Power of Dividend Growth 2009 edition

[scomac]

With a trillion and half deficit, why would obama give any tax reprieve to non-us citizens.

To gain a tax reprieve for US citizens as per the Canada/US Tax Treaty and recognizing each other's registered reitrement savings plans.

[AltaRed]

Neither party to a treaty can change things unilaterally. There are bigger fish to fry than to squeeze a small minority (non-resident aliens).

[Sensei]

Hi,

Other than I don't know, my response is similar to Altared's.

I believe that my dividend withholding tax (and let's be clear that withholding tax is different from ultimate income tax) is based on an agreement between the US government and Japanese government. There is a different agreement between the Canadian government and the US government. (I think non-sheltered dividends are subject to a 15% withholding tax for resident Canadians.) To change that, renogotiation would have to be started up between the two governments.

It is also too early to tell. The budget handed down by the Obama admin. are a bunch of guidelines subject to revisions. For US citizens, the campaign promise was that high income earners (0ver $250,000 per year) would not be faced with more than 20% tax on dividends. I don't think they are after the small-time investors let alone a relatively small group of foreign residents invested in US stocks. My guess is no change at all, although the year 2010 rings a bell as the end of the current dividend taxation agreement wrt to US citizen investors. Maybe that will impact us nrs, too.

Cheers

[Sensei]

Thought I'd revive this thread.

I've been reading Bill Staton's book, 'Double Your Money in America's Finest Companies'. Basically his strategy for busy investors is only to invest in 5 - 15 companies that have increased dividends or earnings consistently for the last 10 years and build onto these as long as they maintain that status. His sell strategy is sell when a company no longer meets the dividend/earnings criteria and add to other companies or replace with another company from his list which is published every July. He recommends at least 5 sector diversification.

Nothing really new in the book. There are some uplifting statistics for dividend investors. But, I was wondering if anybody has a sell strategy that they'd like to share? Is this one just crazy? I like to keep my dividend income up, so I've been using this one since before I bought the book.

Cheers

[Taggart]

Thought I'd revive this thread.

I've been reading Bill Staton's book, 'Double Your Money in America's Finest Companies'. Basically his strategy for busy investors is only to invest in 5 - 15 companies that have increased dividends or earnings consistently for the last 10 years and build onto these as long as they maintain that status. His sell strategy is sell when a company no longer meets the dividend/earnings criteria and add to other companies or replace with another company from his list which is published every July. He recommends at least 5 sector diversification.

Nothing really new in the book. There are some uplifting statistics for dividend investors. But, I was wondering if anybody has a sell strategy that they'd like to share? Is this one just crazy? I like to keep my dividend income up, so I've been using this one since before I bought the book.

Cheers

Sensei:

As far as sell strategy, I'll let Philip Carret answer that for you. This is from an old Forbes interview in 1992:

How does he know when to sell? "I don't," he admits. "The best thing is to have somebody take it away from you by merging the company."

Note: I've read a couple of times where Jim Rogers knows when it's time to buy, but is not very good when it comes to the selling process.

I also know that John Templeton used to say that the best time to sell, was when he found a better value.

As far as myself, I don't have any hard and fast rules. I'm flexible. I just try to buy at a reasonable price and hang on as long as I can. My turnover is very low. The only stock that exited my portfolio over the past year was Northbridge Financial, but that was only because it got bought out from me.

[Sensei]

Hi,

Thanks for the response. 'When to sell' is not a very popular topic, I see.

I put the strategy to work on GE and USB and sold both. I sold USB just before the dividend cut and GE a little after. I think I replaced them with better choices.

Cheers

[Taggart]

Hi,

Thanks for the response. 'When to sell' is not a very popular topic, I see.

I put the strategy to work on GE and USB and sold both. I sold USB just before the dividend cut and GE a little after. I think I replaced them with better choices.

