Power of Dividend Growth 2011 (and beyond)

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Power of Dividend Growth 2011 (and beyond)

Post by Sensei » 08 Jan 2011 23:42

Time to introduce this thread. Brian's post should be here too.

What's your dividend strategy for 2011? You first!

Subject title changed in 2013 to reflect multi-year nature of this thread
Moderator W
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Re: Power of Dividend Growth 2011

Post by BRIAN5000 » 09 Jan 2011 02:50

At the moment my plan is in limbo. ( carry on same as 2010) Dividends being dripped back in, couple grand a month. Retiring sometime 2011. Reading Jim Otar's book which seems to be mainly about distribution portfolio's. If I can live with a draw rate less then the SWR, somewhere between 2 and 3.5%, I should be ok.

I posted my portfolio which I am aiming towards in another thread.
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Re: Power of Dividend Growth 2011

Post by Sensei » 09 Jan 2011 03:06

Hi,

Thanks for the reply. I saw your portfolio and copied it as a matter of fact. I think it was on the ETF vs Dividends poll was it not?

Glad to hear you are retiring although it is not something that I look forward to. If you do retire, you'll be probably the only FWRer who lives on exclusively dividend income or close to it. It will be interesting to read of your progress.
Cheers

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Re: Power of Dividend Growth 2011

Post by bpither » 09 Jan 2011 04:00

Still 22% cash. Non Registered account. No RRSP, No TFSA. No debt. Own Condo outright. Living off income from the following:

50% Cdn dividend stocks ( mostly rising inflation hedged income from ENB, TRP, FTS, EMA,TD, BNS, BMO, RY, PWF, BCE, CN). 20% CDN PFD 1 rated Preferred shares. Rest (8%) in Cdn REIT and XCB and XHY. 90% of the above purchased in Feb/March 2009 when I liquidated my Phillips, Hager and North portfolio. Been sitting on my cash watching JNJ, MCD and ABT down south ... and the appreciating CDN dollar do its work!

Since wife is my dependent with no other income I will "lend" her - in total - the (aforementioned 22%) cash balance, and the proceeds from some liquidated lower yielding dividend players (see TD example below) and liquidated RioCan, XCB, XHY. The spousal loan (for investment purposes) will be set at 1% (as per CRA guidelines - due to attribution rules I can't just give it). We will open up a trading account for her and put 20% of "loan" (using Norbert's Gambit to change Cdn into US dollars) into low volatility "moat" dividend payer JNJ (compressed P/E over the past decade and if we get a correction before March when we'll implement this strategy an even better Buy), ABT (same, smaller amount) and a lesser amount into MCD ( which is a little expensive but will continue to grow their earnings/dividends - even in crisis hit, economically gloomy Hungary from where I presently write the local Mcdonald's in this third largest city is always FULL). We'll put another 40% of her balance into higher yielding yet low P/E CDN dividend payers. By example I don't really need four CDN banks so I'll sell TD (@ 3.3% yield) and put it in BMO (@ 4.8% yield). For now I'll keep the rest in cash (40%) to await opportunities.

Any ideas as to where to put that cash balance in her TD Waterhouse account?

I won't pay capital gains on anything I liquidate since I have huge losses from my liquidated PHN portfolio. Mind you if I liquidated everything I would be paying A LOT ... but time to "harvest" those losses to my advantage. I've crunched the numbers and besides the 15% American withholding tax our CDN taxes with the split income will be VERY low as opposed to if I invested the above in my own account. She "pays" the interest on the loan every year and can write it off while I get the amount added to my income ... which my own CDN dividend income tax credits can effectively write off. So it's practically a wash.

Of course nothing is foolproof and a Manulife/GE/Pfizer former "sure thing" dividend aristocrat can have a fall from grace. TRP cut their dividend in 1999, ENB dividend was flat from '86 to 95 (I believe). Banks I own haven't raised theirs in three years and their future rises could be paltry. But otherwise the tax efficient portfolio is working well (phew!)

