# Avoiding Dividends - How are selections made?



## Eclectic12 (Oct 20, 2010)

Periodically the discussion between "what's the attraction to dividends - dividend payouts come along with an equal amount of value loss from the company's stock". The idea is that the stock wasn't paying a dividend, the share/unit price would simply go higher by an equal amount.

Some say they are pursuing a strategy based on non-dividend paying stocks. 


For those that are - select investments in some areas strike me as easy. If the sector/big players does not pay dividends - I expect a wide choice is available. Or if it's a huge market like the US, there may be comparable companies who don't pay dividends where others do.


My question is that for a smaller market such as Canada, where in a particular segment, the top companies *all* pay dividends - what's the strategy? Is the sector skipped? Does one buy anyway but try to keep tabs on if/when a new comparable company shows up that does not pay dividends?


A second question is where a coach potatoe style is used (i.e. buy the index, not individual stocks) - does one screen out Index MFs/ETFs that pay a distribution? Does one screen out ones that have a distribution that pays over x% as dividends? Or do cash payments of things like "capital gains, RoC, Foreign Business" mean one would skip the investment?


There seem to be enough threads covering the "pro-" and "con-" sides of dividends (plus sidebar discussions added to threads). I am more interested in how the investor looking to avoid dividends deals with such issues.



Cheers


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## humble_pie (Jun 7, 2009)

recently atrpdocbiz asked almost the identical same question. He was looking for large or at least mid-cap canadian stocks that do not pay dividends.

the only one i could think of ottomh was valeant. I don't know what Concordia Health is doing in dividends, but it might be another candidate.

a no-dividends-but-seeking-capital-gains strategy suits investors such as atrpdoc perfectly. His marital couple has significantly high earned income - his wife is a successful medical specialist - therefore the couple do not presently need investment income, let alone unfavourably taxed investment income (dividend tax credits become useless to high income taxpayers who are subject to the AMT.)

there is one other class of stocks i stumbled upon whose dividends lead to capital gains, not regular taxable dividend income. 

i posted about it recently but i don't believe anyone noticed. This class is a small handful of alberta energy companies that have recently introduced a new type of capital gains dividend, in addition to existing cash dividends & DRIP dividends.

the 2 best-known companies in this group are Husky & Arc Resources. There's a reasonably good description of how-it-works on ARX website. I'm told that Husky doesn't mention this class of dividends on its website.

another strategy to avoid taxable dividends is to work option diagonal call spreads, or else calendar spreads. In these strategies, the long leg is the farthest out LEAPs call that an investor can buy. It functions in lieu of the actual underlying stock, ie it covers the recurring short call positions exactly as the shares themselves would cover, in a simple covered call write.

then the investor proceeds to sell a series of short-term OTM calls at a higher strike price. The premiums earned will usually outstrip any dividend that could be paid, assuming dividends in the 3.5-5% range.

this strategy works well in US option markets because they are liquid. It's impossible to carry out in the sole canadian option market because of the rigidity & lack of liquidity on the montreal exchange. Also i myself would pass on this attempt, because my income is low enough that i benefit from canadian dividend tax credits, therefore my choice is to own the underlying stocks & receive their dividends rather than hold LEAPs proxies.


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## atrp2biz (Sep 22, 2010)

This is why BRK has become far and away our largest holding. It's adequately correlated with the US equity market as a whole without the punitive US-based dividends. Although light on the technology side, there are many big-name tech companies with no dividend or at least a small dividend of < 2% to fill the gap. Fingers crossed that WB's successor will maintain the same philosophy on dividends ("If you want dividends, you can make your own by selling a few shares.")

Somewhat SOL on the Canadian side. As HP mentions, there's VRX. CSU also pays what I would call a token dividend. In April, I also dipped my toe in WFT which has a yield of 0.4%.

I'm not a fan of the use of options for dividend avoidance. The whole idea is to defer taxes--whether from dividends or capital gains. We are extreme buy-and-hold investors with no plans of initiating a taxable event if we can avoid them.

To the OP's first question, it's just a matter of plugging one's nose and buying some industry names to ensure a balanced exposure.


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## Moneytoo (Mar 26, 2014)

I have the following Canadian no or low dividend stocks in my current watch list:

*Ticker	Company* 
AC-T Air Canada 
ATD.B-T	Alimentation Couche-Tard 
GIB.A-T	CGI Group	
CCO-T	Cameco Corp.	
CNR-T	Canadian National Railway	
CTC.A-T	Canadian Tire 
HBC-T	Hudson's Bay Co.	
L-T Loblaw Companies	
MRU-T	Metro Inc.	
NLN LeuLion
PSG-T	Performance Sports Group Ltd 
SW-T Sierra Wireless 
TIH-T	Toromont Industries
TC-T Tucows Inc
WJA-T	WestJet Airlines

From this list, only own a bit of Cameco at the moment, thinking to buy 2 or 3 more in my TFSA. Not to avoid the dividends, but rather to complement my dividend stocks with more growth ones. Some as a long-term hold (like ATD.B and CNR), some for short-term gains (like NLN and TC) - but will see...


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## humble_pie (Jun 7, 2009)

atrp2biz said:


> I'm not a fan of the use of options for dividend avoidance. The whole idea is to defer taxes--whether from dividends or capital gains. We are extreme buy-and-hold investors with no plans of initiating a taxable event if we can avoid them



... yes, of course, but each investor has his or her own profile & circumstances. I needed income on a current basis to help pay for the family - teens & youths in college are unbelievably expensive - so it was a question of migrating the income into forms that would be most favourably taxed for my circumstances.


