Fortis: My Ticket To Financial Freedom

I'm very excited to announce another dividend increase this month. This time from Fortis.

"The 3.6 per cent increase in the quarterly common share dividend to $0.29 from $0.28 extends the Corporation's record of annual common share dividend payment increases to 38 consecutive years, the longest record of any public corporation in Canada." (Marketwire - Dec. 14, 2010)

At first glance 3.6 per cent might not seem like much, but it's enough to keep up with inflation which gives my retirement nest egg the buying power it's going to need in the future. My investments in dividend paying companies with proven dividend growth is like a gift that keeps on giving all year long. I can't wait to see what 2011 will bring with the income fund conversions and the big bank rumors of increasing dividends.

When Is A Good Time To Buy Stocks

There was a question posted by a reader that I thought would make an excellent topic this week. When investing in a dividend paying company, should you wait for the stock price to dip to a target price or should you just buy in at any time?

 I've read a lot of articles and stories on people who have been investing for over 40 years and and never cared about what the price was at. They just kept re-investing their dividends and purchased more shares when they had the capital in the companies they thought were performing well and have been very successful with this strategy.

Once you have enough dividends rolling in to purchase full shares, you can set up a dividend re-investment plan or DRIP to have your dividends buy more shares automatically. Using DRIPs allows you to purchase shares without paying a transaction fee and at a slight discount, depending on the company you invest in. This compounding will allow your investment to grow with the least amount of maintenance. The downfall of DRIPs are that you are forced to buy shares automatically at the current market price. Also, DRIPs take a longer amount of time to be more effective. It really depends on each individual investor to research if DRIPs are right for them.

I've also read many news articles and investment strategies of investors who carefully monitor the market and save their dividends and investment capital to buy when stocks are attractively priced with excellent yields for maximum return on their investment.


Trying to time the market is one of the hardest things an investor can accomplish. Unless you are an advanced day trader with professional software that can monitor the best time to buy, it's going to be very difficult to hit the buy button at the most opportune time. One thing you can count on is market corrections to lower stock prices. Depending on how drastic the correction is, you could see your target buy price for a favored stock pop up before you know it. I remember when I wanted to buy Fortis and the stock price was hovering over $28.00 with a 3.8% yield and I thought the price would never drop to get a yield of 4%. A few weeks later it dropped to $27.50 and I bought thinking I snagged a good deal. The next day it dropped even lower and I could have had a higher yield. FTS slowly recovered and a few months later there was a huge drop in the stock market; the one where someone sold a whole bunch of stock and caused the market to plunge in minutes. I know people who picked up Fortis for like $25-$26! You never know when a super buy is going to reveal itself, so the only thing you can do is have funds waiting to make this strategy work.

I prefer to buy shares when the price is right for the time being until my portfolio is established. Buying larger batches of shares at bargain prices means less work down the road as you sit and watch your yield grow with each dividend increase and stock split. Some might argue that you don't see as much compounding growth with this strategy, but I disagree because each share is bought more efficiently with a lower amount of capital which makes up for the discount that DRIPs allow. I'm not really at the stage where DRIPs would be efficient anyways, but if you are at the point where you can DRIP more than 50 shares with each dividend payment, you probably don't need to read this blog! I always look at a stock's 52 week High and Low to gauge if a stock is at a decent price or not. I tend to buy when it's closer to the low, and when it's closer to the high side I tend to hold off and wait for a better opportunity.

Like anything in life, there are consequences to everything you choose. Buying stocks when the price is right can have you waiting for a while, missing out on a few dividend payments or missing out on a slight gain with a stock split, forcing you to buy shares at a slightly higher price than if you had purchased them prior, for example:


Let's say there was a solid blue chip company that raised it's dividends each year called Super Amazing Inc. The stock is listed as SAX, and priced at $70 per share. Investor A knows the company is solid, and has dividend increases each year so he invested $7000 to buy 100 shares of SAX. Investor B knows that Super Amazing Inc. is a solid company as well but thinks the price is too high for the yield it pays in dividends. The stock slowly increased to $80, then $85 and was hovering between $83- $85 for six months. The board of directors decided to split the stock to $45 per share and investor B decides to buy 200 shares of SAX since it's priced so low. Investor A still has a better yield because he now has 200 shares from the split as if he purchased them for $35 rather than investor B who bought 200 shares at $45.

Whether you wait for the right price or you buy whenever the funds are available, the most important thing to keep in mind is that you invest your money in a solid, dependable company with a proven dividend growth history. As long as you keep investing in the right companies, your investments will always be profitable.
There really is no right answer as each investment strategy is proven to work; it really just depends on the individual investor's mindset and how long your time line is before retirement.

BCE Does It Again!

Just a quick snippet before I head out to my Christmas party tonight. Look for my next post on when to buy later tomorrow.

BCE announced another dividend increase for 2011. "The BCE annual common share dividend will increase by 7.7% to $1.97 per share, effective with BCE's Q1 2011 dividend payable on April 15, 2011 to shareholders of record at the close of business on March 15, 2011"

That's great news to start the weekend off. I just wish I had bought more shares when I bought in earlier this year. My purchase price was 27.84 and my yield was 6.25% and my current yield on my investment with the new dividend is now 7.07%! I can't wait to see what 2011 has in store for dividend increases. Slowly but surely my investment strategy is paying off. I just wish I knew about dividend investing 10 years ago!

Enbridge, My Golden Boy

"Enbridge Inc. today announced that its Board of Directors has declared a quarterly dividend of $0.49 per common share payable on March 1, 2011 to shareholders of record on February 15, 2011. The dividend reflects a 15% increase from the Company's prior quarterly rate of $0.425 per share"- CALGARY, ALBERTA--(Marketwire - 12/01/10)

What a birthday present I got this week! I remember back when I first bought Enbridge stock last year. I had no idea what I was doing and after talking with my brother on how well ENB was doing I decided to buy in. The day after I bought the shares, the stock dropped .50 cents and I almost had a bird. Like most people, my first reaction was to sell, sell, sell and cut my loses before it was too late but I kept a cool head and persevered. I've learned so much since my awkward start and now that I've found a great strategy to follow, self investing has become second nature. Part of me likes seeing green numbers when I check my portfolio, but part of me also likes seeing red numbers so that in the near future I can buy more shares when the price is right.

So what's the big deal about a 6.5 cent increase you say? I bought my Enbridge shares when they were $48.53 and paid a dividend of $1.70 per share. My yield on my investment was:

1.70 / 48.53 =  3.5%

That might not seem like very much of a return, but look at my yield jump up with the new dividend:

1.96 / 48.53 = 4.038%

My new yield is just over 4% on the same stocks I purchased last year. And the best part is I didn't have to lift a finger to get the increase. The only thing I have to do is look forward to my new dividends being paid into my trading account next year. If your still thinking to yourself, "Big whoop.." just imagine if my return increased .5% each year. After ten years, my return would be over 9%. That's an almost guaranteed 9% return in year 11 of my investment. That's huge considering most investments fluctuate with the market and can never be consistent. Slowly but surely my portfolio will grow through small dividend increases every year and my goal of an earlier retirement will become a reality. Until that day comes, I'll welcome any dividend increase with open arms.

