TRANSCRIPT 14 DEC 2022
PODCAST 94 OF SAFE DIVIDEND INVESTING
Welcome to Safe Dividend Investing’s Podcast # 94, on December 14thof 2022. Today I will be answering 4 interesting investment questions.
For all those who have enquired. My latest book “New York Stock Exchange’s 106 Best High Dividend Stocks” is now available on Amazon as an e-book and a print book. It is easily accessible by entering the following into your search engine “amazon.com/dp/1999198085”.
1.How do you find a good stocks to buy?
First, you should not be looking for one stock. No one can accurately predict what will happen with one stock. The expectation of future share price gain and reliable high dividend income from a total portfolio greatly increases when your search is for at least 20 carefully chosen stocks. While one or two financially strong stocks paying high dividends may deviate from their patterns of behavior over many months or years, they will be the exception. Their deviation will be irrelevant as the other stocks more than offset any lack of share price growth or dividend shortfalls.
The secret of picking the 20 stocks is being able to score them. Scoring allows you to sort large numbers of prospective stocks for your portfolio from the most to the least desirable.
It takes perhaps 5 to 10 minutes to locate the data and score a stock. There are 16,001 stocks available in North America to purchase. Obviously, no one has time to score all 16,001. You must reduce the number of stocks you may wish to score down to a workable number. 50 would be reasonable. From theses 50 you will select what you think are the best 20 for your portfolio.
You start the search for financially strong, high dividend paying stocks by first going to the Home screen of your investment service’s self-directed investor page.
You next select the “RESEARCH” option from the menu on the home screen, If you do not have a service provider you might want to go to “Free Stock Screener - Yahoo Finance”. Their free screener is extensive, containing over 50 different search options.)
While my RESEARCH screen provides 24 options to choose from, the only options need to find investible stocks are two selectors ,“Overview” and “Screeners”.
You start the search with the “SCREENERS” option.
While there are 16,001 North American stocks available for purchase by using the first selector called “EXCHANGE”, It immediately removes for consideration all stocks except US stocks. Choosing US stocks brings the stock possibilities down to 10,362 stocks. This is too many to work with. We need another selector.
If you are only seeking stocks that pay high dividends, you can now use a “DIVIDEND YIELD” selector. This is the dividend yield percent paid by companies.
2,903 US traded companies pay dividends This is still too many to work with.
What dividend percent selector would bring the number of stocks down to a workable number? This raises the question of what is the minimum dividend yield percent you would you need to give you enough income to live well on?
The inflation rate average over the last century would be 3.5%. To be safe, the minimum dividend income percent could be set at 3.5%. We learn that there are 1,430 US stocks paying a dividend of 3.5% or more. This is still more than we can easily work with.
Note that dividend percentages of stocks are not set in stone. They fluctuate with changes in share prices. For example, in September of 2020, during the market crash, several of the banks were displaying dividend yield percentages between 6% and 7%. In 2019 their dividend percentage would have been between 3% to 5%. What accounted for such an increase in their dividend yield percent? They were still paying the same dividend amount each quarter.
The 2020 market crash caused bank share prices to drop significantly. This had nothing to do with the operating margins of the stocks from which dividend payments are paid. Dividend payments are not directly connected to a share’s price. Thus, paying the same dividend amount on a lower priced share automatically increase the dividend yield percent.
In early 2020, quarterly dividend payments of some bank stocks were frozen by the government. The Government was concerned that the Covid 19 Pandemic would lead to record loan defaults and bankruptcies. These losses could have seriously weakened the economy. The government wished to avoid the possibility of having to bail some stocks, like banks, out of serious financial difficulty.
By June of 2021, the share price of many banks greatly exceeding their best 2019 price.
This illustrates that when selecting stocks by dividend percent you must also consider the financial strength of the company and its potential for capital gain. As share prices increase in financially strong companies, so usually does the amount of money you will receive in dividends.
Many strong corporations strive to maintain the same or a higher dividend yield percent as they have previously paid. If their share price increases, they must then increase the dividend payout to maintain the historical dividend yield percent. A much lower dividend yield percent accompanied by the same amount that has been paid historically by the stock may just reflect the increased share price.
A financially strong Real Estate Investment Trust (REIT) paying a dividend of 8% can be attractive. You may want the reliable income it will deliver to your portfolio. However, by looking at dividend payouts and share prices over the last twenty years, you may see minimal change. You might then choose to search for stocks with histories of ever-increasing share prices who had better potential for not only higher dividend payouts but also higher share prices.
Compare a very stable REIT to a bank stock. In twenty years, the share price of a bank may grow from $47.83 to $141.47 (an increase of 295%). During this same period, their quarterly dividend payments may go from $0.37 to $1.46 (an even greater increase of 394%). You may want to consider having both banks and REITS in your diversified portfolio of 20 stocks. Each of these strong stocks, in a different way, would be contributing to growing your wealth and growing your income.
If the 3.5% dividend yield does not reduce the number of stocks to a manageable level, you need to either increase the dividend yield selector or add in another selector to bring the numbers down. For example, many of the 1,430 dividend stocks are preferred shares.
Preferred shares have almost zero potential for a share price increase and are most likely to lose share price value. To eliminate preferred shares and bring the possibilities for consideration down, you could use the criteria of OPERATING MARGIN. If you set the operating margin percent at 1%, it would eliminate preferred shares. This might bring the total stocks for consideration down to 500 stocks. A company without an operating margin of at least 1% is so financially weak that many investors would not risk investing in such a stock.
