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Discussion Starter #81
Bob's Never Ending Thread

Well, all I hear from you is unsubstantiated claims and individual names and beliefs that 8% withdrawal rates are sustainable. In comparison, Bergen's paper at least has facts and inferences that can be debated.

Hi

I provided Riocan as a specific name for 2 reasons :
-example of an investment/investment return that my clients and I held for several years
-example of how an investor can achieve a 8% sustainable (as defined) in the future (No guarantee, but the only/best suggestion made so far)
-note that buying Riocan using LIMITED margin can increase return to 20%+
-while there are several more specific examples that I could provide of how to earn 8% sustainable (as defined), and even higher, I am only offering one since it would be unfair otherwise to my clients who are paying to know
-however, the future is uncertain, risk is necessary, continual evaluating necessary, so there is NO guarantee that Riocan will continue to provide 8% indefinitely

Therefore, both my past and future claims are substantiated.

Again, while I don't expect everybody to agree with me, the worst possible outcome is that investors just swallow Bergen's pedlar position that only 4% is possible as a sustainable yield, and don't even challenge / try to achieve better

Great point earlier by somebody that with everybody having different definitions of the word "sustainable", this debate is made impossible.

Consider somebody who has $1,000,000 at retirement, and he asks you how much annual inflation adjusted pension income should he expect, without encroaching on his $1,000,000 capital
-ie both the $1,000,000 capital and the $40,000 annual income would have to grow by the inflation rate
-to me , an answer of only $40,000 is ridiculous, and I would be more than happy to take a $1,000,000 from anybody , and provide them $40,000 inflation adjusted annual income, with me being able to keep the excess !
-to me, as stated before, sustainable means both after inflation, and relatively safe for the foreseeable future

Riocan's Q1 Results
-despite repeating lots of facts, the above IR post doesn't address some critical issues
-Q1 was slightly lower compared to expectations, such that most analysts have now reduced their 2009 AFFO estimate to below the annual $1.38 distribution, such that Riocan is now estimated to distribute apporx 110% of AFFO for 2009
-on the conference call, management stated that they have absolutely no plans to reduce the distribution
-most analyts believe this, since the operational issues leading to this over distribution are believed to be temporary, ie 2010 AFFO payout ratio should be back to 100%, plus the fact that Riocan has low debt leverage
-most analysts still have Riocan's NAV at $18-$20, after adjusting for Q1
-the Q1 slight disappointment has sent many unitholders running, which explains the selloff in the last few days
-As usual, going the opposite way of the herd, and buying Riocan now represents great 10%+ yield value, plus significant capital gains potential
-Should you make the buy order, tell them Bob sent you !

Your Choice :

a) Buy Riocan at today's closing $13.45 price / 10.3% cash yield / plus future distribution / unit price increases / tax advantaged income / etc, and have very good probability of earning an 8% sustainable (as defined) yield, OR

b) Asking Bill Bergen how you can earn 4%


Bob
www.cfrca.com
 

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Somewhere in the thread, we switched from a dividend-stock-picking portfolio to an index/bond portfolio. Personally I use bonds and cash as a temporary place to park money. If bonds are thrown into the mix, then 8% is pushing it.

Not all TSX stocks pay dividends. For an experienced full-time dividend investor like Bob, it's possible to focus only on the dividend-paying, high quality (e.g. best 7 REITs) TSX constituents, but only invest when they're cheap. If Bob did acquire his Riocan at 12+% yield (twice!), he can afford 4% yield on his next purchase, or 6% on his next 2 purchases to average 8%.
Fine. Compare with a 100% indexed stock portfolio. Unless you or Bob never invested from 2000 to late 2008/early 2009, stayed in cash, and purchased your MFC or REI.UN at absolute bottoms, you don't have a 8% yield on your portfolio. And even if you do, you are assuming that today's 8% yield will keep pace with inflation forever, whereas past evidence suggests that even the dividends on broad market has not grown in real terms for meaningfully long periods. Not to mention, if you have 10 stocks and one blows up in the future, you don't have anything close to sustainable.
 