Word to the wise: a spousal loan as per CRA guidelines is a great way to split income if one is a high earner and the other a dependent. 1% is still effective until March 31st. Once it is set up this rate remains the same for the duration of the loan.

Haven't opened a TFSA because ... well ... didn't need to.
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Re: Power of Dividend Growth 2011

Post by BRIAN5000 » 09 Jan 2011 11:13

only FWRer who lives on exclusively dividend income
No thats Nobert ?

I will eventually have a smallish DB pension and hope to live off of interest income from a non-reg portfolio and let the dividends and interest inside the RRSP compound.
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Re: Power of Dividend Growth 2011

Post by Nemo2 » 09 Jan 2011 11:28

BRIAN5000 wrote:
only FWRer who lives on exclusively dividend income
No thats Nobert ?

I will eventually have a smallish DB pension and hope to live off of interest income from a non-reg portfolio and let the dividends and interest inside the RRSP compound.
We live on my CPP/OAS and our investment income......no work-(wash your mouth out)-related pension.
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Re: Power of Dividend Growth 2011

Post by Sensei » 09 Jan 2011 19:18

Hi,

For the first time in three years, I don't have a strategy. There are very few stocks that I'd like to own at their current prices and implied dividend yields.

I look for high quality companies whose stock prices have been beaten down for whatever reason. As a start yield, a Canadian stock must yield more than 4% and a US or other stock must yield more than 3% after withholding taxes. Not many of those around these days or, if they are, I already have a satisfactory position.

In the US, ABT, JNJ, PFE are attractive in some ways, but I'm really overweight in healthcare.

GE and LMT are also stocks of interest.

I'm very interested in foreign banks and have been adding to HCBK and STD when the price is right.

Canada, hmm, well, uhhh, no ideas really. Maybe SLF or PWF??? I think insurance will recover and perhaps even start raising dividends by 2012.
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Re: Power of Dividend Growth 2011

Post by pecmajor » 09 Jan 2011 20:58

In late Nov 2010 I converted 100,000CAD to USD in my RRSP using Norbert's Gambit. I was quite proud of my self with CAD at 99.50 or to US. Now the loonie is above par but I do not believe this will last for long. Used the USD to buy someJNJ MO PM and most recectly MCD after it dipped 3% last week.each USD stock is about 10 to 12% of the USD of my porfolio. I am sticking to consumer and maybe tech with my USD because in canada we do not have much to choose from in these sectors. The Dividends are due to roll in soon. Of course I am concerned I bought these stocks too high in the recent US rally but could just not help myself. I convinced my self they will go even higher and If I did not get in I would miss the boat. I guess such is the Psych of investing. Perhaps I need to learn to be patient. I am looking at AT and T and MSFT AND CISCO.... all down at this time and Cisco is rumoured to pay a divi soon. May pick up some RIM as well no divi but cheap and tablets seem to be more and more popular,we will all have one soon. Now I am talking about 10 % only of my portfolio to these low P/E techs. But why did I not buy Apple last Jan when I thought is was too overbought???

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Re: Power of Dividend Growth 2011

Post by Peculiar_Investor » 09 Jan 2011 21:50

I'm a bit mystified here, just because the calendar has flipped from 2010 to 2011, is it different this time year?
Sensei wrote:Time to introduce this thread. Brian's post should be here too.

What's your dividend strategy for 2011? You first!
No changes for me. Back to you -- Why is your investment strategy dependent on the calendar year?
Sensei wrote:For the first time in three years, I don't have a strategy.
Why not use your 2010 strategy, or the 2009 version? How different have they been each year?

Shouldn't a prudent investor have an investment strategy is largely independent of time? Over time I can see an investment policy that considers gradually reducing the equity exposure and increasing fixed income. At some point in one's investing career, the strategy may become living off the investment income, which probably signals a bigger change in investment policy.

Does one invest in dividend growth in even years, values stocks in odd years and growth stocks in leap years?
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Re: Power of Dividend Growth 2011

Post by Sensei » 10 Jan 2011 00:15

Hi,

PI, are you being intentionally naive? If your questions need to be answered, of course January 1st, 2011 is not a special marker. We had Power of Dividend Growth 2010 and this is Power of Dividend Growth 2011. Just doing a public service here.