To my dozens and dozens of readers:

Do you own Enbridge stocks? Are you excited like me hearing the great news?

 

Divdend List and Thoughts On The Future

Taking a look at the current list, there are still many good companies offering a yield over 4% as noted in the green highlights. I get a lot of people asking me which company they should buy first. That's not an easy question to answer because it's dependent on the person. I can only recommend looking at my list, then researching each company yourself for your own due diligence. Find out what their cash flow is like, look at their dividend growth history and buy when the price is right. I usually look for a yield of at least 4%. Anything lower then that will take too long to grow to a decent percentage in the future, but there are some that say I am wrong and that solid companies can be bought at any price. That's why it's important for individual investors to find out what works for you and your level of risk for investing.



Not every company will be around forever. Who knows, when 2012 rolls around and human beings are able to communicate through telepathy, will the telecom companies still be around? I highly doubt it, although my guess is that tinfoil hat stocks will go through the roof. No investment strategy is perfect and I guarantee you will have to evolve your investment strategy to evolve with the ever changing world around us. My advice is to look at the Canadian banks. There are rumors that they are increasing dividends next year and I'm looking to pick a few more up before they do. Insurance companies always seem to make money, as well as utility companies. Everyone needs to eat, so grocery stores should always see profits well.

My next post this week will expand more on this topic of investing for the future. I have more time to focus on my blog now that my condo is listed and we have most of the packing done. Hope my readers will forgive me for my lack of updates. Enjoy the rest of the weekend.

Renting Versus Home Ownership Part Two

 Part Two

In my last post I reviewed the pros and cons of renting a dwelling. Although you may have bad neighbors or a lazy landlord, the amount of money saved by only paying rent with no maintenance and no expensive mortgage could offset the bad with more money left for personal spending or investing for early retirement.

Home ownership on the other hand might seem to be the ideal choice to the majority, but it too has negative points that might not be apparent until they sneak up on a would-be home owner. In my opinion the number one problem with home ownership is that 99% of new home owners don't have enough money to buy a home. The only way to afford a house, especially in this day and age, is to get a mortgage from a lender. Depending on mortgage rate and amortization, you could pay two to three times the amount of what you paid for your home in the first place. Bi-weekly payments and putting down extra money will help a lot with the added interest, but it's still alarming what you end up paying in the end. Having a mortgage means you can't just up and move. You have to sell your house first, and possibly pay a fee for breaking your mortgage. If interest rates rise up quickly, you can have a nasty surprise when you go to renew your mortgage; just ask any homeowner from the 80's what that's like. Along with hefty mortgage payments, there is the lovely bonus of paying property taxes, sewer, water, heating bills, electricity and an ugly word called maintenance. Now depending on where a person is renting, they may never see utility bills because they are included in the rent but I can guarantee the rent is adjusted to cover the costs to the landlord.

Maintaining a house is a lot of work, and over the years wear and tear can end up costing a lot of money unless problems are fixed as they happen. An ignored leaky roof can end up costing thousands of dollars in unseen damage rather than spending a few hundred to have it fixed by a professional when it's first noticed. That's why it's important to have a separate saving account and sock away $100 to $300 each month depending on how old your house is to pay for ongoing maintenance. Houses not only cost money to maintain, but also time. Grass needs to be mowed in the summer, snow shoveled in the winter. Rich people pay others to do that work, but what's the fun in that? There's nothing like drinking a cold beer on your freshly cut lawn in the summer time. Shoveling snow in the winter on the other hand just plain sucks, period.

The perks of home ownership vary depending on who you ask, but for me I've always aspired to have a house to call my own. Having a mortgage is a major drag, but I imagine once my house is paid off there will be a great feeling of freedom that no renter could ever imagine. With each mortgage payment a home owner builds equity in their property which can be unlocked with a home equity line of credit (HELOC). Using your house as a secure asset, you can get a lower interest line of credit that can be used instead of applying for personal loans. If you have credit card debt, you can pay 3-5% instead of paying 19% on the balance. If you were looking to buy a new car, you could cut a cheque from your line of credit and possibly pay the cash price instead of the bloated finance price. You can also renovate your home using your line of credit and increase your home's value if you decide to sell.

My personal favorite is using a Heloc as an investing tool. In Canada if you borrow money to invest, you can claim the interest you pay at tax time as long as you keep track of the loan with your statements. You could spend $10,000 on a dividend stock, claim the interest you pay and use your return AND the dividends to pay pay back your loan. Eventually your loan will be paid off and your investment will keep paying you dividends that could pay down your mortgage or any other expenses. This type of investing does have its risk and I don't advise anyone to try it (if you default you lose your home), but it shows that you can use the equity in your house to invest just as much as a renter can.

Home ownership allows more than non-monetary benefits. You have the freedom to paint and renovate whatever and whenever you want without the landlord's approval. Renovating helps increase the value of your investment while you create a kitchen you love or build a garage that will be envied by your neighbors. As a home owner you can buy nice, upgraded appliances for your house which sure beats using the avocado green coil top stove and funky banana yellow fridge that some landlords include for renters to use. A home allows you to have a yard for gardens, kids or pets instead of being stuck in an apartment with only a balcony. I'm sure there are many other positives to home ownership that depend on the person, but you get the idea.

There are many pros and cons for renting and home ownership but I keep hearing renters say they pay less money overall. Renters may think they pay less money in the end, but if you consider how long you will have to pay rent for a dwelling it might not seem like such a sweet deal. If a couple who are both 25 buy a house, and they pay it off in 25 years, when they are 50 they will be mortgage free and have lots of disposable income until they move into an old folks home at age 85. If that same couple rented instead, they would have to pay rent for 60 years! As an example, imagine paying $1200 a month for an apartment:

 $1200 x 12 months = $14400 x 60 years =  $864,000

That's not even including rent increases during that time period, because if the rent increased 2% each year, you would end up paying over $1.6 million in that 60 year period. If you think that's out to lunch, inflation averages 4% a year and if the landlords bills increase that much, you better believe your rent will too.

