The Dividend Guy

The Dividend Guy HAS Moved

2005-09-22T10:52:00.000-07:00

Please direct your browser and all bookmarks to:

The Dividend Guy (http://www.thedividendguyblog.com)

Thank you for your patience. See you at the new spot!!

The Dividend Guy Is Moving

2005-09-20T21:10:00.000-07:00

I am having so much fun at this blogging thing that I decided to move my site to a new hosting site and use WordPress as my blog platform. I hope it goes well...seems a bit complicated to move stuff over but we shall see. The new link will be here:

http://www.thedividendguyblog.com

Bear with me as I make the change.

Dividend Investing - Asset Allocation

2005-09-20T09:30:00.000-07:00

Asset allocation is a tool that investors can use to help reduce the risk in their portfolio. The thinking is that, as not all investment types move in the same direction at the same time, you can "cover your bets" by investing in a few different investment types to take advantage of the various moves each class can take.

I break my asset allocation into 6 different asset types:

Canadian Equities
US Equities
Foreign Equities
Trust Units
Fixed Income
Cash

If you look at the attached chart, I have a current percentage amount that I hold in each asset class as well as a goal amount. As you can see, I am way off. I will be attempting to balance this out in my future purchases.

How did I come up with this allocation? I started by deciding how much I wanted to have in equities and worked from there. I used the rough calculation of 100 minus my age (100 - 31 = 69%) as a start. I include Trust Units as an equity component as opposed to Fixed Income as it is not fixed income in the same manner as government bonds are - trusts hold much more risk. In addition, I am low on cash which will limit my ability to purchase if the market crashes.

Anyway, that is how I do it. You may do it differently. Let me know, I would love to hear your thoughts.

Investing - Watch Out for the Marketing

2005-09-19T11:17:00.000-07:00

In Canada, we are in the "off-season" for advertisements from investment companies selling us their investment options. However, no matter when the advertisements are on, investors need to be very careful not to get swayed by the aggressive advertising tactics of these companies. I came across a list of things that investors should keep in mind when viewing advertisements about investments. Here is the list:

If a fund compares itself to a benchmark, this is a good sign [if it does not…]
If a fund ad includes a risk measure or indicator, this is a very good sign [too rare of course]
Try to find out why the fund had such great performance - a spate of hot IPO'’s, a spike in the price of oil or really astute portfolio management
Chuckle at the images but focus on the numbers
Don'’t be swayed by stars. In 1996, Fidelity, desperate to get a Canadian equity fund with decent performance, had wooed high profile manager Veronika Hirsh from rival AGF. She got a brand-new fund, Fidelity True North, and the defection caused a blaze of publicity because AGF had built a massive TV advertising campaign around her. But Ms. Hirsch soon parted company with Fidelity when it emerged that, while at AGF, she had invested in a junior gold stock and then bought it for her fund. She paid $140,000 to regulators to settle the case and now runs her own fund company, Hirsch Asset Management.
Check the dates-fund firms sometimes, inadvertently, use stale data. Base your returns on the most recent information available on several reliable web-sites such as www.morningstar.ca and www.fundlibrary.com
Double check the fund'’s portfolio holdings; mutual fund names are notoriously misleading
Don'’t be swayed by images of Spiderman or any super hero. They don'’t really exist and anyways who knows if they really own mutual funds
Get a magnifying glass for any text in small font
Be also alert to the business media

The entire article can be found by going to this page, and entering "Analyze fund ads for clues" in the search box.

P.S. I know I said the next article was going to be about asset allocation - I liked this topic though and decided to quickly post it. Stay tuned for my thoughts on asset allocation....

Dividend Portfolio & Personal Finance Update

2005-09-16T19:09:00.000-07:00

I updated my Microsoft Money file today, as I usually do once or twice a week and my portfolio has done well. The last time I updated the information on this blog was August 22nd. At that time my portfolio was valued at $33,996. Today I am showing a value of $34,489 - an increase of $493 since August 22nd. This is not all investment gain as I have contributed some money to both my pension and RSP.

