The list as of November 21 2008. The average yield is a very high 4.94%. The average of the G%D column is a plus 23 difference. Both of these are WOWs. As is the average P/E at 9. SLF and Power have the lowest P/Es at 6. At 7 P/E we have: MFC, PWF and GWO. That's all the life companies with low P/Es.
G%D: In order of low G%D: Sun Life at plus 118 (Graham $47, current $21.60), MFC at 76, BMO at 69, Power at 58, CIBC 53, NA 50, TD 39, PWF and LB 31 and Atco 30...all positive. Only five G%Ds are negative, as five are within a dollar of their Graham price. It's quite something. Enbridge's G%D in contrast is -34. (Loblaw has a - 42 G%D still and Shoppers is still - 41; RET.A is + 32, RUS +36, Richelieu - 8 and TRI, which I'm still thinking of adding to my list has a + 2 G%D and a yield difference of 2.0 exactly; Telus G%D is + 2 also with a yield difference of 2.15%.
TC: After a great bubble bursts, prices revert, not to, but below the mean. These indicators are below the mean/normal/average. How much lower can/will they go? There must be long-run value here somewhere, regardless of what lies ahead. That's your decision. I supply data. You decide. (On the new site, for subscribers only as you will have to log it, I might be able to post the list monthly. Most of my comments will be in the subscribers only area too...starting in about February 2009, I hope.

As of October 15th or so: Except for CNR, Loblaw, Metro and Empire and perhaps Great West Life, our stock prices have recently broken through March 17 lows and/or July lows...generally. A number of yields jumped significantly. I've never seen such a jump in yields in one week. Graham values are much reduced (average is +10) and just about all or yields are above their average. As of October 13, the yield of the list is 4.43%. Considering how low interest rates are, some of these common yields appear oh so tempting. Before you invest in such a mielu, however, one must ask what is the worst that could happen? Could things spiral out of control. Are dividend reductions a possibility for some firms?

"This is real bear market action such as we've not seen since 1973-74. I expect this downtrend to end with an all-out panic-type crash. That would clear the air and serve to reduce the huge inventory of stock for sale. When the store of "stock for sale" is emptied out, we will be close to the time when the institutional bargain hunters are ready to re-enter the market. That action will be characterized by a 90% up-day." Richard Russell, October 7 2008

This could be the end of comments on this page of this site...the new one is coming . . .soon I hope. Look to my front page for new comments. I'm working on my October issue now. It's hard to condense it all.
The new dividendgrowth site will have my comments in the public area for a while...until all subscriber's names are loaded into the protected area.

Retirement: Safety First was the title of the Barron's cover story of their September 15 2008 issue. In the column there was about one page on the current thinking of each of five prominent investors:
Peter L. Bernstein (Against the Gods...good book) on disasters that could happen and how to protect your self; Bernstein's list of possible disasters is most interesting: a major bank failure causing a run on banks, a run on the dollar, runaway inflation or deflation. He suggests guards for each. Something we never dreamed of could happen. Lehman Bros, perhaps, or worse.
Charles Ellis (Winning the Loser's Game...great book) recommending global allocation of assets;
Barton Biggs the trend-bucking strategist who still likes large-cap, high quality stocks around the world and "within that category, technology appeals to me the most";
Jeremy Siegel (The Future for Investors, Stocks for the Long Run...great book) who likes dividend stocks as we know;
the dividend: "staple for the retirement income seeker"
"A high dividend yield is a strong indication the a stock is undervalued
David Darst of Morgan Stanley, an expert on asset allocation and an advocate of alternative-investment in a portfolio...if you have more than $ 1 million, up to 20% in alternatives like hedge funds and commodities.
It would be worth taking some time to find this column. It will still be on sale at newstands until Friday the 19th.
We're off to the cottage...me with a few files . . .

"Bloomberg columnist Caroline Baum probably knows the bond market better than anyone else I know. Caroline starts her current column as follows. "Inflation expectations are so weighted down that investors are buying 10-year Treasuries yielding 3.8% with inflation running at 5.6%." Richard Russell, August 25th 2008
Connolly Comment: Could bond investors see deflation coming?