If you bought a house for $400,000 with a $25,000 down payment and a rate of 5% over 25 years, you would end up paying $674,972.56 for the house and all the interest (That's a ridiculous amount of money to pay in interest but for this example I didn't put any extra money down on the principle which isn't very smart and you should aim for a 20% down payment). Property Taxes go hand in hand with home ownership so if you paid $2500 a year for 60 year with an increase of 4% a year, you would pay an additional $594,976.71. I must also include upkeep which I will put at $300 a month average over 60 years and will work out to be $216,000 which includes lawn care, new shingles, siding, and minor home improvements. The rough grand total for owning a home would be:

 $674,972.56

+$594,976.71

                                                                       +$216,000     

                                                                        --------------

 $1,485,949.27

In this rough example, it seems that renting would probably cost the same as home ownership over time depending on the rental market. The only thing that's guaranteed for both renter and owner is the cost of living increasing. In my opinion, the renter would end up with a rich landlord, and the homeowner's family would end up with a fat inheritance. I would easily imagine that $400,000 house over the course of 60 years would  be worth close to a million dollars. In the end it all comes down to what works for you and your lifestyle but for me, I'll take the equity any day.

Have a good weekend!

Renting Versus Home Ownership

Ever since I was a kid I wanted to own a home. I'm not sure if it was planted in my head from watching too much TV, but I always imagined myself with a wife and two kids posing in front of my house with everyone smiling and not a having a care in the world. Owning a house is a huge responsibility, and even though it's perceived to be a generic goal in life, it's not for everyone.

So what's better, renting or owning your own home? There are plenty of people who just want to pay rent for their entire life, not having to worry about wear and tear, repairing foundations or fixing hot water heaters. On the other hand, a majority of people want the satisfaction that home ownership gives you, as well as the ability to build equity with each mortgage payment and the eventual freedom of not having a mortgage. The debate over renting versus home ownership for me has always been one sided, but after reading a few articles on the subject and talking to some people, renting does have its perks.

There has always been a stigma associated with renting in that the money you spend on rent is money that you throw out the window. The fact is that it wasn't totally wasted as it protected you and your belongings from the elements, thieves and possible wild animal attacks which vary with your location. Just because rent usually pays the mortgage for your landlord, it still pays for one of your basic needs. Once you pay the rent, the only other financial concerns you have to worry about are utilities, personal spending, food and insurance which is optional but is highly recommended. As a renter you don't have to worry about any upkeep or maintenance that a homeowner has to deal with and budget for. The money you save on maintenance can be invested for an earlier retirement or allow for more luxurious personal spending. Renting allows you the freedom to uproot with a month's notice and you can move across the street, across the city, or across the country, with less hassle then if you had to sell your home first. I know a lot of people who like not being tied down with a mortgage and feel renting gives them more freedom to work abroad and rent wherever they land a job.

That being said, I have rented in the past and from personal experience I can tell you renting can have its downfalls. Having neighbors is a fact of life whether you rent or are a home owner but if you rent an apartment or townhouse, you are guaranteed to have more of them. One might think renting a more expensive dwelling will allow more like minded neighbors, but that is a common misconception. For example, a rent payment of $2500 a month might be expensive for one person to pay, but that same rent split between four people is a "steal of a deal". So now you live next door to party central because four friends are "moving on up" and need to celebrate...every night! If you do decide to rent, make sure you find a good landlord. Just because they have to maintain their property doesn't mean they will do it in a timely manner. You could be waiting a week to get a new stove or hot water heater and have no choice but to wait. Another problem with renting is you could eventually find the perfect place to rent, live there for years and then without warning the landlord could ask you to move out because they are selling the property and the new owners want their kids to live there. That and the rent can increase once your lease is up, which can wreak havoc on your budget.

Although a diehard renter could argue any negative point with a positive, it all boils down to personal choice. Not everyone can afford a mortgage and have no choice but to rent. Some people like myself have no choice but to own a home so my wife will be happy; happy wife, happy life. Make sure you catch my next post where I list the pros and cons of home ownership.

Time To Pick Up American Stocks?

If you've been following my blog, you might have noticed I like investing in Canadian stocks. By investing in home grown stocks it not only strengthens our economy, but we get a great tax break on the dividends as well. The only problem with Canadian stocks is that our markets lack strong companies in certain sectors like consumer goods, pharmaceuticals, and technology. Having a balanced portfolio can help lighten the blow when market uncertainty hits and having a diverse selection of dividend paying companies will balance your passive income just in case a certain sector might be hit hard for a few quarters and dividend increases are postponed.

So why U.S. stocks all of a sudden? Well in case you haven't noticed, as I'm writing this, the loonie is sitting at 99.73 cents and it looks very likely that it will go beyond parity allowing more bang for our Canadian buck. If you buy US stocks and we go below parity like majority of the time, the dividends paid in US dollars will be paid at a premium and your yield increases from the currency exchange AND dividend increases. The only catch is you have to hold the shares in a registered account like an RRSP trading account, otherwise you will have to pay a withholding tax on the dividends paid to you. You may also have to do a wash trade when buying U.S. stocks , depending on which discount brokerage you use. A wash trade allows you to avoid paying currency conversion fees by calling the brokerage the day you place the trade, and they will convert your Canadian money from your account to a U.S. money market fund, then they will sell your U.S. market fund to buy your U.S. shares. It might seem like a lot of work, but it's better than paying those fees. RBC has no currency fees in their RRSP trading accounts, and hopefully TD gets the head out of their ... and does the same.

I really like the consumer goods sector. We as consumers are brainwashed to buy, buy, buy and that allows companies to grow, grow, grow. People always need to eat, majority of us like to keep clean and clean our homes, and we all like to buy new clothes and gadgets. When I'm investing, I want to keep my money in companies that will be around when I retire and hopefully when my future children retire. By investing in companies that make food, cleaning products and personal care products, I know they will be in business for  many years and that there will always be a need for their products. When some of these companies have increased their dividends for decades, It's a no brainer to hit the buy button when they are reasonably priced.
I own shares in KMB and would like to expand into more dividend aristocrats like JNJ, MCD and many other great consumer companies from the states.

Pharmaceuticals on the other hand can be a little tricky. Patents for drugs in the US last 20 years minus the clinical trials, so once the patent expires, it's free game for generic drug manufactures which drives down the price, thus driving down the profits. Lawsuits can also hurt profits for pharmaceutical companies as well. If someone pops a pill and there was no warning on the label to unplug the toaster before using it as a water flotation device, then hello settlement! I own shares from one Pharma company from the states, and it will be the only one for a long time.

Technology stocks can be hit or miss. Today's Apple can become tomorrow's Beta Max, although that's highly unlikely. A lot of big name technology stocks usually don't pay a dividend. They like to keep reinvesting the profits, and buy back shares to increase stock price to keep investors happy. Most tech products are cyclical meaning their product demand can change month to month. An earthquake in Japan can drive the price up on computer memory one month, and a memory factory opening up in India drives it back down two months later. I don't own any tech stocks, but once some of the bigger companies start paying dividends, I'll be on them like a fat kid on a Smarty (or M&M for my U.S. readers!)

Do any of you own US stocks? Do you see this as a good time to start... stocking up on them?

Financial Tales Of Terror!

In this edition of The Loonie Bin, I thought some tales of terror from a financial perspective would set the mood for Halloween. So turn off the lights, and make sure you are not alone

Read on if you DARE!

