• Last week, I was going through the archives for this blog. Since there are over 1,300 articles written over almost five years, there was a lot to look at! But a series caught my attention. It was a series of six posts from the original owner of this blog called “The Dividend Key”. They were short posts that spoke to young dividend investors as they referred to well documented researched. This gave me the idea of revisiting the 6 Dividend Keys and produce a 6 Days to Dividend Growth Investing. This series will cover my overall investing process and is addressed more to beginner investors. At the end of this series, you will be in a good position to not only start investing, but also to avoid most newbie mistakes.

    So if you are an experienced investor, don’t skip this series right away. Why don’t you share it with a friend instead? I bet he will thank you. You are ready? All right! Let’s start with Day #1.

     

    Day #1 What is Your Purpose when Investing?

     

    The purpose why you invest will direct your investment philosophy as a whole. Funny enough, most investors never stop for a moment to really think about why they invest. As an investor, you want to make money. That’s obvious. But can you answer the following:

    Do you want to make money today? This month? This year? Or for retirement in 25 years?

    Do you want to earn monthly income from your investments?

    What is most important for you; your portfolio yield or your portfolio return?

    Are you looking to reach financial freedom through passive income?

     

    The reason why it is so important to know exactly why you invest is because you will track it. There is a very powerful moto in management and it goes like this; you get what you measure. In other words; if you pay enough attention to something and take the time to measure, analyze and modify it to achieve your goal, you will obtain results. Those results will be driven by your measures.

    For example, if you measure school grades, you are more likely to work harder to obtain good grades. On the other hand, it doesn’t mean that your study methods are efficient as you aren’t measuring how hard you work, but only the end result. If you want to improve your efficiency at a test, you will measure both the time and quality of studying vs the result obtained. The same philosophy applied to investing.

    At the moment, all my available money is invested in a retirement account. Since I don’t need this money for the next 25 years, my main focus is total return. I don’t really mind if I built a high dividend yield portfolio or if I get an equal amount of payouts from month to month. My goal is to beat the benchmark and successfully grow my portfolio. I measure my total return on a quarterly basis and compare it to the overall market and dividend ETFs.

    I know other bloggers focus on how much they receive in dividend payouts or how much in yield their portfolio generates. These metrics for me are completely useless. My point is simple; if you build a high yield dividend portfolio and focus solely on the payouts, your capital may lose in value and you won’t even notice! I’ve seen many investors showing poor total returns because they focused on the dividend payments instead of looking at their holding as a whole.

    It’s not because you become a dividend growth investor that you have to forget about the basics of investing. The dividend distribution should be seen as a bonus to your investment return, not as the core of growth in your portfolio. I’ve mentioned this several times on this blog but I would rather buy stocks with a low dividend yield such as Apple (AAPL) or Disney (DIS) and see their stock price surging while cashing in my bonus.

    In my opinion, you can’t really start investing if you haven’t stopped for a moment find what you are looking for. I will not aim for the highest total return once I retire. Metrics such as sustainability of payments and reduction of volatility will be more important for me at that time.

    As you can see, there are no magical answers. Basically, each answer is a good one. You simply have to find why YOU want to invest and build an investing strategy around this thought. Day #2 will be about which investing strategy to choose and why I’ve personally picked dividend growth investing.

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  • Yahoo! This is my last day at work! We rented a vacation property for next week and we are leaving tomorrow! It will be a great timing for me as the past two months have been quite busy! We built monthly dividend portfolios for our membership sites (more on that later on) and we also bought another site (more on that also later on ;-) ). But for now, let’s take a look at what you should read this weekend:

     

    From The Dividend Guy Blog:

    I wrote two articles this week. The first one was more about a personal topic; I did my “financial freedom chronology” to illustrate how you can go from one end of the spectrum to another with a few different choices.

    The second article is a review of 4 stocks to hold in your portfolio. I hold two of them already and one of them is a true gem, I’ll let you discover it!

    Interesting reads:

    Writing your Own Reality is following up on my questions! He clearly explains how he intends to achieve his aggressive goals in 2015. I really connected to this post as I’m in  a similar situation with kick-ass goals to reach and a solid plan to make them happen.

    DivHut looks at the waste management industry. It’s not really my cup of tea as growth potential doesn’t seem incredible but as Div Hut mentioned, it is clearly a recession proof industry.

    Deere & Company stock analysis at My Dividend Growth. I really like Caterpillar (CAT) for about the same reason I could like DE. If you are looking at a strong company selling high quality product, DE should be on your watch list.

    Dividend Yield presents 3 unbelievable dividend champions. From the list, I would consider T. Rowe Price Group (TROW) even though the yield is not super impressive (2.09%).

    Passive Income Earner published the Canadian Aristocrats List. It’s a great start to pick strong dividend stocks. However, be careful; they are not all-star dividend growth stocks.

    Sure Dividend looks at IBM 4 years after Buffett’s investment.  IBM has greatly underperformed the market since Berkshire Hathaway purchased 11G$ of shares in November 2011. IBM is -14.15% and the S&P 500 is up by 67.01%. A proof you are not always right, even when your name is Buffett!

    On a more philosophic trend, Dividend Mantra talks about freedom. I like those posts as they are situated at the complete opposite of my own perception of freedom. Therefore, it helps opening my mind to other opinions. I think we should all listen to others to open our mind.

