Safe Dividend Investing
PODCAST 146
14 December 2023
Greetings to listeners all around the world. Welcome to Safe Dividend Investing’s Podcast # 146, on December 14th of 2023.
My name is Ian Duncan MacDonald. In today’s podcast, I will be answering 2 interesting investment questions.
The objective of my books, my website and my podcasts are to show all those seeking financial independence how to become informed, confident, successful, self-directed investors.
QUESTION 1
When the share value of your stock portfolio is down by 20% why does it not make you fearful and anxious?
The value of my stock portfolio is down 20% from its record high achieved February 23 of 2022. Some investors might ask, why haven’t you sold your stocks and reverted to cash?
When it was at this record high in 2022, its portfolio value was 3 times higher than the portfolio’s share value on February 10 or 2009. I made no changes to it in 2009 either. Most of the stocks in the portfolio now, were in the portfolio in 2009 (Yes, I do keep daily records).
I only invest in financially strong companies that pay high dividends. No shares are sold to provide my income because all my expenses are covered by the generous dividend income.
Before buying a stock, I look at its share price and dividend payouts going back to 1999. I am looking for a steady increase (not dramatic increases) in both share prices and dividend payouts. Steady increases show that the management of the company is oriented to providing shareholders with dividends.
To pay dividends companies must achieve profits. To achieve profits the management of a company must be good managers of revenue and its expenses. If they are struggling to meet their sales objectives, they will cut expenses so that they meet their profit objectives from which the dividends are paid.
I was once a young executive who was once told because of failure to meet our corporate revenue objective that I had to reduce my operations staffing by 15% to meet our profit objective. I thought this reduction in staffing would only further hinder sales efforts and make reaching our profit objective even harder. I was wrong. Much to my surprise, the remaining 85% of the staff increased their efforts and the profit objective was exceeded.
Share prices have little to do with profits. A minority of investors may be encouraged to purchase shares when profits are reported by a company. Most investors are speculators who pay little attention to such financial information. What motivates speculators?
Speculators often buy a particular stock because thousands of investors suddenly buy that stock for whatever motivator triggered the buy response. Large volumes of that stock being purchased causes a supply and demand issue. There are a limited number of shares available. To buy stock in high demand they must offer to pay more than other speculators.
The momentum of speculative bidding can cause a stock’s share price to soar far beyond normal price-to-earnings ratios. Often any hint of negative information about such a bloated stock can quickly send the share prices tumbling down to a more rational price-to-earnings ratio. Those who bought the stock at its share price height, now sell it at its new bottom. They lose fortunes.
When I look at historical records of strong dividend companies, I expect to see a decline in share prices in the market crash years of 2000, 2008 and 2020 and a recovery to new record highs for the stock within three years after the crash. With dividend payouts, I expect to see no decline in dividend payouts during or after the market crash. Often, I see increases in the dividend payouts during market crash of these stocks.
Does this mean that I only invest in companies who have been active for at least twenty-four years. For the most part yes, but there are a few strong stocks that may only have been available for the last five to ten years.
Experience tells me not to panic because my portfolio strong dividend stocks has always recovered. The other factor is that my investment is spread, for tax reasons, among 20 to 30 different stocks in 6 different portfolios. These portfolios contain most of the same stocks.
In the main portfolio whose generous dividends I live on, (it is not the largest portfolio) there are 12 stocks. Currently, the value of 5 of these shares has fallen by 3% to 20% of their purchase price. However, some of the other 7 stocks are 94% higher than their purchase price. My dividend income has never declined because these stocks usually increase their dividend payouts annually. This keeps my income ahead of inflation and further reduces the necessity to ever sell stocks.
What is interesting is that when I score these 12 stocks all are financially strong companies with acceptable scores. They are all paying dividends exceeding 6%, some over 9%. As the share price of some of them dropped their dividend yield percent automatically increased because these companies have not reduced their dividend pay outs. Their operating margins are still high, and their price-to-earnings ratios remain low.
It is often difficult for speculators to adopt my system of investing. They have been trained to constantly be adjusting their portfolios. It is hard for them to accept that a carefully chosen portfolio could possibly grow if you just left it alone with perhaps a cursory review every four months. Reviews that would confirm the portfolio is chugging along doing what it is supposed to, providing a steady reliable dividend income.
This is how I have invested for twenty years. In my books I explain how to find and score the stocks that will provide similar results to what I have experienced. It isn’t difficult or time consuming to build a portfolio of financially strong dividend stocks that you can rely on for decades.
QUESTION 2
How can I easily sort stocks from the most to least desirable for my portfolio?
Many of those who listen to my podcasts have purchased my investment books and use the stock scoring software I provide. It allows them to sort stocks from most to least desirable. Thus, I found it disturbing when I received the following email from a podcast listener in Minnesota.
“Okay! So I poured over the information that you sent and tried to do my own scoring. To make sure that I really was locating the correct information to plug into your scoring system, I tried to retroactively look up your data that you plugged into your 11 lines for each stock. For example, I tried to match up data with…. ticker symbol ALX (Alexander's Inc). I feel like an idiot, but I literally could not match up ONE data point!...
The closest data point was the stock price, but everything else...I must be looking in the wrong places….. I attempted to use yahoo finance, but that was super confusing and cumbersome. I have access to MorningStar online via my library, which is awesome, though again, I wasn't able to match anything up. I use Robinhood online trading for buying my stocks and curating my portfolio, though I do not pay for the premium. so there is very little data on there.
