Canadian Money Forum banner

21 - 40 of 52 Posts

·
Registered
Joined
·
2,816 Posts
AT&T's revenue is dropping. What P/E multiple would you pay for a company with declining annual revenues? They a huge company, and it is not easy to turn a large ship around. And with higher interest rates, it will put double pressure on its bottom line.
 

·
Registered
Joined
·
4,052 Posts
I think BCE, Rogers & Telus are all growth stocks. The fact they pay out much of their success in the form of dividends make them even more desirable. (I have no opinion on AT&T though)
 

·
Registered
Joined
·
17,949 Posts
The AT&T (T) dividend yield is now 6.6% and was as high as 6.8% a day earlier. Currently it pays $0.51/quarter = $2.04/year.

That's 6.6% yield vs the S&P 500 yield of 2.1% and 10 year treasury yield of 2.7%

The company raised its dividend for 34 consecutive years and just raised its dividend again (source: Bloomberg). So here's an important question for all the dividend investors on this forum: Does the backward-looking statistic of 34 consecutive years of dividend increases give you the confidence to say that if you buy this, the price will no longer matter, and you're going to get a healthy dividend stream forever?

I'm pressing the point because all these books and blogs on dividend investments, dividend growth investing, all use the same logic: that you can simply screen stocks and choose the most reliable dividend payers. Therefore (the argument goes) these stocks will keep raising their dividends perpetually, so share price no longer matters. Even if prices drop, the cashflow from dividends keeps increasing, forever.

Those arguing these points conveniently ignore stocks like GE, which paid dividends for 100+ years and raised its dividend for 32 consecutive years (source: GE) and various US banks, which all saw their dividends slashed.

I'm not trying to be a pain. I just want people to carefully consider the potential pitfalls of "dividend investing", because I feel that investors going down this route are often overconfident. Just like price performance, backwards-looking histories of dividend payouts do not assure future dividend payouts. Just because GE raised dividends for 32 years, or AT&T raised dividends for 34 years, doesn't necessarily mean the dividend is safe.

And once one of these dividend stocks cuts their dividend, the share price crashes, meaning that you get a loss in capital. That share price you were trying to ignore suddenly matters again, and those years of reliable dividend payouts are meaningless. I really do worry about dividend investors, and this dangerous game they play with their capital.

Some might say that you (obviously) must monitor your dividend growth stocks and ensure you keep only the best ones in your portfolio. AT&T has taken on a huge amount of debt and their credit rating has been cut. So I guess that an astute 'dividend growth investor' would remove T from their portfolio? Well OK, but then you suffer a loss as the price dropped long before you figured this out. These are the important nuances of portfolio management that dividend investors don't seem to consider.

Or do you leave T in your portfolio because its dividend is likely safe? These are important questions. The same questions will eventually come up for Canadian dividend favourites such as RY, TD, BNS, CM, BMO, NA, ENB, BCE, etc. It came up 10 years ago and will come up again.

As a dividend investor, you probably won't encounter these issues in your first 5-10 years. I think what potentially makes dividend investing so dangerous is the false sense of security and lack of preparation for the challenge that suddenly strikes at year 12, 17, and again at year 29. Successfully managing your portfolio through those hiccups is very difficult. My guess is that most dividend investors will do worse than passive index investors long term, in total return. That means retirement money would actually stretch further with passive index investing and traditional asset allocation.
 

·
Registered
Joined
·
10,218 Posts
As far as T has reasonable fundamentals, like payout ratio , I will continue to hold it and DRIP dividends. GE is in different business. And if I hold 50 stocks that increase dividends every year, even if couple of stock will cut dividends , it won't really affect my dividend income.
For example couple of years ago many of the oil companies I held cut/suspended dividends : COP, HSE, CPG .... , but majority increased dividend, so my dividend income still was up
 

·
Registered
Joined
·
5,223 Posts
The AT&T (T) dividend yield is now 6.6% and was as high as 6.8% a day earlier. Currently it pays $0.51/quarter = $2.04/year.

That's 6.6% yield vs the S&P 500 yield of 2.1% and 10 year treasury yield of 2.7%

The company raised its dividend for 34 consecutive years and just raised its dividend again (source: Bloomberg). So here's an important question for all the dividend investors on this forum: Does the backward-looking statistic of 34 consecutive years of dividend increases give you the confidence to say that if you buy this, the price will no longer matter, and you're going to get a healthy dividend stream forever?