Other than that, I reiterate that the title of this thread IS 'The Power of Dividend Growth'. If it needs to be said (but I don't think it should), I intend to follow a general investment strategy of building a portfolio of stocks of high quality companies that pay sustainable dividends. That's still the plan. And I assume that everyone who posts here knows that and/or is a like-minded person. I thought that was a given. Within, that framework, I don't have a clear ('micro-' if you like) strategy for this year other than what I've written up thread. (Unformulated plan to build into a beaten up financial sector.)

The main challenge for me, if 'this year' offends, going forward then, had its genesis 3 or 4 months ago. While I'd like to boost my dividend income, companies that I like at the prices I like grow sparse. I outlined the self-imposed reasons why up thread. I might add that, my personal rules, stock prices have gone up, but dividends have generally not. For example, the overall dividend yield of the S&P is still a pitiful 2% and shrinking, whereas 3-4% would seem to be a long term average.

I'm simply asking what others are doing about it. PI, if your answer is 'No change', best to leave it at that, no?
Cheers

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Re: Power of Dividend Growth 2011

Post by BRIAN5000 » 10 Jan 2011 00:35

What's your dividend strategy for 2011? You first
I'm a bit mystified here, just because the calendar has flipped from 2010 to 2011, is it different this time year?
It may not be different but don't you think January or December is a good time to sit down and think about what's happened last year and what may or will happen this year. For example it will be different for me because most likely I'm retiring.
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little bit longer and wish you would’ve sold early - this is just part of the game.” - Frank Zorilla via Abnormal Returns

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Re: Power of Dividend Growth 2011

Post by Peculiar_Investor » 10 Jan 2011 08:07

Sensei wrote:Hi,

PI, are you being intentionally naive?
No, just trying to provoke the discussion a bit. I was also trying to poke a bit at the forum organization, that the threads like this one need to be tagged with a calendar year. The "Power of Dividend Growth" is a worthwhile investment discussion that in my mind should not be constrained with a year "tag". Some FWF discussions need an expiry date as it were, but IMHO this in not one of them. My apologies if I've taken the discussion off topic.
If your questions need to be answered, of course January 1st, 2011 is not a special marker. We had Power of Dividend Growth 2010 and this is Power of Dividend Growth 2011. Just doing a public service here.

Other than that, I reiterate that the title of this thread IS 'The Power of Dividend Growth'. If it needs to be said (but I don't think it should), I intend to follow a general investment strategy of building a portfolio of stocks of high quality companies that pay sustainable dividends. That's still the plan. And I assume that everyone who posts here knows that and/or is a like-minded person. I thought that was a given. Within, that framework, I don't have a clear ('micro-' if you like) strategy for this year other than what I've written up thread. (Unformulated plan to build into a beaten up financial sector.)

The main challenge for me, if 'this year' offends, going forward then, had its genesis 3 or 4 months ago. While I'd like to boost my dividend income, companies that I like at the prices I like grow sparse. I outlined the self-imposed reasons why up thread. I might add that, my personal rules, stock prices have gone up, but dividends have generally not. For example, the overall dividend yield of the S&P is still a pitiful 2% and shrinking, whereas 3-4% would seem to be a long term average.
It sounds like you've got a good long term strategy that is being challenged by current valuations and requires patience. For me, that is the hardest part of investing, being patient and sticking to my plan.
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Re: Power of Dividend Growth 2011

Post by Peculiar_Investor » 10 Jan 2011 08:38

Back to the topic at hand, 10 Dow Stocks Likely to Boost Dividends - TheStreet
When it comes to dividend investing, payout growth is just as important as current yield. Among the highest-yielding U.S. stocks are blue-chip Dow components. But, not all Dow stocks are on equal footing in terms of shareholder treatment. In fact, some of the highest-yielding Dow stocks, such as Pfizer(PFE), have cut their dividends in the recent past.
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Re: Power of Dividend Growth 2011

Post by AltaRed » 10 Jan 2011 17:04

BRIAN5000 wrote:It may not be different but don't you think January or December is a good time to sit down and think about what's happened last year and what may or will happen this year. For example it will be different for me because most likely I'm retiring.
I will side with PI here. One should always have an annual point in time to review one's investment plan and strategy, but an investment plan is technically independent of any calander. I don't think any differently on Jan 1 than I do on July 1 or Sept 1.

