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Discussion Starter #1 (Edited)
The dividend stock investing vs. passive index investing debate:

I am new to investing and lost about 10% on my broad based index funds (which I have heard and understand is part of the game).

I am hearing about many different investment styles in this blog but it's possible to divide the majority into 2 groups:

The first, are broad based couch potato type, buy and hold, strictly index investors. There seems to be a consensus among this group that losses have lately been in the 10% range regardless of the impact it's had on their sleep.

In contrast I've been hearing from a the second group of investors that their portfolios have lost but a tiny percentage in comparison and that they are collecting dividends which further help to mitigate their losses. These folks focus on picking a few blue chip dividend stocks which they keep them for the long haul till their portfolios are of a sufficient amount to enable them to retire on the income exclusively from their dividends. Furthermore a large proportion of dividend investors make the claim that they are have higher rates of return than index investors.

The latter approach seems to offer some distinct advantages. If this is true, then why aren't more etf investors not converting the majority of their portfolio to holdings in a few well diversified blue chip dividend stocks?

Your opinion?
 

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You have to find what's best for you. Everyone is completely different.

Personally, I think passive investing is very, very poor based on the consensus couch potato examples. For someone who doesn't want to pick stocks, a much better portfolio would be a split between fixed income, cash, and gold, with no stocks whatsoever. The worst trend in couch potato portfolios is splitting between Canadian, US, and International ETFs. Stocks are stocks, and in a global market they all move with each other.

Those who are comfortable with investing in equities should pick their own stocks, and dividend investing is a good choice. Picking up solid companies that grow their dividends every year, or have a high sustainable yield is a great way to maintain income for your whole life. Otherwise you can be an active trader, and contrary to what some people say, you CAN time the market.

Personally, I am a hybrid investor. I'm letting my dividend stocks sit in my TFSA, and will contribute $5000 more to them every year. I'm also a rabid gold bug, which is a whole other story. And lately have been trading options to take advantage of the extreme volatility in the general market. Never let a good crisis go to waste. No need to panic sell my stocks either, shorting the general market through puts more than makes up for their losses.
 

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then why aren't more etf investors not converting the majority of their portfolio to holdings in a few well diversified blue chip dividend stocks?
ETF investors also collect dividends.

Current yield on XIU is about 2.5-3%, where as yield on XDV is maybe 3.5-4.5%.

That's a differential of 1-2%.

So when Couch potatoes report 10% losses over the last week, how much have dividend investor lost?

maybe 10% less the 1% differential in yield?
 

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they don't - that is, many investors don't change from holding etfs including dividend-paying etfs to holding dividend-paying stocks outright - for the same reason that doitnow doesn't.

because cherry-picking individual stocks still appears to be too risky or too much trouble.

i doubt very much that the differences in recent portfolio drop are as great as now! says. I haven't noticed too many holders of individual stocks recently reporting paper losses of only 1-2%. The truth must be certainly greater than that.

an always-intriguing aspect of stock market life is that there are always so many facets to a topic. There are never any universal answers.

for example, the argument against dividend-paying stocks is an argument in favour of stronger, emerging growth stocks with hi-energy prospects. This argument recites that older, mature companies tend to pay out their excess cash as dividends because their growth profiles are slowing or in fact have slowed.

not that any of this really matters today, as seen from inside the slaughterhouse.

btw did all notice argo's great quote. "Never let a good crisis go to waste," he says. Argo, did you make this up yourself ? it's a winner. Would make sensass book title.

i also agee w argo that the conventional couch potato etf division between canadian, US & international stocks is worse than useless. Surely it must be an archaic survivor from 40 years ago.
 

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@DoItNow - You need to come up with a new handle - You've been posting this same question over and over again, seemingly without learning anything from the responses or doing anything about your problem.

Why don't you set up some kind of watchlist so you can monitor how the broad-based index ETFs do compared to some individual dividend stocks? See for yourself if dividend stocks are less volatile.
 