"I don't see how you can beat stocks. In view of the uncertainties, I wouldn't put the entire portfolio into stocks at this point. But I'd be willing to have 70 percent and the other 30 percent in cash, waiting for an opportunity to go back in."
Barton Biggs, age75, author of Wealth War and Wisdom, again in a Brian Milner column in the Report on Business of Friday August 16 2008

Mohamed El-Erain was the subject of Brian Milner's column on the front page of the Report on Business of Saturday August 9 2008. 'Getting our heads out of the clouds' was the title. In my view the essence El-Erain's view was:
"Not only is the worst not over but it's never going to be like it was"
Mohamed El-Erian believes in the high-inflation scenario.

The average financial advisor, according to data in August 2008 Investment Executive is: age 45, has been in the industry 14 years, covers 770 households and has a book valued at $13 million. Half of his/her commissions come from first year commissions and 30% from renewals. About half have annual compensation between $100,000 and $500,000.

+ + + + + + + + + + A U G U S T * R E P O R T + + + + + + + + + +

Minus 0.3 per cent was the annual return for the year ended March 31 2008 for the Public Sector Pension fund. This loss was due in part to a $920 million of losses on holdings of asset-back commercial paper (ABCP) and write downs of $470 million in collaterized debt obligations (CDOs). Don't you just love it when professional investors do poorly. ROB July 23 2008

"When all around are panicking, smart investors should be cooly asking whether it is time to buy. What signals should they be looking for?" This is the first paragraph of an interesting column from The Economist of July 19. They delve into three measures and explain each. I use their three measures, but in a different way: volatility index, dividend yield vs gilt yield, price/earnings ratio. Notice they did not say it was time to buy! I do not think investors are panicking yet either. Perhaps by 2010 they will be, as I mentioned on the front page of my February 2008 report in a quote from Geramy Grantham. The fat pitch, as James Montier says, is yet to arrive.
At The Economist site, enter Buttonwood into their search engine and look for a Buttonwood column dated July 19 with the title: Turning panic into opportunity. The sub-headline is "How to tell when markets have hit bottom" or this link:
http://www.economist.com/finance/displaystory.cfm?story_id=11751297.
WHEN TO BUY - In the same issue of The Economist (this issue alone is worth the $137 subscription price), I found this sentence in the obituary section on John Templeton: His iron principle of investing was "to buy when others are despondently selling abd to sell when others are greedily buying". Question: Are people despondently selling yet? I do not think so. The point of "maximum pessimism" as Sir John called it, in my view, has not yet arrived.
COGNITION NUTRITION: While you are at The Economist site, look for this page and a half column too. This column is perhaps more important, because, if you do not look after your brain, how are you going to invest:-) One does not want to rely on a broker. Again it is the July 19 issue, in the Science and technology section, cognition nutrition 'Food for thought'. Here's a quotation: "people should eat more antioxidants". Specifically the column, and study referred to, mention omega-3s, oily fish, walnuts, kiwi fruit, berries and tumeric. Alzheimer's is rarer in India "where a lot of curcumin is consumed (it is the substance that makes tumeric yellow)". I add turmeric to everything I can because my mother, and her two sisters, had Alzheimer's when they died. Mum in 1973 at only age 63.
"appropriate changes to a person's diet can enhance his cognitive abilities, protect his brain from damage and conteract the effects of aging" Fernando Gomez-Pinilla, a fish-loving professor of neurosurgury and psysiological science at UCLA

INDEX FUNDS: Gerri Willis, apparently the anchor of CNN's weekend business programme, was on The View, July 21st (I do not watch The View, but yesterday (a day off in Le Tour de France) the three ladies I was with called me in to the television room to hear the financial advice of Gerri Willis. Ms Willis said that she would keep her money safe by investing in mutual funds and index funds. Can you imagine! It's no wonder people do the wrong things with their money with advice like that from big names. It's bilge, but people think she's right. Ten years ago, just about exactly, the S&P 500-stock index was at 1164. It closed on Friday July 11 2008 at 1239. According to Jason Zweig, writing in The Wall Street Journal of July 12 2008: "That's an annualized average return of 0.63%. At that rate, it will take you 111 more years to double your money in the stock market." I do not index!
In 1968, the TSE 300 index broke 1200 for the first time. Ten years later, the TSE broke through 1200 for good. For ten years the TSE was in a range-bound market. The great bull market began shortly there after, in 1982.

