Wednesday, July 27, 2011

Dividend Growth Stocks 2

Or, why buy SNC-Lavalin (TSX-SNC) and all that Part 2. Going back to the Globe and Mail article, one of the things that Tom Connolly, who was interviewed for the above article, said was that he was not selling his shares of companies that had not raised their dividends for a while. While I disagree with his holding on the Loblaw (TSX-L), a company I sold some years ago because I did not see an end to their problems, I have certainly held onto Power Financial (TSX-PWF), Sun Life Financial (TSX-SLF) and all my bank stock.

What I have noticed in recessions is that some sections of the market get hit much worse than other sections. In this past recession, insurance companies and banks, in fact all financial institutions got hit quite badly. The reason I did not sell was that I believe they will all recover and then continue on a great dividend growth stocks. The reason I sold Loblaw (TSX-L) was that I did not see it recovering in any sort of reasonable time frame.

I have followed dividend growth stocks for a while. There are two dividend lists that I follow of Dividend Achievers and Dividend Aristocrats (see indices). The main problems with such lists are that they are changing all the time. I do follow most of these stocks, see my website for stocks followed.

I had also followed Mike Higgs, an early blogger. He had his own ideas on what stock should be considered to be dividend growth stocks. On my stock index list, some 9 columns in, is one called “M”. Stocks with a “Y” in this column were ones on Mike’s list. Mike seldom changed the stocks on his list.

Also, he felt that the only way to judge if such stocks were currently cheap, was if the dividend yield was higher than the stock’s historical dividend yield. On my spreadsheets, in the dividend section, I usually have a “yield on low” row. This is the dividend yield on the low stock price of that year. Over to the right, I give the 10 year median “yield on low”. This will give you an idea on what sort of dividend highs a stock has had in the past.

My best advice is to not worry how well other people are doing, but only worry about how well you are doing. If you are making progress towards your investment goals, you are probably doing ok. There are always going to be bull markets and bear markets, so your portfolio value will fluctuate. But if you are looking for income and you are making progress in the long term in in getting higher and higher income, you are probably doing ok.

Also, if you have a good company, do not sell it off because it price goes lower than what you paid for it. If it is a good company, it will come back. The beauty of dividend growth stocks is that you can focus instead on the income you are collecting rather than on the portfolio value. There have been bear markets in the past and there will be bear markets in the future. It is just the way it is.

When markets go down there are temptations to sell your stock to buy back at a cheaper prices. This is called “Timing the Market”, and not even pros can get this right. You may get it right once in a while, but no one can do this consistently and it is a great way of losing money. Also, when you sell to buy later there are fees to pay and maybe taxes to pay, so it may not be as simple or as easy as it sounds.

I have statistics on the TSX going back to 1956 and there is only one 10 years period, 1974, when the stock market was lower over a 10 years period. The statistics do not include dividends, which can be a large part of your return. The TSX index has been lower after 5 years over the same time period 3 times, in 1974, 1977 and 2002. So, the thing to do is, invest for the long term.

For more information on this subject, see Investing for the Long Term. I believe the US had another 10 year period with a negative return just recently, but Canada has not. I believe there was 10 year loss period ending in 2009 for the US. We do somewhat follow the US markets, but not exactly. Sometimes we are hit by weaker markets than they are and sometime we get off lighter. The latest recession has been easier on Canada than US.

Also, buy what you know. You should understand how the companies you invest in make their money. I have a bias to financial and tech companies. I used to work in IT in the financial sector. I think you should also approve of the way your companies make their money.

I may follow a lot of companies now, but I started off investing in just 3 companies, BCE (TSX-BCE), Labatt and Bank of Montreal (TSX-BMO). I still have BCE and BMO. Labatt was bought out. Start small and with few stocks and get to know them. You do not need to have a balanced portfolio when you have little invested. You can balance your portfolio later when it has grown.

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.

2 comments:

  1. Susan,

    Thank you for all your advice and insight. I am learning a lot from you as always. Thank you for answering my questions. I am sure I will have more questions in the future.

    MML

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  2. Nice post Susan.

    I like your advice "...not worry how well other people are doing, but only worry about how well you are doing."

    Only your own financial goals matter most :)

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