Another reason for investing in dividend-paying stocks

TD WebBroker has a page called Market News. I like to check it every morning. Today, I found the following:

"Dividend stocks are a better investment than income properties": BMO economist

Daily roundup of research and analysis from The Globe and Mail’s market strategist Scott Barlow

Continuing a theme from earlier this month, BMO senior economist Robert Kavcic compares the yield from fixed income and dividend stocks to an income property,

“The economics of real estate investment get tough on a relative basis given that investors can secure a better yield in dividend stocks, or sit tight in risk-free cash/government bonds. The comparison to dividend stocks is an especially interesting one because both offer long-term capital appreciation potential, and both will see their payouts grow over time at least in-line with inflation. But, dividend investors also benefit from a much lower tax burden; they have access to instant and partial liquidity; and face minimal transaction costs. At the same time, payout risk is generally low compared to rental laws that are tilted heavily in favour of the tenant, along with inefficient backlogs at the Landlord and Tenant Board. Real estate investment should command a risk premium (which it historically has), but current pricing does not offer one” "

I am reposted the above because I am a dividend investor. Many folk see problems with dividend investing and in some cases I agree with them and their criticisms. But I am an older, retired gentleman. In my position, dividends are far more important than they were some decades ago. The steady and increasing income flow keeps the financial wolf from my door. 

I feel somewhat vindicated after reading the Scott Barlow post.

How much is the market down? Is it correcting?

Lately, under the belief that the market is well off it highs, I have been a buyer. It has not been working out well for me. Each of my picks has declined in value and my losses are mounting. Right now the TSX is at 19,868.79. My gut tells me this is a fair drop but when I check the posted high of the past year, 20,843.21, I find the TSX is only off its high of the past year by about 4.7%. Clearly, the TSX today has a lot of room to drop.

The present market enters bear territory when it drops to 16,674.57 for a loss of 20%. A correction begins when the market drops 10% or drops to 18,758.89.

Why did my gut tell me the market was nearing correction territory? Well, the market peaked less that a year and a half ago at 22,087.20, on March 29, 2022, to be exact. Today the market is down about 10% from that historic high but that is not the high used to calculate the present market loss.

I can live on my dividend income. I think I will try and resist the urge to buy more. I am going to try and hold out for some real bargains. If the bargains never materialize, no problem. TDB8150 is paying 4.55% interest on cash deposits.

Catching the falling knife

When the Bank of Montreal got down into the $118 range late last week, I saw a buying opportunity. But, I didn't buy. I held out in the hope that I could buy at a price low enough to give a yield of at least five percent.

Monday the price of Bank of Montreal stock wobbled about but, in the end, it was a down day and I bought in at $117.60. My yield was five percent right on the nose.

The Bank of Montreal is one of the Canada's largest banks. It has been paying dividends for going on two hundred years. It has gone almost two complete centuries without cutting its dividend. Buying Bank of Montreal stock for its dividend seems a very safe purchase. The dividend is almost guaranteed. Sadly, the stock price is not.

I only bought a hundred shares as I already had a nice amount of BMO shares in my portfolio. My income jumped $588 annually but I have also lost about $177 on paper thanks to the loss in value of the stock and the loss may well grow. The amount of the drop was not unexpected but the speed was.

I would not be surprised to see Bank of Montreal drop even more. It may even set a new low for the past year. If it does, I am buying another one hundred shares. Until then, I am going to sit quietly, watch from the sidelines and lick my stock-purchase wounds. The five percent yield will help me recover.

Passing time can hide true magnitude of a stock loss

Using a spreadsheet to track my investments has made me aware of what I see as an interesting blip in the math used to calculate a bear market. A stock enters bear market territory when it is off its recent high by 20% or more. The important word in that definition is "recent".

Take Bank of Montreal (BMO) stock. Today it is selling for $118.87 (mid-day) and is off its high of the past year by 13.6%. BMO is in correction territory. It is not now in bear market territory but it was and not all that long ago. Passing time and not a big pop in price pulled BMO stock out of the bear's grasp.

On March 22 of 2022 BMO hit a high of $154.47. Today BMO is trading at $118.87. It is off that historic high by $35.60 or 23.0%. But that high was about 17 month ago. It dropped off the financial radar when it passed the 12 month mark as it is the high of the past past year, $137.64, that is used to calculate corrections and bear market prices. Today BMO is only down 13.6% when calculated using its high of the past year. BMO is said to be barely in correction territory.

Investors who bought a hundred shares of BMO some17 months ago have lost $3560. The present target price of BMO shares is around $135. This means that even at its target price for the coming year, an investor who bought the stock at its historic high would still be down about $1947. It could be two or three years before such an investor is in the black on this investment.

