# The Single BEST Investment



## Lucy (Mar 10, 2012)

Hello to all! I am new to this forum but not new to investing.
I wanted to discuss an investment strategy that I have been working on.

First, a little background on myself. I have been successfully selling real estate in a suburb of the GTA for 26 years. My focus has primarily been on selling however I do own some income properties. My parent's real estate agent (who is one of my mentors) told me 25 years ago, that the first goal I should have is to replace my working income with rental properties. This did not truly sink in until a few years ago where I began buying rental properties.

Last summer, I had the pleasure of getting to know a client who is now in his 70's and has been retired since he was 47 years old. He lives off the dividends from bank stocks after having tried rental properties with no peace. He lives a very good life and spends 6 months in the Dominican and six months here.

This got me investigating dividend income. I bought the classic book called .....

"THE SINGLE BEST INVESTMENT" by Lowell Miller. 

In the book he advocates investing long term in strong and consistent dividend GROWTH stocks. He points out that over time dividend growth stocks are better than high yielding dividend stocks and that as the dividend grows AND doubles, eventually the stock appreciates with it.

I discovered 3 companies that have been growing their dividends consistently for 30 years. Here is their average annual dividend growth rates for the past 10 years. 

Lowes-27%
McDonalds-26%
Walmart-18%

These 3 dividend aristocrats, and several others have doubled their dividends on average every 4 years for the past 30 years. (of course, performance is not a guarantee for the future, however I would rather invest with a proven winner)

This means that the stock will also typically double every 4-6 years assuming everything stays fundamentally solid with these companies over time and you purchase them at less than 20 times earnings.

Warren Buffet says we are better to focus on a small handful of stocks as it is not possible for the average investor to really know and analyse 10-30 stocks and I have always felt the same way even though this flies in the face of conservative mainstream investment advice. "Too much diversification is a recipe for mediocrity". 

My plan is to maximize my RRSP into 5-6 such comanies, then margin or leverage, just like i would with a real estate investment, a few hundred thousand dollars outside my RRSP in similar or the same companies.

The plan is to double the dividend returns every 4-5 years even re investing the dividends if possible, therefore doubling the capital gains over time as well.

Something like 3% becomes 6% becomes 12% over 15 years.

Anyone here have a similar strategy/plan based on Lowell Milker's classic book.


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## Lucy (Mar 10, 2012)

Last week I purchased $65,000 of Mcdonalds inside my RRSP. Looking for a dividend of $5.60 per share in 4 years.


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## gibor365 (Apr 1, 2011)

There are several dividend champions who increased dividends for 50+ years, like PG, JNJ etc.
You can find all list on www.dripinvesting.org (click on Tools)


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## Jungle (Feb 17, 2010)

Yes we do dividend investing with Canadian stocks and the dividend growth strategy and it can work out amazing. Infact I believe it can out pace the ROE or cap rate on my rental. I want the tenant to pay my rental off while I slowly add dividend stocks to replace the rental.


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## humble_pie (Jun 7, 2009)

sigh. Another pumper-scammer.

http://www.mhinvest.com/home.html

actually lucy i don't think lowell miller's firm, being a US firm, is permitted to take canadian clients. And you didn't navigate all the way up north just to sell a few books, did you ?

this is a smart board. Folks here know about dividends. We even have electricity in our homes.

best of luck to you, though.


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## OptsyEagle (Nov 29, 2009)

Don't forget to look at the non-dividend aristocrats. Those would be the stocks of companies that paid dividends for 10, 20 or more years and then failed miserably and all investor money was inevitably lost.

It takes a lot more then a book to be successful in investing.


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## Lucy (Mar 10, 2012)

humble_pie said:


> sigh. Another pumper-scammer.
> 
> http://www.mhinvest.com/home.html
> 
> ...


Maybe you misread my post and before you make such assumptions I would recommend you read the book. The book is not about investing with anyone fund or stock or ETF. It is about the concept of investing in dividend GROWTH stocks, (emphasis on the word GROWTH) not merely dividends.

My thread here is about doubling ones dividends every 4 years. Dividends is a simple enough concept so yes many people that think they are smart know about them but most get drawn to the better yielding stocks.


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## Lucy (Mar 10, 2012)

OptsyEagle said:


> Don't forget to look at the non-dividend aristocrats. Those would be the stocks of companies that paid dividends for 10, 20 or more years and then failed miserably and all investor money was inevitably lost.
> 
> It takes a lot more then a book to be successful in investing.


I agree. Thanks for that. Due diligence for any investment is a must. Goes without saying. Dividend investing must be active not passive.

Latest dividend increases.....

Lowes-27.3% in May 2011, original dividend Aristocrat, increased payments for 49 years!

Mcdonalds-15%, raising dividends for 35 years!


Walmart-9%, preceded by 20% increase the previous year, raising dividends for 37 years in a row.


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## Lucy (Mar 10, 2012)

gibor said:


> There are several dividend champions who increased dividends for 50+ years, like PG, JNJ etc.
> You can find all list on www.dripinvesting.org (click on Tools)


Thank You! Yes, Proctor and Gamble and Johnson and Johnson are nice dividend growth companies.

PG-10 year average growth rate-10.9%, raising distributions for 55 years in a row.

JNJ-10 year average growth rate-13%, raising distributions for 49 years in a row.

I am looking to MCD, LOW, WMT, mainly for their more aggressive growth rates as well as many other fundamentals.


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## gibor365 (Apr 1, 2011)

Lucy said:


> Thank You! Yes, Proctor and Gamble and Johnson and Johnson are nice dividend growth companies.
> 
> PG-10 year average growth rate-10.9%, raising distributions for 55 years in a row.
> 
> ...


I'm looking for both current yield and dividend growth. As a rule for my dividend picks I select stocks with yield not less than 3%... Dividend growth is a good thing, but more chances that dividend growth will be smaller, than existing dividends will be cut.
This is why I prefer for example MO or AT&T and not WMT or LOW. Just calculate how many yers will take WMT to catch MO if MO has 100% higher yield


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## the-royal-mail (Dec 11, 2009)

OK so basically you (Lucy) are spamming the thread with a subtle sales pitch for us to buy a book? Is that it? Your approach seems very 'forward' - which is something I generally mistrust. What's in it for you if we follow your advice?

The concept of dividends is not rocket science and it it not new - do you really think the people of CMF don't get the concept?

It's also not necessary to quote everything you reply to.


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## Cal (Jun 17, 2009)

Yep, sure sounds like a pitch.

Yes alot of us are DIYers, and yes alot of us already drip. Funny thing is alot of us are also frugal, for example when I read that book, it was sitting in a Chapters over 2 Sunday afternoons.

Personally, I liked 'the little book of big dividends' better. And I know some of you will hate me for saying this, but I actually liked 'the lazy millionaire' better too.


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## Lucy (Mar 10, 2012)

Initially i was looking at the better yield companies. I even looked at Annaly NLY, with a yield of 14%.

Yield is determined by the demand for the stock. If one company consistently keeps a lower dividend its because more people want that stock for some reason. 

Im sure you are familiar with the rule of 72. Dividing your yield into 72 tells us how many years it will take for your yield to double.

In the case of MO vs MCD or LOW, MO, i believe has an average dividend growth of 10% which means it doubles its yield in 7 years which is great. 
MCD or LOW has beem doubling the dividend every for years so in 8 years their dividend should be closer to 12 % plus a growing dividend inevitably pulls the stocks price up with it, meaning MCD or LOW stock have chance of doubling 2 times in 8 years vs MO's only one.

Plus i read that MO has a payout ratio of 93% vs LOW or MCD having payout ratios of 50% and 23% respectively.

Im not sure why MO's payout ratio is so high? Usually thisxis not a good sign unless its in the case of a REIT or a TRUST.

The rule of 72 is why i chose the bigger dividend growers and i believe this is also why the market as a whole prefers them evidenced by the lower yield up front.

Critiques and comments highly appreciated for the benefit of all.


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## humble_pie (Jun 7, 2009)

all the pumps this weekend are 6.5ers. On a scale of 1-10, i mean


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## Lucy (Mar 10, 2012)

the-royal-mail said:


> OK so basically you (Lucy) are spamming the thread with a subtle sales pitch for us to buy a book? Is that it? Your approach seems very 'forward' - which is something I generally mistrust. What's in it for you if we follow your advice?
> 
> The concept of dividends is not rocket science and it it not new - do you really think the people of CMF don't get the concept?
> 
> ...


Spamming? Really? What would I get from recommending a book? This is a forum. I think forums are about sharing. I like to share. 

Yes, the concept of dividends is not rocket science. But the concept of doubling your money every 4-5 years certainly seems to be rocket science as whenever I mention the concept to friends, such as last night, their eyes glaze over or here I am posting an idea in a forum where people are helping each other and I get accused of selling a book.

On the other forums I belong to, we quote the post we are responding to. Isn't that why the feature is there?


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## crazyjackcsa (Aug 8, 2010)

Don't worry Lucy, I think all your perceived problems with a few board members here are psychosomatic. You need a lobotomy. I'll get a saw.


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## Lucy (Mar 10, 2012)

crazyjackcsa said:


> I like pie. I suggest everybody purchase some. From me.
> 
> Take a walk Lucy.


Why don't you contribute something of value to this thread instead of flaming? Or, is this just club where nothing gets in unless it's what you want you approve.

(MODS; is there a way to ban people like "crazy" from a thread?)


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## Sampson (Apr 3, 2009)

Have you read about survivorship bias? Handpicking the 'best' dividend growth stocks at present is easy, but what will they do going forward?

You might have heard of a wonderful dividend growth stock GE, raised dividends for 30+ years, until the stock and the dividend fell off a cliff. There are also a number of US banks, well actually every single major US bank that was once a dividend achiever and dividend grower. You might have heard about those, jury is out how good an investment those would have been 4 years ago. Last I checked, their dividend payout has not doubled in 4 years.


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## kcowan (Jul 1, 2010)

Lucy I think the thing you missed was that this forum is for discussing ideas, not for promoting a specific investing approach. Your dismissal of gibor's post suggests that you are not open to others ideas.


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## Jungle (Feb 17, 2010)

Your post does sound like spam to buy that book and you are a first time poster. Maybe it's not. But like cal said above, most here are too cheap (including myself) so I get my books from the library, since my property taxes pay for that anyway.

The guy above just doesn't like quoting because it hurts his eyes, however you are free to quote all you want. 

I do not see any link to sell this book ..
Thank you for your contributions this far and please continue to speak about this strategy. 

Have you looked into any Canadian stocks?


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## Sampson (Apr 3, 2009)

Lucy said:


> But the concept of doubling your money every 4-5 years certainly seems to be rocket science as whenever I mention the concept to friends, such as last night, their eyes glaze over


But this is not at all accurate. WMT and Lowes have historically had very low pay out amounts, my dividend payment may go from $1-$2, but my money hasn't doubled.

Dividends form only one small part of the overall return, that's what I care about at this stage of my investing career.


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## Dmoney (Apr 28, 2011)

I'd take dividend growth over current dividend any day. The problem is predicting dividend growth. 

If company A is yielding 3% and company B is yielding 6%, if company A is growing their dividend faster than B, I'll take it any day. But there's no guarantee a company grows their dividend, or even continues to pay any dividend. 

Also, if both are generating FCF yields of 10%, unless A is putting the money to good use, why isn't it paying out more? Is it all just an illusion to keep growing the dividend while earnings and cash flow stay the same?

While I do have a preference for companies that pay dividends, and an even greater preference for those that grow dividends, take a look at how they're growing or paying those dividends. Is the dividend sustainable? Is the growth actual growth or just increasing the payout ratio? Is retained cash deployed accretively?