As an update to my Personal Financial Strategy, I want to report that I have sold my Nissan Xterra and have bought a Mazda5. The reason for this was two fold:

1. The Xterra is a total pig on gas. With prices at around $1.10 per litre, my wife and I were paying in excess of $260 per month in fuel. With the new vehicle, the fuel economy ratings for the vehicle indicate that we will be able to cut this expense in at least half. Yes, the Xterra is that bad on gas.
2. The Xterra was getting up to 80,000km and I was worried that some major repairs were in the works. 4x4 scares me as the costs to repair anything on the drive train can be very expensive.

Given the reduction in fuel costs and the small increase in monthly payments that we will be making, we should end up ahead of the game by about $100. May not seem like much, but with a one income household, every little bit helps.

So, where do I sit in terms of progress. The chart below provides an indication of where I sit:

A pretty busy period since I last updated my progress - it is trending in the right direction though and in this type of market I am feeling pretty good. In my next post, I am going to talk about my asset allocation and my thoughts around this topic.

My Dumbest Investment

2005-09-13T13:56:00.000-07:00

Any investor, if they have been investing long enough, has made at least one dumb investment. I have made a few, that is for sure.

The one that sticks out in my mine is when I purchased a small forestry micro-cap stock out of Vancouver that I heard a stock analyst talk about on a morning radio show (I can't remember the name of the stock right now). He spoke about the prospects for the stock and how he was SURE that this stock was going up. He also spoke about relative strength and how this stock was advancing nicely. I was young and naive, so I got to work, checked out the current price of the stock, powered up my discount broker and bought 200 shares.

At that time in my life, I tended to not monitor my portfolio all that often. A couple of weeks later I happened to check my account and to my surprise I saw that my investment that was a SURE thing was down 75%. I basically had lost most of my initial investment on this stock. I did a little web research and the reason the company had been going up and looking so good was that management was cooking the books. The company was recording revenue that did not exist, basically bilking investors.

I got burned - I bought something based on some "expert" on the radio without doing my own due diligence. I also bought a micro-cap stock and ignored it - even if it was only for 2-weeks. Micro-caps can swing like crazy and constant monitoring them is required. I learned these lessons the hard way.

The thing with dumb investments is that they are not all bad. In fact, they can be very valuable. It is through this dumb investment, and others like it, that I have learned the most about investing from. I am 100% sure that there will be more dumb investments to come in the future (hopefully not too many though) and I look forward to learning from them and adjusting my investment style to become an even more intelligent investor.

Dividend Investing - My No Mutual Fund Rule

2005-09-12T15:01:00.000-07:00

First off, a big thank you to Chad at "Twenty Something Finance" and farhan for their comments in relation to the post on my investing principles. To provide some background to those of you who did not read the comments, their questions were concerning my rule that I avoid mutual funds in my portfolio. Farhan asked why I avoid funds since some index funds also have low MERs. Chad did not agree with me that mutual funds should be avoided, and made the case that the MERs are a small price to pay for the time fund managers spend seeking out opportunistic investments and that they have quicker access to information than the average investor. He mentioned that he has been successful (i.e. beat the benchmark) with his strategy over the past five years.

In the spirit of discussion, I would like to make a couple of points here. Farhan rightly pointed out that some mutual funds can pay very low expense ratios - specifically those mutual funds that track the indices. I think that is a great comment and I believe my statement about no mutual funds is probably too broad. My key point was that most mutual funds are too expensive for the returns they offer. I believe this article sums up the impacts of higher MERs on fund returns:

Morningstar notes a correlation between low MERs and high rankings on its five-star fund-rating system. The average fund in the four- and five-star categories had an MER of 2.3 per cent, while three-star funds had an average 2.5 per cent MER and one- and two-star funds had an average MER of 2.78 per cent. (Source: here)

The point the author is trying to make is that the MER is very important in determining the quality of the fund. The higher the MER, the less likely the fund is going to be a top performer.

There are mutual funds with low MERs. In Canada, TD efunds offer low cost index funds that are pretty comparable to the iUnits ETFs. In the US, Vanguard's Total Stock Market Index Fund Investor Shares has an expense ratio of 0.19%. These are great choices for a cost conscious investor.

