What Companies Should You Invest In?

stock investment or bank invest fund market growthWhat type of companies should you invest in? The answer is simple: "good" businesses.

Think about this for a moment when you purchase anything, be it clothing, smartphones, TVs, furniture, cars, or a home you strive to purchase the best. You are probably not going out of your way to purchase mediocre products. The same is true for stocks, don't purchase mediocre investments, focus on good companies to buy.

Glenn Greenberg a famous value investor defines "good" businesses as:

"They [Glenn Greenberg and his team] want to buy "good" businesses, by which they mean those that are unchallenged by new entrants, have growing earnings, and are not vulnerable to being technologically undermined, and can generate enough free cash flow on a regular basis to make the shareholders happy, either through dividends, share repurchase, or intelligent reinvestment."*

Basically avoid "bad" or mediocre companies, they do nothing but increase your risk and lower your returns.

Focus on buying quality business when they are undervalued and you will do very well for yourself.

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*p. 241, Value Investing From Graham to Buffett and Beyond, by Bruce Greenwald

Should you buy the bank or their mutual fund?

Where to invest hand writing with a black mark on a transparentShould you buy the bank (stock) or their mutual funds? Great question and one that has already been answered by Tom Connolly recently.

Mr. Connolly reported that in 2004 the RBC Monthly Income Fund was paying out $0.56 a unit. In 2014 the disbursement grew to $0.57 per unit. Can you imagine only a $0.01 increase in ten years! Mr. Connolly goes on to say:

"You might as well call this fixed income [refering to the RBC Fund]. It's a bit more bother, but we buy quality individual dividend growth stocks for a reason…growing income. And, as the dividend rises, so does the price of the stock. We believe: fund buyers get suckered."

How does the $0.01 increase in ten years compare to owning Royal Bank of Canada (RBC) stock (RY)? Mr. Connolly concludes:

"The dividend growth on RY's stock itself, naturally, is far superior. From a $1.01 dividend in 2004 to $3.08 now. RY's dividend up 205% in ten years or 11.8% CAGR income growth. Buy the bank, not their fund."

Would you prefer a 205% increase in dividends or a 1.79% increase in disbursements? Take charge of your investments and you will reap the benefits.

Buying quality dividend paying stocks is easy and I can show you how simple it really is.

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What is the Key to Riding out Downturns and Thriving in the Long-Term?

Save DollarsEveryone wants to know what's the key to riding out stock market downturns, and thriving in the long-term. Fortune magazine recently published an article tackling this important question.

Fortune writes that Don Kilbride who manages the $24.6 billion Vanguard Dividend Growth portfolio has an answer: "he's now convinced that dividend growth is the key to riding out bad markets and thriving in the long-term."

Fortune magazine continues to write:

"Investors have treasured dividend growers for ages, of course, and their recent performance has justified the love. Since the beginning of 1999, the S&P 500 Dividend Aristocrats index—made up of companies that have increased their dividends for at least 25 consecutive years—has returned 314%, more than double the broader market. (Even with dividends excluded, they trounce the S&P 500.)"

As a dividend value investor for over 16 years, I've come to appreciate the power of growing dividends. Growing dividends provide an increasing stream of passive income which also protect you from inflation.

Fortune also interviewed Katherine Nixon:

"Katherine Nixon, who oversees $224.5 billion as chief investment officer of Northern Trust Wealth Management, is steering clients into dividend growers like 3M (which boasts 57 years in a row of increases) and Target TGT (43 years). Their stability and reliable payouts reassure shareholders, Nixon says: “When investors are sailing in white water, there’s something very comforting about a buoy.”

The answer to our title question is simple: invest in quality undervalued stocks which pay growing dividends

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Are triple digit returns possible?

Business Graph Output Growth Of Silver BarsI’ve been asked many times what stocks I hold in my portfolio. I have now published the entire list of my holdings on my website (click here to see the list).

As you can see there are a number of stocks in my portfolio that have exceeded 40% in return. But the focus of today’s article is to look at stocks with triple digit returns:

Canadian National Railway (CNR) 164%
Empire Company Limited (EMP.A) 157%
TransCanada Corporation (TRP) 439%
Walgreens Boots Alliance (WBA) 143%

CNR was founded in 1922, and has had 18 years of consecutive dividend increases. In January of this year CNR announced a dividend increase of 25%, the largest increase in the company’s history. It engages in rail and related transportation businesses in North America.

EMP.A was founded in 1907 and has had 31 years of consecutive dividend increases. The company owns or franchises approximately 1,500 retail stores in 10 provinces under various banners, including Sobeys, Sobeys extra, IGA extra, Safeway, Thrifty Foods, IGA, Foodland, FreshCo, Bonichoix, Les Marchés Tradition, and Lawtons Drugs stores.

TRP was founded in 1951 and has had 15 years of consecutive dividend increase. It operates as an energy infrastructure company (Natural Gas Pipelines, Liquids Pipelines, and Energy.) in North America.

