Comments on Dividend Growth Investor: A dividend portfolio for the long-term

Regarding taxes on a dividend portfolio. I have th...

2011-11-16T05:19:49.686-08:00

Regarding taxes on a dividend portfolio. I have three main accounts - regular normal stock account, a 401k Roth and a IRA Roth. They are all dividend stock accounts, but the Roth's will provide tax free income when I retire. Most of the dividend stocks are reinvested and are paying a yield on capital of about 15%. I expect to have a YOC of about 25% when I retire in 10 years just through the magic of dividend growth.

Noticed on a follow up that you sold T --did you s...

2011-07-19T08:24:41.476-07:00

Noticed on a follow up that you sold T --did you sell all or just a portion, and why?

Hi DGI, I appreciate your posts, however, I have t...

2011-06-22T11:26:14.394-07:00

Hi DGI,
I appreciate your posts, however, I have to disagree with you on MTB. While they have frozen their dividend over the past few quarters, they are one of a very small number of banks that never cut their dividend during the financial crisis, and their dividend (and stock price) are still much higher relative to the levels of other regional banks compared to pre-crisis levels. In fact, many other banks that have increased dividends over the past year or two are still below 50% of pre-crisis level dividends. In any case, keep up the good work.
Chris

There are cap gains taxes on EEQ when you sell. A ...

2010-06-08T16:09:17.243-07:00

There are cap gains taxes on EEQ when you sell. A similar stock is KMR - which derives its value from KMP.

DGI- Ah ha, thanks for the clarification and expl...

2010-06-07T20:18:07.289-07:00

DGI-

Ah ha, thanks for the clarification and explanation. I own EEP but didnt realize that's how EEQ worked.

So EEQ provides tax free capital growth, while EEP provides a taxable dividend income stream?

Are there never any applicable capital gains taxes related to EEQ or similar stocks?

Jay-

Anon, Technically the name is Enbridge Energy Man...

2010-06-03T08:24:03.861-07:00

Anon,

Technically the name is Enbridge Energy Management (EEQ). But EEQ is the same thing as EEP. EEQ only pays dividends in shares, which lets your stake compound tax free.

FYI, I believe you have typo in your post for the ...

2010-06-03T00:32:00.110-07:00

FYI, I believe you have typo in your post for the symbol for Enbridge Energy Partners, EEQ instead of EEP. You have "Enbridge Energy Partners, L.P. (EEQ)"

No need to publish this comment just wanted to point out the mistake.

DJ, Thanks for your comment. I do own ABT, I dono...

2010-06-02T08:02:31.242-07:00

DJ,

Thanks for your comment. I do own ABT, I donot know I didn't include it. I also own UHT.

I try to invest new money each month in approximately 10 stocks. This means that I add new money to most stocks in my portfolio every 2 or 3 months. If I believe I am overpaying for stocks I would not add to this position. I would also allocate dividends elsewhere.

I do try to maintain equal weights of the stocks I own. However as some stocks become too expensive, I don't put any money there and as a result I am underallocated in them. I would say that in over two thirds of the stocks I own I have a similar dollar amount invested, while the remaining one third are pretty much underallocated.

I am willing to wait for the stock to come down to my entry price for as long as it takes. Falling in love with a stock just fo the sake of owning that stock with a reckless disregard to valuation is crazy. If the stock is overvalued, I would buy another stock. I would much rather buy a new undervalued stock,rather than invest money in an overvalued stock that I own and know inside out.

I have done what you have done with CL. The weakness of my portfolio is that I do not buy stocks yielding less than 2.50%. If you watch the history of the dividend growth stocks, some of the best performers have always yielded between 1% and 2%. I have written previously about having a "half position" in such stocks, although I haven't really done much on that. BDX would be such a stock, as would FDO ( although I do hold a very small position there)

Andrew,

The issue with relying exclusively on capital gains is that they are very unreliable as a source of income for someone living off their investments. Taxes could be avoided by using a ROTH IRA for example ( or an equivalent account for Canadians).

Another issue is that for every Berkshire Hathaway, there are at least 20 companies which fail at allocating extra capital at high incremental rates of return. A recent example of that includes Vivendi, which transformed itself into a media juggernaut from a sleepy utility company in the late 1990s. It's shareholders are suing execs for their losses now... I do like BRK, but I have not found the "next Warren Buffett". Have you found him?

Next to Last Anon,

Maintaining an equal stock allocation is what I try to do, but sometimes I cannot afford to overpay for stocks. And I also do not want to sell stocks in order to cut my allocation there.

Last Anon,

I would consider BP as a dividend buy if it starts raising dividends again. Until then it is a hold.

BP could be a speculative buy, and if you are able to time it well in the short run you might buy it low and flip it over the next few years. It could go lower from here however as well. Other speculative buys could be greek stocks such as NBG or OTE. But I do not engage in speculation, so I cannot help you here.