In summary, my point (although poorly articulated in my original post) is that I avoid mutual funds with high MERs in favor of low cost investment alternatives because I believe that I do not get what I pay for on high MER funds. Many investors will do very well with mutual funds and will continue to do so in the future.

Thank you so much for the comments. Please feel free to do so...I look forward to hearing many different viewpoints.

When to Sell a Dividend Paying Investment

2005-09-08T09:16:00.000-07:00

I hate to sell stocks that I own. Why? One of two reasons:

1. I probably screwed up in my analysis of the company and made a dumb decision to buy in the first place;
or
2. Something has happened to the company that is totally beyond my control and I am powerless (e.g. the company has to pull a major product from the shelves because it is linked to deaths - a la Merck and Vioxx).

My selling principle tends to lean towards the "Buy and Hold" mentality. I believe in the likes of Warren Buffet who has said, "Our favorite holding period is forever", or "I buy on the assumption that they could close the stock market the next day and not reopen it for five years." I do however strongly believe that this does not mean that an investor should not have a selling strategy. There will be times when it may make sense to unload a stock.

Here are the "rules" I TRY to live by when deciding when to sell - sometimes it just doesn't work though:
1. When there is something that I absolutely must buy because I am so confident that the company will provide me with much better returns (dividend yield and price appreciation) and I need the cash to do so, I sell something.
2. I sell my losers, not my winners. Winners tend to keep on winning and losers tend to keep on losing.
3. Keep emotion out of it - I make decisions based on the facts and not the feelings.

That's it. Pretty basic. Any other rules that you follow when deciding to sell a stock? Let me know.

My Investing Principles

2005-09-06T08:01:00.000-07:00

The Path of Least Resistance
I can be a pretty lazy guy. I am also deadly serious about my money. My goal is to have $300,000 or better in dividend paying investments by the time I am 40 years old. How do I plan to do this? By following these investing principles:

- KISS: Yes that's right, keep it simple stupid. I try to keep things as simple as possible. I don't use options (too freakin' complicated), I don't use futures or derivatives. I not smart enough (or very smart, depending on which way you look at it). Give me dividend paying stocks and exchange-traded funds and I am a happy man.

- NO Mutual Funds: I stay away from mutual funds. Why? Because they are expensive. I don't like paying someone 2 -3% of my money every year to pick stocks for me. Especially since mutual funds fail to beat the stock market index most of the time. If you don't believe me, read section 6.1 in this research article. Want to see the impact of the MER on your investments? Keep this in mind, "Actuaries like Malcolm Hamilton of William mercer Ltd. in Toronto and Fred Thompson of Thompson Actuarial Ltd. in Singhampton, Ont., have shown the the average Canadian MER of 2.1% curtails registered retirement savings plans by 47 percentage points over 30 years"*
* Financial Post - December 24, 1999 - Jonathan Chevreau

- Consistent Results: I use a couple of different measures when I am doing my due diligence on an investment. These measures include:
1. Revenue that has been increasing steadily for at least 5 years, 10 is even better.
2. Earnings per share has been increasing at a similar rate for at least 5 years; 10 is even better. I like to plot these using my Canadian Shareowner Association software to see that earnings has been rising at a rate equal to, or better, that of revenue. This is a good indication that management has their head on straight.
3. The dividend payout ratio has remained steady, indicating that the company is able to pay out dividends from earnings.
4. MY FAVORITE - A dividend that has increased for at least 10 years, 30+ is even better.
5. The stock's current P/E ratio is below the average P/E ratio for the past 10 years. This is where I get some indication of where the current price of the stocks sits in relation to its historical price. If it is below, this suggests an under-valued stock. If it is above, the stock might be overvalued.
6. The stock's current dividend yield in relation to the average dividend yield for the past 10 years. Similar to the P/E ratio analysis, this provides me with an idea of where the stock price sits in relation to its historical values.

