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Welcome to Safe Dividend Investing’s Podcast # 155 on February 15th of 2024.
Today, I will be answering five interesting investment question.
QUESTION (1) Are fluctuation of stock market share prices random or controlled?
QUESTION (2) How much of a steady monthly income could I realize from $20,000 invested in dividend stocks?
QUESTION (3) Can a stock market rise indefinitely without crashing every few years?
QUESTION (4) How can you trust a financial advisor with your money?
QUESTION (5) What would be the reason for buying shares of Apple at its current high price
In Podcast #154, last week, I announced a contest to select 20 stocks using $200,000 in “play money” that will generate the most capital gain and most dividend income over 12 months. I have now received the first completed Excel Spreadsheet from a listener who is participating in the contest. I was impressed with his choices.
While this contest was created as a learning exercise for those who have been hesitant about investing in the stock market, it is open to anyone who wants to test their investment skills. To make it bit more interesting the winner will receive $100 as an incentive.
SIX INVESTMENT BOOKS BY IAN DUNCAN MACDONALD, ARE AVAILABLE FROM AMAZON.COM KINDLE BOOKS). THE FOLLOWING ARE THE 2 LATEST.
(1) CANADIAN HIGH DIVIDEND INVESTING -
In this 325-page book, learn how to select, purchase and build a portfolio of 20 Canadian strong dividend stocks. Summary records of 215 stocks are sorted in multiple ways, and each stock's unique page provides detailed scoring data and 24 years of price and dividend trend data. Released September 23.
(2) NEW YORK STOCK EXCHANGE'S 106 BEST HIGH DIVIDEND STOCKS -
In this 334-page book, there is a 2-page report for each company scoring 11 data elements. It also lists 23 years of historical share price and dividend payouts so that investors can judge the stock's reliability. Released December 2022.
A TRANSCRIPT OF THIS PODCAST IS AVAILABLE.
FOR MORE INFORMATION ON HIS 6 INVESTMENT BOOKS, HIS 3 NOVELS, PAINTINGS, PHOTOGRAPHS AND DIGITAL ART VISIT www.informus.ca and also www.artgalarian.com
Ian Duncan MacDonald
Author, Artist, Commercial Risk Consultant,
President of Informus Inc
2 Vista Humber Drive
Toronto, Ontario
Canada, M9P 3R7
Toronto Telephone - 416-245-4994
New York Telephone - 929-800-2397
imacd@informus.ca
Safe Dividend Investing
PODCAST 155
15 January 2024
Greetings to listeners all around the world. Welcome to Safe Dividend Investing’s Podcast # 155, on January 15th of 2024.
My name is Ian Duncan MacDonald. In today’s podcast, I will be answering 5 interesting investment questions.
In Podcast #154, last week, I announced a contest to select 20 stocks using $200,000 in “play money” that will generate the most capital gain and most dividend income over 12 months. I have now received the first completed Excel Spreadsheet from a listener who is participating in the contest. I was impressed with his choices.
While this contest was created as a learning exercise for those who have been hesitant about investing in the stock market, it is open to anyone who wants to test their investment skills. To make it bit more interesting the winner will receive $100 as an incentive.
Request a printed copy of Podcast #154 and the Excel entry file if you are interested in participating from ianduncanmacdonald@hotmail.com.
The objective of my books, my website and my podcasts are to show all those seeking financial independence how to become informed, confident, successful, self-directed investors.
QUESTION 1
Are fluctuations of stock market share prices random or controlled?
The stock market is not like a supermarket where the price of produce on the shelf is increased or decreased by a store manager based on his perception of competitive forces. Such forces as increased or decreased supplies of produce, aging merchandise, government regulations, etc, don’t enter into it.
There is no store manager making changes. The stock market is not a “market”. It is an auction. Optimistic buyers of company shares buy the shares by placing a price bid in the auction. If the bid is sufficiently attractive to the current owner of the shares, they will accept the bid and ownership of the shares will be transferred to buyer.
