Stephen Blands HYP sion for stock picking. As we discovered in a chapter of How to Make Money in Value Stocks many modern investors are learning 4. DGI - Dividend Growth Investing that the passive approach can be just as lucrative, less stressful 5. BSD - Big Safe Dividends and can help to avoid the myriad ways in which investors manage to trick themselves out of their fortune. We will be tracking the relative performance of each of these strategies in our Screening Centre, including our own variants where we see scope for improving the approach we also review a couple of more obscure dividend strategies in the Appendix.
Dogs of the Dow Why it works The thinking behind the Dogs of the Dow strategy is that blue chip companies do not alter their dividend to reflect trading conditions whereas share prices fluctuate. Companies with a high yield, i. The screen theoretically offers a conservative option that produces a list of well-financed companies "Beating the Dow is based on simple logic that will produce excep- that have long histories of weathering economic turmoil.
But of tional returns in any rational market", Michael O'Higgins course theres theory and theres practice. Perhaps the most famous high yield investing strategy around is the Dogs of the Dow, first popularized back in by Michael Can it beat the market? Higgins in the book Beating the Dow. In his back-testing, OHiggins demonstrated that over a year pe- riod from to , the Dogs strategy averaged a return of How it works The Dogs of the Dow website suggests that, for the 20 years from Simply invest an equal sum in the top to , the Dogs of the Dow matched the average annual total re- 10 highest yielding stocks the Dogs turn of the Dow OHiggins argued as a longer-term strategy.
Key issues No safety filter other than index membership - Although the Dogs approach has the advantage of simplicity, the great. In the 80s and 90s Dow Jones index stocks were extremely stable, but these days with the disruptive nature of internet competitors and tough credit markets, the giants of yesterday are more at risk than ever before. Higher risk of dividend cuts: The singular focus on the highest possible yield means that the approach has had a tendency to pick for inclusion troubled names like Eastman Kodak whose broken business models led to bankruptcy.
High sector concentration risk: Stocks in the same sector tend to go out of favour or into trouble at the same time e. Trading costs: The annual review of the portfolio is likely to mean making major changes thus triggering trading costs and possibly crystallising capital gains taxes.
Michael OHiggins,Beating the Dow! Aswath Damadoran. Investment Fables! Yield Range At its heart, the technique uses the dividend yield as the critical measure of its valuation. If the yield is high, it may signal a buying opportunity and, if the yield is low or drifting lower, then that could be an indication to sell. As well as looking for low yields on a histori- cal basis, there is a filter for high quality stocks - each company Anyone can be a successful investor you confine your selec- needs to have a good quality track record and pass an additional tions to blue-chip stocks, you buy them when they are underval- set of robust blue chip criteria to prove it.
Dividend yield must be undervalued vs. It must be a growth stock that has raised dividends at a rate yield over time - the most renowned advo- of at least 10 percent over the past 12 years. It must be selling for two times book value or less. Dame of Dividends. For more than 50 years, 5.!
It must have a dividend payout ratio in the 50 percent area Weiss has been regarded as one of the in- or less to ensure dividend safety with room for growth. The now retired editor of the US 6.! Its debt must be 50 percent or less of total capitalization. It must be blue chip, defined as: Trends, Weiss developed a formula for iden- 1.! It should have had 25 uninterrupted years of dividend! Higher risk of dividend cuts: Focusing on historically high yields history may lead investors into dividend traps, although the quality fil- 5.!
There should be earnings improvements in seven of ters help here. Accessibility - It's difficult to replicate some of these criteria ex- actly for the UK market e. Why It Works Its easy to understand the blended emphasis on relative value and quality. Weiss argues that stock valuations from a yield perspective Stockopedia Subscriber Resources move in their own specific bull to bear cycles as sentiment ebbs! The average time for a stock to raise from undervalue to investors overvalue is three years, while the downhill run is usually two years.
This strategy seeks to exploit those relatively predictable cy- cles. Geraldine Weiss, Dividends don't Lie Can it beat the market? Forbes: Dividend Stocks Pay Off. Weiss has now retired but, as of , Investment Quality Trends was said to be the number one performing investment newsletter in the U. S over the previous 15 years, earning an impressive It had placed third for the prior ten years and third over the prior five years.
Key Issues! Charting based - This approach involves aspects of technical analysis. Its reliance on historic patterns may concern fundamentals-focused investors, although the charting is not purely based on price action. HYP - High Yield dend growth over, say, the last five years.
However, Bland also notes that these rules are flexible for the sake of essen- tial sector diversification". Portfolio Can it beat the market? Over the 10 years to November , the strategy was reported to have generated a 4. You buy the top high-yielding stocks - building a diversified portfo- lio across all sectors.
