Guelph seminar May 28 2015 - Food Sciences Building at the university 7:30 p.m.

  • cnr_yield_99-15.pdf Sorry. This chart is crooked and I forgot to pass this around, but this CNR yield chart back to 1999 shows that as the dividend rises (hand-writtne across the bottom) the yield essentially stays the same. So, the price must be rising too. And it did.
  • dg_summard_2015_12.pdf - my one page summary of dividend growth investing
  • The reverse side of this DG summary sheet was the front page of the March 2015 Connolly Report where I wrote about what to do when interest rates are so very low and stock prices so very high.
  • Seminar introduction: In 2006 this stock paid a dividend of 5¢. The next year it went up a penny to six cents. No big deal, eh. The yield is just 1.3%. But it is! It is a very big deal! Up a penny in this case is a 20% increase. And the next year 7¢ was the dividend…another 20%. Then 8¢ and on up to .11, .14, .17 and by 2014, the dividend was twenty cents per year per share. RAMIFICATIONS. What's the effect of such dividend increases over time? In two words, price action! In 2006 when the dividend was a nickel, the price was $4.00 per share. The yield of this common stock is still about 1.3%. The dividend quadrupled. So, the price of this stock should be about $16. Believe? You should have three questions?
  • 1)
  • 2) bottom of this page
  • 3)

"Since the market value in most cases has depended __primarily__ upon the dividend rate, the latter could be held responsible for nearly all of the gains ultimately realized by investors."

This is a quote from Ben Graham's, Security Analysis, Chapter 35 (first page) written in 1936. I wrote this sentence on the chalkboard and kept referring to parts of it over the next hour. What I do with the dividend growth strategy is not new. I've been investigating, for over 30 years, what the old masters did before mutual funds were 'invented' in the 1950s. ♣ Notice the phrase “in most cases”…dividends are not always the driver of price. Sometimes folks get excited about 'the story' behind the stock. Think Apple. ♦ “ultimately” is the important word. You get BCE's current yield now. Next year you add the dividend growth, and then, year after year and so on. Ultimately the dividend rate drives the market value. What does the market value depend upon? “the dividend rate” ♣ Graham says for “nearly all” of the gain. Think something like 80 percent.

  • John Maynard Keynes maintained that investment is “forecasting the prospective yield of an asset over its entire life”. That's what dividend growth investors try to do. In contrast, speculation is trying to forecast the market.

I also wrote BCE on the board with 4.7% beside it (BCE's yield) + plus + (the plus sign) T's dividend growth rate 5%. I could have used Telus as the example (or RCI.B). TIFF was on the board too and Touff, and, as Dr Dave Stanley was with me, TURF. We start portfolios with a telecom stock…the initial yield is good and there is solid dividend growth backed by recurring income. People give these companies money each month. The stocks are safe when you buy at a sensible price. Sure the price of these stocks fluctuate. Bond prices fluctuate too. People think bonds are safe. It's the growing income we're after. The security of the income is what's important.

BONDIFIED - Here's another example of dividend growth with a slightly different slant. I call it 'bondification'. We bought 500 ACO.X in 2004, in two batches, for $23,000 (The dividend was .35 then for a yield of 2.9% with a split adjusted price then of about $12. Really the price was $46 then and it happens to be $46 now too). Atco had a stock split the next year in 2005: our 500 shares became 1000 shares. About a decade later, in 2013, there was another 2:1 split. We now had 2000 shares. We hold great dividend growth stocks. And hold. Today we could sell 500 of those 2,000 shares (our original 500, say) and get our complete purchase price back. The 1,500 shares we have left continue to provide $1,500 in income each year (YOC 8.3% $1 / $12) and are worth some $65,000. Certain stocks can be safer than bonds. I don't own bonds, never did, never will. Once you understand dividend growth investing, you will not want bonds either. In sum, here we have our money back, we still hold an asset which provides $1,500 in growing income every year and we're up $65,000. You'd better investigated dividend growth investing. There are some 50 stocks which behave like this. Twelve are listed below.

A final short example for dividend growth from 1983, a bank, where the dividend now ($2,000) equals the amount invested in 1983 ($2,000). Message: start saving for your retirement early.

When speaking about holding onto good dividend-growing stocks for year and years, I forgot to mention that average holding period for mutual funds is eight months. Managers, it seems have not read the paper “Trading is Hazardous to your Wealth.”

From 5¢ - Here are other stocks I could have used for the 'from about 5¢' example:

  • CNR in 1996 (CAGR 18% from a dime in 1999)
  • Saputo in 1998
  • Metro in 2000
  • CNQ 2001
  • Richelieu in 2002
  • Shaw Communications 2002
  • Home Capital from 2004
  • RCI.B 2005
  • CMG Computer Modelling 2006 to .37 (split in 2013)
  • ESL (Enghouse) in 2007
  • Ensign Energy Services in 2007
  • CAE in 2008
  • ATD.B at .0567 in 2010 (after 2013 split) $21.50
  • Loblaw had a five cents dividend in 1985
  • BNS was a nickel in 1974, RY 5¢ in 1970.

Question? How can you identify this 5¢ dividend stocks in advance? Answer: You can't. They do not really exist (except for RCI in 2005). I find stocks for our portfolios by searching for common stocks with a good record of dividend growth. Then, as a teaching tool example to show the ramifications of a growing dividend, I find out when the splits were and work the dividend (and price) backwards to five cents.

Dividend growth investors are in the rejection business. Very few stocks are suitable for our portfolios. Our stocks are top quality TIFF, Touff or TURF. So the question becomes, should I buy the stock now? If the period since the nickel dividend is short, it's a high dividend growth stock with a low yield. Do you want a low yield stock? Does this company fit with your portfolio? With growth stocks the bet is that the growth will continue. I use high-dividend-growth (HDG), low-yield stocks for diversification into another sector other than telecom, utilities and financials. Food retail is my favourite HDG low yield group: people keep coming back to buy food.

Question? How many stocks in a portfolio. Mine has five, Louise has eight and her sister (in trust), ten stocks. Mostly TIFF and TOUFF…with the 'o' in TOUFF being Other (Leon's, CNR and ). Now and then, subscribers send me copies of their portfolios. Rarely are there more than ten stocks. Funds have hundreds of stocks and so, as a result, produce mediocre returns. Funds can't beat the market, they are the market.

  • Yardie - I used a little prop to illustrate return ultimately being yield (yellow) plus dividend growth (blue) plus or minus a valuation factor (red). Its name is Yardie…a free range chicken. My talk was, after all, in the Food Sciences building. Anyway, if you cover up the small red portion (Yardie's head) can you say that return is simply the dividend rate (initial) yield and its growth which drives price? Does it follow, then, that it does not matter when you buy? On the other hand, it was certainly better to buy stock in early 2009 rather than now in May 2015.
  • I mentioned my neighbour's (Dr Peter Kirkham's recent paper on the financial chaos that's most likely five years or so out in our future. Think all the debt (public and private) that's out there, the artificial environment we are in now and what will happen when trust in fiat currencies falters. Hold only quality companies.
  • ? Some of you are thinking that it's a company's earnings that drive a stocks's price. The press usually frames it this way. Think that way if you wish. Graham, though, didn't. Would you purchase a little apartment building where the tenants didn't pay rent? It's the actual cash being distributed by the company that really matters.

seminar summary - dividends matter - dividend growth drives price growth - concatenate yield and dividend growth

Questions: What's the name of the stock? Why this stock? Is the stock a good buy now? What are the names of other stocks like this?

el.txt · Last modified: 2021/08/26 19:51 by tom
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