# Dividend investing help...



## doitnow! (May 28, 2011)

Just started DYI investing a couple of months ago. Currently hold a balanced portfolio of index funds and bonds that frankly are making me sweat more than a little these days but I'm planning on hanging in there for the long haul unless it gets really ugly.

I know very little about investing in general but from what I read I also would like to begin investing in dividend paying stocks and would like to start with a portfolio of 100K and also for the long haul, say 10 years.

Problem is I don't know where to start, need a step by step approach suitable for a total beginner, and I mean "beginner". I should mention that I am not keen on reading company financials (my eyes glaze over and teeter on the edge of semi-consciousness when trying to comprehend these documents).

I would appreciate any guidance in the way of suggestions on resources available, books, websites, courses...personal experiences...whatever you think would be helpful?

If you successfully invest in dividend stocks and have the same reaction as I do to making sense of company financials how did you overcome this handicap or what resources do you use to compensate?

Thanks.


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## Four Pillars (Apr 5, 2009)

First of all - 10 years is a long time, but I'm not sure it necessarily qualifies as the "long haul" when it comes to equities.

As for analysing dividend stocks - I know that some people will say that if you aren't willing to analyse the financials, you shouldn't be buying individual stocks. 

I agree with those people - however, that's not what you asked.

There are a lot of investors who buy individual companies without doing indepth financial analysis.

Two books I can think of that might help you are:

Stop Working - Derek Foster. Regardless of what you think of him, I liked his first book and he talks about a number of dividend companies and why he likes them. Not a lot of numbers. One of his main strategies is to think up "recession proof" industries and then buy the best companies in that field. His latest book is a more updated version of his investing strategy (or at least his strategy after his 2009 meltdown). 

Peter Lynch - One up on Wall Street or Beat the Street. Lynch isn't a dividend investor and I believe he did a lot of financial analysis, but his books talk a lot about "buying what you know" which is sort of a familiarity/personal likes sort of investing method. Ie buy Apple because you love their products.


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## gimme_divies (Feb 12, 2011)

Hi doitnow!,

I have built a dividend growth portfolio for my mom and in terms of investing experience came from a similar place as you are at. 

A great book I read that explains the dividend growth strategy is "The Single Best Investment" by Lowel Miller and I also liked "The Investment Zoo" by Stephen Jarislowsky - I believe these were recommended by another poster on this forum.

As for resources, I believe dividendgrowthinvestor.com is the best blog on the internet for dividend growth investing, but is mostly focused on US Stocks. For Canadian stocks, I would say that this forum probably has some of the best information you can find. There are also many other blogs that you can easily find that can be quite helpful. Finally, there is a section on seekingalpha.com that is called "Investing for Income" where there are articles posted daily by experts with great information on dividend investing.

I have deployed $170K in my dividend portfolio and with a mix of high yield stocks and growth stocks have a starting yield of 4.4%, which translates into over $7K in yearly dividends to start. I hope these dividends will grow by 8-10% per year and I will also reinvest dividends to compound the growth. My projections estimate income for this portfolio in 10 years to be around 26K per year (non-adjusted for inflation).

I hope this helps you get started.


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## Cal (Jun 17, 2009)

I enjoyed the Little Book of Big Dividends, as well as the other books mentioned above, actually I think I prefered David Foster's The Lazy Investor the most.

As I like to drip some of my dividend stocks, you might find www.dripinvesting.org, and www.driprimer.ca healpful too.


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## doitnow! (May 28, 2011)

Thank you all for the advice and suggestions.

Had I been invested in solid dividend stocks would I have weathered this recent market down turn better than I have. Currently invested in 40% XSB, 20% VTI, 20% XIC, 20% VEA. 

I am not comfortable with this volatility and assume that dividend investing is more my speed and outlook.

I wonder if this is a good time to buy? If so, I don't want to miss this opportunity while I am learning more. Is there a online or other resource that provides access to a quick and easy method of picking a few of the best stocks should I wish to get started right away and then learn more later?


