After years of investing in high-priced mutual fund products I decided to leave the mutual fund industry and I haven’t looked back since. I now manage my portfolio by investing in some low-cost Exchange Traded Funds (ETFs) and holding a number of Canadian and U.S. dividend paying stocks.
I’m a fan of holding a diverse basket of dividend paying stocks, for the cash flow they can provide and the capital appreciation they can offer me over time. This means as an investor I feel like I’m getting the best of both worlds – cash now, hopefully increasing cash flow via dividend increases in the future and stock price appreciation. You can consider the same approach for your portfolio depending upon your investing goals and objectives.
To provide insight into a new service targeted to dividend investors, the following is a guest post and interview with Dividend Earner who just created Dividend Snapshot – a new dividend stock performance list.
My Own Advisor – You already run a well-known site called Dividend Earner. Why create Dividend Snapshot?
Dividend Earner – I wanted to separate my personal dividend investing experience and stock reviews from a product website. There are differences between running a site where you sell products and run a blog. It was important to me that they be separate entities. The blog will reference Dividend Snapshot as my source for dividend investing data.
My Own Advisor – Why do you have a bias for dividend stocks?
Dividend Earner – There are a number of reasons but technically, there is a certain predictability to earning dividends. It’s akin to earnings interest. If you go back to the 1980’s, my parents were able to have 10% interest and it was predictable where you would land. Without such possibilities nowadays, I believe dividend investing is really the closest strategy to that.
When selecting blue chip dividend companies, you get some safety during bad markets. When you focus on companies that provide a necessity, you know what they sell will always be needed. Predictability (income) with a certain control is why I am a dividend investor as I get to choose if I want a slow growth stock with good yield or a growth stock with a lower yield. I put all my dividends back to work to generate compound growth by reinvesting dividends paid.
Ultimately, I want to retire from the income my portfolio generates.
My Own Advisor – Are there any key dividend metrics you focus on more than others?
Dividend Earner – Yes, there are specific metrics I look at.
First of all, dividend growth matters a lot in the accumulation years. The Dividend Performance List from Dividend Snapshot has evolved to include growth, as I try to have some stocks with a 10% dividend growth on average over the past 10 years. It’s no small accomplishment in Canada to have increased dividends for 10 consecutive years and on top of that, to have 10% dividend growth on average.
Basically, the key metrics I look at, which are used to generate the Dividend Performance List Score, are the Price/Earnings (P/E) ratio, the yield, the dividend growth and the dividend payout ratio relative to its historical average. The list is setup in a way that you can easily filter out companies by sector for easy comparison and that’s often what I do as I try to maintain a balance between the different sectors.
Whether or not you are focusing on growth or capital appreciation, there are different data points that can be used to select a good investment at a point in time. The point in time is an important factor as stocks tend to fluctuate in value and the list will show the fluctuation that happens over time. For example, when the stock SNC-Lavalin (SNC) got hammered, the opportunity score went up. Does it mean you should invest? Not at all but it highlighted a possible entry point if you were so inclined to take a risk on the company’s legal trouble.
My Own Advisor – What dividend stocks have you purchased lately, using your own Dividend Snapshot?
Dividend Earner – I have bought the “boring stocks”. Since the beginning of the year, I have bought Agrium (AGU), Canadian National Railway (CNR) and TransCanada Corporation (TRP). I also consolidated the six major banks I held into three core holdings for me: Royal Bank (RY), TD Bank (TD) and National Bank (NA).
I mostly add to my current holdings at this point but I use the list to select which of my holdings to add to. I also pay attention to the list in case it’s worth selling an old position. You can easily filter out the list of stocks where the yield is greater than 3%, has increased dividends for 5+ years and has a dividend growth of 5% on average over the past 10 years. You may not find any stocks so you revise the criteria. The list has more than 100 Canadian dividend paying stocks to choose from – mostly blue chip stocks.
My Own Advisor – I can appreciate the power of dividend investing (I use this approach myself) but I’m also a happy “hybrid” investor investing using more Exchange Traded Funds (ETFs). There are also happy index investors out there. What do you say to those happy indexers about your new service?
Dividend Earner – Happy indexers should continue to index.
One powerful investing rule is to stick to the investment strategy you believe in and use it effectively. It takes years to benefit from a strategy and learning the ins and outs. One thing I have learned is that my investing strategy is not the main growth driver in my overall portfolio but rather my ability to save consistently. My strategy allows me to put my money to work and I can see it working, so I feel comfortable with my strategy in any market.
