Dividend investors tend to have an almost blind faith in the steadiness of companies in which they invest. They want to invest in businesses that have paid dividends for many years and, more importantly, have a track record of growing those dividends each year for decades or more. Reliable dividends mean never worrying about the stock price as long as the company continues to write quarterly cheques to its investors.
The crown jewel for dividend investors is the dividend aristocrats – a list of companies that have not only paid but also increased dividends annually for 25 years or more. It’s the perfect stock screen for large blue-chip dependable dividend payers. Investors believe that companies who belong to the dividend aristocrats must generate exceptional cash-flow and have prudent management that takes care of its shareholders.
But is it prudent for management to pay an ever-increasing dividend at the expense of growing their business through investments, research & development, or acquisitions? Or paying down debt?
Let’s face it, there must be times when it’s not smart to pay out all of your free cash flow to investors. And if management decides that paying dividends is its top priority just for the sake of staying on the dividend aristocrats list, well I’d say that’s the opposite of being prudent. Eventually poor decisions like that catch up with you.
Take the ultimate widow and orphan stock, General Electric, which recently cut its dividend to 1 penny per quarter. GE was a dividend darling, paying out shareholders every year since 1899. It had a stretch of 32 consecutive years of dividend growth, and was the largest company in the world from 1994-1998, and 2000-2005.
Another former aristocrat, Anheuser Busch cut its dividend in half amidst swelling debt of $109 billion after its acquisition of rival SABMiller.
As reliable as the likes of Johnson & Johnson, McDonald’s, Coke, and Walmart have been over the years it does not take a huge leap of faith to imagine the next 20+ years turning out much different for these companies. Indeed, the S&P 500 Dividend Aristocrats list looks much different today than it did after the financial crisis in 2008.
Hey, as a former dividend investor I can empathize with the idea that investing in strong dividend paying stocks “feels better” than investing in a broad stock market filled with good and not-so-good companies. But screening for companies based on their historical performance, including dividend history, is not the best way to build a portfolio. There’s simply no guarantee that this reliability and performance will continue in the future.
Businesses change, industries get disrupted, management becomes complacent. All the better to diversify that risk away by investing globally in thousands of stocks.
This Week’s Recap:
On Thursday I wrote about RRSP loans and explained the reasons why you should (and shouldn’t) get one.
Over on Rewards Cards Canada I shared a new enhancement to the prestigious American Express Platinum Card (including a shiny new metal card design)
Promo of the Week:
The Credit Card Genius website released its best credit card offers for 2019 and there are some good ones on the list for those who are in the market for a new card, or looking to claim some bonus points.
The top promotion on the list is for the Scotiabank Gold American Express card, which comes with a 15,000 point welcome bonus plus a $100 e-gift card to Amazon upon approval.
Another offer I’m strongly considering is TD’s Aeroplan Visa Infinite Card. You can get a 30,000 point welcome bonus and the annual fee is waived in the first year. Sign me up!
Weekend Reading:
Lots of reading this weekend so grab an extra coffee and let’s go!
BMO is getting in on the one-ticket ETF revolution with their new offerings of ZCON, ZBAL, and ZGRO. Great for investors!
A crazy story about the founder of a cryptocurrency exchange and his sudden death, causing the search for more than $260 million in digital assets.
An amazing post by investor advocate Neil Gross calling on big tech firms to optimize our finances. Some excellent ideas in here:
“Sci-fi fantasy? Maybe not. Algorithms already drive cars down busy city streets and land space probes on comets, so something this intricate isn’t beyond the tech world’s existing capability. They could build it.”
Tax expert Tim Cestnick tells us to take heed of the 80-percent rule this RRSP season.
Canadian Couch Potato blogger Dan Bortolotti explains what to look for when choosing a financial advisor.
Charlie Munger says teaching young people to actively trade stocks is like starting them on heroin.
Barry Ritholtz shares some excellent examples of paying for advice:
“But then I remember that a true financial advisor doesn’t really earn their fees until the big moment. That moment where a client wants to double their exposure to technology stocks after a 500% rally they feel they didn’t get enough out of.”