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## CPA Candidate (Dec 15, 2013)

As internally generated funds have a higher cost of capital than debt, new projects and products are less attractive. There is also the potential for management to squander internally generated funds because they are there for the taking in a process of deworsification. If dividends are paid, growth with require accessing debt and equity market which will contribute to careful consideration in funds application.

To see this simply as a taxation issue is missing a lot. It's a corporate finance and corporate governance/management issue. If you let management keep all the earnings, you have to have faith that they are going to act wisely with it and deliver returns in excess of the cost of those funds.


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## dogcom (May 23, 2009)

CPA Candidate you are correct it is a tall order to trust management with all the earnings. Then there is the problem even if a company if it expenses its earnings properly that the stock doesn't move or goes down for a long period of time and you have to sit and earn nothing while you wait.


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## Eclectic12 (Oct 20, 2010)

atrp2biz said:


> ... To the OP's first question, [for the Canadian market] it's just a matter of plugging one's nose and buying some industry names to ensure a balanced exposure.


 ... which is my impression & why I am questioning if it is as simple as "pick choice B instead of choice A" that the discussion implies.




Moneytoo said:


> I have the following Canadian no or low dividend stocks in my current watch list ...


I suspect those who prefer share/unit price CG with no dividends (not sure if they also want no cash distributions) would avoid a low dividend stock as well.

Using Canadian grocery chains as an example, for big players - I can think of Loblaws, Metro & Empire which owns Sobey's (used to have their own stock). All three pay dividends so for those looking for no dividends, does that mean they skip this segment? Or like post #3, do they go "plugging one's nose and buying"?

The question for me is what those implementing a strategy which avoids dividend paying stock will do.


Cheers


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## Moneytoo (Mar 26, 2014)

Ah, ok, got it - let's see if James comes by and shares his new strategy... oh maybe it's easier to ask him in REITs thread 

(But yeah, it must be more difficult than I thought - tried to google "Canadian Growth Stocks", getting mostly "*dividend* growth stocks" results - and "no dividend stocks" search results in "best dividend stocks" etc. )


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## Eclectic12 (Oct 20, 2010)

^^^^

As long as we don't lose sight of what I'm interested in ... I don't mind if lower dividend, growth stuff is indicated. I have to think about the "low dividend" = "higher growth" part as some sectors have traditionally had lower dividends any way. Is that a function that they have grown well or is it as the "no dividend" champions say ... the less the dividend the more the share growth.

Of course this rationale ignores any management issues siphoning off growth into their own pockets. 


As for asking in the "Making own REIT etf" ... it seemed to be spending far too much time on the tangent, where the question IMO needed it's own thread. So I started this one and would prefer any detailed discussions to be here.


There's been other threads where I've mentioned going dividend only can be challenging but we will see what discussion happens here where it is a thread on it's own.


Cheers


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## el oro (Jun 16, 2009)

I thought total return investing was the more common counterargument to dividend investing?

Pursuing a non-dividend equity strategy is as silly as dividend only. That is unless you're trying to avoid investment taxes AND want to be a couch potato of sorts. BRK is great for that purpose.

I would think stock pickers not living off of investment income would want to maximize total return. Buy great companies with top-notch management, don't overpay, don't let the tax tail wag the investment dog, hold and prosper. Otherwise, why not save time and just index?

Being able to analyze the effectiveness of management to earn consistently high rates of return on retained earnings is one key aspect. Low/no dividend + low growth companies is where money goes to die.


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## humble_pie (Jun 7, 2009)

el oro said:


> I thought total return investing was the more common counterargument to dividend investing?
> 
> ... Being able to analyze the effectiveness of management to earn consistently high rates of return on retained earnings is one key aspect. Low/no dividend + low growth companies is where money goes to die.



but low/no dividend doesn't equate to low growth. In fact isn't the opposite more likely to be true. Low/no dividend can flag sustained growth as in berkshire, valeant, concordia health, constellation software.

doesn't everything depend upon judging from the bottom up, not from the top down. Each company to be viewed on its own merits. 

ironically the strong bull market of the past few years has produced sectors with high dividend payors that have also shown marked growth & share price improvement. Canadian banks are an example of this.

that dividend is too high, said goldilocks. That other dividend is too low. But this dividend in front of me is just right. So goldilocks sat down & she ate it all up.


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## avrex (Nov 14, 2010)

When I evaluate stocks, *I don't even look at the dividend.*
I make a determination strictly on valuation.

Once I've selected a stock for purchase...
I place those stocks that pay a dividend in my non-registered account (to take advantage of the Dividend Tax Credit) and
I place those stocks with no-dividend or low-dividend in my registered account.


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## humble_pie (Jun 7, 2009)

CPA Candidate said:


> As internally generated funds have a higher cost of capital than debt, new projects and products are less attractive. There is also the potential for management to squander internally generated funds because they are there for the taking in a process of deworsification. If dividends are paid, growth with require accessing debt and equity market which will contribute to careful consideration in funds application.
> 
> To see this simply as a taxation issue is missing a lot. It's a corporate finance and corporate governance/management issue. If you let management keep all the earnings, you have to have faith that they are going to act wisely with it and deliver returns in excess of the cost of those funds.




does it make sense to develop a definition such as low-or-no-dividends-are-signalling-mismanagement, though.

no one could claim that because a company such as buffett's Berkshire is self-financing, therefore normal discovery of its inner workings by banks or public share underwriters is not happening, which in turns means that such a company must somehow be concealing nefarious practices. 

what i see happening is the inverse. In the rush to satisfy the investing public's current thirst for high dividends, many financial products are incorporating derivatives trading, use of proxies, securities lending & other concealed practices that boost a dividend/distribution while being almost impossible for an ordinary investor to spot. There are threads nearby dealing with a few of these - the DFNs, for example.

because most investors don't look under the hood of a high dividend/distribution payor, i tend to believe that it is the high dividend payouts that are more likely to feature tricky concealments, rather than the no-dividend group.