A good analysis of this is the REIT sector. Some REITs pay out 100% of their cash flow, and have to raise money to buy properties. Some REITs pay out 75% of their cash flow, and don't buy anything. Some REITs pay out 75% of their cash flow and buy new properties every so often with retained cash.

The guys who pay out 100% can't raise distributions. The guys who pay out 75% of cash flow and buy nothing can only raise their distribution to 100%, or by distributing their retained cash. But the guys who pay 75% and acquire with it, can grow their cash flows through redeployment of capital.

That's why they yield less on a distribution basis, but when you actually look at cash flows, they are in line with the rest.

Investing can never be one dimensional.


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## Lucy (Mar 10, 2012)

Great post Dmoney. I agree 100%. I did try to say what you just said so well by recommending due diligence and that dividend investing must be active. Definitely not one dimensional.


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## Lucy (Mar 10, 2012)

Sampson said:


> But this is not at all accurate. WMT and Lowes have historically had very low pay out amounts, my dividend payment may go from $1-$2, but my money hasn't doubled.
> 
> Dividends form only one small part of the overall return, that's what I care about at this stage of my investing career.


You are right, a dividend going from $1-2 is not doubling your money but but it is doubling your yield on original cost and doubling your dividend. If a company such as McDonald's continues to double its dividend every 5 years as a result of good business, so the current dividend of $2.80 grows to $5.68 in 5 years (15% growth per year) then $11.36, 10 years from now don't you agree that the stock should at least double after the 10 years? Otherwise, you would have Mcdonlds with an 11% yield in 2022. (again, this is assuming good business fundamentals-just like you would assume this of every investment you would make)

Paul Tudor Jones said he always goes with the winners! McDonald's as an example has proven itself as a money making machine. Two thirds of their revenue comes from real estate rental income. Burgers, fries, and coffee are the catalyst for their money making culture.

Disclosure: long MCD.


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## Sampson (Apr 3, 2009)

Dmoney said:


> Investing can never be one dimensional.


Exactly.

I invest in 'dividend' growth stocks, and may move to dividend payouts as a retirement income source. However, these strategies are not without downsides.

I, along with probably everyone I know (including the strictest dividend growth investors) would rather have owned Apple for 10 years rather than MCD, WMT, or LOW.

Google shows a 4300% return on Apple.

I would always take a 4300% return rather than the 100% return from McD in 10 years from now.


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## humble_pie (Jun 7, 2009)

burgers fries & coffee cardiac arrest


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## humble_pie (Jun 7, 2009)

how is the bp this am lucy

doosie


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## Toronto.gal (Jan 8, 2010)

Lucy said:


> 1. has been retired since he was 47 years old....He lives a very good life and spends 6 months in the Dominican and six months here.
> 2. Warren Buffet says we are better to focus on a small handful of stocks as it is not possible for the average investor to really know and analyse 10-30 stocks...
> 3. "Too much diversification is a recipe for mediocrity".


1. Not the youngest [lazy retiree]; that title officially belongs to Derek Foster, but that could change of course. 

2. He also said: "Be fearful when others are greedy, and greedy when others are fearful"; I don't think he meant to chase only dividend-paying companies. 

Though I have read several books in the last 3 years, I think I pretty much learned all there is to learn about dividends & DRIPS in a single afternoon, by reading Derek Foster's [library-borrowed book], 'The Lazy Investor' [the book I recommend to newbies for its simplicity].

Dividends are important and I reinvest amounts received, however, factors such as: retained earnings, price appreciation, and as Buffett would say: "Sustainable competitive advantage", are important as well. I have some non-dividend paying stocks that have more than doubled for me in just the last couple of years [as I'm sure many others have too] & looking forward to more of those in the future by buying bargain prices of severely undervalued companies, albeit with solid fundamentals [with dividends or without] & though it's no longer March/09, there are still great bargains out there to be had. I give preference to a mix of investments & definitely avoid companies with unsustainable/ridiculous yields [like AGNC & even SLF for example, though kudos to those getting paid]. 

Given my time horizon, my focus is more on wealth accumulation, compound interest & taking advantage of tax-free accounts, as well as registered pension accounts [LIRA/RRSP/TFSA].

3. This is true, but 10/15 stocks would hardly be considered over-diversification when a good % of those [if well picked] would require little attention [such as the CDN banks for example].

*Lucy:* imagine you had invested $65K in AAPL/LULU [just to name a couple] just a year ago. You could have bought MCD last week for free! I wonder why you bought MCD last week at almost their 52 week high? Granted they dropped a bit, but it was a mere 3% or 4% & the yield is moderate. I own MCD, but not for the dividend.


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## Toronto.gal (Jan 8, 2010)

Lucy said:


> Im sure you are familiar with the rule of 72. Dividing your yield into 72 tells us how many years it will take for your yield to double.


As hp said, this is a smart board and this is no joke, it truly is, that's why I joined!  

But just in case someone new may not be familiar:

*"The system is actually better suited for calculating the double up time of bond and fixed savings accounts. This is because you know that you will get that exact same rate of interest every year, and it will apply to every last penny in the account."*

http://beta.fool.com/facevalue/2012/01/22/rule-72/1095/


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## kyboch (Dec 23, 2011)

http://www.cbsnews.com/8301-505123_...nd-strategies-to-pick-stocks/?tag=mncol;lst;9


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## Lucy (Mar 10, 2012)

kyboch said:


> http://www.cbsnews.com/8301-505123_...nd-strategies-to-pick-stocks/?tag=mncol;lst;9


Using averages like that is an easy way to discourage yourself from doing anything In life.
It throws due diligence out the window. It's a good thing those that are ambitious and industrious do not get influenced by averages like that. 

Companies that can reward investors with consistent dividend growth and still retain enough earnings to grow their businesses and revenues, by and large are more successful than most companies that cannot do both. Of course there exceptions to this. Like Apple etc. 

I'm almost 50 years old. I crave a strategy that is as duplicatable and predictable as possible and that creates me growth. I now have personally met people living a good life as the result of a dividend growth strategy. I'd rather invest in a strategy that's proven rather than trying to find the next Google or apple. 

Dividend growth truly exploits compounding (one of Albert Einsteins wonders of the world).

I read Fosters book. I have read it when it came out. Not impressed by his chosen lifestyle. To each his own but if one can strive for affluence or strive for meagerness, I choose affluence. That's just me. I believe, for the most part we find what we are looking for. I want to retire and live a better life than while I was working, as at retirement i will have time to enjoy life more. I want time and money not time and a budget.


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## kyboch (Dec 23, 2011)

Larry Swedroe he knows NOTHING.


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## gibor365 (Apr 1, 2011)

Dmoney said:


> I'd take dividend growth over current dividend any day. The problem is predicting dividend growth.
> 
> If company A is yielding 3% and company B is yielding 6%, if company A is growing their dividend faster than B, I'll take it any day. But there's no guarantee a company grows their dividend, or even continues to pay any dividend.
> 
> .


This is the point that you cannot predict dividend growth. I just think that probability that for example MO or T will cut their dividends much less than probablity that for example WMT will cut their dividend growth.


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## Jungle (Feb 17, 2010)

Derek Fostor argues with companies like Coke a Cola, inflation and brand has allowed them to increase dividend well above inflation for a long time. If we can choose strong brands and things that people will always buy, this can help.


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## Sherlock (Apr 18, 2010)

Lucy said:


> I read Fosters book. I have read it when it came out. Not impressed by his chosen lifestyle. To each his own but if one can strive for affluence or strive for meagerness, I choose affluence. That's just me. I believe, for the most part we find what we are looking for. I want to retire and live a better life than while I was working, as at retirement i will have time to enjoy life more. I want time and money not time and a budget.


I agree. Yes he retired early, but he lives on a very modest income. A retirement based on extreme frugality is not a fun retirement. What's the point of retiring early if you're not gonna have enough money to enjoy your retirement?


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## CanadianCapitalist (Mar 31, 2009)

Lucy said:


> Companies that can reward investors with consistent dividend growth and still retain enough earnings to grow their businesses and revenues, by and large are more successful than most companies that cannot do both. Of course there exceptions to this. Like Apple etc.
> 
> I'm almost 50 years old. I crave a strategy that is as duplicatable and predictable as possible and that creates me growth. I now have personally met people living a good life as the result of a dividend growth strategy. I'd rather invest in a strategy that's proven rather than trying to find the next Google or apple.


There are many extremely smart investors on this forum. What they are trying to do is offer you a counterpoint to the usual rah-rah you hear about dividends. Just because a company raised dividends at rate x in the past, doesn't mean it will (a) continue to do so and (b) increase dividends at the same rate in the future.

Take MCD. Here are the growth metrics (annualized) for the past 10 years: Revenues up 8%. Earning up 11.5%. Dividends up 26%. Payout ratio has gone up from 18 percent in 2002 to 48% in 2011. In other words, MCD has boosted dividends at a better than double the pace than earnings (which in turn is outpacing revenue growth) in the past decade. Neither trend can continue indefinitely. If I were betting, I would bet on future dividend growth coming at a much slower pace than the past... more in line with earnings growth.


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## Lucy (Mar 10, 2012)

gibor said:


> This is the point that you cannot predict dividend growth. I just think that probability that for example MO or T will cut their dividends much less than probablity that for example WMT will cut their dividend growth.


You could be right. Time will tell. I suppose when a company cuts the dividend it is time to move on.


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## gibor365 (Apr 1, 2011)

Take a look at http://www.great-option-trading-strategies.com/high-dividend-growth-vs-high-yield.html
There is comparisson between Stock A - 3% Initial Yield + 10% Growth and Stock B - 7% Initial Yield + 3% Growth = 10% Annual Compounded Income Rate ,
it would take between 30-35 years (Year 33 actually) before the total dividend income from reinvested Stock A would finally surpass the total dividend income from reinvested Stock B.

Also check WMT vs T comparisson:
http://seekingalpha.com/article/253...ividend-yield-vs-dividend-growth?source=kizur
Even if T stop increasing dividends and WMT will continue with current rate, it will take almost 13 years until WMT will catch T

IF you go to authot website you can downloadl spreadsheet where you can enter current yield and dividend growth for 2 stocks and see returns on the graph.


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## Financial Cents (Jul 22, 2010)

I invest in Canadian and U.S. dividend-paying stocks. I have about 25 such stocks in my portfolio. The rest of my portfolio is invested in broad-market ETFs. By this approach, I feel I'm investing and getting the best of both worlds. 

I thought Lowell Miller's book was excellent, one of my favourites.


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## gibor365 (Apr 1, 2011)

Financial Cents said:


> I invest in Canadian and U.S. dividend-paying stocks. I have about 25 such stocks in my portfolio. The rest of my portfolio is invested in broad-market ETFs. By this approach, I feel I'm investing and getting the best of both worlds.
> .


I have a very similar approach 
Only I have a very small allocation 2-3% of the portfolio that I invest into speculative equities (no success so far)


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## Cal (Jun 17, 2009)

I think that your expectations for the dividend growth stocks that you may pick, to double every 4-5 years or so in total value, is either a little naive or optimistic.

Having said that, as you mentioned that you are around 50, dividend income may be a good way to help fund your retirement. Yes, we know you have rental property income, but the dividend income is taxed at a much lower rate, so you would keep more in your pocket. And no fixing water leaks with them. LOL.

As CC mentioned, past history of earnings/dividends is not necessarily an indicator of future. See MFC or YLO.

And I think you kind of missed the point with Fosters book, it wasn't really about how he chose to live, it was more about how he funded his lifestyle. Had he wanted to work longer in the traditional sense, he could have simply had/made more.

In all fairness, I am sure that if you reread your initial post, it really does sound alot like a cheesy sales pitch.

Also, there are alot of dividend threads on here if you use the search function. Happy reading.


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## Toronto.gal (Jan 8, 2010)

gibor said:


> Only I have a very small allocation 2-3% of the portfolio that I invest into speculative equities (no success so far)


Give yourself time, you haven't been investing for that long after all. 