And you simply sit back and allow the divi- dends to pile up, Stephen Bland Key issues This is a combined yield and safety approach but the safety filters A strategy which shares some of the same thinking as Dogs of the are fairly basic and - as with the Dogs - the focus on the very high- Dow is the 'High Yield Portfolio', a passive large-cap income invest- est yielding stocks looks misguided the 2nd and 3rd decile tend to ing strategy popularized by the writer and investor Stephen Bland deliver higher risk-adjusted returns.
Perhaps unsurprisingly, in the in a series of Motley Fool articles back in This is a buy and hold forever strategy aiming to build a well diversi- fied portfolio of shares in big, solid companies chosen primarily for high yield to provide increasing retirement income from dividends. Rank a large-cap universe by highest forecast yield.
We will be adding a HYP version too. Select one stock from each different sector Further Reading 3.! Examine fundamentals to make sure the yield is sustainable: -! Less than 50 percent gearing, except in special cases like -! Retirement Pays Dividends utilities. Dividend cover of at least 1. A history of divi-. DGI - Dividend How it works This approach involves buying stocks with a long history of increas- ing dividend payments, i.
Dividend Champions, and reinvesting Growth Investing any proceeds. While a long dividend streak is considered crucial, its also important to find a company that is growing at a sustain- able rate, with low debts and lots of cash inflows. There is usually a strong Buffettesque focus on the quality of the underlying busi- ness franchise to ensure sustainability of the dividend payment. As "The stockmarket also contains an escalator, one that allows you with the HYP approach, there is more emphasis on the income to stay invested and ride the roller coaster with something ap- stream generated by the portfolio, than the portfolio value per se.
This is an increasingly popular income Stock Selection Criteria investing strategy in the United States. DGI is a fairly broad church but a typical set of criteria to find candi- One of the earliest books to focus on date stocks might be: DGI in detail as a strategy was Roxann 1.! As a more ing or increasing dividends. Strong historic dividend growth rate: A minimum five-year emerged in recent years out of the blo- dividend growth rate of 10 percent or more, or a year divi- gosphere, via sites like Van Knapp's dend growth rate at the same level.
Sensible Stocks and the writings of oth- 3.! A minimum dividend yield of 3 or 4 percent: If the current ers like David Fish, Chuck Carnevale yield of an existing holding drops below 3 percent, this might and Norman Tweed on social finance trigger a decision to sell and deploy the cash elsewhere. Increased dividend payout yield either in relation to EPS or free cash flow.
This is more controversial since some DGI investors target low payout ratios as a sign of sustainability. Why It Works? Weve discussed earlier the way companies with long dividend streaks are signalling the stability of their business model, their con- Key issues fidence about future earnings and their commitment to paying divi- Unbalanced approach As blogger Financial Uproar writes, the dends. Companies think very carefully before increasing dividends proponents of DGI can appear somewhat myopic in their focus in this way - as a result, they tend to be very high quality busi- on growth to the exclusion of other concerns: "I like dividends nesses that are able to grow profits over a long period of time by too.
The problem is with the almost singular focus on it. Can it beat the market? Limited focus on valuation Given the lack of focus on yield, Given its popularity, the evidence whether Dividend Growth Invest- there is a risk that valuation may be overlooked as a key pa- ing delivers excess long-term returns is surprisingly mixed.
While a rameter for these kinds of stocks. A related concern is that the number of its supporters have back-tested the performance of the DGI approach is becoming very popular in the US, which could Dividend Champions list, this work is based on a data-set that suf- lead to a bubble in these kinds of stocks discussed below. We of consistent dividend growth especially small-caps returned con- will be adding a more involved DGI screen.
Further Reading In any case, the idea is that, rather than beating the market through capital growth, a portfolio of DGI stocks should provide a! Top 40 Dividend Stocks of ! The Dividend Growth Investment Strategy. The Simple version relies on the Dividend Pay- Dividends out Ratio and his own proprietary Quadrix score, the details of which are not disclosed.
However, the Advanced BSD Formula uses the following ten weighted fundamental and momentum fac- tors to arrive at a composite score. Dividend Payout Ratio 30 percent Weighting Using this ap- ment advisory and publishing group proach, the most important factor is how well covered the divi- called Horizon which publishes The dend is by company profits.
DRIP Investor newsletter. Interest Cover 10 percent Weighting - measures how well a Big Dividends in which he laid out his company profits cover its interest payments. Companies with own algorithm for picking safe yielding lots of debt may struggle to pay the dividend if business condi- stocks. He is generally wary of high tions deteriorate. Three Year Dividend Growth 10 percent Weighting Carson tors should be cautious about stocks observes that companies that have a history of raising their divi- with dividend yields that greatly exceed dend on a regular basis tend to continue to do so.
