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Summary

  • The real risk of stock investing is investors themselves.
  • It’s very common that stocks fall temporarily. When they fall, you have to determine if it’s a temporary or permanent fall.
  • If the stock of a great business falls temporarily, investors should take advantage by buying more shares.
  • Avoid buying bad stocks and bad companies. They’re two different things. As an investor, you want to avoid bad companies as much as possible.
  • You’d want to wait for a bad stock (but a good business) to become a good stock to invest in.

Investors worry about their stocks falling and resulting in money losses. But the real risk is not a stock falling temporarily. The real risk of stock investing is when stocks fall and investors sell, causing permanent losses, while the stocks may only be falling temporarily.

There’s also real risk when a stock falls permanently, doesn’t come back up, or the business behind the stock goes bankrupt.

Another real risk is when investors get a dividend cut so that they get lower dividends than they anticipate.

The Real Risk of Stock Investing is Investors Themselves

There are two common scenarios when stocks fall temporarily. During such times, there are a lot of negative sentiment surrounding the affected stocks. If stockholders can’t stomach the stock volatility and give in to fear or don’t have a clear conviction on why they hold each of their stocks, they’ll have trouble holding on to the shares.

Stocks Fall Temporarily in a Market Correction or Market Crash

A common scenario for when stocks fall temporarily is during a market correction or a market crash.

During the last financial crisis, from the peak of 2007 to the trough of 2008, Alphabet (NASDAQ:GOOGL)(NASDAQ:GOOG) stock fell about 60%, as shown in the chart below.

Source: Google Finance

However, the company itself was still making tonnes of money. In fact, on a per-share basis, earnings increased by more than 40% in each of 2007 and 2008! So, the stock was an absolute steal when it fell a lot during the crisis. At the trough, it traded at a price-to-earnings ratio (P/E) of less than 16.

Source: F.A.S.T. Graphs

The stock fell 60% because there was an excessive negative sentiment in the stock market at the time. Since Alphabet was making so much profit, which was a trend that was set to continue, the stock price decline was temporary.

Indeed, buying the stock at the low led to nearly 700% gains from $142 to $1,132 per share, which equated to annualized returns of 21.8%!

Source: Google Finance

Even if you just bought Alphabet stock at a low, you could still be sitting on very impressive gains of 17.5% per year.

Source: F.A.S.T. Graphs

Quick Investor Takeaways

Here are a few key takeaways from the Alphabet example:

  1. You need conviction to hold on to your stocks when they fall 50%, 60%, or more. A part of that comes from knowing the business and believing that the future is bright for the company.
  2. You don’t have to buy at the low. Just buying a quality business at a low will give very satisfactory returns.
  3. You need to have cash to take advantage of market corrections.

Stocks Fall Temporarily when the Underlying Companies have Setbacks

Another common scenario for when a stock falls temporarily is when the underlying company is experiencing some temporary setbacks.

For example, when Enbridge (TSX:ENB)(NYSE:ENB) first announced its merger with Spectra Energy Corp. in September 2016, the stock climbed about 11% in a few days from the CAD$53 level to the CAD$59 level.

Fast forward to today, the stock trades at below CAD$48 per share. The company took on a lot of debt for the merger to happen. There was also some short-term dilution in the stock — the company’s earnings and operating cash flow dipped meaningfully on a per-share basis in 2017.

Source: F.A.S.T. Graphs

In the near term, there’s a drag on the company due to the delays in the important Line 3 Replacement project, which makes up more than half of the company’s medium-term capital program of CAD$16 billion, and ENB now expects the project to come into service in the second half of 2020. There’s great investment in the project, but the project doesn’t increase the company’s cash flow until it completes. That’s why the Line 3 Replacement project is weighing down on the stock for now.

Enbridge’s payout ratio is forecasted to be roughly 66% of its distributable cash flow this year. So, there’s good coverage for its dividend.

The chart below shows that Enbridge has increased its dividend per share in the long run (since before 1990!) even though there were little bumps here and there.

And Enbridge currently offers a yield that’s at the high end of its historical yield range, which indicates the stock may be a great bargain today for income! One more thing — ENB aims to increase its dividend per share by about 10% next year.

Data by YCharts

In summary, I believe there’s a temporary setback on ENB stock. As the company gets closer and closer to the completion of the Line 3 Replacement project, the stock should head higher.

Quick Investor Takeaway

Investors have to determine if it’s a temporary or permanent setback when their stock holdings fall. Gaining investing experience will help you with your decisions of buying more, holding, or selling when your holdings experience setbacks.