Thanks for the article you posted, it was quite good. I think you're CMF's dividend expert. 

With respect to the so called '8th Wonder of the World' that Lucy mentioned, while compound interest indeed works like magic [and one need only play with an FVcal. to get a jaw-dropping visual of this], more important than the yield/interest rates per se, is the length of time one has to invest/payments per period [wish I had started investing at 20].  

As for the retirement comments, it means different things to different people. Personally, and as another member previously said, I also want to leave a financial legacy [but hopefully not for another 40 years] and this is more important to me at the moment than planning where I may want to retire. Also, I'm not waiting until retirement to do what I want to do [not everything worthwhile doing requires $kkk's]. Every year I tick off completed item from my 'bucket list' because the future [and even present] is unpredictable.


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## Mall Guy (Sep 14, 2011)

Dmoney said:


> The guys who pay out 100% can't raise distributions. The guys who pay out 75% of cash flow and buy nothing can only raise their distribution to 100%, or by distributing their retained cash.


Not to take away from your theme ( as I generally agree with it), but most REIT try to increase same asset NOI by anywhere between 1-3 %, by raising rents annually. This would also allow them to increase the distribution from time to time. CREIT and Boardwalk were heavily reward over the last couple of year for their low payout ratio.


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## Lucy (Mar 10, 2012)

gibor said:


> Take a look at http://www.great-option-trading-strategies.com/high-dividend-growth-vs-high-yield.html
> There is comparisson between Stock A - 3% Initial Yield + 10% Growth and Stock B - 7% Initial Yield + 3% Growth = 10% Annual Compounded Income Rate ,
> it would take between 30-35 years (Year 33 actually) before the total dividend income from reinvested Stock A would finally surpass the total dividend income from reinvested Stock B.
> 
> ...



I have read those sites in the past. Thanks. I think they conveniently ignore total return and pick a growth rate of 10% which is good but not great. As I mentioned in previous posts, as the dividend doubles every 4-5 years, the stock gets pulled up along with it. 

Another supposed good book is "Dividends don't lie.". Although I have not read it, it has been quoted many times in other reading sources. Financial statements can be manipulated to look good but dividends are cold hard cash. Ever increasing dividends are tangible. Companies who payout large double digit increases in dividends can do so because they have been growing and increasing their business at a similar pace or sooner or later they will need to increase dividend payouts rates and debt to maintain that payout rate. 

All this and much much more is covered in detail in the book, which some people here smartly think I am collecting royalties from. Lol.

Another good website is dividendgrowthinvestor.com. (I have no financial benefit from that site, just enjoy reading it)


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## Lucy (Mar 10, 2012)

CanadianCapitalist said:


> There are many extremely smart investors on this forum. What they are trying to do is offer you a counterpoint to the usual rah-rah you hear about dividends. Just because a company raised dividends at rate x in the past, doesn't mean it will (a) continue to do so and (b) increase dividends at the same rate in the future.
> 
> Take MCD. Here are the growth metrics (annualized) for the past 10 years: Revenues up 8%. Earning up 11.5%. Dividends up 26%. Payout ratio has gone up from 18 percent in 2002 to 48% in 2011. In other words, MCD has boosted dividends at a better than double the pace than earnings (which in turn is outpacing revenue growth) in the past decade. Neither trend can continue indefinitely. If I were betting, I would bet on future dividend growth coming at a much slower pace than the past... more in line with earnings growth.


That is good information. Yes I have read that they have increased dividend payout to 48%. That concerned me until I have read several other companies had done the same and after several years even with their large double digit the payout ratio came down because of great growth. I think it was Walmart or Lowes, can't remember. 

Somehow I think after all due diligence is done, when taking part ownership in a company, one must have confidence in the culture of management and trust that they know what they are doing going forward. Perhaps they know they can afford that payout and may have a means to bring it down in the near future. Example: Mcdonalds requires that management owns shares of the company to have a vested interest in performance. The largest shareholders, and the heirs to the company want the dividend growth to be large and sustainable.

Remember.... Paul Tudor Jones said always go with a winner. Dividends don't lie. They are not "rah rah" as you say.

Rockefellar said the only thing that gives him pleasure is watching his dividends come in.


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## humble_pie (Jun 7, 2009)

very dear loosie i don't think you are collecting royalties from any book. 

think you might be trolling for clients though.

pity tis, tis a waste of time & effort. Recently we had a really good financial advisor visiting here for a short time. But in the end he departed, because we are a hard stubborn lot & he got no business from any of us.


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## moneyisfornothing (Feb 18, 2012)

interesting thread.
i am not a fan of what i call 'passive' investing that relies in dividend paying stocks.
not that i do not believe in dividend paying stocks.
i think that a more proactive approach towards active trading in the past few years has been more rewarding than any dividend stock.
i hold my fair share of blue chip stocks , but it ain't my largest allocation.
as for lucy and books , as the old saying goes ... "don't believe in everything you read"


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## bettyboop (Dec 13, 2011)

Toronto.gal said:


> Give yourself time, you haven't been investing for that long after all.
> 
> Thanks for the article you posted, it was quite good. I think you're CMF's dividend expert.
> 
> ...






This has to be the best post I have read in a looooooooong time!


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## gibor365 (Apr 1, 2011)

Lucy said:


> Another supposed good book is "Dividends don't lie.". Although I have not read it, it has been quoted many times in other reading sources. Financial statements can be manipulated to look good but dividends are cold hard cash. Another good website is dividendgrowthinvestor.com. (I have no financial benefit from that site, just enjoy reading it)


I was recently mentioning this book in another thread  and currently I'm reading it...cannot tell it's outstanding, but interesting to some degree.
dividendgrowthinvestor is frequently publishes his articles on seekingalpha. I also to read his articles, togarther with some other authors like Dividends4Life and David Fish


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## Causalien (Apr 4, 2009)

Hello Lucky,

I am just trolling. So stop reading

Welcome to the forum. 
May I present you with an opportunity to double your money in JUST3 YEARS. Imagine what'll happen if you pour all your dividend income from McDonald which yields 2.89% and invest with me. In 10 years time when McDonald dividend would have increased by 100%, I'd be able to bring you 300% income in that dividend every 3 years. At year 13, wow, you'd get 2.89% x 2 x 2 =11.56%. A safe and surefire way of increasing your net worth while protecting your capital from depreciation because it is a given that we will only get fatter.

This is a once in a lifetime LIMITED opportunity crafted JUST FOR YOU! Because I really admire your balls for following this dividend strategy.

For this week only, we can work out a deal with you so that the investment is COST FREE for you. I can draft an incorporation whose sole purpose is to buy this book, get all the tax write offs and then declare bankruptcy, while you then turn around and reinvest all the royalties with a separate corporation that I own.


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## Lucy (Mar 10, 2012)

Causalien; if you actually can substantiate your performance then please do share. Otherwise why bother. All the naysayers/self righteous posters here forget one thing. I am not making this up. The 3 aristocrats I am following actually have been doubling their dividends every 4 years for longer than most of you have been investing and actually can put their money where their mouth is. You can pull their dividend history from the company investment relations.

Now if your track record is as good then maybe you really are smart. Otherwise, you probably just like telling everyone you are with no substance.


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## jcgd (Oct 30, 2011)

Just curious Lucy, how do I find the three companies that will double their dividend every four years, next?

Just because they have for a while doesn't mean they always have, or always will. 

Silly thread IMO. It screamed trolling from the first two sentences.


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## Causalien (Apr 4, 2009)

Lucy said:


> Causalien; if you actually can substantiate your performance then please do share. Otherwise why bother. All the naysayers/self righteous posters here forget one thing. I am not making this up. The 3 aristocrats I am following actually have been doubling their dividends every 4 years for longer than most of you have been investing and actually can put their money where their mouth is. You can pull their dividend history from the company investment relations.
> 
> Now if your track record is as good then maybe you really are smart. Otherwise, you probably just like telling everyone you are with no substance.


Nah, I was totally bullshitting. Read the disclaimer at the beginning about trolling, but it got me the response I needed to measure you.


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## Lucy (Mar 10, 2012)

jcgd said:


> Just curious Lucy, how do I find the three companies that will double their dividend every four years, next?
> 
> Just because they have for a while doesn't mean they always have, or always will.
> 
> Silly thread IMO. It screamed trolling from the first two sentences.


Sorry my sharing seems silly to you. I believe I mentioned my 3 prefered companies, MCD, LOW, WMT. And for you to spread misinformation by saying they have doubled dividends for a little while is just as silly. Do your homework smart guy. Yes there are no guarantees this will continue for another 30 years like it already has, but I'm sure their board of directors are fully aware of the expectations the have created in their investors and they have done a phenomenal job in rewarding them.

Read today that last year, WMT had $444B sales, paid $5B in dividends, and $11B in share buybacks and dividend payouts. That's less than 3% of sales. The Walton family ownes almost 50% of outstanding share therefore received half that dividend payout or around $2.5B. I'm sure the Waltons want their dividends to continue to increase as they don't plan on selling their shares.


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## Dmoney (Apr 28, 2011)

It's less than 3% of sales because their profit margins are tiny. Selling $444B of merchandise means very little when you have razor thin margins in order to keep your prices as low as possible. 

However, I love Walmart, and while I think it's a little pricey now, it's got a ton of room to raise its dividend and increase the yield.


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## jcgd (Oct 30, 2011)

Lucy said:


> These 3 dividend aristocrats, and several others have doubled their dividends on average every 4 years for the past 30 years. (of course, performance is not a guarantee for the future, however I would rather invest with a proven winner)
> 
> This means that the stock will also typically double every 4-6 years assuming everything stays fundamentally solid with these companies over time and you purchase them at less than 20 times earnings.


Sorry, I could swear that you said they doubled their dividends every four years ^. Unless you were referring to my wording of "for a while"... my bad.

I'm all for sharing. It's not that you share that is the issue at hand, it's that one of your very first posts on the forum was a advertisement. You may not have meant to come across that way, but you did.

But you didn't answer my question. How do you know the stocks that will continue to double their dividends every four years? You gave an example of three that have been doing it for the last 30 years, but with a little digging we could come up with a list of companies that have managed to double their dividends in four years over period from four years to 30+. 

If you are just using history as your justification why not just throw this method out the window, by Apple and be fithly rich in 10 years like those who bought it ten years ago?

I'm not being a smart ***. I'm completely serious.


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## Mall Guy (Sep 14, 2011)

. . . I think this thread is a little bit funnier than the one with the guy worried about the barn in this backyard (no wait, it turned out to be a Quonset hut, so that thread had a point, one he just kept coming back to defend day after day after day) . . . hey, whatever happen to that guy ?


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## crazyjackcsa (Aug 8, 2010)

Mall Guy said:


> . . . I think this thread is a little bit funnier than the one with the guy worried about the barn in this backyard (no wait, it turned out to be a Quonset hut, so that thread had a point, one he just kept coming back to defend day after day after day) . . . hey, whatever happen to that guy ?


He invested with Lucy and moved.


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## the-royal-mail (Dec 11, 2009)

LOL crazyjackcsa. I'm glad I'm not the only one who sees through the approach of the OP. Seems very pushy and definitely trollish. Itching for a fight, I think. Not here to learn anything, here to post snarky comments & perhaps needing attention. Good luck with that approach.

Folks, don't feed the troll.


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## moneyisfornothing (Feb 18, 2012)

Causalien said:


> Hello Lucky,
> 
> I am just trolling. So stop reading
> 
> ...


damn.
i just spilled my scotch all over after reading this.
that is a lifetime opportunity


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## gibor365 (Apr 1, 2011)

Guys, you are so rude! 
Maybe Lucy just bought those 3 and want to hear support that she did right?! I just have impression that she wants to prove to herself that she did right...