Long Term Expected Growth 10 percent Weighting - While not tor or industry, the overall market, or the stocks own long-term his- a perfect measure given the poor record of analyst forecasts, torical average. Carson feels that it is a reasonable way to get some view on a firms future growth prospects. Debatable parameters - While Carlsons approach is interesting, 6 Month Relative Strength 10 percent Weighting - Carlson it does appear to be something of a laundry list of financial indi- notes that weak share price movements can often anticipate cators that might or might not!
The approach is said to be fo- Minor Factors cused on safety but also seems to include factors that are as-! Cashflow to Net Income 5 percent Weighting - While profits sessing the prospects for dividend payout growth. Finally, as weve discussed, its not always clear on companies that have a record of boosting cash flows on a that a low payout ratio is always a good thing so its heavy reli- regular basis.
Three Year Earnings Growth 5 percent Weighting Preferable Proprietary aspects - The full back-tested results rely on Carl- to bet on a company with a history of boosting earnings than sons Quadrix ranking system, the details of which are not dis- one that does not. Dividend Yield 5 percent Weighting - Carlson includes it but warns against focusing overly on dividend yield.
According to the book, Carlson back-tested his approach to As a measure of quality, a stock must have a Piotroski F- Score of 7 or greater out of 9 2.! It must also have a balance sheet risk score in the safest 40 percent of the universe. A forecast dividend yield above 4 percent or percent of There are very sound logical reasons for being biased towards the average universe yield. There are even more sound reasons 4.!
Financial companies are In May , the equity strategy excluded. What SocGens into a portfolio strategy has some very sound behavioural founda- team came up with was a Quality tions as it helps in avoiding overconfident managers and avoiding Income Index designed to track overpaying for lottery tickets.
Weve already looked at why high large cap stocks with robust balance yield stocks tend to do well; the fact that company management sheets, strong fundamentals and are generally bad at allocating capital means that distributing cash healthy yields. The barometer of to shareholders seems to improve the discipline and skill of manag- quality essentially rests on the broad ers at reinvesting capital. Meanwhile, high quality businesses tend shoulders of the Piotroski F-Score.
Fund managers have to do something from an ETN based on the Index. As a result theyll tend to pay total return of stock markets has actually been negative in that time more money for stocks that have the capacity to double from year period, the Quality Income index almost tripled. Were now tracking to year. Just like lottery ticket buyers, they pay over the odds to the screen for the UK market to see how it holds up under live play, systematically underbidding quality stocks in the process.
Key Issues Many in the market now appreciate that both higher quality stocks Of all the dividend strategies discussed, this is the one we consider and higher yielding stocks tend to outperform. On the negative side, the Distance to Default measure offer total returns that have averaged Stockopedia Subscriber Resources! But what is more striking is the return of the portfolio since the mar- ket topped in - a genuinely miserable time for all. While the. Diversification - the lions of investors can feel the pain simultaneously.
In , oil group BP slipped from fifth to seventh best payer following the Gulf of Mexico oil spill, while in Lloyds lost its seventh place in the. A 's study ofstudy of 60, private investor portfolios by Ku- mar and Goetzmann at one of the US's biggest discount broker- ages found that investors on average owned only 4 stocks. We The only investors who shouldnt diversify are those who are right strongly favour much wider diversification than this because the percent of the time Sir John Templeton most important thing in income portfolios becomes the health and dividend generating capacity of the whole.
By spreading out your Diversification is the only free lunch in investment and the idea is portfolio, you reduce the chances that one stock or industry issue so simple that even a child can understand, if not execute it could derail your investment plan. Sure, Warren Buffet may run a Dont put all your eggs in one basket".
But in practice stock portfo- focused portfolio but how many investors have his command of the lio diversification remains a contentious topic among investors. On the one hand, there are those who argue that a portfolio should Parsimony Investment Research suggest some useful rules for a be concentrated on a small, highly selective group of stocks less dividend portfolio they argue that an investor can reduce portfolio than 10 stocks, perhaps as few as 4 or 5 to be monitored closely risk meaningfully by holding a combination of stocks that are not and frequently.
Warren Buffett has occasionally placed up to 40 per- percent positively correlated along the following lines: cent of his funds into exceptional stocks like Coca-Cola and Ameri- can Express. On the other hand, there are those who argue that a portfolio should include a fairly large number of stocks , or!
Maximum Stock Position: percent of total portfolio. The idea as much as This topic is especially relevant in dividend investing. Seven blue! Maximum Industry Position: percent of total portfolio. Maximum "High Yield" Exposure: percent of total portfo- lio. They define high yield as stocks with yields greater than 6. Clearly, this will be a matter of debate, depending on ones appetite for high yield. Maximum Portfolio Beta: less than 0. While these guidelines look sensible, wed suggest some simpler rules of thumb to play it safe.