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## el oro (Jun 16, 2009)

humble_pie said:


> but low/no dividend doesn't equate to low growth. In fact isn't the opposite more likely to be true. Low/no dividend can flag sustained growth as in berkshire, valeant, concordia health, constellation software.
> 
> doesn't everything depend upon judging from the bottom up, not from the top down. Each company to be viewed on its own merits.


Sure but it's more efficient to screen first to narrow the field. For example, one can look at multiple years of performance (earnings over capital invested) vs valuation (p/e, p/b etc) in order to find these types of candidates, at least the mature mid-large caps. Then you can investigate the best candidates bottom up. The dividend barely enters into the analysis.

Consistently high roe is an indicator of top tier management in the same way consistently high returns indicate top investors & portfolio managers. Value and dividend investors can miss these opportunities as they tend to be low yield, high p/e, high p/b.


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## Eclectic12 (Oct 20, 2010)

el oro said:


> I thought total return investing was the more common counterargument to dividend investing?


Where it's a bigger market that has comparable companies that same pay dividends and some don't ... I suppose one could make a comparison and therefore an argument.

Using Canada's top tier banks as an example ... their stock pays dividends so how would one make an argument? 

It's easy to talk in terms of theory but without suitable companies to compare real life performance there's not much confidence. It's just like I read a lot about the "efficient market" where good news/bad news was is factored in far before retail types can react but over the years, I've been able to profit when the market has not be that fast to react. 

Pursuing a non-dividend equity strategy is as silly as dividend only. That is unless you're trying to avoid investment taxes AND want to be a couch potato of sorts. BRK is great for that purpose.




el oro said:


> I would think stock pickers not living off of investment income would want to maximize total return. Buy great companies with top-notch management, don't overpay, don't let the tax tail wag the investment dog, hold and prosper.


 ... which is why I'm wondering what an investor who wants only CG with no dividends does when the broader market seems to have already driven the companies in the sector to be dividend payers.

The rationale seems to be that dividends don't make a difference to the return -> go for CG only. Yet if dividends don't matter to total return then there should be no reluctance to buy great companies in a sector that only pays dividends. The preference should only come into play where there's a choice.


Cheers


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## Eclectic12 (Oct 20, 2010)

el oro said:


> ... it's more efficient to screen first to narrow the field.
> 
> For example, one can look at multiple years of performance (earnings over capital invested) vs valuation (p/e, p/b etc) in order to find these types of candidates, at least the mature mid-large caps. Then you can investigate the best candidates bottom up. The dividend barely enters into the analysis.


The "dividends make no difference so the investing strategy based on non-dividend paying stocks" crowd that I'm trying to get a better understanding of seem to be highly concerned about dividends.

[ It is still an outstanding question as to whether mixed income cash distributions are to be avoided as well. ]


I can see that the dividends may be an end of the line, little impact criteria for other investors but at this point, am still focused on those preferring no-dividends when faced with no or almost no choices. (Is there a term for this type of stock? :biggrin: )


Cheers


*PS*

Personally, I'm looking at the company & it's business. In few rare cases, I've had to make a choice between one that did and one that didn't pay dividends.


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## Charlie (May 20, 2011)

Banks are the obvious example you've noted, but I'd think the capital and dividend structure of similar companies of similar size and maturity in same industries would be pretty consistent. So you'd have to choose between different industries, size of co, growth prospects of co etc to find much of a diff in dividend policy.

Interesting question. The above makes intuitive sense to me, and I ran a couple of screens to test with some success, but I don't know the data. So I think you're back to either ignore the dividend, or choose less mature/cash flow rich industries if you want to avoid the dividend. (FWIW -- a top cnd div tax of 30% vs top cap gains tax of 25% doesn't seem like a big thing to avoid -- although there is the deferral advantage). I can see the rational for chasing the dividend if you want cash flow, but not so much for avoiding it -- unless you'd rather underweight those sectors that pay them.


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## CalgaryPotato (Mar 7, 2015)

I think it would be a very difficult way to invest properly in a diversified portfolio with a large selection of blue chip style stocks. For smaller growth companies, sure keeping the dividends in mean they are growing their capital to grow their company. But for example if the Canadian banks stopped paying dividends, I'm not sure they would be able to grow significantly with all that extra money... they'd probably just be investing it themselves into other companies. And some companies are already sitting on too much cash.


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## atrp2biz (Sep 22, 2010)

CalgaryPotato said:


> ... they'd probably just be investing it *[into]* themselves *[full stop]*.


Which is why I'm a fan of stock buybacks.


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## andrewf (Mar 1, 2010)

Is this the time to bring up the concept of 'shareholder yield'?


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## el oro (Jun 16, 2009)

Eclectic12 said:


> The rationale seems to be that dividends don't make a difference to the return -> go for CG only.
> Cheers


Other than for tax reasons, I don't know anyone going for CG only. Why would they?



Eclectic12 said:


> Yet if dividends don't matter to total return then there should be no reluctance to buy great companies in a sector that only pays dividends.


Exactly! Buy the best companies... dividend or not.