I feel like I can't reliably use the scoring system to pick a stock if I can't seem to match up what you have done in the past. I'm sorry to bug you with this question….
The following is my reply to her.
Don't despair. This is not a race. Take your time. Do not apologize for your questions. To me it is an opportunity to solve a problem that I am sure others have as well. It gives me some insight into how to make scoring easier.
I assume you are trying to match the ALX figures in my book, "NYSE's 106 Best High Dividend Stocks". The figures would be from September of 2022. Everything has changed and trying to match those figures will not work. You are making the gathering of scoring data harder than it really is.
I suspect that you had a math and science background. The absence of hard factual information probably disturbs you. In investing there is no hard factual data. Everything is shades of grey. Every second the numbers can change. You are calculating more an "impression" than hard facts.
The following is a comparison between the information in my book, NYSE"s 106 Best Dividend Stocks, and figures I easily extracted for ALX from the TD Bank's EasyWeb, Overview Research page. This is the source for all the calculations in the book. The first figure is from September of 2022 and the second figure is from the TD on December 8, 2023. These nine items are all the data you need to calculate a stock’s score:
(1) The Share Price then was then $228.22 compared to $188.64 now.
(2) The Share Price 4 years ago was then $343.30 compared to $76.56 now.
(3) The Stock's Book Value was then 49.49 compared to $46.31 now
(4) The Number of Analyst Buy Recommendation was then 0 compared to 0 now.
(5) The Number of Analyst Strong Buy Recommendations ws then 0 compared to 0 now.
(6) The Dividend Yield percent was then 7.89% compared to 9.54% now.
(7) The Operating Margin was then 37.39% compared to.36.59% now.
(8) The daily Volume of Shares Traded was then 9,740 compared to .11,162 now.
(9) The Price-to-Earnings Ratio was then 10.1 compared to 9.7x now.
Unfortunately, I do not believe there are any TD branches in your area. TD are the second safest bank in North America with a thousand branches across Canada and a thousand US branches, however the branches appear to be mainly along the East Coast states. My relatives in Pennsylvania and Florida were surprised that TD stands for Toronto Dominion and that it is headquartered in Toronto.
I have an idea as to where you can easily find those numbers elsewhere. Everyone who is a self-directed investor has computer access which gives them the ability to make Google searches. I should also add that you only need to find 9 of the 11 data elements for calculating a stock’s score. Two of the data elements are comparisons which are calculated by the computer and do not require you to enter anything. These leaves only 9 data elements to be gathered by you.
You said you were able to easily find the last share price reported. That leaves only 8 items to find.
Let's see if we can get the dividend yield figure by doing a Google search. Enter into Google "What is the dividend yield for ALX". The answer you get back is "9.48% forward dividend Yield". This is very close to the 9.54% that TD reported. That is close enough. This leaves 7 lines to be found.
Do a similar Google search for "What is the Price-to-Earnings Ratio for ALX". The third response back is from "GuruFocus" which reports it is 9.76". This is close to the 9.7x that TD reported. This leaves 6 to be found.
In a similar Google search for "What was the share price of ALX on December 8 of 2019". I chose the second response from "historicalshareprice.com" of $180.37 which is close to the $188 I got at TD. Such minor deviations are irrelevant as you can see from chapter 4 of my book where each item has a range that the score covers. Thus, whether the amount is $180 or 188 the sub scores will be the same. This leaves 5 to be found.
A similar Google search "What is the book value of ALX" returns an instant answer of $49.31. This once again is close enough to the $46.31 that TD reported. This leaves 4 to be found.
The Google search for Operating margin "What is the operating margin for ALX" came up with a wide selection of variable answers. One answer of 38.61 was from Reuters News Agency. It is close to what TD reported. I chose to use the Reuters figure because I know that Thomson Reuters, a worldwide news bureau, is the source of all the TD stock research data. This leaves 3 to be found.
The Google search for volume of shares traded, "Volume of ALX shares traded on Dec 8" got the answer 10,515 from the marketchameleon.com website. This was close enough to the TD number of 11,162. This leaves us with two numbers which can really be seen as just one number.
A Google search by entering "ALX buy recommendations?" brought up no analyst recommendations which is what TD also reported. If it had brought up share price projections from analysts more than 50% higher than the current share price, those higher buy recommendations would be classified for scoring as "strong buy" recommendations.
Going through all the various websites that these searches bring up shows you that there are dozens of sources for information and gives you new insights. It will be part of your education. I saw some interesting websites I had never heard of before in answering your question.
All my investment portfolios are stored at TD. My bank accounts are at TD. It is easy for me to transfer money back and forth. Every trade or sale of a stock incurs a $9.95 charge but (this is a big BUT) I may only make one or two trades in a year. This is not speculative investing. I get access to all the stock information tools I need for free. TD also have free investment education videos and staff available 24 hours a day to answer questions.
I could see why Robinhood would be attractive to traders doing dozens of trades every month. I believe you are paying nothing for the trades, but you are also not getting the tools you need. Perhaps Schwab or one of the other large financial institutions have all the research tools you need for free in a self-directed account. Otherwise doing Google searches seems to work just fine for gathering the needed information. I will just take you a little longer.
I did get a reply from this listener who was surprised that I had resolved her problem so quickly.
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