tag:blogger.com,1999:blog-5465015914589377788.post5772205217743350314..comments2024-02-17T11:07:06.232-05:00Comments on Michael James on Money: Things You Need to Know about Selling StocksMichael Jameshttp://www.blogger.com/profile/10362529610470788243noreply@blogger.comBlogger24125tag:blogger.com,1999:blog-5465015914589377788.post-19344990258916215632020-11-02T21:36:49.628-05:002020-11-02T21:36:49.628-05:00Canadian Capitalist left the following comment on ...Canadian Capitalist left the following comment on April 24, 2012 at 10:48 AM:<br /><br />Oh no! Now you've made the dividend hornets mad :)Michael Jameshttps://www.blogger.com/profile/10362529610470788243noreply@blogger.comtag:blogger.com,1999:blog-5465015914589377788.post-51378104148928119572012-04-26T13:53:35.324-04:002012-04-26T13:53:35.324-04:00@Poor Student: At its core, your argument amounts...@Poor Student: At its core, your argument amounts to an expectation that dividend stocks will have higher total returns over the long run than other stocks. If this proves to be true, then your reasoning will hold up. If this proves to be false, then dividend investors will not enjoy the advantages over other investors that you describe.Michael Jameshttps://www.blogger.com/profile/10362529610470788243noreply@blogger.comtag:blogger.com,1999:blog-5465015914589377788.post-72840613658843559542012-04-26T13:38:20.096-04:002012-04-26T13:38:20.096-04:005% of your portfolio varies greatly year to year. ...5% of your portfolio varies greatly year to year. One year a portfolio could be one million and your example would be $50,000 which would be a great income. But the next year with a reasonable decline of say 10 percent, the 5% you sell would $42,750. If this person were living off selling their shares then that year could be a lot less fun than the year before. <br /><br />When the stocks you hold are down that is the best time to buy, but if you require that money to live off then you are selling at the worst time and can't take advantage of the deflated price.<br /><br />Dividend investors tend to invest in companies that increase payouts, so they are less likely to suffer a year where they have lower income from their investments like someone who has to sell their investments. If I buy a stock with a 5% yield, that dividend may go up and a $1000 original investment that paid $50 will pay $70 or more in ten years, even if the stock price remains flat or decreases even.<br /><br />Lots of people do the method you advocate, hence the rule of thumb that you can sell 4% of your portfolio each year without decreasing capital too much. To each his own. I do not disagree with you necessarily, just offering the flip side of the coin.Poor Studenthttp://poorstudent.ca/noreply@blogger.comtag:blogger.com,1999:blog-5465015914589377788.post-55901631897733128942012-04-26T09:33:59.382-04:002012-04-26T09:33:59.382-04:00@Mark: Be careful of shifting to indexing. It'...@Mark: Be careful of shifting to indexing. It's seductive. You might never want to look at a balance sheet or income statement again.<br /><br />@Dan: You have me conditioned now. Every time I see Fortis in the news I start to laugh :-)<br /><br />@Echo: The evidence I've seen is that dividend stocks have performed the same as other value stocks over the long run. What historical evidence are you referring to?Michael Jameshttps://www.blogger.com/profile/10362529610470788243noreply@blogger.comtag:blogger.com,1999:blog-5465015914589377788.post-23860453921132775112012-04-25T22:30:38.853-04:002012-04-25T22:30:38.853-04:00@Michael James - you said, "many of the argum...@Michael James - you said, "many of the arguments put forth by dividend investors only make sense if one accepts that dividend paying stocks tend to have higher overall returns than non-dividend paying stocks. I don't believe this will be true over the long run."<br /><br />This seems to true, historically. Why don't you believe this will be true over the long run?Echohttp://www.boomerandecho.comnoreply@blogger.comtag:blogger.com,1999:blog-5465015914589377788.post-74179916130848377142012-04-25T22:17:17.325-04:002012-04-25T22:17:17.325-04:00Michael, this is all very good, but I like Fortis....Michael, this is all very good, but I like Fortis.Canadian Couch Potatohttp://canadiancouchpotato.comnoreply@blogger.comtag:blogger.com,1999:blog-5465015914589377788.post-25476551215822600592012-04-25T17:34:10.055-04:002012-04-25T17:34:10.055-04:00Nice :)
