Wednesday, July 2nd, 2008
I have regularly touted that income in the form of increasing stock dividends, from companies with a track record of increasing their dividends, is a great way to build inflation protected passive income.
Investing For Yourself
A new article from Morningstar Columnist, Josh Peters CFA, indicates the same sentiment. In the article he makes a strong case for those of us who are engaged in the Dividend Investing strategy to invest ourselves and cut out the middleman (Broker, Advisor, or Fund Manager). If we develop a clear and focused strategy to invest in dividend paying common stocks that we are committed to understand, then the choice is clear.
Cut out the middleman!
Are Fund Fees Worth The Cost?
He suggests, as I do, that the role of the mutual fund is to prevent the amateur investor from making large mistakes. However, in return, the manager is compensated through fees and fund expenses that diminish the returns of the retail investor…you and me.
I do advocate professional management for sectors that I do not understand such as certain small caps and international offerings that I either can’t cover due to lack of time or because there is a lack of information available to me.
Diversify What You Don’t Understand
You might want to consider, as I have, the inclusion of an International Dividend ETF in order to add some global allocation to your asset mix.
There is no shame in admitting when you don’t have the expertise, information, or smarts to understand a stock or a market. Heck, people who invest professionally (as in for a living) can’t absorb enough information to master every market, so how can we amateur investors be expected to do so? The answer is…we can’t!
You should check out the remainder of the morningstar article, it does present some great points.
Here’s to money!
Posted in Investment News | 2 Comments »
Tuesday, June 3rd, 2008
Time and time again I hear the same thing from friends and family about investing the way that I do. Most of them ask me why I invest in “boring” dividend paying stocks when all of the money to be made is in the high growth stocks.
To be completely honest, they are right…sort of.
Some people do find the less volatile dividend paying stocks boring, I find them exhilarating! As you may have noticed, I’m a huge fan of cash flow. Cash flow is the ticket to play the game of life and dividend growth stocks will eventually allow me to play the game on my own terms!
Yes, it is a long road and the process can be uneventful at times. And no, I’m not going to get rich overnight. However, I also won’t go broke overnight and I am compounding my future cash flow with every dividend payment that is reinvested.
Yes, there is money to be made in growth stocks. There are actually a lot of people making a lot of money in high growth stocks. However, that just isn’t my style and I’m not ashamed to admit it.
I like to have cash flow back to me so that I can make the decision whether or not to re-invest it into the company. I also like the fact that I don’t have to watch the market every day to see if my “high-growth” stock has tanked and left me with nothing!
I have nothing against traders and I actually learn a lot of useful techniques from very good stock traders. However, I have recognized that over the past 14 years an investment in the S&P 500 would have you receiving all of your original investment back just in dividends.
So I guess one could say that dividend stocks are boring, but I’ll give you one more thought to ponder before I get off of my dividend paying soap box!
Take a boring old dividend paying stock — or at least one that seems that way — paying 5% in dividends yearly and racking up a conservative 5% in capital appreciation. Begin with $1,000 and reinvest those dividends. After 30 boring years, you’ll possess a staggering $18,700! (Let’s multiply that number by 10X for a more realistic example)
$187,000 How boring is that?
Posted in Investment News | 4 Comments »
Saturday, May 10th, 2008
I recently had a conversation with a gentleman who really “gets” dividend investing and he provided me with a synopsis of what is going on on a macroscopic scale in the world today. He came up with a “fictitious” conversation that will hopefully make sense to you all. Maybe it will even assist you in determining that you should buy dividend stocks now?
A General Overview
The central banks around the world are dealing with a liquidity crisis by lowering interest rates or injecting money into the financial system.
The Fed has been the most aggressive in cutting rates and injecting dollars into the system, causing the U.S. dollar to fall.
To the U.S., this means that its exports become cheaper and imports become more expensive.
While the world is fighting a credit crunch, inflation is creeping higher. Over time, as the cost of goods and services increase, the value of the dollar is going to fall because people won’t be able to purchase as much with their dollars as they did previously.
The Conversation
(PS – I live in Canada,so the gas price is in liters or litres 
)
“Wait a minute,” Bob said. “I recently read that both Canada’s and the U.S. CPI (consumer price index) is roughly two per cent.”
“You’re partially right,” I replied. “Core inflation is roughly two per cent, but it excludes certain items that are considered too volatile, including food and energy.”
“How can that be?” Bob asked. “Eve (Bob’s wife) told me eggs have jumped 62 per cent in price over the last two years and our food bill has increased more than four per cent over the last year.
“If memory serves me correctly, it cost 94 cents a litre to fill up my car last year.
“Now I am paying $1.18 per litre. If my math is correct, that’s roughly a 25 percent increase,” Bob said.
“Including food and energy, inflation in North America is running closer to four per cent,” I said.
“If oil and food commodities keep rising, then higher inflation and eventually rising interest rates will eventually follow. This is one reason why European countries are reluctant to cut their bank rates.”
A recent report from Bloomberg indicated that CPI in Ukraine was running at 19.4 per cent, in Vietnam it stood at 14.1 per cent, Russia was 12.6 per cent. Inflation in India is at 5.1 per cent and in China currently stands at 6.5 per cent.
These numbers are rising, not declining and there has been social unrest throughout the world because of rising food costs, even in some of the oil exporting nations.
“So what your are saying is that this sub-prime mess is temporarily forcing the central banks to reduce interest rates to help the economy get through this slowdown and credit crisis,” Bob said.
“But eventually, if food and oil costs remain high or continue to rise, interest rates will eventually follow suit.”
What this Means For Investors
(Hint: Buy Dividend Stocks)
As a result, the biggest dilemma savers face today is that at four per cent guaranteed investment rates on products, like GICs, they are only breaking even.
When you include income tax, these savers are likely losing money.
But an equity investor can invest in companies providing a four-per-cent dividend that also have growth potential at, or greater than, the rate of inflation.
So if inflation does rear its ugly head, ultra-conservative savers will be hurt, while with increasing dividends, equity investors will, at least, keep pace with inflation.
Posted in Investor Education | 3 Comments »