The Tale Of The Credit Card Princess

Alison liked to shop whenever she had the chance. She worked in a department store and didn't make very much money. Every weekend she would go clubbing with her friends, and she loved being the center of attention. When you crave the limelight like she did, it costs a lot of money to keep up with trends and fashion. Alison spent a lot of money on clothing, hair styles, spa treatments and makeup; a total of 75% of her income! So how could she afford to pay for all this things, plus the basic needs of food and a roof over head? Credit Cards! *cue Thunder and lightning*

Alison owes $2465 on her credit card and is happy paying the minimum $50 each month. She thinks she is getting a sweet deal by buying what she wants, and only paying a small amount of her 19.5% interest. But what she doesn't realize is that it will take her 21 years to pay off $2465 and will end up costing her an additional $9938 in interest! Now the people who own the credit card company could afford to buy nice clothes and new shoes, thanks to Alison...

Did that frighten you? I know it scared me. This next tale is even more frightening. I call it:

The Tale Of The House Of Interest

There once was a young couple named Dan and Kim who dreamed of owning a home together since they met 6 years ago. They both had expensive taste yet they both had modest incomes. All of their friends lived in expensive neighborhoods and they too wanted to live in a nice area as well. They wanted a big house to impress their friends so they looked at places that were way too big and that they could never afford. One Saturday they were driving around and they found the perfect house for sale. They never saved much for a down payment, but they really wanted that house and would do anything to get it. They called the bank to set up a mortgage but with their lack of a down payment, they would have to get a 35 year mortgage and have CMHC insure their mortgage! *Thunder and lightning*

Dan and Kim thought they had found their dream home, but what they had found was a house of fees and interest. They though that they were paying $350,000 for their home, but in reality they are paying much, much more. Since they didn't have over 20% for a down payment, they had to pay a large fee to insure their mortgage to the tune of $10,000; And that's just the beginning! Since they can only afford to pay the base monthly  mortgage payment, they will be forced to take 35 years to pay off the entire mortgage. They had a mortgage rate of 5% on a fixed 5 year term and paid their mortgage monthly. After their first 5 years of paying the mortgage, they would have paid $84,000 in interest alone. Over the course of 35 years, they will pay over $380,000 in interest and that is only with an average interest rate of 5%, just think if interest rates hit 10 or 15% like they have in the past. I sure hope they like eating Kraft dinner...

Oh my that was a terrifying story! All that money being flushed down the toilet to impress a few friends....it sends chills down my spine. I don't know If I can continue... alright, maybe one more story of investment horror. I call this one:

The Tale of the Disappearing Nest Egg

It was a dark and stormy night. After a long day at work, Kevin sat down and begin reading his mail. He sorted through piles of bills and leaflets ; 5% off Ming's authentic Chinese cuisine and steak house, laser hair removal, and his investment statements. Kevin carefully opened up the envelope from his investment advisor and saw how much money he made these last few months. The stock market was down this last quarter and he knew that his return would be lower then normal and it was. He was actually making a return of -3% from his mutual fund investment. *Thunder and lightning...... I SAID thunder and Lightning.......oh forget it*

Kevin remembered back when he began working and moved out on his own. He thought about his future and that he should start saving for his retirement. He decided to invest $100 every month in mutual funds and every month he saw his nest egg start to slowly grow. He knew that nothing in life was free, and that he paid a certain percentage to have someone manage his mutual fund investment. Eventually Kevin began working for a company that matched his mutual fund contribution and so he was automatically making 50% on his contribution. This made Kevin very happy and it allowed him to focus on his life and not have to worry about investing. Little did he know, that something dark and very scary was lurking under the surface of his investment portfolio...

After many years of having fun and eventually settling down, Kevin began thinking about his future again since he was responsible for himself, and his new bride. He starting paying more attention to what he invested in, and where his money was going. After looking at how much money he had, and how much money he invested over the years, he thought there should have been more money in his portfolio. What Kevin learned next was so shocking it made his stomach turn. His mutual fund charged him a MER of 2.65% each year. Having an investment of $65,000, that meant that each year his fund manager was charging him $1722, no matter how well his mutual funds did. His current return of -3% was less then his managers expense ratio. His nest egg would never keep up to inflation and over the years the only thing that increased was Kevin's blood pressure.

Kevin had to cut corners in his retirement and he and his wife were forced to live in a sketchy retirement home where the food was bland and they had to eat frozen vegetable medley every night. The arts and crafts program was a borderline sweat shop and all his crafts were shipped to foreign countries. When they wanted tea, they had to use tea bags over and over and any attempts at escape were met with a week with no shuffle board privileges. They lived horribly ever after.

Ohhh so very scary. Did I scare you with these terrifying tales of financial horror? No!? Well maybe next year, until then have a Happy Halloween and good bye...for now.

Nonsense Investing

If you've been following the markets the last few days, you might have noticed the slight slide in the markets. My Own Advisor must be getting excited, because I know I am. If you own mutual funds, there's a good chance your "Units" are worth a little less then at the beginning of October. And if your units are worth less, then your return on your investment has gone down as well. A mutual fund supplier or "pusher" would tell you this is a great time to buy more units while the markets are down. After reading a mutual fund investors strategy in the Globe and Mail's Me and My Money article from two weeks ago, I had to read it twice before I believed it.

To quote the article, " Mr. Flynn, who lives in Peterborough, Ont., sticks to very conservative mutual funds. He counts it as a bit of a victory that he’s down between 11 and 15 per cent since 2009. “I’d have to say that’s not that bad. Lots of folks I’m talking to are down 25 per cent.”

He is happy that he's making -13%. In case your reading this post on an Iphone,  that's a negative 13%, and he's happy because his friends are doing worse. That's like installing a $10,000 car stereo in a $1000 Dodge Neon; It makes no sense!

I'm making over 5% now with my dividend investment. Notice I said making because I know exactly what my return will be this year. My portfolio could drop 25% and I'd still make over 5% from the dividend income. In fact I would be very eager to buy more common shares if my portfolio dropped that much and I would make even more then a 5% return. If a mutual fund investor's portfolio dropped 25%, panic would ensue but they will feel better knowing their friends did even worse. We need to stop the madness of nonsense investing. I can see the commercial now...

For just two minutes of your time, you too can change the life of a mutual fund investor. Explain to them the theory of dividend investing, and that a negative return is not ok. Save the retirement savings of someone you care about, today.

Do you know someone afflicted with mutual fund investitus? 

Investing Hodge Podge

 Hodge Podge: a confused or disorderly mass or collection of things.

I was very excited to find out this weekend that on November 4th, TD Waterhouse is allowing $9.99 trades for individuals with $50,000 in household assets. This means more money working for me and you, over the long term. It is also proof that the big banks are starting to wake up and make their services more competitive which could lead to even cheaper fees in the future. Nothing like healthy competition!