So my response to Sensei is my investment plan continues to roll forward indefinitely as it has in the past. My response to you is why would you think differently today than you did when you knew (last year) that you were retiring?
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Re: Power of Dividend Growth 2011

Post by kcowan » 11 Jan 2011 07:40

Peculiar_Investor wrote:Back to the topic at hand, 10 Dow Stocks Likely to Boost Dividends - TheStreet
When it comes to dividend investing, payout growth is just as important as current yield. Among the highest-yielding U.S. stocks are blue-chip Dow components. But, not all Dow stocks are on equal footing in terms of shareholder treatment. In fact, some of the highest-yielding Dow stocks, such as Pfizer(PFE), have cut their dividends in the recent past.
I consider this to be the focus of this thread, namely sharing the emergence of new payers or increases in payments causing new companies to be favoured.
For the fun of it...Keith

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Re: Power of Dividend Growth 2011

Post by Michael D » 11 Jan 2011 09:16

I continue to focus on the 'growth' in 'dividend growth'. I'm not interested in current yields particularly. US healthcare and pharm sectors are growing well. (ABT, BAX, BDX, SYK, JNJ). US consumer/industrial conglomerates (PG, EMR, ITW, JCI) add global exposure including Canada.

Technology (IBM and INTC) holdings are core, and dividend growth exceeds 15%. Small concerns about earnings growth for these two, but until they miss a dividend increase I may continue to hold. Of course, I don't want INTC to turn into the next MBT (pay out until it effectively disappears).

I do not own a Canadian telco, but own VOD and TEF. Waiting for natural gas and resources to recover, otherwise I'll bail on ECA, HSE. I'm still long on Canadian banks, and have added BMO (more acquisitions today). Not sure about this though, I'm on the edge of plowing it all into SNC if the price is right.

Best performing Canadians are SAP, CNI for me. I sold SAP on a spike, and it is hanging up there right now. I'd buy it back at $36. CNI has a clearly stated dividend growth policy, this I like.

One company which I missed and am kicking myself is SNC Lavalin. I was waiting in GE during that time.

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Re: Power of Dividend Growth 2011

Post by jsbarnby » 11 Jan 2011 13:29

As my investing knowledge has increased I am starting to look at smaller companies with dividend growth. I did very well in 2010 with HLF and am hoping that I can capture some of the same success with GLN. Buying cheap stocks (P/S < 1.0) with little debt, solid forecasted earnings growth and a growing dividend just seems to make sense to me regardless of what the shareprice has done previously. I have both of these smaller companies in my TFSA and my core holdings (TD, TRP, PM) currently unregistered although I will eventually be moving PM over to an RRSP when I work for an entire year.

I almost convinced myself to buy a precious metals stock like Kinross for some diversification but can't seem to pull the trigger due to the valuation....even though it is much cheaper than most senior golds. Anyone else have any precious metals holdings?

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Re: Power of Dividend Growth 2011

Post by JaydoubleU » 13 Jan 2011 17:47

I continue to focus on the 'growth' in 'dividend growth'. I'm not interested in current yields particularly.
Interesting post, Michael D.

I am taking the opposite approach for 2011. Having accumulated full positions in nearly 30 dividend growers, I have been taking a few profits here and there and reallocating to high yield stocks, particularly in the ex-energy trust sector. I'd like to increase current income, which can then be used to buy higher growth stocks when prices become favorable (MCD and ABT are looking sweet).

