Key Learnings from Roundtable discussion US & Canadian Dividend Investors

On 25^th February 2017 there was a roundtable discussion of US and Canadian investors talking about the fact that prices were going up, but dividends keep coming…

What did we learn from this article on Seekingalpha.com? What is our opinion? What can you learn from this roundtable?

In the US and Canada dividend (growth) investing is much more known and applied by investors. The reason is that you can manage yourself your retirement saving money with your OWN decision making on investing the saved capital within the stock market. This is unfortunately NOT the case for Belgian people, which is a SHAME and MISSED OPPORTUNITY according to me. People should be allowed to grow their capital faster than the return that is now achieved by fund managers or group insurance managers. I hate the fact that my pension portfolio is dependent on the performance of a fund manager.

For some people without financial knowledge, it may be appropriate to do so. But for knowledgeable investors, you can make much better return on capital than the 1,5% to 3% return we are getting now in Belgium. Another missed opportunity…I hope politicians are reading this!! Give us the freedom and access to invest our money more wisely.

We are now 5 weeks later than the date of the roundtable discussion. It is a good moment to reflect on that discussion and learn some key points. It is always interesting to see how passionate dividend investors in US and Canada are viewing things, how they stick to their plan, and where they’re finding value in a healthily valued market.

Markets have continued to climb, yields have continued to narrow, and rumblings of reflation have filled the macro dialogue. So let’s go in-depth on the article. You can find below a link to the original and full roundtable article.

Who participated to this roundtable discussion of dividend investors?

The panel was :

• Rida Morwa, author of High Dividend Opportunities
• George Schneider, author of Retirement: One Dividend at A Time
• Richard Lejeune, author of Panick Value Research Report
• Fredrik Arnold, author of The Dividend Dog Catcher
• Eli Inkrot, author of Inkrot’s Dividend Growth Portfolio
• Canadian Dividend Growth Investor, author of Canadian Dividend Growth Investor Premium

 

Key learnings from the questions

Question 1: Since October 2016, much has changed in the political and economic landscape, and yet little has changed for stocks and dividend plays. What’s your perspective on the current environment as we continue to set record highs?

According to Rida Morwa, the fact that the markets have been in consolidation mode for 2 years, and that the global economy is clearly improving are the two main drivers for the current bull market. The rally coincided with the end of the elections because that was a major uncertainty. The health of the global economy is the main driver for equities. As long as the economy keeps growing and valuations remain reasonable, the secular bull market is set to continue while the risks to the downside are minimal, he states.

According to Fredrik Arnold, dividend stocks remain the foundation investments for most funds, be they mutual, closed-end, exchange traded, or otherwise derived. Thus, the financial industry confirms that building your own strong dividend stock portfolio is smart.

According to Eli Inkrot and Canadian Dividend Growth investor, it shouldn’t matter to investors that markets are setting record highs. Instead, buy quality stocks that are attractively priced with a record of growing dividends and hold them for the long term.

Our own opinion

Why doesn’t our Belgian financial industry say that building your own strong dividend stock portfolio is SMART? Why do they keep advising funds managed by their own bank fund managers? I heard it only once at the VFB conference in Antwerp where investors told me private bankers had advised them to do so. Interesting…isn’t it? In the meantime, keep the rest stupid…that’s exactly the reason number 1 why I started my blog.

I agree with the dividend gurus that when you invest in quality stocks with a good yield, the market doesn’t really matter. I thought when I started at the end of 2013 that some ETF’s were at a high price. How wrong I was about my valuation of the markets…

No matter what the market does, by holding a diversified portfolio of quality dividend-growth stocks, your dividend income should increase year after year. Look at my dividend income here.

Question2: The other topical question involves the increasing rate of inflation. It looks like we are in a ‘reflationary’ environment, with Fed hikes and higher CPI/PPI prints coming in and expected for the rest of the year. What specific steps have you taken to address that reality, if any?

According to George Schneider, the reflationary environment and prospect of several more interest rate hikes coming down the pike for 2017 points him in the direction of stocks that can benefit from this new environment. According to Canadian Dividend Growth Investor, increasing rates is particularly a headwind for slow-growth companies with large debt levels, including certain large REITs and utilities. Focus on the smaller companies with higher growth potential. Rida Morwa suggests to take a look at stocks and securities with a floating-rate portfolio, which see their income grow as interest rates rise. These asset classes include, some Business Development Companies – example Ares Capital Corporation (ARCC), floating rate Fixed Income Closed End Funds – example Nuveen Floating Rate Income (JFR).