The Real Risk of Stock Investing is Choosing a Bad Company

Notably, I didn’t say “choosing a bad stock” because a company can be good but it could be a bad stock at the moment. It’s like during the Internet Bubble, Microsoft (NASDAQ:MSFT) traded at a P/E of more than 70! It was a good company that was still profitable and continue to make more money over time, but it was a bad stock because it was super expensive.

Source: F.A.S.T. Graphs

Investors who bought MSFT stock at the peak in 1999 needed to wait until 2016 (about 16 years!) to get back to breakeven.

There’s real risk when you choose a bad company. The stocks of bad companies could end up being worth nothing in the worst case scenario when businesses file for bankruptcy. Debtholders get their money back first. What’s left of the company after (usually not much) will go to stockholders.

In a slightly better scenario, the stock falls a lot, and it takes years to recover. Maxar Technologies (TSX:MAXR)(NYSE:MAXR) may be such a company. It can be a multi-bagger if it recovers. However, it’s a super risky investment right now, and that’s why I’m not risking my money in the stock.

The company made a number of acquisitions, increased its debt levels immensely, and the acquisitions simply weren’t working out as management has planned.

At the end of the first quarter, MAXR’s debt-to-equity (D/E) and debt-to-asset ratios were 7.8 and 0.88, respectively. Its cash-flow-to-debt ratio was less than 0.7%, which means there was very low coverage of the debt with its cash flow. The company is simply too overleveraged.

Source: Google Finance

Quick Investor Takeaway

Investors should aim to invest in great businesses from different industries at a good valuation. By doing this, their overall portfolios should increase in value over time despite temporary or permanent setbacks from individual holdings.

Dividend Cuts are a Real Risk

If you bought a stock expecting its dividend to be safe, then it is a risk when it cuts its dividend.

For example, if you hold shares of Johnson & Johnson (NYSE:JNJ), you don’t expect it to ever cut its dividend. The chart below shows that JNJ’s earnings per share have been very stable and growing steadily for a long time with excellent coverage for its growing dividend.

Source: F.A.S.T. Graphs

Of course, there are situations in which investors may buy a dividend stock with the primary goal of price appreciation and view the dividend as a bonus.

If you like what you've just read, consider subscribing via the "Subscribe Here" form at the top right so that you will receive an email notification when I publish a new article.

Disclosure: As of writing, we’re long TSX:ENB, GOOG, and JNJ.

Disclaimer: I am not a certified financial advisor. This article is for educational purposes, so consult a financial advisor and or tax professional if necessary before making any investment decisions.

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To create a passive income portfolio, you can invest in bonds or stocks that generate interest or dividend income without you having to lift a finger. I prefer to invest in stocks which have outperformed bonds in the long run.

I also like the concept of investing in stocks because I’m owning stakes in businesses and benefiting from their profits (although I also take on their risks). This is markedly different from purchasing bonds for which you’re lending your money to governments or corporations for interests in return.

In fact, dividend investing is my favorite way to generate passive income. There are so many safe dividend stocks to choose from. Even in a booming stock market like today, you can still find quality businesses at good valuations.

Here’s how to create a passive dividend income portfolio:

  • Buy stocks that offer safe dividends at good valuations
  • Diversify but don’t di-worsify
  • Aim for a low-maintenance portfolio that’s replicable, scalable, and can be largely automated
Buy stocks that offer safe dividends

The U.S. and Canadian stock markets offer yields of 1.8% and 2.8%, respectively. There are plenty of safe dividend stocks that offer higher yields of about 3-6%.

However, typically, the higher the yield of a stock, the slower its dividend growth will be. (Sometimes, high yielders don’t increase their dividends.) Similarly, low yield stocks tend to increase their dividends faster. Typically, dividend growth stocks are safer and better than stocks that simply maintain their dividends.

Buy stocks at good valuations to protect your invested capital and maximize your gains.

Here are a few examples.

A high yield example

NorthWest Healthcare Properties REIT (TSX:NWH.UN) owns a high quality portfolio of medical office buildings and hospital properties in major markets in Canada, Brazil, Germany, The Netherlands, Australia, and New Zealand.

The healthcare REIT generates stable cash flows from having a high occupancy of about 96% and a weighted average lease expiry of 13 years. Additionally, it gets organic growth from having more than 70% of its net operating income indexed to inflation. It also has CAD$370 million projects in its development pipeline that’ll also add to growth.