Easier said than done. It never works quite the way you expect. A mistake of 2010--albeit temporary--was underestimating the strength of the Canadian dollar. I bought US and other foreign stocks from .95 to .98 and am now looking at a 5% drop just based on currency change. Of course this is very short-term, and some say the Canadian dollar is overvalued at present, but a number of factors point to a strong CAD not just while a bull market lasts, but for the longer term: the inexorable demand for resources by a growing world (witness the establishment of an office in Toronto by the CIC), the relative strength of government finances, the threat of higher inflation, and the weakness of almost every other developed country, except perhaps Australia. I could have made the same statements a year ago, but I was less optimistic about a global recovery, and more concerned with safety.

One sector that didn't do so well in 2010 was healthcare, where I had been building positions. My views here are unchanged, and I will continue to target a roughly 20% allocation to this sector, which I think is very undervalued but has tremendous long-term potential.

So the non-Canadian portfolio is pretty much set and for the next few quarters I'll be looking to build positions in Canadian high yield stocks.

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Re: Power of Dividend Growth 2011

Post by vince2 » 13 Jan 2011 21:54

I find myself somewhat uneasy and undecided this year - the runup the end of last year was helpful and not entirely unexpected.

I have read that the popular opinion is that health care and USA banks will do well this year. My problem is that I can frankly see no reason why healthcare should do better this year than last year, however I will probably look to add BDX to JNJ - ABT/PFE/MRK are too similar to provide much in the way of diversification and Stryker, Smith and Nephew have PE's which make me uncomfortable. Baxter's Plasma business seems to be a bit of a dead end. YMMV. Now if AMED (Homecare) would only pay a dividend - all those retiring boomers who fall off their hogs :lol:

I hate investing in Technology - they are only as good as their last software/hardware and any edge often seems fleeting, however I have been looking at RIM lately (low PE and low expectations).

I have begun to mentally consign telcoms to utilities - high payout ratio (as VZ and A&T) and am considering going with TEF and selling off one of the Canadian Telcoms or loading up on BCE or Telus. I am considering swopping out PG for UL - UL seems to be more geared to selling in the emerging economies where price is a factor, and it is awfully tempting to sell storebrands and undercut PG.

Things I will not be actively investing in will be O&G , or Mining (did that last year) or USA Banks.
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Re: Power of Dividend Growth 2011

Post by Sensei » 21 Jan 2011 05:07

Hi,

Does anyone want to have a go at this one?

http://www.moneysense.ca/2011/01/18/deb ... dium=email

I'll just respond to a few quotes:
Dividend Myth #1: Companies that pay dividends are inherently better investments than those that don’t.
I love these writers that think up imaginary (buffoon?) dividend investors. I don't think anyone I know that understands dividend investing thinks this. Dividend companies and non-dividend companies are not superior or inferior to each other, just different. In any case, I take the broad view of dividends. A 'dividend' from a company can be realized in three ways: a company pays out regular amounts from earnings to shareholders, IOW the traditional narrow-view of a dividend; the shareholder may liquidate some or all of his holding in a company and realize a dividend aka capital gain; third, a company may liquidate itself in which case shareholders may receive a settlement which could be construed as a dividend if it results in a capital gain. Nothing I can do about dividend type 3 of course, but I prefer not to take capital gains which I'll explain shortly.

Back to dividend payers vs non-dividend payers. A company that pays a dividend is generally a mature company. It has reached a point on the earnings curve where it has extra cash to dispose of and they choose to pay some of it out to shareholders. Share buybacks, paying down debt, and acquisitions are other ways of using excess earnings to be sure. I don't think any method is superior to the other. It really just comes down to whether you think you own a business and buy food with the profits or whether you consider your share to be a piece of paper to be exchanged like money. I prefer to be a business owner and share in the ongoing profits of the business for the following reasons.

First, a dividend is one of the best indicators of the health of a business short of ripping apart the annual report. It can't be faked. Other indicators can be faked first and foremost through creative accounting. A company has to have the cash to pay a dividend.

