# Dividend Portfolio Question



## Berubeland (Sep 6, 2009)

I was wondering if anyone has ever just done a search on the highest yielding dividend stocks and bought them. 

What happened?


----------



## scomac (Aug 22, 2009)

The Stingy Investor has a good article on High Dividend Yield Strategies that gained popularity with Michael O"Higgins' _Dogs of the Dow._


----------



## leslie (May 25, 2009)

It has been studied ad-nauseum. For a hundred years people have been trying to find quick fixes to outperform. 

The results most adherants quote now include the period over the tech crash. At that time stodgy utilities and banks had been completely overlooked in the bubble, so they gave great returns as Nortel fell. for the results from the last 1 and 3 years see this thread where I looked up the comparative ETF returns showing no outperformance for dividends.

Use the charting sites to compare high-dividend indexes to the normal index. Make sure you compare total-return indexes. It is not always clear. Charting of mutual funds IS always in total-returns.

James O'Shaugnnessy has back-tested and found dividends to be a great predictor of excess returns, but there are real problems with back-testing.

http://faculty.etsu.edu/trainor/FNCE 4617/AE4.ppt
http://members.shaw.ca/retailinvestor/next.html#relative
http://members.shaw.ca/retailinvestor/ValueInvestingMetrics.pdf

The newbies coming to these types of sites seem to fall under two camps. One wants to be a day-trader and the other wants dividends. I think both are for the birds. Investing is not that simple. For the counter arguments to what you have already heard see this list.


----------



## Berubeland (Sep 6, 2009)

I like warrants myself but that's just me 

I don't currently own dividend stocks because they tend to cut dividends and then the stock falls through the floor. 

I like to buy low and sell high not the other way around.


----------



## scomac (Aug 22, 2009)

Berubeland said:


> I don't currently own dividend stocks because they tend to cut dividends and then the stock falls through the floor.
> 
> I like to buy low and sell high not the other way around.


Now why would you believe that? Even in the past year there have been more dividend increases than dividend cuts. 

Companies that pay dividends tend to increase these payments over time, not decrease them. I suspect that you are suffering from short-termitis.

I like to buy low and sell high too. Owning dividend paying stocks exclusively hasn't impeded that plan in any way.


----------



## Berubeland (Sep 6, 2009)

Sorry scomac it's not all of them. It was just the ones I was looking at that it happened to. 

I have a stockwatchlist and I had Arctic Glacier on there and I liked Huntington REIT and it happened to both of them.

Part of my problem with picking stocks is that I have a small budget, miniscule in fact. I put 10% of my gross income into the market and buy something. So high quality dividend paying stocks like banks and their ilk is not in my budget. 
So alot of the things I look at are questionable. 

Currently I have joined the Financial Post stock picking challenge and I have tried my question. 

So I have 

Supremex Income Fund SXP.UN $2.97 20.70%
Multi Manager Ltd Part 1 MMN.UN $0.43 27.90%
Consumer's Waterheater Fund CWI.UN $4.32 15%
Canwell Building Materials CWX.UN $3.59 15.40%
Pizza Pizza PZA.UN $6.29 15%
Boralex Power Income Fund BPT.UN $4.32 15.80


I'll keep you posted on how it works


----------



## Potato (Apr 3, 2009)

Berubeland said:


> Part of my problem with picking stocks is that I have a small budget, miniscule in fact. I put 10% of my gross income into the market and buy something. So high quality dividend paying stocks like banks and their ilk is not in my budget.



Huh?


----------



## scomac (Aug 22, 2009)

Berubeland said:


> Part of my problem with picking stocks is that I have a small budget, miniscule in fact. I put 10% of my gross income into the market and buy something. So high quality dividend paying stocks like banks and their ilk is not in my budget.
> So alot of the things I look at are questionable.


With today's competitive costs amongst discount brokerages, high quality stocks are within the means of anyone who has the resources to be buying stocks (of any description) in the first place. If you invest $1000, the cost is the same whether you buy 20 shares or 200.