Independent Financial Adviser, Darryl Brown, answers some reader questions with Rob Carrick on one of the newest retirement planning strategies called F.I.R.E., Financial Independence Retire Early:
Ellen Roseman says Millennials and Gen-Xers should reach out to robo-advisors to manage their investments.
Kevin Press from Today’s Economy blog interviews Tom Drake, founder of Maple Money – one of the longest running personal finance blogs in Canada.
The Globe & Mail’s Gail Johnson explains how finances play into Canadians’ happiness.
Here’s a very interesting take on the psychological trappings of freelancing:
“Once I started freelancing, things changed. I became hyperconscious of how much money I could (or should) charge for my time, and this made me unhappy and mean when my nonworking hours didn’t measure up to the same value.”
Why technology is poised to (finally) disrupt the mortgage lending industry, with the majority of applications completed online or with a chatbot.
What to do when banks give questionable financial advice to seniors? Jason Heath explains in his latest MoneySense column.
Michael James muses about the emotional money choices he made over the years. These won’t be what you think they are (unless you know Michael).
Mark Seed explains why he doesn’t post net worth updates on his My Own Advisor blog, choosing instead to focus on dividend income updates.
Finally, an interesting and important debate is taking place now about your future car’s moral compass.
Have a great weekend, everyone!
In 2012, personal finance commenter Preet Banerjee wrote a piece for the Globe & Mail debunking a widely quoted research paper on the value of financial advice.
The study, published by the CIRANO group, reported that “on average, participants retaining the service of a financial advisor for more than 15 years have about 173 percent more financial assets than non-advised respondents…”
Investment industry groups jumped all over this, proclaiming irrefutable scientific evidence that people are better off with a financial advisor.
But that causal link between having an advisor and having more assets is tenuous at best. Financial advisors target those who already have substantial assets and earning power.
Even the president of CIRANO, Professor Claude Montmarquette, who was one of the authors of the study, told Mr. Banerjee:
“We need a better study and a better paper before I would be comfortable with the way they are saying what they are saying.”
Years later, Mr. Banerjee appears to be doing precisely that. He’s gone back to school and is preparing to defend his thesis – a study on the value of financial advice. He’s in the final data collection phase and could use our help to complete a short survey (10-15 minutes). Respondents must be 18+ and reside in Canada.
Please take a moment and complete the survey here.
I applaud what Preet is doing here and look forward to the launch of his new financial advice platform called Money Gaps – a tool for advisors who believe real financial advice is about planning and not products.
Finally, here’s Preet in action on The Agenda with Steve Paikin discussing the reality of retiring on low income:
This Week’s Recap:
Just one post from me this week but it was a popular one that looked at three easy ways to build an investment portfolio on the cheap.
Weekend Reading:
One of the best writers in the business, Millionaire Teacher Andrew Hallam entertainingly explains why a sliding stock market is like a winnable baseball game.
Mr. Hallam then goes on to examine how Bitcoin fell further than the Dotcom crash.
Vanguard added two new asset allocation ETFs including VEQT – an all-equities version that might have me reconsidering my two-ETF solution.
Frugal Trader at Million Dollar Journey looks at how to modify your asset allocation as you age with all-in-one ETFs.
Continuing on the ETF theme, Canadian Couch Potato blogger Dan Bortolotti shares a great resource – a new rebalancing spreadsheet for ETFs.
Another terrific writer, Morgan Housel at Collaborative Fund explains why time horizon works:
“In the short run the market is a voting machine but in the long run it’s a weighing machine.”
Jonathan Chevreau gives three reasons why RRSPs still matter — and one of them you probably didn’t know.
Here’s Nick Magguilli on why even God couldn’t beat dollar cost averaging.
The Star Business Journal shared a piece on preparing your portfolio for a changing climate as risks and opportunities grow.
Michael James explains the right way to think about a CPP or OAS breakeven age. It’s unconventional to consider spending your own assets first while delaying government benefits until age 70, but that approach often gives retiree higher spending rates in retirement while also protecting against longevity risk.
Dan Bortolotti explains why GICs deserve a place in any fixed income portfolio.
The Globe & Mail published eight insights for investors and their financial advisors.
