Helping You Earn More in 2015

Growing Economy 2015I’d like to help you earn more in 2015. The beginning of the new year is the perfect time to set goals, and begin on the path to increase your passive income.

My approach to value investing is simple, build yourself a stream of passive income that increases every year. You can do this by buying quality stocks, and collecting their dividends (cash paid to the shareholders).

The income is passive, because after you’ve bought the stock there is no more effort on your part. You receive regular dividends (cash) just for holding the stock. The dividends keep coming regardless of stock prices going up or down.

Here’s a list of some of the stocks that I own that have increased their dividends in the last 12 months:

International Business Machines (IBM), 15.79% increase
Johnson & Johnson (JNJ), 6.06%
Pepsico (PEP), 15.42%
United Technologies (UTX), 10.28%

BCE (BCE), 6.01%
Canadian National Railway (CNR), 16.28%
Empire (EMP.A), 8.33%

In 2004 Derek Foster retired at the age of 34, earning more than $25,000/year in dividends.

Earning a growing stream of passive income is possible, all it takes is education to learn what to buy and when.

I created Simply Investing to help people like you to learn quickly, and easily apply the principles of value investing. Hundreds of folks have taken my course, and reaped the rewards of building their own stream of income.

Here are my favorite blogs posts to help you earn more:

Do You Know When to Buy Stocks?
How I saved 4672% in Fees, and Continue to Make Over 14% Each Year on a Single Stock
What is the P/E Ratio, Could it Save You Thousands?
Top 5 Reasons Why Mutual Funds Fail

Happy New Year, and I wish you all the best in 2015!

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Worried About Not Having Enough Money?

Portrait Of A Worried Couple Calculating Financial BudgetAre you concerned about not having enough money for your kids, for yourself, for your retirement? The key is to make the right financial decisions today so that your future self will be taken care of.

The right financial decisions are:

  • Spend less than you earn, and invest the difference
  • Pay off your debts quickly
  • Eliminate or reduce the hidden fees you pay in mutual funds

All mutual funds carry fees, these fees are called the Management Expense Ratio (MER). The MER is there to pay the mutual fund manager’s salary, their staff, rent for the office space, the computers, and other administrative matters.

Even a 2.2% MER fee can eat up a large portion of your savings. $1000 invested in the stock market 50 years ago would be worth $514,000 today. However with fees of 2.2% the investor would only be left with $193,000 today. $321,000 would have been lost to fees. More than 62% of your investment would be lost to fees; no wonder most people are worried about not having enough money!

Can you afford to lose $321,000? If not, you owe it to yourself to learn how to invest by yourself for yourself. Investing is simple, focus on buying quality stocks when they are undervalued. Worried about investing in stocks? Don’t be, you’re already investing in the stock market each time you buy equity mutual funds. So you might as well learn how to invest properly for yourself and save the 2.2% fee.

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Should You Buy Growth Stocks?

Red growth arrowShould you buy growth stocks or avoid them? George Athanassakos (Professor of Finance at University of Western Ontario), discussed growth stocks recently in the Globe and Mail (August 26, 2014). Before I share with you the information from the article, it’s important to understand the P/E Ratio.

I’m going to keep this simple, let’s begin with the only two definitions you will need for today:

 Price: this is the stock price

 Earnings: this is earnings per share; earnings are the amount of profit that company produces

Let’s take a look at a fictional company XYZ:

Company XYZ’s stock price is $50, therefore Price = $50

The company earned $5 per share, therefore Earnings = $5

Calculating the P/E ratio is easy, just divide the stock price by the earnings:

P/E = $50/$5 = 10

The P/E ratio for company XYZ is 10.

Basically this tells you that in order to buy one share of XYZ you are paying 10 times what the company earned:

10 x $5 = $50

Is it better to buy stocks with low P/E ratios or with high P/E ratios? Here is Mr. Athanassakos’s answer, “My own published research has shown that, historically on average, low P/E stocks have beaten high P/E stocks by about 12% in Canada, and in the United States depending on the market, by between 7% and 11%. Research by Louis K.C. Chan and Josef Lakonishok, published in 2004 in the Financial Analysts Journal, shows that low P/E stocks beat high P/E stocks by about 13% in EAFE (Europe, Australasia and Far East) markets.”

