“What is an investment, anyhow, but a body of capital that produces income. The income may be current income, or it may be prospective income, but it is the magnitude of the income, current or prospective, that determines the value of the capital which produces it.” Arnold Bernhard's 1959 book Evaluation of Common Stocks, p.21

Dividend stocks provide income and the magnitude of that income grows with dividend growth. I take into account prospective income by adding yield and dividend growth to obtain total return. And as the dividend grows, so does the capital. Bernhard has many charts in his book to illustrate this with pairs of charts plotting price and dividends from 1946 to 1958. He compares, for instance, General Telephone whose dividend went from $1.50 to $2.00 over this period, and whose price rose from $15 to $50 to AT&T whose dividend was flat from 1946 to 1958 and whose price was likewise flat. Arnold Bernhard also compares General Electric to Singer, Federated Departments Stores (dividend from .50 to $1.75) to Macy's ($2.50 to $2.00) and IBM to Underwood. It is fascinating material. Too bad the book is out of print.

If your capital is in a mutual fund, most likely it is not producing much income. Funds are not noted for producing income. If you own a fund, check how much income it produces. Do not count capital appreciation as income: gains are not income. Gains disappeared with the market drop in 2008. In contrast, the income produced by the dividend stocks I follow actually went up by 9% in 2008. In 2009 our dividend income went up by 6.16%. There was one reduction: MFC. The most recent increase was Empire…up another four cents per share, per year. That's the game plan with dividend growth investing. We do not have to depend on market prices to fund our retirement. Once the dividend is deposited in your account, it is yours to keep. You can spend it, or re-invested as your needs at the time dictate. From the 1,400 BMO shares Louise bought in 1987, $980 is deposited into her account every quarter. In 2011 we expect another dividend increase from BMO common shares.

Bernhard talks about the value of your capital. That our common stocks produce income makes our capital valuable. This is the ultimate backstop for dividend investors. Regardless of what happens, investors will be drawn to stocks that produce income. Investigate dividend growth investing. It could be your cup of tea. (According to Foods That Fight Cancer on page 129, Japanese Gyokuro green tea and Japanese Sencha green tea contain the most anti-cancer compounds…catechins…about one third by weight of the tea leaf. It's the EGCG (epigallocatechin gallate) you are after. “Japanese green teas contain far more EGCG than Chinese teas”. 127 We prepare a cup of Gyokuro every day. We never let the water boil, nor use tea bags. Foods That Fight Cancer is a great book as is Cooking with Foods that Fight Cancer. (gobs+ccc+TTT is my memory key for the 11 good cancer fighting foods…GOBS = garlic, omege-3, berries, soy; 3Cs = citrus, chocolate (only dark), cabbage; 3Ts = tomato, tumeric and tea (green and Japanese)) The eleventh is red wine.

http://online.wsj.com/article/SB124423818488390157.html

Jason Zweig's June 6 column in the Wall Street Journal

The decade from 1998 to 2008 was dismal for most investors. It was not dismal for dividend growth devotees. It was a lost decade for people who invested in 1998 because is was the peak of the bull market for many stocks. If you buy when stocks are popular and prices are high, future returns will be poor. It's that simple. And poor returns they were. Ten years later, at the end of 2008, share prices the world over had plummeted. Return, note, is composed of two elements: capital appreciation and income (interest or dividends). If your stocks do not gain in price and if they do not pay dividends, what do you get? Zip! If on the other hand, your common stock not only pays a dividend, but grows the dividend, what do you get? Both…gains and income.

I was curious. How did our dividend growing shares handle this dismal decade? Actually, quite well. There were no negative numbers among the dividend-paying stocks in my list for the decade ending December 31 2008. If we can handle what happened last year, we can handle anything, right! On average, dividends provided most of the return over the decade. This is too be expected when prices are not roaring. The average return provided by dividends from stocks in my list was 63% from 1998 to 2008. The high was 134% from BMO, the low 10% from Empire. Average dividend growth over this decade was 14.8%. Most common stocks in the list had double digit dividend growth (preferred stocks do not provide any dividend growth: I do not buy preferreds)). The only four commons with single digit dividend growth were TRP, CU, TOC, LB. I'll have a full report on this data in my June 2009 report. I'll print a few extra copies. It is important to know how dividend paying stocks have done. “it is to be expected that dividends will continue to outpace capital gains for some time” David Stanley, MoneySaver May 2009

David Stanley had an excellent column on this topic in the May 2009 issue of Canadian MoneySaver: Dividends Take The Cake. I thank Dr Stanley for the idea and for his help in developing the data I needed to do this project for all the stocks in my list. Dr David's data went from 2000 to the end of the first quarter of 2009. The CAGR of the TSX was .74 for that period…less than 1% see what I mean by dismal). The CAGR of the nine dividend stocks he did (all in my list) was 9.56%. CAGR = compound annual growth rate. David Stanley found the portion of the return provided by dividends was 77%. Connolly thought: if your stocks do not pay dividends…how do you make your money? There are people out there who buy stocks that do not pay dividends: imagine! Of course, there were people who bought asset-backed commercial paper too. But that's another story.