NWH.UN has an adjusted funds from operations (FFO) payout ratio of about 89%. REITs tend to have high payout ratios, but the REIT’s payout ratio is still at the high end. So, logically, it didn’t increase its cash distribution from 2012 to 2018 but maintained its cash distribution. As a result, investors should aim to lock in a high yield from the stock.

NWH.UN has yielded 6% to 10.5% in the past. Now, it yields 6.7%, which is closer to the lower end of its yield range. Interested investors should aim to buy the stock closer to a yield of 8%, or CAD$10 per unit.

NWH.UN Dividend Yield (TTM) data by YCharts

Moreover, the stock has a net asset value (“NAV”) of $12 per unit, which is awfully close to its latest stock price of CAD$11.90. So, the stock is pretty much fully valued here. And it’d be more prudent to look for a pullback. A dip of about 16% will lead to a CAD$10 stock price.

To summarize, the nature of NorthWest Healthcare Properties REIT’s business is very stable. It has high occupancy and long-term leases to sustain stable cash flow that supports its dividend. It has a high payout ratio and doesn’t tend to increase its cash distribution.

So, investors should aim to buy it at a high yield. Because it pays out monthly cash distributions, investors can compound their investment using the cash distributions at a faster rate versus dividends that are normally paid out every 3 months.

A decent yield and stable growth example

Toronto-Dominion Bank (TSX:TD)(NYSE:TD) is a top 10 North American bank with a focus on lower-risk retail banking, serving consumers and small businesses. It generates about 92% of its earnings from its Canadian and U.S. retail segments.

At CAD$76.50 per share of writing, TD stock is fairly valued and offers a yield of about 3.9%. In the last 20 years, it has increased its dividend per share by about 11% per year on average. Going forward, it should be able to increase its dividend by at least 7-10% per year.

A low yield and high growth example

UnitedHealth Group (NYSE:UNH) has an enterprise value of about US$289 billion and is the largest private health insurance provider in the U.S. Because of its large scale, UNH earns industry-leading margins.

It is an example of a low-yield but high-growth stock. It only yields 1.7%, but it just increased its dividend per share by 20% this month. And its five-year dividend growth rate is about 27%.

Currently, the stock trades at a decent value. At about US$252 per share, it trades at a blended price-to-earnings ratio (P/E) of about 18.4, while it’s estimated to increase earnings by 13-14% per year over the next 3-5 years.

Diversify but don’t di-worsify

Companies in the same industry are subject to the same challenges. So, for your passive income portfolio, you want to get safe dividends from different sectors and industries because a diversified set of stocks can lead to a safer dividend income stream and a lower volatility portfolio.

To prevent from di-worsifying, or diversification that makes it worse for your portfolio, aim to buy the best stocks from selective industries. The key sectors or industries to explore for safe dividends include utilities, REITs, and energy infrastructure.

Generally, to maintain a safe passive income portfolio, you don’t want to have more than 25% in a single sector or more than 5% in a stock. You don’t have to be too hung up on these allocation rules when you’re building your portfolio (especially early on) because you’re going to add to your positions over time.

You might buy stocks based on your income needs. However, if you have a long investment horizon, such as saving for your retirement that’s coming up in 10 years or later, you want a mix of stocks with:

  • low yield and high growth, and
  • decent yield and stable growth

Dividend growth stocks with higher growth tend to deliver greater dividend growth and price appreciation over the long haul.

How to aim for a low-maintenance portfolio?

For an income portfolio to be truly passive, we want it to be low maintenance. This means it requires as little attention from us as possible — perhaps one that only requires quarterly or even annual reviews.

One way to do this is to aim to only buy the best dividend stocks from selective industries at good valuations and never sell. This way you only have to focus on your buying decisions. Your goal is to never invest in sub-par businesses which should significantly lower your chances of making a bad investment, losing money, or getting dividend cuts. You’ll also lower your trading fees this way.

Aim for a low-maintenance portfolio that’s replicable, scalable, and can be largely automated.

Example of creating a passive income portfolio from dividend stocks

Assuming you’re starting your passive income portfolio from scratch, set up your chequing account to automatically transfer a set amount, say, $50-$3,000 every month to your savings account to be ready for investment.

The more the better, but the important thing is to get the savings program started — no matter how small the savings may appear in the beginning.