Second, and here's where I disagree with the article, managers have to make solid decisions to be able to pay and increase dividends year after year. OTOH acquisition minded managers are often wrong or are looking to boost their own stock options. Just for example, I haven't seen any results that make me want to reacquire PFE or KFT in terms of the acquisitions of Wyeth and Cadbury.

Third, people who sit on their stocks waiting to cash in have to deal with Mr. Market. When do you sell? Many people (like me) got caught with their pants down during 2007 - 2008 and watched their life savings go down the toilet with nothing to show for it. I'm glad I wasn't retired in those years. The vast majority of companies, OTOH, did not cut dividends and many even increased, so in my view, dividend investing makes a lot of sense especially if you don't have many years left on the investment horizon.
Dividends lead to a drop in share price
In theory, they should if you believe in the efficient market theory. However, I don't and I haven't noticed drops that were not quickly recouped just days after the payout day. Any dividend investor worth his salt can name many companies that, had you reinvested the dividends, over many years, you'd be a millionaire. The fact that a company can pay a dividend makes it all the more attractive to buyers.
The illusion of income v. capital
I don't think I was under that illusion. It just depends where you are in your investment curve. If I was younger, I could think of companies that I'd like to invest in that don't pay a dividend. Apple would certainly be one, a simple easy to understand business that makes useful stuff, but at my age, it is just too volatile.

In the end, none of the arguments put forward in the article really address the myths that are important or are held by true dividend investors. In my case I prefer dividend stocks for three reasons:

1. I prefer conservative companies that have proved they can generate cash consistently enough to pay some of it out in a predictable and/or rising stream.
2. I like companies that carry some of the weight of decision making process. Selling is always so much more difficult than buying and so filled with regret often.
3. Dividend investing is reasonably simple, cheap, and ultimately as profitable as other forms of investing. It just takes time.
Cheers

"A dividend being paid today is always a positive return." Josh Peters, Morningstar

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Re: Power of Dividend Growth 2011

Post by flywaysuzy » 21 Jan 2011 14:11

In the article where it says there is no difference between $1k of dividends received and $1k of stock sold, that author must have some free source of trades, whereas the rest of the investing world is actually paying for trades...isn't that the idea behind the DRIP? They are also free trades. Odd that taxes were never mentioned either...

I guess we'll just have to wait for next month's opposing view!
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Re: Power of Dividend Growth 2011

Post by Sensei » 21 Jan 2011 19:23

flywaysuzy wrote:In the article where it says there is no difference between $1k of dividends received and $1k of stock sold, that author must have some free source of trades, whereas the rest of the investing world is actually paying for trades...isn't that the idea behind the DRIP? They are also free trades. Odd that taxes were never mentioned either...

I guess we'll just have to wait for next month's opposing view!
Fundamentally, I see what he's saying and, leaving taxes and fees aside it makes sense. However, there is another difference that the writer keeps missing. If you receive $1k in capital gains, you don't have the stock or the dividend anymore. If you prefer to collect dividends you still have a stock that very possibly will spin off an indefinite stream of income and also possibly increase that income. Again, it goes back to the core philosophy. Do you own a business or do you own some tradable 0s and 1s on a computer? I think there is room for both kinds of investors and both should understand the pros and cons of their own investment strategies.
Cheers

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Re: Power of Dividend Growth 2011

Post by NormR » 21 Jan 2011 19:41

Why investors like dividends ...
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Re: Power of Dividend Growth 2011

Post by Lazy Ninja » 21 Jan 2011 19:55

Interesting to see that stocks that cut their dividend outperformed stocks that don't pay a dividend. I wonder if that would still hold true for a 5 or 10 year time frame. Judging by the relatively slim margin of outperformance over 25 years, I doubt it.

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Re: Power of Dividend Growth 2011

Post by Peculiar_Investor » 21 Jan 2011 20:31

NormR wrote:Why investors like dividends ...
Norm, do you have access to the underlying data? I'm wondering about the end date sensitivities. I'd love to see the same information showing rolling 10 year periods. I suspect the order of finish may remain the same, I'm more interested in the magnitude of the differences.
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