There are dozens of possible selectors that can be used to bring the number of stocks for consideration down to a workable 50 stocks. However, to keep it simple the following 5 selectors would work quite well in reducing your consideration down to a workable 50.
(1) Stock Price (The higher the share price usually the stronger the stock)
(2) Average daily volume of shares traded by a stock (the higher the volume the stronger the stock.)
(3) Price to Earnings ratio (The lower the ration the better)
(4) Dividend Yield Percent (the ideal would be a dividend yield between 6% and 9%)
(5) Operating Margin (the higher the margin the stronger the stock).
In my investment books you can see the ranges for each these selectors that classifies their data by strength from zero to 10. The stock scoring software that is supplied with my books.
It is not difficult to get the stocks you wish to consider down to 50 financially strong stocks paying high dividends. Then it is a matter of scoring them and sorting them into descending order by their scores. You would then select what you think are the best 20 that will in time give you the highest gain in the value of your portfolio plus provide you with a consistent ever growing dividend income for the rest of your life. It is a judgment call because usually stocks with strong high scores have lower dividend yield percentage and stocks that pay high yield percentage often have lower scores. This requires balancing the 20 stocks between the two options.
(2)Should a mutual fund's investment objective and strategy be considered before investing?
You can consider a mutual fund’s investment objective and strategy all you want. The objective and strategy are all part of the marketing the fund. Once they have your money, they can do with it as they please and, if you are really motivated and read the mutual fund’s legalese in fine print, you will find that you have given them freedom to do what they wish with your money. By buying a mutual fund you have completed a legal commitment to abide by their regulations.
Mutual funds have lots of competition. They must be sold. Like most sales organizations, they are going to whisper in your ear the things they think you want to hear. Rather than lies there will be more the sin of omission.
It takes time to really analyze what a mutual fund is selling. They do not encourage an in-depth open analysis of their model. They are selling the sizzle not the steak. The mutual funds with hundreds of stocks in them will tell you how wonderfully diversified they are without mentioning that other than a few marquis stocks to give the illusion of strength most of the fund is made up of mediocre stocks that don’t even represent 1% of the mutual fund’s total investment. There just are not that many good stocks out there.
Until you learn to be self-directed investor who carefully chooses stocks and knows exactly what you are investing in.
why you are invested in it and
what it is costing you, -
you are just a pigeon waiting to be plucked. If you make money from your mutual fund, great, but don’t count on it making money.
(3) Why do investors lose money when following investment advice from professionals?
It is not possible to accurately predict future share prices. Thus, any “investment professional” is making calculated guesses and repeating what they have been taught to say when asked for advice.
Recognize that they are being paid by the financial institutions that employ them to transfer as much money from your pocket to their employer’s pocket as possible. They only must know enough about the stock market to convince you, who knows nothing about the stock market, that they are stock market wizards. They know it will take months before you realize that you are losing money.
If you question them they are trained in how to handle such questions with incomprehensible jargon and technical bull s..t. I suspect about half their hours are spent chasing prospective customers to replace the 20% they probably lose every year.
To be a successful investor you must learn how to sort stocks by strength so that you know exactly what you are invested in, why you are invested in it, and how much it is costing you. It isn’t difficult, but do not expect your investment advisor to cut off his income by showing you - if he knows how to do it.
Until you become an informed self-directed investor you are that pigeon waiting to be plucked.
4. How can I tell if a financial advisor is giving me good advice?
You cannot tell if a financial advisor is giving you good advice, unless you are prepared to carefully analyze the investments that they are recommending. If you are prepared to do this analysis, then why do you have a financial advisor?
You may as well become a self-directed investor and save the percentage the advisor is deducting from your portfolio every year, whether it shows a gain or not. No advisor is going to care about your money as much as you do. Typically, they want to earn as much from your portfolio as they can with as little effort as possible.
To be a successful investor, it is critical that you know exactly what you are invested in, why you are invested in it and how much it is costing you. Most investors do not have a clue as to the what, the why and the how. If this is you, and you aren’t going to do something about it, stop worrying about whether the advisor is giving you good advice or bad advice.
I was lackadaisical about my investment advisor until the mutual funds he had put my money into had lost $300,000 and I realized retirement was not far off. It was time to learn how to become a successful self-directed investor and take responsibility for my own investment decisions. I’ve now written many books about managing your investments.
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The objective of these podcasts is to turn all investors into successful self-directed, financially independent investors.
For more insights into investing and stock scoring go to:
www.saferbetterdividendinvesting.com.
Five Investment books available
by
Ian Duncan MacDonald:
New York Stock Exchange’s 106 Best High Dividend Stocks ( scored and analyzed)
American High Dividend Handbook - ( 3.5% + dividend stocks on the NYSE & NASDAQ)
Canadian High Dividend Handbook - ( 3.5% + dividend stocks on the TSX)
Safer Better Dividend Investing - ( US & Canada high dividend stocks scored)
Income and Wealth from Self-Directed Investing - ( trials of a new investor)
All five investment books are available from amazon.com as e-books or in print:
Those purchasing an investment book can request the IDM stock scoring software at no additional charge.
If you like fast moving, entertaining, adventure stories,
check out Ian's three novels at amazon.com.
Beware the Abandoned - (a capitalist sect exploiting poverty)
Using Drought USA - (solving the South West drought)
Duel - (Repercussions of establishing a Chinese military base in the Caribbean)
If you are interested in Ian's art, visit his Fine Art America website:
https://fineartamerica.com/profiles/ian-macdonald
(scroll through the many paintings, photos and digital art. )