Once you’ve saved enough to make your trading fee worthwhile, identify the best stock to buy at the time. Generally, I view paying 0.5% to 1% for the trading fee as acceptable. (If you have little savings to work with initially, you might go with a diversified dividend ETF to increase the portfolio value first.)

There are 11 sectors, and here are some top quality stocks for consideration when they’re trading at good valuations.

SectorStocks
EnergyEnbridge (TSX:ENB)(NYSE:ENB)
MaterialsN/A
IndustrialsUnion Pacific (NYSE:UNP)
Consumer DiscretionaryStarbucks (NASDAQ:SBUX)
Consumer StaplesPepsi (NASDAQ:PEP)
Health CareUnitedHealth
FinancialsTD Bank
Information TechnologyMicrosoft (NASDAQ:MSFT)
Telecommunication ServicesComcast (NASDAQ:CMCSA)
UtilitiesFortis (TSX:FTS)(NYSE:FTS)
Real EstateRealty Income (NYSE:O)

Previously, we already discussed that TD Bank and UnitedHealth are good-valued stocks to consider right now. From the list above, also throw in Enbridge and Comcast which are also either fairly valued or undervalued.

If you like what you've just read, consider subscribing via the "Subscribe Here" form at the top right so that you will receive an email notification when I publish a new article.

Disclosure: As of writing, we’re long ENB, UNH, TD, and CMCSA.

Disclaimer: I am not a certified financial advisor. This article is for educational purposes, so consult a financial advisor and or tax professional if necessary before making any investment decisions.

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Vermilion Energy (TSX:VET)(NYSE:VET) and TORC Oil & Gas (TSX:TOG) are trading at multi-year lows and offer yields of 10% and 7.6%, respectively. Which is more likely to cut its dividend?

There are some things that management can’t control, such as commodity prices, and there are some things that they can control, such as capital allocation (i.e., how much cash flow to allocate for reducing debt, sustaining the business, investing in growth projects, and paying dividends).

Looking at how the companies have handled their capital allocation in the past can give an idea of which oil & gas producer will more likely cut its dividend.

Vermilion

Vermilion’s stock has maintained or increased its cash distribution or dividend every year since 2003. Since 2003, VET’s total payout ratio (which accounts for sustaining capital, growth capital, and dividend) has expanded to as high as 162%, but the company didn’t once cut the dividend.

VET places a high priority on its dividend. If history is indicative of the future, then VET will try to maintain the dividend even when the operating environment is tough.

Notably, VET doesn’t have the tendency to buy back stock like other energy companies, such as Suncor Energy (TSX:SU)(NYSE:SU) and Canadian Natural Resources (TSX:CNQ)(NYSE:CNQ). Last year, the capital the company returned to shareholders was 100% dividends.

In fact, for more than 20 years, the company has been increasing the share count as the need arose. Thankfully, despite the climbing number of outstanding shares, there hasn’t been …

Unfortunately, we have maxed the word limit for this excerpt. But you can read the full Seeking Alpha article (with images and graphs) here: 1 Of These Energy Stocks Is More Likely To Cut Its Dividend

If you like what you've just read, consider subscribing via the "Subscribe Here" form at the top right so that you will receive an email notification when I publish a new article.

Disclosure: As of writing, we’re long on the TSX: VET and TOG.

Disclaimer: I am not a certified financial advisor. This article is for educational purposes, so consult a financial advisor and or tax professional if necessary before making any investment decisions.

Get Exclusive Articles from me on Seeking Alpha
  • Access my portfolio of high-quality U.S. and Canadian dividend stocks.
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If you have stocks that have earnings stability and consistent earnings growth, higher margins compared to their peers, and price growth persistence, they’re probably winners.

If you’ve identified winners in your portfolio, hold on to them through thick and thin, and you’ll be immensely rewarded in the long haul. Oh, and, of course, add to them when they are attractively valued.

Earnings Stability & Growth

Aging and growing populations and advances in technology are reasons that the healthcare sector tends to experience stable growth. The juggernaut in the sector, of course, is no other than Johnson & Johnson (NYSE:JNJ), which has a piece of the pie in the different areas of Healthcare with a Pharmaceutical segment (about 41% of sales), Medical Devices segment (27%), and Consumer segment (14%).

J&J’s has experienced adjusted EPS growth every single year since 2000. It’s no wonder the company tends to trade at a premium P/E despite having been estimated to grow EPS by only about 6% per year over the next 3-5 years.

