# Dividend Investing



## EndersGhost (Jan 20, 2014)

Hello All,
So I was wondering how many people here are doing dividend strategies? I like the idea of it, and I notice all the couch potato strategies don't seem to use them and I'm just wondering why that is? The only thing I could come up with is I can see and like the idea of dividends and dripping them to grow your holdings faster. However, is it good before you have a significant amount of money? IE Is there an amount where the strategy starts to pay off more than say index/growth strategies? Seems like it would be a nice way to supplement retirement income. As a 30 year old I love the idea of dividends, but I wonder how efficient they would be for myself, or if I'm better off without it at this time. Any thoughts are appreciated.


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## GoldStone (Mar 6, 2011)

EndersGhost said:


> I notice all the couch potato strategies don't seem to use them


This is not exactly true. Index funds and ETFs distribute dividends. Couch potatoes reinvest them. What couch potatoes don't do is they don't emphasize dividend paying companies. They own the whole market.

*S&P/TSX 60 companies sorted by yield*

Compare 5 year returns:

The top 5 (high yield): -33.8, 64.7, -56.0, -2.1, -38.0

The bottom 5 (low yield): 319.4, 348.8, 985.3, -84.9, 752.6


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## EndersGhost (Jan 20, 2014)

Goldstone, thanks. I realize that high yields (over 4-5%) are pretty volatile companies, so I was looking more at like the dividend ETFs, etc. But I think that strategy may be better served down the road. I could see it being used in retirement to help supplement income, by choosing companies like coke and pg etc. But for now maybe I'm better served with a growth first approach.


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## AltaRed (Jun 8, 2009)

The best way to answer the question is to look at multi-year performance of ETFs and compare them. Unfortunately, most dividend focused ETFs have not been around for at least 10 years to make a meaningful comparison. 

What ultimately matters most is Total Return, which is both dividend yield and market price growth. This is particularly important for younger investors. Those retired and into withdrawal mode likely prefer the comfort of a larger dividend stream over capital appreciation.


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## james4beach (Nov 15, 2012)

I have seen evidence that companies paying no dividends exhibit greater total returns than companies that pay a dividend.

You can see a quick demonstration of this in the Factset dividend report (PDF file) on page 13, "Historic, Forward Returns - Relative to S&P 500 - Dividend Stocks vs. Non-Dividend Stocks"

The reason is probably that dividend paying stocks tend to be better established, mature and older companies that aren't in the growth phase.

Anyway, just food for thought before you get too wrapped up with the dividend craze. Yes dividends are a great method of being paid some of a company's earnings, in the form of perpetual cash, however it does not definitively give you a higher total return.

In my opinion, there is no fundamental reason to believe that a dividend fund or dividend ETF will beat the broad index, long term.


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## GoldStone (Mar 6, 2011)

james4beach said:


> I have seen evidence that companies paying no dividends exhibit greater total returns than companies that pay a dividend.


I've seen dozens of studies from academia and from the industry. The results are all over the map. You can find studies to support any point of view. Dividends don't matter. Dividend growth matters but no the dividend yield. Yield matters but not the growth. Results vary by country and time period.

The markets are complex, adaptive systems. No single strategy wins all the time.


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## Eder (Feb 16, 2011)

umm...I need to chime in here that most of the return of stocks in the TSE are due to dividends...but whatever...I'm sure TwitterBook or what ever the latest flavor is will outperform till it doesn't.


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## doctrine (Sep 30, 2011)

The vast majority of evidence I've seen is that dividend paying companies are responsible for the majority of market returns over the last 50 years. That benefit becomes even more significant for reinvested dividends. 

Given that the _vast_ majority of both TSX stocks and S&P stocks actually do pay dividends, it's rather a moot point for indexers. 

In my opinion, the good companies out there want to pay dividends anyway - they have extremely successful businesses that throw off excess cash and have the expertise to maintain and grow earnings with less of a need for reinvested capital over the long term. 

Whenever this discussion comes up, I challenge people to come out with a list of non-dividend paying companies that they are confident will outperform in the long run. In Canada especially, the list is not very long.


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## GoldStone (Mar 6, 2011)

doctrine said:


> Given that the _vast_ majority of both TSX stocks and S&P stocks actually do pay dividends, it's rather a moot point for indexers.


Precisely.

And to take it one step further, share buybacks are becoming increasingly popular. Share buybacks and dividends accomplish the same thing: they return cash to the shareholders. Some companies do one or the other, some do both. Indexers are exposed to all of them.


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## Longwinston (Oct 20, 2013)

I do dividend investing. Key is long term and the plan is to live off the dividend income only in retirement never having to sell the actual stock. Next years dividend income is much easier to predict than next years price of the stock you own.
Do a LOT of reading. Seeking Alpha has fantastic dividend authors if you want to get a lot of different perspectives on it.

Good luck


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## james4beach (Nov 15, 2012)

Eder said:


> umm...I need to chime in here that most of the return of stocks in the TSE are due to dividends...but whatever...I'm sure TwitterBook or what ever the latest flavor is will outperform till it doesn't.


That line is often repeated but it's misleading.

If those companies weren't paying dividends, their share prices would have moved higher due to retained earnings and reinvestment of capital. In the end it would probably be a wash. Think of it like this: Total return = dividends + capital growth

A dividend-paying company will look like this
6 = 3 + 3

But that company could just as well have zero dividend and
6 = 0 + 6

Or maybe like a utility or income trust
6 = 6 + 0

Most of the large caps in the TSX pay dividends, and therefore much of the TSX's long term returns come from dividends. But if they didn't pay dividends, you would get the same result.

That statement _sounds_ like it's saying, "you should seek dividend-paying stocks" whereas it really means "most companies in the TSX pay a dividend". The statement is used by people selling higher fee dividend funds (like the RBC advisor who keeps convincing my parents to buy the RBC Dividend fund) to try and justify the dividend fund, by implying that it leads to outperformance.

The statement is true, but it does not justify buying dividend stocks. It's a meaningless statement


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## GoldStone (Mar 6, 2011)

james4beach said:


> If those companies weren't paying dividends, their share prices would have moved higher due to retained earnings and reinvestment of capital.


Not necessarily so. Here's a famous study by Arnott and Asness from 2001.

*Does Dividend Policy Foretell Earnings Growth?*
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=295974

They found a positive relationship between current payout ratio and future earnings growth. Higher payout --> higher earnings growth. Lower payout --> lower earnings growth.

From the abstract:



> We test whether dividend policy, as we observe in the payout ratio of the market portfolio, forecasts future aggregate earnings growth. This is, in a sense, one test of whether dividend policy "matters." *The historical evidence strongly suggests that expected future earnings growth is fastest when current payout ratios are high and slowest when payout ratios are low.* This relationship is not subsumed by other factors such as simple mean reversion in earnings. *Our evidence contradicts the views of many who believe that substantial reinvestment of retained earnings will fuel faster future earnings growth.* Rather, it is fully consistent with anecdotal tales about managers signaling their earnings expectations through dividends, or engaging in inefficient empire building, at times; either of these phenomena will conform with a positive link between payout ratios and subsequent earnings growth.


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## james4beach (Nov 15, 2012)

That result is also incomplete when stated like that. I've looked at numerous studies like this from separate groups.

If payout ratio gets really high, then forward performance suffers. There's a sweet spot here, it's not a straight correlation. You don't want the absolute lowest payout ratios, but you also don't want the highest payout ratios.

The other thing you'll see in those studies, if you study the actual charts, is that the group of stocks that pay NO dividends actually outperform _certain_ categories of stocks that do pay dividends. The appropriate lesson here is that you can not "blindly" pick out a dividend stock and expect it to do better than the index. You can't simply pick a high dividend yield or payout ratio, nor can you just pick a low yield. It's much more complex than that.

If you're trying to pick dividend stocks to beat the broad index, you have to select them very carefully.

I studied "The High Dividend Yield Return Advantage" by Tweedy, Browne Company and also a Credit Suisse Quantitative Equity study. The results from both of these also match the Factset report I linked earlier. All show that certain categories of dividend stocks underperform and other categories outperform.


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## GoldStone (Mar 6, 2011)

Observe the blue line on the chart below. It shows valuation premium/discount of the top yielding US large caps, compared to all large caps. Note how they traded at a discount for many decades. Dividend strategy was in effect a value strategy. Note that picture has changed recently. Bond refugees bid up the high yielding large caps. They are now more expensive than the market overall.

A strategy that outperformed before due to low valuations can easily trail in the future due to high valuations.


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## james4beach (Nov 15, 2012)

In the studies I read (all 3 of those listed in my last post) I also saw that the group of stocks paying no dividends outperformed (historically) the group of stocks paying a nonzero dividend, out of the S&P 500.

Nobody really hammers home this point because it doesn't further the agenda of selling high MER dividend mutual funds. But just look at the factset report, I even told you the page


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## GoldStone (Mar 6, 2011)

Factset page 13 looks back 20 years. That's too short a period to reach any meaningful conclusions. Also, it's one country only, the US. Dividend stocks outperformed in Canada in the same time frame.


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## james4beach (Nov 15, 2012)

Valid point there, all the studies I looked at were for the S&P 500.

In a non-quantitative sense though, I have trouble believing that dividend stocks (including banks) could still be good value. They've been hyped up so much in the last few years and tons of money has flowed into dividend mutual funds and ETFs. All the advisors out there are heavily selling dividend funds.

Not to mention the new threads every week here on the forum on dividend stocks. If we were back in 1999, every couple days someone would have been posting a new thread on a tech stock. Same psychology, though not as intense as the tech bubble.

When something is *that* popular and so much new money comes into it, history shows us that forward returns tend to suck. "Dividend stocks" have been super popular now for 5 years or something. Personally I stay away from investment themes that are super popular


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## EndersGhost (Jan 20, 2014)

This is a great discussion. James and Goldstone, I think you are both touching on a good point about the popularity of them driving up the price (same argument can be made with people who like FI in general but can't get decent rates since 2008). Banks are a good example of something I was looking to add but they do feel a bit oversold. But a lot of things feel that way right now, so it makes it hard to wade through it.


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## GoldStone (Mar 6, 2011)

Your time frame is 25-30 years before retirement, and another 25-30 years in retirement. 50-60 years in total. Short term concerns are irrelevant. Pick a simple strategy that suits your temperament. Couch potato or dividend growth investing, doesn't really matter. Keep the cost low and stay diversified.

At this point, your savings rate is more important than your investment rate of return.


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## EndersGhost (Jan 20, 2014)

Yeah I realize that. Saving and diversifying is the important piece here. Just wanted to get opinions on how it's been working for people, etc. Getting the brokerage set up, and doing reading, it makes me want to get in there and buy all the candy in the store . But I'm making sure I get my strategy figured out before I commit. Good to understand the options.


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## Longwinston (Oct 20, 2013)

james4beach said:


> Valid point there, all the studies I looked at were for the S&P 500.
> 
> In a non-quantitative sense though, I have trouble believing that dividend stocks (including banks) could still be good value. They've been hyped up so much in the last few years and tons of money has flowed into dividend mutual funds and ETFs. All the advisors out there are heavily selling dividend funds.
> 
> ...


