Financial Jungle

Sometimes, we just need a hero. This is even more so in the universe of dividend investing, which by nature is a contrarian style. Let’s face it. Dividend investors are always pooh-poohed in a cocktail party because they never share your misery in a market slide, nor your pizzaz in a market frenzy. Want to become a successful dividend investor? Forget about winning the popularity contest.

Instead, follow Warren Buffett’s proverbial mantra:

Be fearful when everyone is greedy and greedy when everyone is fearful.

So, does dividend investing really work? Are there real people who manage to pull this off? Of course we can always point to the foremost Stephen Jarislowsky, author of Investment Zoo, and Tom Connolly of The Connolly Report. But that’s not fair, you may quibble. They are one of a kind. How about someone a little less celebrious? Someone a little… umm… like us?

Folks, meet the retired run-of-the-mill dividend investor, bunyip, whom I met from the Canadian Business forum. Bunyip is a relatively quiet dividend investing veteran, but when this low profile investor speaks, enthralling words flow out of his mouth.

I’m delighted that he gave me the opportunity to interview him three weeks ago, just before leaving for his Central America vacation. Inquisitive readers should hang on to the lessons from his 20-year investing experience.

1) Bring us back to your foray into investing. Did you experiment with various types of style? How did you stumble into dividend investing? What appealed you?

I started investing in the early seventies and made all possible mistakes (never twice). I changed strategies several times and it wasn’t until 1992 that I invested exclusively in dividend stocks and even used to sell half when a stock doubled. Now I rarely sell anything, just reinvest all dividends. I’m retired (freedom 55) but have pension so I probably won’t use non-registered account for anther 10 years. I could have retired earlier but I enjoyed my job and after all debts were paid we had a lot of money to put into stocks.

I bought my first shares in the seventies (20 shares of Simpson-Sears @ around $40). They split 4 for 1 soon after and I used to get a dividend cheque for $10 every few months. I kept them for several years until I bought my first house and sold for a small profit. My next foray into the market was in the late seventies when I was buying small cap mining stocks on the Vancouver exchange and gold coins. Did well with the gold but rather indifferent results with the speculative stocks. It was during this period that I started to read everything I could about the markets and created a starter list of dividend yielding stocks that I wanted to own. By 1992 my mortgage was paid off and I was able to start working my way through the list. It wasn’t until I got a computer and joined TDW that I really developed my own style. At that time I would still sell half of any stock that doubled, a carry ever from the junior resource days, a strategy I came to realize didn’t make any sense. For the last 3-4 years i haven’t added any new funds as I have reach all my targets and average $3000 per month in dividends that i reinvest, mostly in stocks in which i already have a position. Now I rarely sell anything and don’t care about the size of the portfolio, just the year over year increase in the yield.

2) What personal traits are best suited for dividend investing?

Patience for sure, especially in the beginning when increases come so slowly. It is always tempting to go for a “home run” but to build a large dividend stream requires discipline, pick a strategy and stick to it. There are many stocks that have more than doubled their dividends in the last 5 years such as the major banks, ENB, FTS and IGM. I also manage the portfolios of two very old relatives and in one of their accounts it is interesting to note that the dividends paid on several stocks are now higher than the original purchase price. So start young and have patience. I was driving across N. Ontario a few years ago and looking for a radio station to help keep me awake and the only one I could receive was a CBC affiliate doing a phone in gardening show. One of the questions was “when is the best time to plant a tree”. I think the person was looking for an answer like spring or fall. The expert replied “twenty years ago”. That answer could also apply to when is the best time to buy stocks.

3) How do you research your stocks, and what characteristics are you looking for? How do you determine your entry prices? Do you sell after a strong run-up? Do you average down?

Mostly annual reports as I mostly only buy stocks in which I already have a position. Also read both National papers and Globe’s website. I look for a history of dividend increases, ideally a payout ratio of less than 60% and increasing revenues. Entry price? I don’t try and time the market, I buy when dividend revenue is sufficient to buy the next stock on my list. That being said, I’ll buy more if the stock or the market overall drops. I virtually never sell anymore and a strong run-up works against me, it makes everything more expensive. I buy all stocks at market price because all stocks I buy are very liquid and would prefer not to miss a dividend or end up paying a higher price just to save a dime.

4) What stocks are in your portfolio?

Agf.B, Aco.X, Bmo, Bns, Bce, Cm, Ema, Enb, Fts, Igm, Mbt, Mfc, Pow, Pwf, Roc, Ry, Rus, Sap, Slf, Tck.B, T, Td, Ta, Trp, Fap. Trusts- Aet, Apf, Bfc, Cix, Cos, Cne, Cwi, Eit, Mpt, Npi, Pif, Pgf, Prg, Rei, Ylo, Ep. There are several of these that wouldn’t meet my criteria today- Mbt Rus and Tck.

You may have noticed that I hold no mutual funds, just mutual fund companies. I don’t spend any money on MER or even pay for ETFs. They will eat your profits over the long term. My total expenses for a $650,000 account last year were $89.91 representing 9 trades. If this were mutual funds (well you do the math). Mutual funds have to trade often to show gains that they use in advertising, a retail investor in dividend stocks has a huge advantage. A stock that regularly increases it’s dividend and is held for the long term will come out ahead of most mutual funds in the long run.

5) What were some of your best and worst moves? If you were to travel back in time, would you do anything differently?

Best moves- Buying a lot of trusts right after Flaherty’s announcement. TRP@ 11.45 in 2000 after a dividend cut (since restored and then some). Worst- After reading a book on demographics I bought Extendicare and Louwen Group(2nd largest funeral Co in N.America). Both companies were involved in very expensive lawsuits in the US. Exe. survived but Louwen went from $40 to zip. Be diversified.

6) What are you thoughts on investing with borrowed money to enhance return?

Or enhance losses? I think it is human nature to want things to happen faster but it goes back to an earlier question. Patience. Hey but if you are successful, you’ll look like a genius.

7) How do you define financial freedom, and are you financially free?

I am financially free and have been for many years. I probably worked a few years too many because it is very difficult to say when one becomes financially free. I stayed longer so I would have a cushion but realize I don’t need that big a cushion.

I am also a jungle guy and am leaving Friday [FJ: that was 2 weeks ago] for a jungle lodge on the Costa Rican/ Panama border for 2 weeks. No phones, no computers, no stock market. I’ll probably be in withdrawal for a couple of days.

8 ) What stocks appeal you these days? What are you avoiding?

The next three I’m adding to are Fts, Td and Pwf. I’m avoiding anything to do with medicine or aviation, I have never made a cent on either though I tried often enough.

9) Any good books or websites you recommend?

I was impressed with your website. I do a lot of reading but nothing pertaining to the market as my portfolio is becoming less hands-on all the time.