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The problem with this debate is that there is no correct, absolute answer.

Indexers and Dividend-pickers can skew the data by saying "from x period to x period, my approach did better", but one can quickly find another time period that reveals the contrary.

Having invested on both sides of the debate, I'd say it depends on the time period in which you are in. My hypothesis is that bear and flat markets likely favor dividend investing, and bull markets favor index investing. Unfortunately it's always hard to tell if we're in a bull or bear market and hindsight is 20/20.

My solution is to mix them up. I have 1/2 my equities in value picks, I try to buy when p/e is low and when valuation looks attractive by checking balance sheets, and plan to hold long term. The other 1/2 is indexed, and I market-time in and out to capture gains and minimize loss, based on a moving average protocol. I've become conservative though , and tend to hold more cash/gold than most.

By checking your own portfolio's performance at various intervals, only you can tell if you were better off indexing :)
 

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My dividend portfolio is exclusively blue-chip dividend payers and it has dropped close to 10% from it's peak of a few months ago. The only advantage is that despite this large paper loss, I also have a few thousand cash gain over that period that helps greatly.

My belief is that this portfolio is great because it requires little maintenance once set up, but is designed to deliver solid results from dividend growth over the long-term.
 

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The worst trend in couch potato portfolios is splitting between Canadian, US, and International ETFs. Stocks are stocks, and in a global market they all move with each other.
In a crisis, yes, correlations between all risky assets goes to one. That's not a new phenomenon. It's been true in the past, it will most likely be true in the future.

Take a slightly longer term view and you'll see quite a bit of variation in returns between international stocks.

Returns from 2001-10 (all in C$ terms annualized):
TSX: 6.57%
Wiltshire 5000: -1.46%
MSCI EAFE: -0.24%
MSCI Emerging Markets: 11.55%

That doesn't look like global markets all moving together to me. If you mean correlations, the last I checked correlations are positive but not perfect. So, you get diversification benefits by investing in overseas markets.
 

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In the past ten years, looks like XIC beat both XDV and CDZ, the latter holding dividend aristocrats. Total return chart for comparisons:

20311
 

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In the past ten years, looks like XIC beat both XDV and CDZ, the latter holding dividend aristocrats.
Dividend stocks have been underperforming lately if we're talking total return, and the same is true in the US. But I would think that the argument for dividend stocks would be that the cash dividends are quite stable over the long term.

I'm not a dividend investor myself, but I would think that "success" in dividend investing means that (1) your equity value is holding steady over the long term and not trending towards zero and (2) the cash dividends are steady.

As far as I know, the popular Canadian dividend ETFs are still succeeding at that.
 

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Dividend stocks have been underperforming lately if we're talking total return, and the same is true in the US. But I would think that the argument for dividend stocks would be that the cash dividends are quite stable over the long term.

I'm not a dividend investor myself, but I would think that "success" in dividend investing means that (1) your equity value is holding steady over the long term and not trending towards zero and (2) the cash dividends are steady.

As far as I know, the popular Canadian dividend ETFs are still succeeding at that.
Those are good points in favor of dividend investing, but as a group, dividend investors are not beating the index by leaps and bounds.
 

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Those are good points in favor of dividend investing, but as a group, dividend investors are not beating the index by leaps and bounds.
Don't know one way or the other myself. Index performance is of course readily available. Interested in where you obtained data on dividend investors as a group. Many of whom could be private individual investors using individual stocks, not funds.
 

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1) Topo if you want to beat the index one of many things you have to do is concentrate. Concentrate in stocks that have eps growth higher than the eps growth of the index. If you don't do that, you won't beat it.
2) From the list of stocks that grow faster than the index evaluate which ones are quality survivors. It is important to read and study the thinking of successful investors to hone your own judgement of whats a quality survivor. I've always believed that if I want to be successful at something I should incorporate as much as possible what the successful people do in to my own strategy.