"Any underperformance is a reflection of short-term volatility as opposed to permanent loss of capital." said Clayton Zacharias, manager of the $1.2 billion Trimark Canadian Endeavour Fund in a Report on Business column of July 16. Consider his sentence in light of your own portfolio: "Any underperformance is a reflection of short-term volatility as opposed to permanent loss of capital." Interesting, eh! That's the way I view things because we own good dividend growth stocks. As a result, and even though I do not usually read columns about mutual funds, I read on. Zacharias, it seems, is a different type of manager. His fund hold only 32 stocks. And there were comments in the column about Tim Hortons, Thomson Reuters and Power Corp. Loblaw, apparently, is testing Zacharias' patience. Mine too:-) The column, written by Andy Georgiades, had the title: "Seachering for gems in sectors that have fallen from favour". I could not get it with a Google to give you a link. It's worth reading, if you can find it..

Did you do any buying during the week ending July 18th? It seems the market bottomed on Tuesday July 15 and we are into another rally. Low prices of January 2008, in some cases, and of March 17, in others, held. Interesting. But XDV went below its January and March lows, however slightly. Perhaps these cycles can be played, but only with our best stocks, and being sure to get out after a reasonable gain (don't let greed take hold, Tom) before the big drop comes when we make our permanent buys. Or maybe, I've been reading Katsenelson's range-bound markets for too long.

10725: At the close July 15 2008, "the Dow was just 236 points above the 50% level of 10725. Below 10725 = trouble, but so far the Dow's been holding above 10725." Richard Russell

"...it will be deflation that will ultimately be the problem and not the current inflation we are dealing with today."
"The transition that is coming will not be comfortable."
"Numerous signs indicate that economic growth is decelerating worldwide..."
three ideas from John Mauldin's six page Quarterly Review and Outlook - Second Quarter 2008 at http://www.investorsinsight.com/blogs/john_mauldins_outsite_the_box...
$5.2 trillion LOSS IN WEALTH - "Over the last fiscal year, holdings in the stock market, as measured by the Wilshire 5000 Stock Index, lost more than $2.1 trillion. Simultaneously, the 15.3% contraction in the Case Shiller Home Price Index suggests the wealth loss in value of household residences was a staggering $3.1 trillion." ibid

Ounces of Gold to Buy the Dow - Richard Russell had a chart of the ounces of gold necessary to buy the Dow from 1916 to the present in his daily of July 7 2008. My it is fascinating. I've made it my wallpaper for the day. From near a low of 5 ounces in 1916, it rose to a high of 15 in 1929. Then it fell to a low near 1 ounce in 1934. Then, it rose to a new high of 25 in 1969, then down to near 1 again in 1981. Then up to near 40 ounches in 2000. It's been going down since then...now near 11. In a few years, if things continue badly, it should be back below 5 again. I wonder if you can Google it? The source was Jay Taylor, Editor of J Taylor's Gold & Technology Stocks.

Dump your funds now? Last July I wrote a column for a new friend: Dump Your Funds. It just happened to be near the market peak. Yesterday, with the market down dramatically, I received a note from a prospective new subscriber whose advisor has him all in mutual funds. What to do? My advice: at the very least stop the automatic re-investment in those mutual funds and go into dividend growth stocks with that money and your new money. I wished him luck on wanting to be his own advisor and, for the $10 he enclosed, sent him some of my introductory material and my most recent report.

SLF - According to BNN Market Call on July 8 2008 in the Report on Business, Sun Life has the biggest decline 24.7% and has been the largest negative contributor to the S&P/TSX year to date. SLF, TRP and RCI..B are the current picks of Gavin Graham. His past picks (August 8 2007) are all in negative territory: BNS -3, Finning -15 and Tim Hortons -18%.

