Scott Hanson 's talk was entitled "Investing Long-Term Dividend and GARP in Canada and US" Scott Hanson is an Investment Advisor with CIBC Wood Gundy.
Scott Hanson talks about growth at a reasonable price that is GARP. The difference between successful and unsuccessful investing is buy and hold. From 1928 to 2015 DJIA had an 11.4% return per year. Bonds had a 5.2% return and MM Funds had a 3.5% return. So a $10,000 investment with DJIA grows to 120M, with bonds to $823,000 to MMF to $200,000.
Between 1995 and 2015, stocks had a 10% a year return. The average investor had a 2.5% return. Problem is noise. The media is your worst enemy, so is short term thinking. We have a wealth of information, but a poverty of attention. We are euphoric at the top of the market and depressed at the bottom. The best time to invest is at the bottom of the market and the worse time is with euphoria.
When the P/E is high or going up, the rate of return is going down. If the current P/E is high, the rate of return over the next 10 years will be low. If the current P/E is low, the rate of return over the next 10 years will be good. However, if interest rates stay low, then P/E ratios will probably stay high.
For example, Microsoft in 1999 at $60 had a peak P/E Ratio of 55. With growth of 8% for the company, the stock stayed flat for a very long time. Stocks do tend to track growth. However, do not buy good companies at a high price.
Investment sentiment is currently conservative. When stocks are on sale, no one wants to buy. The performance after a stock market fall is a 20% return. The true investor likes volatility. They want to buy great investments at the right price.
Greed can push people to buy high and fear can push people to sell low. This is why the typical investor losses. The Dividend Aristocrats are the stocks to buy. You want companies with consistent growth in earnings and dividends. Stocks with high yields and low payouts do the best. Low yields and high payouts do the worse.
You should go for growth at a reasonable price. What is good is superior earnings growth at a reasonable price. Look at ETFs that track the S&P 5900 dividend aristocrats. For Canada there is a smaller pool of dividend aristocrat stock. According to Morningstar from 1985 to 2016 buying dividend aristocrats had a 13.8% return against the S&P return of 8.1%.
One test to use is a stock should growth $1 of market values for every $1 of earnings. Buy dividend aristocrats at a reasonable price and add to your portfolio when stocks show weakness.
Company #1 is a label and packaging company. From 2009 to Q2 of 2016 the company accumulated $34.54 in earnings and the market value grew by $206.43. The Market Value grew by $6.00 for every $1.00 of earnings. This stock passes this test absolutely.
Company #2 is a convenience store. From 2009 to Q2 of 2016 it had $17.85 of earnings and market value grew by $50.67 or by $2.93 for every $1.00 of earnings. This company passes the test.
Company #3 is a leading IT company has $15.58 in earnings and the market value grew by $40.85. It has $2.93 for every $1.00 for earnings and so passes the test.
Company #4 is a Fertilizer company had $15.95 in earnings and market value went down by $18.20, so it had a decline in market value of $1.14 for every $1.00 of earnings. This does not pass the test.
Consider doing a "dollar cost" averaging with your dividend aristocrat quarterly dividends. The compounding is magical. You have the company reinvesting earnings plus dividend reinvesting. Compound interest is the most powerful force in the universe. Consider volatility as a bonus when investing in Dividend Aristocrat stocks. Buy companies that create $1.00 of market value for each $1.00 of earnings.
Today, the P/E is not cheap, but it is not expensive either. Earnings yields are a lot higher than the 10 year treasury bonds. Stocks appear to be cheaper relative to bonds.
One way of investing is to buy preferred shares, if you really do not want to be in the market. Fixed reset preferred shares have a built in rate hedge.
Often you do not get $1.00 of market value for $1.00 of earnings because of debt. You do not want companies that have a high debt load. A good way to judge the P/E of a company is to look at the historical P/E Ratios for a company.
On my other blog I wrote yesterday about Medtronic Inc. (NYSE-MDT)... learn more. Tomorrow, I will write about Gluskin Sheff + Associates Inc. (TSX-GS, OTC-GLUSF)... learn more on Wednesday, October 26, 2016 around 5 pm.
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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