| Let’s
get back to Margaret. Last month, she was enjoying a two-week holiday in
Vienna. Before leaving, she was gloating (yes, let’s use that term) over
how well her dividend-paying and dividend-investing strategy had paid off. |
|
As you will recall, Margaret in her late
70s, had paid for her trip, and for much of her current lifestyle, by adopting
an investment strategy that counted on rising dividends. Precisely put:
invest in companies that pay dividends. Moreover, favour those companies
that increase their dividends consistently and predictably. Over time,
one’s rate of return compared with the initial investment, may move substantially
higher.
Indeed, Margaret had seen the banks and
insurance companies of Canada increase their dividends by 10% to 25% since
the year 2000. Since she held their stocks, her dividends (read income)
rose by that same amount every year. Imagine that, getting an income (read
pay) increase every year without having to lift a finger!
Was there anything else to worry about?
After all, living through retirement with an average 10% increase in income
would be a dream come true for many people.
Back to Margaret. Perhaps everything isn’t
quite as rosy as it appears as she appears slightly agitated. Loblaws,
for example, has been paying her a dividend that increased by an average
of 22% every year over the past 5 years. Lately, however, the company seems
to have encountered some competition (read Walmart). The supermarket chain’s
earnings (read profit) fell last month for the first time in 13 years.
Let’s be clear here: Margaret prides herself
on ignoring the stock price. Nevertheless, when she checks her net worth
on her monthly statement, she notices that a drop in Loblaws has dented
that while she was sipping her café and biting into her Sacher Torte
in Vienna.
The stock has moved from $76 to $57. Ouch!
Her money manager gives her the information
she needs:
“Net income fell 23% in 2005 as Loblaw
had problems integrating new warehouses into its supply network, leaving
some stores without merchandise.”
That’s the official line. Even though Chairman
Galen Weston and President John Lederer declined to accept bonuses for
the year, Margaret would be more comfortable with how things were going
before.
“Well,” her money manager explains, “the
point is that you never know what’s going to happen in business nor to
stock prices. That’s life. It’s best to diversify over a number of dividend-paying
companies and furthermore, to spread your money across various areas or
sectors in which the companies operate.”
Margaret doesn’t really want a lesson,
but gets it nonetheless, because after all, it is her money and she has
to be informed. She retains a few points: Loblaws hasn’t announced a change
to their dividend policy. Whew! It’s still 84 cents a share, however, she’s
not sure about next year’s raise.
Further scrutiny show her how well her
portfolio is diversified: that she has many other companies outside of
the “consumer goods” sector which are paying her very well. Another whew!
And finally, she learns that dividend-increasing
investing depends on the ability of the company to grow its profits, its
market share, its cash flow, and maintain a tight rein on its debt load.
It sounds like dry common sense to Margaret,
and she appreciates having discovered more. She knows she’s found an excellent
money manager whose interest in her well-being comes first, and that she
has to rely on and trust her counsel. Next month we’ll learn how this same
manager has established a key discipline that saves Margaret a fortune!
Meanwhile, if you’re interested in a copy
of the top 10 dividend-paying stocks, send us an e-mail or call Pina Tria
at 514-394-3771 and mention this article in The Montrealer and we’ll be
happy to forward it to you.
The Adena Franz Group has over 15 years’
experience of successful portfolio management and is with the independent
firm
MacDougall, MacDougall and MacTier Inc.
1010 de la Gauchetière West, Suite
2000
Montreal, Qc H3B 4J1
Phone: 514-394-3771
Email: ptria@3macs.com
The information contained
in this article is for general information purposes only. It does not account
for specific investment objectives or the financial situation of any person
reading it. Opinions expressed are those of the author and do not necessarily
represent the opinions of MacDougall, MacDougall & MacTier Inc. Investors
should seek professional advice regarding the appropriateness of investing
in any securities discussed or recommended here and should recognize that
statements regarding future prospects may not be realized. |
