lastly was the low growth stocks with high yields. I had about 10-15% in these as aggressive plays to try and increase cashflow over the short-term to hopefully accumulate more shares of the first two sets of stocks. I got burned on quite a few of them, but I've never run any numbers to compare whether I would have been better allocating that 10-15% into category one instead. My initial thought is I would have been better to put it all into MRU and SAP.
Triage Investing Blog - A Source for Value & Dividend Investing and Business Fundamentals
JaydoubleU
Veteran Contributor
Veteran Contributor
Posts: 3103
Joined: 13 Sep 2007 22:52

Re: Power of Dividend Growth 2011 (and beyond)

Post by JaydoubleU »

I got burned on quite a few of them, but I've never run any numbers to compare whether I would have been better allocating that 10-15% into category one instead. My initial thought is I would have been better to put it all into MRU and SAP.
You're right about that part: getting burned in the high yield space; I've had a few. But I also got burned by Manulife and BP. There are no absolute certainties.

I am still pleased with my DR, AFN and RNW.
User avatar
AltaRed
Veteran Contributor
Veteran Contributor
Posts: 33398
Joined: 05 Mar 2005 20:04
Location: Ogopogo Land

Re: Power of Dividend Growth 2011 (and beyond)

Post by AltaRed »

JaydoubleU wrote:Eventually, I know, the higher dividend growth will prevail, but it takes a long time for 2% to become 6% yield on cost (actually, about 12 years; ignoring capital gains. We don't want to have to sell.)

Show me the flaw in my thinking!
Capital appreciation. That 6% no growth stock is like a 6% unsecured debenture, potentially reduced to cineplex concession money in 20 years. You may well up selling that no growth loser anyway when inflation reduces your purchasing power below acceptable limits. The additional danger is that no growth stocks tend to be systematic of poor management decisions with respect to the business. That business will ultimately be run over by the passage of time.
Imagefiniki, the Canadian financial wiki The go-to place to bolster your financial freedom
User avatar
Shakespeare
Veteran Contributor
Veteran Contributor
Posts: 23396
Joined: 15 Feb 2005 23:25
Location: Calgary, AB

Re: Power of Dividend Growth 2011 (and beyond)

Post by Shakespeare »

Capital appreciation
You mean capital depreciation.
Sic transit gloria mundi. Tuesday is usually worse. - Robert A. Heinlein, Starman Jones
User avatar
AltaRed
Veteran Contributor
Veteran Contributor
Posts: 33398
Joined: 05 Mar 2005 20:04
Location: Ogopogo Land

Re: Power of Dividend Growth 2011 (and beyond)

Post by AltaRed »

I did mean capital appreciation but failed to include the thought around that point, i.e. that said capital appreciation must be included in any comparison between a 2% growth stock and a 6% no growth stock. The 12 year 'math' comparison is hocus pocus because it is Total Return that matters.

In the context of what I specifically wrote, I agree that the no growth stock has capital depreciation.
Imagefiniki, the Canadian financial wiki The go-to place to bolster your financial freedom
User avatar
StuBee
Veteran Contributor
Veteran Contributor
Posts: 2944
Joined: 21 Sep 2010 11:08
Location: SW Quebec

Re: Power of Dividend Growth 2011 (and beyond)

Post by StuBee »

AltaRed wrote:I did mean capital appreciation but failed to include the thought around that point
:lol: That must be one of the best ways of not being understood! :lol:

JaydoubleU,

If your premiss:
JaydoubleU wrote:...We don't want to have to sell.
is considered as a truism then the response to:
JaydoubleU wrote:..Show me the flaw in my thinking!
is: "There is no flaw"

But, on this point I agree with AR. A good low yielder should have excessive capital appreciation. This too can be taken off the table (just like a dividend). However, like you, I find that type of approach very inconvenient and I never spend my capital from my dividend portfolio.

My 3 outliers are SAP (1.5%), BDT (5.5%) and PWF (5%). The remainder yield between 3.5% and 4.5%. Around 6-7 years ago I decided to concentrate on an average yield for my dividend portfolio aiming for about 150% of the TSX yield. Ever since then, any trades have had to respect that. Generally, trades have been yield neutral. My current portfolio yield is about 4.0%. This approach has provided intrinsic dividend income appreciation of about 5%-7% per year, very much in excess of inflation.

Many FWF posters seem to be rolling much of their income into new capital investments. This is not my case. I am spending all of it on living expenses. Hence the convenience of a dividend stream. Too low a yield: I cannot survive. Too high a yield: Capital depreciation (or portfolio blow-up) with income depreciation. I believe in Aristotle's golden mean: Not too much and not too little.
"The term is over: the holidays have begun. The dream is ended: this is the morning."-C.S.Lewis, The Last Battle
User avatar
AltaRed
Veteran Contributor
Veteran Contributor
Posts: 33398
Joined: 05 Mar 2005 20:04
Location: Ogopogo Land

Re: Power of Dividend Growth 2011 (and beyond)

Post by AltaRed »

StuBee wrote:
AltaRed wrote:I did mean capital appreciation but failed to include the thought around that point
:lol: That must be one of the best ways of not being understood! :lol:
Touche!
Imagefiniki, the Canadian financial wiki The go-to place to bolster your financial freedom
JaydoubleU
Veteran Contributor
Veteran Contributor
Posts: 3103
Joined: 13 Sep 2007 22:52

Re: Power of Dividend Growth 2011 (and beyond)

Post by JaydoubleU »

I see what you all are saying, thanks.

I shall have to mess around with the numbers and the mix, but I still find a variety of yields and growth targets more appealing than a heavy emphasis on low yield/high growth, nor would I characterize all of the higher yielding investments as "losers."

Many have REITs or royalty trusts or preferred shares mixed in with the dividend growth stocks, and it work just fine.
Thegipper
Veteran Contributor
Veteran Contributor
Posts: 3477
Joined: 14 Mar 2015 16:58

Re: Power of Dividend Growth 2011 (and beyond)

Post by Thegipper »

AltaRed wrote:
Thegipper wrote:I will take stocks with a lower dividend who have exceptional growth metrics, a high return on equity and have solid moat protection. I would much prefer a company with a 2% dividend with these metrics then a stock with a 5% dividend and very slow growth metrics.
That can work as well provided one can accept a number of spectacular implosions (explosions?) in one's portfolio along the way OR better yet, knowing when to get out. We've had a number of those, e.g. Nortel, Enron, Valeant, WorldCom. Explosive growth is often a house of cards that has little in the way of foundation and often one move away from disaster at any given time. The key is whether the moat is real or imaginary and when does it change from real to imaginary.
Dividend payers can be a trap as well. I think we can all find our examples In this area as well. If the growth is coming with a lot of acquisitions and debt one has to keep both eyes open. The drug companies are a challenge.
2 yen
Veteran Contributor
Veteran Contributor
Posts: 4116
Joined: 09 Apr 2005 09:15

Re: Power of Dividend Growth 2011 (and beyond)

Post by 2 yen »

Very interesting discussion. I juiced our portfolio with some high yielders to make sure I could retire early. I'm now 5 years away from CPP kicking in and then in 10 years having OAS kick in. After that, some RRSP income (from U.S. dividend payers) and a bit of Japan pension. Have not regretted for one second having some high yield. The point here is that people have very different circumstances. Here's the breakdown:

yield % / #of stocks

8 - 1
7 - 1
6 - 4
5 - 6
4 - 12
3 - 8

The yields are skewed down a bit because of the recent market rise.

2 yen
Locked