Naughty Yield for BCE: Did you notice BCE's yield is now 0.0%? No more dividend. But it's price was up $4.50 last week to close at $39.64. I suppose I had better do something on what to do with your BCE money in my next report. The BCE purchase is another great example of professionals not necessarily doing better than ordinary folk: they bought BCE at just about the peak of the market.
Some stocks I follow have broken through their previous lows: Sun Life, Thomson, Reitmans. Others are close: Power, PWF, IGM, MFC, GWO, Richelieu, TransCanada. With the banks: BNS and LB are above, CM below its previous low and BMO, RY and, even TD, close. I noticed that Fortis and Enbridge have faultered in the last few days. I'm still waiting to buy and working on my new web site.
I finished reading Active Value Investing: Making Money in Range-Bound Markets while up on Georgian Bay the last while with our grandchild and two of her second cousins...and all the parents. These little lads are only a few months different in age from Julia's nine months. To see the three of them in their Jolly Jumpers* hung from the same rafter a few feet apart, jumping at the same time was a joy to behold. A new generation is at the cottage after 60 years. Mum and dad bought the cottage, which looks out across Nottawasaga Bay to Meaford, the blue mountains and the Bruce on a clear morning, in 1948.
* While doing research for my next report, I saw Jolly Jumper stock listed on the TSE...late 1960s as I remember. I've been checking dividend growth during the last range-bound market (roughly 1966 to 1982) in Canada. From a low yield of 2.8% in 1973, the yield of the TSE rose to 6.13% in early 1982. Ask yourself why the yield of the TSE increased so much. At that point the great bull market started...and I began my report. Now the great bull market is unwinding. It's right some exciting. Hang on! It's not over yet. 'Hang on' means do not sell good dividend paying stocks. 'Hang on' also means do not buy yet. Previous low prices are being tested. They might not hold. The yield of the TSE would not rise to the 6% it was in 1982 again, could it?

It's been about a year since the markets peaked. As of July 5 2008, some 52 week changes are:
The winners: Enbridge +17%, Shoppers +14, TRP + 3, Fortis -0-, TIH -2, CU -4, Empire -3
The others (52 week change) as of July 5: Loblaw - 41%, RET.A -36, Telus -35, Metro -34, Thomson R -38, Telus -35, Richelieu -24, IGM -23, Power -23, Power Fin'l -20, GWO -17, Sun Life -16, CNR -16, Leon's -14, Atco -12, Russell Metals -12, Manulife -9.
One metric: Berkshire Hathaway is 21% off from its peak. As usual, E.& O. E. as I do this quickly.
If you are feeling badly about the results of your own portfolio, this data from Allan Ableson's column in Barron's of July 7 might help. According to him, the web site GuruFocus.com keeps track of "elite billionaires" and mostly famous investor's results. Only four of the 55 who bought stocks in the first half of 2008 scored a gain.
The S&P 500 is down very close to 20%. As a result, bear market articles are appearing (Barron's cover story on July 7 2008). Katsenelson in Active Value Investing: Making money in Range-Bound Markets maintains we are in a range-bound market, have been since 2000 and will be for a few more years, unless, of course, the economy deterioriates and we enter a bear market. In Katsenelson's view, the difference between a range-bound market and a bear market is in the earnings. In both there is P/E contraction. In a bear market there are earnings decline too. I'll have more on his book in my August report. I've just about finished reading it.
My front page headline for August: 1968 income $4,815 *range-bound market* 1983 income from Canadian dividend-paying common stock $31,398

"Stay liquid and be cautious - more market mayhem ahead" was the headline of Avner Mandelman's column in the ROB of Saturday July 5 2008. I will not repeat what he said in his fourth paragraph. Well maybe, I should. It might stop you from buying a stock, only to see it's price fall afterward: "what's coming is even worse than what came before..keep more cash..." Could Israel attack Iran, for instance, while Bush is still in office, not only to not stop Israel, but to assist? They are an aggressive nation.