The market tends to pay up for J&J stock for its stability and consistent growth. Over the last decade or so, if you bought J&J stock at about a P/E of 16, you would have gotten total returns of about 8.5% per year. That’s below the long-term average market returns of about 10%. However, what you get in return is more certainty, more stable earnings, and a smoother ride. As such, I still…

Unfortunately, we have maxed the word limit for this excerpt. But you can read the full Seeking Alpha article (with images and graphs) here: 3 Simple Tips To Identify Winning Stocks

If you like what you've just read, consider subscribing via the "Subscribe Here" form at the top right so that you will receive an email notification when I publish a new article.

Disclosure: As of writing, we’re long JNJ.

Disclaimer: I am not a certified financial advisor. This article is for educational purposes, so consult a financial advisor and or tax professional if necessary before making any investment decisions.

Get Exclusive Articles from me on Seeking Alpha
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In contrary to popular belief, you don’t need to be a great investor to do well in investing, which is to set an attainable income or returns goal and be able to achieve it over the long run.

For example, it’s very reasonable to expect total returns of at least 10% from stock investing.

Some investors require a concrete monetary goal to work towards. For example, you may aim to generate $50,000 of dividends a year or work towards a $1,000,000 portfolio. If that’s the case, break it down — initially, aim for $1,200 of dividends a year or a $10,000 portfolio, respectively. It all starts with saving and investing regularly.

Here’s what it takes to be a good investor:

  • Stick with what you know
  • Be patient
  • Build your risk tolerance

Sounds simple enough, right?

Image attributed to ccPixs.com Stick with what you know

When investing in a stock, you’ve become a part-owner in a business. So, especially for new investors, I highly recommend sticking with profitable businesses that generate stable earnings or cash flow growth over time. These tend to be stocks that pay a growing cash dividend over time to its shareholders.

Some big bank stocks in Canada have become quite attractive lately, including Bank of Nova Scotia (TSX:BNS)(NYSE:BNS) or Scotiabank. Banks are traditional businesses. In fact, Scotiabank has been around since 1833!

You know what banks do — at a basic level, they accept deposits, offer interests on those deposits, and lends out those deposits (up to a certain level) for higher interests to make a profit. Later on, they also helped their customers invest their money. They also make money from their investment platforms when retail investors (like you and me) make trades on their own.

If you know what you own, you’re more likely to hold on to your shares through thick and thin. Of course, it helps that Scotiabank pays a regular dividend. In fact, the dividends of the Big 5 Canadian banks, Scotiabank included, are known to be some of the safest in the world. They maintained their dividends even through the last financial crisis.

They all have payout ratios of about 50%, which leaves a big buffer to keep their dividends secure in bad economic times when earnings are reduced (temporarily).

Be patient

Investors must try to control their emotions of greed and fear as much as they can. Be very patient in looking for a good entry point in proven stocks. Value investing and learning how to read technical charts help, but you still got to be patient.

I think Scotiabank is a superb buy for the long term now that it trades at about 9.6 times earnings against its long-term normal P/E of roughly 11.9. Does that mean it isn’t going to fall more? No! However, from my years of investing experience, it’s impossible to buy at the lowest point (or sell at the highest). So, if you find a stock to be attractive, start buying and buy more of it over time at what you think are good valuations. You’ll get better and better at the investing game over time.

At $68.56 per share as of writing, BNS also offers a yield of nearly 5.1%. So, right off the bat, buyers today will have secured a starting yield of 5.1%, with a dividend that’s likely to grow about 5-6% per year down the road. That’s an estimated long-term return of 10-11% per year without accounting for the scenario of multiples expansion, which is very probable.

Build your risk tolerance

Some people refuse to invest in stocks because they can’t stand the possibility of losing money. I’d say that if you have an interest in making money in the stock market, you should definitely go for it. There are lower-risk ways to invest in the market, including choosing quality businesses (like Scotiabank) that you understand and using a value and dividend investing approach (which applies to BNS stock right now).

Yet, as quality as BNS stock comes, it still fell as much as 40-50% in the last financial crisis. Thankfully, even if you bought right before the big correction, you’ll still be way above water by now. But it goes to show that stocks go up and down — whether they’re backed by quality businesses or not. And investors need to build their risk tolerance to be able to take that volatility.

In my view, the volatility is not the real risk. The bad news is when we lose out to our fears and sell at a bottom in quality stocks and lose capital permanently.

Investor takeaway

Stick with what you know, be patient, and build your risk tolerance to be a good investor and get good returns of, say, +10% per year from the stock market.