Tips: Limit any single holding or sector to no more than one-third of your portfolio. Weed out less successful holdings that shrink to become an insignificant part of your portfolio, for example less than 2 percent other than recovery shares which you are actively moni- toring. Equity Portfolio Diversification! The rate at which an investor sells down assets is determined by things like the 4 percent Rule.
This is a rule of thumb proposed in the s by Bill Bengen, a fi- Gentlemen who prefer bonds dont know what they are missing, nancial adviser. He suggested that, if you spend 4 percent of your Peter Lynch capital in your first year of retirement, you can go on spending that much until you die. Based on this, you can back out the capital While equity investors enjoy nothing more than spending hours la- sum required to fund your longer-term needs, for example you bouring over which stock to buy, evidence suggests that this could would need , in savings to provide 10, per year in be misplaced energy.
Research presented by Ken Fisher in his needed income. It may not accurately reflect future inflation location! It is also worth noting that DGI investors tend to Asset Allocation is the proportion in which an investor splits his port- focus on the income generation potential of your investments, folio across different asset classes - i. While many believe it to be bun- kum, Modern Portfolio Theory suggests that since risk levels and What is your risk tolerance?
But how do you do this systematically? High risk tolerance: You are likely to be far away from retire- the extra growth that stocks can provide. Others suggest using ment. Youre comfortable with the possibility of steep losses in your adjusted "allocation age i. For example, if your spouse night when the market is in turmoil. Average tolerance: You can handle drops in price, even for ex- would be 4 years younger than your own age.
Alternatively, John Bogle the founder of Vanguard has advocated! In a essay, The lifestyle in the near term. In this case, youre likely to be Twelve Pillars of Wisdom, he argued: There are an infinite number weighted heavily towards cash, bonds and blue-chip dividend of strategies worse than this one: Commit, over a period of a few stocks.
Ignore interim fluctuations in their net asset values. Hold your positions for as long as you live, subject only to infre- Own your age in bonds? Once youve decided where you stand, coming up with a targeted When there are multiple solutions to a problem, choose the sim- asset allocation does not need to be overly complex. The higher plest one. The issue with these simple approaches, however, is that a they dont factor in other asset classes e.
One of the themes of this should be minus your age this is the same as own your age book is that judicious dividend stock investment can provide a sta- in bonds. For example, if you're 30, you should keep 70 percent ble income stream that may partly offset the needs for bond invest- of your portfolio in stocks. If you're 70, you should keep 30 percent ments. As well soon be discussing, on the back of a 30 year bond of your portfolio in stocks.
However, with people living longer, financial planners have altered this to a more aggressive age or even age. That's In any case, the key is finding something that you are comfortable because if you need to make your money last longer, you'll need with remembering that, on the whole, people overestimate their. Its then important to track your allocation closely 2.!
When assessing year, or fairly constantly, as you buy and sell your actual vs. This involves taking counter intuitive ac- tion of selling investments in markets that are performing well and buying more of less well-performing asset classes. This is done be- Each approach has advantages and disadvantages. The most im- cause markets have cyclical tendencies, meaning that a poorly per- portant thing is to be rigorous in the implementation.
Rebalancing forming asset class won't always do badly and a high-flying asset tends to clash with our normal fear and greed response, which is class will eventually come back down to earth. The balance of your portfolio will change constantly, even if you do nothing. Markets rise and fall over time. Dividends will be paid and Further Reading hopefully re-invested.
Some holdings may acquired or - despite! Siegel: The Future for Investors your best efforts - go under. If a portfolio is not rebalanced, it will gradually drift from its target asset allocation to higher-return and,! Vanguard: Best practices for portfolio rebalancing.
How should you respond to these changes? Broadly speaking, here are the options: 1.! Do nothing, i. The merits of dividend prices tend to be a lot more volatile. Jeffrey Gundlach, the famed bond investor, illustrated the difference between bond and equity. If the yield on the ten-year bond doubles overnight from 3 to 6 per- cent, youve lost about 20 percent of your principal but if Micro- softs yield doubles from 3 to 6 percent overnight, youve lost 50 percent of your principal.
When reward is at its pinnacle, risk is near at hand, Jack Bogle, founder of Vanguard Group However, while these facts are generally true, its important to rec- Bond prices are generally less volatile than equities, dividend pay- ognise some important caveats about bond risk that may mean ing or not.
Bond prices fluctuate with interest rates, inflation, fear they are far more risky right now than most investors are expect- and the credit ratings of the issuer, but these price fluctuations are ing. It is certainly arguable that interest rates have no- even in the case of bankruptcy bondholders are likely to be paid where to go but up.
Of course, it may be that the economy will con- back by the administrators first. The common shareholder is only tinue to stagnate and interest rates will stay low but when any mar- entitled to whatever remains after all bondholders, preferred share- ket is at an extreme in terms of values, reversion to the mean is a holders other creditors are paid out, which is regularly nothing at decent bet.