Cheers

Sensei:

Regarding dividend cuts, from the same 1992 article I quoted above, Philip Carret had this to say:

And he's waiting for bad news at another trust, Rockefeller Center Properties (11). "I think the time to buy is when they cut the [$1.92-a-share] dividend," he says.

-----------------------------------------------

Also from a 2008 Forbes article, Walter Schloss referred to a company on his watch list:

Schloss flips through Value Line again and stops at page 885: Bassett Furniture, battered by a lousy housing market. The chair- and tablemaker is trading at a 40% discount to book and sports an 80-cent dividend, a fat 7% yield. Schloss mutters something about how book value hasn't risen for years and how the dividend may be under threat.

His call: Consider buying when the company cuts its dividend. Then Bassett will be even cheaper and it eventually will recover.

-----------------------------------------------------

After TransCanada Corp. cut it's dividend, just a few short years ago, this would have turned out to be a good buying opportunity.

-----------------------------------------------------

Also in an older book I have, Standard & Poor's "The Dividend Rich Investor", published in 1999, and authored by Joseph Tigue & Joseph Lisanti, they did a study on the results of buying electrical utilities after a dividend cut. I found the results to be a mixed bag.

Here is what the authors had to say at the end of the chapter:

"We believe (and the evidence so far seems to confirm) that when electric utilities tell you they are reducing dividends to improve future results, it sends a strong signal that the market usually likes. Nevertheless, buying a stock on the news of a dividend cut remains an aggressive trading strategy. If you decide to attempt it, realize that you are taking a greater risk than you would in a stock that steadily increases it's dividend."

[Dividend Growth Investor]

As far as dividend cuts are concerned, Ned Davis Research shows that well, it pays not to own any of the dividend cutters or eliminators:

http://disciplinedinvesting.blogspot.co ... prior.html

Whether the future will closely follow the past, that's an entirely different thing.

As for TransCanada, it paid a lower dividend in 2000, but started raising its dividends again in 2001.

2008 was a very interesting year, as most of the dividend cutters or eliminators ended up almost worthless.. Of course this could be due to general market being bearish..

[Sensei]

Hi,

Thanks for the feedback. I gather from reading through the material that the point is somewhat moot. However, it seems to me that if a company has to cut its dividend, something is fundamentally wrong and I think something is fundamentally wrong with GE. The addition of GE Capital and the use it has been put to have brought GE low, in my opinion. They have drifted away from their core competence into finance and got sucked into the sub-prime mess. According to Immelt, GE Capital will shrink to 30% of the business. 30%!! Yikes! Still way to high. I also don't see any clear indication that GE is on an upward growth path to support future dividend increases without dipping into current holdings.

These days, however, are far from normal, so I think some dividend cuts have been forced on companies, for example USB. However, at the current price I'm reluctant to buy back in. If the yield gets to 2.5 to 3% ie $6 or 7$ I might be interested again. Likewise for WFC.

My focus is on the actual amount of positive cash that flows into my TD account. I think my rule will become to sell a dividend cutter if I can replace the dividend with a better dividend. When I sold USB and GE on news of the dividend cut, I was able to replace the dividend. My GE post cut was 200 X .4 = $80 and USB went to 100 X .2 = $20. I replaced it with 100 CAT @ 1.68.

Tag, what were the actual mechanics of having North Bridge Financial sold? Did it benefit you in any way? Just curious.

Cheers

[BRIAN5000]

Sensei old body old pal...I got a question for you, you want to take a whack at it?

[Sensei]

Sensei old body old pal...I got a question for you, you want to take a whack at it?

Sure, but you'll have to tell me what the question is first!

Cheers

[Taggart]

Tag, what were the actual mechanics of having North Bridge Financial sold? Did it benefit you in any way? Just curious.

Cheers

Sensei,

No mechanics involved. Fairfax Financial basically bought out the minority shareholders. I received cash for my shares. No great benefit for me, since it was only a very small holding in the portfolio.

