• 84% - If you are still in mutual funds, here are two things to consider. First, in 2011, 84% of active money managers did not beat their benchmarks. Professionals don't do better. Second, the market as a whole is expensive (Shiller's p/e is 22.1). Prices might go higher. Chances are greater, though, it will go much lower. Maybe you should get out of mutual funds now. Then wait a while for better prices. Then buy dividend stocks which actually produce real income as in the following example.

I did a seminar at a St Lawrence College Investing Conference March 21st 2012. I used this example, and will post CNR's yield chart going back to 1999 the the public area this site soon. CNR's dividend in 1999 was 20¢ (the price (split adjusted was $12.70 then). CNR's dividend is now $1.50 (price $78). The dividend grew 550% from 20¢ to $1.50. The price rose (from $12.70 to $78) by 512%. I like to say, dividend growth drives prices growth. What do you think?

• Among recent Lipper Award winners for mutual funds were a number of passive index funds. This does not say very much for active professional management. It does not say you should buy index funds either. In 2011, the S&P 500 started at 1,257.64 and ended the year at 1,257.60…exactly the same value. Not good. (Globe and Mail Report on RRSPs, February 10 2012 E5)

If your stock does not pay a dividend, you are left with only one way to realize any return: hope the price goes up and then sell the shares to someone else. We are in a secular (long) bear market: you are going to need a lot of hope. I highly recommend you buy and study the graphs in the book Probable Outcomes by Ed Easterling. Even ten minutes of your time now and then glancing at the book could prevent you from incurring serious losses in the years ahead. Probable Outcomes will help you begin to understand the importance of cycles in investing. Start with the full-colour chart of stock return components on page 146. What is the largest component of stock market returns?¹ Then study Easterling's charts of the last secular bear market swings on pages 154 and 155. Good luck. ¹ Dividends at 4.4% out of 9.7% is the largest component of returns. Dividend growth is next at 4.1%

• On March 30 2012, CNR's dividend goes up 20¢ a year per share from $1.30 to $1.50. When was the last time your income rose 15.4%? Do you still own bonds? Does the interest on bonds rise? “Nope!” Why do you own bonds? Did someone tell you bonds are safer. Did you know that if you buy your bonds through a bond mutual fund you lose the guarantee of getting your principal back. A common stock purchased at the right price can be safer than a bond…and can provide a growing income for you in retirement. What's going to happen to the price of a stock when its dividend rises 15.4%? And that's 15.4% just in 2012. In 2011 CNR's dividend rose 20.4%. What happens to the price of a bond when interest rates rise? Bond prices fall. What happens to the price of a stock when dividend rise? You get one guess!

• “Over the long run equity returns comprise the current dividend yield plus dividend growth.” Buttonwood, The Economist, January 21 2012. Preferred share dividends do not grow. Hence, preferreds do not build wealth. Do not let your broker plunk any of their* preferreds in your portfolio. Just say “No”. (* created by their investment bankers) That Stephen Jarislowsky does not mention preferreds in The Investment Zoo is telling. It's telling you not to let your broker deposit them in your portfolio.
• Up Nine Percent - Over the last five years, the common stocks I follow have increased their dividends by some 9.0% a year, on average. Has your income gone up 9% a year since 2006? And when dividends go up, the stock price follows…eventually. With all the turmoil, has your capital been growing these last few years? Ours has.

• Preferred stock is not a way to build wealth.

• Relative vs Absolute: I'm looking at a two-page wide mutual fund advertisement in BusinessWeek. It says “100% of our retirement funds beat their 5-year Lipper average”. There is no mention of the mutual fund's actual returns nor those of Lipper's. They must have done well, eh! Also included in the ad is this 'got to love it' sentence: “Fund returns have been affected by market volatility and are negative for certain periods.” These professional managers talk relative (we beat the averages), rather than absolute (we actually made money) returns. Those of us who understand the dividend growth strategy, compute our results based on the income generated by our common stocks. As a result, we really can't have a negative period. We receive spendable cash from our various holdings every quarter. The price does not matter. We bought our Canadian Utilities common stock in 1987 for a split-adjusted $12. The current $1.77 yearly dividend now pays us 14.8% (1.77 / 12). I could not quote you the current price. I don't care. I'm not going to sell CU. Why would I sell an investment that pays 14.8%, especially when interest rates are so low? Investigate the dividend growth strategy long before you retire. I did not trade once in 2011. Not once. Once it's set up, it's easy. No broker. No financial planner. No yearly fees. (Curious, I just looked up CU's price: $60.) Canadian Utilities, however, is currently expensive by the main screen I use - percent difference from its average yield. Actually, CU is at the bottom of my list, sorted by this percent yield difference. CU is also negative by $14 from its Graham value. These dependable dividend paying stocks are popular just now…and thus dear. Hope for another stock market crash if you are wanting to buy stock. The only real money made in the market is during booms and busts. You can't buy expensive stock and expect great returns. If you like my writing, you can purchase the nine pages I wrote in January 2012 for a $10 bill via Louise Connolly, #607 - 185 Ontario Street, Kingston ON K7L 2Y7. She'll include the sorted list too with updated five-year dividend data.
• 11.3% per year since 2000: from a subscriber in Peterborough - “The other day I visited my financial advisor whom I have been with for 30 years or so. He said that the return (dividend and capital gains) portfolio of my stocks from January 2000 to January 2012 was on average of 11.3% per year. He also said that for interest, he checked all the mutual funds in Canada and this return was equal to or better than all but two funds and he had never heard of these two. ♣ I have been getting your report for many years, Tom, maybe from when you first started them, and my companies are mainly from your list of stocks. ♣ As you've said before, buying stocks with good dividends and dividend growth is the key. I have kept most of my stocks for years and don't panic if the market goes down. In fact in 2008-09 I bought a few more stocks of good companies when stock prices had dropped. Keep up the good work and thanks.” ♣ TC: In comparison, for the decade beginning in 2000, the return of the S&P 500 was -0.96% (yes, that's a minus).
• Do you still hold mutual funds? The February/March issue of MoneySense magazine ranked the best mutual funds. The honour roll of the top 16 Canadian equity funds annualized returns over the last five years had only one with a double-digit return. The top American equity fund were all negative over the last five years, except for one. The average annual return of Canadian honour roll equity funds was 3.3%. Ask yourself how you are doing in comparison and whether you should still own mutual funds.

• The largest component of stock market return, to answer my question in the first paragraph above, is the dividend yield.