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dividend_growth_strategy 2014/03/15 08:06 dividend_growth_strategy 2015/12/11 05:16 current
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====== The Dividend Growth Strategy ====== ====== The Dividend Growth Strategy ======
-{{ logo.png|Logo}}When they are at least fairly priced, I purchase certain common stocks with a long record of dividend growth and hold them for years, waiting for the dividend and the yield to grow. In the long run, yield provides most of the return. I also use yield, mainly, to determine value. A stock with a low yield and high dividend growth, for instance Tim Horton's, is expensive.+{{ logo.png|Logo}}When they are at least fairly priced, I purchase certain common stocks with a long record of dividend growth and hold them for years, waiting for the dividend and the yield to grow. In the long run, yield provides most of the return. I also use yield, mainly, to determine value. A stock with a low yield and high dividend growth, for instance Alimentation Couche-Tard, is expensive.
  * [[fund-based_income_plans]] compared to dividend growth investing   * [[fund-based_income_plans]] compared to dividend growth investing
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I would not want you to think I was cherry picking...using the best examples. Rob Carrick, writing in the Report on Business in September 2007, listed 20 'Dividend Deluxe' companies and included in his table the yield of these stocks ten years after purchase. Half of them had double digit yields (three banks and three from the Power group, for instance). Realize that we're talking yield alone. I'm not counting the price increase in these calculations. With dividend growth investing, after a few years (maybe a decade) of dividend growth, you can beat the market with yield alone. Price increases are the bonus. I would not want you to think I was cherry picking...using the best examples. Rob Carrick, writing in the Report on Business in September 2007, listed 20 'Dividend Deluxe' companies and included in his table the yield of these stocks ten years after purchase. Half of them had double digit yields (three banks and three from the Power group, for instance). Realize that we're talking yield alone. I'm not counting the price increase in these calculations. With dividend growth investing, after a few years (maybe a decade) of dividend growth, you can beat the market with yield alone. Price increases are the bonus.
But...and it's a big but...do you have the patience to wait years for the dividend to grow? Can you control your behaviour and resist buying 'story stocks' which do not pay dividends? If you can, you'll be set for your retirement financing. And here's the big bonus: it will not matter if the market is down when you leave work. It's the income you'll be using. Delve into the dividend growth strategy. Learn more. This one-page PDF dividend growth example might help: [[YOC_BNS]] But...and it's a big but...do you have the patience to wait years for the dividend to grow? Can you control your behaviour and resist buying 'story stocks' which do not pay dividends? If you can, you'll be set for your retirement financing. And here's the big bonus: it will not matter if the market is down when you leave work. It's the income you'll be using. Delve into the dividend growth strategy. Learn more. This one-page PDF dividend growth example might help: [[YOC_BNS]]
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 +• **Time-Horizon Arbitrage** – We are heading into another long bear market. But don’t be concerned. The last long bear marker was in the 1970s. In 1984, luckily, I encountered dividend growth investing. The gentleman who wrote the letter to the editor of the Financial Times of Canada I happened to read, retired in 1968. His simple portfolio did unbelievably well all through the 1970s and into the eighties and beyond. Over the same period, the market did not do well. Warren Buffett did very well in that period too. From 1975 to 1982, Mr Buffett's average annual return was 34%. Thirty four percent a year! And in a flat market. How is this possible? It's sometimes called time-horizon arbitrage. We practice the strategy too. We buy quality stocks and hold them for years and years in concentrated portfolios. We exercise low turnover. That's it. The strategy is simple, but often difficult to execute. It's the future cash flow (or future dividends or earnings, if you like) that do it, that have value.  Quality companies; a concentrated portfolio; hold, hold, hold (low turnover). My own example of time-horizon arbitrage…holding quality for the long term is bns_yoc_july15.pdf (This page is inside this site)
 +♣ Contrast the above ideas with indexing: large portfolios with a fair number of losers (non-dividend payers and high yielders) and poor income growth. “The crux of your success”, Stephen Jarislowsky says, “will be to select leading companies and holding onto them for years.” Mr Jarislowsky held his Abbott Laboratories for over 50 years.
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Some general ideas on the essence of dividend growth investing: You must believe it produces superior returns. You must stay on track. You can't waiver. Study the [[evidence it works]] Some general ideas on the essence of dividend growth investing: You must believe it produces superior returns. You must stay on track. You can't waiver. Study the [[evidence it works]]
-You must buy only common stocks and only common stocks that pay a dividends. And further, only common stocks with a good dividend growth record. There are only about 20 such Canadian stocks. Load up on them when they are fairly priced...certainly not all at once. Valuation of the stock at the time you buy is most important ([[value priced]]).+You must buy only common stocks and only common stocks that pay a dividends. And further, only common stocks with a good dividend growth record. There are only about 40 such Canadian stocks. Buy a couple of them when they are fairly priced...certainly not all at once. Start with a telecom with their recurring income, than a good electrical utility. Valuation of the stock at the time you buy is most important ([[value priced]]).
How do you know if they are fairly priced? I use a couple of value measures: yield, Graham's price and the cyclically adjusted (ten-year) price to earnings ratio. How do you know if they are fairly priced? I use a couple of value measures: yield, Graham's price and the cyclically adjusted (ten-year) price to earnings ratio.
It's the growing income you are after (not high yield) so you do not have to eat into capital when you retire. Mutual funds do not produce much income: they eat into your capital to pay you. It's the long term income your assets produce that is important. You do not want a fixed income, do you? It's the growing income you are after (not high yield) so you do not have to eat into capital when you retire. Mutual funds do not produce much income: they eat into your capital to pay you. It's the long term income your assets produce that is important. You do not want a fixed income, do you?
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-**WHY DON'T THEY**: In November 2006, John Heinzl, in a telephone interview, asked me if the dividend growth strategy works so well, why don't more people follow it. Heinzl asks probing questions which is why his columns are so good. After I got off the telephone and I thought about it, I e-mailed him my list of reasons. People don't know it works, most don't have the discipline needed to execute the strategy, they can't wait for the results (it takes years for yields to build), yields start low, story stocks lead them astray, the method is dull and boring, they fear doing it on their own, they feel they need help (a broker even), they don't believe they can do better. After thought: they have been lead astray by a financial planner.+**WHY DON'T THEY**: Last November, John Heinzl, in a telephone interview, asked me if the dividend growth strategy works so well, why don't more people follow it. Heinzl asks probing questions which is why his columns are so good. After I got off the telephone and I thought about it, I e-mailed him my list of reasons. People don't know it works, most don't have the discipline needed to execute the strategy, they can't wait for the results (it takes years for yields to build), yields start low, story stocks lead them astray, the method is dull and boring, they fear doing it on their own, they feel they need help (a broker even), they don't believe they can do better. After thought: they have been lead astray by a financial planner.
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