Sunday, December 9, 2012

Investor Profile & Philosophy

Hello, my name is James, and I am a dividend-growth investor.

It's fine if you insist on telling me stories about your stock that shot up 1000% overnight. I'm excited that you received a great tip from your uncle on Bay Street about the latest IPO and are fully subscribed.  It's wonderful that you bought a cottage in Muskoka with your penny stock that went through the roof.

Me? I'm content working hard every day, keeping abreast of my portfolio of about 30 stocks via media alerts, and watching an ever increasing stream of dividends be deposited into my discount brokerage account each month.

When I started investing in stocks 15 years ago, I was definitely a speculator. The fact that Nortel was my first stock purchase serves as ample proof of my idiotic ways. Still, I'm glad I had a couple stocks go to zero (Nortel and 360 Networks), as I learned some valuable lessons and won't duplicate those mistakes. Over the years, I started to add more "solid" stocks to my portfolio, with Bank of Montreal and Riocan being two of my early picks that I still hold today.

My investment approach grew from momentum investing/speculating, to buying industries I thought had growth potential, to putting money into companies I was familiar with (aka my Warren Buffet/Peter Lynch phase), to looking at the Dogs of the Dow/TSX, to dividend growth investing. As corny as it sounds, Ms. Klugman's book changed my life. In recent years, I've modified my specific stock selection strategy to more closely resemble that of Mr. Miller's philosophy.

Currently, I have screens set up for US and Canadian equities to filter for companies that have a dividend yield of at least 3%, and have grown their dividend at an average rate of at least 5% over the past five years. If the current dividend yield plus 5-year average dividend growth rate is over 10%, I further investigate the stock. When performing more detailed due diligence, I look for sustainable dividend payout ratios (less than 60% is great), ample free cash flow (CFO - CAPEX - Dividends), and growing earnings (topline growth preferred).  It is difficult to find companies that meet all of these criteria, especially in Canada.

There are a couple reasons I decided to start this blog. Having described my dividend investment philosophy to friends, co-workers, and even during job interviews, I've realized that putting my thoughts and analysis on paper is helpful to me. There's also the fact that I enjoy reading some dividend-growth blogs, and thought it was time to reciprocate. Additionally, I find blogging cathartic, and have met some real characters via cyberspace. Lastly, having heard the investment philosophies of various friends/acquaintances/co-workers...I find it frustrating that people talk about buying RRSPs (vs buying assets to put in a RRSP), investing in high-cost mutual funds via an investment advisor (*shivers at the thought*), or how they're depending on the Canadian Pension Plan to serve all their retirement needs.

Finally, my disclaimer - whatever I post should not be considered investment advice. If you're interested in buying stocks and/or other financial products, you should read, talk to experienced financial professionals (hopefully those with the CFA charter), and do your own, independent research.  Having said all that, here's hoping you find this blog informative, or at least entertaining :)

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