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My Short-term Plan V:

This is a continuation of my 10 part series on the core concepts I am focusing on in this difficult market environment. (Part I, II, III, IV)

Number 5:

Yield. That might not seem to be a very powerful word to investors who ignore stocks that pay dividends in preference for high growth stocks, but yield is something you want to focus on in this period. A dividend is much more than being paid to wait – it’s a return for your stake in a business. The sky is the limit for a fast growing company, but without returning value to shareholders in a tangible form there’s no knowing where the stock will stop when that share price declines. While a dividend won’t always provide support for a stock, it generally protects against the downside if the company’s operations and cashflow are stable.

Dividend growth might be sparse, absent or only meet inflation, but a dividend cut won’t be taken kindly by me or other shareholders. A dividend cut by long entrenched management immediately indicates to me that they inadequately perceived the strength of their operations and put the company in a dangerous position. Likewise I will not invest in a company that issues debt or capital to pay their dividend. The company would be no further ahead in the end and my money is better off in my pocket than in the hands of someone else who mismanages it.

Bottom Line: I want something in my pocket every quarter from a stock that I own. This is my return if the stock goes nowhere during this period. At the cost of current capital in the markets I have the expectation that I deserve a dividend if a company wants me to provide them with capital because capital comes at a premium. I wouldn’t loan any bank money without a guaranteed return and I have the same expectation from a company.

Suggested Stocks I Own: Toronto Dominion Bank (TD), IGM Financial (IGM) & Rogers Communication (RCI.B)

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{ 2 comments… add one }
  • Jake October 3, 2008, 7:16 pm

    Well said. As a part owner in a company we deserve to share profits.

  • Nurse B, 911 October 3, 2008, 7:31 pm

    Thanks Jake,

    I guess the important thing to do then is turn those profits in “compounding-dividends”, right? (wink wink)

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