Although I said to stick with what you know, you can always expand your knowledge by reading, watching videos, attending conferences, or talking to other investors. For new investors, I suggest sticking with quality businesses that pay you increasing dividends and patiently waiting until they’re attractively valued before buying them.

It certainly helps to build your risk tolerance so you’re able to hold on to your precious shares (and remain part-owners in proven businesses) in market corrections. A part of that comes from understanding the businesses you own, buying them at attractive valuations, getting dividend income from them, and sizing your positions so that you’re comfortable with their allocations in your overall portfolio.

If you like what you've just read, consider subscribing via the "Subscribe Here" form at the top right so that you will receive an email notification when I publish a new article.

Disclosure: As of writing, we’re long on TSX:BNS.

Disclaimer: I am not a certified financial advisor. This article is for educational purposes, so consult a financial advisor and or tax professional if necessary before making any investment decisions.

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Energy stocks can offer big dividends that are too attractive to ignore. However, investors need to look into each stock carefully, as not all energy stocks are made equal. Observing their long-term stock price charts will give a good big picture.

We’ll discuss three high-yield oil and gas producers followed by safer energy stocks for big dividends.

Can You Trust Big Dividends from Oil and Gas Producers?

TORC Oil and Gas (TSX:TOG), Surge Energy (TSX:SGY), and Vermilion Energy (TSX:VET)(NYSE:VET) offer attractive dividend yields of 7-10%. However, their underlying commodities, which experience volatile prices, have a big impact on the companies’ profitability.

The long-term stock price charts of the oil and gas producers illustrate how volatile the stocks can be. Although difficult to time the market, it still makes sense to aim to buy low and sell high, irrespective of what yields they offer.

For example, I once thought getting an above-average yield of 6% from Vermilion was awesome. But Vermilion now yields close to 9.5% — largely due to its stock price decline. So, instead of aiming to get a nice yield on oil and gas producers, I probably would have gotten a better outcome by aiming to buy at a low price; a high yield would just be a nice side effect.

TOG data by YCharts

SGY data by YCharts

VET data by YCharts

Generally speaking, oil and gas producers, which have increased their dividends in the last 12 months, offer safer dividends than ones that haven’t.

TORC last increased its monthly dividend by 13.6% in May 2019, Surge last increased its monthly dividend by 5.25% in June 2018, while Vermilion has kept its dividend the same over the last 12 months. Since, TORC most recently raised its dividend, its dividend is likely safer than the rest.

That said, we should also give some credit to Vermilion for having maintained or increased its dividend every year since 2003. It is the only oil and gas producer as far as I know that has achieved that. However, as shown, that doesn’t prevent its stock price from being volatile.

Vermilion’s Dividend Track Record from 2003 to 2018

The investor takeaway is: Aim to buy low and sell high for price appreciation in oil and gas producers and view getting the big dividends in between as a bonus.

For much safer dividends, consider getting big dividends from energy infrastructure companies.

Big Dividends from Energy Infrastructure Stocks Are Safer

Energy infrastructure companies like Enbridge (TSX:ENB)(NYSE:ENB) and TC Energy (TSX:TRP)(NYSE:TRP), formerly known as TransCanada, have much stronger dividend track records. Specifically, the two have increased their dividend per share for 23 and 18 consecutive years, respectively. And they have paid a dividend for even longer than that.

The stocks also offer lower volatility and have better long-term trends than the oil and gas producers, naturally because Enbridge and TransCanada’s cash flows are much more stable and tend to rise over time. Safe dividends are paid from healthy cash flows.

ENB data by YCharts

TRP data by YCharts

Currently, the stocks of Enbridge and TC Energy offer yields of 5.8% and 4.5%, respectively.

Investor Takeaway

If you’re a conservative investor, consider buying Enbridge or TC Energy on meaningful corrections. Their dividends are safer compared to oil and gas producers. However, oil and gas producers like TORC Oil & Gas, Surge Energy, and Vermilion Energy can deliver strong upside potential if you time the trades correctly.

If you like what you've just read, consider subscribing via the "Subscribe Here" form at the top right so that you will receive an email notification when I publish a new article.

Disclosure: As of writing, we’re long on the TSX: TOG, VET, and ENB.

Disclaimer: I am not a certified financial advisor. This article is for educational purposes, so consult a financial advisor and or tax professional if necessary before making any investment decisions.

Get Exclusive Articles from me on Seeking Alpha
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The post Should You Get Big Dividends from Energy Stocks? appeared first on Passive Income Earner.