Secondly, bonds provide zero hedge against inflation. Government So dividend stocks don't carry a promise that you'll get back what bonds are regularly yielding less than the rate of inflation or even, you paid. We've also seen that there is always the chance that the in the case of a recent German auction, less than zero. So even if yield will be cut due to market uncertainty and the temporary poor you do receive your principal back it may be worth far less in pur- health of the companies paying the dividends.
As a result share chasing power than it was when you initially bought your bonds. Dividend income streams are theoretically combatting the ravages of inflation. If you buy a bond at a par more risky than the equivalent income stream from high yield value of , when it matures you will only receive the same bonds. As a result there is One concern thats been raised of late is the possibility of a divi- a significant risk that the income you earn while holding a bond to dend bubble forming, given the weight of retail and institutional maturity won't compensate you enough for the loss of purchasing money moving into the space.
Deluded by their quest for yield, are power. In contrast, the dividends from well-chosen dividend stocks inexperienced investors sleepwalking into a dividend trap? Could a dividend bubble be on the horizon? So far, this looks to be a stretch. As Dan Kadlec notes, not every As mentioned in the introduction, we may be living in an era of 'fi- rally is a bubble. Bubbles and investment manias tend to display nancial repression' where governments legislate to ensure enough several characteristics.
Usually, investors start buying with the ex- demand for their AAA rated bond issuances while paying yields pectation that they will be able to flip the asset to a more willing that are so low they pay out less in interest than is required to buyer. This demand is often fuelled by leverage, which magnifies match inflation. Investors become more and more exuberant, dismissing risks and discarding traditional Effectively these bonds are losing value after factoring in inflation valuation methods with talk of a "new era" to justify the ascent in so the case for dividend stocks as an alternative source of portfolio prices.
Could it be appropriate for an inves- tor to switch their asset allocation to more heavily weight stocks Dividend stocks do fortunately have a self-correcting mechanism over bonds? Especially if the forecast is for higher future inter- built in. If the price rises, the yield falls, making the shares less at- est rates and better economic times ahead as interest rates rise, tractive.
In theory, that should keep prices from getting too out of bond prices go down. Soaring valuation multiples vs. Low dividend yields in absolute terms e. As of late ,! A high risk of a dividend trap. There continues to be! Flashing momentum indicators, such as prices well above the very juicy dividend yields available from really solid companies. It could still get ugly Further Reading This is not to say that there is not a fair amount of yield chasing go-!
The Bond Bubble and the Case for Stocks not becoming relatively expensive. Clearly, there are many rea-! Interest rates could rise substantially - since the TMT bubble burst, interest rates have been on a relentless march down but this could reverse as inflation spikes. The macro-economic picture could improve markedly, encourag- ing money out of defensive stocks. There could be a structural change in the market for example, a tax change that might make it less attractive to pay or re- ceive dividends.
A long recession could cause seemingly perpetual "dividend growers" to cut or stop increasing temporarily their payments. As ever, the most important thing is to focus on robust stock selec- tion methodologies, apply a margin of safety, and avoid warning signs such as:.
When to sell stock you purchased had a current yield of 8 percent, your yield on cost is 8 percent. It doesn't really matter if the stock is currently yielding 1 percent or 2 percent - you still earn 8 percent on your cost. One consideration worth making on this point, however, is the impact that a falling yield could have when it comes to reinvesting dividends.
While you may have locked in a healthy yield with an ini- tial purchase, you may not necessarily get that yield again when it comes to reinvesting. Once again, it comes down to your strategy "I never buy at the bottom and I always sell too soon. Buy low and sell high is the mantra of a lot of investors, but is Why sell ever? They tend to be more comfortable Indeed, some dividend growth investors, such as David van holding onto their investments even as they soar in value far above Knapp, argue that you shouldn't need to sell dividend stocks ever.
Under conventional retirement planning, an investor dend income, not the share price. They are still getting that high yield but the opportunity cost of the investment has increased, assuming the price has appreci- Instead, van Knapp suggests that ideally nothing should be sold at ated faster than the market, and better investments may be avail- all by a dividend growth investor.
Instead, the income generated able. On this view, price falls or even a bad economy should pose no particular threat to most of this dividend income, Many dividend investors argue against selling or rebalancing, main- because there is little correlation between dividends and stock taining that the original yield on cost locked in with the purchase is prices.
Dividend investors do still need to be vigilant and keep a implications. Things may change in an uncertain It may be: a a last ditch response to operating problems declining world and adjustments must be made from time to time. A purist earnings and losses , i. If a company re- Light in the US. In , FPL cut dividends by a significant 32 per- duces or eliminates its dividend, then this may be an appropriate cent, marking the first cut by the company in 47 years. It was a de- time to sell for a dividend investor.
