Friday, September 22, 2017

Share Buybacks and Dividends Are Not The Same Thing

Share buybacks have gained prominence in the past twenty years. The amount corporations spend on buybacks exceeds the amount they spend on dividends. Plenty of investors mistakenly believe that dividends and share buybacks are equivalent.

They are not.

I prefer dividend payments. When a company declares and pays a cash dividend, this is yours to keep. You can do anything with that cash. The dividend represents a return on investment, and an instant cash rebate on your original purchase back. Every shareholders receives the same treatment per each share they own. Plenty of investors these days hate dividends, because of their tax inefficiency. When you earn dividend income, and you are in the high tax brackets, you can pay over 20% to the government. These investors forget that most stock in the US is now held in retirement accounts, where taxes are either deferred for decades or they are tax-exempt. So the easy solution for most investors in the US is to buy stock in retirement accounts.

When a company declares a buyback, not all shareholders are impacted the same way (this example of course assumes that the company indeed follows through with the buyback, which is not always the case). When a company declares and executes a buyback, and you do not sell, you won’t have to pay a dime in taxes. Plenty of people love this idea, and focus on the tax efficiency aspect above everything else. However, the investors who sold their shares back to the company have to pay taxes on any gains, assuming they held the shares in a taxable account. By the way, if an index fund holds the stock, it needs to sell a portion of the shares, because the float is reduced from the share buyback.

Wednesday, September 20, 2017

My Favorite Pick Right Now

This is a guest post written by Mike McNeil, author of the Dividend Guy Blog and co-founder of Dividend Stocks Rock. Mike is currently investing $100,000 in a 100% dividend growth portfolio as the market trades at an all-time high.

Regardless where I look these days, I read alarming news about the stock market. Government debts are through the roof, there are tensions among many countries, debt is “too cheap” and we make a bad use of it, interest rates are climbing up and the stock market doesn’t listen to reality, like Icarus reaching for the sun. As Icarus’s story, once our wings will be burned by the sun, the fall will be fatal. This is obvious; everything is set to have the market crashes and burns.

I recently quit my job as a private banker to work full-time on my investing website Dividend Stocks Rock (DSR).  This is how I received $108,000 as a lump sum for my pension. What am I going to do with this new money? What should I do as a dividend investor? Should I keep money aside and wait for a correction?

This could be argued to be an interesting strategy if you think you can time the market. However, for a dividend growth investor, we should all know that time in the market is a lot more important than market timing. We should ignore the noise and keep investing. This is what I’m doing anyway. I decided to invest it all in the stock market now; because when the stock market goes down like this:

Monday, September 18, 2017

Three High Yielding Dividend Machines Rewarding Shareholders With a Raise

Over the past several weeks, there were three high yielding dividend growth stocks that raised distributions for shareholders. I am going to do a quick review on all three, using my criteria for evaluating dividend growth stocks.

I review the list of dividend increases every week. I then narrow the list down based on a variety of criteria such as minimum streak of annual dividend increases. The end result from the list today includes three high yielding companies that raised dividends over the past two weeks. The companies include Philip Morris International Inc., Realty Income Corporation and Verizon Communications.

Plenty of retirees I have gotten in touch with over the years seem to own those dividend machines. The question is, are those still good ideas today for accumulation?

Philip Morris International Inc. (PM), through its subsidiaries, manufactures and sells cigarettes, other tobacco products, and other nicotine-containing products. The company raised its quarterly dividend by 2.90% to $1.07/share. This marked the 9th consecutive annual dividend increase for PMI. The new annualized dividend payment is $4.28/year. This is a decent rate of growth from the annualized dividend payment of $1.84/share in 2008.

Friday, September 15, 2017

My Take on Real Estate Crowdfunding

I have been reading about real estate crowdfunding platforms over the past several months. Many of these platforms seem to market to investors, showcasing high dividend yields in the 8% - 10%/year range.

I was intrigued, and tried researching those. After all, if I can obtain 10%/year investing in real estate easily, I can just retire and call it a day.

I read the following two articles in my research:

Investing with RealtyShares – see how I’m doing with real estate crowdfunding by Joe Udo

How To Invest In Real Estate Without Owning Real Estate by Mr 1500 Days.

I essentially posted the following comment on both blogs:

I believe that all of those platforms are still relatively untested. And probably giving those platforms a try could be worth it with what many refer to as “play money”.

Perhaps I do not understand these well enough and need to do more research. However, why would individual investors like you and me get a cut out of lucrative Fundrise/Mogul real estate deals, when other REITs (like the ones in VNQ) could be easily taking on those projects? I keep wondering whether those private placement real estate platforms just include mostly higher risk projects that more established players have passed up on, and may not deliver the total returns we want. The real test would be how these platforms would perform during the next recession. It would be interesting to check these out in a decade, and compare notes on how things progressed.

A decade ago, P2P loans were a new thing. Many people invested in them through Prosper & Lending Club, and the forward results were not good.

Wednesday, September 13, 2017

The Magic Dividend Cocktail

This is a guest post by Mr Tako, who writes about investing and financial independence over at Mr Tako Escapes. The author is a financially independent dividend investor, who focuses his time on his family, investing and blogging. Mr Tako is living off dividends in retirement, which is the ultimate goal for most of us.

The dream of dividend growth investing is a dream about passive income -- An ever growing stream of passive income that lasts for decades and requires very little work to maintain.
That was my dream anyway, and for the most part I achieved it.

Unfortunately, the dream of passive income is easier to dream about than it is to achieve.  It takes work.  Dividends don't just keep growing out of "thin air" -- Companies have to actively make the right moves to keep those beautiful dividends growing.

This means investors must also find the right companies to stay invested in -- the ones with dividends that grow faster than inflation for long periods of time.

How does an investor find companies like these?  One great place to start is by identifying the four methods by which companies grow dividends...

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