If the bid was not high enough the buyer must keep on increasing the price until the greed of the owner of the shares overcomes the reluctance to part with the shares. At that point the owner of the shares pessimistically believes the share price will, in the immediate future never go higher. Such a seller is a speculator who is only interested in acquiring stocks that they can sell as quickly as possible at a higher price than what they paid for them.
The optimist acquiring the stock may also be a speculator who thinks that price he has paid for the stock is a bargain and that the share price will now only rise and deliver a profit when it is sold at a higher price.
The pessimist and the optimist participating in the bidding process can not both be right about the direction of the share price. There stock transaction decisions and insights are based on their freely arrived at interpretations of financial facts, rumors, media hype and experience. No one can accurately predict future share prices because millions of optimists and pessimists are bidding on fewer than 12,000 stocks in North America every day. Nothing will happen unless the pessimist and optimist can meet on a transaction price. With so many participating in the bidding there is an impression of both randomness and control to the share price movements.
There is also an impression of control being present when after an announcement of financial loss in a public company their may be a sharp drop in what speculators are willing to pay for a stock. However, the impression of randomness can occur when, despite a financial loss in a company, the share prices increase instead of decreasing. This may be due to optimists anticipating the corrective policies that will may now be put in place to by the company’s management to offset the losses.
So how can one succeed as investor if it is impossible to accurately predict whether your purchase of a share will increase or decrease? I have found the secret to investment success seems to be to ignore the current share price and look at historical dividend payouts. While the management of a company can only influence optimist and pessimist investors, they do have total control over a stock’s dividend payouts. This is why you can look at 20 years of stock prices and dividend payouts and see dividend payouts rising significantly almost every year while their share prices may have dropped by 50% of what they were prior to the market crash years of 2000, 2008 and 2020. The share price of such companies will again rise to new record highs before again dropping significantly in the next crash. This can easily be seen in the individual historical charts for hundreds of stocks in the books “New York Stock Exchange’s 105 Best High Dividend Stocks” and “Canadian High Dividend Investing”.
Each time the share price drops, it almost never drops as low as it did in the last crash. Not that this matters because the owners of financially strong, high dividend stocks have no intention of selling their shares. They do not want to get involved in a merry-go-round of selling shares only then to be forced to try to try to find stocks as beneficial to them as the ones they have just sold.
They have adjusted their disciplined lives to living off those dependable dividend payments. They have purchased income. Only in an emergency, requiring large amounts of cash, will they sell their shares to realize the capital gain.
Interestingly the share value of high dividend stocks will often increase by several multiples over one or two decades. This happens because the managers of these companies will keep increasing their dividend payments to keep the dividend yield percent steady as the share price increases. They do this for competitive reasons to set themselves apart from those stocks whose dividend yields decrease as their share price increase. A decreasing dividend yield can discourage optimistic speculators from bidding up a stock. It can also cause those currently owning the stock to sell it to get a better dividend income return on their money.
QUESTION 2
How much of a steady monthly income could I realize from $20,000 invested in dividend stocks?
How much risk can you tolerate?
There are some stocks traded on the New York Stock Exchange that pay an annual dividend yield greater than 30% of the value of their share price. Thus, it is possible to realize $6,000 or more from $20,000 invested in such stocks. However, will you be able to again realize $6,000 next year? The odds are that these 30% dividend payers are one-year wonders, and the high dividend yield will not be repeated. You might find the $20,000 you invested will shrink by as much as 50% or more over the year as these risky stocks are unable to repeat the high dividend.
To realize a steady safe dividend income a dividend yield of 6% is more realistic and safer. This would give you an income of $1,200. There would be a good possibility that the value of the stock paying such a percentage will have an annual increase in its share price perhaps by as much as 12%. Such stocks with rising share prices to maintain their 6% dividend yield will often increase their dividend payouts to stop the dividend yield from dropping. These annual increases can be significant if you have chosen a stock with a long history of making such dividend payout increases.
