Recent Purchase – Nov ’15

I added two new positions, ENB and RCI on Monday.  The Canadian portion of my portfolio is now complete with only position adds to be performed.  The one thing in common between these two is that they’re undervalued given the continuing historic strength of the US dollar.  Whenever the CAD begins its’ ascent towards parity, I will be positioned for automatic dividend increases via the exchange rate.

Enbridge, being primarily a pipeline company, has seen its’ fortunes sag along with many companies in the energy/materials sectors.  It appears there may be light at the end of the tunnel.  With US elections forthcoming, I would expect to see some relief on the horizon.  Also the new Canadian government, a green minded crew, has signaled that they are not opposed to pipelines with robust environmental review.   Now as long as that light is not a freight train …

On a different note, Rogers Communications was my second purchase.  Now RCI did not make the cut when I created my Canadian portfolio earlier this year for a number of reasons.  However I have to admit that I may have been wrong in that assessment.  Why?  Their moat appears to be wider than I first thought.  With cord-cutting all the rage and over the top solutions delivered in the US, Canada generally isn’t too far behind.  What is a popular choice with cord cutters?  Live sports programming.  I believe content providers are uniquely positioned to profit (think ESPN).  This is where I miscalculated.  Who is better to profit than the providers?  The content owners either in tandem with a current provider or on their own.  With a cellular network in place they have both sides covered.  Oh, their unique content? Toronto Blue Jays (MLB), 37.5% of the Toronto Raptors (NBA), 37.5% of the Toronto Maple Leafs (NHL) …

My 101 Investing Tips Rebuttal

Last week Whimsical Dividends had a blog post referencing Dividend Reference’s blog 101 Dividend Investing Tips from the Experts.  I commented that I had a few issues that probably would result in post to my blog.  Since I can’t complete my monthly dividend report as two of my Canadian dividends are late in posting to my account, I figured now is as good a time as any to respond.

Overall this is a good article  with good suggestions.  However, issue #1 was in the title.  Who anointed these individuals experts?  What credentials have they earned or attained to be classified as experts?  I then reviewed a number of blogs that I was not familiar with and ran across this little gem on The Wealth Building Society‘s page:

A few weeks ago, during spring break, I was offered a fee to write up a list of investment tips. I thought about it for a bit and ended up writing five. Today, the article is published at Dividend Reference. Go there and find mine at #55. I’ve skimmed the list (planning to read the whole thing when there is more time), and so far, it looks great.

I want to let this one sizzle a little before I publish a follow-up article with the other tips I submitted, but didn’t make the cut. (There were LOTS of submissions!)

Kind of like the song Things That Make You Go Hmm…. Well, on to my unpaid rebuttal.  My thoughts are prefaced with a ***

The investor class that has come into the markets has come to know 4 things: 1. Federal Reserve bails out stocks. 2. Interest rates will never rise. 3. Paying up for growth is a can’t miss strategy. 4. Buy every dip. — Paul Rubillo (5)

*** I’m assuming this was an attempt at humor rather than a belief.

If you choose to enroll in a DRIP (Dividend Reinvestment Plan) be sure that your broker honors any DRIP discounts given by companies who offer them to their shareholders. DRIP discounts are a way companies add incentive to their shareholders to reinvest the company’s profits back into the business. I say this because not all brokers will honor the DRIP discount given by companies. — Ace, Dividend Digger (8)

*** The alternative is to enroll in the company sponsored DRIP.

Diversify but don’t over diversify. Adding one stock to a 10-stock portfolio adds a great deal of value, but adding 10 stocks to a 100-stock portfolio may not add any value. Most studies show that a diversified portfolio of 15 to 30 stocks is the optimal number of individual investments. — Ken Faulkenberry, The AAAMP Value Blog (11)

The key words are “may not”. OK I’m biased. My portfolio contains about 107 companies which will top out at about 150. I do have the time to research, a system identified, and a low cost broker. I agree with Ken on the studies but these studies are based on the time (or lack thereof) for research or have as a basis “The top xxx stocks that every DGI should own”. Not one study has been theme based – such as a balanced and diverse next generation robotics DG. I have many of the standards, but I’m also investing across three themes of which one is Regional Banks.