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Your Choice :

a) Buy Riocan at today's closing $13.45 price / 10.3% cash yield / plus future distribution / unit price increases / tax advantaged income / etc, and have very good probability of earning an 8% sustainable (as defined) yield, OR

b) Asking Bill Bergen how you can earn 4%
RioCan does not a portfolio make. The broad market yields 4% or less and investors, on average, can earn that on their portfolio. (and even that if they had waited until late 2008/early 2009 to invest in the stock market. If they invested earlier, their yields are even less). And even then past market history suggests that there will be long stretches when dividends don't keep pace with inflation.

The rest has to come from alpha -- either stock picking skills or market timing. I have doubts that most investors can do either successfully.
 

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Unless you or Bob never invested from 2000 to late 2008/early 2009, stayed in cash, and purchased your MFC or REI.UN at absolute bottoms, ...
If Bob's yield-on-cost was 8+% prior to 2000, it's not necessary for him to trade in and out of equities to continue reaping the 8+% yield. He could hold his existing positions and plow new savings into cash until the next opportunities come along. From what I read, this is a very common practice for traditional dividend-based investors.

And no one says anything about timing the absolute bottoms to achieve 8% yield.

you are assuming that today's 8% yield will keep pace with inflation forever
It's irrelevant what I'm assumed, since if today's 8% can't keep up inflation, neither was the 4% from prior to the crash.

Not to mention, if you have 10 stocks and one blows up in the future, you don't have anything close to sustainable.
Don't know where the 10 stocks came from. I have way more than 10.

Year-to-date, excluding dividend-reinvestment and new money, my dividends are down 8%. This is not ideal, but compare that to XIU, SPY and VTI, whose dividends are slashed 16.7%, 22.2% and 17.6% respectively this quarter. I may not have as many stocks, but my sector diversification is better than the index. Most of the index dividend cuts likely resulted from over-concentration in resource and financial stocks.
 

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If Bob's yield-on-cost was 8+% prior to 2000, it's not necessary for him to trade in and out of equities to continue reaping the 8+% yield. He could hold his existing positions and plow new savings into cash until the next opportunities come along. From what I read, this is a very common practice for traditional dividend-based investors.

And no one says anything about timing the absolute bottoms to achieve 8% yield.

It's irrelevant what I'm assumed, since if today's 8% can't keep up inflation, neither was the 4% from prior to the crash.

Don't know where the 10 stocks came from. I have way more than 10.

Year-to-date, excluding dividend-reinvestment and new money, my dividends are down 8%. This is not ideal, but compare that to XIU, SPY and VTI, whose dividends are slashed 16.7%, 22.2% and 17.6% respectively this quarter. I may not have as many stocks, but my sector diversification is better than the index. Most of the index dividend cuts likely resulted from over-concentration in resource and financial stocks.
This discussion is fast degenerating into a passive / active debate and we're mixing Bob's arguments with yours (which is really mostly my fault). So, I'll clarify my points. I'm using the index as a convenient shorthand for equity holdings because data on it is relatively easily available. An index is made up of dividend payers and non-payers. The non-payers don't pay a dividend, so if you exclude every non-payer, the dollar amounts of dividends from an index is a proxy for the dividend flow from a portfolio made up exclusively of dividend stocks. The difference is that the yield on a dividend portfolio will be higher than for an index. I readily concede this point. The market now yields 3% on the S&P 500 and 4% on the TSX.

1. Not much is known about Bob's portfolio. The only thing we know is he purchased RioCan in 2002 at $13, recently at $12.15 and was buying Royal Bank at $25 (it never hit that price but what is a little data mining between friends). He has said he holds 10 stocks but we don't even know what his yield-on-cost is. I'm very skeptical that Bob (or anyone else's) yield-on-cost on the total portfolio is 8% when the best the broad market has yielded in the 9 nine years I've been investing is 4%.