Speaking of competition, I eagerly await the results of the votes from CREA members on Monday whether individuals wishing to sell their homes can list using the ever popular MLS website without selling their house exclusively through an agent. This will allow many new levels of service to customers who might want to sell on their own house and still have the exposure that an MLS listing would offer. I will be putting my condo on the market soon and would rather list my dwelling at a competitive price to sell it quickly, rather then bump up the price to compensate for an outrageous realtor fee. Comfree must also be eagerly awaiting the results more then I am.

And now for the updated dividend list. Emera is back in the green at 4.26% with it's recent dividend increase and SHAW is very close at 3.98% with it's surprising loss on Friday.

Hope everyone had a good weekend!

Early Retirement

For as long as I can remember, I've always had this picture in my mind of working merrily till I'm 65. I thought being retired would be boring so I would try and keep working for as long as possible. That and the thought of having coffee at the local coffee shop day after day would drive me nuts. I've been working steadily since I was fourteen and recently I've realized something;  I had it all wrong.

My family thinks I have become obsessed with money since I've started investing on my own, but I think subconsciously I'm looking for a way to speed up the process of getting out of the rat race. I'm tired of being artificially woken up every morning at 5:30am with an annoying buzzer just to get to a job where I'm just a number and at any given  moment I could be laid off. "Why don't you change your job?" is the obvious response, but it's not that simple. Due to living in one of the most expensive countries in the world, I have become dependent on the amount of money I make each year; especially for only going to a secondary school for a total of nine months. If I were to quit work, and go to school for 4 years, I would end up making half of what I currently make plus I would be in more debt with student loans; if I even qualify for them.

If I were to find a career I'd love doing each day, the novelty would wear off and eventually it would become a job once more. My only escape would to retire as early as possible, but I would need to save an absurd amount of my net income each month. If I were to eat beans and lentils, trade my car for a bicycle, and go on staycations at West Edmonton Mall, I might be able to pull off early retirement. I might also end up being divorced! My wife on the other hand  likes to plan expensive vacations, would rather starve then eat luncheon meat, and has consistently brought up the subject of hiring a maid for our new house. She even refers to this fictitious maid as Rosa. I've talked her out of getting a maid, but it seems almost every night she ambushes me with some new vacation plan and how it will only costs $6000 dollars.

My only chance now at retiring early would be quitting my job and becoming a stay at home dad. I figure I could do a little day trading in the morning right before Regis and Kelly and I'll have all the household chores done in time to catch Days of our Lives. Then each night I would have a gourmet meal ready for my wife when she walked in the door. It's nice how plans always work out in your head, isn't it? I guess I'll stick to dividend investing and think about the dividends piling up while I'm slaving away.

To my dozens and dozens of readers:  When do you plan on retiring?

Emera, I Forgive You

I had to fly to Nova Scotia in early September for a family emergency. I was lucky to have witnessed my first hurricane while I was there and learned how much I take electricity for granted. When the power first went out, I wasn't very worried. When we learned the water pump wasn't working, then the panic set in. I'll never forget fighting gale force winds to collect some lake water in an antique jug just to flush the toilet. It took two days to get the power back on because we were in such a  remote location, but eventually Emera fixed the problem. While there was no power, I might have thought poorly of Emera a few times but I got over it.

Later that month, the board of directors of Emera increased the dividend by a whopping 15% and now all is forgiven!


"We have committed to grow our common dividend as our earnings increase," said Chris Huskilson, President and Chief Executive Officer of Emera Inc. "This 17 cent annual increase in our common dividend reflects the continuing success of our strategy. We know our dividend is important to our shareholders, and we are pleased to be able to provide for this 15% increase."
 
Emera was paying a dividend of  $1.112 per share, but after the increase, the dividend will be $1.30 per share. This is exactly what I am after in my dividend growth strategy. If the dividends keep growing every year, then my return on my investment will rise accordingly. I bought Emera back in February at $23.90 per share and my yield was 4.65% , and now after the dividend increase the shares are up to $30.35 and my yield is now is 5.44%. My total return on my Emera investment right now is 27% which is pretty darn good, but since markets always fluctuate, I don't really focus on that figure.When was the last time you saw a mutual fund promise to pay you an increasing return each year? I'll be ready to buy more shares of Emera after the market corrects, that's for sure!

Just imagine if all of the stocks I own increase their dividend each year; I'll be one happy camper who can retire early. Until then, I'll be thinking about my retirement one dividend at a time. Have a great weekend.

Dividend Update

Tuesday was another positive day for trading on the S&P/TSX. It's up 40.05 points and is sitting at 12575.64. Not a huge increase, but my portfolio was green across the board except for Enbridge.
Here is the updated dividend list with TransCanada added due to popular demand.

Stock prices are rising which means our beloved yields are slowly decreasing below 4%.  It's not the best time to be buying, but there are a few good buys still out there like Bell, TransAlta  and SunLife (Bell would be my first choice. It is an excellent company and would be a great start or addition to any portfolio). I might be adding a few hundred shares of SLF to my portfolio in the next few weeks depending on my dividend payments. I'll keep you posted.

I will also be updating the information pages from the menu near the top of this blog with some much needed graphics and examples. Hope everyone had a good Thanksgiving/Columbus Day. Until next time, here's to early retirement!

Long Weekend? Up Goes The Price Of Gas!

 "Attention fuel consumers, unfortunately we are all out of the  
Disney collector cups. Have a nice day!"

Have you ever noticed that the Wednesday before every long weekend, gasoline prices always seem to increase? Well here in Alberta it happens all the time and this time it wasn't a penny or two;  it was a seven cent increase in one day. Oil companies say that summer time sees an increase in fuel consumption on long weekends, so gasoline prices are adjusted accordingly. Well this is Fall, it's getting colder and we are clearly out of summer vacation mode, yet the price still increased.

I read on a Petro-Canada website that "Consumers may pay closer attention to gasoline prices when they fill up before or during a long weekend trip, however industry data shows no such pre-long weekend price increase trend." (Shell has the same information on their website, almost word for word) . I think whoever wrote that has a company gas card and never bothers to look at the prices at the pump when they fill up. Anyone that doesn't have a oil company logo on their pay stub will tell you that this is a load of *rap! Out of the fifteen years I've been driving, I've only seen prices not go up on a long weekend once. Perhaps the guy who changes the price on the sign at one gas station called in hungover, and the other stations just matched them; who knows.

What I do know is that it's wrong to increase the price; it's borderline profiteering. Everyone uses gasoline in one way or another and the oil companies know that. There is very little we can do to stop these insane increases every long weekend. No amount of protesting, or boycotting will ever amount to any changes. If you boycott one gas station, only the people employed by that station will suffer. All we can do is pay the piper and get our precious gasoline. You might as well sign up for points cards and get something overly priced for "free?". It could be worse; we could be fighting off bandits for "juice" in the wastelands and having Mel Gibson as our only source of hope for the future...yeesh.

