I have been getting a whole bunch of emails recently asking me for my picks of the highest dividend yielding stocks that I would recommend buying. I think this really speaks to two factors at play here. First, I do not make recommendations on what stocks to buy. I am not a financial advisor nor am I licensed to offer investment advice. Second, when trying to build a dividend portfolio it is not the dividend yield that is important - it is the dividend growth!

Dividend yield is simply the dividends per share divided by the share price of the company. Basically, what it tells an investor is at that point in time, your stock will yield dividend payments of X%. If the dividend per share of a company is $1.25 per year and the stock trades at $50 per share, then that stock is currently yielding 2.5%. If you bought that stock at $50 your yield would therefor be 2.5%. Sure it is great that you are receiving this income from the company, however there is something even more powerful that will impact your dividend income and ultimately your portfolio returns over a longer period of time. That force is called dividend growth.

Dividend growth occurs when a company consistently raises the dividend it pays to shareholders. Many companies do this on a yearly basis, and those are the stocks that I try to focus on in the individual stock component of my portfolio. The reason comes to down to one of the most basic of investment principles, yet one of the most important. Compounding Returns. As a company increases their dividends, that means investors receive more and more income. Over time these returns compound into more and more income. The image below really sums this up:

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Therefore, if you are trying to add individual securities to your own portfolio, do not focus on the dividend yield as the be all and end all. Rather, focus on the dividend growth that company has experienced and before long your yield on investment will go through the roof.

In this post I am going to provide a list of websites that provide investors with suggestions for a well-diversified portfolio. However, before I present the list I need to temper anyone’s desire to simply take these suggested portfolios and implement them. Not one of these portfolios is a good fit for everyone, even if the sites they come from suggest that they are! More importantly, if you are going to be a do-it-yourself dividend investor, then it is crucial that you understand why each and every asset in your portfolio is there and by simply following some suggested portfolio you defeat the purpose of being an individual investor. You would be better suited to find a financial planner (fee-only of course) and let them help you build a portfolio. That being said, I think the following list of sites and portfolios is the cream-of-the-crop on the web.

I use sites and portfolio suggestions like these in two ways. First, I use them to learn about and understand the various approaches investors take on the topic of asset allocation. Since I already have a strong asset allocation, I am using it for more of a verification of my asset allocation and to see if there is anything I am missing. If you don’t have an asset allocation, then these lists can provide a good introduction to what good asset allocations look like. Second, I also use them to get an idea of the assets that different investors use to fill-out their own asset allocations. There are thousands of choices for investments, and getting some perspective on what other experts like helps me save time. Again, I do not blindly buy the assets on their lists. I compare my asset allocation and see if the asset selections would fit into my own portfolio.

So what are the site and lists that I like? Take a visit to each of the sites below - I think you will find it both valuable and educational:

FundAdvice.com

This site has one of the more extensive list of suggested portfolios. It is from the makers of the Sound Investing podcast which I listen to religiously and really emphasizes using index funds to build a portfolio. The portfolio that I learned the most from and have actually used some suggestions from it is the ETF Balanced portfolio.

Click here to visit FundAdvice’s suggested portfolios.

Couch Potato Portfolio

This one takes a bit of work as you need to go through a survey to figure out what type of investor you are and what your goals are. However, at the end you get a real good picture of some suggested portfolios and their corresponding asset allocations. Keep in mind that there is a service tied to this website - they want you to sign up to implement their suggestions through their site.

Click here is visit the AssetBuilder tool.

The Intelligent Asset Allocator

When I was thinking of the best way to present the material from William Bernstein’s book of the same title, I was at a loss because I couldn’t find any material on his website that presented the materials in his book in a easy to use manner. However, I did get luck and ran across My Money Blog’s post on model portfolios and he did an excellent job of defining the book’s overall approach. He also included one of the model portfolios presented.

Click here to visit My Money Blog’s post on the Intelligent Asset Allocator. However, to get the full picture of the suggested portfolios for this one, you will need to get a copy of the Book.

That should give you a good list to start with. As I am always on the hunt for suggested or model portfolios, please be sure to let me know using the comments below.

(Photo Credit: Drouu)

I have spent a good part of the week in Stavager, Norway on a sort-of recognisance visit in preparation to pack up our Canadian home and relocate. It is both a scary and exciting time. However, in between house hunting trips, school visits and work with the local office here, I managed to select a few blog posts and articles that I would like to highlight in this week’s investing roundup. Once again, I hope you enjoy these posts as much as I did.

The Carnivals

The Carnival of Money Hacks included The Vanguard Principles - An Excellent Investor’s Resource.