Our own opinion

Higher interest rates will impact some industries. Financial sector will definitely benefit from higher interest rates. Look for opportunities at correct valuations. I look at payout ratio, discount versus NAV, dividend history, investor conference notes, ….

 

Question 3: What’s a key investing maxim or approach you have been keeping in mind for your investing, and how have you been applying it this year?

Rida Morwa dividend investing strategy : high-yield stocks with low price/owner cash flow ratios with reasonable leverage

George Schneider dividend investing strategy : focus on those equities that are the most rate-sensitive and will have the greatest propensity to sell off as rates rise. Because they are focused on income and not on price, they are not concerned if some of the names sell off. On the contrary, this will only represent opportunity to buy cheap.

Richard Lejeune dividend investing strategy : focus on high yield, but also flexible. Over the past year, he had success in asset managers, BDC issues, REITs, high-yield preferred stocks, exchange traded debt issues and junk bonds.

Fredrik Arnold dividend investing strategy : focus on “safe” investments and finding stocks whose free cash flow yield exceeds their dividend yield.

Eli Inkrot and Canadian Dividend Growth investing strategy: Their decision-making process basically comes down to two things: quality and valuation. With quality they break it down into three items: past, present, and future. Or financial strength, pricing power and future staying power.

Our own opinion

The Dividend Cake strategy is different for  each portfolio. See here the strategy that we apply and mapped to the strategy applied by the US and Canadian investors.

• My moms’ portfolio: follows Eli Inkrot and Canadian Dividend Growth strategy
• My kids’ portfolio: follows Richard Lejeune strategy
• My own portfolio: follows a combination of Fredrik Arnold + Richard Lejeune

If you want to read about dividend investing (and different investment strategies) in Dutch, we can point you to the book of Wilfried Voorspoels. Read here our book review that we posted recently.

Question4: What sector stands out to you as offering opportunities for dividend investors? Are there specific opportunities that stand out for you within that sector?

Please find the table of recommendations

Rida Morwa	The healthcare and biotech sector : Tekla Healthcare Investors (HQH) with a yield of 7,5% The Property REIT sector: Cohen & Steers Quality Income Realty Fund, Inc. (NYSE:RQI) – yield 7.6% and Ventas, Inc. (NYSE:VTR) – Yield 5% Midstream MLPs: InfraCap MLP ETF (NYSEARCA:AMZA) – Yield 18.5%.
George Schneider	the BDC sector. Business Development Companies like Ares Capital Corporation (NASDAQ:ARCC) and Main Street Capital Corporation (NYSE:MAIN)
Richard Lejeune	Financial Services : JMP
Fredrik Arnold & Eli Inkrot	See their website
Canadian Dividend Growth Investor	AbbVie Inc. (ABBV), CVS Health Corp. (CVS), and Pfizer Inc. (PFE) with yields of about 4.1%, 2.5%, and 3.8% are potential candidates for a diversified long-term portfolio looking for income

 Our own opinion

Many of the stocks, Closed end funds or ETF’s recommended by the above investors were at the date of the interview publication at a high. It important to evaluate when you want to buy and have a good purchase price. Let’s take an example. Look at the NUMBER 1 stock purchased by dividend growth investors : Johnson & Johnson

If you chased the stock and bought at 125 $ versus a purchase of 115$, that is a difference of 10$ pers share. That is HUGE DIFFERENCE ! And this impacts your dividend payments. 

If you bought the stock in August 2016 at a price of 125$, you basically made NO CAPITAL GAINS on this stock as the share price in April 2017 is also 125$. You received the dividends. If you invested at a share price of 112$, you were in a more comfortable position and definitely received more shares and more dividends. Do your analysis when to buy. 

From the provided list of the dividend investors, we like AMZA the most as it has a high yield. With a potential increase of the oil price, the share price has potential upwards. This expresses our own opinion and can not regarded as financial advice. 

For each of your investments, we recommend you to do a cash flow calculation. How much money do you need to pay? How much money will you get paid? How much do you want to risk when the share price goes against you? Are you prepared to take a 5% loss or are you just a BUY and HOLD investor as you believe it is a good company? Many criteria can be taken into consideration. DO YOUR HOMEWORK. 

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 Source : Seekingalpha article