Thursday, July 2, 2015

Dividends Covering Stock's Cost

I have talked about the percentage of a stock's cost being covered by dividends lately. Why this is important is that buying dividend paying stock can lower your loses. Say a stock you have in your portfolio is now in trouble and you want to sell it.

On long term buys I have found that the dividends received on a stock covers the capital loss or most of the capital loss in a stock price. That means I have not lost any capital or very little capital. I am not saying that this is a great situation. After all you are investing to make money. However, part of being a successful investor is limiting your losses.

On my other blog I am today writing about Parkland Fuel Corp. (TSX-PKI, OTC- PKIUF) ... continue...

This blog is meant for educational purposes only, and is not to provide investment advice. Before making any investment decision, you should always do your own research or consult an investment professional. I do research for my own edification and I am willing to share. I write what I think and I may or may not be correct.

See my site for an index to these blog entries and for stocks followed. Follow me on Twitter

Monday, June 29, 2015

Assets Under Management

This is a measure I include for Mutual Fund companies. It is an important measure of the success a Mutual Fund company. It measures the flow of money into and out of a company and also the changes to the funds a Mutual Fund company manages.

You need growth in Assets under Management to get growth in Revenue. When need growth in Revenue to get growth in earnings and cash flow.

The site Investing Answers explains about Assets under Management (AUM). You can find definitions of this concept at Investopedia.

On my other blog I am today writing about CI Financial Corp (TSX-CIX, OTC-CIFAF) ... continue...

This blog is meant for educational purposes only, and is not to provide investment advice. Before making any investment decision, you should always do your own research or consult an investment professional. I do research for my own edification and I am willing to share. I write what I think and I may or may not be correct.

See my site for an index to these blog entries and for stocks followed. Follow me on Twitter.

Wednesday, June 24, 2015

Dividend Growth Calculations

Recently I spoke about my actual experience with dividend growth stocks. Today I want to talk about the theory and how to calculate dividend growth. The problem with doing straight calculations is that life is messier than such calculations.

Over the life of a stock a shareholder might buy and sell shares of the stock at different times. Also, dividend increases vary all the time and sometimes dramatically. In recessions companies tend to low dividend increases and in expansions tend to raise them. Also in recessions some companies will lower or stop dividends for a time.

What I will illustrate is 6 different scenarios, 3 with higher dividends and 3 with lower dividends and all with different dividend growth rates. I am basing these scenarios on some actual performance of stocks I own. The scenarios are as shown below with the names of stocks which matched in the past these sorts of original dividends and dividend growth rates.

# Similar Ori Yield Div Growth
1 RY 4.70% 11.00%
2 BMO 6.70% 6.30%
3 RIO.UN 7.60% 3.10%
4 ATD.B 0.80% 15.30%
5 SAP 2.20% 11.80%
6 SNC 1.90% 22.00%
The first table shows what sorts of dividend yield you could expect on your original investment after 5 years and what percentage of your original stock costs would be covered after 5 years. So for the first stock after 5 year your dividend yield should be around 7.9% on your original costs. The dividends paid to the end of the 5th year should cover some 32.40% of your stock's original cost. I have highlighted the stock with the highest and lowest dividend yield after 5 years. I have also highlighted the stocks for which dividends have covered the most and the least of the original stock cost.

# Similar Ori Yield Div Growth Div Yield % of stock
1 RY 4.70% 11.00% 7.90% 32.40%
2 BMO 6.70% 6.30% 9.00% 40.10%
3 RIO.UN 7.60% 3.10% 8.80% 41.30%
4 ATD.B 0.80% 15.30% 1.60% 6.10%
5 SAP 2.20% 11.80% 3.90% 15.80%
6 SNC 1.90% 22.00% 5.00% 17.60%


After 10 years the table below shows what the dividend yield should be on your original stock cost and what percentage of the original costs have now been covered by dividends paid to date. Here the stocks with the highest dividend yield on original cost and percentage of stock's cost covered has changed. Stock #1 with a good dividend and good growth and stock #6 with a low dividend and high growth compete for the highest dividend yield on original cost.

After 10 years the stock (#2) with a good dividend and moderate growth has covered more of the original cost of the stock. The stock (#4) that has covered the least percentage of the original cost has a low dividend with fairly high growth.