Tech stocks were selling at P/E multiples in the hundreds and everyone said that didn't matter anymore. Dividend stocks are still tied to fundamentals for the most part. Like with any stock, everyone should do their home work and not buy when the stock is too expensive.

I think writing off a particular way to invest, particularly a conservative one, as 'too popular' without any evidence is weak.
Dividends were the primary reason anyone invested in stocks in the first place. If it's getting more popular then, if anything, that means that investors are returning to fundamentals which makes for a healthier market.


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## My Own Advisor (Sep 24, 2012)

I also love the idea of dividends and have been DRIPping most of my stocks for about 4 years.

I have no intentions of stopping my DRIPs for companies like BCE, Telus, CIBC and ENB. I own about 25 CDN companies, including REITs, and most of them DRIP.

I hope to have about $30k in dividend income to supplement other retirement income streams in 15 years.

I also index invest using a couple of ETFs because it works and the academic data is overwhelming in favour of this approach.


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## Gimme the Green (Feb 4, 2014)

Question for you MOA, did you start index investing and dividend investing at the same time? Or did you start with one first and then branch out? I currently invest in e series but read all about dividends and am particularly interested in dividend payers. Cash is king to me and I would love a steady stream of it in retirement!


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## My Own Advisor (Sep 24, 2012)

Hey Gimme,

Started with high-priced mutual funds and then "saw the light" - own the top stocks the big funds own. e.g. CDN banks, lifecos, pipelines and telcos. 

I kept my mutual funds (back then) but bought my first CDN dividend paying stock: Enbridge (ENB). I started saving to buy more ENB, then had enough to get it DRIPping with the transfer agent: 
http://www.myownadvisor.ca/2010/06/hey-enbridge-lets-make-a-deal-2/

(early days of the blog)

Then after ENB, after it was DRIPping, I kept buying CDN banks and other companies...and the dividend investing path was born.

As I started to own more stocks beyond Enbridge, I also made some changes with my mutual funds in my RRSP and started switching out of my high-priced mutual funds into indexed products. I've held index products for a few years now and intend to keep buying equity ETFs every few months when enough cash builds up to buy more.

So, I guess I'm a hybrid investor. Let my stocks DRIP and let a couple ETFs DRIP as well. I'll keep this cycle going for the next 15 years until retirement, then intend to live off the dividends and distributions the stocks and ETFs pay.


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## cannadian (Dec 30, 2011)

My Own Advisor said:


> Hey Gimme,
> 
> *Started with high-priced mutual funds and then "saw the light" - own the top stocks the big funds own.* e.g. CDN banks, lifecos, pipelines and telcos.
> 
> ...


It's amazing that in this day and age these mutual fund managers can still get away with charging massive fees!

I have numerous friends holding mutual index funds which hold virtually the exact same stocks as their ETF counterparts but charge 10x the expense fee because it's "actively managed" -> been trying to get them to leave the mutuals for a long time now haha


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## Jon_Snow (May 20, 2009)

Back in 2009, I decided to get serious about investing. I started with TD e-series as well... and stayed with them as I studied various investing strategies. It didn't take long for me to decide to pursue dividend investing. Psychologically, the incoming dividends help me deal with the up and downs (especially the downs!) of the market. And I make it no secret that I am trying to pull of a very early retirement, with dividend income making up the bulk of my income.

As we speak, I am pulling in $1500 monthly in my taxable account... hope to be at $2000 monthly by the end of 2014 - this will take some serious saving to pull off. Our TFSA's produce about $500 monthly in mostly REIT distributions. I have a lot of dividend payers in my RRSP as well, but won't rely on these for income for quite a long time. 

I'm not all that fixated on the prices of my dividend stocks - I'm much more focused on the income they produce for me. Love dividend investing. :encouragement:


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## gibor365 (Apr 1, 2011)

My Own Advisor said:


> So, I guess I'm a hybrid investor. Let my stocks DRIP and let a couple ETFs DRIP as well. I'll keep this cycle going for the next 15 years until retirement, then intend to live off the dividends and distributions the stocks and ETFs pay.


I have very similar to MOA allocation  When I just opened discount brokerages accounts about 3-3.5 years ago , I bought couple of 3rd party MF , but very fast got rid of them and started buying dividend stocks and also several ETFs, currently about 80% of my portfolio are dividend stocks (about 1/3 US and 2/3 Canadian) and 20% ETFs. (mostly XIU, VTI, VEA, XMA..).. I wanted to see what would be better for me, dividend stocks or ETFs and stick to it, but still not sure 
I like concept of dividend investing as we're planning to retire and live from dividend income mostly... currently we have just between 12-13K in dividends ...so there is long way to go....

_the incoming dividends help me deal with the up and downs (especially the downs!) of the market_ very true as you get paid while waiting.... the most important that dividend won't be cut and if markets down your dividend income even higher as you buy more stocks on DRIPs

_I have a lot of dividend payers in my RRSP as well, but won't rely on these for income for quite a long time. 
_ don't understand why?


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## OurBigFatWallet (Jan 20, 2014)

Jon_Snow said:


> Back in 2009, I decided to get serious about investing. I started with TD e-series as well... and stayed with them as I studied various investing strategies. It didn't take long for me to decide to pursue dividend investing. Psychologically, the incoming dividends help me deal with the up and downs (especially the downs!) of the market. And I make it no secret that I am trying to pull of a very early retirement, with dividend income making up the bulk of my income.
> 
> As we speak, I am pulling in $1500 monthly in my taxable account... hope to be at $2000 monthly by the end of 2014 - this will take some serious saving to pull off. Our TFSA's produce about $500 monthly in mostly REIT distributions. I have a lot of dividend payers in my RRSP as well, but won't rely on these for income for quite a long time.
> 
> I'm not all that fixated on the prices of my dividend stocks - I'm much more focused on the income they produce for me. Love dividend investing. :encouragement:


@Jon Snow what companies do you invest in (if you don't mind sharing? Sounds like we have a similar strategy. Div stocks help deal with market swings. It's much easier to deal with a downturn knowing that the dividends stay constant. $1500 monthly is impressive, congrats


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## james4beach (Nov 15, 2012)

Longwinston said:


> I think writing off a particular way to invest, particularly a conservative one, as 'too popular' without any evidence is weak.


You're making a huge assumption by saying it's a conservative way to invest. What makes it "conservative"? Look at charts of 2007-2009 and you'll see that dividend paying stocks dropped as much, actually dropped more, than the broad market. There's nothing conservative about this group of stocks.

The low interest rate environment has turned the market into a yield chasing craze. Dividend stocks are bid up because people are chasing yield, as evidenced on these forums on a daily basis.

It's a consequence of low interest rates and cheap (Federal Reserve) stimulus money. If interest rates ever rise, you will see huge selling pressure on all dividend stocks.

Dividend stocks have (in my opinion) the downside risks of stocks in general, coupled with the downside risk of bonds. They are stocks that are kind of treated as bonds.


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## GoldStone (Mar 6, 2011)

I don't have much to add to this thread except to say that I agree with AltaRed 100%. I think he summed it up perfectly:



AltaRed said:


> What ultimately matters most is Total Return, which is both dividend yield and market price growth. This is particularly important for younger investors. Those retired and into withdrawal mode likely prefer the comfort of a larger dividend stream over capital appreciation.


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## james4beach (Nov 15, 2012)

Dividend stocks *do not* help you whether the ups and downs of the market.

For instance, 2007-07-01 to 2009-03-01 period

XIU (total return) was -38%
XDV (total return) was -41%

Similarly in the US,
SPY (the S&P 500) -49%
DVY (dividend ETF) -56%

If anything, the dividend stocks made your losses worse. So again... how are dividend stocks conservative, and how do they help you whether ups and downs of the market?


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## james4beach (Nov 15, 2012)

GoldStone said:


> I don't have much to add to this thread except to say that I agree with AltaRed 100%. I think he summed it up perfectly:


I agree as well. Total returns matters the most.

For young people, dividends need not be a focus.

Go with XIU or the cheapest broad index fund you can find. There's no need to spend extra MER on a dividend fund.


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## james4beach (Nov 15, 2012)

AltaRed said:


> What ultimately matters most is Total Return, which is both dividend yield and market price growth. This is particularly important for younger investors. Those retired and into withdrawal mode likely prefer the comfort of a larger dividend stream over capital appreciation.


I agree with this and will also point out something else. Nobody ever seems to get this.

If you're an older investor and want the dividends, the only reason for wanting the dividends is to get a cashflow stream that you are extracting from your investments. A trickle of money being cashed out of equities.

That's fine, and that can be great if you're living off your investments. But what is pointless is to take those dividends and reinvest them. If you reinvest all your dividends, you've just converted it back to a broad index with zero dividends. It's a zero sum game.

I'll sum it up as,
Young investors: just go with XIU or broad index, no dividends needed
Older investors: if you need the cashflow, go for dividends. But don't reinvest dividends... if you're going to do that, then just hold the broad index (XIU)

The one situation I can think of where reinvesting dividends makes sense is that if you want the option of switching cashflow on or off. For instance you may reinvest dividends now if you don't need the cashflow, and later can turn off DRIPs to tap into the cash. But for the life of me I can't understand why people will hold high distribution funds for decades and just reinvest the dividends.

For instance my parents hold lots of RBC Dividend Fund and DRIP the dividends. What's the point in that? They're paying a higher MER versus holding a Canadian Index. And because they're not receiving cash distributions, it's degenerated into a Canadian Index anyway... just with higher fees.


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## Killer Z (Oct 25, 2013)

james4beach said:


> You're making a huge assumption by saying it's a conservative way to invest. What makes it "conservative"? Look at charts of 2007-2009 and you'll see that dividend paying stocks dropped as much, actually dropped more, than the broad market. There's nothing conservative about this group of stocks.
> 
> The low interest rate environment has turned the market into a yield chasing craze. Dividend stocks are bid up because people are chasing yield, as evidenced on these forums on a daily basis.
> 
> ...


James, I think you do a terrific job on this forum waving this unpopular reminder flag, even in the midst of those who label you as a "dividend downer" (someone certainly needs to take on this role). There is an overwhelming lust for dividends right now (myself included), however one needs to stay mindful of the big picture, including the effects of a potential change in the interest rate climate.


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## Longwinston (Oct 20, 2013)

james4beach said:


> You're making a huge assumption by saying it's a conservative way to invest. What makes it "conservative"? Look at charts of 2007-2009 and you'll see that dividend paying stocks dropped as much, actually dropped more, than the broad market. There's nothing conservative about this group of stocks.
> 
> The low interest rate environment has turned the market into a yield chasing craze. Dividend stocks are bid up because people are chasing yield, as evidenced on these forums on a daily basis.
> 
> ...


