# Stock with the highest and safest yield?



## Bullock (14 June 2009)

I have a simple question.

What stock is providing the highest and safest yield.

What I mean by safest is unlikely to fall or be cut and your capital outlay not disappear.

I guess Telstra would rate highly.The banks?

Any thoughts?


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## Muschu (14 June 2009)

Have a couple of thoughts but don't want to be accused of ramping.  However I guess it is quite objective to state that WOW has weathered the storm better than most.  There are lesser known stocks that have also done this but perhaps Woolies is the best known.


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## charttv (14 June 2009)

Bullock said:


> What stock is providing the highest and safest yield.
> 
> Any thoughts?




Why don't you get a table of dividend histories for say the top 50 stocks and then calculate the average change over say the last 10-20 years or so. Your answer would probably lie in there somewhere.


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## prawn_86 (14 June 2009)

Far from a simpole question Bullock.

If people knew a div was not going to get cut etc, then they would buy that stock, which would lowqer its yeild as the price increased etc.

Capital outlay not disappearing; havn't you watched the markets the last couple years? If you want safety like that put it in a bank account. Again if people knew which stocks were not going to go down, we would all be very rich


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## erasmus (14 June 2009)

Not sure any stocks are 'safe' .
I have been on a quest for much the same things as yourself and my selection for what its worth are telstra, westpac,wesfarmers ,westfield,commonwealth bank and i also like arg mlt afi and djw and stw because they are big and still have given a dividend ,so far.A pretty boring portfolio but i sleep well at night.


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## MACCA350 (14 June 2009)

Nice misspell

cheers


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## erasmus (14 June 2009)

I should also add i have mqg and sun cwn and tol


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## vincent191 (14 June 2009)

Is Telstra really that safe?? Under the Amigo's watch your value of Telstra shares would have fallen >30% from 2 years ago.

Is Macquarie bank safe? I nearly choke on my cornflakes. It depends when you entered the market. If you bought at the height say at $90 and allowing for right's issue dilutions, is it really safe?

It really is a question of risk & return. There is no such thing as high return with low risk.


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## brianwh (14 June 2009)

Bullock - check the thread "Retirees - what are your top 5 longterm stocks?"


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## Julia (14 June 2009)

prawn_86 said:


> Far from a simpole question Bullock.
> 
> If people knew a div was not going to get cut etc, then they would buy that stock, which would lowqer its yeild as the price increased etc.
> 
> Capital outlay not disappearing; havn't you watched the markets the last couple years? If you want safety like that put it in a bank account. Again if people knew which stocks were not going to go down, we would all be very rich



Says it all, really.


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## soren_lorensen (14 June 2009)

have a look here at afrsmartinvestor dot com dot au

go to share tables and open a .csv in excel

YIELD LEADERS BY MARKET CAPITALISATION

yield industry leaders sort by dividend yield for a list


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## So_Cynical (14 June 2009)

So many people seem to think safe = big...surely the SP carnage over the last 18 months 
has proved this to be flawed thinking, some of the best dividend yields come from single 
asset small caps.

Also of course yield is dependent on entry price...and the opportunity for the best entry 
or even a good entry is gone for most stocks.


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## nathanblack (14 June 2009)

i love a good entry :topic

but seriously, the current rate of return is more important than the relative rate of return on your entry price.

if i buy at $20 and recieve a 10%dividend($2). then shares price rises to $40 and my dividend is still $2 (but now only 5%). why should i continue to think about me entry price? surely i can sell and find another stock paying the 10%. my capital may be better elsewhere.


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## ROE (14 June 2009)

nathanblack said:


> i love a good entry :topic
> 
> but seriously, the current rate of return is more important than the relative rate of return on your entry price.
> 
> if i buy at $20 and recieve a 10%dividend($2). then shares price rises to $40 and my dividend is still $2 (but now only 5%). why should i continue to think about me entry price? surely i can sell and find another stock paying the 10%. my capital may be better elsewhere.