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## gimme_divies (Feb 12, 2011)

Well, the volatility really depends on where you put your money, but in general some of the blue-chip dividend payers have fared relatively well. McDonalds for example has held up pretty well, same for Johnson & Johnson.

I would say that now is a good time to buy, as many of the stocks I have purchased are now cheaper than they were when I bought them, thus yielding more. However, they may keep going down...who knows.

If your portfolio is in your RRSP and you are interested in some U.S. stocks, here is an article that may help you in the right direction:

http://seekingalpha.com/article/281729-constructing-the-core-of-your-dividend-growth-portfolio

As for Canadian stocks, there have been recent threads discussing Canadian dividend payers, including one where I posted all the canadian stocks in my portfolio.


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## Four Pillars (Apr 5, 2009)

You shouldn't just just look at the current markets when determining that dividend stocks are less volatile than the indexes - that's not always true.

Canadian dividend investors tend to be overweight in Canadian financials - if they take a dive, the world indexes will look sedate in comparison.

Your portfolio is already at 40% fixed income, so you shouldn't have seen a lot of volatility this year. Are you looking at each ETF individually?

I would suggest just concentrating on the portfolio return rather than each security.


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## doitnow! (May 28, 2011)

Four Pillars said:


> You shouldn't just just look at the current markets when determining that dividend stocks are less volatile than the indexes - that's not always true.
> 
> Canadian dividend investors tend to be overweight in Canadian financials - if they take a dive, the world indexes will look sedate in comparison.
> 
> ...


My bond fund is up but my between my XIC, VEA & VTI I am down 15K, don't know how much more I can take before I pull the trigger. 

The ETF dividend fund is not suffering nearly as much.

What do you think?


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## Four Pillars (Apr 5, 2009)

I think that maybe 60% equity allocation is too much for you.

If you are going to invest in equities you have to be able to handle the ups and down.

Have your read "Four Pillars of Investing" or "Random Walk Down Wall Street"? I found that reading books like those are very good for calming nerves. If you educate yourself that markets are volatile and will go up in the long run, it makes it easier to deal with short term volatility.

Bottom line is don't sell now.


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## CanadianCapitalist (Mar 31, 2009)

I get really nervous when I hear comments like this. Stocks fluctuate in value, sometimes a lot. They also go down in value by a lot in a very short time frame. Do you recall the fall of 2008? Canadian stocks overall fell 35%. Dividend stocks fell "only" 22%. Over a period of just 2 months.

http://finance.yahoo.com/echarts?s=...on;ohlcvalues=0;logscale=off;source=undefined

So, an investor looks at the difference between the two and concludes dividend ETFs are better. He can't take any more losses, so sells XIU and buys XDV. What happens? Take a look at this chart. From that point to the market bottom XIU dropped 10% but XDV dropped another 25%!

You have a fundamental problem here which switching to dividend ETFs won't solve. It sounds like you've taken on more risk than you are comfortable with. If stocks drop another 50% will you still be able to hold on? Will you have the stomach to rebalance from bonds to stocks after a significant drop? You have to find a clear answer to two questions: how much of a drop in overall portfolio value are you able to take? And how much of a drop in overall portfolio are you willing to take?

You can answer the first relatively easily. If you are saving up for retirement in 20 years, you are able to handle fluctuations. If you are saving up for your child's education and she starts school next year, your money has no business being in the stock market.

The second question is a lot trickier. It comes down to how much stomach you have for losses. My pain threshold is very high. I've been through two brutal bear markets and I know I can handle a 50, 60 or even 70 percent drop in the value of my portfolio. I won't pretend it will be a pleasant experience but I know I can endure it. This is a question you alone can answer. If you can, try and ignore the market noise and try to come up with a number. That gives you a starting point of how much risk you are willing to take.