Incorrect. Firstly, I am referring to Dividend Growth Investing when I refer to dividend investing. Like all other stocks, referring to them collectively as over valued or too popular is not smart. DG stocks run the gamut of locations and industries all other stocks do. 
Secondly, DG stocks did hold up better than the general market. This is not to say there isn't risk. Life is risk. I can tell you with a lot more certainty, that KO's dividend will be higher next month than anyone could say that it's stock price will be. There's something to be said for that. When interest rates rise, there likely will be downside stock price risk for DG stocks, I look at that situation more of an opportunity than risk.

In any case, it's not my intention to convince you. I do think it is important to be accurate.

"This data is from RBC Capital Markets via Rob Carrick inside Globe Investor Gold on March 5 2010. From 1986 to February 2010, dividend growth stocks were up 12% annually; dividend stocks generally, 10.1%; the S&P composite 6.1% and non-dividend payers, get this, only 0.1%. Oh dear. You are thinking you still own non-dividend paying stocks. And notice the dates. February 2010 was after 'the crash'. Dividend-paying stocks not only survived, they thrived. Twelve per cent a year"

"9.5% more: “dividend-paying stocks on the S&P/TSX [Toronto]composite index have returned about 13.7 per cent a year over the past 20 years, while non-dividend-paying stocks produced an annual return of only 4.2 percent” Yin Luo, CIBC"

"$163,000 more: “Since 1979, dividend-paying stocks have outperformed nondividend payers by 2.16 percentage points a year, based on total return. Had you invested $10,000 in 1979 in the dividend payers, and reinvested the income along the way, you would have wound up with $406,825 by August 15 this year [2008]. That same $10,000 in nondividend paying stocks would have grown to just $243,385 - a difference of $163,000.” N.Y. Times August 24 2008"

"Jeremy Siegel, the 63-year old noted Wharton professor and author of the acclaimed Stocks for the Long Run, “still fervently believes that equities, particularily those paying dividends, are the only place to be for serious long-term investors”. Report on Business, January 30 2009. “The most important characteristic of dividend-paying stocks” Siegel said in the interview with Brian Milner, “is their resistance to bear markets.”'


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## jacofan (Apr 17, 2013)

I'm relying on dividend investing. Goal is to generate on average 6k/month in dividends (~70k/year) to fund retirement - hope to hit a good 4k/month this year. At least if I purchase companies with a good history then I can buy and forget about them, hopefully, as they spit out their divys. Share price fluctuations won't matter unless they cut/stop the dividend then I'll be getting a bit nervous. But since I hope to not touch the principle, I could handle a year or two of up to 4% withdrawal rate if needed.

Added bonus is that I figure I need 70k/year pre-tax based on my earnings/spending now. Since some divys are taxed better, I should even be able to get away with less than 70k dividends annually. I use 70k to be safe. I'm in the process of tracking my yearly expenses so I can get a couple years good data before I decide to pull the plug in a couple years (at 52 hopefully).


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## My Own Advisor (Sep 24, 2012)

@Jon - "As we speak, I am pulling in $1500 monthly in my taxable account... hope to be at $2000 monthly by the end of 2014..." That is VERY good!

@jacofan - That is CRAZY good: "...hope to hit a good 4k/month this year."

@Longwinston - I'll take the advice of Siegel any day and when he says equities that focus on dividends, is the place to be for long-term investors, I'll gladly follow that lead.


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## peterk (May 16, 2010)

jacofan said:


> I'm relying on dividend investing. Goal is to generate on average 6k/month in dividends (~70k/year) to fund retirement - hope to hit a good 4k/month this year. At least if I purchase companies with a good history then I can buy and forget about them, hopefully, as they spit out their divys. *Share price fluctuations won't matter* unless they cut/stop the dividend then I'll be getting a bit nervous. * But since I hope to not touch the principle*, I could handle a year or two of up to 4% withdrawal rate if needed.


I believe this is the primary flaw of dividend investing, and has been discussed in another dividend thread here a few months ago. Taking (and spending) your dividend payment during a market downturn is _just_ as bad as selling for a loss in a downturn as far as risk and longevity of the portfolio is concerned. The whole "living off the dividend and not touching the principle" mindset is problematic because it makes you think your portfolio is more safe, stable and "less volatile" than it really is.

I have a hard time wrapping my mind around this as well at times, but the math works. Total return is all that matters.


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## jacofan (Apr 17, 2013)

I'll take that flaw all the time if it gets me monthly income :chuncky:

Say I have 10,000 shares of HLP.UN paying $0.07 monthly ($700) and the share price is $10. The market turns down and share price goes down to $8 for a year but the dividend keeps paying $700 monthly on my 10,000 shares. I don't understand the loss. I'm generally into buy and hold and collect the dividends. I'll gladly sacrifice upside share price potential at the expense of monthly/quarterly dividends. I've been collecting like this for a few years and it's working well for me.

I've have a US mortgage reit that is down 15% but it still pays its 10-14% dividend. Share price being down isn't a big deal to me as long as the company isn't going bankrupt.


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## peterk (May 16, 2010)

Indeed that is quite important if retired, I would imagine.


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## fatcat (Nov 11, 2009)

james4beach said:


> I agree with this and will also point out something else. Nobody ever seems to get this.
> 
> If you're an older investor and want the dividends, the only reason for wanting the dividends is to get a cashflow stream that you are extracting from your investments. A trickle of money being cashed out of equities.
> 
> ...


let me take a break from kicking james in the shins to say ... great post ... well put ... 

there is no reason i can see for anyone under the age of about 40 to hold anything other than a low cost index fund

unless like argo and kae and others, you have a passion for stock picking or day trading or options or whatever

if you are just a working person who wants to benefit from the market just keep it piled into 3 or 4 low cost index funds


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## jacofan (Apr 17, 2013)

james4beach said:


> I agree with this and will also point out something else. Nobody ever seems to get this.
> 
> If you're an older investor and want the dividends, the only reason for wanting the dividends is to get a cashflow stream that you are extracting from your investments. A trickle of money being cashed out of equities.
> 
> That's fine, and that can be great if you're living off your investments. But what is pointless is to take those dividends and reinvest them. If you reinvest all your dividends, you've just converted it back to a broad index with zero dividends. It's a zero sum game.


The only part I don't totally see the same as you is that if the dividends are re-invested then you are essentially compounding. Take my example with HLP.UN earlier, say I didn't need the $700 monthly dividend payout so I bought shares with it at say $10/share to keep it simple:

Just to keep the math easy (I like easy math) I only reinvest the dividends yearly so after a year I have $8,400 to buy 840 shares to have 10,840 total. Now the next year I get ~$750/month dividends from those 10,840 shares.

After year 2 I have ~$9,100 to buy more shares (910 more to have 11,750 total shares) and starting year 3 I'm getting $822/month dividends.

It would be even more if I reinvested monthly rather than yearly. Anyways, lots of assumptions made but it's not totally a zero sum game as I see it. To each their own though. Not trying to change anyones minds, just showing how mine works..:biggrin:


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## james4beach (Nov 15, 2012)

I could be wrong but I don't think it's compounding in total return terms because that money (value) still originally came _out_ of the company.

Dividends are just a redirection of cashflow. It leaves the company, and goes to your pocket.

But it's not interest and therefore its not compounding. In other words it's not free money, it's the company's money. The moment the dividend is paid out, the stock price drops by the same amount.


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## james4beach (Nov 15, 2012)

Warren Buffet himself wrote a great piece explaining the misconceptions about dividends, and the misconception that it provides a compounding boost to investment growth.
http://www.berkshirehathaway.com/letters/2012ltr.pdf


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## jacofan (Apr 17, 2013)

If markets were pure mathematic then stock price would fall after dividends are paid out (and then stay down) but emotions drive the market too. I've yet to see one of my holdings not recover to it's pre-dividend price within a couple months (sometimes same day). I'm practicing what I preach and have built a sizable six figure portfolio this way so something's working. Worst case is companies I own stay flat while they pay dividends - again I'll take dividends over share price appreciation as I want stable cash flow. Companies that pay dividends are trading share price for cash to the shareholders. I'd rather have the cash up front.

Where is the error in my post below using HLP.UN as an example - which is a real life example BTW. If you can explain how it doesn't work I'd be interested to learn. Maybe compounding isn't the correct technical term but I'm reinvesting the dividends (sometimes) and compounding my monthly cash payout. I won't argue with my yearly dividend statements. 


re: the Buffet link: 

Too many pages to read, LOL. I'm not here to sway anyone's opinion. When I retire with 6k dividends every month in a couple years, I'll reflect back on how it's not supposed to be working.


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## fatcat (Nov 11, 2009)

jacofan said:


> The only part I don't totally see the same as you is that if the dividends are re-invested then you are essentially compounding.


but you *do* get the compounding by virtue of the fact that the money that was going to be given to you in the form of dividends is kept in the company and thus the value of the company rises and your shares are worth more (even though you have the same amount of shares and haven't increased your share count by dividend reinvestment) 

it makes no sense that you can go from 100 to 105 shares overnight and have the value of the company increase by 5%

the value of the company will fall and you will have more shares in a company worth less per share

over time i think the market values companies fairly


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## Longwinston (Oct 20, 2013)

james4beach said:


> I could be wrong but I don't think it's compounding in total return terms because that money (value) still originally came _out_ of the company.
> 
> Dividends are just a redirection of cashflow. It leaves the company, and goes to your pocket.
> 
> But it's not interest and therefore its not compounding. In other words it's not free money, it's the company's money. The moment the dividend is paid out, the stock price drops by the same amount.


Of course it is compounding, it's the whole point of it. In fact, if you invest in dividend growers, you get some double compounding action. The reinvested dividends and the increase of dividends. Both have the interest on interest factor. If you think it has to be interest from fixed income in order to make it 'compounding' then you are mistaken.

The price of a stock is set by investors deciding what it is worth which could be rational or not. You are confusing book value with Market value. If Market value always matched book value, then you would have a point, but as we all know, it almost never does.


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## jacofan (Apr 17, 2013)

fatcat said:


> but you *do* get the compounding by virtue of the fact that the money that was going to be given to you in the form of dividends is kept in the company and thus the value of the company rises and your shares are worth more (even though you have the same amount of shares and haven't increased your share count by dividend reinvestment)
> 
> it makes no sense that you can go from 100 to 105 shares overnight and have the value of the company increase by 5%
> 
> ...



One of my core holdings does an annual stock split (5%) and the share price has always shortly recovered after that small split - there are companies out there that buck the trend of common sense. Remember markets are driven by humans who have emotions, not just by robots (generally). I don't reinvest everything otherwise I'd be exposing myself to the same market fluctuations that I'm trying to avoid.