Rob Carrick's Personal Finance column in the Report on Business of Thursday June 4 contained an interesting idea about how much money you need to fund retirement: for every dollar of income you need to live on, you should have $20 saved when your retire. There were a few flaws in the return assumptions used by Russell Investment Canada and in the split between bonds (65%) and stocks, in my view, but hey, we are after ideas. And, if you have not retired yet, the column contains ideas on the topic.

http://www.theglobeandmail.com/globe-investor/investment-ideas/a-rule-for-funding-golden-years/article1168107/

'Death unleashes goodwill…' tips to avoid family feuds June 5 2009, John Heinzl's column has good ideas on estate planning:

http://www.theglobeandmail.com/globe-investor/investment-ideas/personal-finance/death-unleashes-goodwill-mean-spiritedness/article1170027/

Reading both Carrick and Heinzl regularly will give you most of the ideas needed for investment and financial planning. They both know their 'stuff'.

On May 26, at Toronto East General, a brother for our grandchild Julia: Zachariah at just over 8 lbs (4.05). Another education savings plan with a few dividend growth common stocks will begin. All are well.

The Top Picks of BNN's Market Call in the Report on Business of May 26, 2009 were three stocks I follow: Shoppers Drug Mart $43.88, CN Rail $46.02, BCE Inc $24.57. I find it interesting what the 'recommenders' are able to say about their top picks in just two or three sentences in these small columns. About SC: “The stock has lagged the rally due to its perceived defensive nature.” This is also true for some other non-financial stocks in my list. They (utility-type stocks) have yields which have not been higher in years. Investors get excited about certain sectors now and then and perfectly good commons are left by the way side. About CNR Bruce Campbell said; “The stock has underperformed lately and trades below its historical multiple.” TC: Well of course it has, there's a serious recession about. The question is how long will the recession last. When will trade recover? Elsewhere in the May 26 Report on Business that question was addressed by a roundtable panel. The title was 'It's a punctuation point in history' not just a recession: Don Tapscott. And finally BCE. “The stock has been depressed by Ontario Teachers'Pension Plan's sale of 30 million plus shares.” TC: If Teachers' is selling, should I buy, is my thought? Mr Campbell, president of Campbell and Lee Investment Management, ended his spot with three positive points about BCE. (On this score, I was reading another chapter in The Money Makers last week at the cottage. It's a book by Johnathan Davies about very successful money managers in the U.K. Anyway, this one chap, before he buys a stock, lists all the things about the company he does not like. It's a good idea. DBRS reports point out this type of thing too.)

What I have found most fascinating about these BNN Market columns in recent months is how well these professional's picks, made a year ago, have done*. I certainly do not wish to single our Mr Campbell, but generally the answer is: the professionals did not do well. Last March [2008] Lehman Bros 'failed'. The author of a book about Lehman's demise was on The Current yesterday (we love Anna Maria). Stock prices fell last Spring [2008]. What we did not realize at the time (and I include myself, as I purchased a couple of stocks too early too) was the depth of the credit crisis and how solid dividend stocks fell with the chaff. More scat hit the fan in the Fall of 2008. I think there is more to come. I'm being cautious. Still, these are some good, non-financial stocks will solid and growing dividends available at fair prices. The ones which held well last Fall are weakening now. What to do, eh! Today we are not concerning ourselves with stocks: we are celebrating…our daughter comes home with Zach…Trius Canadian sparkling wine is on tap. I'm doing dinner starting with vichyssoisse sprinkled with fresh chives from the garden.

*Only as a matter of encouragement in your stock selection and to make you feel, perhaps, somewhat better after a bad year in 2008, the picks of the manager above last year were down -32%, -23% and -36% a year later. The selections of the manager mentioned below (May 20th) were below too at -6%, -49% and -48% a year later. The Power Corp shares I added to my own portfolio last year are below water as I key this too, but the dividend is firm. Dividends, generally, are more secure than prices and less volatile than earnings. May 28th picks of a year ago are down -59%, -10%, -53%…and they say professionals do better.

On May 20 2009, BNN's Market Call column had three stocks I follow mentioned by David Baskin: TransCanada (“a stable base in pipeline operations and power generation”), BCE Inc (“has become a much more efficient company”), and Canadian Utilities (“a very steady business model”). But, think outside the box: this column runs four days a week, and picks three stocks a day or over 600 choices a year. How many will be winners? (BNN presents Market Call live at 12:30 Eastern; 9:30 Pacific. I've never seen it: we seldom watch television.