# Similar Ori Yield Div Growth Div Yield % of stock
1 RY 4.70% 11.00% 13.40% 87.40%
2 BMO 6.70% 6.30% 12.20% 94.40%
3 RIO.UN 7.60% 3.10% 10.30% 89.80%
4 ATD.B 0.80% 15.30% 3.20% 18.40%
5 SAP 2.20% 11.80% 6.80% 43.50%
6 SNC 1.90% 22.00% 13.40% 64.50%


Things change again after 15 years. It is a stock with a rather low initial dividend but a high dividend growth that has the highest dividend yield on original cost. It is also the one that has covered the highest percentage of the stock's cost. The one with the lowest dividend yield on original cost is the stock starting off with a very low dividend, but a fairly high right of growth.

# Similar Ori Yield Div Growth Div Yield % of stock
1 RY 4.70% 11.00% 22.50% 179.90%
2 BMO 6.70% 6.30% 16.60% 168.10%
3 RIO.UN 7.60% 3.10% 11.90% 145.90%
4 ATD.B 0.80% 15.30% 6.70% 43.90%
5 SAP 2.20% 11.80% 11.90% 91.60%
6 SNC 1.90% 22.00% 36.10% 190.70%


The last table shows what the dividend yields on original cost and what percentage of the original stock costs are covered after 20 years. All but one of the stocks has covered with dividends the original cost of the stock. They are all giving quite good dividend yields on the original cost of the stock.

# Similar Ori Yield Div Growth Div Yield % of stock
1 RY 4.70% 11.00% 38.10% 336.00%
2 BMO 6.70% 6.30% 22.50% 268.00%
3 RIO.UN 7.60% 3.10% 13.90% 211.40%
4 ATD.B 0.80% 15.30% 13.70% 96.40%
5 SAP 2.20% 11.80% 20.90% 176.10%
6 SNC 1.90% 22.00% 97.50% 531.30%


See the full spreadsheet here.

On my other blog I am today writing about Power Corp of Canada (TSX-POW, OTC-PWCDF) ... continue...

This blog is meant for educational purposes only, and is not to provide investment advice. Before making any investment decision, you should always do your own research or consult an investment professional. I do research for my own edification and I am willing to share. I write what I think and I may or may not be correct.

See my site for an index to these blog entries and for stocks followed. Follow me on Twitter.

Monday, June 22, 2015

Mutual Funds

This is an article by Nelson Smith of Motley Fool asking why anyone would still buy Mutual Funds. He thinks that the heyday of Mutual Funds is behind us. I disagree.

I truly wonder about people getting out of mutual funds. I know lots of people and have talked to lots of people who have no clue about investing and frankly do not want to know. Mutual Funds are sold by Mutual Funds salesman or Mutual Funds based financial advisors. No one goes out to buy Mutual Funds.

Sorry and I do wish it was different, but I do not see the industry going bust as long as there are lots of people who just do not want to handle their own investments. The industry may have to deal with lower fees and more disclosure, but I really do not see the business being affected all that much. I think that Mutual Funds will continue to be sold and people continuing to buy them into the future.

On my other blog I am today writing about IGM Financial Inc. (TSX-IGM, OTC- IGIFF) ... continue...

This blog is meant for educational purposes only, and is not to provide investment advice. Before making any investment decision, you should always do your own research or consult an investment professional. I do research for my own edification and I am willing to share. I write what I think and I may or may not be correct.

See my site for an index to these blog entries and for stocks followed. Follow me on Twitter.

Wednesday, June 17, 2015

Motley Fool Booklets

The Motley Fool has put out a few booklets about investing at a site called Ask a Pro

On this site, if you look to the left hand side of the page, you will see a number of options for information. For example, the Use Options Like a Pro shows you how to buy options. The Earn Income Like a Pro talks about dividend stocks and gives you 3 dividend picks. The Diversify Like a Pro gives you information on Diversifying and gives you 3 stock picks.

On my other blog I am today writing about Ensign Energy Services (TSX-ESI, OTC- ESVIF) ... continue...

This blog is meant for educational purposes only, and is not to provide investment advice. Before making any investment decision, you should always do your own research or consult an investment professional. I do research for my own edification and I am willing to share. I write what I think and I may or may not be correct.

See my site for an index to these blog entries and for stocks followed. Follow me on Twitter.

Monday, June 15, 2015

Next Bear Market

This is a Buy Sell Advisor that I recently received. It is asking readers to think back to the 2000 and 2008 markets and is asking how you felt at that time. It is a valid question. They are right that the current bull market is rather long in the tooth.