DGI- Question on your HOLD for BP.. At what pric...

2010-06-01T15:06:45.492-07:00

DGI-

Question on your HOLD for BP.. At what price or time (if any) do you see yourself switching back to BUY? With prices dipping into the 30s, it seems tempting to make a long-term investment in BP once the spill is finally contained. Curious to hear how you are approaching this specific situation.

I love the site. Thanks for sharing your strategy with similar minded investors.

Jared-

What I do is, I have 24 different stocks. I keep t...

2010-05-31T06:14:04.564-07:00

What I do is, I have 24 different stocks. I keep the same amount in each stock.I try to keep 4.2% in each stock. If one goes up a lot, I don't buy any of that stock until my other 23 stocks are up to that same 4.2%.

Vacboy

Anonymous has asked a good question about the taxe...

2010-05-29T14:43:27.201-07:00

Anonymous has asked a good question about the taxes. I think so much depends on your individual tax circumstance. For example, I'm a Canadian living abroad. You might find my tax situation and lack of interest in dividend payers to be rather interesting.

Companies, of course, are taxed at the corporate level before paying out a dividend, and then the shareholder is again taxed at the personal level when receiving that dividend. So, in essence, as the owner of the company, you are taxed twice: once of the corporate level and again at the individual level. Taxes paid at the corporate level represent money that can't be reinvested in your business (ie. Chevron or whatever it is) so there's a reluctance (for many investors) to wish being taxed twice like this.

When companies have a high rate of return on total capital, you might not want them paying dividends (or you might want a low payout).

If they reinvest that money into the company, they'll increase their business' intrinsic value, therefore generating a higher future stock price than if they had paid out the dividend instead.

For patient investors not looking for immediate cash, this is more beneficial in a taxable account, because capital gains are taxed more leniently than dividends. That situation isn't just right for me, but pretty much anyone dealing with a taxable account. But the tough part is waiting, realizing that you'll accumulate more, long term, this way, but you won't get paid along the way. Mentally, I think this can be hard for people.

In my situation, as an overseas expat, I pay 30% tax on dividend income, but I pay nothing in capital gains---ever.

So my circumstance makes the choice clear. I look for businesses with high return on total capital that don't pay high dividends---if possible.

Companies like Berkshire Hathaway fit my bill. But I can see the dividend investor's attraction to dividends as well. It can be a long term gauge of legitimate earnings--proving that the company has the legitimate net income that it's claiming to have.

Cheers,
Andrew

Thanks for sharing your portfolio. I noticed ABT w...

2010-05-26T18:43:12.232-07:00

Thanks for sharing your portfolio. I noticed ABT was not listed. Just curious if you're still long ABT.

Also I had some questions about your buying strategy. I keep similar lists to the ones that you mention. For me there is a third list that I refer to as overvalued. These are companies that I like and want to invest in, but they just seem too expensive and invariably they stay that way for a very long time. CL is an example that comes to mind.

1. I'm curious in your own portfolio do you try to invest some money in each stock every year, even if you might be overpaying a bit on some stocks?

2. Do you try to maintain relatively equal weightings among all your holdings or do you put more money into stocks the market is discounting at the moment? If the latter do you worry about your portfolio getting overweighted in a certain sector or stock?

3. For any stock that you consider to be overvalued how long are you willing to wait for the stock to come down to your entry price?

4. One strategy I've considered with CL is to buy a little bit, but put in significantly less money than I would with a stock that I thought was fairly valued or under valued. Just wondered if you do something similar, or if you just avoid them altogether until they're fairly valued?

Sorry I know these are a lot of questions. Still really enjoying the site and reading you on Seeking Alpha as well.

I don't worry about taxes even though most of ...

2010-05-26T15:27:46.019-07:00

I don't worry about taxes even though most of these investments are in taxable accounts. Dividends will be taxable at your ordinary income tax rates, so chances are you won't be paying 39%.

My goal is to generate the maximum amount of income and capital gains possible, and worry about the taxes later. My investment strategy is not guided by taxes. Focusing too much on minimizing tax liabilities would surely lead to suboptimal gains and even losses.

I only have a few stocks ( 3 or 4) in drips in one of my accounts. The rest are reinvested once a month in one or more stocks which are attractively valued, as long as do not own too much of a single stock.

I don't rebalance ( which means selling stock to cut down exposure). I allocate dividends and new funds elsewhere instead.

How do taxes fit into your analysis? More to the ...

2010-05-26T10:40:23.023-07:00

How do taxes fit into your analysis? More to the point, how does the proposed hike from the current 15% to 39.6% on dividend income next year alter your thinking?

Are these investments you listed in a taxable account?

Would you be more prone next year to overweight dividend growth stocks(3.5% with 8% annual increases) versus higher current income dividend stocks(>6%)?

Also, how do you determine which stocks are automatic DRIPS versus which ones you take the cash from? Do you look at P/Es or rebalance each year after looking at gains?