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## Causalien (Apr 4, 2009)

the-royal-mail said:


> LOL crazyjackcsa. I'm glad I'm not the only one who sees through the approach of the OP. Seems very pushy and definitely trollish. Itching for a fight, I think. Not here to learn anything, here to post snarky comments & perhaps needing attention. Good luck with that approach.
> 
> Folks, don't feed the troll.


She's a good troll. With formal sentences and everything. I need one to mess up the otherwise mundane world of numbers and negotiations. You can feast on a fat troll, but eating one that's all bones will give you indigestion.


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## Lucy (Mar 10, 2012)

You guys are funny calling me a troll. I am the one being accused by the gang of selling a book or something. I can't even imagine how you link the facts I am posting with selling a book or a fund. I am merely defending myself and my facts. I don't know why I bother posting on this thread anymore.

How do I know that they will continue to double dividends every 4 years? just because they have been good at growing their business for 30 plus years and have rewarded investors? Is it just me or is this the dumbest question ever asked!

How do you know anything? You don't! You invest by track record, fundamentals, due diligence. Track record here is kinda good is it not? Don't believe me, pull their dividend history. Do I really need to post it here?

Do you really think management of these companies are not aware of their rate of dividend growth? Do you think it was some accident? Don't you think if their rate of growth drops considerably that the stock will be punished and they know this?

At the end of the day, once you have done your due diligence, you are trusting management and raking a chance. This is in any company you choose to invest in. 

I know I am new here but use a little common sense. There is no course, book or find being pimped here. Just total transparency in my investment strategy. And if I stick around for 4-8 years here, hopefully I'll be able to tell you I told you so.


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## ddkay (Nov 20, 2010)

good point gibor I think everyone is getting carried away with the name calling, we need to be more welcoming unless the plan is to self-destruct CMF

What I would be concerned about is how this strategy performs during a market downturn, specifically with that scary leverage in place ("the house is going on the table boys and girls"?). you're taking 100% market risk in relatively low yielding stocks. How would you handle capital preservation?


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## humble_pie (Jun 7, 2009)

lucy you are not a troll but it's fairly obvious you are selling something.

it's your merciless, heavy-duty hard proselytizing that folks are reacting to.

the remorseless, insistent way you shut out anybody who has a different approach.

like i said in the beginning, this is a smart board. There are folks here who are richer & smarter than your wildest dreams. You did not arrive here seeking to share information as a peer, or searching for better ideas, in the way that everybody else does.

no, you arrived here in the height of arrogance, telling this forum that there is only one key to the kingdom of heaven & only you & your precious book can find the path to the right hand of the lord.

this is why people chuckle.

there's another financial advisor here in the wild on cmf forum. He arrived here only about 18 hours ago - they seem to be jumping out of the woodwork, must be the new website design - & he's doing a good job building his base. He doesn't tell people he's mister know-it-all. He offers strong, sound information on specific, highly-defined issues. He's obviously canada-based, which you are not.

in the end, he'll depart of his own volition, because like i said we are a hard stubborn lot & we don't hire advisors & he won't want to waste his time trying to market here.

the difference is that he'll probably depart with dignity. Whereas you, lucy, have lost all of your cred in only 48 short hours.


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## Lucy (Mar 10, 2012)

I am from Canada. Woodbridge to be exact. I am not a financial advisor. I have sold real estate for 26 years. Sorry To correct the misinformation and assumptions in your post.

I posted the name of this book because it is highly regarded by many and explains in detail great investment principles. Read it. You may learn something like I did. Someone else here has posted how it was their favorite book of many.we don't know what we don't know. It's an easy read based on a lot of common sense. No kickbacks so please dint accuse.


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## humble_pie (Jun 7, 2009)

i know you're from woodbridge.

the best sales people listen to their clients. Hint.


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## Lucy (Mar 10, 2012)

So some of you can look in the mirror and critique your own posts instead of mine. 

I have been recieving PMs offering some support saying such things as "they see nothing wrong with my Original Post." To paraphrase the most recent...."Some long term members are riding a high horse, when in fact they are boring repetitious and sometimes rude. Some cannot think for themselves."

Boy those should sting some of the self righteous here. And no, I am not making this up!


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## Lucy (Mar 10, 2012)

humble_pie said:


> i know you're from woodbridge.
> 
> the best sales people listen to their clients. Hint.


Mr Humbe....let me point out your misinformation.

tell me, what am I most definitely selling?

you stated I am not Canada-based even though I have stated I am. So where do you think I am from?

You stated I said this strategy is the Kingdom of Heaven, I dont think I have, I am simply reacting to being attacked and accused by people that I am selling something, I am trolling, that there are not dividend growth stocks which have doubled dividends every 4 years on average.

Was it you that told me to take a hike on page one for posting this idea which is not only mine and then proceeded to edit the post to remove the remark? (If not I appologise in advance)


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## jcgd (Oct 30, 2011)

Okay, so maybe you aren't a troll. Or you are and you are winning some over (ie. an excellent troll). 

Regardless, you titled your thread "the single BEST investment". It just sound cocky, and likely to be followed by BS fishing. 

"How do I know that they will continue to double dividends every 4 years? just because they have been good at growing their business for 30 plus years and have rewarded investors? Is it just me or is this the dumbest question ever asked!

How do you know anything? You don't! You invest by track record, fundamentals, due diligence. Track record here is kinda good is it not? Don't believe me, pull their dividend history. Do I really need to post it here?"

So all in all you are saying that we should be investing in good, solid companies in which we have done our due diligence and have a solid history of raising dividends?

Finding it hard to no be rude here, but I'll give you the benefit of the doubt here and assume you ate tryin to simply give advice. Bad way to start out here, IMO. 

A better way would be something like "hey, I'm Lucy, new to the forum. My interests are in dividend growth investing. Anyone care to discuss?"

I know quite a few of us can be real jerks to some new posters, but recently there have been some bad experiences with new members. They waste time and give nothing to the forum. Just saying, cause if you really want to be here, consider changing gears and approaching things differently. Create some trust, and then spread your knowledge.


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## Sampson (Apr 3, 2009)

My issue is somewhat atone with H-P's, in that rather than examining dividend growth investing as a strategy, 3 stocks are constantly touted as the end-all be-all.

This forum does have a tendency to pounce on different investment strategies - couch potatoes here are as veracious as anywhere, other investment strategies, such as options strategies, active trading, active bond trading, private real estate, are also somewhat looked down upon on this forum - so you are not alone Lucy.

The only issue I have with your premise - is that for every example of a MCD, WMT, or LOW, there are plenty of former dividend growth stocks that have been booted off the prestigious 'dividend aristocrats' list - therefore it is not inconceivable that these companies could suffer in the future. I can only point to any american automanufacturer, any american airline, GE, Pfizer, Eli Lilly, 
Kellogg, MTB, Supervalu, Integrys - the list is incomplete, but all I could must in 5 sec search of google.

All these companies once had wonderful fundamentals, great management, and great dividend growth. Not anymore.

One additional issue that had not been raised in this thread, but has in others is taxation. Dividend investing often works as a retirement income source, however, the 3 companies you list (American companies) are terrible income sources due to the disadvantageous taxation on foreign dividends. You could say that it can be sheltered in an RRSP, but when you goes to harvest the gains, they will be taxed heavily.


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## humble_pie (Jun 7, 2009)

re the hike, no, it was not myself. It was someone else who edited out his or her content. You can observe this very easily by checking back thru the thread. I have not edited anything in this thread. Thank you for apologizing.

wondering why your alleged pm friends don't post anything outright on this board. Otherwise, you see, your claims cannot sound legitimate ...


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## gibor365 (Apr 1, 2011)

Sampson said:


> The only issue I have with your premise - is that for every example of a MCD, WMT, or LOW, there are plenty of former dividend growth stocks that have been booted off the prestigious 'dividend aristocrats' list - therefore it is not inconceivable that these companies could suffer in the future.All these companies once had wonderful fundamentals, great management, and great dividend growth. Not anymore.
> 
> One additional issue that had not been raised in this thread, but has in others is taxation. Dividend investing often works as a retirement income source, however, the 3 companies you list (American companies) are terrible income sources due to the disadvantageous taxation on foreign dividends. You could say that it can be sheltered in an RRSP, but when you goes to harvest the gains, they will be taxed heavily.


1. This is why you should hold more than 3 stocks and diversify 
2. When you go to harvest the gains from RRSP/LIRA/RRIF , also Canadian stocks will be taxed the same % as US


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## Causalien (Apr 4, 2009)

There are two reasons why a person would go to a new place and tell everyone: HEY, this is how you SHOULD invest.

Someone who is hired to do so
Someone who is cock sure of the history + return and would like to spread the secret to their wealth to everyone in the world as much as possible. There's no greed of hoarding the secret to oneself, no self doubt about whether one can be the smartest person on the planet nor any hidden agenda to become the next oracle so one can move the market. Just pure, unadultered good samaritan.

The 2nd case has several consequences once achieved. It will introduce inflation and it will bring about short sellers in whatever strategy that become too popular because statistics (and their computer bots) says it's a good short.

I think you are a good Samaritan in case #2 because the stocks mentioned are too crappy to be case #1.

Welcome to the forum eh. This is how I was greeted too, withstand the attack, be humble, learn something we don't know to share and you'll be fine in say... 3 years.


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## gibor365 (Apr 1, 2011)

I understand concept of picking good dividend stocks, but don't understand why MCD is better than KO or PEP (that actually a good value now imho), WMT is better than PG or KMB and LOW is better than TGT ?

I know some guy who when buying 1 stocks, talking to anyone and advertising how good this stock is and encorages everyone also to buy it. maybe he thinks that this way stock price will go up (like mine 5 or 10K really gonna impact the price )?!


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## Dmoney (Apr 28, 2011)

Why can't weeeee be friends? 
Why can't weeeeeeeee be friends?

Sometimes I don't speak too bright
but yet I know what I'm talking about

Why can't weeeeeeeeeeeeeeeeeeee all just be friends and get a long?


My vote is give her the benefit of the doubt. 
If you don't like what she has to say, ignore it.


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## Sampson (Apr 3, 2009)

gibor said:


> 1. This is why you should hold more than 3 stocks and diversify


My point is that a dividend growth strategy for the sake of 'growing' or 'doubling' your money every 4 years may seriously backfire. If those 3 stocks are the only ones that have doubled dividend payouts every 4 years, then if they stock paying (like all the others I listed), then the strategy has stopped working. there is also a question about whether the strategy provides similar performance to a couch potato or other strategy - when I get some time, I'll run some analysis to prove this point.



gibor said:


> 2. When you go to harvest the gains from RRSP/LIRA/RRIF , also Canadian stocks will be taxed the same % as US


But if you hold Canadian dividend payers outside of a registered account, this strategy becomes favorable as a source of retirement income due to favorable taxation. American companies provide no such benefit.

So by keeping the foreign/American dividend payers in a registered account, you are betting not on the advantage of favorable taxation, but that the strategy is outperforming.


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## Cal (Jun 17, 2009)

Lucy a word of advice, as your intro thread posting really does smell of something trollish...

I love dividend investing too.

If you want to be taken seriously here as a poster. Do not post to this thread again, do not try to defend your impression of the book. (which was mediocre at best imo) Let it go.

But please do contribute to other posts and threads, if you are as experienced as you have mentioned perhaps you can help some on the RE boards. It is a little surprising that you have not made a contribution on there yet seeing as you have sold RE for so long. 

In regards to your MCD RRSP purchase, the price may have been high lately, but it is a good company. Whether it doubles your payout in 4-5 years as you are hoping, who knows. Time will tell.

Enjoy the forum.

Mall guy, so funny, what did happen to that guy, and more importantly the quonset hut.