I'm pressing the point because all these books and blogs on dividend investments, dividend growth investing, all use the same logic: that you can simply screen stocks and choose the most reliable dividend payers. Therefore (the argument goes) these stocks will keep raising their dividends perpetually, so share price no longer matters. Even if prices drop, the cashflow from dividends keeps increasing, forever.

Those arguing these points conveniently ignore stocks like GE, which paid dividends for 100+ years and raised its dividend for 32 consecutive years (source: GE) and various US banks, which all saw their dividends slashed.

I'm not trying to be a pain. I just want people to carefully consider the potential pitfalls of "dividend investing", because I feel that investors going down this route are often overconfident. Just like price performance, backwards-looking histories of dividend payouts do not assure future dividend payouts. Just because GE raised dividends for 32 years, or AT&T raised dividends for 34 years, doesn't necessarily mean the dividend is safe.

And once one of these dividend stocks cuts their dividend, the share price crashes, meaning that you get a loss in capital. That share price you were trying to ignore suddenly matters again, and those years of reliable dividend payouts are meaningless. I really do worry about dividend investors, and this dangerous game they play with their capital.

Some might say that you (obviously) must monitor your dividend growth stocks and ensure you keep only the best ones in your portfolio. AT&T has taken on a huge amount of debt and their credit rating has been cut. So I guess that an astute 'dividend growth investor' would remove T from their portfolio? Well OK, but then you suffer a loss as the price dropped long before you figured this out. These are the important nuances of portfolio management that dividend investors don't seem to consider.

Or do you leave T in your portfolio because its dividend is likely safe? These are important questions. The same questions will eventually come up for Canadian dividend favourites such as RY, TD, BNS, CM, BMO, NA, ENB, BCE, etc. It came up 10 years ago and will come up again.

As a dividend investor, you probably won't encounter these issues in your first 5-10 years. I think what potentially makes dividend investing so dangerous is the false sense of security and lack of preparation for the challenge that suddenly strikes at year 12, 17, and again at year 29. Successfully managing your portfolio through those hiccups is very difficult. My guess is that most dividend investors will do worse than passive index investors long term, in total return. That means retirement money would actually stretch further with passive index investing and traditional asset allocation.
james, let's face you really are a "saver" who likes to hang out on an investment forum ...

your argument is empty, nobody can guarantee anything about any equity going forward ... you bet on a company and a company that establishes itself as a steady dividend payer is likely to continue

some people stick to their mutual funds, some have their 6-packs or 12-packs, some have their mix of etf's and invest passively

some people never buy anything but gic's and government bonds ... i wonder what will happen with regards to bonds/gic's if god forbid, we have a mega-crash, i suspect that government will find itself insolvent and unable to even print enough money to bail itself out and then guess what ?

the bond and gic holders are going to be told "sorry, we can only guarantee 50% of your investment"

coca-cola is a dividend champion and if the mega-crash comes they will at least have a product that people will want to buy and consume, unlike the paper that bonds and gic's are written on

take a deep breath james, there is no investment vehicle now or in the future that will ever be a guarantee

ps. gibor has it right, using a single stock as an argument when the vast majority continue to pay steadily makes no sense ... diversification and asset management is the key as you well know
 

·
Registered
Joined
·
1,208 Posts
As with anything it is total return that should be the main driver of success. I have been DIY investing for over 10 years. Granted we have also seen 10 years of exceptional returns I thought I would weigh in. I made a lot of mistakes (as did most) early in my investing career. In fact, I have 3 separate portfolios (LIRA, RRSP and TFSA). The LIRA has the longest history with no money added, then RRSP which I have stopped adding to in the last 18-24 months and most recently TFSA all new funds. I did create an Investor Policy Statement but it has changed over time. With the LIRA I chased yield and wanted to generate income. I bought energy stocks during peak oil and didn't understand fundamentals as do as I do now. I also missed out on some great stocks as I was too entrenched in pricing. While price is important a couple of pennies doesn't make much difference on a $50 stock. With my RRSP I wanted to ensure I had better asset allocation and focus on a balancing yield and dividend growth. I have maintained the same strategy for my TFSA. My RRSP and TFSA have far outperformed my LIRA. Investing models fall in and out of fashion.

I think it is important for an individual investor to find the method to generate wealth that works best for them. I had a strong feeling amazon would shoot out the lights but sat on the sidelines despite my instincts telling me to buy as it didn't fit my model. I also had people telling me to buy bitcoin at its peak. I missed out on the cannabis run as well. However, my portfolio has exceeded desired return and I have learned a lot along the way. Many others have done quite well with RE but I don't want to do the research or be a landlord. I am up on my current dwelling but I don't include it in my portfolio as I don't have plans to sell my home until I downsize near retirement.