2. I've never said the 4% withdrawal rate is sustainable, in the sense that it will last for all practical purposes forever. In fact, the 4% rule is for a traditional retiree and assumes capital consumption to make up for any shortfall. The only thing I'm certain of is that the lower the withdrawal rate from a portfolio, the more certain an investor can be on its sustainability.

3. The fact that the dividends are lower on indexes than last year supports my point that investors can hope for dividends to keep pace with inflation but it is far from certain. Past market history has shown that markets can go a long time without keeping pace with inflation.

4. XIU paid out $0.10101 in 1Q-2008 and $0.10315 this year. That doesn't seem like a 16.7% cut in dividends to me. S&P estimates dividends will be lower by 13% this year on the S&P 500. Unless I know your Canada/US equity split, I have no idea whether 8% lower dividends is better on the benchmark or not. In any case, I don't know what relevance dividend cuts on indexes being higher or lower than your personal holdings over a 1 year period has on any discussion on considering dividend yields of any portfolio as sustainable over the long term.
 

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I took a look at the top 30 holdings of XIU. They make up over 82% of XIU's total value. Out of the 30 holdings, 9 either don't pay a dividend or pay a nominal dividend (less than 1%). These 9 holdings make up 21% of XIU. If you consider roughly 25% of an index as a dead weight in terms of dividends, only the dividend payers will yield about 5.3% (assuming 4% yield on XIU) and that is if you assume the buying was done at the best yields of the decade. It is still far less than 8%.
 

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I took a look at the top 30 holdings of XIU. They make up over 82% of XIU's total value. Out of the 30 holdings, 9 either don't pay a dividend or pay a nominal dividend (less than 1%). These 9 holdings make up 21% of XIU. If you consider roughly 25% of an index as a dead weight in terms of dividends, only the dividend payers will yield about 5.3% (assuming 4% yield on XIU) and that is if you assume the buying was done at the best yields of the decade. It is still far less than 8%.
there is one way & why others dont discuss this strategy more is beyond me

Whenever I buy a (what a call a decent) Canadian dividend paying stock such as BMO, then selling a long Covered call ATM or close to it, I can usually get better than 10%

So for XIU today trading about $14.89, assuming its paying a 4% yield, I would sell the $16 covered call Mar 2010 and receive as premium $1.30, giving me a yield of ??? without reinvesting the option money to buy more stock, plus the upside should the stock get to $16

http://www.m-x.ca/nego_cotes_en.php?symbol=xiu
 

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there is one way & why others dont discuss this strategy more is beyond me

Whenever I buy a (what a call a decent) Canadian dividend paying stock such as BMO, then selling a long Covered call ATM or close to it, I can usually get better than 10%

So for XIU today trading about $14.89, assuming its paying a 4% yield, I would sell the $16 covered call Mar 2010 and receive as premium $1.30, giving me a yield of ??? without reinvesting the option money to buy more stock, plus the upside should the stock get to $16

http://www.m-x.ca/nego_cotes_en.php?symbol=xiu
Buy-and-hold is a gold standard against which all other investing strategies should be compared. I haven't seen many studies comparing covered-call writing with plain vanilla buy-and-hold. The one that I glanced at some time back claimed that gross risk-adjusted returns from writing covered calls is better than buy-and-hold. It didn't say anything about net returns, which I assumed would be worse.
 

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At the start, I think I was following this thread. Forget it now; I'm retaining nothing!