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## doitnow! (May 28, 2011)

CanadianCapitalist said:


> I get really nervous when I hear comments like this. Stocks fluctuate in value, sometimes a lot. They also go down in value by a lot in a very short time frame. Do you recall the fall of 2008? Canadian stocks overall fell 35%. Dividend stocks fell "only" 22%. Over a period of just 2 months.
> 
> http://finance.yahoo.com/echarts?s=...on;ohlcvalues=0;logscale=off;source=undefined
> 
> ...


All good points. In response: I could stomach another 10% drop but not much more.

I wasn't comparing the equity etf's I hold to divindend based etf's but investing in a few good, solid, boring companies (6 or 7) that would likely pay a nice dividend on a 500K + portfolio 5 years from now...I wonder if it isn't a better option then this roller coaster ride. My time frame is 10 years.


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## CanadianCapitalist (Mar 31, 2009)

Is that 10% of the portfolio or 10% of the stock portion? You do realize stocks can easily fall 10% in a matter of days, right?


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## kcowan (Jul 1, 2010)

The best idea is to carefully select a few stocks you like and then just check maybe once a quarter to see if they are living up to your expectations. If not, make some adjustments. Watching the daily girations is bound to make you crazy!\

BTW couch potatos call these adjustments rebalancing. But I am thinking that they don't do it like they should.


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## doitnow! (May 28, 2011)

CanadianCapitalist said:


> Is that 10% of the portfolio or 10% of the stock portion? You do realize stocks can easily fall 10% in a matter of days, right?


10% of the stock option, I was wise to the idea of ensuring 40% in XSB which is up slightly. 

Problem is tomorrow looks even worse, isn't it tempting to sell now and buy when things hit rock bottom or is this the logic typical of a rookie investor?

Dividend investors are bragging about how little their portfolios have dropped.


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## zylon (Oct 27, 2010)

doitnow! said:


> Dividend investors are bragging about how little their portfolios have dropped.


I haven't noticed such bragging, but if it exists I would sprinkle it with grains of salt.

I don't know how much the dividend portion of my portfolio has dropped, I may check at the end of the week. I didn't buy the dividend stocks for growth, although I won't complain if that is provided, I bought for dividends. As long as dividends aren't cut, there's no need to agonize over every move in price. The only time I pay attention is if I'm looking to add to a position or start a new one.


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## CanadianCapitalist (Mar 31, 2009)

Your expectations from stocks are completely unrealistic. A 10% drop is a mere correction. You can expect a 10% drop on average once every year. FYI, XDV, the dividend ETF is down *exactly* 10% from its recent high, so I'm not sure who told you that their portfolio has dropped a "little".

https://www.americanfunds.com/resources/basics/risk-and-volatility/living-with-a-market-decline.htm


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## doitnow! (May 28, 2011)

CanadianCapitalist said:


> Your expectations from stocks are completely unrealistic. A 10% drop is a mere correction. You can expect a 10% drop on average once every year. FYI, XDV, the dividend ETF is down *exactly* 10% from its recent high, so I'm not sure who told you that their portfolio has dropped a "little".
> 
> https://www.americanfunds.com/resources/basics/risk-and-volatility/living-with-a-market-decline.htm


What I've been reading from some of the older members who invest exclusively in a few blue chip dividend stocks (not dividend etf's) is that there portfolio have not dropped nearly as much as us etfr's, plus they get paid dividends. Maybe they are fudging the figures a little or I am misinterpreting what they are saying?

Do you think the average investor who invests solely in a few blue chip dividend paying funds has seen his portfolio drop by approximately the same percentage as the strictly broad based etf investor?


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## Sampson (Apr 3, 2009)

Definitely, their portfolios have fallen as much.

This decline has happened over 1.5 weeks. How much dividends have been collected over that time?

0.5-1%? quarterly payout.

How have dividends softened the blow? You can't say that over 1 year, my 4% yield has softened the blow of the 10% loss over 2 weeks. That's just fallacious.


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## cannew (Jun 19, 2011)

You should look at your overall situation and set a goal or general plan that you wish to follow with your investments. If you say "I'm in for the long term", than you should be looking at your investments more like a savings plan. How much have you to invest and what type of growth would you like to get from your investments? How much do you plan to add each year (or whenever).