For added safety and consistency it is wise to invest in at least 20 financially strong, high dividend paying companies. This provides the insurance that if a few stocks do not follow their traditional high dividend paths that this will hardly be noticeable when the majority do follow their historical high dividend patterns. Unfortunately, investing a total of $20,000 in 20 stocks would require time and effort. It would be hard to cost justify
With significantly more money to invest and using the multiple sorts and charts of the high dividend stocks in the book ‘New York Stock Exchange’s 105 Best High Dividend Stocks” the construction of a strong dependable dividend stock portfolio of 20 stocks would be fast and easy.
QUESTION 3
Can a stock market rise indefinitely without crashing every few years?
A stock market cannot rise indefinitely without crashing every few years.
As I explained in Question 1, the stock market is an auction vehicle for trading shares between optimists and pessimists. While optimists may push the stock market to new records highs even, these optimists eventually become pessimists in the market’s ability to rise higher. Fearing the loss of their inflated gains, they sell with the hope that other optimists will buy their shares. However, with a flood of sell orders, the former optimistic owners must keep dropping their share price sell bids more and more to make the shares attractive to any optimists who might still be willing to buy. With an over whelming drop in share prices, almost all optimists retire from the market, sit on their cash, and wait for run down on the market to end.
Eventually the share prices drop so far that the optimists can no longer resist the temptation to buy, that cash is burning a hole in their pockets. They start to buy and run up the prices. They then get caught up in the rising prices their activity is creating and sell their newly bought shares at a profit to obtain more cash to buy stocks they think will show even greater gains.
Their bragging as to how much money their speculating is making for them attracts more and more optimists to the stock market. This continues until even the optimists who benefitted the most cash out fearing that prices are again going to collapse, and they will lose all that they have gained.
Thus, human nature causes the stock markets to crash every few years. What manipulates their attitudes are often competitive factors such as new technologies making older technologies obsolete. It is hard for successful giant corporations to adapt quickly to changes. Their success had been based on providing a consistent product to a large share of the market that bought from them out of habit and a lack of a motivation to make a change. However, a new beneficial technology or a lower cost provider that can no longer be ignored by the market can disrupt these cozy supplier relationships.
Small, nimble competitors can and do take market share away from those long-established companies with their high- priced shares. Companies who once nothing to be gained in sharing their big profits through high dividends with their shareholders must adapt to a new reality or disappear.
QUESTION 4
HOW CAN YOU TRUST A FINANCIAL ADVISOR WITH YOUR MONEY?
Why would you trust anyone with your money, especially a financial advisor who is being paid by his financial institution to transfer as much money from your pocket to their pocket as he can for the rest of your life.
There are no short cuts to being a successful investor. You must spend the time to learn how to differentiate between shares in strong, profitable, established companies from and weak unprofitable investments hiding behind their supposed potential. You must be prepared to closely analyze all the stocks in funds that are being pushed at you and not accept the rhetoric that these are all strong diversified companies.
Accept nothing said without proof, without understanding it or what it will be costing you. Financial advisors are not your friend. You are just another prospective customer who must be sold on parting with your money. Read the fine print very carefully in anything they ask you to sign.
QUESTION 5
WHAT WOULD BE THE REASON FOR BUYING SHARES OF APPLE AT ITS CURRENT HIGH PRICE?
As a speculator the only reason to buy Apple shares now is that you are an optimist who believes the shares will continue to increase in value so you will be able sell them for the capital gain. No one can accurately predict the future price of shares. APPL is just as likely to go down in value as go up.
You sure are not buying APPL for its dividend income since their dividend yield is only 0.51% or for their great strength since their book value on this $188.86 stock is only $4.00.
Speculators worship potential rather than value. Ten years ago, when APPL’s share price was $25 the potential for significant gain would have been much more certain. There are many stocks that you can buy for a fraction of the APPL cost that would payout a much higher dividend than the 24 cents they are paying and give you a much better chance for capital gain.
However, APPL and the other magnificent seven stocks now have a high profile in the media. Finding stronger, better stocks takes a little more time and effort.
The End