Good luck if you can do that, you can be rich 

get yield at 10%, stock double, sell out
find another stock yield at 10%, stock double sell out and repeat the process

do you know how nearly impossible that is

chance are you end up more stock going backward and belly up than double 
I haven't seen any stock that yield at 10% and then double in price for as long as I live 
most of the time first year 10% yields, a couple year later bankrupt

and don't forget the classic case brisconnect.
0.05 cent dividends promise on 0.01 cent stocks ...hmm wonder if they guys still have  a  roof
that 0.05 cent promise now turn out to be 0.0005 cent


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## nathanblack (14 June 2009)

i was exagerating and using simple figures 

but for example RIO. if you bought around $40 and now there up above $70, should you still be using the $40 entry price to calculate your returns?

people need to conduct regular review and if a stock has shot up in value, you may be overweight, or there may be better returns elsewhere.


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## cheeyeen (14 June 2009)

Not sure it fits your requirements, but you can take a look at hybrids and bonds by big companies.  They paid good dividends, and your position is ranked higher than ordinary shareholders in the case of bankruptcy.  But the growth is limited (most are trading at discount so you still get a little growth out of them).  For example LEPHB yield 8% p.a. and u get about ten percent more in two years time when it matures.  ORIPB might give u about 15% capital gain + div in about two years time if ORI convert or redeem it.  RHCPA has about 10% + div in a bit over one year time if the company redeem or convert it etc.  Not exceptional return but not too bad given the risk involved.  I have them as part of my portfolio.


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## ROE (14 June 2009)

nathanblack said:


> i was exagerating and using simple figures
> 
> but for example RIO. if you bought around $40 and now there up above $70, should you still be using the $40 entry price to calculate your returns?
> 
> people need to conduct regular review and if a stock has shot up in value, you may be overweight, or there may be better returns elsewhere.




That is the theory most fund managers subscribe to, overweight, underweight, underperformed, outperformed, shift stock around ..sitting in cash..buy low..sell high...97% of them cant beat the index.. I rest my case  .. I got stocks I just hang on and on and on and it beat the index by a country mile every year 

I think the best thing you can do is as long as the business fundamental haven't deviate much you just keep hang on to it, and if Mr market being nasty and knock it down hard for no reason buy some more


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## tehnoob (14 June 2009)

During the initial carnage back in October I bought Cash Converters (CCV) as the SP took a battering but the dividend seemed pretty solid. I'm looking at a yield of 14% fully franked for them.

With a comparatively small market cap I guess many people would not consider CCV safe however I felt they would be a good counter cyclical pick.


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## RamonR (15 June 2009)

Also bought CCV at lower prices and very happy with my returns.
But with current prices Div yield is around 6.2%.


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## Julia (15 June 2009)

One holder of CCV is getting 6.3% and the other around 14%????


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## nomore4s (15 June 2009)

nathanblack said:


> but seriously, the current rate of return is more important than the relative rate of return on your entry price.
> 
> if i buy at $20 and recieve a 10%dividend($2). then shares price rises to $40 and my dividend is still $2 (but now only 5%). why should i continue to think about me entry price? surely i can sell and find another stock paying the 10%. my capital may be better elsewhere.




I'm not sure I follow this.

Why wouldn't you continue to work out the yield based on your entry price? Especially if the yeild is the reason you brought in the first place. Isn't it all about return on your invested capital?

If I'm earning a 10% d/e on my intial entry price why would I sell just because the SP has doubled? If anything that is more reason to continue to hold, I'm still receiving 10% pa return on my money and that isn't easy to beat. The only time I would look to sell is if the d/e is reduced significantly. Also if the d/e is raised you get an even better return on your money.


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## cheeyeen (15 June 2009)

nomore4s said:


> I'm not sure I follow this.
> 
> Why wouldn't you continue to work out the yield based on your entry price? Especially if the yeild is the reason you brought in the first place. Isn't it all about return on your invested capital?
> 
> If I'm earning a 10% d/e on my intial entry price why would I sell just because the SP has doubled? If anything that is more reason to continue to hold, I'm still receiving 10% pa return on my money and that isn't easy to beat. The only time I would look to sell is if the d/e is reduced significantly. Also if the d/e is raised you get an even better return on your money.




I guess the main reason is to take up the oppurtunity that you see in the market (or better use of capital), especially for people with limited capital.  If an investment is yielding 10% on my entry price, but the price has double and yield is now 5% at market.  And there is another investment that yield 8-9%.  I might want to switch to there.  Of course there are many other factors that need to be considered in an investment.  Like whether the div/dist growth, capital growth, tax on realisation of the investment etc.


