My Own Advisor

Welcome to a new era in Canadian currency folks.

Our Royal Canadian Mint stopped issuing the penny on February 4th mainly because it costs more money to produce the penny than the currency it represents.  Sure, we can continue to keep using pennies going forward but there is no requirement for stores to accept them.  Eventually, the circulation of these things will dry up over time.

What about penny phrases and idioms?  Can we use those still?

With the penny on the way out let’s a look at some phrases we might have to say goodbye to as well.

Bob is one bad penny.  Every time he comes around he wants to borrow cash.

Tom’s SUV is sweet.  That must have cost a pretty penny.

Did you hear about Michael?  He cut off his kid’s allowance without a penny after his kid quit school!

Preet, I would give you a penny for your thoughts!

A penny saved is a penny earned.

Jim is penny-wise and pound-foolish.

Sadly, Chris doesn’t have two pennies to rub together.

Oh, now I get it…the penny dropped!

Despite his great success, Neil is fairly frugal.  He must be a penny pincher.

My brother-in-law wouldn’t like playing poker with me.  I like penny ante poker games.

Ah, I’ll miss the penny saver ads.  Guess I’ll have to get used to nickel saver ads.

See a penny, pick it up; all day long you’ll have good luck; give it to a faithful friend, then your luck will never end.

When I’m in for a penny, I’m in for a pound guys!

Dave counts his pennies because he has a daughter to send to University.

In my 20s, I bought a few penny stocks.  What was I thinking?

What do you mean, I don’t own Ram a penny!

You guessed it My Own Advisor watches his pennies but not as much as his friend Scott!

Any common penny phrases I missed?  What are your favourites?

Thanks for reading and sharing this article.

 

I’ve often read “dividends don’t lie” and I believe there is a great deal of truth to those words.  Companies can either afford to reward shareholders or they can’t; the evidence of company stability can be measured in part by dividends paid over decades of time.  For some companies, while capital appreciation can be tremendous, the trick for the average investor is to know how to find those gems early on in their business lifecycle, figure out when to buy them and in many cases at what price point to sell them for big gains.  That’s very challenging work.

Although this is an extreme example, I look no further than Canada’s most recent media darling to fall from grace, non-dividend payer Research In Motion (RIM).  In less than five years, this company went from its all-time high of about $150/share to under $7/share as last week.  There’s a sad story here, for the company, for its employees and for investors (image courtesy of TMX).

I never bought RIM in part because it never paid a dividend.  Actually to date in my investing career, I avoid tech stocks altogether.  Maybe that’s too much tunnel vision…I’m sure many readers will find fault with my investing logic for avoiding technology stocks or any stocks that don’t pay a dividend, but that’s part of my investing plan and I’m sticking to it.  To be more truthful, I’m simply not confident enough in my abilities to pick the next RIM, Google or next great tech stock.  I prefer not to speculate or follow tips.  For this reason I will always index part of my portfolio with products like XIU and VTI to ride equity market returns.  This way, if I don’t understand an investment I never have to worry about it – I never buy it directly but can own it indirectly amongst hundreds or thousands of other companies.  For the rest of my portfolio, I only buy established companies that have a proven track record of paying shareholders, or me.

For today’s post, I’ve listed three U.S. companies that have a long history of paying investors.  In my opinion, these are moderately priced dividend-paying moguls under $30 worthy of more review.

General Electric (GE:US)

GE traces its beginnings from Thomas Edison, who established the Edison Electric Light Company in 1878.  Today, GE is a diversified infrastructure, finance and media company; involved in too many industries to list in this short blogpost; from the manufacturer of aircraft engines and power generation stations, to managing financial services, to producing medical imaging equipment, to providing television programming.  GE operates in more than 100 countries.

• GE has paid a quarterly dividend for over 100 years and increased its dividend for 32 consecutive years from 1976 to 2007.
• GE dividend = $0.17 USD.
• GE yield = >3%.
• GE price = $19.87 USD as of July 20.

Sysco (SYY:US)

Sysco is the leading supplier for “meals-prepared-away-from-home” operations in North America.   It has sales and service relationships with approximately 400,000 customers, supporting the foodservice industry in North America and around the world.  Sysco operates from more than 180 locations throughout the United States, Canada and Ireland.

• SYY has paid a quarterly dividend for decades, and in November 2011 increased its dividend by almost 4%, marking the 43^rd consecutive year SYY increased dividends.
• SYY dividend = $0.27 USD.
• SYY yield = >3.5%.
• SYY price = $28.87 as of July 20.