That is it. Pretty simple. I do ensure that I read through financial statements and any news items from the past year. The key is to try and understand as much as I possibly can about a company. I would appreciate hearing what I may be missing, or other factors that you take into account. Comment away...

When Is a Yield Too High?

2005-09-01T12:13:00.000-07:00

Reaching for yield is very tempting. The cash flow that I can receive as a result of a good yield is very substantial. However, there are a few things that I try to keep in mind when choosing a high-yielding stock:

1. Has the yield shot up in the past month or so or has it been high for a substantial period of time (1 year+)

If it has shot up, it usually means that the stock price has tanked. It is very important to understand why the stock has tanked. I ask myself questions such as, "Is the drop in price a result of a company controlled issue or a macro-economic (i.e. hurricanes, interest rates, etc) issues?" If the yield has been high for a long time, is it a result of a stagnant stock price or does the company increase the dividend payout as the price rises. The key point here is I try to understand why the yield is high and what is driving it. Best case scenario = company keeps bumping up the dividend on a consistent basis.

2. What is the company's payout ratio?

According to Investorpedia.com, a company's payout ratio is, "The percentage of earnings paid out in dividends." Generally, the lower the payout ratio the better simply because the company is able to support making the high dividend payments in the future. If a stock has a high yield and a high payout ratio this is a warning sign of a pending dividend cut.

3. Of course, all other fundamental data needs to look good

I never buy based on yield only. All other data must look good as well - increasing earnings, increasing revenue, a p/e ratio less than the market and less than the industry, positive cash flow etc. I like to check out the Snapshot Page at Morningstar.com to get a good picture of what some of the ratios are saying.

If all signs look good, then I would feel comfortable making a purchase.

In summary, a high dividend yield is a very cool thing to have. However, making sure the rest of the picture for the company looks good is, in my opinion, even more important. Let me know what you think.

Sin Stocks!!

2005-08-30T19:30:00.000-07:00

I wanted to talk about something that I have been thinking about for quite some time now. Specifically, the question I ask myself is, "Should I invest in 'sin' stocks - specifically tobacco stocks?"

Let me start off by saying that I am in no way a straight-laced preachy type of guy. I believe that people have the choice to do whatever they wish (legal, of course). This post is just a representation of some of my analysis I did to decide on the course of action I use within my own portfolio.

There can be a big appeal to investing in stocks that focus on people's vices. The example that might come to most people's minds would be smoking. Altria, who controls Philip Morris International and Philip Morris USA, manufactures seven of the top 20 global tobacco products. Altria pays a very good dividend - currently at 4.2% - but I have seen it as high a 6%. In addition, the company seems pretty cheap against the market with a low P/E ratio. The high dividend yield is the premium that investors seem to expect as a result of investing in a risky stock that either through government regulation or huge lawsuit settlements can quickly alter the course of the company.

I must admit, this nice dividend payment would be a great addition to my portfolio and my $300,000 goal. I also believe that the company will do well into the future. They have been sued many times for billions of dollars and are still able to make shareowners happy. However, each time I think about buying it, a shred of guilt emerges inside of me that has me questioning whether I want to invest in a company that knowingly manufactures an addictive product that has been linked to a high number of deaths. In addition, I think about all the young kids I see smoking and it upsets me that they seem to think it is 'cool' to light up.

As a result of all this thinking I always end up not making a purchase. I just can't bring myself to do it. Even through all the numbers look stable and the payout is wonderful, I stay away. It amazes me too, because I try to keep my emotions out of my investing as it has burned me before.

Again, I am not suggesting that you should not own 'sin' stocks. In fact, if all the analysis looked good, I probably would buy a liquor stock or a gambling stock. You may think differently. Just be sure you are comfortable with your decision on an emotional level. It won't be fun owning a stock that makes you feel guilty!

P.S. I ran across a mutual fund that invests in what they call 'vice' stocks. It is called the Vice Fund and is run by Mutual.com. Interesting stuff.

Dividend Increase!