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Some people like the security of their principal and guaranteed returns from Guaranteed Investment Certificates (GICs), which are equivalent to Certificate of Deposits (CDs) in the U.S.

Currently, a five-year term results in an interest rate of about 3%. That’s roughly keeping pace with the long-term inflation rate. So, people are able to maintain their purchasing power that way.

Invest in the stock market

Investing in the stock market, investors can get markedly better returns. After all, the long-term average stock market returns are about 10% in the United States. The Canadian stock market tends to underperform due to the large exposure to the energy sector.

The simplest way would be to buy periodically in a market-wide fund, such as the SPDR S&P 500 ETF Trust (NYSEARCA:SPY). For example, if you can save $200 every month for investing, you can invest $1,000 every five months to invest for the long run.

Invest in dividend stocks

For people who’re interested in investing, going with proven businesses that pay dividends is a great way to start. By buying these stocks when they’re relatively cheap, it’s entirely possible to get returns of more than 10% per year in the long haul.

The Big 3 Canadian banks are proven businesses with stable growth. Among the three, both Toronto-Dominion Bank (TSX:TD)(NYSE:TD) and Bank of Nova Scotia (TSX:BNS)(NYSE:BNS) are trading at modest discounts. According to the analyst consensus from Thomson Reuters, both stocks have 12-month upside potential of more than 11%.

Additionally, they offer decent yields of almost 4% and 4.9%, respectively. So, their dividends already beat returns from GICs or CDs. Undervalued shares, a decent dividend, and stable growth of 6-7% for the banks should deliver long-term returns of more than 10%.

If an investor is planning to put their money in a GIC or CD for five years, they might as well consider buying shares in TD or Scotiabank stock for higher returns. Just be ready for some volatility in the stocks.

If you bought $10,000 in TD stock around the current multiple of about 11.2 in 2012, it would have turned into $23,111 for annualized returns of 12.2%. If you bought $10,000 in Scotia stock around its current multiple of 10 in 2016, it would have turned into $14,262 for annualized returns of 11.4%.

Final thoughts

By investing in stocks, you’ll be taking on entirely different risks than stashing money in GICs or CDs. You’re taking on the risks of the underlying businesses — if they do well, the respective stocks will likely do well. You also need to be responsible for buying the stocks when they’re trading at good valuations.

It’s best to have a long-term mindset for investing, as the stock market tends to go up over the long run. In the case of a crisis, and stocks plummet, it could take a year or two for stocks with great businesses to recover.

If you like what you've just read, consider subscribing via the "Subscribe Here" form at the top right so that you will receive an email notification when I publish a new article.

Disclosure: As of writing, we’re long TD and BNS.

Disclaimer: I am not a certified financial advisor. This article is for educational purposes, so consult a financial advisor and or tax professional if necessary before making any investment decisions.

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The post How to Better Invest Your Money appeared first on Passive Income Earner.

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Depending on your investing strategy, you might take (partial) profit off from a holding that has become excessively overvalued or choose to hold on to them as a part of your portfolio for safe income.

However, certainly, when stocks have become pricey as Realty Income (NYSE:O) and Welltower (NYSE:WELL) have, it doesn’t make sense to buy shares, as they’ll likely deliver lackluster returns in the near term. Instead, wait until their valuations have returned to more reasonable levels for a bigger margin of safety and a higher initial yield.

Investors often buy blue-chip REITs for their above-average and generally safe dividends. It’s difficult to say goodbye or even take partial profits from SWAN (sleep well at night) REITs when they have done well.

It’s wonderful if you bought them at a low price when they’re undervalued. But what do you do when they have run up and become excessively overvalued?

Why Realty Income is a Great Dividend Stock

Realty Income is a component of the S&P High Yield Dividend Aristocrats Index and the S&P 500 Index and offers a market-beating dividend yield. There’s no question the REIT has top-notch quality.

First, it’s one of the few if not the only REIT that has an “A-grade” credit rating. S&P gives Realty Income a credit rating of “A-.”

Second, over half a century, Realty Income has built an empire of about 5,800 commercial properties from which it collects stable rental income. These properties are diversified across 48 industries, 49 states, and diversified geographically across …

Unfortunately, we have maxed the word limit for this excerpt. But you can read the full Seeking Alpha article here and find out when’s a good time to buy these great REITs: 2 Great REITs Priced For Low Returns

If you like what you've just read, consider subscribing via the "Subscribe Here" form at the top right so that you will receive an email notification when I publish a new article.