I was at a RioCan plaza on the weekend and it did bring a smile to my face... :rolleyes:
 

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Buy-and-hold is a gold standard against which all other investing strategies should be compared. I haven't seen many studies comparing covered-call writing with plain vanilla buy-and-hold. The one that I glanced at some time back claimed that gross risk-adjusted returns from writing covered calls is better than buy-and-hold. It didn't say anything about net returns, which I assumed would be worse.
I was using XIU as a medium term buy & hold with a long covered call tagged to it

I could have said $16 contract March 2011 to pick up $2.00+/share on that option

It would not matter if you weren't called because you'd be in the same position as if you just bought & held, however with writing (selling a CC long) and getting the $2.00, that money could go to buying more stock which you would simply buy & hold & not option

Using this strategy the yield goes up over 8% even if you were called immediately or short term

OK, so on the option if the stock popped you'd have been called & lost the stock at $1.00 profit over what you paid at today's price (timing is everything) as well as on the selling the covered call & getting the $2.00

REI-UN is not a true sustainable 8% even up to $17, a we all know its monthly payouts are return of capital

My simple explanation on XIU wrting the CC was an example of doing better than 4% or 8% annually over the medium term of 2-5 years over the straight buy & hold

The BMO example posted earlier was another

Disclaimer: The example I gave is not a recommendation to go do, it was posted for information purposes only
 

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Discussion Starter #91
Bob's Thread Lives On ! What's The Topic Now ?

Hi

While life is too short to reply to all of the continuing mis-interpretations of my original point, here are some comments :

-CC
-never said that I bought Royal Bank at $25 during Feb/09, instead I bought Riocan during Feb/09 at $12.15
-looking back now, Royal Bank would have been the better Feb/09 buy
-Bob's cash yield on cost ? since I usually focus on cash yield on market value, I didn't know the answer to this myself ! so, after looking it up, my cash yield on cost is 12.8% (using SOME leverage) - What is your cash yield on cost ?
-what is Bill Bergen's cash yield on cost ?
-note that my clients and I focus only on high cash yield investments with growth a secondary objective (ie no Google or RIM ! or Nortel !)

-FinancialJungle
-Thank you for your kind comments, quite a refreshing read compared to the attacks that I continually am bombarded with, after just trying to help fellow forum members challenge the pedlar 4% sustainable myth !

-Riocan Q1 - Further Update
-further to my Q1 comments above, and my earlier comment that my clients and I are buying Riocan up to $17, and my continual evaluation point, I would like to inform fellow readers that the Q1 fundamental results have caused a revision in my clients and my future Riocan buying strategy - while I still believe that Riocan is a good buy, my maximum price point is now reduced from $17/8% to $15/9%, in order to maintain the necessary margin of safety
-at $15 or higher, unless fundamentals improve, funds are better invested elsewhere, such as margin paydown
-Riocan revealed that during Q1, it was buying back its own units at an average price of $11.83 - so, if you want to be an "extreme" value investor, and should there be more price pullback, consider waiting to try and buy Riocan at $12 or less, which will likely put your buy next to one of Riocan's buy orders

-Arcaneid - Even though I was the one that started this thread, I totally agree with you that I can't follow this thread either !

-Bob's Bottom Line - Again
-an overall 8% sustainable (as defined to be after inflation and reasonably secure for the near term, subject to continual evaluation,etc) portfolio yield is possible
-with LIMITED leverage, it's actually EASY !


Bob
www.cfrca.com
 

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-Riocan Q1 - Further Update
-further to my Q1 comments above, and my earlier comment that my clients and I are buying Riocan up to $17, and my continual evaluation point, I would like to inform fellow readers that the Q1 fundamental results have caused a revision in my clients and my future Riocan buying strategy - while I still believe that Riocan is a good buy, my maximum price point is now reduced from $17/8% to $15/9%, in order to maintain the necessary margin of safety
-at $15 or higher, unless fundamentals improve, funds are better invested elsewhere, such as margin paydown
]
wow, now thats a quick change from a week ago, then again re-evaluate & readjust, just like normal folks

I wonder if Bob will be changing again when REI-UN drops to $12 or lower

sustainable 8%, I dont think so:eek:
 

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I'm going to step back from this thread because these discussions, while interesting, are only productive up to a point. I still owe CC a response on the index dividend cuts. I was comparing 4Q-2008 and 1Q-2009. I picked QoQ instead of YoY because unlike earnings, dividends aren't seasonal.
 

