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Announcer:                        00:00                     You’re tuned in to the Investing for Beginners podcast. Finally, step by step premium investment guidance for beginners led by Andrew and Dave to decode industry jargon, silence crippling confusion, and help you overcome emotions by looking at the numbers. Your path to financial freedom starts now.

Andrew:                              00:36                     All right, so we have Braden Dennis on from Stratosphere Investing.com, remember Braden have had. He’s basically Canada stocks expert, so I’ve had him on the show before. We had a good discussion about FANG stocks and some of the evaluations that he was seen with Canadian stocks at the time. We also had some listener questions about Canadian stocks that he was gracious enough to answer and we shared some of those on the podcast as well.

Andrew:                              01:04                     And now, you know, we’re trying to a, make this episode as something where it can be a complete star, the guy for some of someone who’s in Canada looking to invest in Canadian stocks, looking to invest in the Canadian market and B, for those listeners who aren’t Canadian, we’re going to dig in maybe at the end if we have time. Uh, I definitely want to dig into at least a couple of Braden’s buy and sell rules when it comes to buying stocks. I think there’s some good discussion in there and a lot of it aligns with a lot of the things that I like to teach and the things that I think people should look for when they’re buying stocks. So that can definitely give insight for people kind of seeing different ways that maybe people approach stocks and how it can be similar and how it can be different. So Braden. Thanks for coming on today.

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Announcer:                        00:00                     You’re tuned in to the Investing for Beginners podcast. Finally, step by step premium investment guidance for beginners led by Andrew and Dave to decode industry jargon, silence crippling confusion, and help you overcome emotions by looking at the numbers, your path to financial freedom starts. Now.

Dave:                                    00:33                     All folks, we’ll work up for beginners podcast. This is episode seven tonight. Andrew and I are going to answer a few. Yes, we got a couple of great ones and we thought there would be really interesting to talk about and they’re kind of relevant to what’s going on in the market as of today. So I’m going to go ahead and read the first question and then Andrew and I will talk a little bit about it. And then Andrew, read the second question and then we’ll talk a little bit about it so that you go ahead and start.

Dave:                                    01:05                     So the first question, hello Andrew and Dave, thank you for doing the podcast and helping beginners were in the basic principles of investing and value investing. You guys have fueled my interest to learn more and they’ve given me more confidence when it comes to investing. I have a question for you too. I know Andrew has mentioned a past experience with fl. Hitting is trailing stop and he was forced to sell. He said that he underestimated how far fl would bottom out. I’ve experienced this with a few stocks that have been affected by the current trade war slash terrorists with China, so my question for you too is whether you have any strategy buying stocks that you feel are on a temporary downtrend. How long do you wait before you buy and how can you make the call when you think the stock’s won’t get anymore? Thanks, Josh. Andrew, why don’t you go ahead and answer that first and then I’ll throw in my two cents.

[continue reading…]

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Announcer:                        00:00                     You’re tuned in to the Investing for Beginners podcast. Finally, step by step premium investment guidance for beginners led by Andrew and Dave to decode industry jargon, silence crippling confusion, and help you overcome emotions by looking at the numbers, your path to financial freedom starts now.

Dave:                                    00:36                     Welcome to podcast episode tonight. We’re going to have an interesting discussion. We’re going talk about several things tonight. So first off we’re going to talk a little about the market and the conditions that it’s in today, and so what we’re doing tonight is we’re recording on. We’re going to discuss the market on December 20th, 2018. Talk a little bit about the market conditions. Then we’re going to segue and talk about my buddy Warren Buffet and one of probably the best speeches you’re ever going to learn about in regards to investing. And then we have a listener question that Andrew wanted to discuss towards the end, and then we also have a special announcement that we’ll talk about at the end as well. So why don’t we go ahead and start off by talking about the market conditions. Andrew, why don’t you go ahead and tell us how good or how bad things are right now.

