Back from the abyss

[stargazer]

Hello all

Well here i am back from the GFC and ready to start again. Made some massive mistakes which have become more and more obvious as i reflected back to those heady days. Have dusted myself of after 5 years.

I now would like to invest in stocks that pay an income (Dividends) I have about 8 years to retirement and want to start to put together an income stream. It seems this is what i need to do.

I take it there are those that do just that retired on dividends etc.

I read a book call Motivated Money by Peter Thornhill that has made some sense to me. Also others which i can't recall the names of them.

I am not in a hurry but would like to know more where i should start looking and reading. What does go through my mind is if one relies on dividends for income do companies stop paying dividends if you have a downturn?

It seems that the ASX 100 is the area to concentrate on. Don't just invest on Yield etc

Any voices of experience...

Appreciate any replies

Regards
Stargazer

 

[Joe Blow]

Welcome back!

 

[notting]

Pick the top paying 10 of the 100, review it annually by taking out the ones that have fallen down the ladder and replacing them with ones that have made the top 10 on an annual basis. As far as possible use forward earnings outlooks and dividend stability to help. Also work out the advantages of franking against your anticipated tax bracket.
This is not advice its a suggestion anticipating debate!

 

[Sharkman]

What does go through my mind is if one relies on dividends for income do companies stop paying dividends if you have a downturn?

one word: qantas

 

[Sir Burr]

would like to know more where i should start looking

How about something like this...
http://au.ishares.com/fund/fund-performance-IHD-ASX.do
http://www.asx.com.au/asx/research/companyInfo.do?by=asxCode&asxCode=IHD

 

[finicky]

Well here i am back from the GFC and ready to start again.

I now would like to invest in stocks that pay an income (Dividends)

It seems that the ASX 100 is the area to concentrate on. Don't just invest on Yield etc

Good title and I can empathise as I used to 'invest' in juniour resource stocks that had no consistent earnings. I've been radicalized not just by hefty losses but also by a complete loss of faith in the quasi white collar criminal managements that run these scams.

Maybe consider this idea that I have adopted from advice myself? Don't focus too much on yield but look for conviction of earnings growth in a company that pays a dividend. The company that pays a dividend of 7% now might be paying the same dividend in 5 years because its earnings remain flat. The company that pays a 3% yield now might be paying 3x as much in 5 years because it grows its earnings while at least maintaining its payout ratio on those increased earnings. Additionally you will get the capital gain on the latter.

So as an example, you would have bought ARB Corp (ARB) before Telstra (TLS) in the past - I have no opinion at the present re these two examples.

I suggest a trial of Motley Fool as they are showing a very good track record for their tips and they look for the sort of companies I've suggested. https://www.fool.com.au/order-page/retail/
The free email is also worth getting imo.
Of their monthly recs that are still recommended as buys: COH SOL NHF CLH CDA CTD AMM VOC QBE TGA IRI. All these are up on their date of recommendation (e.g IRI up 158% since rec date 5-Dec-11) but still regarded by MF as value for price. Their current best buys, as at May 9, 2013, are COH, CDA, and SOL. I hold CDA and TGA but have no opinion on the others.

Skaffold might be worth a look, but is expensive and their intrinsic valuation of forward years is pathetically unstable and unreliable. For example many mining service stocks were highly rated by Skaffold and computed to be trading at a discount to value - now at much lower prices. Codan (CDA) had a great H1 result and guidance and it took Skaffold a week or two to adjust the current and future intrinsic values up because that's how long it took the third party institutional analysts to feed through adjusted earnings outlook.

The basic idea behind intrinsic valuation is invaluable though imo. You look for high Return on Equity (ROE) stocks with low or no debt load and good record of cashflow. You try to come to a judgement as to whether the company has 'bright prospects' (growth of earnings path). If you can come up with a valuation then you wait for the price to be at a discount to your value before buying.

Roger Montgomery has a YouTube channel where he discusses aspects of high quality stocks. Also a blog:
http://rogermontgomery.com/

I don't know about you, but now one of the early things I do when looking at a stock is to ponder how it went during the GFC and aftermath. For example Flight Centre's (FLT) earnings fell 33% in FY19, its div fell 90%, but by FY10 eps and div was almost back to pre GFC level and by FY11 record earnings and div back on track. So I consider FLT a hardy stock of the kind being discussed. ARB Corp of course didn't skip a beat in the GFC or afterwards.

 

[Julia]

I don't know about you, but now one of the early things I do when looking at a stock is to ponder how it went during the GFC and aftermath. For example Flight Centre's (FLT) earnings fell 33% in FY19, its div fell 90%, but by FY10 eps and div was almost back to pre GFC level and by FY11 record earnings and div back on track. So I consider FLT a hardy stock of the kind being discussed.

You don't mention what happened to the FLT SP, which went from over $30 down to under $5.

 

[Ves]

You don't mention what happened to the FLT SP, which went from over $30 down to under $5.