Readers:
Do gas prices increase on long weekends in your neck of the woods?

Historical Patterns

I was hoping September would bring some good buying opportunities, but alas I learned my lesson about following historical patterns. John Heinzl from the Globe and Mail had an interesting video on the subject. Here's the Link.

Emotions run wild.
Human beings are the most unpredictable creatures on the planet. We change our minds so often, it's no surprise that we effect so many things on so many levels. If the stock markets were controlled by robots, then I'm sure we would be able to predict where the markets were headed and when the most opportune time to buy and sell would be. When the markets were up, stocks would be sold. When markets are down, stocks would be bought. Transactions would occur with mind blowing accuracy and profits would be made with 100% efficiency. But when human beings are thrown in the mix, emotions and gut feelings throw everyone for a loop. When stock prices drop, people scream "Sell! Sell!" to minimize their losses and end up selling at a loss.. When they see a stock taking off, they scream "Buy! Buy!" only to see it lower the following day and miss out on a bigger profit.

Life is evolving, and so is investing. If you were to show an investor from the 1920's an Ipad and purchased stocks with a few clicks from a magic "Internet", I'm pretty sure they would collapse right in front of you into their pile of ticker tape. Investing used to be only for the wealthy who could afford the expensive broker fees, but now it's cheaper and easier then ever before thanks to online discount brokerages. With more unpredictable humans investing over the decades, how can any trends remain the same? As technology evolves, and society adapts to these new changes, investment analysts have their work work cut out for them.

I've heard a lot theories like "Sell in May and go away" and "Stocks always go down on Fridays", but it's all a bunch of hogwash. If you follow whacked out theories, you might end up getting burned and take a hit on your return. That's why I like dividend investing so much. Tried and true with no gimmicks, and no confusing philosophies. By quality Stocks at low prices, hold till the dividend is cut. Although I was looking forward to some lower priced stock to buy, I'll just keep counting my dividends and wait patiently for the right time.

Here's the updated list for the beginning of October. This is just a rough list of some key Canadian dividend stocks to get your portfolio started. Stocks with green yields are above a 4% threshold. Enjoy.

Have a good Monday, if that's possible.

The Added Costs Of A New House

Back in March my wife and I signed the papers for our new house. We were told that our house would be ready in March of 2011. That gave us plenty of time to come up with decent down payment. A month later we were told it would be ready this October. From that moment, I decided to curb my spending and go on a saving spree. No more bought lunches. No more beers with the boys after work. No new Iphone or Ipad.  If there was anything I wanted and didn't need, I would just think of our new house and how big our mortgage will be, and my desire to spend money would be eliminated.


We were told this week that our tentative possession date this December/January. What a gong show! I wish the builder would make up their mind, because it feels like we're on a yo-yo. At least we have a better idea of when it will be ready, and it allows me to save up more money over the next few months. Part of me wants to put all my saved money on the mortgage, so we pay less interest over time. But part of me knows moving into a bigger house has a lot of added costs involved with furnishings and appliances.

When building a house through a builder,  I've learned to not accept any appliances that they include in the price of the home. They are the bottom of the barrel and are very basic pieces that they get a deal on by buying in bulk. Our home was fully upgraded compared to what other builders offered for the price, but the only appliances they included were the dishwasher and microwave. After seeing them at the supplier, we decided to upgrade because they were both entry level appliances. You get what you pay for these days and we wanted nice appliances for our nice house. Besides, I'd rather spend an extra $500-$600 on something that's going to last 10 years longer then it's cheaper counterpart.

We will have two living rooms to furnish, and my wife doesn't want my navy blue palliser leather couch and love seat to stick out like sore thumbs in the new sitting area, so we will have to buy a new couch and love seat that matches our color choices. We never upgraded our other living room furniture because we knew living in our condo would be temporary(plus they would get in the way of many Wii events we held), so now we have to buy end tables and a coffee table to match the new color choices.

The new master bedroom is huge, and a queen sized bed would not fill it up enough and would leave large areas of useless space, so we decided to splurge and get a king size bed. Our Ikea nightstands are going to be used in the spare bedrooms so we will need new ones as well. New dressers to match the new nightstands and head board are a must, so the old ones will be used in the spare rooms as well. I asked sales person about purchasing extra lumpy beds for the spare rooms to ensure short visits, but it was only met with a smack from my wife.

Then there is the yard. We have one year to sod the front yard and plant one tree. We got off pretty easy as some neighborhoods require multiple hedges and bushes as well. Since we built on a pie lot we have a smaller front yard, so to sod my front lawn, it will only require a few midnight visits to my new neighbors freshly sodded lawn. I'm sure they won't notice... We will also have to build a fence, but hopefully my new neighbors are not cheap bastards and will split the cost AND help me build it. All I need is someone with a pulse to hold the level and help me with the power auger.

We used the builders lawyer so we avoided any legal fees which is a bonus, and the bank is more then happy to lend us the money knowing we will pay an extra $100,000 for the mortgage. I'll be paying myself with each dividend cheque,  so it won't hurt as bad. I'm sure there's going to be a lot of small costs for things needed like area rugs, window coverings, new towels and linens; but that's a given.

We don't have to buy all new furniture and upgraded appliances, but we both have good jobs and for the last three years we lived like semi bachelors so we could buy nice things for our new house. And for my wife living with me through my saving spree and all my money saving exploits this year, I think she deserves it.


Have a good weekend, everyone.

Please Stand By

It's been a while since I've posted due to my computer passing on and I am now the owner of a $1500 paper weight.  I should be up and running later this week. My next post is an update to my new house purchase and how all the little things can start adding up. Thank you for your patience and continued support. To help the time pass for my avid readers, here's a link to a funny video courtesy of You Tube

Enjoy!

September: In like a lamb, out like a lion?

September is well known for market downswings. The beginning of September fooled most analysts and markets were higher then expected. Fears of a double dip recession in the states were looming over everyone but the markets pulled through. Now in the later half of September, markets are in a downswing and unlike most investors who are selling, I am looking for a good buying opportunity.

The dividends I've collected over the last few months are starting to burn a whole in my pocket. I've been saving them for the perfect time to either to add to my position in stocks I already own, or to invest in another company and expand my portfolio. The golden rule is to buy low, sell high; but it seems like the majority of people investing cannot fight the natural human reaction to sell in sliding markets to minimize their losses. Investing in dividend stocks allows you to easily overcome that human reaction and see downturns as a perfect time to buy. When everyone panics and starts to sell off, I'll be there with my big pile of dividends waiting to pounce on a good buy.

Dividend Investing 101: The Conclusion

After starting my path of self investing, I've learned many things in the last year that will forever guide me to my goal of financial freedom. I started writing this blog as a digital medium to show my friends and family a great way to invest for the future with as little risk as possible. To my surprise, a lot of people outside of my circle began reading it and emailed me thanking me for the great information. The way I see it, I get a lot of satisfaction out of helping people see that investing on your own is not scary at all. If you have ever used online banking, you're ready to do online trading.