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## Longwinston (Oct 20, 2013)

jacofan said:


> If markets were pure mathematic then stock price would fall after dividends are paid out (and then stay down) but emotions drive the market too. I've yet to see one of my holdings not recover to it's pre-dividend price within a couple months (sometimes same day). I'm practicing what I preach and have built a sizable six figure portfolio this way so something's working. Worst case is companies I own stay flat while they pay dividends - again I'll take dividends over share price appreciation as I want stable cash flow. Companies that pay dividends are trading share price for cash to the shareholders. I'd rather have the cash up front.
> 
> Where is the error in my post below using HLP.UN as an example - which is a real life example BTW. If you can explain how it doesn't work I'd be interested to learn. Maybe compounding isn't the correct technical term but I'm reinvesting the dividends (sometimes) and compounding my monthly cash payout. I won't argue with my yearly dividend statements.
> 
> ...


You are of course correct. Dividends are cash that you can do with what you like. If you choose to buy more dividend paying shares with them and can stick with it for years, you will be rewarded. It's not a get rich quick scheme, but it is get rich. Good on you for your accomplishment.


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## Longwinston (Oct 20, 2013)

"but you do get the compounding by virtue of the fact that the money that was going to be given to you in the form of dividends is kept in the company and thus the value of the company rises and your shares are worth more (even though you have the same amount of shares and haven't increased your share count by dividend reinvestment) "

You are assuming that management can invest these retained earnings in a linear fashion which totally discounts the law of diminishing returns. You are saying that management are perfect. And of course you increase your share count if you reinvest your dividends to buy more shares. I can see why people may not want to follow the strategy, to each their own, but not sure what the disconnect is here. When you reinvest the dividends you are forsaking the cash in lieu of more cash next time. Not rocket science.


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## jacofan (Apr 17, 2013)

Longwinston said:


> "but you do get the compounding by virtue of the fact that the money that was going to be given to you in the form of dividends is kept in the company and thus the value of the company rises and your shares are worth more (even though you have the same amount of shares and haven't increased your share count by dividend reinvestment) "
> 
> You are assuming that management can invest these retained earnings in a linear fashion which totally discounts the law of diminishing returns. You are saying that management are perfect. And of course you increase your share count if you reinvest your dividends to buy more shares. I can see why people may not want to follow the strategy, to each their own, but not sure what the disconnect is here. When you reinvest the dividends you are forsaking the cash in lieu of more cash next time. Not rocket science.


although you said its not rocket science, I barely understand what you quoted and what you replied but I agree with you !!:biggrin:


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## fatcat (Nov 11, 2009)

jacofan said:


> One of my core holdings does an annual stock split (5%) and the share price has always shortly recovered after that small split - there are companies out there that buck the trend of common sense. Remember markets are driven by humans who have emotions, not just by robots (generally). I don't reinvest everything otherwise I'd be exposing myself to the same market fluctuations that I'm trying to avoid.


fair enough but i think that over time, all companies will have to bend to the market ... i just don't think you can create value out of thin air ... but it certainly true that companies do get hot and all kinds of crazy valuations can and do occur ... but this is less likely with mature dividend payers


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## Longwinston (Oct 20, 2013)

fatcat said:


> fair enough but i think that over time, all companies will have to bend to the market ... i just don't think you can create value out of thin air ... but it certainly true that companies do get hot and all kinds of crazy valuations can and do occur ... but this is less likely with mature dividend payers


It's not out of thin air. The company is choosing to distribute cash to the owners. The owners can spend that on cars, lipstick or BBQ. Doesn't matter. Some owners can also choose to take that cash and reinvest it in that company or another company that also pays dividends. Quite rightly, those owners will get more dividends than the ones who spent the cash.

Let's try an example. Let's say that KO decided to forgo distributing dividends and instead decided to invest those funds in the business. You would have to assume that KO could invest that money in a linear manner, forever. 
KO, of course, is in nearly every country in the world and management are not perfect allocators of cash. Therefore they could not get linear return on the invested dollar and every dollar would bring in diminishing returns. In other words, KO produces so much cash that it has more than it knows what to do with. Logically it has chosen to partially distribute this cash to the owners.

On top of this studies have shown that the distributed cash acts as a way to keep management disciplined and the company efficient. Human nature dictates that if management has too much cash, they will waste it. Studies have backed this up. 
I think it is kind of like parents who instill discipline in their children rather than give them everything they want.


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## james4beach (Nov 15, 2012)

Yes if you don't have dividends, then you're trusting the company to reinvest that money and earn a good rate of return. Buffett argues that a well run company (like Berkshire) can do more productive things with the cash than you probably can.

In the extreme case, if you don't trust the company to reinvest that money effectively, then you probably shouldn't own the equity to begin with 

I take a view somewhere in the middle. The company _probably_ can earn a good return on reinvested cash, but as a hedge that they can't, I like the idea of getting some of the money out in cash.

It's worth mentioning that the broad index does always pay out some dividends, and I think that's good enough. ZCN for example has 2.97% portfolio yield


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## Longwinston (Oct 20, 2013)

james4beach said:


> Yes if you don't have dividends, then you're trusting the company to reinvest that money and earn a good rate of return. Buffett argues that a well run company (like Berkshire) can do more productive things with the cash than you probably can.
> 
> In the extreme case, if you don't trust the company to reinvest that money effectively, then you probably shouldn't own the equity to begin with
> 
> ...


It's not an either or proposition. Dividend companies still reinvest into the company for growth, just not all of it. It's no coincidence that larger, more mature companies are more likely to pay dividends. I think I am the best one to make the decision on what to do with the dividend money I am paid.


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## doctrine (Sep 30, 2011)

> Buffett argues that a well run company (like Berkshire) can do more productive things with the cash than you probably can.


Yes - Berkshire itself doesn't pay dividends, but Buffet is clearly interested in investing his Berkshire capital in dividend paying companies. He very clearly emphasizes the dividends he receives in the quarterly reports. He wants a cash return from his investments, that he can choose to do with as he sees fit. Perhaps doing what he does is not a bad idea?


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## james4beach (Nov 15, 2012)

Buffett's logic there is that he thinks he can put the money to at least as good use as the companies can. And he does have a track record of doing so.

It's not contradictory with his position. He's just saying that he (Buffett) can earn a better return than _you_ (the reader) and probably better than these large cap companies as well.

A retail investor like you or me can't make the same argument. So yes Buffett wants the cash in his hands because he can allocate it better than the companies can. Maybe you can too, but most retail investors can not.


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## Uranium101 (Nov 18, 2011)

Dividend is overrated. For those of you who invested in REIT's thinking you were getting dividends , then you need a reality check.


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## My Own Advisor (Sep 24, 2012)

"In other words, KO produces so much cash that it has more than it knows what to do with. Logically it has chosen to partially distribute this cash to the owners."

Isn't this a company you want to invest in? 

Has been one of Berkshire's biggest holdings for many years for a reason.

In the end, total return matters - if I knew that indexing or dividend investing would provide that in the future, I'd do one over the other. Because I can't predict the future I do both.


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## Eder (Feb 16, 2011)

james4beach said:


> Warren Buffet himself wrote a great piece explaining the misconceptions about dividends, and the misconception that it provides a compounding boost to investment growth.
> http://www.berkshirehathaway.com/letters/2012ltr.pdf


A large part of Berkshire profits come from dividends...


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## fatcat (Nov 11, 2009)

My Own Advisor said:


> "In other words, KO produces so much cash that it has more than it knows what to do with. Logically it has chosen to partially distribute this cash to the owners."
> 
> Isn't this a company you want to invest in?
> 
> ...


KO is on my buy list but i think the coming war on sugar will be no small thing ... coke knows this and is trying all kinds of sugar alternatives but it will not be an easy slog

http://www.theglobeandmail.com/life...ar-limits/article16760827/#dashboard/follows/

of course they are global company and the war on sugar will wage for decades

i keep waiting for them to drop below 3 even though i believe average yield is 2.9


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## Canuck (Mar 13, 2012)

jacofan said:


> I'm relying on dividend investing. Goal is to generate on average 6k/month in dividends (~70k/year) to fund retirement - hope to hit a good 4k/month this year. At least if I purchase companies with a good history then I can buy and forget about them, hopefully, as they spit out their divys. Share price fluctuations won't matter unless they cut/stop the dividend then I'll be getting a bit nervous. But since I hope to not touch the principle, I could handle a year or two of up to 4% withdrawal rate if needed.
> 
> Added bonus is that I figure I need 70k/year pre-tax based on my earnings/spending now. Since some divys are taxed better, I should even be able to get away with less than 70k dividends annually. I use 70k to be safe. I'm in the process of tracking my yearly expenses so I can get a couple years good data before I decide to pull the plug in a couple years (at 52 hopefully).


I'm in the exact same position as you, right now I'm generating $65,000 in dividend income, all my stocks are dividend payers, and I hold approx 45 stocks. No matter what anyone says, they really have helped me with the ups and downs with the market...that has been my experience. I'm also in the process of tracking my yearly expenses to see if I can retire within a year. I'm pretty confident that the stocks I hold will not cut or eliminate their dividend, I might have about 5 or 6 holdings that "could", but the rest have done nothing but raise them consistently over the years.


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## jacofan (Apr 17, 2013)

Canuck said:


> I'm in the exact same position as you, right now I'm generating $65,000 in dividend income, all my stocks are dividend payers, and I hold approx 45 stocks. No matter what anyone says, they really have helped me with the ups and downs with the market...that has been my experience. I'm also in the process of tracking my yearly expenses to see if I can retire within a year. I'm pretty confident that the stocks I hold will not cut or eliminate their dividend, I might have about 5 or 6 holdings that "could", but the rest have done nothing but raise them consistently over the years.


:encouragement: :encouragement:
great to hear it's working for you too! thx for sharing!!


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## Canuck (Mar 13, 2012)

jacofan said:


> :encouragement: :encouragement:
> great to hear it's working for you too! thx for sharing!!



and the thing is...

Some companies might cut their dividend, but last year 19 of my holdings raised their dividend, and already this year 2 of my companies have raised (BCE and Shaw)

So there's that..


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## Cal (Jun 17, 2009)

Even if one or two were to cut their dividend, assuming you have a balanced portfolio, it shoudln't effect your quality of life if you can live off of your current dividend income stream.


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## Canuck (Mar 13, 2012)

Cal said:


> Even if one or two were to cut their dividend, assuming you have a balanced portfolio, it shoudln't effect your quality of life if you can live off of your current dividend income stream.


totally I try to keep each holdings at around 2% of my portfolio to avoid any major losses. I have a few that are higher, BCE, IPL and PPL, and I'm in the process of trimming back on those holdings right now. I have a pretty balanced portfolio, i've kinda created my own ETF's, holding the more secure companies in each sector, no mer's and roc, just tax friendly dividend income.


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## Jon_Snow (May 20, 2009)

I've sat back and watched as some posters tried to poke holes in the dividend investing strategy. Some very valid points were raised - by J4B in particular.

But as a 41 year old whose incoming dividends now exceed my yearly expenses (and the income only increases monthly as I reinvest the dividends) I can tell you that I see absolutely no reason to alter course at all. I really don't care if dividend investing is a few percentage points inferior to some other strategies (debatable)- its suits MY particular needs perfectly.


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## Cal (Jun 17, 2009)

^ and that is as good of a reason as any.