ETF's are useful for people who do not want to do the thinking and studying. If I was new at investing and had some cash one approach I might take is take about 90% of my money and buy an index etf. Then select one or two stocks I think are quality and use the remaining 10 % to buy them and see how it goes. If I found out stock picking was for me, I would gradually transition out of the etf into individual issues. Personally, I'm confidenct in stock picking as I started by putting all my available $ into one stock at a time. These days most people would be horrified but it was a good learning experience.

There are posters here who are not asking how to beat the index because they already know how. Eder, agent99, LTR are some that seem to be quite happy with their stocks and performance. LTR has posted his portfolio. Check his out, it is a work of art. You can tell he made a study of investing and is quite confident in his approach.
 

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In the US as well, dividend investing appears to have underperformed.

VYM has 10 year return of 11.40%, whereas SPY is 13.70%
DVY has 15 year return of 5.30%, whereas SPY is 8.77%

The irony is that dividend investing was supposed to make your capital last longer. But when your total return underperforms by 3% annualized over 15 years, you are not helping your capital last.

I realize the claim is that stock picking can do better than the dividend ETFs, and maybe it can. But now you're asking people to become experts on both stock picking (already very hard) and dividend stock screening (another specialized skill).

It can be done, but it's quite an advanced skill set.
 

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Well I'm not asking anyone to to be an expert in stock picking, not sure where you got thaat from. I don't really see why it is so difficult either. We've covered this alot in this forum. I'm not specifically talking about "dividend investing".
Topo made some comment about beating the index so I relayed the obvious: if you wnt to beat the index you have to conentrate in stocks whose EPS growth is greater than the EPS growth of the index. I didn't make any requirement for it to pay dividends.

According to yahoo charts my one US holding, which does not pay a dividend, is up 55% in the last 12 months while the s&P is up about 6% in the same period. it wasn't difficult to find the stock and decide to buy. Was its Growth rate higher than the s&P? check. Was the quality high enough to hold it? check. What the difficulty? It wasn't difficult to put a significant chunk in one stock either. One, among many things, I do with a candidate stock is check its long term performance against the index using chart a comparison to index feature. If it don't go up greater than the index, don't buy.

All my canadian based stocks also outperform the index. This has been checked using G&M's handy dandy portfolio feature in which one can test performance with dividneds reinvested, or not. If the story changes for the worse, and it appears to be chronic, in terms of eps growth, I dump the stock. Get rid of the losers, keep the winners.
it really doesn't take much time. 3/4 of my picks come from the Investment Reporter, a proven service.

What can take time is for an investor to gain the experience, confidence and develop decisiveness. It was a bit difficult for me, years ago, to dump the losers. That's a major filter. dump the losers and replace with proven long term growers greater than the index. Once I got the dump the losers habit, I ended up with a really great bundle of stocks.

But don't think I'm asking anyone to do this. Develop your own judgement.
 

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Don't know one way or the other myself. Index performance is of course readily available. Interested in where you obtained data on dividend investors as a group. Many of whom could be private individual investors using individual stocks, not funds.
Dividend ETFs would generally be representative of dividend stock holdings in aggregate. CDZ is more quality bent, XDV more dividend yield. There will be a lot of overlap between Canadian holdings of dividend investors and the holdings of those ETFs.
 

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Topo if you want to beat the index one of many things you have to do is concentrate. Concentrate in stocks that have eps growth higher than the eps growth of the index. If you don't do that, you won't beat it.
Concentration per se will not beat the index. It will cause a divergence that could end up beating the index or trailing it, at least for some time. With regards to growth, it depends how much you are paying for it. If you pay a lot for growth, you will underperform.
 

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ETF's are useful for people who do not want to do the thinking and studying.
That is one way to look at it. But most studies show that investors, including pros, have difficulty beating the market in the long term. Short term results are usually the result of luck.
 
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