Leggett & Platt (LEG:US)

Leggett & Platt are leaders in the furniture and retail industries, leadership and expertise than spans more than 125 years.  Leggett & Platt are diverse manufacturers with four product lines:  residential furnishings (finished bedding, bed frames, bedding accessories and furniture); commercial fixtures and components (retail store fixtures); industrial materials (they own a steel rod mill that produces the steel used in their products); and specialized products (from vehicle seat supports to wireless charging systems).

• LEG has increased their dividend each year for the last 41 consecutive years (1971 – 2012), and for 49 of the last 50 years; dividends have doubled approximately every 5 years for the last 4 decades.
• LEG dividend = $0.28 USD.
• LEG yield = >5%.
• LEG price = $21.60 as of July 20.

If you’re going to own U.S. dividend-paying stocks for the long-haul, companies like these are certainly worthy of more research.  What do you think of these companies?  Do you own them in your portfolio?

Disclosure:  Long GE:US and SYY:US.

Thanks for reading and sharing this article.

In the world of courting and finding Mr. or Mrs. Right, a critical part of this journey is dating.  Same goes for the dividend investor.  Any do-it-yourself (DIY) stock investor, who is planning to live off their stream of dividend income, needs to know their dates.  Here are four dates My Own Advisor wants you to know as a dividend investor:

Dividend Declaration Date – the date the dividend is declared by the company’s Board of Directors.

Ex-Dividend Date – the first date the stock will trade without the right to receive a dividend.  Meaning, if you buy the stock on this date, you will not be eligible to receive the dividend on the upcoming payment date.  To receive the dividend payment, investors need to purchase the stock before the ex-dividend date.  Also on this day, the price of the stock often drops by the amount of the dividend, from the last price in the previous trading session – to offset the dividend payment you are no longer eligible for.

Record Date – the date investors must be registered as shareholders to receive the dividend on the payment date.  To be a shareholder of record, investors must purchase the stock at least 3 trading days before the record date.  This time period allows your stock purchase to settle in your account and put you “on record”.

Payment Date – the date on which the dividends are actually payable to investors.

Most companies have these dates listed on their “Investor Relations” or “Investors” web page.  Finally John Heinzl produced an excellent video describing these dates if anything above was confusing.

If you’re going to fall in love with stocks you better get some practice dating, to find out what you’re really getting yourself into.

Thanks for reading and sharing this article.

 

I’m going to be taking holidays for about a week, so posts on My Own Advisor will be slim to none.  I’ll do my best to check comments and feedback from you over the next few days but the intent is to be on vacation and “unplug”.  I suppose that’s what vacations are for.  Besides, I can’t swing a golf club and check email at the same time.

I enjoyed a nice kick-start to my holiday last night, hanging out with a great team from Horizons ETFs and a bunch of Canadian personal finance bloggers.  Canadian Capitalist, Michael James on Money and the Big Cajun Man were there.  It was also great to see Preet Banerjee again from Canadian personal finance multimedia fame, respected author and writer Larry MacDonald and Rob Carrick, personal finance columnist for the Globe & Mail and a noted author as well.

We chatted about Horizons’ diverse suite of ETFs, indexing, mortgages, credit crises, the Ottawa Senators (no crisis there by the way), Preet’s TV shows, Rob’s new book and some dividend investing, the latter much to the delight of Michael James and Canadian Capitalist actually!  A good time was had by all.  Let’s do it again sooner than later guys.

I’ve got a few posts planned for when I come back, including my struggle with GDSR and TDSR, and my plan for a low-interest rate environment, or any interest rate environment for that matter.  Stay tuned for those articles.

Before I hit the road, I wanted to post a bunch of great articles I read this week.  Check them out.

Take care and happy investing.

Boomer & Echo weighed the pros and cons of waiting to buy a home.

MDJ discussed various forex scams.

Canadian Finance Blog told us how pension income splitting works.

The Financial Blogger discussed your window of opportunity.

Marissa reminded savers that “fun” in “fund” is important.  Nicely said – I can’t wait for my trip!

Michael James on Money was annoyed with some mortgage savings campaigns.  He also enjoyed poking some fun at blog, with a post entitled The Things You Need to Know about Selling Stocks.  In good fun, Michael said in his response to Kanwal’s great post on my site:  “The main idea is that if a business doesn’t give some of its cash back to shareholders in the form of a dividend, you can always just sell some of the stock.”  True, but as long as the companies I own, continue to pay me more money over time regardless of what Mr. Market does, I’ll be a holder of some dividend-paying stocks.  Rest assured for safety and convenience, I will index the rest of my portfolio.  On that note, maybe I need to write a post about when to sell your indexed products?