Personally I like that dividends help take some of the emotion out of investing, as if the share price drops, in most instances, they still pay out the same dividend, which helps keep my emotions in check. 

Having said that, most people on here are index invetors, and it is hard to buy a US or Cdn etf that doesn't hold dividend payers, etfs could be the best of both worlds for some.


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## EndersGhost (Jan 20, 2014)

Dividend investors, if I may ask, how does someone start out in the dividend game? I'm weighing options and strategies right now, but I'm newly self-directed, and working my way through this. I'm 30 years old, is this something that you believe needs to be entered at a young age, or it can be entered in a few years, when I've got my feet wet more? Is it pure stock picking? ETFs? etc


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## marina628 (Dec 14, 2010)

Way back even when i had to pay the 30 -40 fees I would buy one stock a year at RSP time the first stock was FTS followed by BNS.For every dollar I bought in stock my husband spent $2 -$3 in a Balanced Fund.Obviously if you have $10,000 in investments it would be risky to put all of it in one stock.We probably had about $25,000 in investment accounts before we bought our first stock .


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## Canuck (Mar 13, 2012)

EndersGhost said:


> Dividend investors, if I may ask, how does someone start out in the dividend game? I'm weighing options and strategies right now, but I'm newly self-directed, and working my way through this. I'm 30 years old, is this something that you believe needs to be entered at a young age, or it can be entered in a few years, when I've got my feet wet more? Is it pure stock picking? ETFs? etc




I didn't really start investing in dividend paying companies until about 5 years ago, and I'm 48 now. I was fortunate to have bought a few apartments in Vancouver at a very early age and I sold both of them in 2009-2010, I dumped all the money into dividend paying stocks at that time. 

Personally I prefer individual companies to ETF's, I just like the straight forwardness of receiving tax advantaged dividend income, as opposed to an ETF that might return dividends, interest, and/or roc. Plus, I have no mer's to pay, and I think owning individual companies offers higher dividend increases than etf's do.

I do have the time to watch my stocks though, and i read every news release that comes out.

Waiting a few years is not a big deal, you're young and maybe ETF's might work better for you, a lot of brokers offer no commissions on etf's, which is nice if you want to invest a little bit every month. 

I bought a lot of stocks in a short amount of time, so for me it was worth it to pay a $9.99 commission on 45 stocks to never have to worry about paying a mer.


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## Jon_Snow (May 20, 2009)

I hold some dividend ETF's to help mitigate some risks - but I also hold some higher paying dividend stocks to juice up my yield a bit... a bit of a balancing act for sure, but working wonderfully so far - some very nice capital gains as well.


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## EndersGhost (Jan 20, 2014)

Are there some do's and do not's to dividend investing? When starting early is it better to reinvest the dividends? or manually handle it?
Also, do you tend to stick to cdn stocks, or do you go to US stocks as well? Just out of curiosity


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## andrewf (Mar 1, 2010)

The difference between dividend investing and just holding equity index funds is maybe a 4% yield vs 2.5% yield. Dividend investing isn't magic. You just get more of your return as a distribution and less as capital appreciation. You can also pretend to be the next Buffet and try to outperform the market. That may or may not work out well for you.


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## fatcat (Nov 11, 2009)

andrewf said:


> The difference between dividend investing and just holding equity index funds is maybe a 4% yield vs 2.5% yield. Dividend investing isn't magic. You just get more of your return as a distribution and less as capital appreciation. You can also pretend to be the next Buffet and try to outperform the market. That may or may not work out well for you.


+1 .. this really is a non-argument-argument ... it's amazing that it continues so long ... however you take your gains, they don't come out of thin air, they all come out of the same pile of marbles


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## My Own Advisor (Sep 24, 2012)

"Dividend investing isn't magic. You just get more of your return as a distribution and less as capital appreciation."

True, but some stocks get great appreciation as well. Look at the IPL and PPL thread. The challenge is knowing which stocks in the future....and nobody really knows so it comes down to hunches and some lucky calls sometimes.

@EndersGhost,

A few dos:
I only buy companies that pay dividends.
I have a bias to owning companies that have a long history of increasing their dividends over decades.
I reinvest dividends (DRIPs) for many of my holdings.
I try to avoid selling any company regardless how far the stock price falls.
CDN stocks in my TFSA and non-registered.
US stocks in my RRSP only.

A big don't:
When the stock prices fall, don't sell, especially if there is no dividend decrease. Look to buy more.


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## EndersGhost (Jan 20, 2014)

Thanks for the details MOA. One thing that has me wondering a bit is dripping USD stocks through iTrade sucks because of the currency conversion. Makes me want to just hold CAN funds. Maybe I need to set up an account with another broker for that haha. Everyone skims .


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## gibor365 (Apr 1, 2011)

EndersGhost said:


> Thanks for the details MOA. One thing that has me wondering a bit is dripping USD stocks through iTrade sucks because of the currency conversion. Makes me want to just hold CAN funds. Maybe I need to set up an account with another broker for that haha. Everyone skims .


This is why I moved from TDDI to CIBC IE who convert all buys/sells and dividends practically with a BoC spot rate (for registered accounts)


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## OurBigFatWallet (Jan 20, 2014)

EndersGhost said:


> Dividend investors, if I may ask, how does someone start out in the dividend game? I'm weighing options and strategies right now, but I'm newly self-directed, and working my way through this. I'm 30 years old, is this something that you believe needs to be entered at a young age, or it can be entered in a few years, when I've got my feet wet more? Is it pure stock picking? ETFs? etc



Div investing is fairly straight forward. I personally look for companies that pay a healthy dividend and have a history of increasing their dividends. When we retire this will be how we fight back against the rising costs associated with inflation. Oh and as mentioned above you need to take the emotions out of investing when the markets get hit. Avoid selling on a downturn and instead look at buying more. Over the long term div stocks have the potential to offer a healthy annual return without the stress of trying to time the market


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## gibor365 (Apr 1, 2011)

Canuck said:


> I didn't really start investing in dividend paying companies until about 5 years ago, and I'm 48 now. I was fortunate to have bought a few apartments in Vancouver at a very early age and I sold both of them in 2009-2010, I dumped all the money into dividend paying stocks at that time.


Very nice!!! I'm 47 years old and when I was young , I lived in USSR where I couldn't buy anything  got out from USSR with permitted $160 in pocket and 2 pieces of luggage 
I'd like also retire in 1 year.... but our combined dividend income is just about 13K/year (only RRSPs, TFSAs, LIRAs) + about 6K interest from HISA and GIC ... so there are several years in front of me before retirement . The got thing that we own house, but no mortgage or debt...
Canuck, how much you hold in Cash (I mean HISA/GIC)?


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## andrewf (Mar 1, 2010)

My Own Advisor said:


> "Dividend investing isn't magic. You just get more of your return as a distribution and less as capital appreciation."
> 
> True, but some stocks get great appreciation as well. Look at the IPL and PPL thread. The challenge is knowing which stocks in the future....and nobody really knows so it comes down to hunches and some lucky calls sometimes.


That's where the 'try to be Warren Buffet' creeps in. If it were so easy to pick winners, you'd think everyone would have above average returns.


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## GoldStone (Mar 6, 2011)

My Own Advisor said:


> Look at the IPL and PPL thread.


It's easy to cherry pick after the fact.

Why not look at CLC thread instead?

It traded in $12-$16 range for 5 years. Then it dropped below $12 on a threat of the dividend cut. When they finally made the cut, it dropped to $6. A few months later, it got bought out at $10.75. Anyone who bought CLC before the first drop ended up with a permanent loss of capital.

Next, why not look at PSN thread?

That's Poseidon Concepts, if you forgot. It went from everyone's darling to being delisted in the span of 3 years. How many dividend junkies got badly burned on this one?

Folks who picked IPL and PPL look like geniuses. Folks who lost money on CLC and PSN look like dummies. In reality, it's often a matter of dumb luck.


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## gibor365 (Apr 1, 2011)

GoldStone said:


> Folks who picked IPL and PPL look like geniuses. Folks who lost money on CLC and PSN look like dummies. In reality, it's often a matter of dumb luck.


Probably it's a greed to get higher yield? How many dividend kings (companies that were increasing dividends 50 years or more) cut/suspended their dividends? As per David Fish's CCC spreadsheet only 1 (MAS)


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## Longwinston (Oct 20, 2013)

GoldStone said:


> It's easy to cherry pick after the fact.
> 
> Why not look at CLC thread instead?
> 
> ...


Sure, but that risk is no different than it is for growth or value investors. We are all taking on risk by investing in the market, why is market risk only dividend payers water to carry now?


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## Longwinston (Oct 20, 2013)

gibor said:


> Probably it's a greed to get higher yield? How many dividend kings (companies that were increasing dividends 50 years or more) cut/suspended their dividends? As per David Fish's CCC spreadsheet only 1 (MAS)


Correct. When you have a portfolio of blue chip dividend growers, it lowers your risk for sure. Buy a diversified portfolio of quality, big name dividend growers who drown in cash and have a habit of increasing their distributions. In my opinion, doing do consistently, reinvesting dividends, for 20 plus years and it would be hard to go wrong overall.


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## Killer Z (Oct 25, 2013)

Longwinston said:


> Correct. When you have a portfolio of *blue chip dividend growers*, it lowers your risk for sure. Buy a diversified portfolio of *quality, big name dividend growers who drown in cash and have a habit of increasing their distributions*. In my opinion, doing do consistently, reinvesting dividends, for 20 plus years and it would be hard to go wrong overall.


I hear these types of descriptions a lot on this board. Longwinston, would you care to provide a few examples that you feel fall into this category?


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## Canadian (Sep 19, 2013)

I don't understand why many here are taking a firm, extreme stance on dividends vs no dividends. If one is seeking to maximize total return then one should focus on a company's ability to finance revenue/earnings growth. If a company is using long-term debt or new share issuances to finance current assets then there will be an inevitable deterioration of shareholder value, which even a juicy dividend can't make up for. On the other hand, if a company is rapidly growing and has excess free cash flow, what's wrong with paying a dividend? A company can only grow so much before it approaches critical mass and the rate of growth falls. A whopping cash balance that isn't spent towards growth is dead money and is better returned to shareholders via debt payments, share buybacks, or even _dividends_.

There's too much fixation on yield and payout ratio. These are two small factors in the much larger picture of maximizing total return.


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## GoldStone (Mar 6, 2011)

Longwinston said:


> Sure, but that risk is no different than it is for growth or value investors. We are all taking on risk by investing in the market, why is market risk only dividend payers water to carry now?


The debate is not about dividend investing vs. growth vs. value. It's about dividend investing vs. indexing *for a young investor like OP*.

When you buy an index at a low cost, you get an instant broad diversification (and also exposure to ALL dividend payers in the index). Broad diversification protects you against company blow ups.

A young investor with a smallish portfolio cannot get the same level of diversification if he starts buying individual dividend payers.

It's a different story if you are close to retirement or are in retirement already. You can build a very diversified portfolio of individual dividend payers because your portfolio is large.