I did like this: "...if a business ...Nice :)<br /><br />I did like this: "...if a business doesn’t give some of its cash back to shareholders in the form of a dividend, you can always just sell some of the stock.”<br /><br />All in good fun Michael.<br /><br />@CC, the hornets have been released for some time, you just gave us some nectar to nibble on... :)<br /><br />That said, I might have to index more, TransAlta is killing me right now.<br /><br />MarkMy Own Advisorhttp://www.myownadvisor.canoreply@blogger.comtag:blogger.com,1999:blog-5465015914589377788.post-22324938644526444572012-04-25T09:49:21.749-04:002012-04-25T09:49:21.749-04:00@Kanwal and @Preet: Preet is right that Kanwal fa...@Kanwal and @Preet: Preet is right that Kanwal failed to account for the ACB and the benefits of tax deferral that come with capital gains. At their core, many of the arguments put forth by dividend investors only make sense if one accepts that dividend paying stocks tend to have higher overall returns than non-dividend paying stocks. I don't believe this will be true over the long run.<br /><br />@Anonymous: Good one :-) I'd be happy to have depressed stock prices for a few years.<br /><br />@Patrick: That's probably better than what I would have come up with.Michael Jameshttps://www.blogger.com/profile/10362529610470788243noreply@blogger.comtag:blogger.com,1999:blog-5465015914589377788.post-31042188168401179792012-04-25T09:01:13.908-04:002012-04-25T09:01:13.908-04:00For the 5th point, buying based on dividend yield ...For the 5th point, buying based on dividend yield is no more (and no less) valid than buying based on P/E.Patrickhttps://www.blogger.com/profile/16816252455472704262noreply@blogger.comtag:blogger.com,1999:blog-5465015914589377788.post-65492257386804289212012-04-25T01:10:23.423-04:002012-04-25T01:10:23.423-04:00@Kanwal - "It sounds ridiculous but companies...@Kanwal - "It sounds ridiculous but companies have continued to increase dividends even when their stock has remained flat long periods of time."<br /><br />That doesn't sound ridiculous, but what I said was that I doubt dividends could continue to be paid if the share price of a dividend paying stock <b>only</b> went down. <br /><br />You said:<br /><br />"You mentioned "The main idea is that if a business doesn’t give some of its cash back to shareholders in the form of a dividend, you can always just sell some of the stock." but this only works if the stock price continues to go up every year. It won't work if the stock price goes down, this is where the dividends will come in handy."<br /><br />A stock would not need to go up every year in order to sell stock every year and still have a gain. For the same reason as pointed out in your examples of companies that increased dividends while share prices after a long period of time were lower than initially. By adjusting the term you and Michael could both provide support for your positions.<br /><br />"As long as the earnings are increasing, there is a good chance dividends will continue to increase."<br /><br />Similarly, as long as the earnings are increasing, there is a good chance share price would increase or rebound if down.<br /><br />I don't want to make it sound like I'm anti dividend investing, I'm just trying to elucidate my understanding of Michael's position as what he said makes sense to me.WhereDoesAllMyMoneyGo.comhttps://www.blogger.com/profile/09185007666460707356noreply@blogger.comtag:blogger.com,1999:blog-5465015914589377788.post-43565712762389474462012-04-25T00:51:33.959-04:002012-04-25T00:51:33.959-04:00Michael, please delete this post: you might disco...Michael, please delete this post: you might discourage dividend investors. Most stocks don't pay dividends. All these dividend investors are helping to drive down the price of nondividend paying stocks, which increases the returns of those of us who focus on total return.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-5465015914589377788.post-77732000731577799222012-04-25T00:26:32.971-04:002012-04-25T00:26:32.971-04:00@WhereDoesAllMyMoneyGo.com Agreed no pre-tax diffe...@WhereDoesAllMyMoneyGo.com Agreed no pre-tax difference.<br /><br />"I doubt dividends could continue to be paid if the share price of a dividend paying stock only went down." I used to believe that until the last 14 years taught me otherwise. Allow me to clarify and then provide some proof.<br /><br />It sounds ridiculous but companies have continued to increase dividends even when their stock has remained flat long periods of time.<br /><br />Stock prices fluctuate for many reasons, one of the reasons is investor sentiment. Investors get emotional and that causes prices to drop or remain flat. On the other hand dividends are paid out of earnings. As long as the earnings are increasing, there is a good chance dividends will continue to increase.