There is nothing wrong with indexing. A passive strategy such as that recommended by Jason Zweig in the annotated version of Ben Graham’s The Intelligent Investor — whereby an investor commits to a plan of dollar cost averaging into equal monthly units of an index fund or ETF representing the entire market — is not a bad strategy. At worst, you will earn the market return over time, and you will dollar cost average into the bumps along the way. — Daniel Austin, Stable Dividend Portfolio (12)

To gain an instant dividend portfolio consider low-cost indexed mutual funds or ETFs. Vanguard offer several dividend focused funds with low fees which pay qualified dividends. For example the Vanguard High Dividend Yield fund (VHDYX) which owns 436 dividend paying stocks (0.18% Fee) or as a commission-free ETF (VYM). Others funds include VDAIX (180 companies) and VDIGX (50 companies). — Trevor, Dividend Life (28)

Just because you love dividend stocks doesn’t mean you have to purchase individual stocks; there are many effective (and low-fee) index funds and ETFs that hold diversified baskets of dividend stocks. — Andy Hagans, Fund Reference (61)

*** With apologies to Shakespeare, To be, or not to be- that is the question:
Whether ’tis nobler in the mind to suffer The slings and arrows of outrageous fees
Or to take arms against a sea of troubles and invest in your own way. Generally any management fee should be avoided.

Turn off CNBC. Turn off Twitter. Turn off Yahoo! Finance. It’s all noise. — Daniel Austin, Stable Dividend Portfolio (17)

Stop looking at your portfolio on a daily basis; daily market fluctuations are part of the game. Don’t let the noise distract you away from your investment plan. Once you have identified the reasons why you bought shares of a company, don’t sell them until those reasons are not valid anymore. — Mike, The Dividend Guy (19)

*** Both answers carry the assumption that new investors lack the intelligence or ability to break from the pack. Perhaps we are all lemmings …

Always pay yourself first. Set aside an automatic transfer from your income every time you get paid. Treat it as the most important bill you have to pay. After all, you want to eat tomorrow, right? And the future you will thank you for diligently putting a little aside. Even if you’re on minimum wage, still do it. Just transfer a small amount and use the cheapest investing service you can find e.g. Sharebuilder, Robin Hood, Loyal3, or others. — M, There’s Value (20)

*** Assuming all bills have been met, a budget cushion is in place – good advice. However people on fixed or low incomes will generally have more unforeseen circumstances where a “pay yourself first” approach could be detrimental.

I like to buy shares (new position or adding on) soon after the ex-dividend date. Share prices tend to hit a short term peak just before ex-dividend and the price will often drop below the ex-dividend share value in the couple of weeks following ex-dividend. In many cases the price savings will be several times the just paid dividend amount. This strategy will produce a lower average cost per share and higher effective yield. — Tim Plaehn, Investors Alley (27)

*** While it is true a stock price will drop at the ex-dividend date, the drop is the amount of the dividend. Any more – or less – is the result market factors. This approach, while saving a few pennies on the purchase, may be more costly due to the Time Value of Money while waiting for that first dividend after just missing the one prior.

Don’t let fees hurt you. While you should try to invest as often as you can, be careful of commissions being too big a percentage of each purchase. I try to wait until I’ve accumulated around $2500 before investing. This way I can keep commissions at less than 0.5% of the total cost. However, if you’re waiting too long, the money you’ve saved isn’t working optimally for you. In that case you might consider setting up accounts at commission-free brokerages like Robinhood and Loyal3. Loyal3 is great in that you can set up recurring investments of as low as $10 into a small selection of high quality companies. — Scott, Two Investing (38)

*** While Scott does touch on the Time Value of Money, another important point is that current US tax law allows broker commissions to offset gains at the time of sale which is an offsetting factor to consider.

Don’t underestimate stock buyback programs by companies. This will reduce the number of overall shares, thus helping the company to keep increasing the earnings per share (EPS) year after year. This is a key figure to look out for as it’s what ultimately leads to dividend increases; if a company can keep increasing its earnings, it will also be able to increase its dividends. — Dividend Legion (62)

*** This true if companies actually retire the shares. Many companies use buybacks to reissue shares as employee compensation without diluting current shareholders.

Try to keep all your investments in one account, or as few as possible and set up reminders to review your portfolio regularly against your focus and goals. Write down your purpose of investing and remind yourself every time you review your portfolio. — Sean Smarty, Growing Money(77)

*** Several accounts will probably be necessary to accommodate the variations of taxable/non-taxable/IRA/contributory/rollover. Depending on the value, multiple brokerages may be warranted for insurance coverage. My preference is to attempt to keep issues consolidated. For instance, I just completed moving OMI to one account from three.