This is not just because of the cision taken in the midst of uncertainty caused by deregulation in loss of the long-term passive income stream but also because the the electric utilities industry. Far from financial distress, FPL an- market response to such cuts tends to be indiscriminate.
As weve nounced, at the same time as it cut dividends, that it was buying discussed, several studies have shown that investors simply flee back 10 million shares over the next three years and emphasised from the shares and in the large majority of cases the stock price that dividends would be linked more directly to earnings.
As ex- of firms that cut dividends drops dramatically on the news. Firstly, you might be selling and other utilities A company may be taking prudent meas- with a lot of cash meaning there may be less to pay out in divi- ures to conserve cash in tough times or it could be a wise decision dends. Alternatively, you might find that a company with a great to divert cash to exciting new projects.
The level of scepticism yield and good potential for shares has been bought by a stingier shown by investors towards claims by companies of increased in- or less favorable competitor. It may be better to dump the position vestment requirements at the time of a dividend cut is understand- instead of accepting the resulting shares from the buyout. Another able, especially if the firm also reports lower earnings and has a example of fundamental change could be the oil disaster in the history of poor project returns.
The company was just not prepared for market tends to be overly-sceptical. So, if youre still a shareholder the situation and, as the damage claims mounted, investors lost in a company that decides to scrap its dividend, it may not make confidence in management to resolve the issue, leading to a sell- sense to sell the stock straightaway.
Each individual case should off and a dividend cut. There looks to be value to examining closely timed earnings and dividend cut announcements to see if Question 3: Is the stock down by over 50 percent since your the market reaction is justified. Jeff Reeves of InvestorPlace. He notes that, while fluctuations in share price are not nec- ness? If a company changes dramatically, it's worth reviewing its essarily a problem for dividend investors, watching a position de- usefulness as an investment to you.
It's always worth writing down cline by over half should set off warning bells. His rationale: "A divi- at the time of purchase the specific thesis that underlies the invest- dend stock with a yield of about 2 percent will take 50 years to ment and any metrics for tracking this.
This allow you to monitor double your money via dividends Waiting five decades if not how future events have impacted that thesis objectively, without reinvested just to get back to square one doesnt make any sense getting caught up by hindsight bias or issues of loyalty or saving no matter how healthy the dividend payout is". Sometimes you face. Using this, it's very good practice to periodically review your may be better off taking the loss and moving on to greener pas- investments and ensure that you still own them for logical reasons.
Examples of major changes that may undermine your reasons for Question 4: Is the stock severely overpriced? If it's not, then one of the above three cri- youre unlikely to earn a Total Return, even factoring in the divi- teria are likely to apply and you'll likely want to sell and redeploy dends, because there is material and significant risk to the share that capital.
One way to spot such a scenario is where the dividend yield has declined to historic lows. This was the approach used by a Timing any sells A final thing to bear in mind in terms of when, range-trading dividend investor like Geraldine Weiss, the time to rather than whether, to sell is the well documented price action sell was when the dividend yield declined to historic lows.
This sug- around the ex-dividend day as weve discussed, stock prices gest that it's likely that the stock will "mean-revert", leading to a sig- tend to see a run-up in the period immediately before the ex-div nificant loss of capital. While market timing on its own is generally futile, this Keeping a cool head It's important to remember dividends typi- does provides a relatively predictable pattern that is worth bearing cally increase over time on average while cash in the bank typically in mind when you're considering a stock sale or purchase for other loses its purchasing power over time.
As a result the investor who reasons. SocGen research indicates that, in Europe, with its often annual or large final dividend payments, ex-dividend dates and payments are If the price of a stock falls dramatically in a short period of time, highly concentrated in April and May. The bulk of these ex-dividend this is often a reason NOT to sell a position.
You have to keep a events occur in these two months, which contain over 65 percent cool head and remember the reasons why you invested in the com- of all the ex-dividend events and 50 percent of total dividend pay- pany. If the fundamentals remain the same, the dividend is in no ments for the year. Unless youre a forced seller for liquidity rea- danger, earnings and revenue appear to be growing and the valua- sons, its best not to sell a stock around these dates.
SG Quant Quickie However, paying attention to the above questions should help you! When is it time to sell a Dividend Stock manage your downside risk. If, however, the market is exiting a stock because of serious issues this would be a good opportunity! Where to find Where can you find good ideas? Of course, that's the million dollar question and there is no one definitive answer.
While many of the City grade resources used by professional investors have been. Combine that with im- proved access to market data, increasing scrutiny of companies and their accounts and the explosion of successful investors docu- menting their activities through books and blogs, and the prospec- tive Dividend Investor has an armoury of resources close at hand.
In This Section To generate ideas, we're big believers in a starting with quantita- 1. The Quant Approach tive stock-screening b leveraging the power of the Web and c reading as widely as possible to learn from others, following Char- 2. The Scuttlebutt Approach lie Munger's words of counsel:. Piggybacking "In my whole life, I have known no wise people over a broad sub- ject area who didnt read all the time none, zero Youd be amazed at how much Warren [Buffett] reads and how much I read.
