Strategy

I track the stock price of about 100 dividend growth companies. Given the right price, I would buy just about any one of them. Why? Because in the long run, it's not what dividend growth stock you buy that makes the biggest difference, but rather the price you pay for it.

I find it too difficult to evaluate a company's fundamentals, as past performance is not indicative of future returns. I thus focus on the current stock price of great companies with a track record of yearly dividend increases.

When stocks come on sale, it's usually for a reason. One may find it hard to buy with much pessimism gyrating around it, but that's exactly what you need to do to create superior future returns. I use three metrics to identify when a stock is on sale.
  1. The most important metric I use to evaluate stock prices is Average Dividend Yield.
  2. As a secondary metric, I use Graham Price.
  3. Lastly, Cyclically Adjusted Price to Earnings Ratio (CAPE) compares the current stock price to the company's average earnings per share (EPS) over the last 10 years.
You can find a CAPE Ratio Calculator @ http://www.caperatio.com/

Avoiding Dividend Withholding Tax for Canadians

The table below indicates whether or not a dividend withholding tax is applied.



RSP
TFSA
Non-Registered
US Stocks
No
Yes
Yes
UK Stocks
No
No
No



9 comments:

  1. Great metrics indeed ! Great new way of doing things with Average Dividend Yield ! One I like a lot is Graham Price or Graham number = Square root of (22,5*earnings per share * book value ) ? Thank you for your site. Aspenhawk

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  2. Thanks for stopping by. I've been using this method since 2009. It's not perfect, but it's been pretty good.

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  3. Your goal is nice. How big is your dividend income today? My dividend income is in a five-digit range.

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    1. Hi Tom. Thanks for stopping by. You can see my dividend information here:

      http://averagedividendyield.blogspot.ca/2012/12/2012-dividend-tally.html

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    2. Tom, do you have a Blog?

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    3. Yes, look at http://long-term-investments.blogspot.co.uk.

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  4. I just came across your blog. Nice goals and strategy. Looks like I need to update my strategy soon too :)

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    1. I started a blog to show others that it is possible to invest on your own using a sound strategy. I hope the information you have found on my blog is useful. Cheers.

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  5. Thanks for the article - very thoughtful and interesting approach to simplify. Do you modify the constants in Graham's formula for today's market? I understood he didn't want to consider any stock with a P/E greater than 15 and P/B greater than 1.5 (thus the 22.5 in his formula).

    Just curious if you adapt those numbers and how. I would think we could use today's average P/E for the S&P500 (20.04) and average P/B (roughly 2.7). What are your thoughts on that?

    Thanks again!

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