Eclectic12 said:


> [ It is still an outstanding question as to whether mixed income cash distributions are to be avoided as well. ]


This was already answered with a yes. Tax deferral is the name of the game.


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## humble_pie (Jun 7, 2009)

el oro said:


> ... Tax deferral is the name of the game.



ah, but which is which?

are we to ignore tax consequences & buy stocks for quality, using only roe as a measure?

or follow the above advice that tax deferral is *the* name of the game?

there's so much choice among hi-quality stock candidates that i don't believe markets ever become a simple choice between only-buy-this-type or only-buy-that-type of stock.

me i buy canadian stocks for dividends + options + capital gains + canadian dividend tax credits. I buy US stocks in RRSP for dividends + options + capital gains. I buy/sell US long-term option strategies in hi-quality US stocks in non-registered account for capital gains only.

a very high income earner - i am not one but there are some in cmf forum - will seek capital gains & avoid currently taxable canadian dividends because the AMT for high income earners wipes out all dividend tax credits.

concomitantly, this same high income earner will avoid 100% taxable US dividends in non-registered in favour of 50% taxable capital gains. This has nothing to do with making the tax tail wag the investment dog. There are so many choices among the thousands of US stocks that this investor can easily target quality companies among the zero dividends.

btw for those seeking canadian hi quality w lo dividends, has Onex been mentioned? a little-known north american M & A/alternative finance operation, beloved by institutional investors. OCX dividends & options amount to angel dust.


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## alexei (Jul 2, 2012)

It's interesting seeing the posts on how to avoid dividends after so many years of investors obsessing with dividends 

I'm a dividend fan myself but here is one thing I'm not seeing mentioned in this thread. Yes, at the end of the day, it's the total return that matters - dividends + cap gains but ... One important aspect to highlight is that capital gains are subject to market valuations, based on the perception of future cash flows, which makes them very volatile and subjective. If we take P/E ratio for simplicity, as a bull market matures the average P/E ratio "expands" or in simpler term increases, lifting all stocks regardless of their quality (quality and stability of earnings). 

Thus this is the main issue with capital gains (paper gains) - they are subject to sentiment much more than dividends are. More specifically, if the analytics community decides to revise a P/E for an industry to a lower number due to perspective weakness in the coming years, your investment will fall hard. AutoCanada, anybody?

I guess at the end of the day the main question is whether a stock is cheap (price below intrinsic value).


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## humble_pie (Jun 7, 2009)

^^

i was only talking about crystallized gains though. Real gains, not paper gains.


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## el oro (Jun 16, 2009)

humble_pie said:


> ah, but which is which?
> 
> are we to ignore tax consequences & buy stocks for quality, using only roe as a measure?
> 
> or follow the above advice that tax deferral is *the* name of the game?


One has to make their investing objectives clear and there are multiple being discussed in this thread. The objective of the rare CG only folks is equity exposure + tax deferral, which is what the OP kept asking about. Now if you're looking to systematically maximize total return on the other hand... 



alexei said:


> Thus this is the main issue with capital gains (paper gains) - they are subject to sentiment much more than dividends are. More specifically, if the analytics community decides to revise a P/E for an industry to a lower number due to perspective weakness in the coming years, your investment will fall hard. AutoCanada, anybody?


The current P/E of a stock implies a growth rate that you can compare to your own expectation. Would I buy a stock growing at 25% at a P/E of 50? No thanks. How about one growing at 50% with a P/E of 25. Yes please! Granted, if you don't want to do proper analysis, then stay away from the small-mid cap growths like acq. You can't blame sentiment. I looked at acq last year after correcting to the $60s, rejecting it for better growth opportunities elsewhere and posted as much in the acq thread.


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## Vicjai (May 15, 2015)

Eclectic12 said:


> Periodically the discussion between "what's the attraction to dividends - dividend payouts come along with an equal amount of value loss from the company's stock". The idea is that the stock wasn't paying a dividend, the share/unit price would simply go higher by an equal amount.
> 
> Some say they are pursuing a strategy based on non-dividend paying stocks.
> 
> ...


Eclectic12, I don't know if you're familiar with Dr. John Shoven's work, he's the Director of the Stanford Institute for Economic Policy Research and the Charles R. Schwab Professor of Economics at Stanford. He argues that dividend stocks are not only good for the shareholders, but they also keep the guys running the company legit, as they have to be mindful and smart about where to allocate their resources because at the end of the day, the shareholders expect their dividend. In one of his publications, he argues that the Dow is a flawed index because it doesn't include dividend reinvestments. If it did back since it reformed in 1928, the index would be over 250,000 points today.

Although there are some exceptions that non-dividend stocks yield better than dividend payers (among them the famous Berkshire), since that if a company does not pay dividends, those earnings are retained and can be used usefully elsewhere for say, expansion, but for the majority, history has shown us otherwise.each:


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## humble_pie (Jun 7, 2009)

Vicjai said:


> ... history has shown us otherwise.each:


but what history though? you are mentioning one economist in the whole of the vast US of A, but for every academic who publishes ABC there will always be 10 other academics who will publish XYZ ...

in recent years canadian zero-div or lo-div valeant, onex & concordia have dazzlingly outstripped the more plodding dividend-paying sectors such as telcos & utilities. Constellation too, if i'm not mistaken. Granted a strategy skewed to the harvesting of capital gains is more challenging, but isn't it unreasonable to call such a strategy "silly" as we've heard here & there upthread.

imho a mixed policy is the best. There are many roads to Rome. The forum has generally suffered, over the years, from a lack of attention being paid to the favourable tax consequences of capital gains, so this thread with its many points of view has presented welcome opportunities to review & perhaps to re-balance the dividend vs capital gain issue.