Disclosure: As of writing, we’re not long any stocks mentioned.

Disclaimer: I am not a certified financial advisor. This article is for educational purposes, so consult a financial advisor and or tax professional if necessary before making any investment decisions.

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The post Caution: Avoid Buying This Great REITs for Now appeared first on Passive Income Earner.

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Reviewing history, the Big 5 Canadian banks actually don’t have a high short interest, except for CIBC. The Big 5 Canadian banks are some of the most profitable businesses on the Toronto Stock Exchange.

For long-term investors who are looking for stable dividends and stable growth, it does not make sense to sell your stakes in the banks, unless you have a huge allocation, own a large stake in CIBC, or are worried about the health of the housing market in Canada. You’ve got to hold the stock to get the dividends!

We believe there’s a higher probability of slower growth or stagnant growth in the housing market than a meltdown.

Should You Sell Your Big Canadian Bank Shares?

Should you sell your bank shares? The short answer is “no” unless you own CIBC stock and are worried about the health of the housing market. Royal Bank has the least short interest, which indicates investors are finding it to be the safest bank perhaps because the bank is the leader and largest among the Big 5 and also has a focus on high net worth clients.

Here’s a longer answer to the question. Ultimately, investors should answer these questions for themselves and then make a decision on whether to buy/hold/sell accordingly:

  • Why did you buy the big banks in the first place? What’s your goal?
  • What’s your allocation in the Canadian banks or each bank?
  • What’s your investment horizon?

Here’s our answer with regards to our situation:

Unfortunately, we have maxed the word limit for this excerpt. But you can read the full Seeking Alpha article here: Higher Short Interest In Canadian Banks? Should You Get Out Of Your Big Bank Longs?

If you like what you've just read, consider subscribing via the "Subscribe Here" form at the top right so that you will receive an email notification when I publish a new article.

Disclosure: As of writing, we’re not long in any stocks mentioned.

Disclaimer: I am not a certified financial advisor. This article is for educational purposes, so consult a financial advisor and or tax professional if necessary before making any investment decisions.

Get Exclusive Articles from me on Seeking Alpha
  • Access my portfolio of high-quality U.S. and Canadian dividend stocks.
  • Real-time updates of when I buy or sell from this portfolio.
  • Get best ideas of the top 3 dividend stocks from my watchlist. Updated each month.
Learn More

The post The Big Short in Canadian Banks appeared first on Passive Income Earner.

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Consider investing in the best stocks from an industry you’re interested in, instead of buying more than two from the same industry, as there usually aren’t that many great investing ideas.

If you’re a low-risk, conservative investor, you should consider focusing your investing dollars on stocks that:

  • have stable earnings or cash flow generation,
  • have an investment-grade credit rating or stocks that have little to no debt and are not rated, like Facebook (FB),
  • have weighted average interest rates of about 4% or lower,
  • don’t dilute shareholders,
  • have little short interests, and
  • are trading reasonable valuations.

Stocks from the same industries are subject to the same operating environments/challenges and risks. So, it makes sense to compare stocks from the same industries. Additionally, you’d generally want to compare with peers of similar size (i.e., large cap to large cap and small cap to small cap).

In general, you don’t want to hold too many stocks in the same industry because such stocks tend to move in tandem, and you want to reduce risk through diversification. Besides, why not choose the best stock from an industry you’re interested in? The aim is to lower your risk for satisfactory returns.

The first thing is to identify defensive stocks by looking for businesses that generate stable earnings or cash flow through economic cycles, as I discussed with examples in my previous article, How To Choose Stocks For Your Defensive Dividend Portfolio.

Unfortunately , I have maxed the word limit for this excerpt. But you can read the full Seeking Alpha article here: How To Choose Better Stocks

If you like what you've just read, consider subscribing via the "Subscribe Here" form at the top right so that you will receive an email notification when I publish a new article.

Disclosure: As of writing, I’m long FB.

Disclaimer: I am not a certified financial advisor. This article is for educational purposes, so consult a financial advisor and or tax professional if necessary before making any investment decisions.

Get Exclusive Articles from me on Seeking Alpha
  • Access my portfolio of high-quality U.S. and Canadian dividend stocks.
  • Real-time updates of when I buy or sell from this portfolio.
  • Get best ideas of the top 3 dividend stocks from my watchlist. Updated each month.
Learn More

The post How To Choose Better Stocks appeared first on Passive Income Earner.

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