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?