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## Eclectic12 (Oct 20, 2010)

el oro said:


> Other than for tax reasons, I don't know anyone going for CG only. Why would they?


Those who are doing so who may not be in the top income levels seem to be concerned that so many have sought dividends that the companies are over-priced. The next reason I can recall being talked about was to avoid the yearly taxes dividends have as the one shot CG when sold seems to be preferred.




el oro said:


> Exactly! Buy the best companies... dividend or not.


Those that have chosen to pursue a strategy based on non-dividend paying stocks are apparently not doing this. I suspect it might be related to the "mania" for dividends = over hyped share prices.




el oro said:


> [Cash distributions] This was already answered with a yes. Tax deferral is the name of the game.


If tax deferral is the name of the game then *everyone* should be going to non-dividend/non-cash distribution stocks, should they not?


I'm not so sure those pursuing non-dividend paying stocks have weighted in on whether they see a stock paying say 1.5% dividends is okay or if they'd prefer that a non-dividend paying stock was available.


Cheers


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## Eclectic12 (Oct 20, 2010)

Vicjai said:


> Eclectic12, I don't know if you're familiar with Dr. John Shoven's work, he's the Director of the Stanford Institute for Economic Policy Research and the Charles R. Schwab Professor of Economics at Stanford.


Thanks for the info ... however - I'm interested in what those who have chosen to avoid dividends do in areas that only offer dividends.


So far the choices seems to be:

a) avoid investing despite this meaning one will have to skip top companies.

b) as listed in post # 3, hold one's nose and buy some top companies.

c) to work option diagonal call spreads.



Cheers


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## Eclectic12 (Oct 20, 2010)

andrewf said:


> Is this the time to bring up the concept of 'shareholder yield'?


I'm not following how it will provide the actions an investor seeking CG only will take when faced with the top companies paying dividends. Probably the "concept" part has me leery that the thread keep moving away from the question at hand.

... then again, if there aren't any other choices than the three so far - maybe it does not matter. :biggrin:



Cheers


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## Eclectic12 (Oct 20, 2010)

alexei said:


> It's interesting seeing the posts on how to avoid dividends after so many years of investors obsessing with dividends


Some are in a high income level so that CG is preferred, some are sure they don't matter where they don't need income/income taxes today, some think the demand plus the low interest rate environment has driven prices too far up and some think some/all of this.

There's probably other reasons as well that haven't been outlined as I listed a few that I could recall from other threads.


Cheers


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## humble_pie (Jun 7, 2009)

Eclectic12 said:


> Thanks for the info ... however - I'm interested in what those who have chosen to avoid dividends do in areas that only offer dividends.
> 
> 
> So far the choices seems to be:
> ...



a) did anybody actually say Avoid investing though ? sorry i missed that

b) re holding the nose, i imagine his fingers tweaked there, dividends are great but only in the right kind of investment account.

c) re options, please don't twist my words. An option strategy in lieu of holding US common shares is something i'd pursue in non-registered USD account only, i certainly mentioned that in non-registered CAD account i'm happy to buy & hold canadian dividends, in RRSP i'm happy to buy & hold USD dividends.

there are many option strategies designed to generate capital gains. Mine is one of the rarer ones. The most common strategy would be the iron flies & condors that lephturn & metatheta used to describe on here. GOB currently seems to be doing versions of butterflies.

the reason i mostly do diagonal call spreads is that my brain is too dumb to wrap itself around the 4-legged flies & condors. The most the poor thing can cook up is a triple strategy.

other advantages of the leverage inherent in option strategies in USD non-registered are: (1) lowering account value below the $100k foreign holdings that must be declared to the CRA; & (2) keeping a canadian estate below the coming US estate tax threshhold.


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## Eclectic12 (Oct 20, 2010)

humble_pie said:


> a) did anybody actually say Avoid investing though ? sorry i missed that


I'm outlining the possibilities I see ... but so far, few who pursue a non-dividend strategy have stated what they do.




humble_pie said:


> b) re holding the nose, i imagine his fingers tweaked there, dividends are great but only in the right kind of investment account.


It was one of the clear responses and was from the high income earner who is looking for CG only. Tweaked or not, it is a clear response to the question.




humble_pie said:


> c) re options, please don't twist my words. An option strategy in lieu of holding US common shares is something i'd pursue in non-registered USD account only, ...


I'm more interested in a combination of what the possibilities are, in addition to what those seeking only CG are doing. So to my POV, what you in particular do is of less interest. 

In the flow of post #2 that went from how few large to mid-cap Canadian CG only companies there were to the rare Canadian CG dividends types (ex. Husky & ARC Resources) to the options strategy, I did miss the "impossible for the Canadian market" part. 

So that cuts the choices down to two.




humble_pie said:


> ... there are many option strategies designed to generate capital gains ...


Are they viable for say the Canadian pipeline market? 
Would they provide somewhat equivalent exposure as option b), buying the companies anyway?


