Monday, February 28, 2011

Those against Dividend Investing

I should probably start off with what I like about dividend investing. I do it because it works for me. Other dividend investors seem to do it for the same reason, that is, it is working for them. There are a number of bloggers blogging about their dividend investing styles and why they like it.

One of the things that anti-dividend investors talk about is that we should instead be investing in ETFs (Exchange Traded Funds). These are baskets of stocks that people can use to make money from the stock market. It is also called passive investing. This is because the people investing in ETFs do not make any judgment about the stocks in the stock market. I sort of wonder what sort of stock market we would have if every investor was a passive investor. That is no one made any judgment calls on any stock. Just how would such a market work? Or, would it work? I am just wondering.

The other thing that is talked about a lot is that capital gains are just as valid as dividends. That is you take money out of capital gains made on stocks rather than getting money from dividends. In theory, this is correct, but I have yet to see anyone make income this way. You get lots of people blogging about collecting dividends to live on etc, but I see none collecting capital gain to do this. Theories do not always work in a practical sense. I would be more impressed with this if someone actually did it and talk about how they went about this.

Do not get me wrong, I am not saying that dividend investing is the only way to invest. I have certainly invested in companies for capital gain. This was especially when I was building up my portfolio. However, I always kept a watch on them and often did not hold them for long periods of time. Why? Because I found these companies to be much more volatile as far as stock prices went.

Also, getting a steady stream of dividends from a company reassured me that the company was doing fine and allowed me to sleep at nights. Emotional? Yes. On the other hand, I do value sleeping at night. And, let’s face it investing is emotional. If it were not, then technical analysis would not work. But, perhaps if you can be less emotional than others can, it might be of benefit. Personally, when the market takes a dive, I avoid looking at it. I spend little time ever looking at the market. However, I do spend time on what I have invested in and how well the company is progressing.

Another thing that people talk about is that it is just as good for company to buy back stock as to give dividends. However, why is it that most companies do not seem to be buying back stock when the price is really low? Also, companies that do buy back stock do not seem to be making much head way into lower the number of shares outstanding. Could it be that buy backs are to cover options given to insiders? Could this be better in theory than in practice? I am just asking.

Another thing that is talked about is using bonds for income. I must admit I had bonds in the past when interest rates were really high. I have not had any bonds for sometime. I personally think that the bond market is more volatile than the stock market, if you buy and sell bonds. There is also much less transparency in fees paid for buying and selling bonds than for stocks. I currently do not have any bonds in my portfolio. However, I have had experience in this market and you never know; I might again, if I thought that interest rates justified the risks. However, this is just my personal opinion on this.

The other thing is that I am not out to beat the market. I am not out to beat anyone in investing, in actual fact. What I am doing is, in a very practical way, getting an income. What I am doing, is blogging about the companies I am investing in or tracking. I have no particular axe to grind on how anyone might want to go about investing.

I guess the last point to mention that yes; I basically only have Canadian Stocks in my portfolio. There are a couple of reasons that I feel comfortable about this. First is that I do not have that much money. If I was a multimillionaire or multibillionaire, I might be concerned about only investing in Canada. For a small investor I think there is plenty of scope for investing in Canada. The other thing is that some of my “Canadian” companies are in fact international companies. So in actual fact, I have much more internationally diversified portfolio than it would initially appear.

This, of course, comes back to the first thing that I talked about. Dividend investing is working for me. If, that changed, I would rethink how I want to invest.

This blog is meant for educational purposes only, and is not to provide investment advice. Before making any investment decision, you should always do your own research or consult an investment professional. See my website for stocks followed and investment notes. Follow me on twitter.


  1. HI there, first of all I think Kbro Linen (KBL) is a good investment. They have the contract for linen services in BC and Alberta after privitization in that sector. So its a sort of monopoly. Second I like the points you bring up in your post about dividend and index investing :) I myself am combining both strategies - have a nice week!

  2. You have expressed exactly how I feel about dividend investing. It's not for everybody, but it works for me and will help me accomplish my goals.