[leslie]

That perpetually wrong lady from TD advertising on ROBTV disguised as 'education', claimed yesterday that returns from dividend portfolios had outperformed the market. She quoted an index but I did not catch it, or catch the period of time she measured. Not believing her (your best default position), I looked up the 1 year and 3 year returns from iShares products trading in Canada, US and GB. The Stoxx % are total returns, I don't know about the Cdn and US %. Makes no difference.

..........................1 yr %.....3 yr %
Cdn Dividends........4.4.........<0.2>
Cdn Lg Cap...........<0.7>........2.8
Stoxx Div.............<6.0>......<32.4>
Stoxx 50..............<1.7>......<18.8>
DowJonesDiv........<18.9>.....<11.0>
DJ Boad Mkt.........<6.1>.......<4.0>

Dividend investing has not outperformed. The opposite.

 

[OntFA]

I would suggest that using such a short time period cannot possibly be the basis for meaningful insight of any kind. The time frame should be measured in decades instead of years. Since financial stocks typically make up a large part of most dividend indexes, you could certainly argue whether dividends really make the difference or whether it's the fact that financial stocks have leverage that have worked in the favour of shareholders.

Personally, from what I've read on the topic, it seems that dividends and what you do with them can make a huge impact on long term returns. But no matter what your argument, you'll need a time frame that is at least ten times what you'd displayed to make a good argument.

 

[DrStan]

Agreed OntFA, the timeframe is almost insignificant. Dividend investors are more interested in long term holds instead of the short term speculation associated with, for instance, growth stocks or high tech stocks. Look at 5, 10, 15, 20 years instead.

 

[Rickson9]

We don't invest for dividends. For us, dividends happen as an after effect of investing in high return stocks.

It doesn't make sense for us to invest in dividend stocks because we don't use/need the dividend income. I don't see the point in dividend stocks if I don't actually use the dividend for living expenses. If we actually needed the dividend income it would be a different story.

Having said that, we own a lot of The Buckle which has been distributing "special" dividends that have messed us up on our taxes.

2008
http://www.streetinsider.com/Dividends/Buckle+(BKE)+Announes+Special+$3Share+Dividend+and+3-for2+Stock+Split/3991779.html

2009
http://www.streetinsider.com/Special+Reports/The+Buckle+(BKE)+Declares+$1.80Sh+Special+Dividend,+$0.20Sh+Regular+Dividend/4960689.html

On top of this, we also have to find a home for this money that will compound as well or better than The Buckle; which is pretty much impossible. In this case, the dividends screwed us (on the bright side, the money could have been wasted on diworsification into shrimp farming so I guess that's something).

We prefer, at the moment, for businesses to retain the earnings to compound it tax-free instead of paying it out as a dividend and having us bear the tax burden. Even though dividends are treated very well in Canada, we still prefer tax-free (especially if a business is compounding at 15% or higher, and in the case of The Buckle, 30%. There is no way dividends can ever make up for that kind of tax-free compounding).

 

[OntFA]

It doesn't make sense for us to invest in dividend stocks because we don't use/need the dividend income. I don't see the point in dividend stocks if I don't actually use the dividend for living expenses. If we actually needed the dividend income it would be a different story.

That's a good point but I think many people use Dividends as an indication of earnings strength/growth. If you invest the time and are able to make a judgement about the stability/growth potential of a company's earnings then you don't need to use dividends in this way. I would say that most investors are not in your situation.

Even though dividends are treated very well in Canada, we still prefer tax-free (especially if a business is compounding at 15% or higher, and in the case of The Buckle, 30%. There is no way dividends can ever make up for that kind of tax-free compounding).

It's not technically tax free since corporate taxes have already been paid on retained earnings, which is where dividends are paid from. But agreed that it's certainly more tax efficient to let a company retain its earnings and and put the cash to more profitable use than an investor can on his/her own.

And in your experience, how do you know at what point a company can no longer invest its retained earnings as profitably as in the past? In other words, if you have such faith in Buckle management, don't you think they're telling you something by not wanting to keep your cash?

 

[FinancialJungle]

Having said that, we own a lot of The Buckle which has been distributing "special" dividends that have messed us up on our taxes.

Just put US dividend paying stocks inside rrsp. If you're in a higher tax-bracket, every 65 cents outside rrsp will turn into 1 dollar inside rrsp, and all your dividends compound tax-deferred until you retire, or whenever you widthdraw money out. I think this will work out to be more lucrative in the end.

edit: I finally initiated The Buckle at just under $27, but didn't get a chance to average down, so it's only a small position inside RRSP.

 

[Rickson9]

It's not technically tax free since corporate taxes have already been paid on retained earnings, which is where dividends are paid from. But agreed that it's certainly more tax efficient to let a company retain its earnings and and put the cash to more profitable use than an investor can on his/her own.

