I first bought this stock (TSX-RCH) in 2007 and then some more in 2009. I have made a total return to date of 23% per year with about 1.2% attributable to dividend income. On this stock, the current dividend yield is 1.4% and it has a 5 year median yield of 1.35%. The dividends are low, but the dividend increases are good. The 5 and 10 year growth rate for dividends is 12.5% and 16% per year, respectively. The increase for 2011 was 22%.
The way I invest to have an income is have stocks with varying yields and varying rates of dividend increases. There is a tendency for stock with low yields to have high dividend increases and those with high yields to have low dividend increases. So I look not only at current yield, but also at the dividend growth rate when deciding on what stocks to have.
With this stock, I get a low yield and a high growth in dividends. Often utilities, like TransCanada (TSX-TRP) give you a better yield (current at 4.3%) and a lower growth rate (5 year growth at 5% per year). REITs also usually have good dividend yields and low increases. Stocks like RioCan (TSX-REI.UN) have a current yield of 5.8%, a 5 year median yield of 6.7% and a 5 year growth rate of just 1.6% per year. Currently the growth in this stock is below inflation, but it is usually, just above inflation.
What I aim for is a portfolio yield of 4% and growth of 10% in income. My 5 year median yield is 3%, but my 5 year median growth in dividends was 15%. My 5 year medina growth in income is 13%. (I do have cash (about 5 % of my portfolio) because I need to withdrawal money from my RRSP each year.) I do have a tendency to pick stocks with lower yields but higher growths. Since I am living off my dividends, the most important thing is to limit my withdrawals to my dividends. My 5 year average withdrawal is 3%, which is the same as my 5 year median yield. But averages do not show the whole picture. I have actually taken out less money than I have earned in income.
I am also looking for an 8% portfolio return with a 4% withdrawal rate. This is considered to be a prudent plan for people living off a portfolio. It also allows you to increase your withdrawals by around 4% per year. I have a 5 year average return of 8.3% and a 5 year withdrawal rate of 3%. Since I stopped working in 1999, I have been through two bear markets. During these bear markets my portfolio value crashed like everyone else’s. However, my dividend income did not crash.
No matter how you view the idea of dividend growth, I find that it is sure nice to have a stock from which you earn an increasing income each year. I always go for stocks with dividend growth. However, to view discussions on this subject, see the paragraph below.
I must admit that I do look at yield on cost that is current dividend yield compared to my original cost of buying the stock. This is also called Dividend Growth Potential. But, I do not confuse this with compounded rates of return. To see Canadian Couch Potato’s rant on this. But also see Dividend Growth Investors blog on Dividend Growth Potential. Charles Carlson talks about Dividend Growth potential in his book called “The Little Book on Big Dividends. His website is at Big Save Dividends. There is also a discussion this subject at Value Line.
On Monday, I will continue to review this particular stock.
This company is a distributor, importer and manufacturer of specialty hardware and complementary products. Its products are kitchen and bathroom cabinets, furniture, and window and door. It is also involved with residential and commercial woodworking industry. It has a large customer base of hardware retailers. This stock is widely held, but QV Investors hold about 10% of outstanding shares. They are Institutional Investors looking after Mutual Funds, Pension Funds and Foundation Funds. Its web site is here Richelieu. See my spreadsheet at rch.htm.
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.
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