Buffett and Leon's: Fabrice Taylor's column in the Report on Business of Saturday July 5 2008 is definately worth reading. The title is: 'Market turmoil? It doesn't rattle Warren'. This long column is a review of The New Buffettology: The Proven Techniques for Investing Successfully in Changing Markets by Mary Buffett, his son's ex-wife and David Clark, a friend of the family.
Mr Taylor, an FCA, applies some ideas from the book to Leon's in the second half of his column. It's interesting. I bet LNF's price will rise on Monday. LNF is thinly traded. It closed at $12.08 Friday.
ROB columns are free for a few days, then there's a $5 change. I'd pay $5 to read this item. I've read it twice so far. I'm not certain, though, that I'd buy the book. I like to study Mr. Buffett's actual words from his older annual reports to shareholders. I will glance through the book to discern how many direct quotations there are, and then decide on purchase. We are already doing most of what Buffett does: holding the stocks of good business for years, for instance.
"the hardest thing to do is be patient" was the thought I selected from the column as my favourite.

"In its latest missive, S&P Canada found that in the first quarter of 2008, only 8.2% of actively managed Canadian equity funds beat the S&P/TSX composite index, which is a pretty shocking statistic no matter how you massage the data. Flip it around and it's saying 93% of actively managed Canadian equity funds failed to justify their fees and beat the index."
Financial Post July 2008

"This market continues to go down because it has not yet fully discounted the worst that lies ahead."
Richard Russell July 3 2008

"Healthy living switches off genes that promote cancer" was the sub-title of a column in The Economist of June 21 2008 I was reading on the beach at Georgian Bay last week. We are about a mile from where a man took a chainsaw to a fence blocking access along the beach (Toronto Star, June 30 "Man with chainsaw hacks beach fence to cheers" article/451594). "Better than cure" was the title of The Economist item. Healthy living: "a low-fat vegetarian diet, plenty of exercise and - of course - no smoking". According to the study at UCSF by the founder of the Preventive Medicine Research Institute, healthly living not only stops but also reverse the progress of coronary heart disease. Apparently it happens in prostrate cancer cases too. It's all at the molecular level. I added tumeric and garlic to the chives and shallots in my celery and potato soup I made yesterday. These are mentioned in Richard Beliveau's Cooking with Foods that Fight Cancer. This is my favourite non-investing book. There are chapters on: seaweed, mushrooms, flax seed, herbs and spices (tumeric and ginder, especially), probotics, of cabbages, garlic, soy, tomatoes , berries, citrus fruit, green tea ("Select Japanese green teas, richer in catechins over Chineae teas"), red wine and dark chocolate with a high concentration of cocoa mass. The receipe for poached salmon escalopes in white wine on page 183 is right some tasty.

"In 25 years on Wall Street, I have never seen things this bad. We've had some tough times: the 1987 stock-market crash, the collapse of the once-all-powerful Drexel Burnham Lambert, the immolation of Long Term Capital, the post-9/11 calamity, and the dot-com implosion. Every one of these events rocked the Street, causing pay cuts and layoffs and creating a sense of doom. But this time is different; it's doom itself." Jim Cramer in current issue of New York magazine

"As for the US market, aside from the bank stocks and the financials being whacked, even the best of US stocks are now under pressure. There is no more revered investor than Warren Buffett, the genius behind the phenomenal rise of Berkshire Hathaway... the high for a Berkshire share was $1,516 recorded last [2007] December. Berkshire is now selling at $1,220 thousand. Berkshire has just violated its rising trendline, meaning that its rate of growth has been ruptured. The best are now sinking with the worst. This market is turning from bad to vicious." Richard Russell June 23 2008

Stock Price Stability: As a footnote to this topic (Value Line and Arnold Bernhard) on page 4 of my June 2008 report, Loblaw was #2 in the stability list Carlyle Dunbar did in Investment Executive in June 2004 (two zero zero four, note). Melcor Development was #1. One never knows, does one? Fortis was #4 back then, and Enbridge #6.

Richard Russell June 19 2008: "This stock market continues to creep lower. Nothing really scary, nothing wild and wooly, just that steady descent. My instinct tells me that somewhere ahead there's going to be plunge, a swoon. Investors can't sit and just watch their stocks melt away. Somewhere ahead it's got to stop -- and usually that "stop" is at a place where the market is severely oversold. Are we there yet? I just don't think so."