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## RamonR (15 June 2009)

Julia said:


> One holder of CCV is getting 6.3% and the other around 14%????



I am actually getting around 11%.

The 6.2% is what you would get if you bought at todays prices.


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## prawn_86 (15 June 2009)

cheeyeen said:


> I guess the main reason is to take up the oppurtunity that you see in the market (or better use of capital), especially for people with limited capital.  If an investment is yielding 10% on my entry price, but the price has double and yield is now 5% at market.




The yield is now 5% at market, but not for you. You are still getting 10%, its based on your initial purchase price. So you would need to see another opportunity with >10% return for it to be worthwhile.

Also divs generally increase as time goes on, meaning so does your % yield. CBA for example, if you bought them when they floated wya back when, your %pa return is now about 100% pa, just based on the div. IE - The orginal sp was $3 and now they pay $3pa in divs 
**example only, figures could be wrong**


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## RamonR (15 June 2009)

prawn_86 said:


> The yield is now 5% at market, but not for you. You are still getting 10%, its based on your initial purchase price. So you would need to see another opportunity with >10% return for it to be worthwhile.



I think you have made a mistake here.
True he is getting 10% on initial price but if he sold he would get twice the initial money.
So any shares returning 5% would see him with the same amount of dividends.


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## prawn_86 (15 June 2009)

RamonR said:


> I think you have made a mistake here.
> True he is getting 10% on initial price but if he sold he would get twice the initial money.
> So any shares returning 5% would see him with the same amount of dividends.




Yeh i see what your saying.

But buying another stock would expose him to more risk and possible capital losses, which is something he would also need to consider.


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## cheeyeen (15 June 2009)

prawn_86 said:


> The yield is now 5% at market, but not for you. You are still getting 10%, its based on your initial purchase price. So you would need to see another opportunity with >10% return for it to be worthwhile.




Assuming we are only talking about yield or return on investment (not talking about risk or all other variables), I invest 10,000 in a share that paying me 1K of dividend a year (hence 10% yield on div).  The share price double and div hasn't changed.  So now I have 20K worth of money generating 1K (so 5% yield).  If I see another oppurtunity where I can get 8% yield, I sell my 20K worth of shares and invest in this new one for 8%, paying me 1.6K dividend per year.  Even a 6% yield will give me 1.2K. We probably shouldn't use the entry price, rather should be based on the current situation.


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## nathanblack (15 June 2009)

isnt it the whole point that dividend yield is expressed as a percentage using the current price. this is to allow a comparison between stocks, obviously research is required into dividend stability and growth. earning could be increasing or decreasing due to individual circumstances.


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## Bullock (15 June 2009)

Thank you all for your replies.

The reason I asked the question was to generate some interesting talk.

There are plenty of examples in this market of stocks not trading on fundamentals, so it's always good to get a feel for how we are all thinking, seeing as this seems to be driving things more than anything else.


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## nathanblack (15 June 2009)

Bullock said:


> Thank you all for your replies.
> 
> The reason I asked the question was to generate some interesting talk.
> 
> There are plenty of examples in this market of stocks not trading on fundamentals, so it's always good to get a feel for how we are all thinking, seeing as this seems to be driving things more than anything else.




have you considered hybrid notes? most have face value $100(although may be trading at a discount) and pay above bank rate, some quite high. they are rated by S&P so you can get AAA if you want low risk.


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## nomore4s (15 June 2009)

cheeyeen said:


> Assuming we are only talking about yield or return on investment (not talking about risk or all other variables), I invest 10,000 in a share that paying me 1K of dividend a year (hence 10% yield on div).  The share price double and div hasn't changed.  So now I have 20K worth of money generating 1K (so 5% yield).  If I see another oppurtunity where I can get 8% yield, I sell my 20K worth of shares and invest in this new one for 8%, paying me 1.6K dividend per year.  Even a 6% yield will give me 1.2K. We probably shouldn't use the entry price, rather should be based on the current situation.




This will also trigger CGT on your profits. Something worth considering.