----------



## Berubeland (Sep 6, 2009)

My brokerage only allows me to buy shares in blocks of 100 at a time if it's over 1$ and 1000 at a time if it's under a 1$ 

So even if I invested $1000 at a time that would limit me to shares from $10.00 max. Most of the time I buy warrants because they give me a lot of leverage and I can buy companies I cannot afford the shares for. 

I bought the warrant for Canadian Western Bank at $5.00 and now it's around $8. The share itself is trading for around $28. One I can afford and one I cannot. 

I bought the warrant for Breakwater Resources at 16 cents and now it's around 30 cents. 

Warrant are pretty complicated and people's eyes tend to glaze over when I explain them but I like them


----------



## Sampson (Apr 3, 2009)

Berubeland said:


> My brokerage only allows me to buy shares in blocks of 100 at a time if it's over 1$ and 1000 at a time if it's under a 1$


Sounds like you should find a different brokerage. Not sure what your trading fees are, but under $1000, fees are starting to play a pretty significant role in reducing your returns.


----------



## humble_pie (Jun 7, 2009)

a dividend virtual bibliography.
http://www.theglobeandmail.com/globe-investor/all-about-dividend-stocks/article1257134/

bissette's Juliette John manages 2 dividend funds, likes "good dividends at good value," meaning ability to not only maintain but to grow dividend.
http://www.theglobeandmail.com/glob...-good-dividends-at-good-value/article1333404/

a while ago i ran a TMX dividend stock screener. Had to bypass nearly 10 pages of high-yielding precarious fluff before i got to the meatier preferreds and, finally, to the steak tartare of dividends, which is the fairly small list of quality companies with significant dividends that are supported by history, current financials and intent to maintain & grow the payout.

from these i cull the common with high volume and resulting liquidity in their respective options markets, since i'm going to stitch an option strategy onto this plain stock pick. I also look for, if not a hint of insider buying, at least a slacking-off of insider selling. With respect to this latter criterion, it's interesting that canadian bank stocks are still hemorrhaging w insider selling while their share prices have remained relatively buoyant, although weakness appears to have set in last couple days.

i like juliette's approach and i like many of her picks for her bissette funds. A combined long stock position plus decent option strategy should produce an unexercised yield in the neighbourhood of 10%. Even better: both the dividend stream and the option sales receive favourable tax treatment.

juliette's list of thoroughbreds is well-known, so i didn't need the stock screener to find these companies. But the screener turned up 2 decent convertible preferreds i hadn't known or thought about previously. And a tiny surprise. There, among the lower-yielding group towards the end of the list, was gluskin sheff. GS a significant divi payor, at least enough of a div to push the company onto a dividend stock screener? my how times have changed.


----------



## Berubeland (Sep 6, 2009)

You're telling me 

And I absolutely cannot put in a market order either or I get ripped off.

Then I had to fight to get a 25$ inactivity fee refunded. 

And I pay 20$ per trade. 

I was going to go with Questrade but then I read about their removing liquidity fees. On one trade I did that would have cost me 94$ I calculated. itrade doesn't have that unless you have level 2 trading which I do not need. 

BTW I wonder how much they paid name of the company from eTrade to iTrade.


----------



## Jon202 (Apr 14, 2009)

Berubeland said:


> I was going to go with Questrade but then I read about their removing liquidity fees. On one trade I did that would have cost me 94$ I calculated.



94 Dollars? Are you sure? TSX removing liquidity is $0.0037 / shr, so that's like 24,000 shares you wanted to buy?


----------



## Berubeland (Sep 6, 2009)

Yep for instance I bought 119000 shares of PHC.WT at .005 per share and sold them back for .01 on Friday 

Most of the time i have an ask order in but sometimes I scoop up some extras


----------



## Spidey (May 11, 2009)

Berubeland said:


> I was wondering if anyone has ever just done a search on the highest yielding dividend stocks and bought them.
> 
> What happened?



I've wondered the same thing. I've heard of the "dogs of the dow" strategy, but I've wondered if anyone has built their portfolio totally from high dividend, high quality trusts.

For example: Riocan REIT, Calloway REIT, Inter Pipelines, Pengrowth Energy, Crescent Point Energy, Westshore Terminal Income fund, CML Healthcare Income fund, Boston Pizza Royalties, New Flyer Industries. 