To get into the specifics of AT&T I have an after cost total return of over 4.5% a year over the last 3 including dividends and current capital loss. Not outstanding but better than others. Some of which I own. :tongue-new: I have done much better with the Canadian dividend favorites (RY, BNS,BMO, ENB) mentioned above some of which have given > 15% a year and more than doubled my total return (unrealized). Anybody who has held Canadian banks since 08 have done amazingly well and doesn't need me to post my returns. Will stocks revert to the mean? Usually, However, I am suggesting that over the long term (10, 15 20 years) the decline will not exceed the initial investment if bought at a good price and returns will likely meet or exceed the market. It makes sense as many of these stocks are the bulk of the index. Since I am in accumulation I saw 2018 as an opportunity to add to positions that I had missed out previously. If I was nearing retirement or in withdrawal I would have not enjoyed 2018. I believe I would have a different portfolio composition as far as equity to fixed components.

James: I guarantee we can find periods throughout time to confirm or contradict any investment thesis. I do appreciate your efforts to remind investors of the potential pitfalls of complacency. In fact, I am going to review each one of my positions for potential GEs. I just wanted to point out that historically stocks that pay a growing dividend have generally outperformed over the long haul.

As a final note: I hold AT&T and looked at adding over the last few months but took a pass as I have put in orders for other stocks. (TD as a prime example).

Cheers
 

·
Registered
Joined
·
4,209 Posts
As gibor and fatcat have noted, your dividend portfolio should be diverse so that no individual holding can cause too much damage. I now sell if a company cuts its dividend. Even though the price will have dropped, the loss (or reduced gain) is immaterial.
As for picking the stocks, I'd consider a yield over 6% very cautiously (stretching for yield) and want to understand why it is that high - are we in the midst of an overall correction or is this stock out of favour for good reasons. I also favour Cdn companies for the dividend tax credit in unregistered accs. For those reasons, AT&T wouldn't hit my radar,
I think my last sell on a dividend cut was MTL in 2017, no substantial damage done, carry on.
 

·
Registered
Joined
·
5,223 Posts
As gibor and fatcat have noted, your dividend portfolio should be diverse so that no individual holding can cause too much damage. I now sell if a company cuts its dividend. Even though the price will have dropped, the loss (or reduced gain) is immaterial.
As for picking the stocks, I'd consider a yield over 6% very cautiously (stretching for yield) and want to understand why it is that high - are we in the midst of an overall correction or is this stock out of favour for good reasons. I also favour Cdn companies for the dividend tax credit in unregistered accs. For those reasons, AT&T wouldn't hit my radar,
I think my last sell on a dividend cut was MTL in 2017, no substantial damage done, carry on.
me too, i am always leery of companies that break 6% that is my magic number to wonder what is really happening ...
 

·
Registered
Joined
·
17,949 Posts
I agree that diversification is key, so that a single stock that turns sour (GE, AT&T, TransAlta, etc) can't wreck the portfolio. You also need sector diversification. I think it's very challenging to put together such well diversified dividend portfolios.

I worry about these investors who pop up on the forum asking about dividend investing, because they heard somewhere that it will make their retirement savings stretch further. These are probably people who don't even have basic experience managing a portfolio of stocks. Now they are told they just have to screen for some great dividend stocks and load up an account with them. How's that going to work out for them?

fatcat, OnlyMyOpinion & some others here can do it, sure. But I think CMF paints a deceptively simple story about the dividend investment process.

me too, i am always leery of companies that break 6% that is my magic number to wonder what is really happening ...
This shouldn't be a hard number, but something relative to the 10 year bond yield
 

·
Registered
Joined
·
5,223 Posts
I agree that diversification is key, so that a single stock that turns sour (GE, AT&T, TransAlta, etc) can't wreck the portfolio. You also need sector diversification. I think it's very challenging to put together such well diversified dividend portfolios.

I worry about these investors who pop up on the forum asking about dividend investing, because they heard somewhere that it will make their retirement savings stretch further. These are probably people who don't even have basic experience managing a portfolio of stocks. Now they are told they just have to screen for some great dividend stocks and load up an account with them. How's that going to work out for them?

fatcat, OnlyMyOpinion & some others here can do it, sure. But I think CMF paints a deceptively simple story about the dividend investment process.



