Safe Dividend Investing
Safe Dividend Investing
#124 - Shyster Stock Promoters- Corporations Are Not Democratic - Preferred Shares Disappoint
Welcome to Safe Dividend Investing’s Podcast # 124 on July 13th of 2023. Today, I will be answering 7 interesting investment questions.
QUESTION (1)
Is i ethical to invest in startups that you know are stocks being set up to go bankrupt as soon as the promoters have fleeced naive investors
QUESTION (2)
What is the reason for the recent popularity of dividend yielding stocks? Is this a bubble that is going to pop?
QUESTION (3)
Are CEOs required to act in favor of the company or the shareholders?
QUESTION (4)
How can buying preferred shares of a company remove the higher risk of common shares in the event of bankruptcy?
QUESTION (5)
How would historical dividends help predict future dividend payouts?
QUESTION (6)
Are REITs a good investment and should I keep them in my regular trading account or my tax-free investment account/
QUESTION (7)
Referring to your book, "New York Stock Exchange's 106 Best High Dividend Stocks", I am having trouble determining how to work out operating margins and in finding good solid stocks with high earnings-per-share ratios to invest in. Do you have any suggestions/
FIVE INVESTMENT BOOKS BY IAN DUNCAN MACDONALD
(ALL BOOKS ARE AVAILABLE FROM AMAZON.COM KINDLE BOOKS)
(1) NEW YORK STOCK EXCHANGE'S 106 BEST HIGH DIVIDEND STOCKS
In this 334-page book there is a 2-page report for each company scoring 11 data elements. It also lists 23 years of historical share price and dividend payouts so that investors can judge the stock's reliability.
(2) AMERICA HIGH DIVIDEND HAND BOOK
&
(3) CANADIAN HIGH DIVIDEND HANDBOOK
in these two books, pages of charts are sorted four ways by stock score, share price, dividend yield percent and alphabetically. A page for each stock provides eleven facts which created each stock's total score.
Both books list all common stocks that were paying dividend yield percentages of 3.5% or more on the New York Exchanges and the Toronto Stock Exchange.
(4) SAFER BETTER DIVIDEND INVESTING:
All 628 stocks paying dividends of 6% or more on the NYSE and the NASDAQ, are scored and sorted by score, price, dividend % and alpha. Plus 199 high dividend Canadian stocks. The answers to 128 questions asked by investors are provided. This instructional reference book will make building a better investment portfolio faster and easier.
(5) INCOME AND WEALTH FROM SELF-DIRECTED INVESTING
In this, his first investment book, in easy to understand language, Ian MacDonald reveals the serious concerns you should have about entrusting your money to investment advisors. Step-by-step he shows you how you can realize an annual 6% income while your portfolio continues to grow year-after-year. 654 stocks paying dividend yields over 3.5% or more on the Toronto Stock Exchange are scored and listed.
FOR MORE INFORMATION ON THESE 5 BOOKS, HIS 3 NOVELS, AND 2,300 PAINTINGS, PHOTOGRAPHS AND DIGITAL ART VISIT:
www.saferbetterdividendinvesting.co
Ian Duncan MacDonald
Author, Artist, Commercial Risk Consultant,
President of Informus Inc
2 Vista Humber Drive
Toronto, Ontario
Canada, M9P 3R7
Toronto Telephone - 416-245-4994
New York Telephone - 929-800-2397
imacd@informus.ca
PODCAST 124
13 July 2023 –
SAFE DIVIDEND INVESTING
Greetings to listeners all around the world. Welcome to Safe Dividend Investing’s Podcast # 124, on July 13th of 2023.
My name is Ian Duncan MacDonald. In today’s podcast, I will be answering 7 interesting investment questions.
The objective of my books, my website and my podcasts are to show all those seeking financial independence how to become informed, confident, successful self-directed investors.
QUESTION 1
Is it ethical to invest in startups that you know are stocks being set up to go bankrupt as soon as the promoters have fleeced naïve investors?