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## gibor365 (Apr 1, 2011)

Sampson said:


> But if you hold Canadian dividend payers outside of a registered account, this strategy becomes favorable as a source of retirement income due to favorable taxation. American companies provide no such benefit.
> 
> So by keeping the foreign/American dividend payers in a registered account, you are betting not on the advantage of favorable taxation, but that the strategy is outperforming.


OK, you said about registered account, and I replied about registered.
I trade only within 4 registered accounts and 2 TFSAs (one my wife's). So, if I want US stock I'd buy into registered...and when I get T4RSP or T4RIF, it really doesn't matter from whicj stock I got dividends


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## Lucy (Mar 10, 2012)

Cal said:


> Lucy a word of advice, as your intro thread posting really does smell of something trollish...
> 
> I love dividend investing too.
> 
> ...



You really find the book "Mediocre at best?" Funny, many have called it a "Classic". Not sure I would call it that either.

It's funny you should assume that I have not posted on RE forums. I have started other threads regarding RE sales. One is the number #1 thread with over 2500 posts and 2.5M views. Not to brag but you brought it up and made a false assumtion.

Yes, MCD seems to be a very good company. Most love it because of the chart and the stock appreciation but as you know by now, I love the doubling of the dividend.

I'd like to continue posting on my thread if it ok? After all. The smart questions are just starting to surface.


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## Sampson (Apr 3, 2009)

@ gibor,

But the issue I see is this. Why use the strategy? It is most likely one of two options, either (1) you believe it will outperform, or (2) it is a strategy to generate income during retirement.

(1) is simply not true - and even Lucy has not suggested this to be the case, only that the income generated from the investments doubles every X years. Even her 3 examples have not outperformed market returns. Aside from McDonalds, the other two stocks have actually given relatively poor real returns compared to the market. Sure you get the dividends, but if you are trying to grow your nest egg within the RRSP, then it is total returns that matter, since as you point out, it all gets taxed the same on the way out. The better strategy is to make that pool of money grow largest.

(2) If the strategy is used to generate income (as is being hinted at in this thread, but never truly addressed) - then heavy taxation on those returns becomes extremely significant.

Lastly, I think a major resounding issue/concern is whether the strategy is _sustainable_. This issue has been raised numerous times, by CC, myself and others in this thread. There is no research that demonstrates this type of strategy can work over the long run. If you cherry pick a few examples here and there (say McD - on of the best performing stocks period, let alone one of the dividend growth darlings) of course it looks like the strategy works. But calculate real investment returns people achieve doing this strategy. This is one thing you never see on any argument about dividend growth investing. What were Derek Foster's returns using this strategy?

By simply throwing out there, 'income doubles every X years' - therefore this strategy is good is like saying we can all be as successful investors as Warren Buffet (a closet dividend investor). We all know what he buys, so why can so very few of us recreate his success?


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## kcowan (Jul 1, 2010)

Lucy said:


> It's funny you should assume that I have not posted on RE forums. I have started other threads regarding RE sales. One is the number #1 thread with over 2500 posts and 2.5M views. Not to brag but you brought it up and made a false assumtion...


I think you are not reading the post properly. It was suggested that you participate in other threads on this forum. What you have done in other venues is of limited interest unless it is concerning your subject area.

Also your thread title is the title of the book you recommend. So naturally that book will attract some critical assessment in this thread. While I hold some US dividend stocks (XOM, IBM), my best US holding has been AAPL. It attracts no tax until it is liquidated. So it is on the same class as RE except that RE attracts continuous investment to maintain its value.


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## Lucy (Mar 10, 2012)

@ Sampson. Thank you for asking an intelligent question and not attacking the intent.

Re: WMT and LOW. True they have not outperformed but if we check the history, we will see why. In 1999/2000 they were selling ahead of themselves at extreme multiples (I think it was around 40-50 times) and have just recently grown into their share price and reasonable multiples. Lowes is currently quite ahead of itself once again at around 21 P/E. 

The dividend growth is used as a "litmus test" and backed up by other due diligence over time and on a continuous basis. Over time, with due diligence remaining positive and dividend growth continuing at an average of 15% or more the stock price will surely follow otherwise you will have WMT 4 years from now offering a 6% dividend.
The difference is between long term investing/ownership of a company rather than trading and speculating which is what most people are really truly doing and pretending to be investors. IMO.

I liken it to buying a prime piece of real estate with income. The dividend is the net rental income, only the rent increases much faster. The value of the income property is always tied to the income and it's growth potential. Sure, something can change over time. That's life. Time to re-evaluate. Investing for the long term. Isn't that partly what Buffet does and many other successful true investors.

(by the way, the begining of the book covers what a good investment really should be-according to the author of course)


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## MoneyGal (Apr 24, 2009)

I'd be curious to know what your due diligence process is. You've used the phrase many times, and I'm clear about what the phrase means generically, but I'm not sure what you are suggesting is appropriate due diligence for your strategy.


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## Sampson (Apr 3, 2009)

@ Lucy, these are not questions.

I have been raising multiple discussion points and counter-arguments against dividend growth investing since the first few posts. In fact I have posted nearly 5 times on this thread, gibor has engaged in some discussion points.

To this date, no one has provided clear evidence that this method is (1) sustainable, nor (2) that it is a better approach than other approaches (e.g. options trading, passive market-index investing, bond trading, traditional MPT-based diversified portfolio creation, untraditional tactical asset allocation).

I for one, have never seen evidence that dividend growth investing has outperformed. There is circumstantial evidence in the academic literature that select dividend growth stocks have outperformed the market, but this, like the Dogs of the Dow approach have both been debunked and attributed to both sampling and survivorship bias.

I raised this point in my first post. I have yet to see a rebuttal anywhere about this survivourship bias problem. If you do not view this as a major caveat to the data regarding dividend growth investing, then I could pick a basket of three stocks, say AAPL, POT, and even lowly RIM. Compare the 10 year returns of my 3 stocks vs. the income generated from your three stocks. 

(1) Who has more money? (imagine the returns if RIM hadn't exploded)
(2) Which approach is better?


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## Sampson (Apr 3, 2009)

Lucy said:


> The dividend growth is used as a "litmus test" and backed up by other due diligence over time and on a continuous basis. Over time, with due diligence remaining positive and dividend growth continuing at an average of 15% or more the stock price will surely follow


The problem is that it isn't quite clear cut when 'due diligence' shows the investments are poor. MCD itself had some very poor revenue growth numbers following the Dot.com bubble. Most 'due diligence' at the time would have told you to sell.

Look at the list of former dividend growth stocks I posted before. Follow their numbers and 'due diligence' and one still would have been burned. No one saw that GE was about to fall off a cliff (well, maybe Prem Watsa and a few others shorting before the last recession).


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## Toronto.gal (Jan 8, 2010)

Lucy said:


> 1.You really find the book "Mediocre at best?"
> 2.One is the number #1 thread with over 2500 posts and 2.5M views. Not to brag but....


1. No, it isn't a mediocre book, not at all, however, that is not what Cal said, he said: "do not try to defend your impression of the book."
2. But brag is exactly what you have done, and yet another comment that you misunderstood as Cal was talking about making other contributions on CMF. 

You talk about having ambition and preferring affluence, yet all you talk about is doubling dividends, how about capital/stock appreciation?

As kcowan mentioned, AAPL is probably the best US holding of most people; it is mine as well [after biotech & oil stocks].

By the way, what other books would you recommend?


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## CanadianCapitalist (Mar 31, 2009)

Sampson said:


> This is one thing you never see on any argument about dividend growth investing. What were Derek Foster's returns using this strategy?


I asked Derek this exact question when we recently met for beer. His response was: he doesn't know and it's not important. Really? I think it is extremely important. If one is picking stocks and advocating the strategy to the investing public, the least they could do is compare their results with an appropriate chosen benchmark.

To be fair, there is evidence that picking dividend paying stocks would have posted better returns than the market at lower volatility. However, the caveat is that this is simply a value effect. And price/dividends ratio has the lowest valuation effect compared to others such as p/e and p/b.

I have seen no evidence that a dividend growth strategy provides better returns than the market overall. If anyone can point me to research that shows otherwise, I'll be grateful.


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## Lucy (Mar 10, 2012)

@ Sampson re: survivorship bias.

My personal focus is on replacing my income. Yours may be grand slam capital appreciation. The title of the threat is the title of the book. I do not feel it's the only way to invest. I seriously thought it would have attracted more people who had read the book for discussion. 

The companies I chose have established themselves as growers of dividends. They deliberately pay out $5-6B per year and counting to investors as part of their business plan. In the case of WMT half goes to the heirs. No need to sell off shares to live. Maybe apple and google can continue to grow at their previous rates throgh innovation and expansion and you can sell off the shares you don't want. Maybe you already have.

You are right. Dividend growth strategy has a bias to the stocks that keep rewarding their investors with a part of their growth and earnings based on the past.


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## Lucy (Mar 10, 2012)

@ Toronto gal;

I also gave "the Investment Zoo" on my nightable but haven't got past chapter 1. Recommend by Tom Connolly-a Dividend growth investor/blogger.


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## Mall Guy (Sep 14, 2011)

Lucy said:


> I liken it to buying a prime piece of real estate with income. The dividend is the net rental income, only the rent increases much faster. *The value of the income property is always tied to the income and it's growth potential.*


. . . and the cap rate the market is willing to pay, interest rates, quality of cash flow, supply and demand, and oh ya, location, re-development opportunities, conversion to a higher and better use . . .


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## bayview (Nov 6, 2011)

Theoretically, the div growth strategy is a sound strategy. If you look at for eg the Gordon Growth Model- it is used to forecast an intrinsic stock value. But as you can see, div growth rate is only one of several parameters underscoring the success of this strategy.

And we know in the real world to succeed in investment - theory is sometimes divorced from reality!


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## Argonaut (Dec 7, 2010)

The overlooked conclusion that could be drawn from the thread is this: Lucy is a real estate agent, and thus it is in her nature to try to sell something to people. I needn't type anything more, one can expand on that thought on their own.

As far as what the best investment is.. I like to take a mix of everything: asset allocation, dividends, metals, options, currencies, individual small caps, etc. The combined arms philosophy rings true; attack from the air, the sea, and the ground, with different types of weapons. The complimentary nature of this coordinated offensive makes the whole more than the sum of its parts.


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## Lucy (Mar 10, 2012)

@ argonaut;

Very easy to be a critic with nothing to back it up. So tell me, what am I selling you? Selling implies compensation. I certainly am not getting that here.

Re; diversification or over-diversification. We all know the supposed benefits but what about the saying, over diversification is a recipe for mediocrity?

What about Buffets saying the average investor is better off holding a handfull of stocks as it is impossible to get to know too many companies well enough to succeed.

Don't misunderstand. Im not saying the 3 stocks I've chosen are where I will stop, but if building wealth with great returns is the goal, I never understood the mutual fund type diversification. Not a lot of wealh creation there, regarless of the fees.

Without attaching any links and being accused of selling or promoting anything, try googling DIVERSIFICATION and MEDIOCRITY in the same search.


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## CanadianCapitalist (Mar 31, 2009)

Lucy said:


> What about Buffets saying the average investor is better off holding a handfull of stocks as it is impossible to get to know too many companies well enough to succeed.
> 
> ... try googling DIVERSIFICATION and MEDIOCRITY in the same search.


Where did you read Buffer saying the average investor is better off holding a handful of stocks. AFAIK, what Buffett said was that if you know what you are doing (i.e. you are skilled in the art of picking stocks with a large margin of safety) diversification works against you. For most people, Buffett's advice is to hold an index fund that tracks the S&P 500.

I don't understand why you would invoke Buffett to support your dividend growth investing strategy. AFAIK, Buffett doesn't pick stocks simply because dividends have doubled recently or whatever. In fact, it is quite the opposite: he warns investors against investing by simply looking at the rear-view mirror. Since, we are on the topic of Buffett here's a quote that you may find instructive: "If past history was all there was to the game, the richest people would be librarians".


