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.