The hardest part of self investing in dividend stocks is finding the right company to invest in so that your investment today will grow tomorrow, and in the future. As a self investor, I like banks, consumer goods and utility stocks because they provide widely used services to society now, and there's a very good chance they will continue to do so in the future. Everyone needs food to eat and use health and beauty products. Everyone uses energy to heat their homes and consume power to use technology. And everyone uses banks to pay their bills and keep their money safe. To me it only makes sense to invest in companies that have a definite future and overall steady income stream year round.

Here's a chart of common stocks that I either already own, or are on my watch list. I may prune the list or add to it in the future, but for now it's a good start. I do not endorse anyone to invest without first talking to a financial planner and will not be held accountable by anyone who chooses to invest in companies mentioned on this list, or on my blog. If you choose to invest on your own, then that is your own decision and you are accountable for your own actions(Sorry for the technicalities, my wife must be rubbing off on me).

In no particular order, here they are:

 Green highlights represent yields of 4% or more. I like seeing at least a 4% yield when purchasing common stocks otherwise you might as well invest in a GIC. Preferred shares are locked in at a certain percentage and are guaranteed to be paid out before common shares, but they do not get any dividend increases and I am after dividend growth.

So there you have it. I've shared the basic knowledge of dividend investing and hope you enjoyed the series. I'm sure I've lost some readers due to repeat information that I already posted, but who cares; Their loss is our gain! I'll be going back to my original posting style of adding some humor to make the financial world a little less boring. Until next time, here's to financial freedom!

Dividend Investing 101: Trading Accounts

In my last post I discussed the magic of dividend investing and how it's an easy choice for DIY investors. If you've been following my blog and are ready to take the big step of being a self investor, choosing the right account from the right discount brokerage can seem very complicated. Not all brokerages are created equal, so you really need to do your homework and find one that works for you and your investment style.

When researching which discount broker to use, you must read all the fine print and become familiar with fees associated with each type of trading account. Each brokerage has different conditions that when met, can either waive fees or lower commissions. I prefer to use discount brokerages through banks personally because I like seeing actual institutions where I can stop by and talk in person if needed. I've covered the different brokerages pros and cons in an earlier post which I highly recommend reading, so I'll focus on the actual types of accounts

Cash accounts are the basic type of trading account that allows you to invest your after tax income. Most cash accounts have an inactivity fee that is charged per quarter unless you execute a few trades, have a high enough balance, or sign up for paperless statements.You must pay taxes on any income generated from these accounts, so make sure you keep track of your investments to calculate your cost basis for tax purposes. (To keep my investing simple, I don't invest with cash accounts. Maybe one day when I have piles of money to burn and can afford to use an accountant, I will use mine more. )

Registered trading accounts are used to invest money that is tax sheltered. They have a yearly fee that can be waived if you have a high enough balance, usually $25000. I recommend getting one even if you have to pay the $100 yearly fee because it's a lot cheaper then paying any MER on mutual funds. Plus it allows you to invest in U.S companies and not have to pay any withholding tax on the dividends. No need to worry about taxes until you take money out after you retire...or need emergency money after Jr. blows up your house after a failed attempt at making a potato cannon.

TFSA trading accounts are my absolute favorite. You can invest totally tax free and fee free( from what I've seen at least). If you are starting to invest from square one, a TFSA trading account is your best bet. I max my TFSA each year so that one day I will have a tax free dividend income, no matter how much money my wife and I make in the future. Even if you start with $50-$100 a month, start pooling your money and purchase some shares in a blue chip, dividend company and save the dividends to re-invest. You can buy shares from other companies in diffferent sectors each year to help deversify your portfolio. After 10 years, your little compounding machine will start to really take off.

That's a basic rundown of the different trading accounts. I know there are more accounts out there like margin and RESP accounts, but my idea of self investing is all about making it as easy as possible. The hardest part of setting up trading accounts is talking on the phone, or making an appointment to sign documents. Don't be frightened by the who investing in the stock market shpeel. I'd compare the process to opening up a chequing or savings account. It's that simple. If you have any questions, ask away with a comment or email.

Dividend Investing 101: The Magic of Dividend Stock

My last post was about the rules I follow when looking for dividend stocks to invest in. It’s impossible to pick the perfect company, but it has been a useful guideline for me since I started investing on my own and if it’s helpful to anyone else, then that’s a bonus.
I’ve covered many topics in my dividend investing series, but today I’d like to share with you what first attracted me to investing in dividend stocks.


I am a conservative investor by nature. I never gamble with my disposable income, and I would never take a large risk with my nest egg. To make a decent return on an investment, I knew there had to be some level of risk involved. GIC’s paid peanuts, and high interest TFSAs were a joke. When I first signed up for my TFSA, I was told I would be getting 2.5%. I opened it thinking it might help increase the amount I save by not paying tax on the interest. Well, within the same year they cut the interest rate to 1%. I could make more money collecting bottles then by leaving my money in the banks who, by the way, make hundreds of millions each quarter.

Why Mutual Funds Are A Joke

I looked at my mutual fund statements and they said I made 4% last year. What they didn’t show was the 2% they took off to manage the funds. So in actuality I made 6%. I never really made 4%, because the moment the stock market went down, the value of the fund was down and the 4% gain was non-existent. The value of mutual funds always fluctuate with the stock market, as shown in the diagram below.

The people who sold me mutual funds always said that when the stock market is down, it’s the best time to buy more mutual funds. I thought to myself “Why would I buy more mutual funds if they lose value at any given time?” It would be like buying more magic beans from the peddler because the first ones didn’t work. It went against all logic, but everyone I trusted invested in mutual funds, so I figured it was the way to go.

Behold The Power Of The Dividend

When investing in dividend stock, you are guaranteed a return on your investment as long as the dividend is maintained. If you invest in strong, blue chip companies, there is a very slim chance the dividend will be cut. In fact, there is a very good chance the dividend is increased which is what we are after.

When a stock like RIM (which does not pay a dividend) starts to lose value on the stock market, the people who invest in it become concerned and are ready to sell at the most opportune time before losing to much profit. This means they always have to be watching the markets and listening to analysts who are usually wrong all the time. And as the value of the stock decreases, more people sell driving the price down even further. That sounds like a lot of work and some sleepless nights for the average investor. The beauty of blue chip dividend stocks is, if the stock price goes down the yield increases as shown in the diagram below.

When the yield increases, the stock becomes very attractive to other dividend investors who will purchase shares as the stock price comes down, acting like a safety net in a way that drives the stock price back up. It’s proven that blue chip dividend companies rebound faster after market corrections and perform better over the long term then non-paying dividend companies: it’s all because of the increasing yield.