If you have chosen indexing as your strategy, then stick with it. I’ve simply been passionate about my approach to dividend investing so I created a service to share it with others.
Thanks for your responses Dividend Earner.
My Own Advisor disclaimer – Dividend Earner is a passionate DIY dividend investor and I wish him continued success of his blog and for his new service. Dividend investing is however not for everyone and is not without risks. Regardless of your investing approach please consider consulting with a trusted financial professional before making any major investment decisions. Thanks for reading.
Really good advice and your both correct, there is no one way to invest or determine what are the best choices. Everyone should learn as much as they can and decide what they want from their investment, then seek the approach which they feel most comfortable.
I’ve expressed many opinions here and on other sites but they are the one’s that work for me because I’ve achieved my goal and it continues to work, but they may not be what others want.
Nice to have links to other sites and opinions.
Oh for sure….so many ways to invest. I figure the “hybrid” approach is working for me now. No complaints to date and we’re inching closer towards our goal (of $30k in dividends) with every passing month. That feels good. Always great to talk investing especially with sharp folks like yourself Henry.
Enjoy the weekend!
Thanks for the question. I am glad you are asking and that you have a process. Well done!
It seems that there are some similarities but my list is not about stocks that have 10 years of dividend growth. It’s about much more since I have well over 100 stocks and growing. I also calculate a score to help assess the opportunity value of a stock at a point in time. If you find it hard to find stocks to look into, that’s one way to see the movement up and down the list. The list will show the previous score as well so you can see the movement. That’s how I can easily spot changes in HCG or SNC which highlight an opportunity buy.
Every investors need to figure out what data they need. Some people need the Graham number but I don’t. Some techniques are very math focused and not understood. It’s not a direction I will take.
I started with 109 stocks and I have 3 more for a total of 112 and will add more regularly. I started with the large caps and will add smaller companies over time. After investing for 5 years in dividend stocks, one thing I have learned is that you cannot focus on just the stocks that meet your criteria today as there are more stocks nearing the criteria selection and you want to pay attention to that.
For example, if your criteria is 2.8% yield, look for 2.4% to see who else is around? In fact, you may run the first filter without the yield and you may be surprised to see MRU or CNR in the list. The yield is lower but the stock appreciation is greater.
If the list works for you, that’s a great start. Use this link: (http://www.dripinvesting.org/tools/tools.asp) You will find 4 list total (3 US and the one you mentioned). The problem from my point of view with those list is that they restrict the list and I don’t want the restriction as an investor. I want to see all of the stocks. In fact, just to show I have not come up with the list just to make money, the TSX has a screener that can do almost all of the yield filters you have, it just doesn’t track consecutive dividend increase. I had to build my list on my own. The list mentioned were born out of not having enough options with Dividend Aristocrats.
What I am trying to do is save someone time since all the information is free. You simply have to read the annual reports but it’s time consuming. If you are not afraid to spend some good money, YChart will give you all the data you want but it’s not cheap so I provide an alternative.
Ultimately, those who find my scoring and extra information useful will benefit from it. I have more in the works that I will be disclosing over time.
Hi Mark: I have very recently been relying on a sorted list of the top stocks in the “All Star” list. A friends does a sort for me to identify stocks based on this criteria, such as: for (1) streak >/=8 years, (2) dividend yield >2.8%, (3) 1-Yr, 3-Yr, and 5-Yr DGR >/=5.0% and lastly, (4) by the latest dividend increase >/=5.0%. This results in a rather short list of about 11 stocks that meet this criteria. All others fall below the line in a declining list.
Good criteria. To me the dividend streak is important as is the dividend growth. I don’t worry so much about current yield. You can make money via dividends or capital appreciation or both.
Taking a guess, I suspect your list of CDN stocks is CU, ENB, EMA, SAP, BCE, T, FTS, SJR.B, CNR, etc? Just a guess of course but many brand name blue-chippers I would suspect.
How does this compare to the Canadian Dividend All-stars List?
Good question for Dividend Earner Helen.
I’ll let him respond.
I think although I do not know for sure, Dividend Earner goes beyond the “All Stars” and looks at suspected “emerging stars” to 100 companies.
Do you use any lists to help you decide what stocks to own and when?