This shouldn't be a hard number, but something relative to the 10 year bond yield
james, i do agree that "dividend growth" is a currently hot flavour of the month for investing styles and is often sold as being easy when, in fact, no investment plan is easy ... all, even government bonds have risk

6% is just a signpost for me, that's my magic number and on its own i agree, isn't definitive
 

·
Registered
Joined
·
10,218 Posts
I'm planning to convert SRRSP to SRRIF later this year, and with dividend stocks it's much easier for psychologically, I just turn off DRIP on some stocks and my minimum withdrawal would be covered. ....in case I have non-dividend stocks or even index ETFs, I should've every year to thing what to sell and where to sell.... and selling when market is down is not very comfortable for me.
 

·
Registered
Joined
·
17,949 Posts
I'm planning to convert SRRSP to SRRIF later this year, and with dividend stocks it's much easier for psychologically, I just turn off DRIP on some stocks and my minimum withdrawal would be covered. ....in case I have non-dividend stocks or even index ETFs, I should've every year to thing what to sell and where to sell.... and selling when market is down is not very comfortable for me.
Good point gibor. Dividends are very convenient for the automatic cash extraction
 

·
Registered
Joined
·
136 Posts
The company raised its dividend for 34 consecutive years and just raised its dividend again (source: Bloomberg). So here's an important question for all the dividend investors on this forum: Does the backward-looking statistic of 34 consecutive years of dividend increases give you the confidence to say that if you buy this, the price will no longer matter, and you're going to get a healthy dividend stream forever?

I think that this can be starting point from which to do your own research.

Standard valuation practices should continue from here.

Are earnings growth and payout climbing in tandem? Does the P/E meet your criteria? What is the payout ratio? Is debt growing?

Each investor should have his or her own metrics and there is never a quick fix for doing your own research. Now if this fits within that criteria then maybe the market has it wrong.

I would agree with Fatcat here

6% is just a signpost for me, that's my magic number and on its own i agree, isn't definitive
 

·
Registered
Joined
·
10,218 Posts
6% is just a signpost for me, that's my magic number and on its own i agree, isn't definitive
imho, you should look into fundamentals and not yield .... do you know what was BMO yield during 2008-09 recession?!!!!! Would you sell it?!
 

·
Registered
Joined
·
17,949 Posts
imho, you should look into fundamentals and not yield .... do you know what was BMO yield during 2008-09 recession?!!!!! Would you sell it?!
The bank was borderline insolvent and needed massive assistance to stay alive. They could have cut the dividend. If a similar scenario happens again, it's just as likely that stock holders would get wiped out (which is what happened with many other global banks).

Someone who held onto BMO (or CIBC, or Scotia) during the crisis just got lucky: 1- that the dividend continued and 2- that the equity didn't get wiped out.
 

·
Registered
Joined
·
4,209 Posts
I just want to understand ..... so, if stock you hold hits 6% yield, do you sell it?
From my perspective, not necessarily - but, per my post #22, I'd consider a yield over 6% very cautiously (stretching for yield) and want to understand why it is that high - are we in the midst of an overall correction or is this stock out of favour for good reasons.
 

·
Registered
Joined
·
10,218 Posts
From my perspective, not necessarily - but, per my post #22, I'd consider a yield over 6% very cautiously (stretching for yield) and want to understand why it is that high - are we in the midst of an overall correction or is this stock out of favour for good reasons.
OK. Got it , but many solid REITs has yield above 6%, also some of the my best performing stocks on NYSE at some time had yield more than 6%.....and on the other hand some stocks with much lower yield stop paying dividend, recent example CLIQ (former LIQ)
 

·
Registered
Joined
·
136 Posts
OK. Got it , but many solid REITs has yield above 6%, also some of the my best performing stocks on NYSE at some time had yield more than 6%.....and on the other hand some stocks with much lower yield stop paying dividend, recent example CLIQ (former LIQ)
REIT can not be compared to a regular common stock. They are a trust and flow through income and also a composition is often ROC and thus makes a higher yield. Vastly differing tax consequences.

As for CLIQ / LIQ the writing was on the wall for a long long time with that one. I remember looking at the financials when I fist joined this forum. Im sure it was in the 7% yield range in 2014 ish I was tempted several times but it was plain to see they could never support the payout. I could never wrap my head around it and so stayed away.

There is never a substitute for your own research.

So the question is based on the fundamentals does the payout of AT & T appear to be safe?
 
21 - 40 of 52 Posts
Top