Every year a few million businesses are created in North America and few million shut their doors. From my decades in commercial risk analysis I soon learned that all startups are a throw of the dice. The chances of any new business being able to survive its first year in operation are slim.
New businesses are competing with established businesses who have loyal customers. It takes tremendous effort to overcome the inertia of the typical established customer to even consider changing suppliers.
As well, many new businesses are commenced by those with a limited understanding of all they will have to learn to realize a profit. To survive a company must quickly learn how to minimize expenses and maximize revenues.
Many decades ago, I was a young salesman for a large reputable, international corporation selling commercial marketing information. This brought me in contact with stock promoters who were selling the shares of what was referred to as “moose pasture mining companies”. These were always unprofitable mining companies with potential. The promoters were supposedly raising money to develop mines that would make all investors rich.
When I visited them I passed through a large noisy room full of dozens of commission salespeople. They were phoning high income individuals across North America.
Their pitch was that the prospect would miss a once in a lifetime chance to become wealthy if they did not invest in this new stock issue. They were assured that a few thousand dollars invested in these penny stock shares would grow into hundreds of thousands of dollars.
The promoters were purchasing from me the names and phone numbers of hundreds of thousands of chief executives. Other sources supplied them with the names of doctors and dentists who knew even less about investing and were easier to sell.
The sales campaign would go on for several months until they had run out of prospects. The money raised for the mine would then be used to pay for the promotion and reward the owners of the promotion company for their hard work. Sometimes they might spend a token amount to give the impression that some work was being done on the mine property.
The stock would go nowhere . It would fade to a few cents a share. The promoters would be busy promoting their next “hot stock”.
These shysters never had any intention of creating an operating mine. Such crooked operations are thieves plying on the greed and the ignorance of investors who had no experience in evaluating a business or a stock.
To knowingly invest in such a venture that you know is a con and to plan on cashing out before it crashes is obviously not what someone who is open and honest should be involved in. While such a theft can be done without breaking any laws, it is still theft. Many decades later I feel guilty that I aided these crooks.
A high-income individual who knows little about businesses or investing is an easy target for promoters I only hope before they invest that they take a few minutes to visit my website, listen to the videos and learn how to identify safe strong companies. My website is http://www.informus.ca . An informed investor can realize financial independence.
QUESTION 2
I didn’t know that investing in dividend paying stocks was popular. From what I observe almost all investors are speculators who often say dividend stocks are for plodders. This is despite my being told that only 5% of speculators ever make money in the stock market.
I have been living very well off my dividend income for the last 20 years. My portfolio is many times larger than when I started.
To me dividend investing was the safest most logical way to invest. As I saw it, the purpose of a company is to make a profit. Dividends are paid from profits. Unprofitable companies go bankrupt. You run the risk of losing all you have invested when you invest in companies with weak profits.
Why risk your money in unprofitable companies or those who don’t pay dividends. My objective is to teach people how to identify safe, financially strong stocks who have ever rising dividend payouts. I only buy stocks that I never intend to sell. If everyone invests as I do, dividend stock prices will never “pop”.
The share prices may go up and may go down but dividend payouts are not directly connected to share prices controlled by pessimistic and optimistic speculators. I have seen even during the market crashes of 2008 and 2020 how dividend payouts never dropped even though speculators temporarily drove down the share prices of these companies by as much as 50%.
When you buy such strong dividend stocks you are buying dividend income. The share prices are almost irrelevant.
QUESTION 3
Are CEOs required to act in favor of the company or the shareholders?
Companies are political institutions. The CEO is employed by the “company” to make a profit. What is the “company”? It doesn’t really exist except as written legal document. It is an illusion or a concept.
The board of directors, who are supposedly elected in a “democratic” vote by the shareholders, on paper, hold ultimate control of the company. However, who is even nominated to be a director is usually controlled by the CEO. The CEO receives and controls the proxy votes supplied by the vast percentage of shareholders that choose not to participate directly in the company’s annual meetings.
