Fourth Quarter 2011

  • Ours did better. 8.75% was the average annual return of the best Canadian mutual fund over the last ten years (October 2011 Connolly Report p.729). Is that good for the best fund? I was curious to see if the common stocks I follow (never preferred) had greater dividend growth than 8.75% a year over the last decade. Eighteen of the 23 stocks I follow did do better. And dividend growth drives price growth *. We won. The professionals who ran the fund with the best returns lost. Investigate the dividend growth strategy. * Here's an example: over the last 48 years, Colgate-Palmolive's dividend increased 9.1% per year. Colgate-Palmolive's price gained 9.6%.
  • Since 1986, stocks which increased their dividends returned 12.6% a year. Stocks in the same study, which did not pay any dividend, returned 2.4% a year. There is a message in this data. Why would anyone buy a stock which did not pay a dividend? You'd be just be hoping for a price rise. Gains will not be forthcoming. It's a new normal. The bull market is over.
  • Barry Ritholtz's book, Bailout Nation ( I don't plan to read it) has a pig on the cover in the style of that bull statue on Wall Street. That's it exactly. They are out for their own good. I'd stay away from financial planners completely*. Buy and slowly read, Jarislowsky's The Investment Zoo and do it yourself. You'll save thousands of dollars a year in fees and obtain a real income for retirement from carefully selected common stock with growing dividends. You need personal discipline and patience to do it on your own. Do you pay off your credit card on time? Always? You need patience to wait for the right stock entry point and then again to wait for the dividend to grow. Enbridge's dividend will grow 15% in 2012, but just now ENB expensive by the three screens I use: yield difference, Graham value and cape (cyclically-adjusted price to earnings). * The headline of the Report on Business of November 17 2011 was: “The investment industry works for itself, not for you”.
  • If you own mutual funds, consider this huge disadvantage. You have to rely on highly variable capital gains for fixed cash withdrawals. What if they are not there? With what's going on in the markets these days (mostly sideways), gains ride with the wind. It's income you need in retirement. Carefully selected individual common stocks can provide this income. And income is needed in periods of deflation.
  • If you still own mutual funds, you'd better read this column about fund fees. Close to half of your money could be taken by the above mentioned 'pig' if you are still in funds two or three decades from now. Here's the link:

  • Avec l'augmentation du dividend de ENB, mon YOC est maintenant 5.65%, et ce après 3 ans! (A. Leblanc)

This is a note from a relatively new subscriber. It accompanied his renewal cheque - “This dividend growth mindset is a slow process but I'm already seeing the benefits of the regular dividend payments. Each downdraft in the markets takes me 'less far' down than the last due to the cash coming in from each stock every three months.” DH in N3A

John Heinzl's November 23 column was about Leon's dividend record. Portfolios I oversee hold LNF. We like the growing income and extra dividends.

  • If you still hold mutual funds you might be interested in this Economist item on Bill Miller, one of the industry's most successful managers. Miller beat the S&P 500 fifteen years in a row. Miller is now retired. Was it skill or luck?

0.96% - Norm Rothery's Report on Business column of Saturday December 3 2011 dealt with returns (gains + dividends) from Canadian equity mutual funds over the last five years, both before and after fees. Rothery provided charts too. After fees, the average annual return was less than one percent a year. Professionals run these funds! Perhaps you could do better on your own with good safe stocks the pay reliable dividends. dividends on the twenty or so common stocks I follow (never preferreds) rose 10.2% last year. And yes. Stocks can be safe. Safety is more in the price you pay for and asset, than in the asset itself. The great bull market in bonds has run some 30 years. You'd be pushing it if you bought bonds now. And, in a bond mutual fund, you lose the guarantee of getting your money back. Did you broker/financial planner tell you that when she/he put you in a bond fund because you expressed hesitation about the stock market?

fourth_quarter_2011.txt · Last modified: 2011/12/30 15:53 by tom
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