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## Zeeshan Hamid (Feb 28, 2012)

Lucy said:


> What about Buffets saying the average investor is better off holding a handfull of stocks as it is impossible to get to know too many companies well enough to succeed.


Buffett's real quotes :-

"A very low-cost index is going to beat a majority of the amateur-managed money or professionally-managed money" 

"Well, if they're not going to be an active investor - and *very few should try to do that* - then they should just stay with index funds"

Etc.



Lucy;119924
Don't misunderstand. Im not saying the 3 stocks I've chosen are where I will stop said:


> Diversification reduces risk. If you put all your money in APPL in dot-com time, you'd be very, very well off. If you put it all in Microsoft, you'd pretty much be at the same spot. If you put it in Nortel, you'd be totally screwed. However, if you had a well diversified portfolio then sure, you'd miss out on APPL like growth but you'd also avoid Nortel like bust. There's no such thing as higher return without a higher risk. The goal isn't just "great returns", it's "maximum return for one's risk appetite". That's different for everyone. I do want good returns, but I also want to preserve my capital.


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## Lucy (Mar 10, 2012)

My response is to Argonats statements that "The complimentary nature of this coordinated offensive makes the whole more than the sum of its parts."

Nothing could be further from the truth.


Warren Buffett says, “Diversification is protection against ignorance.”
Charlie Munger says “Wide diversification, which necessarily includes investment in mediocre businesses, only guarantees ordinary results.”

Diversification is a protection against ignorance. It makes very little sense for those who know what they are doing.” -Warren Buffet

Other articles on mediocrity.....
When*in doubt, diversify. That’s the underlying logic behind*diversifying everything from your stock portfolio to the number and types of businesses in your company, and often implicitly drives product development organizations. The argument behind diversification is that there is too much randomness in the world to have an edge based on skill.
While there is unquestionably some truth to the idea that the world is often too random to literally make just one bet, the widely held assumption that diversification is a free lunch is just plain wrong. *Just as there is benefit to be derived from diversification with respect to risk, there is a cost, too –* that of losing whatever edge you might have been able to gain from skill. Diversification is a strategy to regress to the mean — that is, to be average. For those pursuing excellence, focus is a far better strategy.
Regression towards mediocrity
The*notion of regression comes from*Sir Francis Galton‘s “Regression Towards Mediocrity in Hereditary Structure.” Over time, regression towards mediocrity came to be known as regression to the mean.*I prefer Galton’s description: Diversification usually leads to mediocrity.
Figure 1 shows the tension between the “edge” gained by focus (y axis) and the gains from making numerous “bets” (x axis). Conventional wisdom has it that any particular bet you make may earn returns greater than or less than the mean — as the number of bets approaches 100 percent of possible bets, you end up with the mean by definition. Many investment strategies explicitly seek to be average; index funds do so by algorithmically approximating entire indices. If you lack the knowledge or time to do the work yourself, and your goal is simply wealth preservation, such a strategy may in fact make sense.


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## Lucy (Mar 10, 2012)

“Our policy is to concentrate holdings. We try to avoid buying a little of this or that when we are only lukewarm about the business or its price. When we are convinced as to attractiveness, we believe in buying worthwhile amounts.” 
—Warren Buffett, in a letter to Berkshire Hathaway Shareholders (1978)



Buffett has long eschewed a diversified stock portfolio in favor of a handful of trusted investments that would be overweighted in order to leverage the anticipated return. Over time, his investing prowess became so noted that Berkshire's annual shareholder meetings became a mecca for value investing proponents and the focus of intense media scrutiny. 


Diversification is a lazy man’s game. If you are a passive investor and care little for powerful results, diversification is your can of alphabet soup. This chapter advocates portfolio concentration versus diversification.

The widely popular strategy of diversifying a portfolio has ardent followers. and to some investors, particularly the large institutional investment managers, diversification is a handy way of deploying their assets. But for the individual investor, I argue that portfolio concentration rather than diversification is the better way to bring home solid profits from the stock market. Like Warren Buffett, I oppose the idea of “buying a little of this or that.” I advocate buying plenty of shares of relatively few companies to gain maximum returns.




Cruise-Control Strategy


Diversifying one’s portfolio is an honored rule in stock investing, a strategy with strong universal appeal. Let me explain first why diversification is such a widely followed strategy. One reason: It is a simple way of getting fully invested with minimum effort. How much brain power do you need to pick, say, 100 stocks from the various sectors of the economy? Usually a diversified portfolio consists of stocks representing almost all industries, such as aerospace, airlines, banking, energy, retailing, technology, pharmaceuticals—you name it. You end up with a laundry list of stocks of every stripe. Diversification is a cruise-control kind of strategy, with a portfolio on limited speed. Diversification’s many advocates say it is a safe type of investing that protects a portfolio from crashing. The theory goes that if one industry is declining, it will be offset by another industry that is on the incline. But this not true. In any powerful market crash, all groups go down. Some stocks might not go down as much as others, but they do decline. Witness what happened when the market crashed on August 9, 2007, when the Dow dropped 387.18 points, or 2.83 percent, to 13,270.68. Almost all stocks were hit.

On the upside, diversification at best produces average results. You will do as well as the overall market—no better, no worse. If a portfolio’s components can’t go up together, the returns can only be average. In other words, the very principle of stocks balancing each other can only deliver unspectacular results.

This is the reason why actively managed portfolios often outperform the diversified. Institutional money managers can afford to go with diversified portfolios because it’s a convenient way for them to deploy their clients’ hundreds of millions or billions of dollars in all sectors of the economy—and hope for the best. Remember: The basic goal of the institutional investors is to safeguard their clients’ money—to preserve their capital. Diversification, they believe, achieves that goal. But they should know that the rewards will be underwhelming.

Individual investors can do better by scuttling diversification. What am I suggesting? I argue that, for individual investors, a far superior strategy is to pack your portfolio with well-picked stocks. A few potential home-runners are all you need to best the market and stack up handsome returns. It isn’t true that nondiversified portfolios are in danger of delivering poor returns in times of market crises, because there is no substitute for strong stocks to make your portfolio fly. When you find a stock you think will be a big winner based on its fundamentals or other factors, invest more of your stock market capital in it. Don’t do the Noah’s ark type of investing, where all animals are brought in no matter how fast or slow they move. Individual investors should not settle for mediocrity. Buffett, at one of Berkshire Hathaway’s annual meetings, described diversification as a “protection against ignorance. It makes very little sense for those who know what they’re doing.”

The big question, of course, is what stocks to pack into your portfolio. How can you be sure the stocks you choose will outscore the market? Later in this chapter, we examine how the practitioners of this strategy excelled with their concentrated portfolios. In the meantime, let us look at how best to concentrate your portfolio.


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## Lucy (Mar 10, 2012)

MORE QUUOTES FROM BUFFET.....

‘Always invest for the long term
‘Buy a business, don’t rent stocks.’
Someone’s sitting in the shade today because someone planted a tree a long time ago.’
If you don’t feel comfortable owning something for 10 years, then don’t own it for 10 minutes.’
‘We don’t get paid for activity, just for being right. As to how long we will wait, we’ll wait indefinitely.’
Buy companies with strong histories of profitability and with a dominant business franchise
‘Only those who will be sellers of equities in the near future should be happy at seeing stocks rise. Prospective purchasers should much prefer sinking prices.’
‘Diversification is a protection against ignorance. It makes very little sense for those who know what they’re doing.’
‘Wide diversification is only required when investors do not understand what they are doing.’
‘Only buy something that you’d be perfectly happy to hold if the market shut down for 10 years.’
‘Risk can be greatly reduced by concentrating on only a few holdings.’


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## Lucy (Mar 10, 2012)

Define Your Circle of Competence
“Diversification serves as protection against ignorance.”

The Warren Buffett Way, page 166

Here’s the neat thing about Buffett – at any given time, 80% of his portfolio is comprised of less than fifteen companies. He doesn’t diversify, in fact he actively works not to. He is what is defined as a “focus” investor – he knows certain industries extremely well, and invests in companies within those industries with big, swift bets. He “buys and holds”, rather than buying and selling based on the market. In his opinion, diversification breeds mediocrity. And it’s common sense, if you think about it. By focusing your attention, interest and education on a select industry or topic, you allow yourself to go deeper, and become more knowledgeable in that industry than someone who tries to learn 5 or 6 industries. Whether you’re an investor or not, the same holds true for all aspects of life. Those who dedicate themselves to select, specific tasks or roles put themselves in better position to be an expert in that field. Seth Godin touches upon this concept in The Dip. Malcolm Gladwell talks about it in Outliers.  John Maxwell discusses focus in detail in Talent is Never Enough. Jim Collins shows how returning to core competencies can help struggling companies regain past success. In fact, most business and personal development authors allude in some way to the power of focus. Warren Buffett is living proof that the process can be extremely rewarding, financially, as well. Begs the question – what’s your circle of competence? What are you working on/in that you have the potential to know better than anyone else?


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## Toronto.gal (Jan 8, 2010)

CanadianCapitalist said:


> "If past history was all there was to the game, the richest people would be librarians".


Like it!

Anyone knows what's Buffett's favourite book? Of course you do! "The Intelligent Investor". 

Buffett says in the book: "I read the 1st edition in 1950, when I was 19. I thought then that it was by far the best book about investing ever written. I still think it is."

The very first 'stock-component rule' listed in the book, says that 'there should be adequate though not excessive diversification. This might mean a minimum of ten different issues and a maximum of about thirty."


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## humble_pie (Jun 7, 2009)

that's four, said Tweedledum.

she must be quoting from her book, said Tweedledee.

if we don't watch out the entire dreadful volume is going to surface here, said the Footman, as he set down his silver tray with a fresh coffee service.

the Red Queen accepted a small espresso in a delicate gilded demi-tasse from the Footman. It means Off, said the Queen.

off, m'lady ? asked the Footman.

alas yes, she means the usual Off, said the Mad Hatter. Off With Her Head.


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## Causalien (Apr 4, 2009)

Lucky, you are making an amateur mistake of quoting Buffett. Those of us in the game for the long haul understand what it means when ppl uses Buffett. Yes, you'll gain some points with newbies, but you won't gain following with the real money.

I suggest reading "the snowball" to understand how Buffett really made his wealth.


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## Argonaut (Dec 7, 2010)

Lucy, I wish I could have saved you from writing/copying all that but you probably enjoyed it. Suddenly I appear to be someone who owns 40 stocks and a partridge in a pear tree. Truth is, I only hold 5-10 companies at a time, and never overlap as a rule. The coordinated offensive I am speaking of involves adding options, gold, and some cash/bonds to a portfolio. The cash/bonds gives me extra margin for my options, the options give me extra income on top of dividends, and the gold protects purchasing power and of course has done well in recent times. It's all quite complimentary.


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## Toronto.gal (Jan 8, 2010)

Argonaut said:


> The coordinated offensive...


I loved your description and you're what I would call an intelligent [enterprising] investor. According to the book of same title, it says that an 'enterprising investor' is one whose main aim is not 'freedom from effort'.

"Over many decades [which you have], an enterprising investor of this sort could expect a worthwhile reward for his extra skill and effort."

I'm done quoting for the day.


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## kyboch (Dec 23, 2011)

Lucy if you want to learn just lurk this forum and pay attention to humble-pie and Argonaut. There may be others but these 2 guys really know their stuff. I really don't think you should show up on a forum and start spouting off like you are doing, it's very immature for a fifty year old don't you think? I'm new here too and have made a number of posts and I am grateful and appreciative to those who replied and they have all helped me out, but I've learned the MOST from just lurking here, listening and observing. You know the old 2 eyes, 2 ears 1 mouth thing is very true. You should try it.