2005-08-26T12:04:00.000-07:00

Just a quick post today, but one of the reasons I invest in dividend paying investments has happened today - a dividend increase of 5% (from $0.61 per share to $0.64 per share) from the Royal Bank of Canada. The entire article can be seen here. I will now be earning a total of $237.80 in dividends from the Royal Bank. A happy day in dividend investing land as the power of compounding shows its magic. The chart below shows my dividends that I will receive per year from all my investments:

To make things even more fun, I just checked my account and the Royal Bank just deposited a dividend payment of $56.66. This money will be reinvested into more Royal Bank stock on the next dividend reinvestment date with Canadian Shareowners Association.

Keepin' It Simple

2005-08-25T09:15:00.000-07:00

I love to make my life easier. I am constantly looking for ways to reduce the clutter in my life, and to be honest, not do something unless I really need to. My life is crazy as it is, with kids, a house, new dog, etc. Luckily, my wife is a wonderful person who handles a lot of the day-to-day stuff in our lives.

That being said, I came across an article that I thought was pretty good in terms of some key messages for busy people. The Six Rules for Lazy Investors provides a great overview of some of my own personal investment philosophies. For example, "Trust the Explosive Power of Compounding" provides a great summary of why I am so passionate about dividend investing. Watching my companies throw off income and then reinvesting that income to receive even more income on the next dividend payment date is awesome. "No market timing, no day trading" is also a good one for those of us who do not have hours a day to devote to watching the market.

I do have to question the author's viewpoint on "Buy Quality and Never Sell". If you are investing strictly in index funds then this makes sense. However, if you invest in individual stocks like I do, then I do not believe that you can buy and simply hold. Instead, I tend to look at in terms of "buy and monitor" or "buy and watch" as I have heard it referred to before. Individual stocks can tank (i.e. Merck), and understanding why it tanked and making educated decisions in terms of holding or selling is crucial. It has to be a pretty drastic situation for me to sell a stock, but that does not mean that I never will. I am pretty lazy but I ensure that I find time to monitor the stocks in my portfolio.

I really liked this article - even through it was focused more on index investing, a la The Coffeehouse Investor. I think if I can follow these steps well, I will succeed at my goal and then some.

Dividend Aristocrats

2005-08-22T20:58:00.000-07:00

S & P regularly tracks a list of stocks that it calls "Dividend Aristocrats" - companies that have regularly upped their dividends for 25 or more consecutive years. Business has recently posted an article that lists the stocks here. As of this list, Merck is still on the list and that makes me feel a little more comfortable holding this dog in my portfolio, given the worries I expresses in this post.

Please note that I have updated my portfolio values on the left. Take a look - I am $1000 closer to my goal since my last update.

A Bunch of Good Links

2005-08-21T12:38:00.000-07:00

There is a number of websites that I visit on a regular basis (for blogs see my list in the left hand sidebar under 'Links'). Each one of these sites usually serves a regular purpose for

Value Line Free Reports:
Value Line is an awesome source for great research on 1000's of stocks. They publish what is called the The Value Line Investment Survey but it is really expensive to subscribe. However, they do offer all their reports for the Dow 30 stocks free. Check out this link.

Dividend Based Investing:
This is a great site focused on dividend investing run by someone who is just plain passionate about his dividend investments. There is loads of research. Every month he sends out a free report that screens dividend paying stocks based on criteria that he feels is important. I love the way he values investments based on their current yield in comparison to their previous periods average yield. Check this site out here.

Mergent's Dividend Achievers:
Mergent runs a portion of their site that they call Dividend Achievers. What is a Dividend Achiever? It is:

A publicly-traded company that has increased its dividends for the last ten or more consecutive years will be classified as a Dividend Achiever. Depending on the industry, companies must also meet certain capitalization requirements in order to be considered a Dividend Achiever.

Check Mergent out here.

The DRIP Investing Resource Center:
Lots of articles, research, and tools that will help with dividend-based investing. I really like the Choices section of his site that shows the results of a poll he runs every year asking people which DRIPs they invest in.

Gummy Stuff:
This guy is a math wize and he has A LOT of Excel files that analyzes investing a million ways. His site can be found here.

The Motley Fool:
I have been on this site for a long time. I subscribe to their forums which I find to be the most valuable section of the site, however I don't post much at all.