Another strategy could be to sell half the original purchase and invest in the new stock, this would also trigger CGT but obviously only half the amount. It would also give you the best of both worlds allowing your winner to run and being able to re-invest your winnings.


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## prawn_86 (15 June 2009)

nathanblack said:


> isnt it the whole point that dividend yield is expressed as a percentage using the current price. this is to allow a comparison between stocks, obviously research is required into dividend stability and growth. earning could be increasing or decreasing due to individual circumstances.




This is how its expressed, but not the yield that everyone is recieving. If you bought at a higher price it will lower, if you bought lower the yield will be higher.

The quoted div yield is only applicable if you buy at the current price, so useful for comparison of new purchases, but not if comparing a new purchase with an investment you already hold


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## nomore4s (15 June 2009)

Just to add another perspective to this thread. The idea of using d/e's to build a long term income stream.

As an example (all figures are rough).

If you brought $10,000 worth of CBA 15 years ago @ $9 you would have got about 1,111 shares. 
You would have received about $24,300 in d/e's and would now be currently getting nearly $3,000 per year in d/e's. And as CBA's d/e's grow so does your return. 

And this is without re-investing any of the d/e's, the return obviously would compound if you had re-invested the d/e's each year. And there is no transaction costs or CGT to worry about as well as receiving franking credits. 

I have actually just started using a version of this strategy to build myself an income stream as part of my retirement plan.


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## cheeyeen (15 June 2009)

nomore4s said:


> This will also trigger CGT on your profits. Something worth considering.
> 
> Another strategy could be to sell half the original purchase and invest in the new stock, this would also trigger CGT but obviously only half the amount. It would also give you the best of both worlds allowing your winner to run and being able to re-invest your winnings.




Yes, that is correct, and hence the last section of my original post (quote again below).  I was just trying to provide a reason to the question about why would I want to calculate yield on a current position base on current  market price rather than the entry price. I can have a share that I bought 10 years ago at $1, and trading at $30 and paying $1 dividend.  Div yield is 100% if I use my entry price as the basis of calculation.  That probably mean I would not ever switch to another investment even the management comes out to say that the company would not have any growth for the next 5 years.  100% yield is just not possible to find in the market.



cheeyeen said:


> I guess the main reason is to take up the oppurtunity that you see in the market (or better use of capital), especially for people with limited capital.  If an investment is yielding 10% on my entry price, but the price has double and yield is now 5% at market.  And there is another investment that yield 8-9%.  I might want to switch to there.  Of course there are many other factors that need to be considered in an investment.  Like whether the div/dist growth, capital growth, tax on realisation of the investment etc.


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## nathanblack (15 June 2009)

nomore4s said:


> Just to add another perspective to this thread. The idea of using d/e's to build a long term income stream.
> 
> As an example (all figures are rough).
> 
> ...




holding a good performing stock long term certainly has its merits, capital growth, earnings growth and dividends. ive used that method a bit myself for a portion of my portfolio, and if you read up on income producing shares, the method of using entry price to calculate real return is used alot.

i hold BBI, a spec stock with the intention that if it survives it may pay a dividend about 100% of my entry price within a few years.

personally i see the merit in buying for dividend, and for holding long term. i just prefer not to equate my current earnings with a historical share price. i can sell my shares today at todays prices.

similar to the thread on "wash sales". what if you had some accumulated losses you want to cancel out. so you sell those CBA shares at todays price, realise your CGT(discounted for holding period) and offset it against you capital loss.

then you rebuy the CBA shares at exact price, a "wash". your share holdings are still same, your dividends are still same, but now your yield is less? no its same.


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## nomore4s (15 June 2009)

nathanblack said:


> personally i see the merit in buying for dividend, and for holding long term. i just prefer not to equate my current earnings with a historical share price. i can sell my shares today at todays prices.




The idea of buying for a long term income stream is not to sell unless the d/e stability is threatened or the company looks like going broke. It is all about ROI.



> similar to the thread on "wash sales". what if you had some accumulated losses you want to cancel out. so you sell those CBA shares at todays price, realise your CGT(discounted for holding period) and offset it against you capital loss.
> 
> then you rebuy the CBA shares at exact price, a "wash". your share holdings are still same, your dividends are still same, but now your yield is less? no its same.





