Tuesday, June 10, 2008

one up the moneygardener

Like any of the stocks that I hold? Want a better entry point than I had? The following dividend stocks, which I happen to currently hold, can be bought cheaper right now than at most times in the past few years. I believe they're all great buys at today's prices.

Bank of America (BAC) $30.00 8.5% dividend yield
We are all well aware of the trials and tribulations of the U.S. banking sector due to the subprime mess. Whether a dividend cut is in the offing or not, might not matter. If BAC cuts their dividend by 50%, you are still receiving a respectable 4.25% yield on today's price. Contrary to current sentiment the U.S. economy will survive and people will eventually buy homes and seek loans again. When they do, BAC is a well positioned, dominant lender.

Reitmans Canada (RET.A) $15.70 4.6% dividend yield
Earnings for this retailer came in flat last quarter as sales fell. Reitmans operates banners that span demographics and they're extremely well located. Retailing clothing can be a fickle business and can be hurt by odd weather, but RET.A has proven in the past that they can provide what Canadian consumers want and they know how to grow earnings. They're also paying you 4.6% to wait...

General Electric (GE) $30.20 4.1% dividend yield
Emerging markets, alternative energy, and ageing and new infrastructure work.

The Clorox Company (CLX) $53.50 3.4% dividend yield
Just raised their dividend by 15%. Innovative new product lines and industry leading brands.

24 comments:

Traciatim said...

How does the tax work on foreign dividend income from BAC? I'd really like to get ramped up in my taxable investing but the tax rules are really complex it seems.

Michael James said...

Traciatim: I'm no expert on foreign taxation, but I have had US dividends in taxable accounts. The US withheld 15%, and the dividend was treated as regular income on my Canadian tax return. I then got a deduction from taxes payable equal to the 15% withholding. In the end, the 15% withholding and the deduction were a wash. It was as though the full amount of the dividend was just regular income. The only other complication was the conversion from US to Canadian dollars. But, the Bank of Canada web site gives conversion rates for any day you want.

MG (moneygardener) said...

In my opinion too many investors get caught up worrying about tax implications. US dividends are still better than employment income (no CPP, EI, clothes, gasoline, etc. to come off). Also the dividends work in many other ways to impact the characteristics of the stock in my opinion. Floor to share price, yield affects, etc. all limit your downside and attract investors. This is all not to mention the fact that you can't buy a CLX or GE in Canada, they just don't exist.

Anonymous said...

I have the reverse situation and want to know how foreign dividends (from outside of the US) are taxed. Do they receive the favorable 15%?

Sarlock said...

I am just not convinced that we're over and done with the credit crisis to want to touch the financial stocks (of which GE is certainly one of).

While our governments have attempted to calm the economy, there are some worrisome rumblings beneath that might rear their ugly heads in the next year. Inflation, higher interest rates, potential credit default swap crisis next spring, massive pending pullback in spending by the tapped US consumer... there are a lot of risk factors at play that should not be ignored.

These stocks ARE certainly cheap when compared to historical values, but this is making the assumption that the worst is over with. If it's not, and this is why the stocks are undervalued, then investing in these companies may prove to be a very dangerous place to put your money = massive loss of capital and large dividend cut backs.

Definitely be sure to diversify. Nothing is ever a sure bet.

MG (moneygardener) said...

..and so goes investing sarlock...risk = return. Sure bets yield low returns. I'll be buying now and I'll likely be buying lower as well if I get the opportunity. I can't predict the future but I can determine that I am not overpaying given the knowns.

Anonymous said...

"risk = return"

No, risk = risk. That is, more risk means that there is a greater possibility that the investment will not provide a good return.

For example, a lottery ticket is high risk. Return will probably be terrible, though there is a chance it will be spectacular. Placing all your portfolio into lottery tickets is a bad idea, because of the high risk that you will lose your money.

Risk does not equal return.

MG (moneygardener) said...

anon, I disagree. Semantics aside, risk is a part of the formula for gaining better returns on your money than you might get with a GIC, T-Bill, etc. Obviously I did not mean risk = return in the literal sense, but if risk had nothing to do with return then why invest in the stock market at all?

Scott said...

In my opinion too many investors get caught up worrying about tax implications.

Damned straight, skippy! This is worth repeating over and over again: "Don't let the tax tail wag the investment dog." If you choose to hold a US dividend paying stock in an RSP, then there are no witholding taxes due to the Canada/US Tax Treaty.

Second point: It really doesn't matter that the dividend income will be taxed as regular income in a taxable account, just account for the after-tax differences when evaluating companies. Even though the taxes are more onerous for foreign dividend income, often times the yield on foreign stocks is more than adequate to off-set the differences in taxation. This is most definitely the case at this point in time when comparing foreign banks to domestic ones.