Andrew:                              01:31                     Yeah, it’s really bad right now. Everybody’s freaking out and so I think it’s something we need to address and when I mean everybody, I mean the media, obviously there’s all these reasons for why, why it is basically, I don’t know how the rest of the year is going to end up what I’ve seen historically in December, even if there’s been a strong area you will generally see some selling off in December because people have this crazy idea that you should lock in losses in order to save on taxes. I’ll get like two to a deep into a tangent. That’s one of those stupid things that people use as this conventional wisdom, this idea that you should take a loss to save money on taxes, but so, so you’ll have some of this December selling off. You’ll see as a result of that and we have had so many other factors in play, but essentially where we closed at the end of 2017 last year with the S&P 500, we’re about 200 points under that this year as we record this December 20th.

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Announcer:                        00:00                     You’re tuned in to the Investing for Beginners podcast. Finally, step by step premium investment guidance for beginners led by Andrew Sather and Dave Ahern to decode industry jargon, silence crippling confusion, and help you overcome emotions by looking at the numbers, your path to financial freedom starts now.

Dave:                                    00:34                     All right folks. Welcome to the Investing for Beginners podcast. This is episode 85. So tonight Andrew and I are going to talk about dividends, our favorite subject. Andrew over the weekend had some revelations on some thoughts on dividends and some metrics and he’s got some great blog posts that are going to be coming out here shortly that we’ll talk a lot about what we’re going to talk a little touching on tonight. So some of the metrics that we’re going to talk a little bit about. We’re going to be current yield, recent dividend growth, consecutive years of dividend growth and yield on cost. And I’m going to have Andrew go ahead and start us off and he’s going to be kind of the lead guy tonight and I’ll throw in my two cents on occasion when I feel it’s relevant. So Andrew, why don’t you go ahead and take us away.

Andrew:                              01:21                     Alright, I’ll take the wheel. So by the way, by the time this goes live, those posts will be on the blog. So if you go on, they’re going to be a four post series and uh, you can go in depth and really get deep into the weeds so it’s actually useful and you can actually use it when you’re trying to look at dividend stocks. I figure we would talk about some of the ways that people currently trying to find good dividend then stocks. It’s a great primer for beginners and, and there’s some good metrics that we really haven’t touched on much and any of the episodes that we’ve recorded a and stuff you’ll see in financial websites when you’re sifting through dividend stocks, trying to find, you know, the ones that will really drip and do really well give you outsize returns for your portfolio. But you know, some of these metrics also have some things missing with them. And so that’s what all kind of get deeper into.

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Return on Equity is a quick and easy way to discover how well a company turns its assets into equity. The Dupont analysis goes even further into discovering how the company grows its return on equity. Be it through leveraging debt or growing revenue.

Announcer:                        00:00                     You’re tuned in to the Investing for Beginners podcast. Finally, step by step premium investment guidance for beginners led by Andrew Sather and Dave Ahern to decode industry jargon, silence crippling confusion, and help you overcome emotions by looking at the numbers, your path to financial freedom starts now.

Dave:                                    00:35                     All right, folks, we’ll walk up to testing for beginning podcast. This is episode eighty-four tonight. Andrew and I are going to do a two-parter here. So what we’re gonna do is we’re going to talk about the Dupont analysis and the reason why we’re going to talk about this is we got a great question from Facebook that Andrew and I wanted to answer on air, but we wanted to talk you guys through what the Dupont analysis was so that when we answered the question and it kind of makes sense to you guys. So for those of you who are not familiar with Dupont analysis, all raise your hand. Okay? That’s everybody. All right, so this is something that is not talked about a lot and it’s a very interesting analysis and what it is in a nutshell is the breakdown of the return on equity. And Andrew, I’m going to have you talk a little bit about return on equity and then we can kind of talk a little bit about how this analysis kind of that.