The only threat that exists to their dictatorial power is the rare occurrence of a disgruntled, wealthy shareholder with ownership of high percentage of the company shares. Even less likely is for thousands of minority shareholders to be able to form a unified force opposed to a CEO. It takes time and money to overthrow a CEO.
The CEO has the advantage of controlling the company information being fed to the directors, shareholders and the public. This helps prevent the CEO from ever appearing as anything but wise and fair.
If the company under the CEO’s control is showing an acceptable profit and stable share prices there is little motivation by anyone to disrupt the company’s operational structure. “Experts” are employed by the company to turn negative information into a positive spin or to bury it or deflect it.
Corporations are not democratic institutions.
QUESTION 4
If a public company goes bankrupt do not buy into the myth that because you have preferred shares, and they rank ahead of common shares in a bankruptcy settlement, that you will recover what you have invested. The most likely result is that no investors will recover a penny.
Secured parties like the banks with their floating debentures will likely recover most of what they have lent. That debenture allows them to step in and seize any assets before the company becomes bankrupt. Bond holders also rank ahead of any shareholders.
This is why you invest equally in 20 companies and limit your risk in the failure of any one stock to only 5% of your wealth. A 5% loss should easily be covered by average gains in the other stocks in the portfolio.
Analysts and most investors have no interest in preferred shares because while their dividend yield percent may be high, their share prices rarely show a gain and can easily lose 20% to 50% of their initial value over time. In writing my book, Safer Better Dividend Investing, I was surprised to see that only 1% of preferred stocks ever exceeded their initial placement price and even then by a negligible amount.
Before buying a preferred share look at the last two decades of share prices and dividend payouts. I understand for corporations there are some tax benefits for investing in preferred shares but as a individual I can see none.
QUESTION 5
How would historical dividends help predict future dividend payouts?
For the last twenty years I have lived off the dividends paid from my portfolio of financially strong stocks paying high dividends. I rarely make a change to my portfolio. Never have I had to sell a stock to generate cash to live on.
If you look for them, there are many stocks like the ones I invest in. I got into writing books about safe dividend investing when asked to help those who had lost hundreds of thousands of dollars in the crap that their investment advisors had put into their portfolios.
Why do I think looking at historical records of dividend payouts? I was once an executive in large publicly traded companies. Our focus as executives was to beat the previous year’s revenue and profit figures. We were aware of share prices, but we kept our jobs by meeting sales and expense objectives.
Dividends are paid out of profits. Profits are the result of executives making thoughtful revenue and expense decisions. If revenues were not where I wanted them to be, to protect my profits, I would cut expenses. This could be done by reducing the number of employee counts, delaying projects, cutting travel expenses, and every other non-strategic expense. In other words, there is logical thought behind creating profits. They don’t just happen like throwing dice in a casino.
On the other hand, share prices, which are controlled by the often emotional, illogical thinking of optimistic speculators sure they will get rich, buying shares from pessimistic speculators who are sure they will lose money if they don’t sell. They both cannot be right. They see themselves as players in a stock market casino where luck rather logic is the instrument of their success. They seek the elation of the big score and are depressed when stocks fall.
Why speculate, trying to buy stocks that you intend to sell as soon as possible at a big profit, when you can grow your portfolio by several multiples and live off the income it pays out? Careful, logical investing in financially strong companies paying high dividends only requires patience and common sense. Doubling your investment in five years investing this way is not difficult. To a speculator five years must seem to be an intolerably long time.
I’ve been told 95% of speculators lose money. Why does this not surprise me?
QUESTION 6
Are REITs a good investment and should I keep them in my regular trading account or my tax free investment account
Interestingly for the last 20 years I have lived on the dividend income from my regular taxable trading account while 2/3 of my investments have been in my tax-free account. I have REITs, Real Estate Investment Trust shares in both accounts because they pay high dividends, can have high operationing margins and are financially strong. I have been constantly investing the REITs dividend income in the Tax-free account, until the last few years when I have been forced to remove about 6% of the value each year. Since I am generating more than 6% in dividend income in the REIT, it means that I have yet to have to liquidate any of the stocks in it. Some of the 6% I have taken out that was not needed to pay taxes was invested in my regular trading account.