Retire Happy Blog told us how to minimize taxes on the estate.  He said there are a few things in Canada that are not taxed, so when it comes to estate planning, strongly consider putting your money/assets in a combination of these:  a Tax Free Saving Account (TFSA), principle residence, life insurance and cash.

Retire by 40 listed the best and worst jobs.

SPF asked if Public Service compensation is really so bad?  My answer:  no way!  I think a public service pension is the best game in town if you can play.

Financial Highway offered some tips for yard sale success.

Preet Banerjee said now is the time to get ready for interest rate hikes.   He said:  “Even though the Bank of Canada has not set anything in stone, it’s wise to consider a future with increased interest rates. A hike means mortgage rates, lines of credit and other forms of borrowing money will get more expensive.”  Regardless where rates are headed, I have a plan and I hope to share that with you in a few weeks.

Andrew Hallam said index funds offer a simple plan for retirement riches.

Passive Income Earner is adjusting his DC plan.

Rob Carrick highlighted some of his favourite articles this week – one article telling you not to mistake wealth for financial literacy.

Invest It Wisely shared some mental anchors that are probably holding you back.

Big Cajun Man said…if you have $30 cash….and the answer to the end of this line is, of course, Big Cajun Man buys me dinner.

Check out a great post on Dividend Ninja discussing XDV if you missed it.  I like XDV, but for 0.6% in fees per year, I’d rather own most of the companies directly and skip the fees.  I almost own most of the companies now.

Canadian Capitalist said to be careful if you keep your dividend paying stocks only in a taxable account.  Over time, I’m moving my dividend-payers to my TFSA.  I certainly have a few payers unregistered, so Canadian Capitalist’s advice is duly noted but I’m willing to keep them there for some time to come.

Canadian Mortgage Trends provided an overview of The HOMEWORKS Line of Credit.

The Brighter Life said who to follow on Twitter.  I like the list but I’m not on it, yet!

 

Thanks for reading and sharing this article.

 

The following is a guest post by Kanwal Sarai, the founder of Simply Investing.

Dividends are cash payments made to shareholders.  As a shareholder you are part owner of the company and therefore are entitled to share in the profits. Dividends can also help you determine when a share is undervalued, and priced right for purchase.

There are a number of other additional benefits to owning dividend paying shares, and I discuss my top five in this article.

1.       Dividends provide an immediate return

Dividends provide an immediate return on your investment. Suppose you buy shares in company XYZ, where the dividend is $1 per share per year, and the share price is $20. $1 dividend divided by $20 gives you a 5% return. This means that if you bought $2000 worth of shares in company XYZ you would receive $100 in dividends (in cash) every year for as long as you own those shares, and as long as the company continues to pay the dividend.  The dividend is paid regardless of the share price.  The share price could go up or go down (in fact share prices fluctuate every day) but you will continue to earn 5% each year on your initial investment of $2000.  The dividends are yours to keep, you can choose to spend the money or reinvest it into buying more shares. Without dividends you solely rely on share price appreciation, the gains are only made if you sell the stock for a profit, without dividends there is no immediate return on your investment.

2.       Your safety buffer against the worst case scenario

Dividends provide a safety buffer against share price fluctuations or even the worst case scenario, where the company goes bankrupt and the shares become worthless. Remember once dividends are paid to you, they cannot be recalled or taken back; the dividends (money) are yours to keep. So even if a company goes bankrupt, the dividends you have received to date provide you with some cushion to help minimize your losses.  If you owned shares in a company that did not pay dividends, and the company went bankrupt you would lose 100% of your money. 

In a personal example I purchased $2479 worth of TRP (TransCanada) shares in 2000. Since then I have received $2475.26 in dividends, which almost equals my initial investment. By next year I expect to have earned over $2479 in dividends. TRP shares trade at around $43 today, but even if the share price dropped to $35 or $20, I’d still be making money because the dividends have provided me with a margin of safety against any losses.