What I did re 2000 and 2008, and what I did in other times of bear markets, I just rode them out. The following chart show how I did through the recent bear markets. I did nothing to my portfolios to counter them. You can see I did fine from the chart below.

YOY is year over year and Y to Beg is year to beginning of the period, either 31 August 2000 or 30 May 2008. I only keep track of my stocks monthly so I have to use values at the end of months.

Date TSX My Portfolio
Value YOY Y to Beg. YOY Y to Beg.
31-Aug-00 11,248
30-Sep-02 6,180 -45.06% -45.06% -30.92% -30.92%
30-May-08 14,715 138.11% 30.82% 70.68% 17.90%
27-Feb-09 8,845 -39.89% -21.36% -30.81% -18.42%
31-Dec-13 13,622 54.01% 21.11% 99.14% 62.46%
30-May-08 14,715
27-Feb-09 8,845 -39.89% -39.89% -30.81% -30.81%
31-Dec-13 13,622 54.01% -7.43% 99.14% 37.79%


People are still talking about the next bear market and it will come. It just is hard to say when this will happen. However, I will do what I always do and wait it out.

On my other blog I am today writing about Hammond Power Solutions Inc. (TSX-HPS.A, OTC- HMDPF) ... continue...

This blog is meant for educational purposes only, and is not to provide investment advice. Before making any investment decision, you should always do your own research or consult an investment professional. I do research for my own edification and I am willing to share. I write what I think and I may or may not be correct.

See my site for an index to these blog entries and for stocks followed. Follow me on Twitter.

Wednesday, June 10, 2015

Dividend Taxes

Taxes you pay on dividend income are less than on other income. I am looking at Ontario Taxes as that is the province where I live. Here I am talking about taxes wholly from eligible Canadian dividends.

Distributions from Income Trust companies are handled very differently as the distributions can be designated ad dividends, interest, foreign income or capital gains or some combinations of these categories. This also does not apply to dividends which are received from US or other foreign companies.

Most dividends from Canadian companies are eligible dividends. You can generally find this information on a company's web site. See this information on the website of Canadian Nation Railway. See information under Canadian Tax information. There is a statement there of "CN's dividends are designated as eligible dividends, as provided under subsection 89(14) of the Canadian Income Tax Act and its provincial counterpart".

What I want to compare is dividend income to salary income. With your income from dividends you get to keep a lot more of your income. In these examples I am comparing dividend and salary incomes of $35,000 and $70,000. I got my figures using my 2014 tax return software.

With a salary, not only do you have to taxes, but you have to pay CPP and EI premiums too. As shown in the table below, on $35,000 of salary you get to keep 80.68% of your salary and pay some 19.32% to the government. On $70,000 of salary you get to keep 74.18% of it and pay some 25.82% to the government.

Income Taxes CPP EI Net
$35,000.00 $4,544.85 $1,559.25 $658.00 $28,237.90
$70,000.00 $14,737.03 $2,425.50 $913.68 $51,923.79


If you get dividend income, it is treated differently. Because dividends are paid from after tax company money, the tax form grosses up your dividend income to take this into account and then gives you a Dividend Tax Credit. As you can see from the table below on $35,000 of dividend income you would get to keep 98.50% of your income and pay 1.5% to the government. On $70,000 of dividend income you would get to keep 95.58% and pay 4.42% to the government.

Income Taxes CPP EI Net
$35,000.00 $525.00 $0.00 $0.00 $34,475.00
$70,000.00 $3,093.35 $0.00 $0.00 $66,906.65
What is interesting about the above tax calculation is that the $525.00 tax on $35,000 of dividend income is the Ontario Health Premium. It is based on the dividend grossed up amount of $48,300. You can earn around $49,000 of dividend income before Federal taxes kicks in. Also you can earn just over $87,000 before Ontario taxes, besides the Ontario Health Premium, kicks in.

This is important because why I could stop working in 1999 and live off my dividends was because my net income was the same between my job and my dividend income. My gross income was not.

On my other blog I am today writing about McCoy Global Inc. (TSX-MCB, OTC- MCCRF) ... continue...

This blog is meant for educational purposes only, and is not to provide investment advice. Before making any investment decision, you should always do your own research or consult an investment professional. I do research for my own edification and I am willing to share. I write what I think and I may or may not be correct.

See my site for an index to these blog entries and for stocks followed. Follow me on Twitter.