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Old 04-20-2010, 11:40 PM   #81
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I adore dividend growth stocks. I run six trusts funds for my neices and a nephew and all contain stocks with good dividend history. I buy them those because I don't want to have to trade anything. I just like to buy small amounts over time and let compounding do it's thing. I've found that the rules I use to screen pretty much any stock apply to those paying healthy yields. People get nervous around very high yields, but if the profit margins aren't thinning over time, debt levels remain consistent or are improving, you have a pretty safe return coming.

Do be cautious with MLPs that you look at the net income growth of at least 5 years. What may appear to be a great yield with a low P/E could really only be a temporary boost to earnings, for example, just after gas prices had spent some time being high we saw the earnings of LINE go way up. The numbers before those years were a lot lower, and so it basically would have been a value trap if it hadn't been priced so low. I bought in with a yield close to 16%, and sold after the stock went up 80% in price.
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Old 04-21-2010, 10:03 AM   #82
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OMG my dividend yield keeps going down Dividends intact. Still like my strategy.
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Old 04-21-2010, 12:45 PM   #83
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OMG my dividend yield keeps going down Dividends intact. Still like my strategy.
Diversified dividend strategy...
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Old 04-21-2010, 02:35 PM   #84
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Diversified dividend strategy...
Agree. In my case I'm not as diversified as I would like. I have a excessive position in my previous employer whose CEO and other execs I know and respect. Problem is my tax cost is very low and selling any of this stock would cost me big tax dollars. I know I should do it at some point and will-probably over time. In the meantime they are doing exceptionally well and I expect them to resume dividend increases within a year. The pension plan is very well funded too.
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Old 04-21-2010, 04:03 PM   #85
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OMG my dividend yield keeps going down Dividends intact. Still like my strategy.
You have to consider what you paid for the stock. Often, yield is based on current price. So if you bought it at $10 with a $1 dividend, and now it's at $20 the dividend yield will usually be based on the current price - you bought it with a 10% yield - now it's a 5% yield. Plus you've got a LTCG of 100%...
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Old 04-21-2010, 04:15 PM   #86
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You have to consider what you paid for the stock. Often, yield is based on current price. So if you bought it at $10 with a $1 dividend, and now it's at $20 the dividend yield will usually be based on the current price - you bought it with a 10% yield - now it's a 5% yield. Plus you've got a LTCG of 100%...
Thanks Thinker. I was trying to be funny.
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Old 04-22-2010, 01:26 AM   #87
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Agree. In my case I'm not as diversified as I would like. I have a excessive position in my previous employer whose CEO and other execs I know and respect. Problem is my tax cost is very low and selling any of this stock would cost me big tax dollars. I know I should do it at some point and will-probably over time. In the meantime they are doing exceptionally well and I expect them to resume dividend increases within a year. The pension plan is very well funded too.
Wanna hear some devil's advocating?

A couple years ago I had another poster on this board call me out for my lack of diversification in a similar situation. In this case the CEO is Warren Buffett and the other execs are Berkshire Hathaway employees. We'd held those shares since 2001 and they'd more than doubled in price. And yeah, we took a humongous cap gain when I finally got off my dead assets.

I'm really glad this friend hit me upside the head with a 2x4, because we reluctantly rebalanced in Feb 2008 and the share price still hasn't recovered to that lofty plateau peak. We were talking most of the kid's college fund and nearly a fifth of our ER portfolio. The former is now all in CDs (she starts college in 109 days) and the latter is now slightly more diversified.

I didn't appreciate it at the time, but just eight months later we were able to wipe out all of that nasty cap gain-- through humongous cap losses on tax-loss swap sales of the rest of our portfolio. We even have cap losses to carry forward for 5-10 years. Hopefully you don't have the same "opportunity".

So I don't know if your CEO is in the same respect class as Warren Buffett, and you probably know your CEO/execs better than I know Buffett & team, but I doubt that will offer you much comfort if their share price drops by over 50% from its peak. It tested my comfort level.

If we're as good at investing as we say we are, then we shouldn't base selling decisions upon taxes. In fact, paying cap-gains taxes should be the fervent desire of every stock transaction. Hopefully long-term cap gains taxes, but short-term cap gains are better than some of the alternatives.

Dividends & pension plans... yeah, I bet that dividend rate looks twice as good when the share price is whacked in half. We have another poster who followed Bank of America's downward spiral (and ever-rising dividend rate) right down until the dividend was cut to a penny. And 401(k)s are a lot easier to fund after the layoffs.