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## kcowan (Jul 1, 2010)

The richest 3 men in the world, Slim, Gates and Buffet, all got that way by concentrating on what they know best and investing there. They did not get there by reading a book and picking 3 stocks! Enough already!

I have 26 stocks and they are all in my portfolio for various and sundry reasons. No they are not all dividend payors. Some pay dividends, some are for capital gains and others are flyers that could lead to 10x baggers (or not).


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## Lucy (Mar 10, 2012)

kyboch said:


> Lucy if you want to learn just lurk this forum and pay attention to humble-pie and Argonaut. There may be others but these 2 guys really know their stuff. I really don't think you should show up on a forum and start spouting off like you are doing, it's very immature for a fifty year old don't you think? I'm new here too and have made a number of posts and I am grateful and appreciative to those who replied and they have all helped me out, but I've learned the MOST from just lurking here, listening and observing. You know the old 2 eyes, 2 ears 1 mouth thing is very true. You should try it.


Thanks for calling me immature. Someone asked where I read Buffet recommends a handfull of stocks and I am replying. Try reading!

The Concentrated Portfolio

Some of the brightest minds in investment agree on the notion of a concentrated portfolio.

In 1934, John Maynard Keynes wrote the following famous passage in a letter to a friend: 'As time goes on, I get more and more convinced that the right method of investment is to put fairly large sums into enterprises which one thinks one knows something about and in the management of which one thoroughly believes. It is a mistake to think one limits one's risk by spreading too much between enterprises about which one knows little and has no reason for speacial confidence.'

Not only was Keynes one of history's foremost economists whose theories have had a major impact on the global economy, but he was also a confident and successful private investor. In fact, the fund he ran for himself, friends and family could be described as the first hedge fund , such were his strategies and techniques.

In short, this is the theory of the concentrated portfolio. Why have holdings in 50 stocks to lower risk and diversify when as an investor, you really only believe in a handful of those companies?

It is a theory to which Warren Buffett also subscribes. He believes that concentration will actually reduce risks. This is due to the extra care and attention we pay to an investment if we are to invest a relatively large part of our portfolio. Our comfort level needs to be higher and to do this, we need to conduct more research, due diligence and gain a greater understanding. If after all this we still invest, we were at least very well prepared.

It is a mystery to Buffett why an investor would choose a twentieth or thirtieth company for investment rather than adding more money to the number one holding. Despite the huge funds that have been under the control of Warren Buffett for many years, he still operates on this theory.

His real problem now is that there are fewer and fewer companies in which he can invest that are large enough to make an impact on his portfolio should results be favourable.

Most investors are aware that they do not have the skills or knowledge of a Keynes or Buffett and so, for obvious reasons, lack some of the confidence required to operate a concentrated portfolio.

All of this seems to be quite contrary to the way in which most money (and most of our money) is managed. An average 'general' pension fund will have hundreds of holdings, some will even have more than one thousand!

These holdings will be between different countries, currencies and sectors. They will also be between different asset classes - cash, corporate and government bonds and equity holdings in large corporations.

With all due to respect to the fund managers, how can a manager really be expected to have expertise about the workings of several hundred companies in dozens of sectors of the economies of perhaps twenty to thirty countries? It is difficult to imagine anyone being so skilled...

Large funds do this because of the responsibility they have to maintain purchasing power for thousands of people. With such responsibility comes very significant constraints to their investment style.

However, as a private investor, these constraints do not apply and so it would seem more appropriate to learn about and understand the thoughts on this subject of luminaries such as Keynes and Buffett than the prevailing wisdom in the financial services sector.


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## Lucy (Mar 10, 2012)

The Little-Known 'Eighth Wonder' That Will Increase Your Wealth 8-Fold

Steve Mauzy
January 19, 2012





Everyone knows that Albert Einstein was a brilliant theoretical physicist.* Fewer know that Einstein was also a keen market observer, having pointed out that "Compound interest is the eighth wonder of the world. He who understands it, earns it ... he who doesn't ... pays it."

In short, Einstein realized that compounding interest is a serious wealth generator, especially if you reinvest the interest to let interest compound upon interest.* Over time, compounding takes on the properties of a snowball rolling down hill - the longer it rolls, the bigger it gets, and the more snow it accumulates.*

Here's an example: You invest $5,000 in an investment that earns 6% annually.* After the first year, you earn $300 on your original $5,000 investment.* After the 35th year, you earn $2,305 on a principal balance of $38,430.* Your wealth has increased 8-fold in the 36th year.

But there is a better strategy for turning $5,000 into $40,000 - a strategy Einstein unlikely knew, and one few investors know to this day.* I'm speaking of coupling dividend-growth stocks - stocks that consistently hike their dividend payouts annually - with a dividend reinvestment plan.*

I've always been a fan of dividend-growth stocks.* Management's commitment to growing the dividend presages superior financial performance over time.* Ned Davis Research analyzed returns on S&P 500 stocks from 1972 through 2010 and found that stocks that grew and initiated dividends provided superior returns than all other stock classes.***



Just as impressive, the superior returns dividend-growth stocks generate are not encumbered with more risk.* To the contrary, dividend growers posted greater return with less risk (measured as standard deviation of returns, a common financial measure).* It turns out that there really is a free lunch.*

What you do with this growing stream of dividends is key to accumulating wealth.* You can receive your dividends and spend them, you can divert them to another investment, or you can buy more of the stock that generated the dividend.*

The best course is to plow the dividends back into the original stock. You are not only investing in the proven dividend grower but you are also relieving yourself of reinvestment risk - the risk of finding investments as good as the company that generated the dividend.* You are also dollar-cost averaging, which means you buy more shares on price pullbacks and fewer shares near market tops.*

Most importantly, you capture the benefit of Einstein's eighth wonder - compounding on both your initial principal investment and the dividends you receive.* What's more, you are compounding a rising stream of income, not a fixed stream prevalent on a typical savings account or debt investment.*

Our High Yield Wealth portfolio features a number of high-quality, proven dividend-growth stocks that offer dividend-reinvestment plans (known by the acronym DRIP).* These plans allow you to automatically reinvest your dividends in the company's stock.* Once you are enrolled (and enrolling is easy), your work is done and the wonders of compounding take over.*

Below is a chart I created for one of the High Yield Wealth dividend-growth stocks.* McCormick & Co. (NYSE: MKC) is the company, and McCormick offers a DRIP (here's the link).

I didn't choose McCormick because of extraordinary growth.* In fact, McCormick's growth isn't spectacular; it's simply steady and reliable.* McCormick's revenue and earnings generally increase at a mid-to-high, single-digit rate year over year.* Over the past 16 years, the dividend has grown at an average annual rate of 9.6%.

The graph below shows what would have happened had you invested $5,000 in McCormick in January 1995. The average split-adjusted price at the time was $9 per share, which means you could have purchased 555 shares (rounding down to the nearest integer) with your initial investment.* The dividend that year was $0.265 per share. Total dividend income for the year: $147.

By 2011, McCormick's dividend stream had swelled to $1.15 per share.* Because dividends were reinvested in McCormick shares, the number of McCormick's shares owned increased to 790 shares.* Total dividend income for the year: $909.


The snowball effect is the most important take away from the above graph.* After six years your $5,000 investment would have doubled in value; after seven years it would have nearly tripled; and after 10 years your investment would have increased five-fold. The dividend-growth strategy turned $5,000 into $40,000 in less than 17 years.* The fixed-income compounding example I noted at the beginning took twice as long.

The eighth wonder of the world isn't compounding interest; it's compounding dividend-growth stocks.* That's why this year I intend to introduce High Yield Wealth subscribers to not only more proven dividend growers but also to new dividend payers that show promise of blossoming into "Eighth Wonder" dividend growers.*

Stephen Mauzy, CFA
Research Analyst
High Yield Wealth


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## jcgd (Oct 30, 2011)

This is all fine and dandy, but nothing we haven't all read 10x over. It's like the advice that a house is the best investment. 99% of the population will tell you that, when in truth, it depends on many factors.

What are your results with this dividend growth strategy? I assume it has been very lucrative for you as I could find as much "evidence" (other authors' opinons) that other strategies are just as lucrative.

I am a dividend growth investor (for the most part), fyi.


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## jcgd (Oct 30, 2011)

Also, compounding is compounding. I don't care if it is interest, dividends, capital gains, etc. 

If some stock can grow at a 30% clip I don't care if they pay me dividends. If they did I would just fire them back into the company. Why would I spend time looking for another place to put the cash? If they do pay dividends, and I'm willing to fire the money back in because the growth is just that good, once again, why do I care that they are paying dividends? They might as well just hold onto the cash as far as I'm concerned.

Once the growth starts slowing, sure, pay me dividends so I can put the cash to work in a more lucrative investments. The only way I want dividends is if the company can't put all the cash towards growth, buybacks (at a cheap valuation), etc. If they are going to sit on it (Apple) give me my money.


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## Mall Guy (Sep 14, 2011)

jcgd said:


> If some stock can grow at a 30% clip I don't care if they pay me dividends. If they did I would just fire them back into the company. Why would I spend time looking for another place to put the cash? If they do pay dividends, and I'm willing to fire the money back in because the growth is just that good, once again, why do I care that they are paying dividends? They might as well just hold onto the cash as far as I'm concerned.
> 
> Once the growth starts slowing, sure, pay me dividends so I can put the cash to work in a more lucrative investments. The only way I want dividends is if the company can't put all the cash towards growth, buybacks (at a cheap valuation), etc. If they are going to sit on it (Apple) give me my money.


I have been wondering when someone was going make this point. If management has a better use for the profits, and can grow the business at a faster rate than the dividend yield, then they should continue to grow the business, and increase the enterprise value. Once the company moves into the cash cow/mature phase of the business cycle, with less investment in growth, yes its time to raise the dividend. Some would argue they would worry about investing in a management team that can't think of anything better to do with earning then to give it to shareholders.


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## londoncalling (Sep 17, 2011)

Disclosure: I am primarily a divdend growth investor. Thought I would chime in to the thread which seems to be offering many opinions. There are many roads to successful investing and styles change over time as they produce spectacular results they become ever more popular. With lack of retrun from low interest rates many have flocked to this style of investing which does have a long history of providing decent return. At some point it will fall out of favour(when interest rates rise or growth style comes back into fashion) and those that choose this style will be left alone. With any investment style one must understand it's risk and rewards.


http://investdb2.theglobeandmail.com/servlet/ArticleNews/story/GAM/20111230/ROBMAG_JAN2012_P14

When it comes to investing pick a style that matches your risk tolerance, knowledge level and time requirements. Also do your homework, roll the dice and take your chances.

Cheers


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## Lucy (Mar 10, 2012)

@jcgd; maybe others appreciate learning about this and haven't heard it. 