Everyone's tax situation is different. I have an accountant that advises me and takes care of my tax returns. Depending on how large your portfolio is, it may be worth your while to establish a relationship with a local accountant to answer questions on taxation.
The amount I now pay in income tax is a small fraction of what I paid when I was being paid a big salary. I have much more disposable cash than when I was an employee. At that time I never considered how much of my salaried income was being eaten up in commuting, clothing, lunch expenses, and other expenses that I no longer am faced with.
I have now reached an age where the accountant is telling me to start taking out much more money out of the tax-free account to avoid half of it being eaten up by high estate taxes upon my death. Thus, I will be starting to liquidate stocks and transfer out more from the tax-free account.
Perhaps this is a reminder that you cannot take it with you. After a lifetime of working towards objectives you can get caught up in the pure pursuit of achieving a financial goal that is just a big number in a ledger.
The way I look at it, that ever-growing tax-free account has been an insurance policy for 20 years that I could have dipped into in an emergency. Fortunately, I have never had to tap into it.
QUESTION 7
Referring to your book “New York Stock Exchange’s 106 Best High Dividend Stocks” I am having trouble determining how to work out operating margins and in finding good, solid stocks with high earnings-Per-Share ratios to invest in. Do you have any suggestions?
I don't look at Earnings Per Share. I look at Operating Margins, Price to Earnings ratios, and 24 years of historical dividend payouts. Executives of companies made the decision to make those dividend payouts, year-after-year. Dividend payouts weren't decided on by millions of emotional speculators who control share prices. I put my money in the wisdom and experience of these executives to make the company profits that will give me my income.
Just because these are the 106 best high dividend stocks on the NYSE does not mean that I would add all 106 to my portfolio. I only want the 20 strongest paying the highest dividends. Those who have shown the most consistent increase in dividend payouts and increasing share prices.
If you are judging the stocks on their changing share price, you have to accept that share prices seesaw up and down daily according to how speculators interpret the news. They are not in the control of the companies.
I do not live off my share prices, I live off my dividend income and my focus is on dividend payouts. A few of my stocks have dropped in value from when I bought them, but the dividend yields remains over 5%. I am not about to sell them because I have seen these same financially strong stocks again climb to new record highs time and time again.
Patience comes from confidence in the strength of the stocks you choose.
The reason you choose the 20 best stocks you can find is because no stock is perfect. A few you thought were "good" may disappoint you.
It is impossible to predict which ones will be disappointing. So, stop worrying about it. Pick the 20 best you can find and sit back and watch what happens. Most of the strong stocks will not disappoint you. They will offset any that do with their share price gains and increasing dividend payments.
Sometimes the ones disappointing you today will show outstanding gains in the years to come.
I do not figure out the operating margin. I leave that to the stock research website at the TD Bank to tell me what it is. This figure is available from free research websites like Yahoo Finance. The higher the operating margin the more profitable the company.
From company revenues are subtracted the costs to create those revenues. The remaining net amount is the operating margin. It is indicator of how effective the company is in generating a profit.
The purpose of any company is to generate a profit. The higher the operating margin percentage the better. Different industries have different average operating margins. Within those industries you can pick out the companies who have the best operating margins.
Independent investing is something new for you. It is initially intimidating. You are afraid to make a mistake whose declining share price could cost you money . That is why you concentrate on dividends. Share prices go up and down.
Dividend payouts are logical decisions made by the managers of a company. Like all humans they are creatures of habit. They are motivated to pay higher dividend payouts. You are investing in their skills which they have demonstrated in historical results.
It will be several months before you can relax and have faith in your carefully selected portfolio.