==== Fourth Quarter 2015 ==== 

  * What does the market value in most cases depend upon? (answer below on this page)


• The main reason dividend growth investors run our own income 'fund' is because we can perform much better: ♣ We can concentrate on superior dividend growers - funds over diversify with hundreds of stocks, a lot more losers. ♣ In aggregate our income rises each year - most funds do not increase distributions annually. ♣ Dividend growth investors pass all the income along to ourselves - some funds don't. Imagine! ♣ We reduce risk with at least fair price purchases by using yield, Graham value and cape as value indicators -  most funds are always fully invested. ♣ We are disciplined and patient - managers have to follow the crowd to keep their job. ♣ We hold for the growing yield - they trade (eight months is the average holding period with funds). ♣ We do not pay capital gains tax on profit we do not receive - fund holders do. ♣ We do not pay annual fees - most fund owners pay over 2% per year.

  * “The classic 60/40 balanced portfolio is not true diversification. Indeed, one of the best-kept secrets of the investing community is that stock market return so dominates the risk of a 60/40 portfolio that the portfolio exhibits a 98–99 percent correlation with stocks!” Rob Arnott 

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from Connolly Report front page, December 2015 (next issue March 2016):

♦ 12% A Year - “A Canadian Steady-Eddie portfolio” was the headline of the Nov 12 2015 Number Cruncher column in the Report on Business. Morningstar's Ian Tam listed ten stocks with 'predictable earnings, dividends'. All were Connolly Report stocks, naturally: the five big banks*, the three telecoms, Fortis and TransCanada. These stocks with an annualized total return of 12% from 1998 to 2015 nearly doubled the TSX 60 total return index of 7 per cent. Nothing new for us, eh.  ♣ Think about how it is we (dividend growth investors) win. The TSX 60 total return over this period was 7%. There are 60 stocks in that index. The ten good ones did well at 12%. The other 50 did not do as well. ♣ We concentrate in the good dividend growers, with individual stocks. If you buy an index fund, you get the bad ones too. Our dividend growth was just over 8%, and yield is 3.7%. Now, as return is yield plus dividend growth, plus, or minus, valuation change, there's the steady-eddie 12%.          *not five banks in one portfolio.

**Answer**: According to Ben Graham in his 1934 book Security Analysis (Chapter 7), the market value in most cases has depended primarily upon the dividend rate. Don't believe it? You will have trouble being successful at investing. Why? You will be depending upon someone else buying your piece of paper (stock) at a higher price. A stock which does not pay a dividend has no intrinsic value. Don't believe it. That's your problem. Sorry. The dividend rate is initial yield plus dividend growth. This is what builds wealth. Would you purchase an apartment building in which the tenants do not pay rent?