FROM A FEB 12 SEEKING ALPHA BLOG;


Most of the articles that focus on dividend growth investing discuss how dividend growth companies benefit investors as they seek to compound wealth and prepare for retirement or whatever their needs may be. Today I'm taking a look at the benefits of dividend growth stocks once investors reach their "magic number." Let's say that an investor amasses that $1 million or $2 million dollars worth of dividend growth stocks (or whatever the amount may be), and then decides that it's time to start living off the dividends to meet his lifestyle needs. What happens then?
I compiled a list of 25 companies often associated with dividend growth investing (some of them, like General Electric (GE) and US Bancorp (USB) are currently in the dividend doghouse due to the dividend cut during the financial crisis. Others, like Walt Disney (DIS) and Clorox (CLX), are on the dark horse side: Disney for paying out dividends annually, and Clorox for temporarily cancelling dividends altogether in 1986. Here is the long-term compounded dividend growth rate of each of these companies since 1992: (Click to enlarge)


The fun thing about this list is that if we could borrow a time machine and go back to 1992, the firms that dominated many areas of American business then are largely the same companies that are still at the top today. Hershey (HSY) was the dominant candy maker in 1992. Coke (KO) and Pepsi (PEP) sold products on every store shelf then. Exxon (XOM) was an oil king and annual member of the largest American companies list. AT&T (T) had a dominant foothold in the telecommunications industry. Clorox and Colgate-Palmolive (CL) were making the household cleaning products that were filling the shelves of the rapidly expanding and near-ubiquitous Wal-Mart (WMT) stores. Boeing (BA) was one of the largest defense firms in the country. And if you were going to smoke a cigarette or eat some Kraft (KFT) macaroni and cheese, there was a good chance it came from Altria (MO). General Electric was one of the original members of the Dow Jones index in the late 1890s, and despite a dividend cut during the financial crisis, still managed to compound dividend growth by 6% since 1992.
So once you have put together your own list of dividend growth stocks of companies with strong brands, ever-growing profits, and storied histories of dividend growth, what happens next? You watch your dividend growth portfolio beat the pants off inflation and increase your purchasing power every year during retirement.
When dividend growth investors mention their desire to live off dividends, the focus is usually on how this strategy avoids the depletion of assets. But there is another very strong benefit to living off the income from dividend growth stocks: These stocks can actually increase your purchasing power over time during retirement.
Since the early 1990s, inflation has run about 2-3% annually. The income from every one of these companies- even US Bancorp which experienced a severe dividend growth cut during the financial crisis- managed to compound annual dividends at a rate greater than inflation (thus increasing purchasing power), and many of them managed to do so by a rate much greater than inflation.
If you managed to hold Becton Dickinson (BDX), Johnson & Johnson (JNJ), McDonalds (MCD), Heinz (HNZ), Wal-Mart , or Altria during this time period, you were able to experience dividends compounding at a rate 3, 4, or 5x the prevailing inflation rate. Just owning one of these firms during the past twenty years could alone make an investing career successful. And it's not like Johnson & Johnson was this tiny small-cap in 1992 that went on to have an explosive twenty-year run. In 1992, Johnson & Johnson had a reputation for being an American healthcare behemoth just like it does today. If David Fish had been compiling CCC lists back in 1992, most of these companies would have displayed apparent Dividend Champion-like characteristics then, just like they do today.
This is one of the more underrated aspects of dividend growth investing-it has a killer end game. If I load up my portfolio with Coke, Pepsi, Procter & Gamble, Johnson & Johnson, and Colgate-Palmolive, I can be pretty sure that I'm going to experience 7-11% annual dividend growth over the coming years. Nothing in investing is guaranteed, but every dollar we invest forces us to make a prediction of some sorts, and betting on these firms to continue their records of annual dividend growth is a bet that I won't lose any sleep over making.
If inflation runs at 3-4% over the medium term, many dividend growth investors can probably construct a portfolio that of 7-8% annual dividend growth without breaking a sweat. At that point, you can watch your purchasing power increase at a rate twice that of inflation. In a world where many investors fear running out of money during retirement, a portfolio filled with dividend growth stocks can actually make you richer from the day you retire until that 100th birthday rolls around.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.


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## jcgd (Oct 30, 2011)

You're taking me the wrong way. I've read every single word you posted. I'm just saying I would like to hear your take on things, not copy/pastes. 

How is this strategy working for you so far? Have you been practising it?


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## Lucy (Mar 10, 2012)

I do own stock that pay dividends but the dividend was not my initial intention. Ie: I purchased 1150 shares of GRMN a couple of years ago because I liked the company management and fundamentals. They happen to pay a dividend.

As I mentioned in my OP, I met 2 wealthy gentlemen who are retired off Canadian bank stocks. This is what got me researching into dividend growth strategies. As I posted earlier. I purchased $65,000 of MCD for the growth strategy specifically.
I would like to buy into LOW and WMT at prices/valuations I am comfortable with. Another company I like is YUM but the valuation and dividend are not attractive at the moment.

My intention is to build a dividend growth portfolio instead of purchsaing an apartment building. I already own other rental property.

Not selling or promoting anything. Just sharing a strategy that others are using too.


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## m3s (Apr 3, 2010)

Lucy said:


> Ie: I purchased 1150 shares of GRMN a couple of years ago because I liked the company management and fundamentals. They happen to pay a dividend.


Do your due diligence with GRMN, possibly the next RIM imo. Smartphones come with GPS sensor and the routable maps are now open source online.


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## Lucy (Mar 10, 2012)

mode3sour said:


> Do your due diligence with GRMN, possibly the next RIM imo. Smartphones come with GPS sensor and the routable maps are now open source online.


I know. Smart phones do many things adequately such as built in camera, surfing the Net etc. But they have not replaced PND. I was In Hawaii recently and used both in my rental cars. The GARMIN is preferred all the way. No comparison. 

Regardless, GRMN is just a trade that has done well before I considered dividend growth. I am considering swapping it 
for LOW or WMT.


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## CanadianCapitalist (Mar 31, 2009)

@Lucy: If you want to link to someone's article, provide a snippet and link to the relevant article. Please edit the entire posts you've posted on this thread. If you don't, we'll be forced to do it for you. Thank you.


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## gibor365 (Apr 1, 2011)

Can anybody explain how Book Value can be negative? ex. PBI BV = -$0.2?


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## Spudd (Oct 11, 2011)

Would it be if they have more debt than their assets are worth?


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## Dmoney (Apr 28, 2011)

Gibor: Book value is not necessarily market value. Under IFRS, I think it's more indicative of market value, but under GAAP there wasn't necessarily any correlation.

For example, a real estate trust may have negative net income every year due to non-cash expenses (depreciation of properties etc.), plus they then pay a cash distribution out of this "negative" income. In reality, the buildings aren't depreciating, they are appreciating, and book value wasn't a good indicator. Same with other types of company. They might be cash flow positive, but have negative income for tax and accounting purposes.


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## Lucy (Mar 10, 2012)

More information on doubling dividends.

http://seekingalpha.com/article/321...track-to-double-dividends-in-the-next-5-years


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## bayview (Nov 6, 2011)

Michael Pollock: Dividends are great, but not perfect...Source:WSJ

http://online.wsj.com/article/SB10001424052702304692804577285753928747844.html


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## Lucy (Mar 10, 2012)

"any suggestion that a bond portfolio will provide more income over time than a well diversified portfolio of dividend paying stocks in just plain naive. You do realize unsophisticated subscribers read this stuff and act on your recommendations. Perhaps it is time for the Journal to consider hiring a more astute financial planning editor."



I agree with this readers comment to that article.......

Someone should ask Pollock the obvious! What about dividend growth stocks? Why compare a 3% dividend paying stock and not discuss the growth aspects of this dividend which is why one should have purchased this stock in the first place.


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## londoncalling (Sep 17, 2011)

The following article may give some weight to those who need affirmation that dividend growth investing is a valid investing strategy and also helps to explain its recent popularity.

http://www.theglobeandmail.com/glob...bble-try-dividend-bull-market/article2375837/


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## Sampson (Apr 3, 2009)

This thread just got DUMB.
Dividend growth stocks as a replacement for bonds.

Please anyone who understands the research behind portfolios construction, portfolio returns, and risk-adjusted returns, what is the beta on a dividend stock vs. a government bond.

Dumb. dumb dumb. I thought this thread would be a chance to discuss opportunities, benefits and faults of dividend growth investing as a strategy - but as a bond replacement? Dumb.


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## londoncalling (Sep 17, 2011)

My post was not intended to promote the idea of moving from fixed income to equities, but merely an observation as to why dividend investing has had an increase in popularity over the past few years as investors are seeking return that was previously found in the bond and fixed income market. Perhaps I should have worded the part about giving weight, The real rate of return on new GOC bonds is basically nil once one takes into account inflation. The risk (excluding inflation risk) is essentially nil. An investor either has to accept the current rates or take on more risk to get an equivalent yield. For some, this means moving into common stocks, preferreds or corporate bonds.

I myself do not hold any bonds at the present time but this is more due to the size of my portfolio than the rate of return. I do however have a fair amount(possibly too much) of my asset allocation in laddered fixed income currently. The reality is that if bonds are not offering any yield investors will take on risk to get that return. Many of them view dividend stocks such as BCE, Coca-Cola and JNJ as safe plays for better return. Are they correct in that assumption? Maybe? maybe not? Are they taking on more risk than a bond or other fixed income? Most likely.

My personal opinion is that dividend investing will remain en vogue until interest rates rise. Are dividend stocks in a bubble or bull market remains to be seen as bubbles can only be seen in hindsight. Are dividend stocks overvalued currently? Like a lot of other stocks out there some are some are not. It all depends on the payout ratio, ROE, and debt levels of these companies. If your comment was not directed at me then I apologize, but after reading my post and your comment I felt I needed to clarify the intent of my original post.

Cheers!

FYI This thread got dumb a long long time ago...


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## Sampson (Apr 3, 2009)

LC, your post was fine - no issues with your link or post. It's fine to debate the merits of the strategy - but after all, the thread is title "The Single BEST investment".

That answer to that one is easy.

AAPL


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## crazyjackcsa (Aug 8, 2010)




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## Lucy (Mar 10, 2012)

The concept of the book "the single best investment" is dividend GROWTH stock investing not piling in to one single company or stock.


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## kcowan (Jul 1, 2010)

Lucy said:


> The concept of the book "the single best investment" is ...


fatally flawed. There is no such thing...


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## HaroldCrump (Jun 10, 2009)

Lucy said:


> The concept of the book "the single best investment" is dividend GROWTH stock investing not piling in to one single company or stock.


I haven't read the book, so apologies in advance if this is over-simplifying things.
However, I find the entire "dividend growth" argument resting on the premise that you find stocks that have grown their dividends every year for the last 10 (or 25, or whatever number) of years.
Is there anything else worthwhile in the book?

Such stocks are not hard to find.
Most screeners can find it for you.
There are many versions of "dividend achievers" lists on the Internet.

All this is fine and dandy, and works - until it doesn't.
The rate of dividend growth slows down.
To the extent in some cases, the motivation behind the increase is perhaps purely to stay on that list (such as the recent 1c. increase by Fortis).
In some cases, dividend has to be cut for various reasons (such as the US banks or the insurance companies).
And in almost all cases, such stocks are either fully valued or even over-valued.

If growth of your cash flow is your only investment objective, you can do better (and reduce risk significantly) by buying the debt of such companies instead of the equity.
And roll over every 5 years.
You can get a higher yield than the dividends, relative safety of capital, and a growing income stream that outpaces inflation (and the dividend growth rate) by at least a couple of % points.


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## Lucy (Mar 10, 2012)

Of course I found a lot more of interest in the book. Long term investing requires patience and vision. The book teaches a Lot more. It's considered a classic by some. Growth of cash flow isn't the only benefit. Capital gains are also accomplished through growth. 

But most importantly there is a chapter on creating your own compounding machine. Many give lip service to understanding the compounding principle but how many are truly reaping the rewards of this increadible wealth building principle?
Some may read it and say they've heard this all before, but repetition is the mother of all learning and many of us need to be reminded.

"the Single Best Investment" is not the only book advocating dividend growth compounding. The "Investment Zoo" also recommends the same concept. Both authors do not rely on revenues from writing investment books.

"Everything is fine and dandy and works until it doesn't."......

This applies to all forms of investing and everything in life not just dividend growth. Plus there is a chapter on this as well.


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## Lucy (Mar 10, 2012)

A sample of what its like to be a dividend growth investor.

http://seekingalpha.com/article/463...de-me-a-dividend-growth-investor?source=yahoo

Are dividend stocks dead money??

http://seekingalpha.com/article/462...-lifetime-for-dividend-investors?source=yahoo


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