Yahoo! Finance:
Most of you probably already know about this site, but I will list it anyway. I go here a lot to get research on the companies I own or am looking to invest in.

Better Investing:
This is the site for the National Association of Investors Corporation. It provides investors with a good methodology for selecting stocks. Its counterpart in Canada is the Canadian Shareowner Magazine, which as you know is the service I use as my broker.

RiskGrades:
This site calculates the risk in your portfolio. They use some form of complex math to figure out how risky your portfolio is compared to other investment type. Pretty cool stuff.

Shakespeare's Canadian Investments:
Simply a primer for do-it-yourself investors. Loads of good information in here.

Anyway, those are a few of the sites I frequent regularly. Take a look and let me know what you think.

Transactions Since August 5th:

Reinvest IGM Financial Dividend: $33.44

My Poorest Performing Investment - Merck

2005-08-16T19:39:00.000-07:00

Right now, the worst performing investment in my portfolio is Merck. I made my first purchase of Merck in December of 2003. At that time, things were not looking great for pharma but I liked Merck's numbers and the fact that they had been consistently raising the dividend year after year. In fact, I ended up buying some more in July of 2004. Then the Vioxx fiasco happened and my holding dropped by half. I faced a big decision - do I hold 'em or do I fold 'em.

5 years ago I would have unloaded that stock faster than you could say "Merck Just Tanked". However, I was a more mature investor and I decided to study the facts before acting. Besides, research had taught me that stocks tend to over-shoot when the crap hits the fan and I didn't want to give up too much if I didn't need to. The facts told me that the Vioxx withdrawal would hit the company on the top line and the bottom line. Additionally, the stock was not very popular - there was more selling than buying. However, as I was watching it the stock eventually stabilized after a couple of weeks. Even more importantly, the management kept the dividend steady in a time where they could have justified a cut. This was enough for me to keep holding on - and I did. I even bought a bit more in December 2004 and have continued to reinvest dividends.

Given the cloud over the company with regards to the Vioxx lawsuits the future doesn't seem too bright and I am getting a bit antsy. The stock has not moved much but I am still receiving good dividends and am looking for a dividend increase in the foreseeable future. If this does not happen I will seriously consider selling. I am going to be patient for now, looking primarily for that dividend increase, but would like to hear your thoughts. Please comment on what you would do in this situation...

My Personal Finance Strategy

2005-08-11T10:10:00.000-07:00

As part of my entire personal financial management plan, I have been looking at some of the debt and emergency reserves that I have and want to take action immediately. I have been thinking about it for some time now, but this post over at It's Your Money really got me thinking about it again. The issue however is that my dividend investments will have to take a bit of a hit to do so.

Every pay period, I put 5% of my gross income from my job in my ESPP account. My original plan with this money was to sell the company stock when it comes due, take the 15% gain I receive through participation in the plan, and simply invested it into one of my CSA accounts. Instead, I have developed a more comprehensive plan for this money that now includes the following personal financial goals:

To build up a $1000 emergency fund by December 31, 2005

Action Plan (currently have $100 in Emergency Fund):

Deposit $156 per month to ING Direct account

To pay off entire truck balance by August 1, 2007

Action Plan

Continue to make regular monthly truck payment
When monies become available through ESPP (every 6-months), sell stock and use proceeds to pay down loan

To build up an $12,000 emergency fund by August 1, 2010

Action Plan

Continue to deposit $156 per month to ING Direct account
When monies become available through ESPP (every 6-months), sell stock and deposit into ING Direct account

As a result, I am going to remove the ESPP values from my listing to the left as it will not be contributing to my dividend paying investments for some time. All other contributions (pension, 10% of additional income earned, etc) will still be invested. It hurts to see this drop in value but I know that the money is going to a good cause - increasing my net worth and cash flow through debt reduction and securing my family's safety through a substantial emergency fund.

To keep track of my progress, I have created a little Excel spreadsheet that will highlight my progress.

