Income Investing Explained – Interview and Giveaway
“Dividends matter, because they support my plan, just like capital gains matter, share buybacks matter, paying down significant amounts of debt to increase shareholder value matter, and so on.” – My Own Advisor
I know for other investors, dividends and the income derived from their portfolio matters as well but there is never a one-size fits all strategy when it comes to investing.
“In most cases, there is never one answer which suits all situations, but hopefully the explanations within this book will make investing easier for the beginner, and provide some clarification to the more experienced investor. It is best to be as prepared and informed as you can, and I hope my book will add to your knowledge and confidence when it comes to your individual investment decisions.” – Henry Mah, author, Income Investing Explained.
The premise of income investing
Henry Mah (cannew by name from this site as a frequent contributor) is back, with a new book, which answers a number of reader questions as a follow-up to his previous books – profiled on my site:
There is certainly an allure to income investing, an approach Henry is very fond of:
“I’m suggesting that there are about 40 Canadian and 50 U.S. companies that possess the qualities of a good dividend growth stock.”
Henry’s latest book highlights some of those stocks and goes even further to suggest you have a clear process to identify them. In his words: “take the time to apply the analysis, which I’ve explained in great detail in my earlier books, to narrow your selection.”
I got a chance to chat with Henry again, including asking him a number of questions about his book for readers of my site that might be interesting in learning more about how Henry invests and more importantly, why.
Henry, welcome back to the site! I see you’ve been busy writing again!
As always, I really appreciate that you’ve honored me by reviewing my books and your insightful questions.
So, let’s dive in. What makes this book different from your previous books? What additional details do you share for readers?
My first book, Your Ever Growing Income, was intended to explain, in full, the income investing strategy and teach readers how to find, evaluate and develop what I call a “List of Stocks to Consider”.
Based on that, I feel the list you develop should become just those stocks you might consider buying, ignoring any stock not on that list.
The second book Your TFSA Compounder, was to show how one might achieve financial independence by investing in a TFSA and following an income investing strategy.
This book, Income Investing Explained, answers questions about how to make investing decisions, once you’ve developed your “List of Stocks to Consider”, given different market conditions. It started out with a simple concept of answering questions from readers, but became an opportunity to share more of my philosophy around investing, and educate people in general about this approach and investing. The more you know the better your decisions will be.
I know your book goes into great details on this, but can you share your five guiding rules for owning income paying stocks? Why are they important for investors to consider?
Initially I listed four rules:
- Don’t consider any stock which has cut their dividend in the past 10 years.
- A company must have paid a dividend for at least 10 years.
- A company should have raised their dividend for the past 10 years.
- The dividend paid should have increased by at least 75% over the past 10 years.
In my third book I added a fifth rule. Even though it is not set in stone, I think it gives a clearer and more current status of a stock’s dividend.
- Avoid stocks which have not raised their dividend by at least 3% over the past three years.
I believe these five rules provide a simple, easy and quick method of screening dividend growth stocks, with the objective of finding a select few dividend growth stocks to own for growing income. The intent is not to find the most dividend growth stocks, just the ones you feel best to suit your investing objectives.
I believe you have shared part of your portfolio with me before, but for new readers to this site – how do you invest and “do you eat your own cooking?”
I have always tried to buy stocks at a reasonable price, ones which have paid and grown their dividend. I’m often asked which stocks we own. But, there are probably 30 Canadian dividend growth stocks, which if invested in by following the income strategy I enjoy, would provide anyone with the same income growth we’ve achieved, if not more. Initially we held about 50 stocks within our portfolios, but gradually we reduced the number of company shares, to a few we felt comfortable with. Currently we own just 10 Canadian dividend paying company stocks within our RRIFs, TFSAs and non-registered accounts. Our experience has shown me that one does not need to own a large number of stocks to generate a significant amount of growing income, even in retirement.
The longer we followed the strategy of investing for income, the more we recognized that, being able to live off our investment income was a real possibility. Once we achieved that goal, the income just continued to grow.
I’ve included a list of 45 Canadian dividend growth stocks to begin your screening, in the book.
Is there ever a time to sell an income stock and if so, when? (I believe some investors might have been very tempted and potentially did sell many stocks when the COVID-19 pandemic hit.)
It is my personal opinion to never sell a stock which continues to pay and grow your income, at a reasonable rate. My third book is a much more in-depth look into the income investment strategy, not just when to buy, but when to divest yourself of underperforming stocks. It’s difficult to list specifics in a few lines, because even a dividend cut may not be a reason to sell a particular stock. What I suggest is that one look for markers, that will indicate which companies might cut possibly their dividend and allow one to take action before a cut occurs.
I’ve seen some of your posts on that Mark!
Fair point Henry! OK, your book highlights some unconventional wisdom when it comes to holding more bonds as you age – why?
I don’t believe an investor, regardless of their age, should hold ANY bonds, or fixed assets, in their investment accounts. (Mark – wow! Why is that?) Mark, once I found dividend growth investing, I always tried to maximize the income our investments generated. Fixed assets are recommended to cushion market fluctuations and limit potential capital losses, if one had to sell shares for income during market corrections. But, I wanted our income to grow continuously, whether the market was up or down, and not be subject to the ravages of inflation. Fixed assets just didn’t fit into that plan.
Investments are not savings or monies set aside for emergencies, which certainly can be fixed assets or cash. I firmly believe that if your emphasis is a growing income (which mine is), then fixed assets don’t provide significant income, or specifically, any growth of income, which is essential as one ages.
(Mark – that is controversial for sure. I intend to hold this much cash in semi-retirement because I’m far more comfortable with that.)
Finally, given the market turmoil right now, what key takeaways do you have for aspiring retirees who may want to build an income portfolio? What big risks should they be mindful of when it comes to income investing?
Your question relates to those close to or in retirement, but I believe any investor, even those up to age 80 and every age in between, would be best served by sticking with dividend growth stocks. The key is to be very selective in your choices and to seek only the best dividend growth stocks to invest in, at the time.
For those at retirement age like me who have been through several market corrections over their lifetime, they should ask themselves: how might their portfolio have fared, had they not bought or invested in mutual funds, ETFs, REITs, growth stocks and higher yielding stocks, but stuck with a few of the best dividend growth stocks?
In each of my books I’ve tried to stress that one should try to find, through simple evaluation and analysis, the best stocks they can find and the ones they feel most comfortable with. By doing so, they will likely be buying slower growing stocks and possibly ones that could be more expensive at any given time, but in the long-run they will likely turn out to be the most dependable by delivering growing income.
Even though Henry and I invest differently (I own low-cost ETFs, he does not), you can see he has passion and conviction for his income choices. Henry has found an investing approach that meets his needs and passes his risk tolerance test.
I encourage all investors to understand their biases when it comes to investing and ensure you are not taking on any investment risk more than you can handle.
Now, for a giveaway, I am happy to select one lucky reader at random who will be provided a copy of Henry’s new book Income Investing Explained. Enter to win and good luck!
Got questions for Henry? Leave a comment. Henry (or cannew) is always good to respond as best he can.
Thanks for reading,