3.       Dividends increase over time

Over time financially healthy companies increase their dividend. But why is this important to you? It is important because it means more money for you!  Let’s take a look at a real-life example and see what happens to your return as the dividends are increased over time:

McDonald’s (MCD)

Year       -              Dividend

2003       -              $0.40

2004       -              $0.55

2005       -              $0.67

2006       -              $1.00

2007       -              $1.50

2008       -              $1.63

2009       -              $2.05

2010       -              $2.26

2011       -              $2.53

2012       -              $2.80

Suppose you purchased 150 shares of McDonald’s in 2003 for $13.34 each:  150 shares*$13.34 = $2001 initial investment.  

Yield on Cost = Current Dividend / Stock Purchase Price:  Yield on Cost = $2.80 / $13.34

Yield on Cost = 21%.

After ten years you would have earned 21% based on your original investment of $2001. In ten years your return on $2001 has gone from 3% to 21%, and all you had to do was hold on to those shares. McDonald’s has increased their dividend every year since 1976!

Here’s a list of some other companies and the number of years of consecutive dividend increase:

Abbott Labs (ABT), 37 years

Coca-Cola (KO), 48 years

Johnson & Johnson (JNJ), 48 years

Proctor & Gamble (PG), 56 years

(Disclaimer:  My Own Advisor owns all four of these companies).

That’s consecutive years of dividend increases, dividends increased every single year during the following disasterous events:  9/11, the Iraq war, the credit crunch, the bailouts, high unemployment, the Euro crisis….and so on.  Now I can’t predict the future, but I have a high degree of confidence that companies like MCD, ABT, KO, JNJ, and PG will increase their dividends next year or at the very least maintain their current dividend.

4.       Dividends have a long history of being paid

Some people will argue that dividends are not guaranteed, and that companies are under no legal obligation to pay dividends.  That’s true.  However, quality, financially healthy companies not only increase their dividends over time but they also have a long history of paying dividends.  Companies know that a dividend decrease will result in a decrease in the share price, which is exactly what they don’t want.  So quality companies will crunch the numbers, and verify the numbers to ensure that they can continue to pay dividends, and continue to increase dividends over time.   A dividend increase is a positive sign that the company believes that they have the financial resources to continue to pay dividends. 

Here’s a list of some Canadian companies that have been paying dividends for a very long time:

Bank of Montreal, since 1829

Bank of Nova Scotia, since 1833

Toronto-Dominion Bank, since 1857

Royal Bank of Canada, since 1870

BCE Inc., since 1881

Fortis, since 1949

Enbridge, since 1952

(Disclaimer: My Own Advisor owns most of the companies above).

5.       Dividend yield can help you determine when to buy

You may have heard of the term “buy low, sell high” but how do you know when to buy low, how do you determine when a stock is undervalued? Using dividend yield you can determine if a stock is undervalued or overvalued. Let’s take a look….

I’ll continue with our example of company XYZ, where the dividend is $1, and the share price is $20. Now suppose that the stock price drops to $15 or $8.  What happens to the dividend yield?

Dividend / Share Price = Dividend Yield

$1 / $20 = 5%

$1 / $15 = 6.7%

$1 / $8 = 12.5%

Notice as the share price decreases the dividend yield goes up. All things considered equal is it better to buy the shares at $20 or $15 or $8?  In this example, $8 would be the best price to pay for the shares because you would be earning 12.5% on your investment!  Remember as the share price goes down the dividend yield goes up, and as the share price goes up the dividend yield goes down. You want to buy shares when the stock price is historically low.

Suppose the average dividend yield for company XYZ is 4.5%, the shares are then undervalued when the current dividend yield is higher than the average dividend yield.  If the current yield is 9% you can be sure that the shares in company XYZ are undervalued and worth considering.   If the current dividend yield is 2%, the shares are overvalued.  This example demonstrates it is important to consider the average dividend yield for a particular stock before purchase. 

There are other factors to consider before making a stock purchase decision, but checking the current yield against the average dividend yield should be the first factor to consider; actually it’s very important to me.  Since I started the value investing approach I have never purchased a stock when its current yield was lower than its average yield. This first step alone has saved me thousands in losses, and has provided me with thousands in gains. You can do the same with your investments if you remember to buy quality dividend paying companies when they are undervalued.

Happy Investing!

Kanwal Sarai, is the founder of Simply Investing, and on a quest to bring financial freedom to all. He created the Simply Investing Online Course on the belief that the world can be a better place if people didn’t have to worry or stress out about money. Simply Investing’s goal is to make investing easy, save you time, and help you safely earn more.

Thanks to Kanwal for this post and his on-going support of My Own Advisor.

Thanks for reading and sharing this article.