Why would you do that? Why wouldn't you just continue to hold the CBA shares and use the capital losses when you need them? They carry over to the next FY. You are incurring transaction costs as well as wasting your capital lose tax benefit.


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## Julia (15 June 2009)

cheeyeen said:


> Assuming we are only talking about yield or return on investment (not talking about risk or all other variables), I invest 10,000 in a share that paying me 1K of dividend a year (hence 10% yield on div).  The share price double and div hasn't changed.  So now I have 20K worth of money generating 1K (so 5% yield).  If I see another oppurtunity where I can get 8% yield, I sell my 20K worth of shares and invest in this new one for 8%, paying me 1.6K dividend per year.  Even a 6% yield will give me 1.2K. We probably shouldn't use the entry price, rather should be based on the current situation.



In your above description you're selling a share which has doubled in price (you don't say whether it's still uptrending?) in order to invest in something which will provide higher yield *not on your original investment but on its current price*.

I understand your theory if you're purely chasing dividend yield, but how much importance do you place on capital growth?

Let's say your original stock is still trending strongly upwards but is only offering a current yield of 5%.  Would you sell this (incurring the CGT) to put those funds into, say, a stock yielding 8% but which is trading sideways?

Just curious.





nathanblack said:


> isnt it the whole point that dividend yield is expressed as a percentage using the current price. this is to allow a comparison between stocks, obviously research is required into dividend stability and growth. earning could be increasing or decreasing due to individual circumstances.



I'd have thought so.


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## skc (15 June 2009)

nomore4s said:


> Why would you do that? Why wouldn't you just continue to hold the CBA shares and use the capital losses when you need them? They carry over to the next FY. You are incurring transaction costs as well as wasting your capital lose tax benefit.




Capital loss is worth more in the current year than future years, unless they are adjusted by inflation and/or interest rate. So bring them forward can have some benefits.


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## nathanblack (15 June 2009)

Bullock said:


> I have a simple question.
> 
> What stock is providing the highest and safest yield.
> 
> ...




*income only i would look into hybrids. but if your looking long term perhaps look for a lower income with some capital gain included, like the banks.*


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## skc (15 June 2009)

Julia said:


> In your above description you're selling a share which has doubled in price (you don't say whether it's still uptrending?) in order to invest in something which will provide higher yield *not on your original investment but on its current price*.
> 
> I understand your theory if you're purely chasing dividend yield, but how much importance do you place on capital growth?
> 
> ...




To me the theory makes perfect sense for all other things being equal. So if one is trending strongly and the other going sideways, they are obviously not equal. But if the prospect of dividend stability (i.e. downside AND upside) is the same between the 2 stocks, then switching makes sense despite the current trend. 

With the high CGT in Australia however, the differential in yield must be pretty significant though.


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## Julia (15 June 2009)

SKC, yes.  Agree.  What I'm interested in, though, is the possibility that someone will sell a positively trending stock for one which they might consider is, um, yet to fulfil its potential, but has a higher yield.


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## cheeyeen (15 June 2009)

Julia said:


> In your above description you're selling a share which has doubled in price (you don't say whether it's still uptrending?) in order to invest in something which will provide higher yield *not on your original investment but on its current price*.
> 
> I understand your theory if you're purely chasing dividend yield, but how much importance do you place on capital growth?
> 
> ...




Funny, I thought I was only providing one of the reason why someone want to calculate a position's yield base on market price rather than entry price, so that you can compare it to other oppurtunities that comes up in the market.  I didn't say yield is the only factor in evaluating an investment (the question is about yield, may be the first try wasn't very clear and hence I was tryign to qualify the second answer with "assuming we are only talking yield").  All of a sudden this become my investment philosophy...  My original post is as followed.  



cheeyeen said:


> I guess the main reason is to take up the oppurtunity that you see in the market (or better use of capital), especially for people with limited capital.  If an investment is yielding 10% on my entry price, but the price has double and yield is now 5% at market.  And there is another investment that yield 8-9%.  I might want to switch to there. * Of course there are many other factors that need to be considered in an investment.  Like whether the div/dist growth, capital growth, tax on realisation of the investment etc.*


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## nathanblack (15 June 2009)

nomore4s said:


> Just to add another perspective to this thread. The idea of using d/e's to build a long term income stream.
> 
> As an example (all figures are rough).
> 
> ...