Cheers


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## humble_pie (Jun 7, 2009)

Eclectic12 said:


> So that cuts the choices down to two


no, only for *some* are the choices cut down to 2 .each:




> Are they [option strategies] viable for say the Canadian pipeline market?
> Would they provide somewhat equivalent exposure as option b), buying the companies anyway?


i believe i mentioned that when it comes to quality dividend-paying canadian stocks, it's preferable to hold these stocks plus sell options in a CAD non-registered account? investor obtains good current return from the dividend/option combo, plus he receives the lovely dividend tax credits & the most-favoured 50% cap gains tax rate on the option sales.

useful option strategies to accompany the holding of pipeline common shares in such CAD accounts are covered calls & selling OTM puts (ie the pipeline shares will be short strangles)


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## Eclectic12 (Oct 20, 2010)

humble_pie said:


> no, only for *some* are the choices cut down to 2 .each:


So in essence, the change is to refer to options in general.




humble_pie said:


> ... investor obtains good current return from the dividend/option combo, plus he receives the lovely dividend tax credits & the most-favoured 50% cap gains tax rate on the option sales.


It will be interesting to hear any other "CG only" type investors comment or use this choice. So far, the one that has responded says options are not on the table. (They may be in the high income, little to no DTC benefit crowd.)


AFAICT ... those that are the most passionate about posting that "non-dividend investments" are their strategy have yet to indicate what they do or what their thoughts on cash or index fund distributions are.


Cheers


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## Eclectic12 (Oct 20, 2010)

It also occurred to me that there is a fourth choice ... where one is comfortable with the S&P TSX 60 index, it looks like Horizons BetPro's HXT does no have distributions.


Cheers


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## james4beach (Nov 15, 2012)

I have a tool I can run that tells me all non dividend stocks in the TSX Composite. Here's the list from Jan 1, 2015

AAV
AC
ATA
ATH
AVO
AYA
BB
BIR
BNK
BTO
BXE
CCT
CFP
CGG
CLS
CR
CS
DC.A
DDC
DGC
DOO
DRM
DSG
EFN
FR
FVI
GC
GIB.A
GTE
IFP
IMG
K
KEL
LEG
LUN
MEG
NG
NGD
NVA
OGC
P
POU
PPY
PVG
PXT
QSR
RMP
RRX
SMF
SSO
SW
TOU
TRQ
TXG
VRX


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## james4beach (Nov 15, 2012)

I've been one of those people on this forum who has posted seemingly anti-dividend messages. But to clarify: I'm actually not opposed to dividends and I don't actively avoid dividends. I like XIU and ZCN; these both pay some pretty good dividends!

What I've wanted to discourage people from doing is seeking investments with a dividend-based motivation, which is extremely common around here. People will sort stocks and ETFs by dividend yield, and use them to select their investments. Or they gravitate to certain things based on high payouts (XTR used to be a common one). Mutual fund salespeople strongly push seniors into "dividend funds" (at a higher MER, of course). ETFs joined this party as well and we have higher MER funds that attract capital based on higher yields.

I'm saying: don't let high dividend payouts cloud your judgement. Fund managers are taking advantage of this clouded judgement. XTR, and Monthly Income funds in general, boost their payouts beyond what the investments can actually generate. The return-of-capital trick and sucked in billions of investment dollars, *because people are chasing yield.*

Another concern that I have is, because of zero interest rates, dividend stocks have been extremely popular since 2009. There is a bit of a mania around them. An investor should beware extremely popular investments. Because of all the love for high dividend stocks, there's a danger that they are more highly valued than they would otherwise be. It's also a crowded space.

So you, as a small retail investor, are going to try and discover good VALUE among high dividend stocks. This is a space that's (1) extremely popular, is (2) heavily bought up by funds and pension funds and (3) regularly makes the rounds on TV and magazine articles. All of this makes it harder to find good value... it's a crowded space.

In comparison, non dividend paying stocks are out of favour. They are unpopular, and people are not tripping over themselves to buy them. As a contrarian investor, that seems intriguing to me.


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## OnlyMyOpinion (Sep 1, 2013)

I wonder though if dividend stocks are overvalued? With baby boomer demographics just beginning to enter retirement, the demand for dividend income and monthly income (roc) products might continue to grow for years to come. Particularly if low interest rates are the new normal as some are proposing. Perhaps what seems to be a crowded space today might get much more crowded in the future?


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## GreatLaker (Mar 23, 2014)

james4beach said:


> Another concern that I have is, because of zero interest rates, dividend stocks have been extremely popular since 2009. There is a bit of a mania around them. An investor should beware extremely popular investments. Because of all the love for high dividend stocks, there's a danger that they are more highly valued than they would otherwise be. It's also a crowded space.





OnlyMyOpinion said:


> I wonder though if dividend stocks are overvalued? With baby boomer demographics just beginning to enter retirement, the demand for dividend income and monthly income (roc) products might continue to grow for years to come. Particularly if low interest rates are the new normal as some are proposing. Perhaps what seems to be a crowded space today might get much more crowded in the future?


My concern too. Yield chasing driving prices up in certain segments like telecom, pipelines, financials. Reminds me of the nifty-fifty of the 1960s. Everyone was buying a narrow selection the best stocks that supposedly would always provide excellent returns. 
Nifty Fifty - Wikipedia


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## james4beach (Nov 15, 2012)

Regarding demand for dividends from retiring boomers... True, that is possible and I could see how that might happen. But baby boomers can only buy so much stock, and I think they're all-in right now. Personally I don't think baby boomers can afford to buy more stocks than they already have (especially when they are reminded of what "risk" is).

It's possible that boomers will enter retirement, discover that they have insufficient capital (at such low interest rates) to live off dividends & interests, and therefore start a long period of liquidation.

Interest rates are low, and dividends cannot provide enough income to live off. Not with the amount of capital most people have.