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Discussion Starter #94
Riocan - Only 81 Cents Left !

wow, now thats a quick change from a week ago, then again re-evaluate & readjust, just like normal folks

I wonder if Bob will be changing again when REI-UN drops to $12 or lower

sustainable 8%, I dont think so:eek:

Hi Ethos1

Can't believe that your reply is the only comment/attack after my above post ?

As I have always maintained, constant evaluation is necessary for all investments, including Riocan.

Further, as my above post states, should Riocan drop to $12 or lower, instead of changing my opinion, "extreme" value investors should be buying Riocan, just as Riocan would likely make further re-purchases of their own units at $12.

You should further note that my updated opinion on Riocan was based on 2009 Q1 fundamentals, and NOT based on any Riocan price move.

Riocan closed yesterday at $14.19, so there is only 81 cents left before it reaches my $15.00 / 9.0% cash yield maximum price point.

Beyond $15.00, attaining an 8% sustainable yield on Riocan is too much more of a risk, and other investments/margin paydown make better sense. While too early to predict precisely, my $15 max price target will likely be revised back to $17, as I do expect future quarterly fundamentals to improve. But, I am a "show me" type, so for now the $15 price max stands.

However, at $15.00 or less, attaining an 8% sustainable yield on Riocan has a high probability.

Therefore, sustainable (as defined) 8% at $15.00 or less, I DO think so. With LIMITED leverage, actually easy.

Maybe I should not have provided my $17 to $15 revised price maximum, but that might have resulted in some $17/$18 Riocan purchases, like CC ?

Only 81 cents left !

Bob
www.cfrca.com
 

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Hi Ethos1

Can't believe that your reply is the only comment/attack after my above post ?
did not realize we were at war - "attack you said", blimey, what has happened to this thread!

CFR needs to get a life IMO


However, at $15.00 or less, attaining an 8% sustainable yield on Riocan has a high probability.

Therefore, sustainable (as defined) 8% at $15.00 or less, I DO think so. With LIMITED leverage, actually easy
Yawn

Maybe I should not have provided my $17 to $15 revised price maximum, but that might have resulted in some $17/$18 Riocan purchases, like CC ?
Has CFR looked at other REIT's or considered putting himself and or his clients into something such as Whiterock (WRK.UN) which is one that I do not hold, nor have held or know anyone who is in it

Is CFR in WRK.UN?

Then again, what does an old timer like me know
 

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Interesting interview with Amanda Lang and RioCan, where RioCan CEO guarantees distribution amid COVID-19 turmoil.

The chief executive officer of RioCan Real Estate Investment Trust has a message for investors: The company’s distributions are safe.

“Either the market has way overreacted on the downside, or there’s this feeling that the world is so awful that they’re all going to be cut,” RioCan CEO Ed Sonshine said about payouts to investors in an interview with BNN Bloomberg Tuesday.
“I can assure you that’s not the case for RioCan.”
Investors have punished the TSX’s real estate subgroup, sending it down 28 per cent so far this year, amid the economic uncertainty caused by COVID-19. RioCan’s units have plunged 43 per cent since the end of February; and, as of Tuesday, the company’s yield was sitting at 10.11 per cent.
The current yield is “probably the highest we’ve ever traded at in history, and our portfolio is the best it’s ever been in history,” Sonshine said.
His comments come one day after the federal government unveiled its latest relief measure – the Large Employer Emergency Financing Facility (LEEFF) – which will offer bridge loans to companies unable to secure traditional financing amid the pandemic.


ltr
 

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RIOCAN is probably good value, and the distribution probably should be cut. Both can be true statements. It will take years to rebuild their tenancies and collect what they can in back-rent as companies go bankrupt and then build occupancy back up. Their properties aren't going to be worth as much until the economy is roaring again, and it doesn't really make sense to borrow to pay it for several years.

It's not like their balance sheet was that clean to begin with. They always pay out 90%+ of the earnings and only grow through raising new capital or through price appreciation of their properties; both of those are off the table now.
 
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