Andrew:                              01:31                     Yeah, sure. If you’re the asked me that question yesterday, I would’ve had my hand up to. So definitely not aware of it. I’m definitely aware of the return on equity. So that obviously helps a lot. We’ve turned. Oh, we’ve talked about return on equity before we had an episode in the archives or we talked about some of the efficiency ratios, return on assets, return on equity, so that episode might be a good supplement to this one and maybe if you listen to those back to back get a better understanding. I know it’s not that easy to learn these kinds of advanced topics through a podcast, but I think the more exposure you get to it, whether that’s through a podcast or through reading or just writing out some exercises, is trying to do them with some companies and stocks are out there. Then the more and more you can learn and kind of digest it.

[continue reading…]

One of the most disturbing trends on Wall Street that I’ve noticed over the last 100 years is the movement away from an emphasis on dividends and a thorough examination of a stock’s dividend history.

There’s several reasons for this. One, a stereotype has been perpetrated that dividend stocks are only for risk averse investors, or those close to or in retirement.

Two, investors and speculators are so fixated on short term price appreciation and the use of charts as a benchmark that the effect of compound interest through reinvested dividends is hardly considered.

Of course, those of us from the “dividend growth” community are well aware of the power of reinvested dividends and are well versed in some of the facts that drive its success.

Most DGI investors know the sort of stats that show 44% of the total return of the S&P 500 over the last 80 years has been because of reinvested dividends, not strictly from positive movements in price. Or the impact of reinvested dividends on the total return from holding a single stocks through many years or decades.

But because the universe of dividend growth is quite small, and there are no “real authorities” on dividend growth (compared to say, Benjamin Graham or Warren Buffett on value investing or Jesse Livermore on trend trading), there subsequently aren’t many established financial metrics that focus on measuring the true success or failure of a company to reward its shareholders with dividends.

The common ones I can think of to evaluate the dividend history of a stock include: Current Yield, Recent Dividend Growth, Consecutive Years of Dividend Growth, and Yield on Cost (of course payout ratio is somewhere in the mix).

These are all fine metrics to evaluate how a stock’s dividend has historically rewarded shareholders– to a degree.

However, they miss a few key details that could have major impacts to a shareholder’s overall return from dividends and dividend reinvestment.

Additionally, these metrics don’t consider the other characteristics of a business’s financials that usually lead to management’s decision on how much to pay for a dividend– for example, analyzing the earnings growth potential from reinvesting into the business vs. giving the money back to shareholders.

Each of the widely accepted metrics for dividend history are missing one piece or another.

In this dividend mini-series I will introduce two dividend metrics of my own that hopefully paint a better picture of stocks that have provided investors with better overall return on their investment through returned cash vs. price appreciation and the uncertainty of that continuing.

We’ll examine each of the dividend history metrics mentioned above to show what they miss and how these two new metrics address that problem.  [continue reading…]

As we discussed in part 1 of this dividend mini-series, there is much focus on the past dividend growth of a stock– yet this doesn’t give a complete picture on well a company really performed.

Go back to part 1 to get background on WHY we need a better metric to measure a stock’s dividend growth as it relates to other parts of a company’s financials.

This is one of the two new dividend ratios that I recommend be added to a dividend investor’s toolkit to better analyze and appreciate the stocks that have historically allocated capital well while also rewarding shareholders sufficiently.

Let’s talk about the first dividend ratio I believe we should be focusing on, which is a simple modification on a few metrics already commonly used by investors.

I call it: Business-based Dividend Growth Rate (10 Year).

For this first metric, we want to discover businesses that have grown their dividend at an excellent rate while also growing the business, with the likelihood that such an excellent growth rate can continue.

We want to discover businesses that grew their earnings alongside the dividend in a way that was sustainable by avoiding crippling long term financial health of the company.

And we want to find the managements that allocated capital efficiently– avoiding those that either paid too much in a dividend and achieved subpar growth or those that paid too little in a dividend and received a low return on reinvested capital.

Why 10 Years of Dividend Growth data?

First, let’s talk about why I used 10 years as the time period to examine. For one, it should be obvious that any and all of these metrics can vary widely in the course of any selected year.

The reality of business and industry is that there are natural cycles, and that many aspects of business can fluctuate widely from year to year while general long term growth remains intact. There’s too many factors to list that can influence this, so I won’t bother to list them.

