Thursday, March 3, 2016

Low Dividend Stock

When I was reviewing Metro Inc. (TSX-MRU, OTC-MTRAF) it made me think about the writers who say that when investing in dividend paying stock, it is best to choose ones with high dividend yields. This is a stock I have it for just over 11 years. I have made a total return of 19.92% per year on this stock.

If I look at my total returns, 92.6% is capital gains and just 7.4% is in dividends. The thing with low dividends is that you are more likely to get good dividend increases and this can help you grow your dividend income nicely.

For this stock the 5 and 10 years dividend growth is 15.8% and 13.37%. The most recent dividend increase is at 19.2%. I am earnings some 9.5% dividend yield on my original purchase price. Also dividends received to date have covered some 45.6% of the purchase price of this stock. However, I am earning just 1.3% on the current value of this stock.

Of course, I can sell some shares and pay capital gains tax on the increase of capital in this stock. Capital gains tax is relatively low compared to dividend tax. I am not ready to do that just yet, but it is a viable option.

Because higher dividend yields tend to come with lower dividend increases and lower dividend yields tend to come with higher dividend increases, I look at this as just another trade-off. So I have low, medium and high dividend yield stocks with high, medium and low dividend growth potential. I say dividend growth potential because there is not exact matchup between dividend yield and dividend growth.

I just bought Gluskin Sheff + Associates Inc. (TSX:-GS, OTC-GLUSF) which had both a good dividend yield of 4.4% and good growth at 12.1% and 14% per year over the past 5 and 8 years. On the other hand this stock has very low growth in its stock price, mainly because the stock price has gone up and down a lot. This stock also gives out a special dividend every year, so it will be interesting to see where this stock goes in the future.

On my other blog I wrote yesterday about Home Capital Group (TSX-HCG, OTC- HMCBF)... learn more. Tomorrow, I will write about Canadian Real Estate Investment Trust (TSX-REF.UN, OTC- CRXIF)... learn more on Friday, March 4, 2016.

This blog is meant for educational purposes only, and is not to provide investment advice. Before making any investment decision, you should always do your own research or consult an investment professional. I do research for my own edification and I am willing to share. I write what I think and I may or may not be correct.

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