The Quant Approach - 1.! Checking daily ranking lists like the list of the highest yielding stocks in the market and highest forecast dividend growth. Screening and Indices rates. These raw lists can often highlight surprising names. Following Guru screens based on the approaches of inves- tors that you respect - for example the Dogs of the Dow or Geraldine Weiss strategies previously discussed.
There are many highlighted at the Stockopedia Screening portal, includ- ing all of the strategies discussed in the previous sections. A man who dares to waste one hour of time has not discovered 3.! Running your own screens, based on metrics youve found the value of life. Charles Darwin useful and ideally back-tested.
Screening the market by using a set of quantitative criteria is a great way to generate dividend stock ideas. Its the basis of our ap- For this, apart from Stockopedia itself, there are the usual financial proach at Stockopedia and follows in the footsteps of Benjamin data website suspects, but relatively few of these sites have much Graham, Joel Greenblatt and other investing luminaries.
The bene- of an income focus. One site that does is DividendInvestors. It provides investors with basic divi- dend data as well as its Dividend All-Star Ranking, which lists top- performing dividend-paying stocks. It also includes some basic in- Humans are emotional, spontaneous and biased animals designed come screening capabilities, along the lines of our High Yield lists primarily for a bygone hunter gatherer age, certainly not for ad- and our screens like the Dogs of the FTSE.
Too often, that means that people tend to generate their investment ideas in anecdotal or circumstantial ways based on gossip or tips, rather than focusing systematically Dividend History Indices on the best ideas. Screening helps to counteract these behavioural Any dividend growth investor worth his salt is keen to examine divi- weaknesses and can help you find the real hidden gems.
In the US, this is easy as there are publicly available indices or lists: Screening for dividend stocks can come in several forms, all of which are worth considering:. Dividend Achievers - This is a list maintained by Indxis of US This year, Indxis launched a UK Dividends Achievers Index but it companies that have increased their annual regular dividend just defines Achievers as a meagre 5 years of increased dividends payments for the last 10 consecutive years.
This tracks the 30 highest dividend- ing dividends every year for at least 25 years. They have also launched a related ETF. However, you can also screen for up to 10 years ing Resource Center. This site is updated by David Fish and the of Dividend Streak on Stockopedia, and then layer on any other master spreadsheet includes 3 different lists: value, growth or other filters as you see fit.
Dividend Champions - a list of US companies that have increased their dividends for 25 years For globally minded investors, its worth checking out a Dutch site! Dividend Contenders - a list of US dividend streak compa- called Top Yields, which has good global data. And for those inter- nies from consecutive years. Dividend Challengers - a list of US companies who have resource built by Mark Taber at fixedincomeinvestments.
Stock Screens - we are tracking a growing collection of invest- apart from within the investment trust space where the Association ment models and stock screens based on investment classics, of Investment Companies publishes a list of trusts that have in- academic research and famous investors including all the creased dividends for the longest number of consecutive years.
Alternatively you can fork our models and tweak. The Scuttlebutt! Dividend Growth Investor - Set up in , this blog shows how one investor has implemented the dividend growth strat- egy and is a useful source of stock ideas.
He also writes as Dividends4Life. Div-Net - This is an aggregation site and investor network set up by various bloggers which is focused on dividend invest- Screening can sometimes throw the baby out with the bath water. As a hard edged approach it cant pick up the many sizeable divi- dend opportunities that may be available in the cracks of the stock!
Disciplined Investing - This is the blog of David Templeton market. The best way to find them without doing the work your- and Horan Capital Advisors. It covers a range of topics, in- self! In the UK, the best blogs are mostly value-focused e. Richard Beddard of Interactive Investor which often have a significant overlap with The UK dividend blogging scene is a bit lacklustre frankly.
Still, its dividends. But the best dividend focused blogs tend to be North worth checking out the blog of the Munro Fund. Munro is a tracker American which are well worth reading even if you dont invest fund which uses gross cash dividends to weight its holdings so there, especially: they focus hard on the dividend universe. The Monevator blog has some good dividend coverage, including an excellent four part guide to building your own HYP.
Another good blog is DIY Income! It's worth being aware of the! Scuttlebutt - On top of our own market analysis, we syndicate herding instinct that can exist on social media sites, though. Social many of the best blogs and research on the web and host a vi- finance site, Seeking Alpha is the spiritual home of income invest- brant discussion community.
You may find some of the best ing discussion, albeit with a strong US focus. He writes the Divi- dend Letter and is one of the better online advocates for high yield. Amongst the investing magazines, the Bearbull column of the In- vestor's Chronicle magazine is often insightful.