Anonymous said...

What about Walgreens, could you add that stock to the list?

Tyler @ Dividend Money said...

MG,
Good points.
I am seriously looking at adding some weighting of BAC to my RRSP portfolio (nix the foreign dividend tax consequences). Don't tell too many people because I want to get a double position under $30.00 and it will likely take me a month to accumulate.
I'm pricing about a 30% dividend cut, but it's a gold mine long-term...5+ years.

MG (moneygardener) said...

anon, WAG looks good at these levels as well and you would be one uping me by buying it here. I didn't include it because I was focusing on dividend stocks and WAG is more of a growth name.

Anonymous said...

"anon, I disagree. Semantics aside, risk is a part of the formula for gaining better returns on your money than you might get with a GIC, T-Bill, etc"

I don't think it's semantics. I think risk is poorly understood and is equated, wrongly, with return, as you stated. That shorthand is dangerous.

My parents, for example, were talked into some "high risk" investments years ago by a financial planner. The investments tanked, and prospect for recovery were slim. They were upset about this, obviously. When I said to them, well the investments *were* high risk, they replied, "yeah, but we were supposed to get higher returns BECAUSE of the risk!" Nuh-uh. There was a *possibility* to get higher returns, but also a heightened possibility of losing, which as it turned out was the result.

Yes, you invest in the shares of companies because of the heightened possibility of better returns than investing in GICs, bonds etc. Owning capital tends to be more profitable than owning debt, over time. Risk can be managed by careful consideration of what you buy, diversifying, holding good companies for a long time, and collecting a decent dividend stream while you hold.

But don't kid yourself about risk. Risk means that $10,000 bet on Company A turns into $5,000 5 years from now.

MG (moneygardener) said...

that's a pessimistic view of risk. I agree that the management of risk is key but there is no denying that risk plays a role in return level.

Sami said...

anon. brings excellent points on risk vs return debate. and I have to agree. more risk does not mean more returns. you have to weight the probability of a return vs the probability of a loss. higher probabilities of loss typically is associated with risky bets and the expected payoff is, accordingly, a loss.

also, a lot define risk by statistical means which is flawed. a standard deviation of historical prices does not tell you how risky an investment is.

the concept of risk is misunderstood by investors. most of the time the less risk you take in investing the more money you make.

Anonymous said...

" standard deviation of historical prices does not tell you how risky an investment is."

Exactly. Another misunderstanding. Risk and volatility are not the same.

It is not pessimistic to see risk as the potential for a downside. It is the entire concept!

MG (moneygardener) said...

sami, If that were true we should all be keeping our money in saving accounts. That will yield the highest return. I agree that risk increases the probability of loss but I would absolutely have to disagree that the less risk you take the more money you make.

MG (moneygardener) said...

anon, potential for downside is not the entire concept of risk. You are missing the upside. If risk was purely postential for downside it would make not sense to take on any risk. The kicker with risk is that it has higher potential upside as well. I feel you are just seeing the downside of risk, in what could happen. I will admit risk increases potential for downside but risk also carries the good long term chance of beating 'riskless' options. It must be this way, if it were not nobody would invest in stocks, start businesses, get variable rate mortgages or play the lottery.

Sarlock said...

http://www.bloomberg.com/apps/news?pid=20601087&sid=afzqQCOTCpZI&refer=home

Food for thought. Tread carefully.

Anonymous said...

Beating this to death, maybe.

But I continue to disagree about risk. If you see reward resulting from risk, you've been whistling past the graveyard.

Yes, higher return investments tend to carry with them higher elements of risk. This does not mean that risk leads to reward. Saying greater risks bring greater rewards is backwards. Greater rewards carry with them greater risks. Risk is the downside of heightened reward potential. Again, that's not being pessimistic, that's just the concept!

Personally, I take lots of risk (hopefully reasonably calculated risks), in order to obtain rewards. But thinking that risk leads to reward is a conceptual error. It's not pessimistic, it's being clear about what it is you are doing so it can make good decisions, manage those risks and are able to absorb risks that result in undesirable outcomes.

MG (moneygardener) said...

I think we are in agreement...

Anonymous said...

I'm not sure we are, but whatever.

Anonymous said...

At today's prices is there such a thing as 2 upping? If the slaughter continues how bout a 3 up? Are some of these companies true value plays or value traps?

Many other companies i follow or own are also getting their teeth knocked in. Is it too late to buy more oil and gold. lmao
DH

Sarlock said...

July 15, 2008

Bank of America Corporation (Public, NYSE:BAC)

$19.08

Freefall!