That is the magic of dividend investing. To me it seems logical to buy more shares of something that becomes more lucrative as the share price lowers. That is why I am excited about dividend investing and see mutual funds as only helping the people who sell them.

As a dividend investor, I sleep very well at night dreaming of little dollar signs that keep adding up in my pile of money. And when the markets are down, I get ready to buy more shares when everyone else is selling; their loss is my gain. I encourage people I meet who invest in mutual funds to read up on dividend investing to see how fun investing actually can be. Take control of your financial future!

Dividend Investing 101: What To Look For In A Dividend Stock

My last post talked about dividend growth and how it plays a crucial part to any dividend investing strategy and allows you to turn a moderate return into an early retirement pay cheque. Since I've started this blog, a lot of people ask me what I look for when purchasing dividend stocks. It's not an easy process because a lot of things can happen that influence the stock market and a shiny blue chip company can lose it's luster with a cut of a dividend ( Yes, I mean you Manulife). There's so many details and facts to consider, but I've come up with a list of 6 rules to follow when you looking to buy quality, blue chip dividend stocks.

• Strong Cash Flow
• Low Dividend Payout Ratio 
• A Yield of 4%
• Low debt
• Dividend Growth History
• A P/E of around 15 or lower

Strong Cash Flow

Companies are in business to do one thing, make money. If a company doesn't make as much or more then it did the year before, then it's doing something wrong. They say cash is king, and they are in fact correct. Good companies pay their dividends from their cash flow. Bad Companies pay dividends from credit. When looking up a stock to purchase, look at its current and prior years cash flow. If it's steadily decreasing each year with no increases or is consistently in the red, stay clear of it. Cash flow is the first thing I check when looking for dividend stocks. It's very important.

Low Dividend Payout Ratio

A companies dividend payout ratio tells you if the company is making enough money to maintain its current dividend. The ratio should be between 0-70% , anything higher is not healthy. If a company has a big fat dividend and low earnings per share, then they either have to make more money or God forbid, cut their dividend. The lower the ratio, the easier it is to maintain future dividend increases, which is the heart and soul of a dividend growth strategy.  To find the ratio, divide the total dividend by the earnings per share (EPS).

                                                      Dividend/EPS= Dividend Payout Ratio

For example, if we look at BCE's current EPS and dividend from The Globe and Mail Investor Section , it has an EPS of  2.75 and the current dividend is $1.83.

 66.5% is below the 70% level and is an easily maintained ratio. BCE is making enough profit to comfortably pay it's dividend.

A Yield of 4%

When I look at excellent companies to invest in, the yield is always one of the first things I see; not by choice but because it's always automatically calculated and thrown in the open for everyone to see. A high yield at first glance may seem like a good thing, but in actuality, it means a stock's price is decreasing. When a stock price is decreasing the amount of money a company makes on the share is also decreasing which means the dividend it is paying out cannot be maintained. The company either has to make a lot more money, or cut it's dividend. Buying a stock just because it has a high yield will start out well, but when that dividend gets cut it's like throwing a wrench in your dividend growth machine. A low yield on the other hand may have a safe dividend, but why take a risk on an investment when you can make the same return with zero risk involved by using a GIC or high interest savings account. In addition, any profit you make at a low percentage is negated by inflation.

My general rule is to never buy anything with a yield below 4%. If a company is solid, and has decades behind them with proven dividend growth, I will buy at 3.5%. You want to make at least 10% on an investment as soon as you can, and by starting at a lower percent return, it will take a lot longer to get there.

 Low Debt

Debt is bad , no matter how much money you make. When a company needs to borrow money to operate, what happens when interest rates go up and sales slow down? The money they pay in dividends will most likely be used to cover the increased interest. Shazbot! When looking at a company's balance sheet, I make sure they have more then enough total assets to cover their total liabilities, otherwise I steer clear. When in doubt, always look at the cash flow, the more the better.  If a company goes bankrupt, common shareholders are the last to be paid, and usually they are left hanging.

 Dividend Growth History

We all love juicy yields. But if it never increases, eventually that yield of 5% will still read 5%, but the ever annoying, invisible force called inflation is a compounding fiend and will make short work of that 5% yield over time. That's why you want to invest in companies that grow their dividend every year to combat the evil inflation and your portfolio will live happily ever after. I'll use my golden boy stock as an example. Enbridge is a pipeline company that has paid a dividend for 57 years. The yearly average increase is 10%.  That increase of 10% a year negates inflation, leaving some of that growth to increase the yield on your original investment. That extra growth is the heart and soul of a dividend growth machine. It will increase your portfolio a lot more then investing dividends alone. When a company increases its dividend, it shows that the board of directors are confident of the outlook of the well run company, which in turn increases the confidence of investors to buy more stock. When the stock price goes up,the value of your shares go up. It's like getting paid twice. Winner winner, chicken dinner!


So when I see a company cut it's dividend, it means that the company wasn't running at it's full potential. A dividend cut is devastating to dividend investor. Your yield decreases and the stock price plummets as everyone gets out while the getting is good. It also puts your investment back 1 to 2 years depending on how bad it is. I stay clear of a company that cut it's dividend. Manulife comes to mind and it will always be tainted to me. The only way I'll ever own Manulife, is if it increases its dividend for the next 5years. I don't care that it's been around forever and is one of Canada's most lucrative companies, cutting a dividend is a sin in my books.

  A P/E Of Around 15 Or Lower

 

That brings me to P/E ratios. To find the price/earnings ratio, divide the price per share by the earning per share. For example, BCE's current price is $33.37. It's EPS is $2.75 as of Aug 31/2010.    

So BCE has a P/E of 12.13. What does that mean? Obviously it's a ratio between earnings and share price, but it can be used to gauge the volatility and popularity of a stock. It will be argued that a P/E ratio can mean many things, and that it's an investor "assigned" value, so I won't dwell on it too much. I've read that any stock you wish to purchase should have a P/E of around 15. If it's above 15, it could be overpriced. If it's below 15, it could be undervalued and would be a good buy. Notice I said could be undervalued. It might be low for a good reason, as if the stock is losing value because of an oil spill or lawsuit.  A stock with a low P/E also regarded as having low volatility, which is always good for the steady and conservative dividend investor.


A P/E ratio should never be used on it's own to pick a stock. It should be one of many calculations used to determine which dividend stock to purchase. I use it only for comparison between companies I have on my watch list.

I use these rules as a guideline, but there are many more factors to consider when choosing companies to invest in. The best way to learn is finding your own method. Everyone has different ideas on what makes good investments. Find what works for you and stick with it; or change it up if it's not working well for you. 

I apologize for almost the same post as a few months ago, but I'm headed out on a rush trip to Nova Scotia for a family emergency. I planned on changing this post up a bit, but I had to rush through to update before I leave. It might be a week or more until I can update the loonie bin again. Have a good week everyone.