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## humble_pie (Jun 7, 2009)

Eclectic12 said:


> It also occurred to me that there is a fourth choice ... where one is comfortable with the S&P TSX 60 index, it looks like Horizons BetPro's HXT does no have distributions




the forum has gone over HXT quite a few times, though. It was the first ultra-low MER ETF to debut in canada.

the problem, as many have posted in the past, is that HXT does not hold any stocks. It holds only a derivative product with natBank, a futures contract i believe, that undertakes to pay the return of the top TSX stocks to fund manager horizons betaPro.

some believe that national bank is guaranteeing this deal but i for one do not believe any such thing. My belief is that these futures - like all similar deals - are not tiered capital obligations for natBank but rather they are trading undertakings that the bank's treasury would have sliced into little slivers & sold onwards to a network of correspondent banks that could be situated anywhere in the world. Exactly as banks slice up, parcel out & sell onwards their loans.

this was how bad consumer loan debt including bad mortgage debt in the US of A got sliced up & sold to banks all over the world, eventually engulfing the entire planet in the financial crash of 2008/09.

of course, if such a crash never happens again, the probability is high that HXT will be fine. It certainly is a very nice tax deferral mechanism, postponing capital gains via a proxy that more or less mirrors TSX top stocks' performance, with nary a whisper of dividends.


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## humble_pie (Jun 7, 2009)

james4beach said:


> I have a tool I can run that tells me all non dividend stocks in the TSX Composite. Here's the list from Jan 1, 2015




the problem i have with this tool is that the information it produces is kind of useless.

most canadian quality stocks pay dividends, most of which provide desirable eligible dividend tax credits. So *most* canadian investors would be looking to buy such stocks in non-registered accounts.

this tool's list mostly breaks down into canadian penny or emerging or resource exploraton stocks that don't pay dividends anyhow. Many investors will avoid this sector as too risky. 

as has been noted, one can count on the fingers of one hand the number of large-cap quality canadian stocks that do not pay dividends. Valeant. Concordia Health. GIB dot A. After these, a dividend-avoider seeking quality stocks has to move on to the promising low-dividends, such as Onex corporation.

in US markets, the choice of quality non-dividend payors is much broader.

james4 would you happen to have a tool that could generate a list of US non-dividend-paying stocks?


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## Eclectic12 (Oct 20, 2010)

james4beach said:


> I've been one of those people on this forum who has posted seemingly anti-dividend messages.
> 
> But to clarify: I'm actually not opposed to dividends and I don't actively avoid dividends. I like XIU and ZCN; these both pay some pretty good dividends!


Then if I'm understood the update ... it is less a pursuit of non-dividend investments and more of a pursuit of good investments with a priority where there is a choice.




james4beach said:


> What I've wanted to discourage people from doing is seeking investments with a dividend-based motivation, which is extremely common around here ... I'm saying: don't let high dividend payouts cloud your judgement.


I guess that because of the passion on each side, the quality part that is rarely mentioned is being lost.




james4beach said:


> Another concern that I have is, because of zero interest rates, dividend stocks have been extremely popular since 2009. There is a bit of a mania around them.


 ... definitely more of a factor than in the past - though historically, dividend stocks have had cycles well before 2009 so it's not the only factor.




james4beach said:


> In comparison, non dividend paying stocks are out of favour. They are unpopular, and people are not tripping over themselves to buy them. As a contrarian investor, that seems intriguing to me.


 ... where quality has already been identified & there is a choice, correct?




james4beach said:


> Regarding demand for dividends from retiring boomers... True, that is possible and I could see how that might happen. But baby boomers can only buy so much stock, and I think they're all-in right now. Personally I don't think baby boomers can afford to buy more stocks than they already have ...


This looks suspect to me, which would require more digging.

It's been claimed that baby boomers about to retire are in the top jobs, have better pension benefits, dropping expenses as the kids move out etc. This should mean lots of cash for investment, which line up with being "all in" where they can't buy more. Trouble is that supposedly the investments/retirement investments are "too little" - which suggests there isn't enough to drive the market to such a high degree.

Without more digging ... to me it is a mixed picture that is not clear.





james4beach said:


> It's possible that boomers will enter retirement, discover that they have insufficient capital (at such low interest rates) to live off dividends & interests, and therefore start a long period of liquidation.
> 
> Interest rates are low, and dividends cannot provide enough income to live off. Not with the amount of capital most people have.


With raises two questions ... can insufficient capital for retirement be enough to affect the market so dramatically?

Is the "can't live" a desired lifestyle or scrapping by situation?


Cheers


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## Eclectic12 (Oct 20, 2010)

humble_pie said:


> the forum has gone over HXT quite a few times, though. It was the first ultra-low MER ETF to debut in canada.
> 
> the problem, as many have posted in the past, is that HXT does not hold any stocks. It holds only a derivative product with natBank, a futures contract i believe, that undertakes to pay the return of the top TSX stocks to fund manager horizons betaPro...
> 
> of course, if such a crash never happens again, the probability is high that HXT will be fine. It certainly is a very nice tax deferral mechanism, postponing capital gains via a proxy that more or less mirrors TSX top stocks' performance, with nary a whisper of dividends.


Important info for those analysing it ... for those casting about for CG only investments, it is a possibility.


From my POV, it is moot anyway now that the "quality over type, type when there is a comparable choice" clarification has been made.


Cheers


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## humble_pie (Jun 7, 2009)

Eclectic12 said:


> Important info for those analysing it ... for those casting about for CG only investments, it is a possibility


 
... but here in the real world, the view is universally uphold that every investor *must* analyse his investment choices before he makes them, no?

it's true that breX, worldCom & sinoForest were investment "possibilities" before they went belly-up. Anything is possible, after all, even the possibility that green cheese can be found on the moon.

in addition, CG seeking investors are likely to be more experienced investors, therefore more likely to investigate before buying. Perhaps that's why HXT doesn't come up much in discussions of valuable capital gains strategies.