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## GoldStone (Mar 6, 2011)

Longwinston said:


> Correct. When you have a portfolio of blue chip dividend growers, it lowers your risk for sure. Buy a diversified portfolio of quality, big name dividend growers who drown in cash and have a habit of increasing their distributions. In my opinion, doing do consistently, reinvesting dividends, for 20 plus years and it would be hard to go wrong overall.


Guess what... quality, bid name dividend growers *dominate* the indexes. Just look at the top 20-30 names in S&P500 or S&P/TSX. You can buy them all very cheaply in one swoop. As a bonus, you get exposure to the next Apples and Googles before their rise to the top.


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## livewell (Dec 1, 2013)

GoldStone said:


> It's easy to cherry pick after the fact.
> 
> Why not look at CLC thread instead?
> 
> ...


I owned CLC ,not my finest pick for sure. Looking back I made 4 purchases from Jan 2010-Aug 2012 at $13.95-$8.96 with an average cost base of $11.46 and I held on to it until the buy out (Which was like a hail Mary pass at the time I recall), yes I lost some capital (Exactly $2000) but I received over $4k in dividends over the 3 years I held that stock for an overall ROI of ~9% (2.4% annual) - not very good but not awful for a clear dog of the portfolio. I also think I learned a bit from it and now avoid similar stocks where the yield is clearly over extended (There were plenty of signs back in 2010 and 11 on CLC it was never a dividend grower stock.

I also own IPL with an cost base of $13.3 ;-)


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## andrewf (Mar 1, 2010)

No one here is anti-dividend. The indexes all yield significant amounts of dividend. What people are opposed to is irrational preference of dividends over other types of return. Coveting dividends can lead investors astray, especially when they blindly buy on yield rather than considering company fundamentals.


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## atrp2biz (Sep 22, 2010)

Actually, I am. Dividends force me to pay taxes. I'd rather defer taxes for as long as possible.


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## Synergy (Mar 18, 2013)

^ it's more of a pay now, pay later type of scenario. I like a combination of dividends and capital appreciation. The younger you are the more likely you'll want to lean towards capital growth over dividends. Overall, I think the forum is often preaching to the converted - "blindly buying on yield rather than considering company fundamentals".


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## andrewf (Mar 1, 2010)

Then why do people keep on asking for hot high yield stock picks instead of asking for 'good companies'.


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## My Own Advisor (Sep 24, 2012)

GoldStone said:


> The debate is not about dividend investing vs. growth vs. value. It's about dividend investing vs. indexing *for a young investor like OP*.
> 
> Agreed - When you buy an index at a low cost, you get an instant broad diversification. For young and older-aged investors, indexing works.
> 
> ...


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## Synergy (Mar 18, 2013)

andrewf said:


> Then why do people keep on asking for hot high yield stock picks instead of asking for 'good companies'.


If someone is looking to generate say 4-5% yield from a stock I'd hope their intention was to select "good companies" paying a yield in that range. I could be wrong though, some people may overlook company fundamentals simply to get the yield they want. However, nobody really wants to pick a "bad company" so I can only assume that posters for the most part would be looking for solid companies within the dividend range they have selected.


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## Canuck (Mar 13, 2012)

gibor said:


> Very nice!!! I'm 47 years old and when I was young , I lived in USSR where I couldn't buy anything  got out from USSR with permitted $160 in pocket and 2 pieces of luggage
> I'd like also retire in 1 year.... but our combined dividend income is just about 13K/year (only RRSPs, TFSAs, LIRAs) + about 6K interest from HISA and GIC ... so there are several years in front of me before retirement . The got thing that we own house, but no mortgage or debt...
> Canuck, how much you hold in Cash (I mean HISA/GIC)?


Gibor, I hold no Gic's, I have a little bit of money in a HISA, but I'm basically fully invested in Dividend paying companies. And I don't own any properties at the moment, i rent, and I'm actually really enjoying it!
I ran the numbers a few years back, and the money I received from selling the property i lived in generates a fair bit more than what I pay in rent. I sold my place to an overseas investor, so I'm renting back the same place that I owned. I also sold a one bedroom rental property in the same building at the same time I sold my principal residence.
My stocks have gone up roughly 35% since then, and the price of the 2 condos has been stagnant at best, maybe even down about 5%.
So far my decision was a good one.


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## andrewf (Mar 1, 2010)

Synergy said:


> If someone is looking to generate say 4-5% yield from a stock I'd hope their intention was to select "good companies" paying a yield in that range. I could be wrong though, some people may overlook company fundamentals simply to get the yield they want. However, nobody really wants to pick a "bad company" so I can only assume that posters for the most part would be looking for solid companies within the dividend range they have selected.


The posts are specifically asking for yield. Of course a person is not necessarily looking to buy bad companies, but it shows that their eyes are focused on the juicy dividend and not picking sound investments.


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## Canadian (Sep 19, 2013)

andrewf said:


> No one here is anti-dividend.


I'm not sure if this is directed at all at my post - but here's my response:

james4's position is towards _non-dividend_ paying stocks. The discussion become largely about companies that pay dividend vs companies that don't. I question the fixation on dividends as it is a minor cog in the large machine that produces total return.


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## james4beach (Nov 15, 2012)

andrewf said:


> No one here is anti-dividend. The indexes all yield significant amounts of dividend. What people are opposed to is irrational preference of dividends over other types of return. Coveting dividends can lead investors astray, especially when they blindly buy on yield rather than considering company fundamentals.


I agree with what you say here. I think the dividend you get from XIU or ZCN is pretty good.

For a younger investor, I certainly recommend the index as the way to go for best total return


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## gibor365 (Apr 1, 2011)

Canuck said:


> My stocks have gone up roughly 35% since then, and the price of the 2 condos has been stagnant at best, maybe even down about 5%.
> So far my decision was a good one.


Probably it's all about luck  We bought house in 1999 for 232K, now it cost about 550-600K, I'm very doubt that I would get same gain while renting and investing ...
Your risk tolerance is much higer than mine  we hold at least 40-45% in GIC/HISA... maybe it's wrong, but I sleep better


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## blin10 (Jun 27, 2011)

i like to get paid while i hold stocks... but with a good companies, not the once that pay 8%+ divi


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## Canuck (Mar 13, 2012)

gibor said:


> Probably it's all about luck  We bought house in 1999 for 232K, now it cost about 550-600K, I'm very doubt that I would get same gain while renting and investing ...
> Your risk tolerance is much higer than mine  we hold at least 40-45% in GIC/HISA... maybe it's wrong, but I sleep better
> 
> 
> ...


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## humble_pie (Jun 7, 2009)

i'm with atrp doc biz. We're the anti-dividend tactical Seal squad.

we're ready 24/7 to suppress doctrinaire al quaeda dividendism anywhere on the planet.

we fly night & day to support democracy, free speech, cocktails, options, bikinis & leveraged capital gains.


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## Synergy (Mar 18, 2013)

blin10 said:


> i like to get paid while i hold stocks... but with a good companies, not the once that pay 8%+ divi


Just because a stock is paying an 8% yield doesn't necessarily make it a bad company (you need to look at the fundamentals). Look at D.UN, a good solid company with a clean balance sheet. It was paying a dividend north of 8% at it's lows, a good buying opportunity for those with no or very low REIT exposure - IMO. Interest rate fears and the correction in the REIT sector was overdone - at least so far ;o)


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## atrp2biz (Sep 22, 2010)

As an aside, this is my jaded view on corporate finance and use of capital within a company.

No dividends or share repurchases - "We see an opportunity to deploy our cash in growth opportunities so we'll invest it ourselves."

Share repurchases - "We don't have enough growth opportunities to deploy all of our cash, but we think our stock is undervalued and will use some of your money to buy our own stock."

Dividends - "We don't have enough growth opportunities to spend your money and we don't want to repurchase our own stock, so we'll just give the money back to you for you to figure it out on your own."


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## andrewf (Mar 1, 2010)

Share repurchases also reflects big institutions and investors preference for capital gains rather than dividends. This is especially true when the frequently changing dividend taxation regime in the US swings back towards its highs.


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## humble_pie (Jun 7, 2009)

Synergy said:


> Just because a stock is paying an 8% yield doesn't necessarily make it a bad company (you need to look at the fundamentals). Look at D.UN, a good solid company with a clean balance sheet. It was paying a dividend north of 8% at it's lows, a good buying opportunity for those with no or very low REIT exposure - IMO. Interest rate fears and the correction in the REIT sector was overdone - at least so far ;o)



syn there's a cmf thread on Dundee & folks are not as optimistic as you say:

http://canadianmoneyforum.com/showt...ee-REIT-(D-UN)?p=210469&viewfull=1#post210469

http://canadianmoneyforum.com/showt...ee-REIT-(D-UN)?p=210465&viewfull=1#post210465

http://canadianmoneyforum.com/showt...ee-REIT-(D-UN)?p=210522&viewfull=1#post210522

HC works in the biz i believe, when he speaks i usually listen up


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## Synergy (Mar 18, 2013)

^ agreed, it's not well liked right now. Only time will tell whether or not it's a good investment at these levels. Perhaps not the best example.


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## My Own Advisor (Sep 24, 2012)

Lol  back to humble pie....


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## My Own Advisor (Sep 24, 2012)

D.UN will be fine. Worse case they are acquired.


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## Longwinston (Oct 20, 2013)

Sure,Johnson and Johnson, proctor and gamble, coca cola, etc etc.


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## Longwinston (Oct 20, 2013)

GoldStone said:


> Guess what... quality, bid name dividend growers *dominate* the indexes. Just look at the top 20-30 names in S&P500 or S&P/TSX. You can buy them all very cheaply in one swoop. As a bonus, you get exposure to the next Apples and Googles before their rise to the top.


And you also get exposure to the ones that go bankrupt. Anyways, everyone can do what they like buy I was responding to your comment about a specific stock going under. Just because your are in an index or eft doesn't mean you are immune to market risk. We can agree diversification is important and so is research.


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## Longwinston (Oct 20, 2013)

andrewf said:


> No one here is anti-dividend. The indexes all yield significant amounts of dividend. What people are opposed to is irrational preference of dividends over other types of return. Coveting dividends can lead investors astray, especially when they blindly buy on yield rather than considering company fundamentals.


Chasing yield and ignoring fundamentals is not wise for sure but it seems that you are boxing with shadows as I have not seen anyone advocate that approach here unless I missed it.


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## Longwinston (Oct 20, 2013)

My Own Advisor said:


> GoldStone said:
> 
> 
> > The debate is not about dividend investing vs. growth vs. value. It's about dividend investing vs. indexing *for a young investor like OP*.
> ...


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## Longwinston (Oct 20, 2013)

What's a riskier investment? Proctor and gamble or a Canadian REIT ETF? I'd ague that the ETF is.
Long both.


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## GoldStone (Mar 6, 2011)

Longwinston said:


> I do find it curious that so many are anti DGI however. Oh well, better for me, keeps the valuations down


Valuations down? That's funny.