Looks like the average dividend would be somewhere around 9% and most experts seem to feel that these particular dividends are reasonably secure. These funds have also performed well since the crash (some have more than doubled from recent lows). However, I've never run into anyone on the forums who is doing this. I suspect because it would be too many eggs in the trust basket.


----------



## Dr_V (Oct 27, 2009)

scomac said:


> The Stingy Investor has a good article on High Dividend Yield Strategies that gained popularity with Michael O"Higgins' _Dogs of the Dow._


Furthermore, one of the contributors to Canadian Moneysaver, in his column "Beating the TSX", offers a mechanical approach based largely on dividend yield, which involves a yearly portfolio rebalancing (I believe around May). 

I'm not a fan of such methodical strategies because they usually don't work in the long run (as more people begin to adopt the strategy), not to mention the inherent difficulties with ensuring a balanced portfolio (I recall one year where his strategy showed a huge weighting in bank stocks), questionable fundamental metrics (I prefer to focus on low-debt, high RoE, and low P/Book), and de-emphasis on reading/understanding the annual report.

--Kris


----------



## Berubeland (Sep 6, 2009)

for my FP challenge I tried my strategy so far it sucks but I bought market and then the market tanked for three days. I will keep you all posted.


----------



## joncal (Nov 4, 2009)

*Tax on US stocks*

Hello!

I currently only own stocks in Canadian companies and as I have some USD that is giving me next to nothing in the bank, I'm warming up to the idea of buying a couple of American stock, Johnson & Johnson for example, I have a 25 year horizon in mind.

What are the tax implications other than the 15% withholding tax? I just joined this great forum and will read up on all that has been written just as soon as i have a bit of time.

Thanks for reading.


----------



## leslie (May 25, 2009)

* Keep all the trading within a US dollar account so there are no FX transactions back to Loonies each time. Buried in the exchange rate they show you is a fee of between 1% and 2.5% each way.
* As you say, there is a 15% withholding on income payments. Don't forget to claim the refund in TWO places on your tax return. The Federal portion on Sch 1, and the Provincial portion on their own sheet. I don't bother doing any calculation for the Prov portion - just claim the remaining $$. They will correct it if they disagree.
* Your calculation of capital gains is determined using the US cost and proceeds translated at the FX rate AT THAT TIME back into Loonies. Easier to simply note the FXrate at the time, but you can look up after the fact at:
http://www.bankofcanada.ca/en/rates/exchange-look.html
* You translate the income payments at the FX at the time as well, but RevCda allows you to fudge it by using an average rate for the year that they post somewhere. I keep track of my portfolio on a personal spreadsheet where I translate the payments into Loonies at the month end rate. Close enough.


----------



## Jon202 (Apr 14, 2009)

....Or hold the JNJ in your RSP and then you don't have to bother with taxes. Only concern would be long-term currency risk.


----------



## Berubeland (Sep 6, 2009)

I am still down $6000 from the initial investment of $100,000 in the virtual portfolio


----------



## scomac (Aug 22, 2009)

Berubeland said:


> I am still down $6000 from the initial investment of $100,000 in the virtual portfolio


And I'm at an all time high on a real portfolio. So what is the point that you are trying to make?


----------



## humble_pie (Jun 7, 2009)

there is a valuable point to this thread. What it is demonstrating is the relentless deterioration in the ultra-hi-yield trust units that compose this virtual portfolio, as the inevitable january 2011 date approaches.

there's a warning here, esp for novice investors. Best to stay away from these instruments while their prices ratchet down, until they get themselves organized to deal with the inevitable.

btw there's an important distinction between dividends and distributions. The hi-yield portfolio that is the subject of this thread pays distributions, only a portion of which might be dividend income, not true dividends, which generate useful tax credits and are often more sustainable.


----------



## scomac (Aug 22, 2009)

I think it is much simpler than that. This is a good example of reaching for yield. Seldom does that work out well, even in good markets as this result demonstrates. High yield does not equate to high return.


----------



## humble_pie (Jun 7, 2009)

ok we're on the same page.

"There's no free lunch."