The Festival of Stocks presented my most recent dividend stock analysis on Hasbro.

The Carnival of Personal Finance included a recent post of mine about the real downside of using margin.

The Posts

A list of good investment books

Further evidence that dividends matter

Think positive and you can will be rich

Just because it is focused on short-term trading, the same rules for monitoring your portfolio can apply

Stock dividends are different from normal dividends - understand the difference

I love Ben Stein and he loves index funds

I made a down-payment on our house - was it wise?

Never pay too much to invest - no matter what the marketing machine tells you

Again, I love personal investing status updates

Some good links about Warren Buffet and the annual meeting

Even more awesome personal portfolio reviews

Historical dividend growth

The Articles

Look for firms that raise dividends

Safety in dividends

And for fun - see how rich you will be…

The fact that mutual fund managers have not been able to beat their underlying indexes is not new news. However, there is recent news stating these managers are still having difficulty beating the indexes. In an article from GlobeInvestor.com, the evidence has suggested that, “…Fewer than 20 per cent of large-capitalization Canadian institutional fund managers beat the index in the first quarter, according to a survey by Russell Investments Canada. That’s down from 41 per cent in the fourth quarter and the lowest reading since Russell started monitoring the data in 1999.” Performance has actually worsened in the most recent quarter.

Now, I am not one to put too much stock into such short term performance tracking. One quarter of poor performance should not matter to a dividend investor. However, what is more telling in the article is the discussion that occurs later on who has managed to more closely match that of the market. The highest percentage achieved of those who were able to beat the market was only 27%. A whole 73% of the mutual fund managers in Canada did not match performance. That is not a very promising story, and is especially bad when you consider that in Canada we have the highest mutual fund fees in the world then the story gets even more grim.

Now, I don’t want to be vindictive and totally slag on the mutual fund companies and their managers. These are people too who are tying to do their best. In fact, I can be accused of being an active manager as I buy individual stocks in my own personal dividend portfolio. However, I receive solace from the fact that I am making these choices on my own and not paying someone to underperform the market (I am currently performing better than the market). Paying for poor performance just does not make sense! So please, if I can request anything of my readers, please be sure to understand what you are paying in fees and always check the performance of your funds over a long (1+ years) period of time. If your funds are not at least meeting the market, then do something about it.

(Photo Credit: Steve Knight)

Due to a recent post by The MoneyGardener on the strong performance of Husky Energy and the recent 21% increase in the company’s dividend, I ran the company through my dividend stock analysis machine. I was interested to see how the company’s EPS and revenue trend stacked up against its dividend performance. Also, given that I just paid $70 to fill up my truck at a Husky station, I have been thinking about a way to get some of my money back! Here is the results of that analysis.

The Company: Husky Energy (HSE-T)

HUSKY ENERGY INC. is an integrated energy and energy-related company. The Company’s operations include the exploration for and development of crude oil and natural gas as well as the production, purchase, transportation and marketing of crude oil, natural gas, natural gas liquids, sulphur and petroleum coke, and the upgrading and refining of crude oil and marketing of refined petroleum products.

THE FUNDAMENTALS

Revenue

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Revenue Scoring

Earnings Per Share

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Earnings Per Share Scoring

TOTAL FUNDAMENTALS SCORE: 0.0 out of 2.0

THE RATIOS

Return on Equity

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Return on Equity Scoring

Other Ratios

TOTAL RATIOS SCORE: 3.0 out of 4.0

DIVIDEND DATA
Annual Dividends

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Dividend Scoring

TOTAL DIVIDEND GROWTH SCORE: 0.0 out of 2.0

STOCK VALUATION

Canadian Shareowner’s Association Stock Selection Guide Software Buy Price

TOTAL STOCK VALUATION SCORE: 4.0 out of 6.0

SUMMARY

Points Earned:

7 out of 14 - half points are rounded down to be conservative

The stock is rated LOW with 7 points earned through my analysis of the stock. Although this stock has seen some very strong EPS and revenue growth, it has been choppy. Companies with choppy performance such as this can see pretty crazy swings in stock price which can be difficult to hold. Yes, the company has had very strong dividend growth in the past couple of years, my data from the CSA shows a rather sketchy dividend past. I am comfortable waiting on this one until we have more consistent dividend performance. In addition, oil and gas prices are high right now and some caution must be taken when buying energy stocks. I have not idea what it going to happen in the future, but it pays to be prudent when it comes to investing.

Reminder: This is an analysis completed by The Dividend Guy. It is not to be used as investment advice or a recommendation to buy, hold, or sell any stocks discussed. Please ensure you complete your own analysis.

The Dividend Guy does not own shares in HSE