See the chart in post #14, page 2.

US large-cap high yield dividend group is more expensive than large caps overall. For the first time since 1963. Everyone chases yield.

P/E:

PG 21
KO 20
MMM 20
CL 25
ADP 26
JNJ 19


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## donald (Apr 18, 2011)

I think the demographics prob favour the large cap blue chip dividend payers.
You read the younger class is vastly underinvested so it would make sense a large portion in the market is not looking for growth(income and protection of money)
So you got a huge number of boomer's and I would think they are not interested in the non divs......even if they are somewhat over paying for safety.....this could be a long term trend that has many years to go.
just a theory,you got to look who is actually on the ''playing'' field.


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## gibor365 (Apr 1, 2011)

Longwinston said:


> What's a riskier investment? Proctor and gamble or a Canadian REIT ETF? I'd ague that the ETF is.
> Long both.


Riskier from what point of view? imho, much less chances of PG cutting dividends than REIT ETF


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## My Own Advisor (Sep 24, 2012)

I would agree...own both though!


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## Canadian (Sep 19, 2013)

Longwinston said:


> What's a riskier investment? Proctor and gamble or a Canadian REIT ETF? I'd ague that the ETF is.


I agree. The Canadian REIT ETF only diversifies across companies - not broad industries, markets, or [to an extent] products. Investing in a conglomerate is, in its own way, kind of like purchasing an ETF. One gains diversification across several of the companies within the conglomerate, as well as across products, demographics, countries, and management teams.


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## Synergy (Mar 18, 2013)

donald said:


> just a theory,you got to look who is actually on the ''playing'' field.


 That had been my initial thought process as well, but I'm unfamiliar with the actual stats.


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## CanadianCapitalist (Mar 31, 2009)

Longwinston said:


> What's a riskier investment? Proctor and gamble or a Canadian REIT ETF? I'd ague that the ETF is.
> Long both.


Risk (as defined as either loss of capital or inadequate return on capital) depends on the price you buy in at. An investor buying P&G today is arguably taking on more risk than an investor buying REITs in 2009.


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## GoldStone (Mar 6, 2011)

*PG vs Canadian REIT ETF*

The risk is in the price.

A high quality company like PG can be a risky investment if you pay a vastly inflated price. Canadian REITs can be a low risk investment if you buy them cheaply enough.

Study the history of Nifty Fifty.
http://en.wikipedia.org/wiki/Nifty_Fifty

Nifty Fifty were the investment rage in the 1960s and early 70s. It was a collection of the high quality American companies. PG, JNJ, KO, etc. You can see the full list on Wikipedia.

The idea was that you can buy them at any price and hold forever. They were trading at ridiculous P/E-s. 40 to 50 times earnings was not uncommon.

Nifty Fifty got destroyed in the ensuing bear market of the 1970s. Ridiculous P/E-s contracted to normal levels. Investors who bought Nifty Fifty at the height of the bull market ended up with huge paper losses. They had to hold for more than a decade to break even.

"The golden rule of investing: no asset (or strategy) is so good that you should invest irrespective of the price paid" -- James Montier


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## GoldStone (Mar 6, 2011)

CC beat me to the punch while I was typing.


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## CanadianCapitalist (Mar 31, 2009)

So sorry Goldstone. Mind you, we hold plenty of US stocks. Just that we are not buying at these levels. I find that these days Emerging markets, REITs and Canadian stocks are below our allocation targets. Not to say these assets are screaming buys but they are laggards, so new money goes into them.


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## andrewf (Mar 1, 2010)

It's troubling to hear so many comments about how "it's hard to go wrong buying quality companies and holding forever". There is just way too much subjectivity going into that assessment that it's easy to make mistakes.


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## gibor365 (Apr 1, 2011)

CanadianCapitalist said:


> So sorry Goldstone. Mind you, we hold plenty of US stocks. Just that we are not buying at these levels.


but in US thre are still stocks that are not expensive, examples: CVX, XOM, COP...

_An investor buying P&G today is arguably taking on more risk than an investor buying REITs in 2009. _ It's not fait to take different times  . Right now imho PG is less riskier, and in 2009 PG was less riskier... Companies like PG, JNJ, KMB are like broadbase MF


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## humble_pie (Jun 7, 2009)

that's it, PG in 2009 was also a stunning steal, like gibor says

don't have a comp chart but willing to bet that, since 2009 & looking only at their fairly recent peaks, PG has bested XRE.

especially when one includes all that lovely US dollar appreciation woo hoo


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## gibor365 (Apr 1, 2011)

humble_pie said:


> that's it, PG in 2009 was also a stunning steal, like gibor says
> 
> don't have a comp chart but willing to bet that, since 2009 & looking only at their fairly recent peaks, PG has bested XRE.
> 
> especially when one includes all that lovely US dollar appreciation woo hoo


HP, when you are talking about Canadian REIT, imo you should compare vs ZRE (equal weight ETF) and not with ZRE (where 3 REITs make almost half of ETF).
If today you buy PG and ZRE, in 10 years maybe ZRE will bring more gain, but we are talking about risks and imho PG is less risky...it's increasing dividends for about 50 years and most likely will continue increase for the next 10 years, so income is more predictable.... and one of the biggest Can REIT HR.UN cut theur dividends some tme ago and vast majority of others didn't cut, but also didn't increase.....
P.S. Long PG, ZRE, HR and some other Can REITs


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## CPA Candidate (Dec 15, 2013)

The dividend debates boils down to who you think can earn a greater return with the cashflows of the business, you or management, and whether you prefer a bird in hand to two in the bush. Unrealized capital gains can disappear very quickly and when you let management play with your money you have to deal with the agency problem, which is why I tend to lean towards dividend payers.

That being said there are plenty of companies that growth nicely and pay dividends because they use debt to finance growth as the cost of capital is lower than equity.


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## CanadianCapitalist (Mar 31, 2009)

gibor said:


> _An investor buying P&G today is arguably taking on more risk than an investor buying REITs in 2009. _ It's not fait to take different times  . Right now imho PG is less riskier, and in 2009 PG was less riskier... Companies like PG, JNJ, KMB are like broadbase MF


The point is that value is based on price. At some high price, PG (or any other security) is high risk whatever its merits maybe. At some low price, REITs (or any other security) is low risk whatever its flaws maybe.


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## Longwinston (Oct 20, 2013)

gibor said:


> Riskier from what point of view? imho, much less chances of PG cutting dividends than REIT ETF


yes, exactly.


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## Longwinston (Oct 20, 2013)

CanadianCapitalist said:


> The point is that value is based on price. At some high price, PG (or any other security) is high risk whatever its merits maybe. At some low price, REITs (or any other security) is low risk whatever its flaws maybe.


Agreed, the best company in the world can be too expensive - so being price agnostic in this case, there are instances where an ETF is more risky than an individual stock which was my point.
Anyways - good talk.

Happy investing.


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## gibor365 (Apr 1, 2011)

It all depends  Let's assume that your investment horizont is 10 years and after this you will be living on dividend income.... now all dividend kings like PG or JNJ overvalues with P/E in 20 range... 
OK, you have several choices , wait 2 maybe 3 maybe 5 years until next correction/crush and keep your money in HISA.... OR buy PG or JNJ now and DRIP dividends, for sure they can go down a lot in upcoming years, but in this case you DRIP in cheaper price , buying more shares... and because most likely they will continue to increase dividends, you will be buying even more cheaper shares.... and after 10 years when you stop dripping and start withdraw dividends, your income will be much higher....


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## andrewf (Mar 1, 2010)

HP, XRE handily outperformed PG over the past 5 years. PG returned 88.35% (reinvesting dividends) in USD since Feb 2009, while XRE returned 169% in CAD terms with reinvested dividends. For the returns to have been equivalent, USD:CAD would have had to rise 42.8% since that time (CAD would have had to have been 63 cents at the time).


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## gibor365 (Apr 1, 2011)

As i said, it's more fair to compare vs ZRE...
Also, the point was not what brought retroactively bigger return, but what was riskier in 2009..... where you would be more comfortable to invest in 2009. in PG or ZRE?


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## My Own Advisor (Sep 24, 2012)

Exactly where I hope to be in another few years gibor...

"...OR buy PG or JNJ now and DRIP dividends, for sure they can go down a lot in upcoming years, but in this case you DRIP in cheaper price , buying more shares... and because most likely they will continue to increase dividends, you will be buying even more cheaper shares.... and after 10 years when you stop dripping and start withdraw dividends, your income will be much higher...."


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## Longwinston (Oct 20, 2013)

andrewf said:


> HP, XRE handily outperformed PG over the past 5 years. PG returned 88.35% (reinvesting dividends) in USD since Feb 2009, while XRE returned 169% in CAD terms with reinvested dividends. For the returns to have been equivalent, USD:CAD would have had to rise 42.8% since that time (CAD would have had to have been 63 cents at the time).


I won't dispute that XRE returned more than PG over the last 5 years but that is an entirely different argument than I was making which was PG is a less risky investment.


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## andrewf (Mar 1, 2010)

That's ok, I wasn't responding to your comment.

gibor, ZRE hasn't been around for five years yet to do the comparison. I don't think there would be a huge difference in the result, anyway.


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## gibor365 (Apr 1, 2011)

For FC
_DIVIDEND REINVESTMENT PLAN (DRIP)
The plan allows participants to have their monthly cash dividends reinvested in additional shares. The Price paid per share is 98% of the weighted average trading price calculated five trading days immediately preceding each dividend date with no commission cost. _
What is meaning of dividend date? Payment date or Record date?


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## protomok (Jul 9, 2012)

Another consideration in the dividends vs index funds vs individual stock picks debate is taxation. Depending on your income and province, dividends are not necessarily taxed lower than capital gains. In fact in many cases dividends are taxed higher than capital gains. Here in Ontario the threshold is ~80k. For example, some marginal rates for folks living in Ontario:
40K/year income: cap gains marginal tax rate: 12.08% eligible div marginal tax rate: 3.80%
80K/year income: cap gains marginal tax rate: 17.70% eligible div marginal tax rate: 17.52%
150K/year income: cap gains marginal tax rate: 23.20% eligible div marginal tax rate: 29.54

Ideally a true dividend fan should simply explain the situation to their family and promptly move to Alberta or Yukon for optimal dividend tax treatment 

Source: http://www.ey.com/CA/en/Services/Tax/Tax-Calculators-2013-Personal-Tax


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## jacofan (Apr 17, 2013)

Interesting read about why divys aren't the best (not sure if the American POV and the taxes there have any bearing):

http://www.thestreetcynic.com/20140223000043


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## Eclectic12 (Oct 20, 2010)

jacofan said:


> Interesting read about why divys aren't the best ...


Interesting but I'm not sure it's practical until there is choice in the market.

How many Canadian banks don't pay dividends (or US ones for that matter)? How many pipeline companies?

It's fine to talk about one's best investment but in some areas, I'm not sure how one can avoid dividends without moving to small cap players.