High growth stocks tends to have high P/E ratios, as we can see from the example below:

ViaSat Inc. (VSAT): 349
The Ultimate Software Group, Inc. (ULTI): 104
Glu Mobile, Inc. (GLUU): 115
Facebook (FB): 75
VMware, Inc. (VMW): 41

Mr. Athanassakos continues to discuss high growth stocks:

“U.S. research by Michael J. Cooper, Gulen Huseyin and Michael J. Shill, published by the Darden School of Business, looked at the stock performance of high growth firms and compared it with the performance of low growth growth firms over a period of 40 years. What they found was that low growth firms had an average return of 26%, while high growth firms returned a meager 4%. The low growth firms outperformed the high growth firms by a whopping 22% annually on average, over a 40 year period.”

Conclusion:

Focus on quality stocks with low P/E ratios, and buy them when they are undervalued.

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Worried About Falling Stock Prices?

fearAre you worried about falling stock prices? If you’re thinking about investing, then falling stock prices are great!

The key is to buy quality stocks when they are undervalued. The return on your investment (dividend yield) will also be higher when stock prices are low. Let’s take a look at a real-life example:

ConocoPhillips was founded in 1917, and is an American company which explores for, develops, and produces crude oil, bitumen, natural gas, liquefied natural gas, and natural gas liquids worldwide.

ConocoPhillips trades on the New York Stock Exchange under the stock symbol “COP”.

About 4 months ago COP was trading at $86.76, and the dividend was $2.92, which meant you would earn 3.36% on your investment.

Dividend Yield = (dividend / stock price) x 100
Dividend Yield = ($2.92 / $86.76) x 100
Dividend Yield = (0.0336) x 100
Dividend Yield = 3.36%

On October 14th the stock price dropped to $66.20, and the dividend remained at $2.92. Can you guess what the return on investment would’ve been after the price drop?

Dividend Yield = (dividend / stock price) x 100
Dividend Yield = ($2.92 / $66.20) x 100
Dividend Yield = (0.0441) x 100
Dividend Yield = 4.41%

As you can see the lower the stock price gets the higher the dividend yield gets. Therefore a $5000 investment in COP would yield:

3.36% of $5000 = $168
or,
4.41% of $5000 = $220

$220 return on your investment represents an increase of 31% over the $168 return. Would you rather earn $220 or $168?

Lower stock prices represent great opportunities to buy quality dividend paying stocks at higher yields.

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Want to Increase Your Income, Passively?

I love dividends, and I love them even more when they increase.

Increasing dividends means more money in your pocket. A solid stream of increasing passive income!

Here are some recent dividend increases:

US COMPANIES

Am Electric Power (AEP), to $0.53 from $0.50, increase of 6.00%

Barnes Group (B), to $0.12 from $0.11, increase of 9.10%

Brown & Brown (BRO), to $0.11 from $0.10, increase of 10.00%

Cass Info Sys (CASS), to $0.21 from $0.20, increase of 5.00%

Cintas (CTAS), to $0.85 from $0.77, increase of 10.40%

Hubbell-B (HUB-B), to $0.56 from $0.50, increase of 12.00%

International Paper (IP), to $0.40 from $0.35, increase of 14.29%

Lockheed Martin (LMT), to $1.50 from $1.33, increase of 12.78%

McDonald’s (MCD), to $0.85 from $0.81, increase of 4.94%

Middlesex Water (MSEX), to $0.1925 from $0.19, increase of 1.30%

N.W. Natural Gas (NWN), to $0.465 from $0.46, increase of 1.09%

ONEOK Inc (OKE), to $0.59 from $0.575, increase of 2.60%

Parker-Hannifin (PH), to $0.63 from $0.48, increase of 31.30%

Pall Corp (PLL), to $0.305 from $0.275, increase of 10.91%

Pinnacle West Capit (PNW), to $0.595 from $0.57, increase of 4.80%

Royal Bank Canada (RY), to $0.689 from $0.649, increase of 5.63%

Stepan Co (SCL), to $0.18 from $0.17, increase of 5.90%

Texas Instruments (TXN), to $0.34 from $0.30, increase of 13.30%

VF Corp (VFC), to $0.32 from $0.2625 increase of 21.90%

West Pharmaceutical Services (WST), to $0.11 from $0.10, increase of 10.00%

 