But how important was the entry price? Looking back if you'd paid $9.50 or even $10, would you still be happy?

ofcourse everyone wants to buy as low as possible, but nobody will time it perfectly. i think entry price can be overated for long term holds.


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## Julia (15 June 2009)

OK, cheeyeen, thanks.   You'd be surprised at how many do buy for yield and ignore falling SP.


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## Bullock (15 June 2009)

As I said, the reason I asked the question was to generate some interesting talk and it has.I thought after a year of moving in and out of many stocks it might be time to start settling in for the long run.

For the record I hold all the banks ANZ, NAB, CBA, WBC, MQG.I also hold WOW WDC CSL AMP QAN VBA QBE WPL HVN as well as some small UCG companies.

In the past month I have added for some dividends ASX CAB CCL FGL MTS SHL TLS and topped up on the banks.

I am not the type to stick money in the bank so I don't mind some risk.Some of my worst decisions this year have ended up not to bad after taking up rights issues eg. BSL GPT WES SUN and still to play out on RIO AIO GMG?

When I asked for "safe" stocks I realise there is no such thing but I am a believer that the worst has been seen.I don't see any of our top companies disappearing in the near future so if I jump in now,sure my capital may move around but unless this market does something its never done in the past and drop for the next twenty years I should see it increase in my time horizon.

As some of you have stated as the years go by hopefully dividends will increase and the return on my initial outlay will continue to improve.Picking up a bank yeilding 8% or more with the ability to grow in the coming years seems like a good time to start building for the future.


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## nomore4s (15 June 2009)

skc said:


> Capital loss is worth more in the current year than future years, unless they are adjusted by inflation and/or interest rate. So bring them forward can have some benefits.




Fair enough, but in the example given imo it would be a poor financial decision.



nathanblack said:


> But how important was the entry price? Looking back if you'd paid $9.50 or even $10, would you still be happy?
> 
> ofcourse everyone wants to buy as low as possible, but nobody will time it perfectly. i think entry price can be overated for long term holds.




If I paid $15 I'd still be happy.

I just picked $9 for that example because that's around the price CBA was trading at during June '94.

For my long term buys I tend to pick a price level and try to accumulate around those prices.


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## nathanblack (15 June 2009)

Bullock said:


> As I said, the reason I asked the question was to generate some interesting talk and it has.I thought after a year of moving in and out of many stocks it might be time to start settling in for the long run.
> 
> For the record I hold all the banks ANZ, NAB, CBA, WBC, MQG.I also hold WOW WDC CSL AMP QAN VBA QBE WPL HVN as well as some small UCG companies.
> 
> ...




goodluck with your long term strategy, i wish you well, and thanks for stimulating some discussion.

side note : have you consider the buying costs of such a large portfolio? i counted 25odd stocks there, i know diversity is great but you think the costs involved erode some profit? perhaps an index fund would be more appropriate.


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## Bullock (15 June 2009)

Thanks Nathanblack

Yes, the costs do take up some profits.I try to buy parcels of shares at a minimum of $2000.I have looked at STW and the likes but I like to have the control to add or sell individual stocks at different times if I feel the need.I have been looking at the property SLF since it was just under $6 but haven't made a move yet.I think it might look discounted when looking back in a few years.


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## brty (16 June 2009)

What are we talking about when using "the long term". For different people this can vary.

In the very long term say 50 years most stocks disappear, history clearly shows this. Companies like Woolies that have existed for many years, have had their shareholders robbed of equity in the past while the company continues, just ask General Motors shareholders about it. There are very few good dividend paying companies that were in the top 50 stocks from even 30 years ago, still existing today.

So the term, "long term" really needs to be defined when discussing a dividend strategy and the according stocks to hold.

brty


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## mkarpoff (9 June 2014)

Bullock said:


> I have a simple question.
> 
> What stock is providing the highest and safest yield.
> 
> ...




Telstra has already had quite a run.


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## RT14 (9 June 2014)

mkarpoff said:


> Telstra has already had quite a run.




Why would it suddenly stop though?

Momentum is a fantastic tool here and it continues to trade higher. Plus the dividend, TLS possesses (currently) two great return-drivers.


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