WBA was founded in 1901 and has had 40 years of consecutive dividend increases. The company operates a network of over 8200 drugstores in the United States.

Keep in mind this is not a buy list, you should only buy quality companies when they are undervalued.

The purpose of today’s article was not to brag about my results, but to show that consistent and patient investing in quality stocks can yield spectacular results. I’m no different than anyone else, if I can invest successfully so can you.

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Don’t Have Faith Investing in the Stock Market?

Investing RiskI know investing in the stock market can seem risky. It is risky if you don’t know what you’re doing. Imagine getting behind the wheel of a car if you don’t know how to drive. Or sitting in the cockpit of an airplane but you don’t know how to fly. The missing ingredient in these scenarios is a lack of training.

Training and knowledge help you to overcome the unknown; the same scenarios no longer appear risky. The same goes for investing in the stock market, training will give you the confidence and faith you need to invest by yourself. Knowledge will give you the tools to minimize your risk and avoid certain pitfalls.

Stephen Jarislowsky a self-made billionaire has this to say about investing in stocks:

“I am an advocate of investing in individual, high-quality stocks, provided you take care to avoid certain pitfalls. Historically, stocks have proven to offer as good a return as any other investment vehicle – and nothing I’ve seen over the past 50 years of investing has shaken my faith in stocks.”*

Training (education) is the missing ingredient to help you become a successful investor. You owe it to yourself to learn how to grow your money. After all no one cares more about your money than you do.

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*p.87, The Investment Zoo, by Stephen A. Jarislowsky

Worried You’re Making the Wrong Investment Choices?

Couple InvestingEach time you invest your hard-earned cash in mutual funds, ETFs, stocks, bonds, CDs, or GICs, there’s that inner voice saying “what happens if the invest tanks and I lose my money?”. As an investor your mind races with questions like:

  • What if the stock market crashes?
  • What if corporate executives are stealing money from the business?
  • What if the financial results are made up, and the company goes bankrupt?
  • What happens if I lose my savings?

These are valid questions, and the solution is to build a money producing machine. A machine that will provide you with a constant stream of growing income. I achieve that by investing in quality companies that provide a constant stream of growing dividends.

Dividends are real, just like the cash in your pocket.

“In other words, a company can tell you about its earnings, but there is always a certain ‘flexibility’. There is no flexibility when it comes to paying and increasing dividends. The company must have the cash to pay you. What you see is what you get. Through the dividend, a company can show you how well it’s doing. So dividends are real, like the income from an apartment building or from a liquor store or from a bank CD [term deposit]. And dividend growth is real. Neither dividends nor dividend growth is some propaganda from the company, nor some hype from a brokerage firm or newsletter writer, nor some error in judgement by a finance magazine.”*

Let’s take a look at a real-life example. In 1988 Wal-Mart’s dividend was $0.01 per share, today the dividend is $1.96.

A $4932 investment in Wal-Mart back in 1988 would generate $18,816 in dividends annually today. Plus your shares (all 9600 of them) would be worth $799,104 today. And don’t forget dividend growth, Wal-Mart been consecutively increasing dividends for 42 years now. So, there’s a very good chance the $18,816 in annual dividends would increase next year as well.

Focus on dividends, hold your shares for the long-term, and your money producing machine will continue generating growing cash for years to come.

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*p. 34, The Single Best Investment, by Lowell Miller

One Simple Piece of Investing Advice For You

investLast year Globe & Mail interviewed 12 investors, from Bay Street to Wall Street to Silicon Valley, about how to make money now. Here’s what Satish Rai had to say about investing:

What can a boomer approaching retirement do?

I have a simple piece of advice for boomers: Live off the dividend income, not capital gains from stocks or bonds. If you need the capital gains, you have to try to time the market when you buy and sell. But if you’re able to sustain your lifestyle with dividend income—plus OAS [Old Age Security], CPP [Canada Pension Plan] and your pension plan—you won’t have to worry about fluctuations in the value of your portfolio. You’ll have a very good retirement, because there’s enormous opportunity around this.

This is worth repeating and underlining: Live off the dividend income, not capital gains from stocks or bonds. If you need the capital gains, you have to try to time the market when you buy and sell.

Dividends (the money paid to you the shareholder) are key, forget about timing the market. With sufficient dividend income you don't have to worry when stock prices go up or down.

This advice doesn't only apply to boomers, it also applies to anyone just starting to invest. The younger you are the more time you have to build a portfolio of quality dividend paying stocks. You'd be surprised you may even be able to live off your dividends before you reach your retirement age!

Remember focus on buying quality dividend paying stocks when they are undervalued and you will do very well for yourself.

According to the Globe & Mail:
Satish Rai, 50, joined TD as a management trainee in 1986 and began applying more analytical discipline to the bank’s investment decisions. He is now in charge of investments at TD’s $217-billion asset management division and runs the bank’s own pension plan.

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