Black swans. I'm just sayin'.
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Old 04-22-2010, 05:29 AM   #88
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... and what Nords is saying is spot on...
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Old 04-22-2010, 10:47 AM   #89
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Nords-appreciate the advice. I would give the same advice. My actual risk is even higher as I am sitting on a further multi million dollar, in the money position for my remaining vested employee stock options. These expire over the next 20 months (the vast majority in 20 months). Only simple way to get this position down is to cash them out. If I do this I am foregoing significant option time value. These options have been my main source of wealth over the years. My attitude has always been "dance with the lady you brought". I had a role in developing stategy for this company and was part of the senior team so it is emotionally diificult for me to reduce my exposure to what could arguably be Canada's best run and most successful large company. This in no way negates your advice-I know you are right. Also, once the options are cashed out the only significant risk to us is the dividend (current yield about 3.25%). This represents about 35% of current earnings and hasn't been cut since the 1930's. Thanks again.
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Old 04-22-2010, 12:19 PM   #90
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Thanks Thinker. I was trying to be funny.
Oops - the famous issue of conveying humor in email rears its ugly head!
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Old 04-22-2010, 11:21 PM   #91
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Nords-appreciate the advice. I would give the same advice. My actual risk is even higher as I am sitting on a further multi million dollar, in the money position for my remaining vested employee stock options. These expire over the next 20 months (the vast majority in 20 months). Only simple way to get this position down is to cash them out. If I do this I am foregoing significant option time value. These options have been my main source of wealth over the years.
Ah, I have no experience with being paid in options.

However CuteFuzzyBunny and ClifP can no doubt share their hair-curling options stories to give you a completely different perspective on the alleged "time value" of your options.

Hey, at least you're not exercising and holding the stock to shift the taxes to long-term cap gains. But for the amount of money at risk there has to be a way to slap a collar on that puppy.
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Old 04-23-2010, 08:21 PM   #92
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Options gains are taxed like cap gains in Canada. Also no distinction between short and long term cap gains. All taxed at 19.5% in Alberta. Thanks again.
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Old 04-24-2010, 09:28 AM   #93
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Nords-appreciate the advice. I would give the same advice. My actual risk is even higher as I am sitting on a further multi million dollar, in the money position for my remaining vested employee stock options. These expire over the next 20 months (the vast majority in 20 months). Only simple way to get this position down is to cash them out. If I do this I am foregoing significant option time value. T
You can hedge through the vesting period - buy puts that expire close to the time you plan to exercise.
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Old 04-24-2010, 10:22 AM   #94
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You can hedge through the vesting period - buy puts that expire close to the time you plan to exercise.
Yes I understand -thanks. Options are all vested and I could cash any time. Bottom line is I will gradually cash out over next 20 months taking advantage of any run ups. I am fairly comfortable with this exposure although by their nature options tend to be risky instruments. At least they are deep in the money.
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Old 04-24-2010, 11:05 AM   #95
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I went through this! I was very lucky (but patient too - I did go through some long waiting periods).

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Old 04-24-2010, 11:35 AM   #96
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Nords-I went back and read your post again. In fact the stock backing up my options dropped by about 60% from its peak. This was from Oct/07 to Feb/09. It is creating new all time highs now. You can imagine how difficult this was for our net worth. In fact excluding real estate (as I usually recommend) our net worth dropped by 75%!! Luckily we didn't panic as I had confidence that things would improve quickly as they did. After going through that I have decided to be patient and play it out. Maybe easy to say now but the recession was mild in Canada and things really look OK at this point.
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Old 04-24-2010, 11:41 AM   #97
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After going through that I have decided to be patient and play it out. Maybe easy to say now but the recession was mild in Canada and things really look OK at this point.
I sincerely hope this works out for you. Not often, but on occasion, posts like this come back to haunt folks who look back and say, "If only I'd taken my gains then - at least some of them - instead of waiting!".
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Old 04-24-2010, 01:48 PM   #98
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I sincerely hope this works out for you. Not often, but on occasion, posts like this come back to haunt folks who look back and say, "If only I'd taken my gains then - at least some of them - instead of waiting!".
Thank you. I have taken quite a few gains over the years. Let's hope there are more.
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Old 04-24-2010, 02:25 PM   #99
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Nords-I went back and read your post again.
I'm done here. Good luck with that.
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