----------



## cmackie (Nov 22, 2009)

A good chunk of my job actually deals with this kind of consulting. Just for fun, I performed a couple of quick backtests: 1) Pick the top 15 yielding stocks (but not income trusts) in the TSX index and repick each year and 2) Pick the top 15 yielding stocks but only if they increased dividends in the past year and if they pay out less than 50% of earnings.

Since 1990, (1) returned 6.9% per year and (2) returned 14.9% per year (TSX returned 8% per year in that time. Interestingly enough, both choices lost half their value since mid 2007). Definitely don't put a lot of stock in this but think about what makes sense - if you're looking at a company paying out twice the cash flow it generates, it may be a good idea to look elsewhere.


----------



## Berubeland (Sep 6, 2009)

This is what I bought. Not sure why Sherrit is in there exactly  But this is how it is going so far.

I picked on no other criteria other than cash flow pay out. Highest yield only some of these companies I know some I have never heard of. I did not look at the financial statements or anything.



ACTION SYMBOL TYPE CURRENCY LAST CHANGE QUANTITY PRICE PAID MARKET VALUE(CAD) PROFIT LOSS (CAD) %
SHERRITT INTERNATIONAL CORP  Equity CAD $6.87 -$0.06 3,000 $7.78 $20,610.00 -$2,730.00 -11.70%
PIZZA PIZZA RYLT INC FD [PZA.UN] Equity CAD $6.39 $0.04 3,832 $6.30 $24,486.48 $344.88 1.43%
CONSUMERS WATERHEATER [CWI.UN] Equity CAD $3.76 $0.01 5,484 $4.42 $20,619.84 -$3,619.44 -14.93%
BORALEX POWER INC FD [BPT.UN] Equity CAD $4.20 -$0.05 5,100 $4.69 $21,420.00 -$2,499.00 -10.45%
GLOBAL DIV INVST GR TR II [GII.UN] Equity CAD $2.91 $0.09 5,000 $2.74 $14,550.00 $850.00 6.20%
SUPREMEX INCOME FUND [SXP.UN] Equity CAD $2.81 $0.01 7,899 $3.06 $22,196.19 -$1,974.75 -8.17%
CANWEL BUILDING MAT LTD [CWX.UN] Equity CAD $4.16 -$0.03 6,500 $3.70 $27,040.00 $2,990.00 12.43%


----------



## Cal (Jun 17, 2009)

cmackie 'A good chunk of my job actually deals with this kind of consulting. Just for fun, I performed a couple of quick backtests: 1) Pick the top 15 yielding stocks (but not income trusts) in the TSX index and repick each year and 2) Pick the top 15 yielding stocks but only if they increased dividends in the past year and if they pay out less than 50% of earnings.

Since 1990, (1) returned 6.9% per year and (2) returned 14.9% per year (TSX returned 8% per year in that time. Interestingly enough, both choices lost half their value since mid 2007). Definitely don't put a lot of stock in this but think about what makes sense - if you're looking at a company paying out twice the cash flow it generates, it may be a good idea to look elsewhere. '



Curious, did the stats include any drip discounts? If so, how much of an impact would this have had on the final returns?


----------



## cmackie (Nov 22, 2009)

@Cal
The returns I posted didn't include any DRIPs - dividends were taken as cash and sat doing nothing until the next rebalancing. DRIP discounts would definitely add some value. I forgot to mention too that the test included a simple 1% fee on every transaction - probably pretty high these days.


----------



## Berubeland (Sep 6, 2009)

This is a very bad idea down $15,000


----------



## humble_pie (Jun 7, 2009)

but it's only a virtual portfolio, no? so you haven't lost anything, right?

and it's been a valuable teaching tool, because it's tracked how an idea executes into reality in real time. This is so much more valuable than hauling up charts & statistics from the past. Thank you for your trouble, B.


----------



## Berubeland (Sep 6, 2009)

Yeah it's virtual money. I have lost a lot of virtual money. Thank god i did not apply this hare brained plan to my real money.

There is no way that I am the only person who had this brilliant idea that buying high yielding dividend paying stock would be great 

If 5% is good than 20% should be better no?? 

So far it is not good but it could turn around too. I did this a while ago but maybe i am a secret genius and this will be worth $200,000 next month lol


----------

