What about Leverage?

On Feb 22, 6:51 pm, "The Henchman" consider borrowing money to purchase long-term buy and hold dividend

for someone who's highly aggressive. But for the long term investor I would not use leverage. Stocks are reasonably to under valued at this point. But to borrow money in this environment you have to have nerves of steel.

On Feb 22, 8:51 pm, "The Henchman" consider borrowing money to purchase long-term buy and hold dividend

Your transaction fees should be low, if not, get another broker. Just save until you have enough over your emergency fund to buy a round lot.

Most of us have to violate that rule when buying a house.

It's usually not a good idea. Most companies are already leveraged which increases the risk, but frequently increases the company earnings.

A company's earnings is more important than the dividends because if the earnings aren't adequate, the dividends will eventually be cut.

You can get an income stream from most stocks by selling out of the money covered calls where your main risk is losing the stock and not getting any sympathy.

-- Ron

I look at DVY, a 7.29% yield as of 2/20/09. It seems that if I have the nerve, and expect to hold for the long term, that using this ETF in a leveraged purchase can be profitable. With my HELOC rate at 2.5%, it would take a slashing of dividends by more than 2/3 to have a net negative (cash flow) on this. OTOH, if dividends are slashed, is it possible for this set of stocks to slide further? I don't know, and no, I don't have the nerve.

Joe

Keep one thing in mind.

The only way that you can lose everything in investing, assuming that you are sensibly diversified, is by using borrowed money. If you do not use borrowed money and are well diversified, you could lose half,

So if you want to borrow some small amount, like 10% or some such, you probably will come out OK, but if not, it can kill you and one day it will. During Great Depression, stocks went down by 89%. It can happen again.

Losing everything is a disgrace.

Note that even after the pounding that financials have already taken, they still make up 27+% of that fund. Morningstar is showing a trailing 12 month div yield at just under 7%, but that trailing yield includes a bunch of dividends which are very likely to have been cut already so I'd be very hard pressed to believe that the forward dividend yield will be anywhere near as high. Nevertheless, I'd guess that it'll still have a higher div yield than treasuries...

I feel a lot more confident about the div yield of VIG Then, the TTM yield on VIG is only 2.78% as of 2/20.

With both of these indices, any stock which cuts its dividend will be out. DVY requires 5 yrs of no div cuts and VIG requires 10 yrs of increasing divs. VIG's screen had already kept out a lot of firms which seem to have gotten into more trouble lately, but DVY had loads of financials and when it's rebalanced, it may look quite different.

To expand a bit more on this, I believe WaMu, Citigroup and Bank of America had this ten year history of increasing dividends. So since VIG holds a much smaller proportion of financials, I imagine VIG's screen is quite a bit tougher. One web site mentions that VIG's basis, the Mergent Dividend Achievers Select index, requires companies to have a certain amount of "liquidity."

In any event, what a lesson this era will be on allocating to financials.

I trust someone else may dig further on the subject of VIG, the Mergent index on which it is based and dividend achievement.

How can people purchase stock if they only have $100 or $200 or $50 a week to contribute?

Every week I can buy 1 share each in five different stocks and what will my transaction fees be? I'll get charged $100 in fees alone.

What do people pay for brokerage fees when they purchase $100 or $200 at a time for stocks?

"The Henchman"

You seem to be opposed to mutual funds. May I ask why? They provide the small investor, like you and me, with the opportunity to diversify while still being able to invest in stock equities. I don't know about the mutual funds available to you in Canada, but there are companies in the US where investing through stock mutual funds is quite inexpensive and affordable.

Elizabeth Richardson

On Feb 23, 9:12 pm, "The Henchman"

No I'm not oppossed to them. I've been contributing to mutual funds/index funds for 5 years diligently. They are almost the only afforadable way to invest into the markets. I purchase and research on my own now so that I don't have to pay sales fees or commission fees or loads. When I first started out I was losing 2.5%- 5% in sales fees for mutual funds and 1% commission to the financial planner and an additional cost of 2+% for MER but I've learned to cut costs and get group outperformers for a fraction of the price.

My second point relates to redistributable income streams. For many, to achieve thier financial goals a second or third income stream helps alot. A dividend income stream is noramlly taxed at 25% of a person's marginal tax rate. In my case I calculated that $1.00 of dividend income will only be taxed $.08 wheras in other forms of capital gains income it's $.16 and from my paycheque's income it's $.32. It's one of the few direct tax breaks that I haven't been able to take advantage of.

By borrowing at a low cost I can develop a larger dividend income stream much sooner, at a fraction of the tax rate. for example: if I borrow $10000 to purchase more shares upfront, it'll still cost the same in brokerage fees as the $2500 that somebody suggested because I'm still purchasing the same number of companies.

"The Henchman" Every week I can buy 1 share each in five different stocks and what

So don't do that. It's a bad idea. But if you insist on doing that, look at (a) above.

"The Henchman" tax rate. In my case I calculated that $1.00 of dividend income will only

So invest in a mutual fund that provides an income stream. I just don't see your problem and why you are so determined to invest in individual issues.

Elizabeth Richardson

Borrowing money is a darn good idea right now, if you believe in the prospect of an upcoming hyperinflationary crash to the value of the dollar, as the deficit gets outta control and foreign investors stop paying for our bailout(s), entitlements, and war machine.

But don't invest it in stocks for egads sake. How about real, physical assets like houses or gold?

Generally, I'm a fan of index funds. However, given the reservations people have about the composition of these dividend funds, are there any decent lists of dividend-paying individual stocks available? This might (and I stress might in the "I dunno" sense) be a possible time for going individual.

Brian

A stock screener will bring up dozens with a dividend yield over 8%. BP has the largest CAP of that group.

-- Ron

I'm not all that familiar with using them. Which do you recommend and what criteria?

Brian

Well I'm not determined to. I'm just seeking advice. Myself I'm very hesitant to purchase stocks but the papers and radio call-in shows I've been exposed to have been talking about the young starting business and purchasing stock and this environment might be close to ideal claim a couple of "smart" people.

The question then becomes would leverage/borrowing money make sense to purchase dividend paying funds?

"The Henchman"

Yahoo's is at

-- Ron