Slow Progress

2005-08-08T21:13:00.000-07:00

I have been on vacation for the past week and half and the life of leisure is a wonderful thing. Today, my kids and I headed out to Banff, Alberta just to hike around and I got to thinking how much I enjoy the ability to just go out and do whatever I want. That is really the primary driver for my desire to build a $300,000 portfolio by the time I am 40 years old that throws off an income of at least $15,000 per year. This, along with other passive income that I am trying to build through other business ventures will provide me with the ability to pick up and head out to Banff for the day just because I feel like it.

However, the problem is that I am impatient. I want this now. This is just basic human nature and I realize that it is not going to happen. All I can do is keep tracking to my plan and ENSURE that I meet my financial and personal goals - these goals are set up specifically to allow me to live freely and doing exactly it is what I love - spending time with my kids in the fresh mountain air. Onward and upward...

As a quick aside, I ran across this article in the Globe and Mail over the weekend. I truly believe that most investors would get spooked by such an article and start selling their financial stocks. However, if you read closely, it is pretty clear that the article says NOTHING AT ALL!!! Just that financial stocks went up, and now they are coming down. How insightful. The key is to ignore such drivel as nothing fundamental has changed.

Income Trusts

2005-08-05T13:07:00.000-07:00

I just finished reading the book, Canadian Income Fundsand found it to be pretty good. The best thing I liked about it was that it did not paint Income Trusts as the be-all-and-end-all investment vehicle. Some authors believe that if they are writing a book about a certain investment type they have to be all positive and subsequently ignore the negatives (and the risks!). This book does a good job of explaining what those risks are, even hinting that income trusts may be near the tail end of a bubble that once interest rates move up in a concrete fashion - look out below. It provides a pretty comprehensive list of all Income Trusts available in Canada and is a good starting point for some research.

If you look at my portfolio, you will see that I own some Income Trusts - mainly my iUnits iREIT index fund. I have found this to be a pretty good income generator providing me with about a 7% income stream on my investment, which I reinvest right back into the fund. I also like it because it is diversified across a number of REITs which I believe limits my risk in the sector. I only wish the folks at iUnits had an oil and gas income trust.

Transactions for the week:
IGM Financial Dividend: $33.44
Reinvest Merck Dividend: $15.25
Reinvest iUnits Canadian Bond Fund Dividend: $19.31
Reinvest iUnits iREIT Fund Dividend: $21.43

Good Book:
As mentioned, Canadian Income Funds is a good primer on Canadian income funds as a source of income for a portion of a portfolio.

DRIPS - Dividend Reinvestment Plans List

2005-07-29T10:45:00.000-07:00

Just a quick post today. I came across a blog that has a pretty good list of available DRIPs. It is a bit of a mess right now, formatting wise, but it provides a pretty good list of the available DRIPs in Canada.

Tracking Investment Income

2005-07-28T14:49:00.000-07:00

As I drive towards my goal of an investment portfolio worth $300,000, I always keep the income that it is throwing off in the back of my mind. It is this income that is going to provide me with a good portion of my investing return over the years. I have started to use an Excel chart that graphically reminds me of this growing income stream. I find this is an awesome motivator to keep on course as it highlights progress towards my goal.

REMEMBER though, as Canadian Capitalist pointed out in his blog, investing in dividend paying stocks requires you to complete your due diligence. Do not just invest in a stock because it provides you with a huge dividend. A poorly managed company can drop like a rock, and with it so can its dividend, a la Nortel. Dividends don't mean much then. You must understand what you are buying and feel comfortable that earnings will continue to rise in the future, and that you are getting in at a price you are comfortable. That is a judgment call. But more on that later...

Transactions for the week:
Stock: BCE Inc. Transaction: Dividend Reinvestment Amount: $18.60

Good Book: This is one of my favorite investing books of all time. I didn't list it in my Recommenced Reading post, but I should have.

The Power of Dividends

2005-07-23T21:36:00.000-07:00

Why I Like 'Em and How I Track 'Em

The thing that I like best about dividends is that they grow on a regular basis. At least the stocks that I select to purchase tend to do. One of my most important stock selection criteria is a growing dividend. Each and every year, a company's dividend must have increased.