I personally don't like mutual funds, ETF's, global investments and only few US stocks.

If you worry about stock market fluctuations, read Winning the Losers Game.

If you are interested in dividend investing go to DividendGrowth.ca and read all the pages available to non-members. I'd print out the information and re-read. 

It's the best advice I've ever received and it's allowed me to obtain a great return on my investments. I look forward to market drops, as the last week because I was able to buy good company stocks with a nice dividend yield.


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## cannew (Jun 19, 2011)

When one buys a 5 yr GIC paying 2.8% interest you don't worry about whether interest rates drop or rise. You've locked in the funds for 5 yrs.

When you invest in dividend stocks your "yield on cost" will remain the same regardless whether the stock price goes up or down. 

Certainly the company can cut the dividend, but if you buy stocks of solid companies, probably they will increase the dividend (as Telus reported today).

Over the past 5 years I've been following the dividend growth strategy, I've had one (1) company cut the dividend (Manulife) and the other 32 companies increased their dividends. The banks did not increase during 2009-2011, though most have started this year.

By adding to my positions when the market crashed in 2008\09 I've lowered my average cost, but my goal was to increase my yield.

I hold the stocks for the rising dividends and don't worry about the up's and down's of the market.


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## Cal (Jun 17, 2009)

As a dividend investor, I can confirm that the blue chips in North America are on average down 4-5%. Some have faired better than others.

Perhaps what the members on the forums you were on were referring the fact that despite the market being down, (unless they own Yellow Media) none of their dividends have been cut, erased or decreased at all. (not that I would have considered Yellow Media a blue chip, but it is of recent that their divdend had been cut)


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## andrewf (Mar 1, 2010)

Yield on cost doesn't make sense.

If you have a stock sustainably yielding 10%, that's a great investment. Say it rises by 10x and is now yielding 1%. Now it's a poor investment. If someone is willing to pay you for 1% yield, sell it to them and redeploy your capital.


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## Cal (Jun 17, 2009)

And yield on cost will normally change, as the yield will be increased, and unfortunately decreased sometimes, over longer periods of time.

I agree with Andrew above in that, when I retire, I will want cash flow, I won't want to have to sell shares to get money. I would rather sell, reinvest for a better yield, keeping my investment, and increasing my cashflow.


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## CanadianCapitalist (Mar 31, 2009)

I also think that yield on cost is a funny metric. About the only use it has is for bragging how profitable an investment turned out to be (as Buffett did in his recent annual letter). What matters in investing is total returns posted by a portfolio. Everything else is a side show. 

Now some investors would like to receive dividends to pay their bills either today or in the future. That's a fine reason to obtain more of the portfolio returns as dividend payments. But the investor still owns a bunch of stocks. They've taken on stock market risk and expect to receive stock market returns, more or less, depending on their stock picking skills.


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## MikeT (Feb 16, 2010)

Andrew: I fail to see how an investment that went up in value ten fold was a poor investment. 

Yield on cost is a measure of the rise in dividends over time. It makes more sense if a time frame is included as well. It let's you judge the historical rise in dividends and forecast that the future may hold dividend increases as well. Total return is actually a composite of rise in asset price plus dividends (and dividends can actually be a variable as well - changing over time, and thus affecting the return curve). But yes, total return takes all of that into account.


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## cannew (Jun 19, 2011)

If we all agreed than we would all be trying to trade in the same manner. 

To me Yield on Cost is what I'm interested in. If my yield is increasing each year, and once it gets to double digit, than I'm beating the market and possibly any other investment strategy without doing any work. Companies that increase their dividend regularly will have their share price go up as well, eventually. 

Why would I want to sell a stock which is yielding double digit each year, in hopes of buying something else which will not provide that yield and may or may not go up?


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## Cal (Jun 17, 2009)

See Yellow Media Inc. for your answer.

Sometimes when a stock is yielding 'too' high, the stock price itself is low for a reason. Chasing yield can come with risk. And the share price or a high yield can be a warning sign of that risk.