<br /><br />2003 CAH stock price $40, dividend $0.11<br />2012 CAH stock price $40, dividend $0.86<br /><br />2004 OMC stock price $45, dividend $0.40<br />2012 OMC stock price $49, dividend $1.20<br /><br />2002 ABT stock price $58, dividend $0.92<br />2012 ABT stock price $59, dividend $2.40<br /><br />2004 AFL stock price $42, dividend $0.38<br />2012 AFL stock price $42, dividend $1.32<br /><br />2001 AVP stock price $20, dividend $0.40<br />2012 AVP stock price $20, dividend $0.92<br /><br />I would love to have my stocks increase in price as the dividends are increased and most times this does happen. I just wanted show that in some cases the stocks prices remain flat while the dividend continues to increase each year.Kanwal Sarai @ Simply Investinghttp://www.simplyinvesting.com/blog/noreply@blogger.comtag:blogger.com,1999:blog-5465015914589377788.post-53074566649577312552012-04-24T23:19:01.767-04:002012-04-24T23:19:01.767-04:00@Kanwal - but you're assuming an ACB of zero. ...@Kanwal - but you're assuming an ACB of zero. <br /><br />and re:<br /><br />"You mentioned "The main idea is that if a business doesn’t give some of its cash back to shareholders in the form of a dividend, you can always just sell some of the stock." but this only works if the stock price continues to go up every year. It won't work if the stock price goes down, this is where the dividends will come in handy"<br /><br />I doubt dividends could continue to be paid if the share price of a dividend paying stock only went down.<br /><br />I think what Michael is alluding to is that retained earnings are normally paid out as dividends if a company (or shareholders) feel that they can no longer re-invest the retained earnings in the company and achieve greater growth than the shareholders could by deploying that capital elsewhere. Therefore with two similar businesses, whether the retained earning are reinvested or paid out as dividends has no pre-tax difference. The post-tax difference will vary according to the individual investor.WhereDoesAllMyMoneyGo.comhttps://www.blogger.com/profile/09185007666460707356noreply@blogger.comtag:blogger.com,1999:blog-5465015914589377788.post-68424533596937843042012-04-24T22:52:02.612-04:002012-04-24T22:52:02.612-04:00Hi Michael,
I'm with Dividend Ninja, I though...Hi Michael,<br /><br />I'm with Dividend Ninja, I thought this was a joke or you were just being sarcastic.<br /><br />Let's take a look at the comparison more closely. Using the Ernst & Young Tax Calculator for 2011 (http://www.ey.com/CA/en/Services/Tax/Tax-Calculators-2011-Personal-Tax) someone earning $75,000/yr in BC would pay the following tax rates:<br /><br />- marginal rate on capital gains 16.25%<br />- marginal rate on CDN dividends 8.11%<br /><br />On a $400,000 portfolio selling 5% of your stock ($20,000) will cost you $3250 in taxes.<br />The tax on 5% dividends ($20,000) will cost you $1622.<br /><br />Using the same calculator but using $20,000/yr as your sole income shows the following taxes rates for someone in BC:<br /><br />- marginal rate on capital gains 11.63%<br />- marginal rate on CDN dividends 0%<br /><br />In fact you could earn $41,000/yr in CDN dividends tax free. The same $41,000/yr in capital gains would cost you $4653.50 in taxes.<br /><br />You mentioned "The main idea is that if a business doesn’t give some of its cash back to shareholders in the form of a dividend, you can always just sell some of the stock." but this only works if the stock price continues to go up every year. It won't work if the stock price goes down, this is where the dividends will come in handy. Here's an example using Walmart:<br /><br />WMT stock price:<br />2004 $60.24<br />2005 $49.90<br />2006 $49.20<br />2007 $48.06<br />2008 $56.29<br />2009 $47.79<br /><br />Even though the stock price went down in 6 years, the dividends continued to increase every year.<br /><br />2004 $0.48<br />2005 $0.58<br />2006 $0.65<br />2007 $0.83<br />2008 $0.93<br />2009 $1.06<br /><br />CC warned you about the hornets :)<br /><br />cheers,<br />KanwalKanwal Sarai @ Simply Investinghttp://www.simplyinvesting.com/blog/noreply@blogger.comtag:blogger.com,1999:blog-5465015914589377788.post-34204292548706103002012-04-24T21:28:54.340-04:002012-04-24T21:28:54.340-04:00@Mike: ... and it will only cost $20 in commissio...@Mike: ... and it will only cost $20 in commissions! :-)Michael Jameshttps://www.blogger.com/profile/10362529610470788243noreply@blogger.comtag:blogger.com,1999:blog-5465015914589377788.post-87451534296098013842012-04-24T21:18:46.254-04:002012-04-24T21:18:46.254-04:00There's no reason this strategy couldn't b...There's no reason this strategy couldn't be turned into a DRIP. Just take the 5% annual withdrawal and buy some more shares. ;)Mike Holmanhttp://www.moneysmartsblog.comnoreply@blogger.comtag:blogger.com,1999:blog-5465015914589377788.post-5493351463357562212012-04-24T16:57:11.929-04:002012-04-24T16:57:11.929-04:00Thanks Michael, I'm not 80 years old yet, and ...Thanks Michael, I'm not 80 years old yet, and plan to enjoy my portoflio income before I am 80 - therefore I will live off the income it generates. ;)<br /><br />I'm sorry Michael, in all honestly I have no idea what you are talking about, or what the purpose of this article was - and your comments do not make any sense. <br /><br />Oh well, time to get some real work done now.