Finally, Rob Carrick says Millennials want help affording houses and proposes a solution for the federal government to consider.
Have a great weekend everyone!
I’m a die-hard football fan but even I’ll admit that it’s getting tougher to follow the game with the same religious fervor that I once had. The NFL is plagued by many issues, including domestic violence, racial division, substance abuse, and player injuries resulting from repeated head trauma (which the league ignored or denied for decades).
I played high school football and suffered two known concussions in my senior year. We had an old school disciplinarian coach who told me to, “tape an Aspirin to my helmet and get back out there.”
I didn’t know anything about brain injuries at age 17. We were taught to lead with the face-mask and strike our opponent with a strong block or tackle. Our helmets (ill fitting at times) were used more like weapons than protective gear. Playing in the trenches would easily result in 50-60 of these violent collisions per game.
All of these issues aside, I still enjoy watching the game – I’ve been a fan since I was seven years old. But I’m almost ashamed to tune in (and not just because I’m a Cleveland Browns fan) knowing that all of these tremendous athletes who put their bodies on the line week after week are nothing but replaceable cogs in a giant machine, over which they have little control.
For a deeper look into the sports industrial complex check out these excellent Freakonomics podcasts on the hidden side of sports. Eye opening, for sure.
As for Super Bowl LIII, I’ll be watching and cheering for the upstart Los Angelas Rams to knock-off the mighty New England Patriots. While I enjoy my guilty pleasure tomorrow, come Monday I’ll be happy and thankful to take my kids to their ballet and piano lessons.
This Week’s Recap:
Earlier this week I looked at how well robo-advisors are positioned to help investors during a market downturn.
Later I looked at Canadians’ RRSP contribution and withdrawal habits and noted some good and not so good behaviour.
Weekend Reading:
Investigative journalist Sam Cooper has done a tremendous job digging into the money laundering scandal at B.C. casinos. Here’s the latest on how nearly $2 billion flowed through high roller accounts.
Parts of Canada’s data history have gone missing. Others are hidden from public view by layers of bureaucracy. A look at what went wrong at Statscan.
Here’s Of Dollars and Data blogger Nick Maggiulli on the power of heuristics and reducing complexity:
If you are trying to improve your business, what one big thing distinguishes your great clients from your bad clients?
If you are trying to get healthier, what one big thing separates good health from ill health?
If you are trying to be a better parent, what one big thing differentiates an amazing childhood from a subpar one?
Grab a second cup of coffee and read this epic Morgan Housel post on the origins of greed and fear. Seriously, go read it now.
While you’ve got that second cup of Joe, watch Ben Felix explain clearly how an RRSP works:
One policy I think the federal liberals got wrong was to reverse the previous conservative government’s decision to raise the retirement age to 67. It goes against global trends and economic reality. Here’s why that’s a growing problem.
Living off dividends, investing for income, not deferring pensions. These are just a few of the common investing mistakes made by retirees.
Jason Heath explains how early RRSP withdrawals can help some retirees comes out ahead.
Here’s six insights into retirement savings for those in their 30s and 40s.
Alexandra Macqueen explains why the 17% drop-out rule is key to your CPP entitlement:
“Because your CPP retirement benefit is based on your pensionable earnings from the age of 18 to when you take your CPP pension—called your “contributory period” in CPP lingo—dropping out these no- and low-income months can increase your monthly CPP retirement benefit, as the average income on which your retirement benefit is then based goes up.”
Million Dollar Journey blogger Frugal Trader pits iShares versus Vanguard in the battle of the all-in-one ETFs.
My Own Advisor blogger Mark Seed interviews Cut The Crap Investing blogger Dale Roberts about smarter saving and investing.
Dr. Networth describes his journey into passive real estate investing.
Ben Carlson explains what he means by being “selectively cheap.” I agree 100 percent with Ben’s view on saving and spending money.
The buttons on our eight-year-old microwave have slowly stopped working over the years. I think we’re down to using the “2” and “Clear/Stop”. Why can’t appliances work forever, like they used to?
Finally, a great piece by licensed insolvency trustee Scott Terrio on why Canada’s credit score obsession is leading people to make bad financial decisions.
Have a great weekend, everyone!