How important are dividends. Well, according to Dimson, Marsh and Staunton at the London Business School, real return on U.S. equities over the past 113 years was 6.3%¹ a year. Of this 2.0% was capital appreciation. So, most of the return was dividend related, yield and dividend growth. Only 2% was gain. Think on that. Do you own mutual funds or ETFs or stocks that do not pay dividends? Why? What are you hoping for? Do they pay much income? Most likely not. So, to finance your retirement, you are hoping the price goes up. What if it doesn't? You'll have to work longer. In the years ahead, growth will be slower. Notable sages say perhaps only 1% growth. If that's true, all your profit will be sucked off in investment fees. Oh dear! ¹ 5.7% real (after inflation) in Canada, 4.4% world wide.

What dividend growth investors do is different. We focus on the income our common stocks produce. (Click on the Metro dividend chart at the bottom of this page.) We do not have to sell our investments to provide retirement income. We don't care if the market is down, or up. We do not want to sell our common stocks either. We can't sell. We keep the stocks, and each year our income grows from increasing dividends. A little over a decade ago we invested $200,000 in dividend growing stocks. In 2012 the portfolio provided $26,000 in income. What percent of $200,000 is $26,000? Yep. Good, eh! This year, we should get $28,350 in tax-free Canadian dividends from the portfolio. What's in the portfolio? Mostly stocks from the Connolly Report list. I detailed the stocks in my August 2011 report. For a $10 bill (cheques are not legal tender) our daughter will send you the most recent Connolly Report (February 2013) and that portfolio list from August 2011 showing the name of the 22 stocks, buy date, the initial yield and price, the yield now, the dividend then and now, the percent the dividend and price are up and the ten-year dividend growth figure.

• Denise Emanuel
• 306 Kingswood Road
• Toronto ON M4E 3N9

LOW GROWTH for DECADES - Inside this dividend growth website, the most important topic I have been covering recently, and it will be on the front page of my February report, is the implications for equity investors of slow growth for the decades ahead. And yes, there is an 's' on decades. If you have not yet realized economic growth will be very slow going forward (think 1%), investigate it immediately (Gross, Grantham and Easterling). Why? The market is high right now (TSX 12,801 Feb 9 2013). If you still hold mutual funds or ETFs, you hold hundreds of stocks. Would you rather sell when the market is high, or when prices are low? I'm 73. I was around for the last great bear market (chart inside). It was not nice. Don't believe me. Spend $40 and buy Ed Easterling's book: Probable Outcomes - Secular Stock Market Insights. At the very least, go to Easterling's web site and poke around: http://www.crestmontresearch.com/

• Here's another example of what dividend growth investors do. There are a lot of examples on this site and I could easily provide a couple of dozen more. In 2002 Telus' dividend was 60¢ (just reduced from $1.40). Now T's dividend is $2.56 up 326%. T's average price in 2002 ($24.50 high, $5.80 low) was $15.50. Now Telus' price is $65 up 319%. I like to say dividend growth (326%) drives price growth (319%). That's the strategy.
• DIVIDEND HISTORY: You are considering a stock whose name you have come across somewhere. The first thing you do is check its dividend history over the last decade. If there is no dividend growth, do not buy the stock. Key the company name and the words 'dividend history' into your browser: there's often a useful result.

METRO: Here's yet another example of growing retirement income from another common stock I follow (click on the pfd below). The dividend went from 3¢ in 1995 to 84¢ in 2012, up 2,700%. I believe dividend growth drives price growth. In 1995, this stock's price (average of high and low) was $3.80 adjusted for stock splits. Now the price is $64 for a gain of 1,584%. However, MRU's cyclically adjusted price to earnings ratio is a very high 32.2. I would not buy Metro now even though it's yield is currently above its average yield of 1.45%. The third valuation metric I use is what I call Graham's price from Graham's The Intelligent Investor. The current price has an expensive -37 per cent difference from the Graham price. And every thoughtful investors knows real worth and market price are separate and distinct things (John Burr Williams).

metrodividendchart_95.pdf

Would you not like a growing retirement income like this? Set up your own portfolio of dividend-growing common stocks like this well before you retire. Not preferreds, though: preferreds do not grow their income like Metro here.