From , the returns from the Bearbull Income Portfolio income fund were apparently 9 percent, versus just 0. And, last but not least, theres a useful application and online re- source called Piggybacking the best Fund managers tend to keep their cards fairly close to their chest so their public commentary can be a little bland. Still, the Web. This is much easier in the US due to differ- ences in disclosure requirements, but TrustNet still provides a very useful resource for UK stock pickers looking to piggy back the pros.
Where are the customers yachts? As a starting place to find the better UK income funds, Principal In- While there are many well managed mutual funds that can be a vestment Management in Bath publishes an influential guide. Its great source of dividend ideas, for the most part wed hazard half-year review divides UK Equity Income funds into a white buy against investing in them. In other books weve discussed how list, a grey hold list, and a black sell list based on total returns most actively managed funds struggle to outperform due to high and risk over five years.
Clearly, this is just a backward-looking ex- fees and misaligned incentives of the managers. But that doesnt ercise but it's as useful a way as any other for separating the mean that they cant be a great source of ideas if you know how sheep from the goats. Its worth noting though that much research to look! The Invesco Perpetual High In- come and Invesco Perpetual Income now hold almost 16 billion in For each of these managers, you can see a list of their top 10 hold- assets having had considerable historic success.
It could be ar- ings on TrustNet. However, these lists are just a starting point as gued that those funds will struggle to match their historic record they are usually only a very small sample of the stocks held. To dig due to the asset bloat that comes with long term success - but a bit deeper, it's best to revert back to the Annual Report for each there are certainly many other smaller funds in the UK Equity In- Fund.
These reports are not always that easy to find but, in the come sector that are worth tracking. In stark contrast to his top 10 investments on TrustNet, close in- spection of the Annual Report reveals a long tail of almost of Neil Woodfords investments, including some more esoteric hold- ings, like a Fred Schwed: "Where are the Customers' Yachts?
Conclusion More than years later, keeping track of dividend yields, corpo- rate quality, and the potential for long-term dividend growth remain the key challenges for income investors. But these are challenges Education is an admirable thing, but it is well to remember from that the brightest minds in finance have been learning to overcome time to time that nothing that is worth knowing can be taught. Os- ever since and its been our goal throughout this book to learn all car Wilde that they have to offer.
Dividend investing has come a long way since it was first invented But a note of caution. Many investors wish to build the kind of low during the s and some of the earliest lessons on what works volatility high return portfolio that dividend strategies can deliver, and what doesnt still very much apply. Back then, the Dutch East but so few manage to stick to this route due to a perceived lack of India Company was emerging as an international powerhouse with excitement.
The most important challenge we all face is to take to a menacing mix of colonial and trade ambition, and it claimed a heart the sound underpinnings of why these strategies work and handful of corporate firsts in the process. It was the first business have faith that the return drivers are still in place even when they to issue stock to raise capital and it founded the worlds first underperform in the short term.
It also pioneered dividends as a means of regularly liberating profits to the investors that were backing its risky, albeit lucrative voyages to the East. As Warren Buffett has said Investing is simple, but not easy, and the hardest thing to do is to stick to a well conceived plan when everyone else is having a party.
If you can learn to avoid excite- For years the Dutch East India Company paid an average 18 ment, lengthen your investment timeframe from a few months to a percent annual dividend and in , the payout on its shares rep- few years and focus on higher quality, higher yielding stocks then resented a heady 40 percent of its stock price. But as competition you are well on your way to lasting success - just dont forget to re- increased and revenues were squeezed the company took increas- invest those dividends!
In- evitably, paying out dividends that exceeded surplus cash contrib- uted to the companys implosion in Among its dubious Safe Investing. A: Dividend Basics terim stage and two-thirds at the year-end. However, some larger companies pay out dividends each quarter. The process of paying a dividend has several stages:.
At the time a dividend declara- What are Dividends? This becomes interesting when they have the funds to acquire other companies and so other projects Follow the. Click the link in bio. A lot of good news with this company looking like a great swing opportunity. Should I drop YouTube vids on how I get in? Follow markets. Have any questions? DM me markets. Good luck! New cop. Book 27 stocks investsquad daytrader bookshelf. Who do you trust and prefer?
Video Release on January 21, Warren buffets favorite stock is Coca Cola. Here are the main robo-advisors in Austrailia! Do you hold any Bitcoin stock? Do you invest in Bitcoin? Was haltet ihr heutzutage von Banken? Kurz zu mir: Ich habe eine Ausbildung zum Bankkaufmann gemacht und insgesamt ca.
Seid Ihr bei einer Direkt- oder Filialbank? Habt Ihr ein Depot bei eurer Hausbank? Falls Fragen rund um das Thema Banken aufkommen, stellt diese gerne. They are very well positioned to do well in thanks to the move to 5G. What are your thoughts on this? Buy the dip.
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