Secondly, I’ve seen the 10 year period referenced in two ways: (1) By Benjamin Graham in The Intelligent Investor when he talks about analyzing a company’s growth (2) 10 years of consecutive dividend growth is a commonly used metric by many dividend growth investors online– once a company reaches this point they draw a lot more attention as they become part of this coveted group of DGI stocks.

Lastly, there’s going to be a difference between the 10 year growth rate and the 10 year component of true payout ratio which we’ll discuss in part 3.

In the case of evaluating growth, it’s not a reliable system if you’re just taking 1 year and comparing it to 10 years ago. All of the reasons you don’t want to just take a 1 year measurement of growth also applies to taking one 10 year snapshot.

[continue reading…]

Measuring how much a company is growing in size, and how much it has grown its dividend, is only one part to finding great dividend growth investments.

Just like many metrics used today don’t consider both aspects of sustainable growth (as we discussed in the part 2 of this dividend ratio series), there’s a part of the returns from dividends that isn’t considered when calculating a standard dividend payout ratio.

The dividend payout ratio is a very common metric, but not much is discussed beyond the surface level of it.

In a nutshell, the payout ratio tells us how much big a stock’s dividend payments are in relation to their EPS (earnings per share).

Investors generally like to see a low dividend payout ratio, because it means that the company has a large “cushion” of earnings compared to how much they are paying out. Basically, the company can sustain or grow the dividend with ease when the payout ratio is low, because there’s plenty of earnings to pay it and other things.

However, there’s not much talk about dividend payout ratios that are too low.

Problems with the Standard Dividend Payout Ratio

While a payout ratio that is too high can signal a company that’s not leaving enough wiggle room for reinvestment into future growth, one that is too low can signal a company that isn’t giving enough capital back to shareholders.

A dividend that’s very small can certainly grow, but if it’s so small compared to what the company is capable of, the investor can be missing out on big potential returns.

Also, a small initial dividend payment can lead to an investor underperforming a stock with a bigger dividend payment even if the growth rate is higher. So though we got a great calculation on sustainable dividend growth in part 2 of this series, you can see it doesn’t tell the complete picture.

To really evaluate a stock’s dividend payout ratio in a way that represents this concern, we should look for a range of acceptable payout ratios rather than just saying “lower is better”.

There’s one major pitfall with the regular payout ratio that also needs to be discussed. It’s not considering all possible dividend payments, i.e. special dividends. [continue reading…]

In part 1 of this dividend ratios series, I reviewed some of the most common metrics used by dividend investors today, and what these metrics lack in telling us the entire picture of a company.

Parts 2 and 3 introduced two dividend ratios to better evaluate how a company truly performed and how this translated into a dividend income stream for shareholders. I called them the Business-based dividend growth rate and True Payout Ratio.

You can go back to read or review those parts here:

Dividend Ratios Pt. 1: Evaluating the Dividend History of a Stock
Dividend Ratios Pt. 2: How to Identify Sustainable Dividend Growth
Dividend Ratios Pt. 3: Measuring a Stock’s True Dividend Payout Ratio
Dividend Ratios Pt. 4: Combining Two New Metrics & Putting It All Together

In this last dividend ratios series post, part 4, I’m going to talk about how to combine the two new metrics for a proper evaluation.

No one metric is the end-all be-all, and if you want to get the whole picture of a stock you need to look at it from multiple angles.

Combining The New Dividend Ratios

Here we want to understand that the two metrics both serve a different purpose. The True Payout Ratio is more of a supporting metric, and the BB Div G is going to be the center of attention. But without the checks and balances of the True Payout Ratio, it can unfairly reward companies that are scrooges with their capital. You need both together.

What I propose is this. Say you’re running a screen for these metrics.

You’re going to want to sort the BB Div G from highest to lowest. The ones near the top will be the ones you want to target for investment. But in the column next to it will be the True Payout Ratio. Those companies that fall outside of that 25-75 range should probably be avoided.

You can use some discretion with this range depending on your goals and risk tolerance. [continue reading…]