CANADIAN COMPANIES

Alimentation Couche-Tard (ATD.B), to $0.045 from $0.040, increase of 12.5%

Bank of Nova Scotia (BNS), to $0.66 from $0.62, increase of 6.4%

CAE (CAE), to $0.07 from $0.06, increase of 16.70%

CCL Ind. (CCL.B), to $0.2875 from $0.2375, increase of 21.0%

Emera (EMA), to $1.55 from $1.45, increase of 7%

Home Capital (HCG), to $0.18 from $0.14, increase of 28.6%

Manulife (MFC), to $0.155 from $0.13, increase of 19.2%

Pason Systems (PSI), to $0.15 from $0.13, increase of 31.0%

Ritchie Bros (RBA), to $0.14 from $0.13, increase of 7.7%

Royal Bank Canada (RY), to $0.75 from $0.67, increase of 12.0%

Russel Metals (RUS), to $0.38 from $0.35, increase of 8.6%

Saputo (SAP), to $0.26 from $0.23, increase of 13.00%

Suncor (SU), to $0.28 from $0.20, increase of 40.0%

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Are You an Anxious, Impatient, Irrational Person?

Four BusinesspersonsShow me an anxious, impatient, irrational person, and I’ll show you a lousy investor. Your emotions are key when it comes to investing. Successful investors don’t let their emotions get in the way.

You’ve probably heard of Warren Buffett, he’s a famous value investor and a self-made billionaire with a successful track record of over 50 years. But what you may not know is that most of what Warren Buffet learned came from Ben Graham. Ben Graham was Warren Buffett’s teacher and mentor at Columbia University, and here’s what Ben Graham had to say about the temperament of a true investor.

“Ben Graham, as we know, fiercely urged his students to learn the basic difference between an investor and a speculator. The speculator, he said, tries to anticipate and profit from price changes; the investor seeks only to acquire companies at reasonable prices. Then he explained further: The successful investor is often the person who has achieved a certain temperament – calm, patient, rational. Speculators have the opposite temperament: anxious, impatient, and irrational. Their worst enemy is not the stock market, but themselves. They may well have superior abilities in mathematics, finance, and accounting, but if they cannot master their emotions, they are ill suited to profit from the investment process.”*

Remember to be a successful investor: remain calm, patient, and rational and invest in quality dividend paying stocks when they are undervalued.

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* page 178, “The Warren Buffett Way” by Robert G. Hagstrom

Has your income gone up by 935%?

Today I’d like to share with you some wisdom from someone who has been a dividend investor for more than 30 years.

In the latest edition of the Connolly Report (August 2014), Tom Connolly had this to say about investing:

“Focus on the growing dividend income, the increasing yields, is my message to you, in a sentence, after researching dividend income common stocks for thirty years. Dividends give stock intrinsic value. Dividend increases build wealth. In 1993, for instance, Royal Bank’s dividend was 29¢. Now RY’s dividend is $3.00. That’s up 935%. Talk about a great retirement asset. Think on this:Royal Bank’s dividend yield in 1993 was much the same in 1993 as it is now, some 4%. That being the case, what must have happened to the stock price? RY’s price grew too. By how much did the price grow? Yes. You are right. If the yield is the same now as it was, price growth must have been roughly the same as dividend growth.”

Mr. Connolly then continues with the most important piece of knowledge:

“I have learned, over the years, to add yield and dividend growth to estimate future return. Telus, for instance, has a current yield of 4% and a five-­‐year dividend growth rate of 8%. I’d estimate return to eventually be 12%. A lot of folks do not agree with this computation. That’s their loss. I’ve worked with dividend growth for thirty years now. It works. We have experienced it ourselves. We know. We hold, hold and hold good dividend growth stocks.”

Royal Bank’s dividend has increased by 935% since 1993, has your income increased by 935% since then? When you own a quality dividend paying stock that continues to increase it’s dividends….the simplest thing to do with those shares is to…hold. Hold, and continue to earn increasing income.

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