What can we learn from this story of investor loss? My big take away it that investors must pay attention to not only the loss calculated using the high of the past year but must look back even further to the highs of recent years.

My spreadsheet indicates that the recent market losses may be worse than folks realize. For instance, BMO was off a recent high by about 27.5% at one point. It can easily take more than two years to recover from such a large drop. The fact that BMO stock has not yet fully is not surprising.

It also seems clear to me that the above is a clear argument for averaging down. An investor who bought 100 shares of BMO at its historic high invested $1,548. When the stock was clearly in bear territory, say selling for 22% less, it would have been understandable if the the investor averaged down at that point and bought another 100 shares at $120.49. 

With BMO shares trading today at only $118.87, BMO is a clear buy for our investor who got badly burned buying at the historic high. Averaging down today would drop his average price for BMO to $136.67 and give him a nice dividend to enjoy while waiting for the BMO price recovery.

If BMO shares should take another dip, I believe I might well be a buyer. (Note: BMO hit $17.60 on the next trading day. I bought 100 shares yielding 5%.)

For a good article on bear market recoveries, read: Bear Market Fears: Here's When Stocks Usually Bounce Back After a Downturn.

Telus: I am not alone seeing a buy

Today it is being reported that . . .

Yesterday, Telus dropped below $23. I got a few shares for $22.88. Telus is the second largest telecom in Canada. I agree with those who see today's messy Telus story as temporary. With a 6.3% dividend, Telus pays an investor to buy and be patient.

I consider Telus a core holding in my retirement portfolio. It doesn't just pay me to hold and be patient. It helps pay my expenses in retirement. 

Here is a link to one of my previous posts looking at Telus: Telus: still a buy today.

TC Energy: If you held it, hold it; if you didn't hold it, buy it.

TC Energy Corp. (TRP) is down some 30 per cent over the past 14 months. It has been one bit of disconcerting news after another jarring announcement following close behind. The financial pain inflicted on stock holders has been almost constant for more than a year.

I've said it before, and I was wrong, but I'm going to say it again, and this time I think I may be right. The worst is over! The shock of President Biden's cancellation of the Keystone XL pipeline project is fading and the cost overruns of the Coastal GasLink pipeline in British Columbia are beginning to seem manageable. 

As the dust settles from the sale of a 40% interest in its U.S. Columbia gas pipeline system the positive aspects of the sale are becoming clear. Also it was announced around the same time that TC Energy was spinning off its oil pipeline business in order to accent its core natural-gas operations. This news was unexpected and the market doesn't like surprises and let that fact be known.

The dividend today is 7.71%. This is big enough to attract investor interest even in the present rising interest rate environment. TC Energy is a classic pays-investors-to-hold play. Heck, one can get rich while waiting out the present pullback in stock price to end.

The yield paid by TC Energy may be exceedingly high but the annual $3.72 dividend appears to be not only safe but, going by the company's own projections, the dividend may grow from three to five percent annually into 2026. The TC Energy stock may have lost value but it is not the only pipeline business to be hurting at this time. Think Pembina or Enbridge. They, too, are well off their highs.

There are lots of signs that the pessimism surrounding TC Energy, and the other pipeline operators, is overdone. If you bought high and now have ridden out the worst of this economic storm, it may soon be time to be rewarded for your patience. I'm in that boat and I'm continuing to hold.

If you recently bought some TC Energy, you may have already realized a small but nice profit. I am in that boat as well. I have been both a buyer and a holder of TRP and I take joy from being in both camps. I see a tidy profit in the coming months from holding TRP. I would not be surprised to see it hit $55 or even $60 or more in the coming years.

My latest retirement portfolio: an update

In late June I posted a retirement portfolio designed around dividend-paying investments. Now, it is early August. If the portfolio had been real, one might expect that a withdrawal would have been made after its first full month of accumulating dividends. 

I have withdrawn $3,333.33 in cash. Along with the cash, I have withdrawn enough money to buy 100 shares of TC Energy (TRP). The energy stock dipped to $45.84 and this was just too good a bargain to let pass. This increased my dividend income by about $382 annually.

The portfolio balance at market close August 4 was $1,019,836.34. This is down from its high but it is still a very nice number.

I see confirmation of my TC Energy buy.

I tweeted the following a moment ago: "The TSX is down in the three digits today. TC Energy, on the other hand, is up slightly. I am taking that as a sign that TC Energy was definitely oversold a few days ago and that my decision to add to my position at that time was a good move."