Comments on: The Danger in Chasing Yield

By: Squawkfox » 41 Bloggers Share Their Best Money Advice

Squawkfox » 41 Bloggers Share Their Best Money Advice — Mon, 18 May 2009 04:37:26 +0000

[...] The Danger in Chasing Yield | Canadian Capitalist [...]

By: misanthropope

misanthropope — Tue, 31 Mar 2009 06:14:09 +0000

i’m not sure the portfolio above provides a lot of insight into any particular strategy. not only is diversification nonexistent (as has been observed many times), but the period of study is *really* atypical. earnings worldwide were above trend in
‘04, and accelerated sharply through ‘06.

there is also the issue that you _can’t_ evaluate the significance of dividend policy without looking at the value (not price. value) of the shares. it’s all well and good to say “i bought it for the div” but companies that pay a high dividend by/while issuing lots of new shares, or simply chopping the balance sheet for parts, by definition are guaranteeing a disruption of the divs in the future.

i don’t know the first thing about many of these companies, and i’m not at all trying to insinuate they are behaving in this way. it’s just not unheard-of in high dividend payers, and needs careful examination.

By: Canadian Capitalist

Canadian Capitalist — Tue, 17 Mar 2009 15:37:35 +0000

FJ: Agree. IIRC, Derek had 20% to 30% of the portfolio in a single income trust — Canadian Oil Sands. I don’t care how good an investor someone is, it is pretty stupid for a retiree to have that much in a single stock.

By: Del Ojo Zafado

Del Ojo Zafado — Tue, 17 Mar 2009 12:18:11 +0000

I live in the USA . I have been whale following , performance chasing, and bird watching as I have accumulated 3000 units of GLH.UN since the Dec Bought Deal Financing (BDF) closed @16 $ CD. I suppose I see the dividend chase as a side effect to the bird being knocked down below it’s intrinsic value of +/-.85-.90.
Canada has the best managed economy with the strongest banking system left on earth. As oil goes so will go the Loonie! In the meantime I will continue accumulating units of GLH on any further weakness near or below $14.25CD. The Loonie could slip to .65 according to some technical strategists but others like Kathy Lien of Global Forex feel the market forces will support the .75 support level as a low.
GLH is gravy at these exchange rates for a US investor. You have the advantage of whale trailing as Bruce Flatt of BAM used a subsidiary to dump $75 MM into this trust at $16CD/unit. This means his minions of forensic accountants have already judged what the fair market value for this trust is. In addition $65 MM of the BDF went directly into acquiring existing new generating capacity that became accretive in Feb.
Performance is #1. GLH just reported record!!! results in the 2008 operating period. Record generation, gross and net profits! Not many companies had those kind of results in 2008. a
After making a new 52 week low near $14CD last week GLH has rocketed higher to add on another 2.2% yesterday and finish at $15.38CD.
We now await the declaration of the March distribution next week. While it is unlikely due to the BDF unit dilution that there will be any distribution increase forth coming, it is certainly possible given the revenue off the new generation that there could soon be one. All that aside TODAY St Paddy’s Day we reflect on a few strains of Danny Boy…. “But come ye back when sunshines in the meadow…” We now have the strongest quarter of hydrology upon us as we leave behind the weakest hydrology qtr. As Ice and snow pack melt and low pressure systems working further north as they cross the continent as well as the Nor’easters moving further west into the “Downeast”, we can anticipate a record 2nd qtr and the units to continue to stand their ground and move higher.
Oil should move to $52 US$s in anticipation of Summer driving demand. In addition while difficult any move above 4US $s /MM~BTU in Nat Gas would be an additional boost to the Loonie. While it may not Soar the bird can be expected to move back above sea level for the Summer nesting season. This should drive my effective yield against my cost basis well over 7%. From $16 CD I am sure we will see GLH moving steadily higher towards a premium to Mr Flatt’s investment. Hey what do I know I am just a Whale follower?

By: FinancialJungle

FinancialJungle — Tue, 17 Mar 2009 03:20:08 +0000

I think the key culprit to Derek Foster’s massive income collapse is high concentration rather than high yield.

People who didn’t chase yield a couple of years ago are hurting just as much. Think Manulife, GE, Wells Fargo, Pfizer, Teck Cominco… These were low yielder just a couple of years back, and Manulife was the most owned stock on the TSX at one point.

Also there are 2 rational reasons for high yield. One is to compensate for the potential of a dividend cut, and the other reason is to compensate for slow/no growth. Pipelines and ultilities would fall under this category.

To protect from income loss, it’s essential to diversify, and I don’t mean buying 50 different oil and gas trusts.

By: Selling puts isn’t “money for nothing”

Selling puts isn’t “money for nothing” — Mon, 16 Mar 2009 02:51:09 +0000

[...] experiencing middling success with building a portfolio stuffed with income trusts, Derek Foster is trying out a new strategy of selling puts on stocks on his watch list and [...]

By: Cubbs

Cubbs — Sun, 08 Mar 2009 20:59:43 +0000

Great article. I have always questioned the amount of income trusts in Derek’s portfolio especially with them converting to corporations in the next few years. I am assuming he had these in his portfolio before the Conservatives changed the rules.

Overall though I like his strategy but IMO he overlooked and miscalculated some key factors.

1. I understand Derek looks at dividend/distribution that can withstand recessions and isn’t concerned about share value but in this market typical recession proof companies aren’t even safe. To his defence, who would have predicted these markets.
2. Derek main worry is inflation which is understandable. If his dividends don’t increase, inflation will destroy his income. One factor he doesn’t discuss is divorce. With divorce 50/50, it’s a bigger risk than inflation IMO.

It’d be interesting to see if Derek posts and updates on how he’s actually doing and how he’s coping/changing his strategy in today’s market.

By: Richard

Richard — Sun, 01 Mar 2009 02:01:23 +0000

I hope Derek writes another book to let us know how he is coping with the recession. I’m sure he was a little dissaponited to learn APF.UN cut their dividends by almost 75%. I’m pretty sure no company is really recession proof. If we ever make the shift towards grren energy, APF.un should be a great long term investment IMO.

By: Mark

Mark — Sat, 28 Feb 2009 01:45:08 +0000

I think CDN dividend-paying stocks are the way to go, but not income trust solely. You need to be balanced – simple as that.

Have you ever heard of anyone getting “rich” on just one stock or investment source? Not I. Most often, folks have a diversified and multi-vehicle approach for wealth creation, whether it be owning a few real estate properties, good safe blue chip stocks, or various high-yield investments.

Mark in Nepean.

By: QuickTax Winners, Book Giveaway, and Weekend Links | Million Dollar Journey

QuickTax Winners, Book Giveaway, and Weekend Links | Million Dollar Journey — Fri, 27 Feb 2009 11:31:10 +0000

[...] Capitalist indicates the danger of chasing yield and uses Derek Foster as a prime [...]