Fourth Quarter 2016
ETFs and income funds spoil their returns by adding a lot of lower quality, plain-vanilla dividend stocks.
Our goal is growth of the spending stream. Yield alone does not move the needle
Can you distinguish between 'current' (or high) yielders and dividend growth stocks? The difference is hugely important. If you can differentiate, and act on that knowledge, you will have a financially comfortable retirement: tens of thousands of extra dollars easily. Most likely you think you can distinguish, but I'd bet you can't. It all has to do with retained earning, not so much with dividends. Inside this site, we link an item in the New York Times on this topic and explain the difference in some detail. Fifty dollars gets you inside dividendgrowth.ca for on-line access from now until the end of December 2017. Among other things, there are yield charts going back decades. Yields send signals. I've been studying them for for over 30 years. You do not buy current yielders! Click on this link: About Us
You might have seen Rob Carrick's column on ETFs on October 28, 2016 and another about the dividend growth strategy a few days later. Or, perhaps you saw mention of my efforts in John Heinzl's Saturday November 5th column. Some say I'm too dogmatic against ETFs. You might say that if you own an ETF. I've been going against various currents for decades. I plan to soften my ETF White Paper when I get a few minutes. My position will remain the same though. In pointing out ETF drawbacks all I am saying is be cautious. The market is high just now. It is NOT a good time to buy! If you are considering an ETF, at a minimum, do two things. First, study the quality of stocks they hold: you want dividend growers, not high yielders. Second, check out their distributions going back years. You might have trouble find distributions for more than a year on ETF sites. Are the distribution variable or growing steadily? Here is the dividend record of a stock in the Connolly Report list starting in 2000: 5¢, .06, .07, .09, .11, .13, .14, .15, .16, .18, .23, .26, .29, .33, .40, .47, .56 now. Does the ETF you are thinking about, or own, have income growth like this? Dividend growth over the period for this stock was 17.5% CAGR. That's per year (over 1000% for the 15 years). And here's the bonus with individually owned stocks: as the dividend rises, so does the price. With individual quality dividend growth stocks you double dip. Your retirement income increases and so does your capital.
♣ Nov 9 ETF comment. I was looking at distributions from the FXM ETF with 100 stocks this morning. Total distribution in 2014 per unit was 73¢; in 2015 it was 27¢; in 2016 so far 19.7¢. This is another ETF which does not grow its income. Do you want such fluctuations in your retirement income? I wondered why there was variability and looked at their top holdings? The second and third positions were mines. Mines are not noted for reliable income. I studied Geology at university and worked across the north in the early 1960s. Air Canada was their #! position. Do you want your retirement income flow to depend upon revenue from the airline industry?