    As the FED will surely increase its rate toward the end of 2015, Dividend Ladder explains what happens to dividend stocks when the interest rate rises. In short; rising rates equals stronger economy. Can it be bad for your portfolio?

    Pollies Dividend answers another interesting section about the impact of a strong US dollar on his portfolio. I personally like when the US dollar rises as 65% of my portfolio is invested in US stocks! Hehehe.

    A Special Mention too…

    Dividend engineering writes about his buying process in 4 steps. You can’t expect less from an engineer, right? Hahaha! More seriously, I think this is a topic that is not enough cover by dividend bloggers. We all talk about our recent purchase or make individual stock analysis. Rarely, we put the focus on how to manage a complete portfolio and when or why we buy a stock. I’ll never repeat it enough; you must have a clear and defined investing process. This is the only way you can make money over time with the market!

     

    That’s it for this week!

    I’ll hit a well-deserved one week vacation but I have post scheduled next week. However, I won’t publish dividend reads next Friday.

     

    Enjoy the weekend!

     

    Mike

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  • The RRSP season is nearing its end (your last day for 2014 RRSP contribution is March 2nd 2015) and I thought I would go for 4 stock pick ideas. Since US dividend payouts are non-taxable in a registered account, this is the perfect place for Canadians to buy US stocks. Between you and me, even though the currency exchange rate is hurting your purchasing power, this won’t change this year and it could even get worse. So why not considering the great US diversification in dividend payers and go south of the border for your next pick? Here are my suggestions;

     

    Walt Disney (DIS)

    DIS ranking

     

    You know I’m a big fan of Disney. And their latest quarterly reports confirm my beliefs. Despite an outbreak of measles at Disneyland this December, Disney posted very strong results. Latest blockbuster Frozen boosted home entertainment and toy sales. All five divisions (Media Networks, Parks & Resorts, Studio Entertainment, Consumer Products and Interactive) posted stronger sales compared to same quarter last year. It also benefits from a strong US economy and rising consumer’s confidence as the Parks unit shows operating profit higher by 20%. Disney’s movie studios published a 33% surge in profit led by three blockbusters: Frozen, Guardians of the Galaxy and Maleficient. The best part for Disney is that the pipeline is also full for the years ahead. A new Star Wars Trilogy will hit the screen with the first episode in December 2015 and the company also expects to open Shanghai Disney in spring of 2016. The dividend yield remains low (around 1%), but the company keeps most of its money (payout ratio at 22%) to ensure future growth with major investments. When you look at the stock in a dividend growth perspective, DIS is a BUY.

     

    Lockheed Martin (LMT)

    LMT

     

    Surprising enough, Lockheed Martin managed to go through the US recession and military budget cut clouds without much pain. Now that the economy is doing better and consistent war & terrorism threats continue to appear, the need for additional defence supplies will be required. LMT is now set for higher sales for the upcoming years. The international market is also gaining momentum as Lockheed is trying to find ways to be less dependent on the US Government. The short term outlook is deceiving (as LMT issued lower than expected guidance for 2015) but the long term potential is definitely interesting. On the other hand, you have to note that Lockheed Martin is well-known for lowering guidance to temper hype and delivering higher than expected earnings. Is this a strategy or simply the fact that management is conservative? Either way, higher earnings is always good for dividend investors!

     

    Lazard (LAZ)

    LAZ

     

    Lazard is currently riding the bull market with great success. Earnings are up significantly over the past 5 years and investors benefitted through higher dividend payouts climbing from $0.13/share to $0.30/share during this period. The fact that LAZ earns about 50% of its business from asset management and the other half through M&A provides a better diversification than other “boutique investment firms”. More recently, Lazard stock surged 15% from January 15th to February 5th, the date of their quarterly report. A Combination of strong earnings and optimistic outlook for 2015 made the stock go back to a positive level since the beginning of the year. Lazard is the most geographically diversified investing firm and benefits from a very strong reputation. Diversified revenue income streams (portfolio management, M&A, restructuring services, etc) will open the door for additional profitability in 2015. Now that the payout ratio is back to a more appreciable level, Lazard should be on your radar.

     

    Garmin (GRMN)

    GRMN

     

    This is a timely pick as GRMN just released disappointing results on February 18th and the stock price dropped like a rock on that day. EPS were not good enough for analysts and the company missed the target by $0.01 ($0.77 vs $0.78) for the quarter. This data alone isn’t enough to make the stock drop, but the deceiving EPS guidance for 2015 was as it missed the consensus by $0.14 ($3.10 vs $3.24). Garmin automotive device segment reported a drop in sales of 11%. Enough with the bad news, now I’ll tell you why this stock should be on your list. The first reason is that GRMN increased its advertising expenses by 55% last quarter; this is mainly why the company failed meeting EPS estimates. On the other hand, this marketing strategy might bring additional sales in 2015 as the advertising effect is not always immediate. The second reason GRMN is a good pick is due to its fitness segment. Even though there is fierce competition in this sector, Garmin expects sales to grow by another 25% this year. This helps the company diversify its sources of income (the automotive segment now represents 43% of total revenue compared to 58% in 2013). Considering the recent drop in price, I think Garmin is a great buying opportunity.

     

    Which one is your favorite?

    To be honest, if I had to pick only one stock from this list, it would be Disney… but I hold it already. What do you think?

     

    Disclaimer: I personally hold shares of DIS, LMT and both stocks are also hold in our Dividend Stocks Rock portfolios.

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