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## Eclectic12 (Oct 20, 2010)

humble_pie said:


> ... but here in the real world, the view is universally uphold that every investor *must* analyse his investment choices before he makes them, no?


Comments such as "pursue non-dividend investment strategy" followed by a lack of response to "what to do when there are no comparable investment choices" made where analysis ranked in the pecking order (or if it existed) unclear.




humble_pie said:


> ... Anything is possible, after all, even the possibility that green cheese can be found on the moon.


It is a wide range of choices where one is casting about for possibilities.




humble_pie said:


> ... in addition, CG seeking investors are likely to be more experienced investors, therefore more likely to investigate before buying. Perhaps that's why HXT doesn't come up much in discussions of valuable capital gains strategies.


Having seen the "dividends are irrelevant, pursue a CG only strategy" that ignored the few mentions of analysis and having missed other threads that went into specifics/mechanics/analysis ... good to know.


Cheers


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## Moneytoo (Mar 26, 2014)

james4beach said:


> I have a tool I can run that tells me all non dividend stocks in the TSX Composite. Here's the list from Jan 1, 2015


Added ATA from your list to my watchlist, thank you!  Bought 150 shares of Exco Technologies Ltd (XTC) for $14.40 this morning (from RFD Forum Guru's Trading List - have been watching it for a while and liked the recent "endorsement" )


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## james4beach (Nov 15, 2012)

Note, this list was just spit out by showing me all TSX Composite stocks with zero dividends. There are many other factors that should be analyzed to determine if a stock is a good buy. This isn't a list of recommendations and for instance I would never buy microcaps/penny stocks.

humble_pie: you're right, there are many small caps that result and too many small resource co's. Interesting question about the US; I didn't try that. Can someone show me where I can find a plain text list of each stock in the S&P 500 ? If I have that input, I may be able to generate such a list.

I'll post more detailed replies later


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## Moneytoo (Mar 26, 2014)

james4beach said:


> Note, this list was just spit out by showing me all TSX Composite stocks with zero dividends. There are many other factors that should be analyzed to determine if a stock is a good buy. This isn't a list of recommendations and for instance I would never buy microcaps/penny stocks.


I know, went through all of them yesterday (as only a few looked familiar), but since most were resource/precious metals - only picked ATA


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## Spudd (Oct 11, 2011)

james4beach said:


> Can someone show me where I can find a plain text list of each stock in the S&P 500 ? If I have that input, I may be able to generate such a list.


http://data.okfn.org/data/core/s-and-p-500-companies


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## humble_pie (Jun 7, 2009)

james4beach said:


> ... Can someone show me where I can find a plain text list of each stock in the S&P 500 ? If I have that input, I may be able to generate such a list.



james4 if you can work with Spudd's data link, that would be a US list that would be worth its weight in gold

(what am i saying? it's a weightless virtual list ... never mind ... still a valuable list that should be full of heads-up to some)


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## james4beach (Nov 15, 2012)

Thanks, Spudd! Here then are the S&P 500 stocks that pay zero dividends. There are only 74 of them:

ACT
ADBE
AMG
AKAM
ALXN
ADS
AMZN
ADSK
AN
AZO
BBBY
BRK-B
BIIB
BSX
CAM
CFN
KMX
CBG
CELG
CERN
CMG
CTXS
CTSH
DVA
DTV
DISCA
DLTR
ETFC
ETN
EBAY
EW
EA
ESRX
FFIV
FB
FSLR
FISV
FTI
FOSL
GNW
GOOG
HSP
ISRG
JEC
LH
MNK
KORS
MU
MHK
MNST
MYL
NFLX
NFX
NWSA
ORLY
OI
PCLN
PWR
RHT
REGN
CRM
SWN
SRCL
THC
TDC
TRIP
UA
URI
URBN
VAR
VRSN
VRTX
WAT
YHOO


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## james4beach (Nov 15, 2012)

And as a random sampling, I just picked a few off the list to look at their 5 year performance.

ADS +333%
CERN +240%
FISV +241%
SWN -46%
URI +667%
WAT +95%

The average of this random sub-sample is +255% versus approx +100% for the S&P 500. Of course we'd have to consider the sector exposures etc... I'm just pointing out, there are some real winners among them.


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## Moneytoo (Mar 26, 2014)

Held a bit of First Solar (FSLR) from that list for a few months. Made 20% and sold at the top on good news - right before it dropped like a rock (and is still below my original purchase price...)

Wish I invested the proceeds in Agios Pharmaceuticals (AGIO) - would have tripled my money... But alas - chickened out... sigh

Oh well - bought US Financials ETF (XLF) instead, and it's finally moving up (and my husband can sleep at night - I actually made him buy First Solar in his RRSP, and he called it "scary as hell" lol)


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## humble_pie (Jun 7, 2009)

james what a marvellous feast you have offered us. A million thankx.

i'm copying this list into my files. There will be some duds, of course. Along with some nuggets. The 2 i know best are akam & goog.


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## james4beach (Nov 15, 2012)

You're welcome, glad I could help!


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## james4beach (Nov 15, 2012)

I recently bought the following TSX stocks (that pay no dividends)

AC - transportation
CLS - tech
DSG - tech
GC - consumer
IFP - materials
PLI - pharma
PSG - consumer
VRX - pharma


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