I agree.

And in your experience, how do you know at what point a company can no longer invest its retained earnings as profitably as in the past?

I don't, but I would know as well as a person can know if earnings will continue and dividends paid.

In other words, if you have such faith in Buckle management, don't you think they're telling you something by not wanting to keep your cash?

Yes. I mentioned this in another post. The fact that the company is paying out special dividends may be an indicator that they cannot find ways to compound the money.

 

[msimms]

And in your experience, how do you know at what point a company can no longer invest its retained earnings as profitably as in the past? In other words, if you have such faith in Buckle management, don't you think they're telling you something by not wanting to keep your cash?

I believe the average ROE percentage (averaged over a number of years) should fall if re-investment of earnings don't produce adequate return.
This is assuming there isn't a significant increase in liabilities on the balance sheet -- which could throw the ROE calculation off.

 

[Rickson9]

Just put US dividend paying stocks inside rrsp. If you're in a higher tax-bracket, every 65 cents outside rrsp will turn into 1 dollar inside rrsp, and all your dividends compound tax-deferred until you retire, or whenever you widthdraw money out. I think this will work out to be more lucrative in the end.

edit: I finally initiated The Buckle at just under $27, but didn't get a chance to average down, so it's only a small position inside RRSP.

We bought shares of The Buckle in our RRSP, TFSA and non-registered. We have a lot of it. Obviously only the shares in our non-registered will incur taxes.

PS: As an unrelated aside, as well as The Buckle has performed for us this year, it hasn't been our best performing security in 2009 (no it wasn't Fossil either). That stock will remain unnamed until I get going on my 2009 stock letter. Alas, the aforementioned unnamed stock also pays a (taxable) dividend. I think the people who know me, once they find out what I bought, will say, "WTF are you crazy?!" I think I might have been...

 

[Rickson9]

I believe the average ROE percentage (averaged over a number of years) should fall if re-investment of earnings don't produce adequate return.
This is assuming there isn't a significant increase in liabilities on the balance sheet -- which could throw the ROE calculation off.

Correct and good point (about the leverage).

 

[Oldroe]

I'm a little confused, you sound surprised that Buckle pays a special div. and it's tax. Did you not read the financial statements for 10 years or not understand them.

If you have no need for money why are you investing just put in a coffee can.

 

[Rickson9]

I'm a little confused, you sound surprised that Buckle pays a special div. and it's tax. Did you not read the financial statements for 10 years or not understand them.

When we originally purchased The Buckle in 2005, they didn't pay special dividends - that's why they're called 'special' as opposed to 'regular'. Does that work for your level of understanding? I'm sorry to have confused you.

 

[Oldroe]

So you didn't no they were going to start a special div. or what the tax implication would be.

 

[Rickson9]

So you didn't no they were going to start a special div. or what the tax implication would be.

Correct.

I did not know that they were going to start paying a special dividend because they didn't announce a special dividend because in 2005 there was no special dividend to announce.

The Buckle, 2005 press releases (no special dividend):
http://tinyurl.com/yh4kwbr

The Buckle, 2006 press releases ("Special One-Time Cash Dividend"* first announced; at the end of the year no less):
http://tinyurl.com/ygqyxzz

Correct.

I did not know what the tax implication was because there was no special dividend so there was no way to calculate something that didn't exist.

* As opposed to the non-cash version

 

[Berubeland]

So Rickson I guess this is another "investment mistake " like buying into Berkshire Hathaway at $1800 per share

 

[Rickson9]

So Rickson I guess this is another "investment mistake " like buying into Berkshire Hathaway at $1800 per share

This wouldn't be a mistake. An annoyance.

Personally I think that The Buckle CAN compound the money, but what do I know? I'm just a shareholder.

My guess is that some board members want to be compensated in tax-advantaged dividend payments instead of straight income.

 

[Oldroe]

The case for strait income has not been made for me. That link 1 board member likes to post is the biggest joke I've read recently.

So if you new the special div. was coming, and anybody that made a million in the markets would have a tax attorney why didn't you ask.

 

[Rickson9]

The case for strait income has not been made for me. That link 1 board member likes to post is the biggest joke I've read recently.

So if you new the special div. was coming, and anybody that made a million in the markets would have a tax attorney why didn't you ask.

Learn to read before posting.

 

[leslie]

Why imply that anyone is arguing "The case for strait income has not been made for me"? I have not seen anyone here make that case, or even imply it.

 

[Oldroe]

Reading is easy comprehension good memory not bad. I made it half way down your link when I just knew that for X$ the miracle would be revealed to the masses.

No Thanks your stuff doesn't impress. Go back re write and say something I will try again.