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Welcome to Safe Dividend Investing’s Podcast # 164 on April 18th of 2024.
Today, I will be answering 2 interesting investment question.
QUESTION (1)
WHAT IS THE BIGGEST LESSON LEARNED BY SELF-DIRECTED INVESTORS?
QUESTION (2)
IN THE NEXT MARKET CRASH SHOULD I SELL ALL STOCKS AND REVERT TO CASH?
In Podcast #154, 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. 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 a bit more captivating, 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, 3 NOVELS, PAINTINGS, PHOTOGRAPHS AND DIGITAL ART VISIT www.informus.ca
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
PODCAST 164
SAFE DIVIDEND INVESTOR
18 APRIL 2024
Greetings to listeners all around the world. Welcome to Safe Dividend Investing’s Podcast # 164, on April 18th of 2024.
My name is Ian Duncan MacDonald. In today’s podcast, I will be answering 2 interesting investment questions.
In Podcast #154, 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. Seek out the transcript attached to Podcast #154 for more details.
While this contest was created as a learning experience for those who are hesitant about investing in the stock market, it is open to anyone who wants to test their stock picking skills. To make it bit more interesting the winner will receive $100 as an incentive at the end of 12 months.
Request the Excel entry file, if you are interested in participating, at 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
WHAT IS THE BIGGEST LESSON LEARNED BY SELF-DIRECTED INVESTORS?
A poll by a bank reported that 63% of online Do It Yourself investors say the biggest lesson they’ve learned is to be prepared. In other words, have a plan before you start investing. A plan will avoid common problems such as:
One-quarter said they bought hot, strongly promoted stocks without doing thorough research of the stock.
Twenty percent said they started purchasing stocks without having a defined plan.
Ten percent said they bought when stock prices were at their peak.
Ten percent said that they sold too quickly when the market dipped.
You can solve pre-investment planning problems by adopting the following investment approaches.
The easiest, quickest way to maximize dividend income is to eliminate from consideration any stock with a dividend yield percent below perhaps 5 percent.
Dividend income is also greatly enhanced by only investing in the financially strongest stocks. These are stocks who have paid ever-increasingly high dividends for many years accompanied by increased share prices.
The question then would be how do you identify these financially strong stocks?
I use stock scoring software that measures easily obtainable data such as: the current share price, the historical share price, the book value of the stock, analyst buy recommendations, the stock’s dividend yield percent, its operating margin, and its price to earning’s ratio.
The stock’s score, which takes a minute or two to calculate, allows you to easily best stocks by sorting all the stocks meeting your minimum criteria from highest lowest score. Since stocks with the highest scores rarely pay the highest dividends, you balance a high scoring stock paying a lower dividend yield percent with a lower scoring stock paying a higher dividend. The objective is to have a strong balanced portfolio of 20 stocks whose average dividend yield will be more than six percent and whose total portfolio value, most years, will grow by 12% or more.
Hot, speculative stocks, receiving lots of publicity, rarely, if ever, would appear as prospective stock purchases in your scored list of stock purchasing possibilities. Speculative stocks often have low book values and operating margins. The possibility of them paying dividends would be small,
Since this stock scoring approach has nothing to do with whether the stock market is at its peak or bottom, stock market fluctuations never need enter your buying decisions. You are removed from the practice of buying low and selling high. You are buying stocks that you will have no reason to sell for decades. Their high dividend payouts will provide you with the reliable growing income you need to live on or the funds to keep investing money back into your 20 stocks to keep your portfolio growing. You will often find that dividend payouts increase at a faster rate than share prices. This will keep your income well ahead of inflation.
To build a portfolio like this is not difficult. go to my website www.informus.ca for step-by-step instructions.
QUESTION 2
IN THE NEXT MARKET CRASH SHOULD I SELL ALL STOCKS AND REVERT TO CASH?
There is no magic calendar showing a date when the next stock market crash is going to occur. However, never fear there will be another market crash. It will be followed by another and another. They usually occur about every 4 to 10 years.
What causes them? A market crash is a time when there is an unusually large, fast drop in share prices by almost all stocks. It occurs after share prices have been rising steadily for several years and many investors are convinced there will never be another stock market crash.
The increased share prices were fueled by optimistic speculators willing to pay higher and higher prices for the shares they buy. To buy their shares, there always has to be pessimistic speculators willing to sell the shares they own at prices low enough to attract optimistic buyers. The pessimistic sellers believe that the share price has reached its height and to maximize their profitable capital gain or to remove the fear of a major capital loss, they sell.
Some insecure investors are constantly looking for signs of future events that would convert them from being optimists to being pessimists. The signs that occurred in the three most recent crashes were:
(1)The collapse of the unprofitable dotcom companies in 2000. Speculators were convinced that all dot com tech companies were the next Microsoft.
(2)In 2008 it was the belief that all mortgage-backed securities were safe investments. Investors failed to confirm the credit worthiness of those mortgage borrowers.
(3) The 2020 panic caused by the Covid pandemic devastated the economy and caused huge sell offs in the stock market.
Such incidents do occur without resulting in market crashes. For example, some pessimists forecasted that the collapse of Bitcoin prices would cause a market crash. The war in the Ukraine was seen as a possible trigger. The explosive growth of Artificial Intelligence is suggested to be such an event.
Share prices are in constant motion being run up and down by optimists and pessimists. However, usually there is enough of a balance between the two forces that the fluctuations get balanced out. Only after a few months of deep share price drops before it can even be determined that we are going through a market crash. To accurately predict the next crash is as impossible as accurately predicting future share prices.
If you are concerned about the future rapid loss of value in your stock portfolio, how can you protect yourself from such a loss? You protect yourself by choosing financially strong companies that pay high dividends. These are stocks that you never intend to sell nor have any reason to sell. Dividend payouts of such companies are rarely impacted by market crashes. If you adjust your spending to match the dividend income generated by such stocks, a market crash becomes almost irrelevant.
Be assured that your share price will again increase above its previous highest price. Dividend payouts usually rise much faster than share prices.
How do you choose financially strong stocks. I use stock scoring software that objectively measures the value of a stock. It is divorced from the media hype and turmoil of share price fluctuations.
In addition, look at historical share price and dividend payouts. You will see how any stock weathered the previous market crashes.
In my 2022 book “New York Stock Exchange’s 106 Best High Dividend Stocks. The historical data for each of the 106 stocks shows share prices and dividend payouts going back to 1999.
The highest scoring stock in the book was Canadian Natural Resources, stock symbol (CNQ). Its score was 73. Its share price in 2022 was $53.36 and its dividend yield was 5.35%.
CNQ did not start paying a dividend until 2000. That year the dividend payouts were $0.01.
The 2000 stock market crash dropped share price from $4.13 down to $3.65 in 2001 and $3.66 in 2002.
By 2003, it had beaten the 2000 share price and was now at $4.80.
In the next stock market crash of 2008, the share price had dropped from a high of $33.71 in 2007, down to $15.92.
In 2009 the share price hit a new record high of $36.54.
In the crash of 2020, you have odd anomaly of the share price rising from $26.63 in 2019 to a record high of $30.38. However, this was followed in 2021by another record high of $42.25.
What is more interesting is to see what happened to the dividend payouts between 2000 and 2022. The first dividend they paid was in 2001. It was one cent. By 2006 it was $0.03, by 2011 it was $0.11, by 2016 it was $0.17 and by 2022 it was $0.57. The dividend payouts never retreated. They were never impacted by market crashes.
CNQ is just one easily found example in the book of the benefits of holding onto financially strong companies paying high dividends.
END