When to sell dividend paying stocks

[tcaron20]

Thanks everyone. Ok the stock is BNS - Bank of Nova Scotia.

As rates go up a bank, especially a community bank like BNS, funds their assets or loans with CDs, etc, which reprice up faster than than the loans or income source. When rates move higher lending generally dries up and you are stuck with lower yielding loans as your deposit rates, or cost of funds goes higher. This decreases the income spread or net margin.

Large national banks fund their loans with low cost business deposits that they generally pay little to no dividend. Basically their cost of funds is zero thereby they are not rate sensitive.

Make sense?


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[target2019]

On seekingalpha, an article just was published, and has commentary that may interest you.

Why Investors Should Be Cautious Of Bank Of Nova Scotia - The Bank of Nova Scotia (NYSE:BNS) | Seeking Alpha

You need a free account to read entirety.

[Running_Man]

Quote:

Originally Posted by tcaron20 Thanks everyone. Ok the stock is BNS - Bank of Nova Scotia. As rates go up a bank, especially a community bank like BNS, funds their assets or loans with CDs, etc, which reprice up faster than than the loans or income source. When rates move higher lending generally dries up and you are stuck with lower yielding loans as your deposit rates, or cost of funds goes higher. This decreases the income spread or net margin. Large national banks fund their loans with low cost business deposits that they generally pay little to no dividend. Basically their cost of funds is zero thereby they are not rate sensitive. Make sense? Sent from my iPad using Early Retirement Forum

Banking in Canada is quite different than banking here in the United States, it is much tighter controlled and there is far less competition. The biggest risk for Bank of Nova Scotia is the overpriced real estate in Canada and the oil collapse. The positives are pretty much everything else. It is a well funded and supported dividend, very unlikely to be cut other than if another financial crisis were to hit the stock market. It’s safety rating by Value Line, which I trust very much was raised to a “1” it’s highest rating in November of 2014, it is an “A” in financial strength and top rated for Earnings Predictability and Price Stability. It is slightly below average in growth and with the recent oil troubles will be a slow grower for a while yet. It is unlikely to have upside surprises but I also think the dividend is rock solid and should increase for years to come at a 8 percent rate. Until something in the financials changed that is what I would go with if I had purchased the stock and would set my sell point today at $192.00 as a price I think would be too high and monitor the financials for any changes that I think would be adverse that I do not see at the present time. Some of these would be : a renewed collapse in oil prices, a major decline in Canadian real estate, a lack of an expected dividend increase ---or a decrease in the safety or financial strength rating by Value Line or a drop in timeliness by Value Line to 4 or lower. Other than that I would hold this stock until I died.

Bank of Nova Scotia has a long history of increasing the dividend every year and just raised to .72 cents with the last dividend. I would not sell. This of course is just some guy on the internet’s opinion your opinion is far more valuable

[Running_Man]

My expectations, if I were to actually be holding this stock would be for the dividend to be increased in the coming 5 years to the following amounts
2017: 0.77 per Qtr
2018: 0.83 per Qtr
2019: 0.89 per Qtr
2020: 0.95 per Qtr
2021: 1.02 per Qtr

As the 5 years passes I would expect Bank of Nova Scotia to then have a stronger potential growth and revert to closer to a 3.5% dividend yield and would look at the stock price as being near 117 in 2021.

With these figures in mind when you listen to quarterly conference calls you can discern if management is in agreement or even more aggressive than you expect, if a note of pessimism sounds that is when you have to earn your portfolio by determining if their outlook is a cause for you to sell. That is what I do and I take notes on the calls versus what I expect.

[tcaron20]

Thanks "target.." For the alpha article. I am a community banker and have been in the business for over 40 years. I do believe that another RE bust is coming. Canada has had a nice run but their bad loans are increasing. Might sell with a second look after it adjusts in price if ever.

Thanks!




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[target2019]

Quote:

Originally Posted by tcaron20 Thanks "target.." For the alpha article. I am a community banker and have been in the business for over 40 years. I do believe that another RE bust is coming. Canada has had a nice run but their bad loans are increasing. Might sell with a second look after it adjusts in price if ever. Thanks!