Cheers


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## Longwinston (Oct 20, 2013)

protomok said:


> Another consideration in the dividends vs index funds vs individual stock picks debate is taxation. Depending on your income and province, dividends are not necessarily taxed lower than capital gains. In fact in many cases dividends are taxed higher than capital gains. Here in Ontario the threshold is ~80k. For example, some marginal rates for folks living in Ontario:
> 40K/year income: cap gains marginal tax rate: 12.08% eligible div marginal tax rate: 3.80%
> 80K/year income: cap gains marginal tax rate: 17.70% eligible div marginal tax rate: 17.52%
> 150K/year income: cap gains marginal tax rate: 23.20% eligible div marginal tax rate: 29.54
> ...


If I am able to make $150k in retirement from dividends I will gladly pay 29.54% tax on the dividends over and above 150k
Lol


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## doctrine (Sep 30, 2011)

Most American companies, although paying less yield, are heavily buying back stock. This does eventually let them raise the dividend as well. Both strategies have advantages and disadvantages of course and arguably tax policy in the US is the strongest influence on S&P 500 companies policy to return cash to shareholders. 

The shares purchased when the stock market are low are great value. But as the P/E rises and shares are more expensive, it is less of a strategy but you better believe those S&P 500 companies are putting more money than ever into buybacks today despite the S&P 500 being at or near its all time high. Not only using cash, but borrowing money for buybacks and increasing leverage on their balance sheets. More money spent, but with less actual shares purchased - this is one of the drawbacks.


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## Eclectic12 (Oct 20, 2010)

Longwinston said:


> If I am able to make $150k in retirement from dividends I will gladly pay 29.54% tax on the dividends over and above 150k ...


As I understand it, the rate are based on all taxable income so other sources would need to be factored in as well. 

Even where eligible dividends were the only income source - the gross up means received dividends of about $108K puts the taxable income at $150K mark.


Cheers


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## My Own Advisor (Sep 24, 2012)

doctrine said:


> Most American companies, although paying less yield, are heavily buying back stock. This does eventually let them raise the dividend as well. Both strategies have advantages and disadvantages of course and arguably tax policy in the US is the strongest influence on S&P 500 companies policy to return cash to shareholders.
> 
> The shares purchased when the stock market are low are great value. But as the P/E rises and shares are more expensive, it is less of a strategy but you better believe those S&P 500 companies are putting more money than ever into buybacks today despite the S&P 500 being at or near its all time high. Not only using cash, but borrowing money for buybacks and increasing leverage on their balance sheets. More money spent, but with less actual shares purchased - this is one of the drawbacks.


Good examples of buybacks this year will be KO and PEP I recall.


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## atrp2biz (Sep 22, 2010)

dotnet_nerd said:


> Much of that article is not applicable in Canada. We don't have a FIFO system of computing gains, we calculate them by an adjusted-cost basis


Huh? Virtually everything in the article applies in Canada. The point is that dividends are a forced taxable event. With non-dividend paying stocks, if an investor wants a 'dividend' one can simply sell any number of shares to mimic such a cash flow. This allows each individual investor to control their own tax situation.


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## BlackThursday (Apr 25, 2011)

atrp2biz said:


> The point is that dividends are a forced taxable event. With non-dividend paying stocks, if an investor wants a 'dividend' one can simply sell any number of shares to mimic such a cash flow. This allows each individual investor to control their own tax situation.


Indeed. But one should also realize that selling shares for cash flow is a forced _market _event and the market can be a fickle, uncooperative creature.

You might say that you can time the market (because you can do it even if no one else can) and so only sell when it suits you but is that really "selling shares for cash flow"?


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## atrp2biz (Sep 22, 2010)

^ Yes, and so are the decisions that must be made with any dividends received if the cash flow is not needed. Does one make additional purchases immediately through a DRIPP or a more manual process? Does one wait? Market timing impacts would apply in these instances as well.


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## Toronto.gal (Jan 8, 2010)

fatcat said:


> KO is on my buy list but i think the coming war on sugar will be no small thing ... *coke knows this and is trying all kinds of sugar alternatives* but it will not be an easy slog..


Indeed KO is/has been looking for alternatives for some time. Last year they acquired Zico, and just this month, purchased 10% of GMCR.

I purchased KO after the financial crisis, and would have done so regardless of dividends. No brainer to me, and so far, their 2020 vision has worked well. And speaking of dividends, KO this month approved a div. increase of 9%, which = their 52nd consecutive annual increase. 

The div. vs no div. arguments get a bit boring, though some have made very good points for each.

For those that absolutely don't want dividends for x,y,z, there are plenty of stocks out there from just about every sector if you look hard enough.

For the big fans of dividends, à la Gibor, :smile: there are also plenty of stocks to choose from.

For most however, it's not a choice between one strategy or the other, but a combination of both [dividends/growth] isn't it? Or are there investors on this forum that stick to a single strategy, and totally ignore dividend aristocrats such as the above mentioned, that have been paying/increasing dividends from even b4 you were born? 

How many companies are out there, that you would *not* buy because it pays a sustainable div.? I reckon not very many, so why fuss over it? Pick the best of both worlds, and prosper! :encouragement:


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## fatcat (Nov 11, 2009)

Toronto.gal said:


> Indeed KO is/has been looking for alternatives for some time. Last year they acquired Zico, and just this month, purchased 10% of GMCR.
> 
> I purchased KO after the financial crisis, and would have done so regardless of dividends. No brainer to me, and so far, their 2020 vision has worked well. And speaking of dividends, KO this month approved a div. increase of 9%, which = their 52nd consecutive annual increase.
> 
> ...


agree on all points, i have mostly dividend stocks with good records of increasing dividends but i also have growth stocks and etf's (QQQ and SBUX eg.)

i bought KO shortly after my post, i wanted to get it at 3% and did

the war against sugar will be a long slow slog and will happen more slowly in the rest of the world where coke is doing ok, also, they are well-positioned to beat the bushes to find the best sugar alternatives available ... i wish i could buy more


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## Toronto.gal (Jan 8, 2010)

fatcat said:


> i *bought KO *shortly after my post.....the war against sugar will be a long slow slog and will happen more slowly in the rest of the world where coke is doing ok, also, they are well-positioned to beat the bushes to *find the best sugar alternatives available* ... i wish i could buy more


Welcome to the KO Klub. 

Finding that healthy alternative has been a long battle. There was an interesting article in the NYT last month regarding this, if you're interested.

As of 2011, the FDA had approved 6 sweeteners in all: acesulfame/aspartame/neotame/saccharin/stevia/sucralose. Do you know which one is in your diet pop?

Oppss, off-topic now.


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## Homerhomer (Oct 18, 2010)

Toronto.gal said:


> As of 2011, the FDA had approved 6 sweeteners in all: acesulfame/aspartame/neotame/saccharin/stevia/sucralose. Do you know which one is in your diet pop?
> .


I will take pure white sugar over any of the above listed poisons.

And just to stay on topic,,, I like dividends ;-)


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## gibor365 (Apr 1, 2011)

fatcat said:


> agree on all points, i have mostly dividend stocks with good records of increasing dividends but i also have growth stocks and etf's (QQQ and SBUX eg.)
> 
> i bought KO shortly after my post, i wanted to get it at 3% and did
> 
> the war against sugar will be a long slow slog and will happen more slowly in the rest of the world where coke is doing ok, also, they are well-positioned to beat the bushes to find the best sugar alternatives available ... i wish i could buy more


But QQQ and SBUX also paying dividends  even if you call them growth stocks/dividends .... 
For example, LMT, PSX, COP, BBD.B, XLNX (some of my holdings) are growth or dividend stocks?! What is the rule?! I just can tell that wouldn't buy any of them if they wouldn't pay any dividends... even SLW 
I used to have non-dividends paying equities , but now practically don't have any except very small position in PPLT and Nasdaq index MF (which I'm planning to switch to QQQ)

P.S. last months was adding to PEP and initiated (finally  position in KO


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## Toronto.gal (Jan 8, 2010)

Homerhomer said:


> I will take pure white sugar over any of the above listed poisons.


Or brown! 

Just to be clear, I was referring to the 'long battle' of the beverage industries, not mine.


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## Eder (Feb 16, 2011)

Brown is refined white sugar with added molasses...both make life more fun...(in moderation)...can you imagine aspartame laced chocolate making us happy?


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## Synergy (Mar 18, 2013)

Homerhomer said:


> I will take pure white sugar over any of the above listed poisons.
> 
> And just to stay on topic,,, I like dividends ;-)


Perhaps we can do away with refined sugar, so called natural sweeteners and artificial concoctions all together. All you need to do is trick your taste buds "Synsepalum dulcificum". Lemonade with no sugar - RSI wouldn't be too happy.

http://en.wikipedia.org/wiki/Synsepalum_dulcificum

I like dividends, share buy-backs, capital appreciation - it's all good


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## fatcat (Nov 11, 2009)

Toronto.gal said:


> Welcome to the KO Klub.
> 
> As of 2011, the FDA had approved 6 sweeteners in all: acesulfame/aspartame/neotame/saccharin/stevia/sucralose. Do you know which one is in your diet pop?
> 
> Oppss, off-topic now.


i can tolerate sucralose ok, its not bad ... i have never had a soft drink with stevia but have it on my list to try, i believe that they are working very hard on cracking the stevia flavor, production and cost puzzle

i tend to like plain old sugar and tend to either drink it or not have a sweetened beverage at all (and i am drinking much less sweetened beverages in general for certain) ... i avoid the rest of those as they all taste awful to me



> I used to have non-dividends paying equities , but now practically don't have any except very small position in PPLT and Nasdaq index MF (which I'm planning to switch to QQQ)


gibor, i think the definition of growth vs. dividend is kind of fuzzy

good move on QQQ, i wish i had backed up the truck on that, it has been very good for me .. i love the complement to canadian stocks, it has tech, consumer discetionary and health care all of which are weak sectors in canada

it does have a small divvy but those are growth stocks in there mainly like amazon and netflix

plus, you even get tesla ! ... and it's cheap to own

i love that etf


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## gibor365 (Apr 1, 2011)

fatcat said:


> gibor, i think the definition of growth vs. dividend is kind of fuzzy
> 
> good move on QQQ, i wish i had backed up the truck on that, it has been very good for me .. i love the complement to canadian stocks, it has tech, consumer discetionary and health care all of which are weak sectors in canada
> 
> ...


Yeap, fuzzy  what kind of stock is the biggest QQQ holding AAPL?!

I was planning for switching TD Nasdaq for a some time, but didn't want to pay trading fees or ridiculous FX rate (or "gambitting") , now when I switched to CIBC, and I have bunch of free trades (can even DCA until end of April) and nice BoC FX rate , gonna do this move...


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## Shadow (Aug 31, 2016)

*Income investing*

A very good option to earn a monthly income for long term is investing in dividends that pay monthly. The dividend stocks to invest in are those relating to Tech sector, or AI field. These are the once that going to soar in future.


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