[vince2]

I am following this discussion with great interest. We have only been in Canada about 7 years and consequently our CPP will be minute. I have concentrated on investing in dividend paying companies and believe that even if they cut their dividends by 50%, we will survive when I retire.

My biggest problem has been finding companies in Canada that would meet my goal of diversifying and I could only do it by buying USA shares. I know that I could have gone the ETF route (XSP), but the dividend of less than 2.5% is a huge stumbling block.

[Michael D]

My biggest problem has been finding companies in Canada that would meet my goal of diversifying and I could only do it by buying USA shares.

We have similar problems. US industrials, technology, and foreign ADRs in registered accounts (RRSPs and TFSAs) and Canadian banks, utilities, and resources in non-registered accounts. Consumer staples are good on either side of the border.

[Sensei]

Hi,

My biggest problem has been finding companies in Canada that would meet my goal of diversifying and I could only do it by buying USA shares. I know that I could have gone the ETF route (XSP), but the dividend of less than 2.5% is a huge stumbling block.

Sounds like you have a pretty good handle on things. I'd be curious about your idea of diversification. For example, how many different industry sectors do you feel comfortable with?

I can see how it would be difficult to get adequate diversification since Canada is relatively weak in several sectors. At the moment, my assets in Canada are 25% Canadian dividend payers, 60% US, and 15% UK.

I agree and I think you made the right choice about ETFs. I don't see the attraction of dividend MFs and ETFs at all if dividends and dividend growth are specifically what we are after.

Cheers

[vince2]

My investments are evenly spread between Canada and the US - all non-registered. I am within 5 years of retirement and pick what I believe are defensive stocks - if such an animal exists at present.

O&G, Financials, Utilities, Telecom, REITS, and Mining are all in Canada (BNS,TD, MFC,SLF,PWF, ACO.X, COS.UN, ECA, TRP, CWT.UN, REI.UN, RCI.B, SJR.B, AGU and ABX). Consumer staples and discretionary, Industrial, Electronics/Software and Healthcare of any substance are easier to find in the USA (PG, JNJ, PM, KO, PEP, MCD, MMM, UTX, MSFT, WMT, EMR and YUM).

That makes ? 11 sectors.

I am reluctant to buy any stock that does not pay out at least a 3% or greater dividend for now with the expectation/ ?hope that it will grow.

[Sensei]

Hi,

No plans to retire, but 10 years to the 'official' retirement age of 65. I'm a non-resident, so taxation is different. It is very advantageous for me to invest in the US and the UK. Income in Canada is for a relative.

My investments are evenly spread between Canada and the US - all non-registered. I am within 5 years of retirement and pick what I believe are defensive stocks - if such an animal exists at present.

Almost no place to hide these days, but I think the sensational dividend cuts (GE, USB etc.) are nearly over.

O&G, Financials, Utilities, Telecom, REITS, and Mining are all in Canada (BNS,TD, MFC,SLF,PWF, ACO.X, COS.UN, ECA, TRP, CWT.UN, REI.UN, RCI.B, SJR.B, AGU and ABX). Consumer staples and discretionary, Industrial, Electronics/Software and Healthcare of any substance are easier to find in the USA (PG, JNJ, PM, KO, PEP, MCD, MMM, UTX, MSFT, WMT, EMR and YUM).

That makes ? 11 sectors.

Your Canadian port is interesting. Mine looks like this.
Banks: BNS, TD, RY
Pipes: TRP (ENB on watch)
Utilities: FTS (EMA on watch)
Insurance(?): PWF, MFC I'm not sure if these should be separate from financials. What do you think?
Retail: RTS.A (Reitmann's)
Trusts: CLC.UN, YLO.UN, BDT.UN
Telecom: MTS, BCE
Mftg: RUS

8 sectors if you consider PWF and MFC to be in a different sector. I don't distinguish between trusts for now because the holdings are small.