Yep, price irrationality at it's very best. Mr Market went from stable to giddy to manic depressive to euphoric very quickly.

 

[finicky]

You don't mention what happened to the FLT SP, which went from over $30 down to under $5.

Call that a fall?

35 bucks now.

It showed earnings resilience immediately after the crisis, so that's something I consider as I figure the odds as good that the company itself will weather the next crisis well. Price should follow

 

[galumay]

You don't mention what happened to the FLT SP, which went from over $30 down to under $5.

That neatly illustrates the difference between price & value! Oh to have grabbed that 'falling knife' at say $8

Its also why its important to ignore the noise of price if you buy into a quality stock with the sort of metrics Finicky describes - if you are buying a fundamentally well run and profitable business with the track record of increasing earnings - eventually the price and the value will cross paths again and as long as you are buying the business and not the price (trading), you will be right in the medium to long term.

 

[stargazer]

Hi Everyone

Thankyou so much for your replies really appreciate your input.

I followed quite a few recommendations before the GFC and when the manure hit the mistral they justified it as best they could that could not possibly have seen it coming etc.

When i was already some way down the answer was to sell. I didnt as i wanted to wait but things got worse at that time.

Being new at the time to share market investing i entrusted them with having there finger on the pulse so to speak.

There were individuals and companies at the time but think best to let sleeping dogs lie and put it down to a bad experience. As you can all understand i am extremely cautious of these organisations and certain tipsters so to speak.

Some comments made here i can resonate with and think have merit to explore:
Having been out of the loop for a while it would be appreciated if some comment could show where i would look to guage some areas as has been suggested.

• If you are buying a fundamentally well run and profitable business with the track record of increasing earnings

• Don't focus too much on yield but look for conviction of earnings growth in a company that pays a dividend.

• So as an example, you would have bought ARB Corp (ARB) before Telstra (TLS) in the past

• as far as possible use forward earnings outlooks and dividend stability to help.

• Flight Centre's (FLT) earnings fell 33% in FY19, its div fell 90%, but by FY10 eps and div was almost back to pre GFC level and by FY11 record earnings and div back on track. So I consider FLT a hardy stock of the kind being discussed. ARB Corp of course didn't skip a beat in the GFC or afterwards.

• If you are buying a fundamentally well run and profitable business with the track record of increasing earnings - eventually the price and the value will cross paths again and as long as you are buying the business and not the price (trading), you will be right in the medium to long term.

The Key areas appear to be

• ROE
• Future earnings
• Dividend growth
• Resilience during the GFC
• Perfomance against the Index perhaps

Any suggestions the easiest way to establish this. Where to look.

Income is going to be important and fully franked is favoured. Strength during a downturn.

Any suggestions and replies will be greatly appreciated

Thanks again
Stargazer

 

[galumay]

Any suggestions the easiest way to establish this. Where to look.

There are various mechanism for creating lists of stocks that meet certain criteria along the lines of what you list, an example is http://asxvaluescreener.heroku.com/records

You need to learn how to read and understand the selected company's annual reports which can be downloaded from the ASX site, subscribing to somewhere like Morningstar enable you to quickly scan an overview of the company and its historical financials. Reading various books recommended in relevant threads here also helped me.

I create a watchlist from a similar process and pick out the best of the shares in the watchlist and then over time keep reducing the list until I have a small list of companies I am waiting for the right opportunity to purchase. My system is built to suit my personality and something quite different may work better for you, but I need to approach share selection like packing a bag for a holiday.

I put out all the clothes I think I want to take on holidays and all the other bits and pieces I am going to take, about a week before i am due to fly out. Then over a week I repack, each time I go through the repacking I choose less and less until I am taking just what I really need and no more on my holiday!

 

[Julia]

Call that a fall?

What on earth else is it???

It took about five years to climb back to its peak.

Have a think about the topic of opportunity cost.

If you'd taken profits when it came off its high, and re-entered when the uptrend resumed, then you'd be actually making decent money.

 

[Ves]

If you'd taken profits when it came off its high, and re-entered when the uptrend resumed, then you'd be actually making decent money.

The FLT thread itself is an interesting read if you get a chance. It appears from reading some of the posters in there that trend-trading this was not as easy as it looks on a 5-6 year chart. Some of the volatility in the share price, especially in 2007-2010 looked pretty nasty and would have whipsawed lots of trades in and out.

 

[qldfrog]

What on earth else is it???

It took about five years to climb back to its peak.

Have a think about the topic of opportunity cost.

If you'd taken profits when it came off its high, and re-entered when the uptrend resumed, then you'd be actually making decent money.

and let's not forget inflation during that time: 2 to 3% times 5;
we still are well below the 2007 tops here in australia, maybe break even in the us???

 

[galumay]

and let's not forget inflation during that time: 2 to 3% times 5;
we still are well below the 2007 tops here in australia, maybe break even in the us???

You are forgetting the dividends though, they remained well ahead of inflation right through that period. (I still would have preferred to buy them at say $8 and ride the wave though!)