<br /><br />CheersThe Dividend Ninjahttp://www.dividendninja.comnoreply@blogger.comtag:blogger.com,1999:blog-5465015914589377788.post-58311584000797327892012-04-24T16:50:26.953-04:002012-04-24T16:50:26.953-04:00@Dividend Ninja: I chose 5% because that's wh...@Dividend Ninja: I chose 5% because that's what My Own Advisor used as an example. And 5% would be perfectly sustainable for an 80-year old. <br /><br />You seem to believe that dividends come for free and don't affect capital growth of stocks. This is not true. If I own dividend stocks that pay a 5% dividend (and I live on this income), I'm no better off than if I own stocks that pay only a 2% dividend and I sell 3% of my holdings each year. In fact, I'm slightly better off in the latter case due to greater tax efficiency.Michael Jameshttps://www.blogger.com/profile/10362529610470788243noreply@blogger.comtag:blogger.com,1999:blog-5465015914589377788.post-52191114867920321692012-04-24T16:23:51.613-04:002012-04-24T16:23:51.613-04:00@Dividend Ninja: I was looking at the case of a d...@Dividend Ninja: I was looking at the case of a dividend investor who uses a 5% dividend for income to live on (rather than for reinvestment). For an investor who is at a stage in his or her life where there is no need to draw an income, the comparison is different. In this case, the investor should have no preference between the two choices in a tax-advantaged account, and should prefer the business that pays no dividend in a taxable account.Michael Jameshttps://www.blogger.com/profile/10362529610470788243noreply@blogger.comtag:blogger.com,1999:blog-5465015914589377788.post-61529487891756141152012-04-24T16:14:59.392-04:002012-04-24T16:14:59.392-04:00I honestly did not think you were serious. This do...I honestly did not think you were serious. This doesn't make any logical sense to me at all - I really don't understand the premise of your article. <br /><br />Why would you keep skimming off your profits each year,and slightly depleting your capital each year, instead of letting your investment build and grow - and allowing compound growth to do its work? Would you deplete 5% of your ETF portfolio every year? If not why not?<br /><br />With DRIPs I meant by taking off 5% every year, you wouldn't be able to reinvest your dividends (or with ETFs reinvesting your distributions) to take advantage of compound growth.<br /><br />Like I said, I really didn't think you were serious when you wrote this article - becuase I took the entire post as a joke. LOL<br /><br />CheersThe Dividend Ninjahttp://www.dividendninja.comnoreply@blogger.comtag:blogger.com,1999:blog-5465015914589377788.post-90013118478975870512012-04-24T16:01:35.207-04:002012-04-24T16:01:35.207-04:00@Dividend Ninja: My claim is that if there are tw...@Dividend Ninja: My claim is that if there are two well-run businesses with similar economics where one pays a 5% dividend and the second doesn't, investors in the second business can just sell 5% of their shares each year if they want an income stream. These sales will have a similar effect on capital growth as the paymnet of a dividend has on the first business.<br /><br />I'm afraid that I didn't follow your comment about DRIP investors.Michael Jameshttps://www.blogger.com/profile/10362529610470788243noreply@blogger.comtag:blogger.com,1999:blog-5465015914589377788.post-72903440171220193452012-04-24T15:53:01.590-04:002012-04-24T15:53:01.590-04:00Ha Ha, I think this was written as a joke ;) If I ...Ha Ha, I think this was written as a joke ;) If I acually took this post seriously, or actually believed what you are writing here - I would have increased my blood pressure. LMAO <br /><br />So just in case you are actually serious (you never know), do you plan to skim off 5% of your ETFs distributions each year and deplete your overall capital growth as well? Or is this a special strategy that is just reserved for dividend investors - so they can forgoe all their hard work with DRIPs?<br /><br />Cheers ;)The Dividend Ninjahttp://www.dividendninja.comnoreply@blogger.comtag:blogger.com,1999:blog-5465015914589377788.post-21629639807439844422012-04-24T10:38:50.927-04:002012-04-24T10:38:50.927-04:00@Mike. Thanks. It's fixed now. I suspect yo...@Mike. Thanks. It's fixed now. I suspect you're one of the few who will love this, but it's all in good fun.Michael Jameshttps://www.blogger.com/profile/10362529610470788243noreply@blogger.comtag:blogger.com,1999:blog-5465015914589377788.post-76235128808925179252012-04-24T10:31:25.000-04:002012-04-24T10:31:25.000-04:00Love this.
p.s. I think your link to MOA is incor...Love this.<br /><br />p.s. I think your link to MOA is incorrect.Mike Holmanhttp://www.moneysmartsblog.comnoreply@blogger.com