Is this the time, between now and say summer, for the average investor to borrow money to purchase buy and hold stocks? A basket of expensive blue chip type stocks that have high dividend yields and are thought to be value priced.These stocks are expensive to buy for investors like me who invest using a portion of our paycheque. We are forced to purchase index funds/mutual funds until our wealth is high enough that we can justify paying brokerage and trading fees for ETF's or individual stocks. Perhaps now is a time to consider borrowing money to purchase long-term buy and hold dividend yielding stocks because the dividend yields and potential share price increase will erase the cost of the transaction fees.Here are my thoughts:-Yes dividends are not considered safe until they are PAID but once paid for me they are taxed at 25% of my normal income tax rate (Cash interest is taxed at the full rate for example)..-Assuming (in Canada) the interest owing on borrowed money used to fund equities purchases is tax deductable.-Or else I can borrow money to contribute to a Retirement tax shelter (RRSP) and instead of claiming interest as a tax deduction, I would get a automatic reduction of income taxes owing. In my case it'll be 34% of the amount I contribute to the retirement shelter.-As a personal creed I never borrow money unless I have an equal amount available to pay off that debt.Now this may not be a course of action for myself but what about others? Is leverage recommended for the little long term investor?

On Feb 22, 6:51 pm, "The Henchman" consider borrowing money to purchase long-term buy and hold dividendfor someone who's highly aggressive. But for the long term investor Iwould not use leverage. Stocks are reasonably to under valued at thispoint. But to borrow money in this environment you have to havenerves of steel.

Thanks for the tips, I'll play with it when I get a chance.Brian

What about Leverage?

Feb 23, 2009 21 Replies

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Be very wary of a simple screen looking for high dividend yields.

Often they are very high on a trailing basis - which is to say before the dividends get cut, but after share prices have plummeted.

A high dividend yield is only worthwhile if it's sustainable. You want to see a div yield that's high with respect to share price, but also low with respect to the company's cashflow and earnings, etc etc.

A good high-dividend screen is not trivial.

Moreover, sometimes those screens will block out companies which have had to cut dividends in the short run for the better long-run health of the company - these may be companies you want to avoid, sure, but they may also be companies which are being run well and responsibly, and are responding to market conditions (as opposed to the companie which are cutting dividends while they are crumbling around themselves as are some of the financials these days).

What about Leverage?

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