SA has enough noisy articles, but that one had sufficient research, I felt. It sounds like you agree with upcoming adverse events prognosis.

[rayinpenn]

The time to sell a dividend stock? Never. Timing the market is a fools game.

Warren Buffet said something to the effect of "I but a great stock at a good price and I hold it forever?" I too haven't sold anything in years and years...why would I? I've lived through the credit crisis and every downturn guess what I bought more...


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[Danmar]

Quote:

Originally Posted by tcaron20 Thanks everyone. Ok the stock is BNS - Bank of Nova Scotia. As rates go up a bank, especially a community bank like BNS, funds their assets or loans with CDs, etc, which reprice up faster than than the loans or income source. When rates move higher lending generally dries up and you are stuck with lower yielding loans as your deposit rates, or cost of funds goes higher. This decreases the income spread or net margin. Large national banks fund their loans with low cost business deposits that they generally pay little to no dividend. Basically their cost of funds is zero thereby they are not rate sensitive. Make sense? Sent from my iPad using Early Retirement Forum

No this does not make sense. It is well understood by the market that if short term rates rise, the banks will increase floating rate loans faster than they will increase core deposit rates. Margins are at historically low levels due to the historically low short term rates. This is true in both Canada and the US. Increased rates will help bank margins and thus profits.

I also own BNS ( and other CDN banks) and it has done well recently. Probably a bit of a catch up because they had performed poorly (compared to other Canadian banks ) over the past several years. There is some concern because they have a very high exposure to the oil and gas business and other commodities through their South American banks. Still it has been a great div grower over decades, as have the other Canadian banks. My personal view is that they are better to buy and hold than to trade.

They report their third quarter results early tomorrow morning. The other 4 big banks reported last week and all exceeded expectations.

[Running_Man]

Quote:

Originally Posted by rayinpenn The time to sell a dividend stock? Never. Timing the market is a fools game. Warren Buffet said something to the effect of "I but a great stock at a good price and I hold it forever?" I too haven't sold anything in years and years...why would I? I've lived through the credit crisis and every downturn guess what I bought more... Sent from my iPad using Early Retirement Forumh

Warren Buffet sold Johnson and Johnson, Procter and Gamble
Why Warren Buffett Just Sold his Entire Stake in Procter & Gamble Co. -- The Motley Fool
he sold shares in oil stocks
Why Did Warren Buffett Sell $700 Million in Oil Stocks? -- The Motley Fool
Buffet in 2010 sold Home Depot missing the 300 percent rise after holding for quite a while, he sold Nike in 2011 missing the huge runup and the addition to the DJIA.

[Running_Man]

Well interesting update to this thread as Bank of Nova Scotia has increased to 80 from 65 when the thread began - 23% increase along with 3 dividend payments for a return of 27 percent. This is because with the recovery in oil prices one of the only two negatives for the stock has been removed, so now it is trading at a 3.69% dividend yield close to the 3.5% dividend yield I would expect for a stock of this quality. So going forward with an eight percent growth and 3.69% dividend a long term return expectation of 11-12 percent seems reasonable. Still looking for 117 in 2021.

[Danmar]

Quote:

Originally Posted by Running_Man Well interesting update to this thread as Bank of Nova Scotia has increased to 80 from 65 when the thread began - 23% increase along with 3 dividend payments for a return of 27 percent. This is because with the recovery in oil prices one of the only two negatives for the stock has been removed, so now it is trading at a 3.69% dividend yield close to the 3.5% dividend yield I would expect for a stock of this quality. So going forward with an eight percent growth and 3.69% dividend a long term return expectation of 11-12 percent seems reasonable. Still looking for 117 in 2021.

Yes, BNS has continued its appreciation. Royal Bank close behind. The Canadian banks have been wonderful investments for decades. No reason to believe they won't continue being such. They release their first quarter results in a few weeks. I am expecting strong results from those banks (TD, RY, BMO) that have large US businesses. Again, rising rates should help margins in the US.