Having said that, if you are looking for solid blue chip companies, that have a history of increasing their dividends, then you are more than likely safe. But don't expect double digit returns in the short term with them based on yield on cost.


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## blin10 (Jun 27, 2011)

which companies you guys hold for nice divi ?


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## cannew (Jun 19, 2011)

Blin10:

Any of the Cdn banks
Some of the Power Group
Pipelines ENB, TRP
Utilities, Fts, CU
CNR
Insurance Companies, SLF, IAG
Some energy stocks though their yields are lower
Infrastructure, SNC
Mutual fund companies (their stock, not the funds).

Many others but that's a good start. Buy only when the price is down so the yield will be high and your returns greater.

Cal is correct, don't expect to buy stocks with double digit yields, you get that over time with the div growth, but when the companies continue to increase the dividend one does not sell, but watch the increasing income. If you don't need the income, re-invest the dividends for compounding.


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## Sampson (Apr 3, 2009)

cannew said:


> don't expect to buy stocks with double digit yields, you get that over time with the div growth, but when the companies continue to increase the dividend one does not sell, but watch the increasing income.


Think of a company who's shares were trading at $1 yielding $0.01 annually 10 years ago, and now trading at $1 but yielding $0.05 annually.

YOC has increased 5X, but it still only yields 5%.

The TOC metric would suggest this is the best stock in the world, but when it comes to using those dividends to fund my retirement, I'm barely any better off.


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## balk (Dec 6, 2010)

cannew said:


> If we all agreed than we would all be trying to trade in the same manner.
> 
> To me Yield on Cost is what I'm interested in. If my yield is increasing each year, and once it gets to double digit, than I'm beating the market and possibly any other investment strategy without doing any work. Companies that increase their dividend regularly will have their share price go up as well, eventually.
> 
> Why would I want to sell a stock which is yielding double digit each year, in hopes of buying something else which will not provide that yield and may or may not go up?


Calculating yield on cost doesn't make a lot of sense. I will provide an example as to why. 

Two investors invest $1000 in Coca-Cola or another dividend aristocrat 25 years ago. The first investor keeps all of his dividends and spends them. The second has KO on a drip plan and increases his shares substantially throughout the years. When they look at their accounts today the first investor will have a much better yield on cost because his cost base is from 25 years ago. The second investor will have a much larger account and receive a lot more in dividends but will have a lower yield on cost. 

Looking on yield on cost discourages you from adding to your current positions because it decreases your yoc.


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## balk (Dec 6, 2010)

On the original question, I have both an unregistered dividend portfolio (Banks, SLF, BCE, ENB, FTS, TRP, AQN, EMA, CNR, etc.) of solid blue chips and an index portfolio in my RRSPs and TFSA (mostly of XIU, VTI, VXUS, ZRE, XSB, and a GIC ladder) and both produce some dividends and both have been hit fairly hard in the last month so I don't think I could recommend one strategy over the other if capital preservation or risk avoidance is what you are after. 

The only extra thing I will add is that I will be able to rebalance the balance portfolio at some point to buy more shares of the ETFs that have lagged the most whereas the dividends on my unregistered portfolio won't be able to lower the cost base on my investments by that much.


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## cannew (Jun 19, 2011)

balk:
I include the re-invested dividends as well as additional share purchases when calculating my "cost". Both re-invested dividends and additional share purchases have increased my total cost but increased my "yield on cost". With almost every company I own my yield has increased because of that as well as the increasing dividends by the companies.


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## balk (Dec 6, 2010)

cannew said:


> balk:
> I include the re-invested dividends as well as additional share purchases when calculating my "cost". Both re-invested dividends and additional share purchases have increased my total cost but increased my "yield on cost". With almost every company I own my yield has increased because of that as well as the increasing dividends by the companies.


Fine, then my example of DRIPing shares doesn't apply. But the above example is the same if you add to a position in the future. The point is more that tracking yield on cost does not make a lot of sense in the long run, it just gives you the illusion of a better investment.


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