Why do I want this? So that my money can compound rapidly. Let me give you an example. On December 17, 2003 I made my first purchase of IGM Financial (IGM-TSX). When I bought it at $30.50, the company was paying a yearly dividend of $1.02 per share. This gave me a yield of 3.34%. Today, IGM Financial pays investors $1.29 per share. My average cost on these shares, after purchasing some more shares and reinvesting dividends, is $31.64. $1.29 / $31.46 = 4.08%. After only a couple of years, my dividend yield has gone from 3.34% to 4.08%. That is compounding at its finest. It will only get better as IGM continues to raise its dividend (I hope!!).

How do I track this? I have set up a little spreadsheet that does the calculations for me. It looks like this:

On the 'Purchase' side, I input all my original purchases, the price I bought the stock at and the dividend the stock was paying at the time. This gives me my then dividend yield. On the "Current Yield' side, I recalculate my buy price to take into account any additional purchases and dividend reinvestments and the current dividend to arrive at my new dividend yield. This provides me with a good picture of which way my dividends are going. You will see I have a fair way to go before I hit a 5% yield, but it is going up nonetheless. If you have any questions please do not hesitate to drop me an email or comment.

Transactions for the Week

July 22, 2005:
Stock: The Coca-Cola Co.
Transaction Type: Dividend Reinvestment
Amount: $10.22

Good Book:
To learn more about the power of an increasing dividend, check out Lowell Miller's, The Single Best Investment.

Rules of this Site

2005-07-18T20:57:00.000-07:00

Not much of a post today, but I need to get it out there anyway. I have few ground rules on this site. Please ensure you follow them.

Rule #1: Do not, I repeat - DO NOT - follow any advice given on this site. The site is for informational purposes only. The decision I make concerning my goals and money work for me (hopefully), but given your circumstances, they may not be relevant.

Rule #2: I am not your financial advisor.

Rule #3: I will advertise on this site.

Rule #4: Comment, Comment, Comment. I want to hear from you, so please comment.

What My Investing Accounts Mean

2005-07-17T13:26:00.000-07:00

On the sidebar to the right, you will see all the investment accounts that I have. Below is a brief description of these accounts:

RRSP: This is my registered retirement savings plan account. For those of you in the U.S., this is like your IRA. All investment gains (dividends, capital gains, interest, etc.) are not taxed while in the plan you can deduct your contributions against your year's earnings. I hold this account with Canadian ShareOwner Investments. Their commissions are pretty good and best of all, they do free dividend reinvestment.

Non-RRSP: This is just my regular investment account. It is fully taxable. I also hold this account with Canadian ShareOwner Investments.

Pension: This is my pension account I get from work. Basically, I contribute 3% before tax and my employer matches it with 2%. I look at it like free money.

ESPP: An ESPP is a 'Employee Stock Purchase Plan'. This plan, also offered through my employer, allows me to contribute 5% of my salary to company stock. It works like this: Each pay period, 5% of my salary is deducted and placed into a holding account. After 6 months, the company buys stock for me at 85% of the average stock price during the 6 month contribution period. In other words, I get a 15% return right off the bat.

Wife RRSP: This is my wife's RRSP. Not a lot in here but I will eventually use it for a spousal RRSP. Currently it is held at TD Canada Trust.

Introduction - The Dividend Guy

2005-07-15T20:35:00.000-07:00

Hey there investors, let me introduce myself. I am a 31 year old guy, employed by a global management consulting firm, have a wife and two young kids, with a pretty nice house, and a white picket fence. Like most of the free world out there, I am just trying to earn as much "jack" as possible. What do I do with this cash I earn? Well, to be honest, most of it goes to pay for food, housing, cars and all the other stuff you need to support a family. However, being the diligent guy that I am, I make sure that I put at least 10% of my gross earnings into investing - mainly investments that pay me dividends. This blog is about my trek to build a $300,000 investment portfolio by the time I am 40 years old!! Stay tuned and watch me as I get closer and closer to my goal!!

* "jack" = money for all you non-hip people