I haven't found any REIT in Canada that I'd be really happy with. I'm covering that sector with fairly large helpings of US O and HCN. I also avoid oil in Canada although I've been thinking about PCA or ECA. For now I prefer UK BP and RDS.A and CVX in the U.S.

I am reluctant to buy any stock that does not pay out at least a 3% or greater dividend for now with the expectation/ ?hope that it will grow.

Yes! Yes! Yes! Finally someone who gets it. You have to start higher if you are nearer retirement.

Cheers

[vince2]

It's a tough call, my perception is that banks and insurance companies will eventually move much closer together. There appears to be certain synergies that they can exploit - eg they both love derivatives (tongue in cheek) so I would tend to put them together.

Your portfolio is interesting and thought provoking, I looked long and hard at RUS and BCE but eventually decided against it, and I will probably live to regret it. I liked the business model of CLC.UN and had selected them as my healthcare hold but when the founder sold more than 2,000,000 shares in a short period, I got spooked and sold - I still cannot see anything wrong with the business model.

I looked at BP but once I had factored in their latest dividend and calculated the possible future yield, I thought I could do as well in Canada.

[BRIAN5000]

Vince and Sensei

I quickly put Vince's portfolio into a frame work used by the Investment reporter. Some of the stocks I may have put in wrong sectors, a point for discussion? Have a look. Looks like Vince may be a bit light in Utilities? Or are RCI.b and SJR.b more like telephone utilities. 1/2 means I split the company between two sectors.

[Shakespeare]

The TSX sectors of several popular dividend-paying Canadian stocks can be found here.

[Taggart]

Vince and Sensei

I quickly put Vince's portfolio into a frame work used by the Investment reporter. Some of the stocks I may have put in wrong sectors, a point for discussion? Have a look. Looks like Vince may be a bit light in Utilities? Or are RCI.b and SJR.b more like telephone utilities. 1/2 means I split the company between two sectors.

I'm not saying there's anything wrong with the Investment Reporter's sector setup, but personally I prefer to spread it into ten sectors. A good example would be Vanguard's sector diversification for their VTI - Total Stock Market ETF.

TRP is put in the Energy Sector by Reuters. Looking at the Globe & Mail's Report On Business, RCI.b is in the Telecommunications Sector, and SJR.b is in the Consumer Discretionary Sector. As far as I can see, REITS are a stand-alone, in a totally different asset class from stocks.

[BRIAN5000]

I'm not saying IR is right either. IR shows 5 main sectors with 23 sub-sectors within those 5. The reason for the sub-sectors I think is not to be loaded up on one type of stock, Telco's for example, and think your diversified. Vanguards 10 main grouping look good.

[vince2]

Oops,

I missed the ALA.UN, GNV.UN, SC common stock and the ENB and FTS preferreds. For financial and other reasons I keep the shares in 3 separate portfolios.

Vince

[blackball]

Does anyone know what the ex-dividend date is for the US-based ishares products for Q1?

[Sensei]

Hi,

Very interesting comments, all. My main purpose is to figure out where to put new money in a diversified dividend portfolio for the purpose of rebalancing. Some problems:

1. My portfolio looks like a battlefield. Holes all over the place. Most notably, banks in the US are down to two and one of those is BAC.
2. Selling to rebalance doesn't make much economic sense for me. The only reason to sell for a dvg investor (in my plan) is a dividend cut, probable dividend cut, or elimination.
3. More than 20 stocks in any one portfolio is too many. (This is a US problem. In Canada, it is difficult to find dividend stocks as noted above.)
4. Not all sectors have worthwhile dividend stocks.

Other notes: I keep my US and Can ports separate. It's too unwieldy to do otherwise with currency changes.

REITS are my answer to not owning any other real estate.

Then, supposing we used Vanguard's divisions (which seems simplest to me), would you try to keep equal current share values in each sector? Upthread, someone said yes, but what do others think? How often is it necessary to rebalance?

Cheers