RE: Betting the farm-dividends - StazHi Staz, I get involved in a lot of discussions on Bombardier and other companies in other forums. Between that and the continual influx of info in articles from various sources it can be onerous to recall the details of any specific discussion.
I'm making a point of explaining that not just for your benefit but for anyone who could get the impression it's less complex because there isn't that much info to absorb. Sometimes I think we're lucky to remember the bigger things.
I should add that there's usually a lull at this time of year in terms of the amount of time I can spend posting because other things take priority.
Yes, dividend income can be an important source of income.
I should also point out that we are talking about things from a Canadian tax perspective. I do know a few individals in the U.S. who choose to own Bombardier, but most U.S. participation in the stock comes from institutional investors - not individuals. This, as I understand it is part of the rationale behind BBD not listing in the U.S. but then that's fodder for another topic.
You make some interesting points. And it should be emphasized that each of us should employ the strategy which makes most sense from each individual perspective. That much should go without saying.
All of my posts should be read in that context with the idea that the points being made are merely one person's point of view. I don't make a point of saying that because I believe it is poor form to preface everything with the cautionary pharase, "it's only my point of view...but..."
Of course, dividend income is treated favorably and that can be an important consideration for some investors - particularly retirees with limited resources.
At that same time though, we can easily give too much preference to dividend income if we look for dividend income to the exclusion of potential for growth.
And even in looking for companies that present good dividend income we can easily give too much emphasis to the size of the current dividend yield, and place too little emphasis on finding companies with the ability to consistently grow that dividend in the years ahead.
It's not the size of the dividend when you buy the stock so much as how successfully the company can consistently grow that dividend while you own it.
This is the point I was trying to emphasize. Growth-at-a-reasonable-price/risk is a more important consideration - in my estimation - than how much of a "rebate" management will pay you to buy the stock.
We shouldn't avoid a stock just because it pays a good dividend. Many mature companies that pay a dividend can still acheive attractive growth, however, it's the total return that's important. A fat dividend on a company with little growth prospects expose you to unnecessary risk.
As I see it, the objective isn't to get the best possible income, or even just the best possible growth. The objective is to achieve the best possible return while exposing yourself to the lowest possible degree of risk.
By the way Embraer does pay a fairly high dividend as does General Dynamics.
But ADRs like Embraer and Novartis get docked the full 30% in withholding as opposed to a 15% withholding (for Cdn owners) of U.S. cos. like GD. And that could be a consideratio for anyone who doesn't have sufficient other income from wich to deduct the credit for having paid these withholding taxes.
On the other hand, a company like General Dynamics has raised its dividend about 12% this year - just as it has done consistently in each of the past 14 years. So, each of those raises nearly compensates an individual shareholder for the 15% withholding tax Uncle Sam lops off the top.
So, there are a lot of ways of looking at this, and I don't pretend to understand all of the tax implications for the wide variety of situations in which investors could conceivably be, but this is what I understand of it.
Appreciate your input, and it would be interesting to hear more on this when you get a chance, or from anyone else who has given it some thought.