"Don't waver" John Heinzl's column of Wednesday June 18, 2008 in the ROB had some good advice for dividend investors: "There will be rough spots and prices will go down. Have faith and believe and don't waver."
'Call me crazy, but I'm sticking to my plan" was the title.
A Dividend ETF: Mr Heinzl column included a chart of iShares Dow Jones Canadian Dividend ETF. It's higher than it was two years ago this month, and up from January and mid-March of this year, but down from its peak last summer...much like our stocks. This ETF's ticker is XDV on the Toronto Stock Exchange. It's seems to be a good metric of what our own stocks are doing...much better than the TSX itself which is resource excited just now. Key in CA:XDV at bigcharts and do a two or three year chart of this ETF which began at the end of 2005. I do not think ETFs are a substitute for what we do. Their top ten, of thirty holding, are all financials except for MTS and Russell Metals. This fund provides income quarterly with a yield close to 4%, but XDF "seeks to provide long-term capital growth". That is NOT our goal. Being a fund, there's a MER, of course. Claymore has a Canadian dividend acievers fund too: CDZ.

'Grantham: the bear growls' was the title of Brian Milner's column in the Report on Business of Tuesday June 17 2008. The column was in interview form and contained a number of interesting quoations from the man, Jeremy Grantham, who runs $145 out of Boston. Here's one: "...we've had a shock to the system. But the secondary effects...are just beginning to to work through the system." It will take many months "18 or even longer for some of these effects to show up".

* * * * * * * * * * June 2008 Report * * * * * * * * * *
2008 YIELD YLD aver yld difference June 13 Price
In order of YLD Diff
Bk Mtl 6.24 3.32 2.92 44.90
CIBC 5.48 3.31 2.17 63.45
Power 3.54 2.07 1.47 32.80
Nat Bk 4.70 3.24 1.46 52.78
PWFin 3.79 2.62 1.17 35.36
IGM F 4.29 3.17 1.12 45.49
GtWest 3.74 2.64 1.10 31.27
Sun L 3.20 2.12 1.08 45.03
Ryl Bk 4.08 3.07 1.01 49.00
Bk NS 3.84 3.07 0.77 51.00
Manu L 2.49 1.72 0.77 38.60
Metro 1.94 1.38 0.56 25.80
Leon's 2.33 1.83 0.50 12.00
TDbank 3.48 2.98 0.50 67.85
CNR 1.80 1.36 0.44 51.00
Empire 1.67 1.27 0.40 39.50
BCE 4.34 4.13 0.21 33.65
Fortis 3.64 3.93 -0.29 27.50
ENB 2.96 3.40 -0.44 44.55
Atco 1.78 2.30 -0.52 52.69
Tr Can 3.66 4.40 -0.74 39.33
CdnUtl 2.84 3.62 -0.78 46.75
Laur Bk 2.91 4.12 -1.21 44.04
Avg 3.42 2.83 0.59

I am sorry I sent the wrong spreadsheet to the printer for my June report. Here is the list with a few columns of data as of June 13 in order of yield difference. The list in the June report was in order of sectors, financials on top, others in the middle (Empire, Metro, Leon's and CNR), and utilites and pipelines on the bottom.

"Eroding wealth -- At the end of the first quarter of 2008, US households were worth a combined $56 trillion. That was down $1.7 trillion from the previous quarter. The decline was mostly a result of stock weakness, not housing. Falling home values accounted for $305 billion of lost wealth while declining stocks and mutual funds accounted for $965 billion of lost wealth." Richard Russell, June 16 2008

INTERNATIONAL FUNDS return 6.5% a year: "I think it's particularly important now that you look for companies that actually create cash rather than needing to borrow to sustain their growth." Gerald Cooper-Key, manager of the best performing international equity fund available in Canada, Mawer World Investment (ROB June 3 2008 B7). His average annual return over the past 15 years has been 9.68%. Is 9.7% good for the best international fund?
We invest in companies that create cash, don't we. And after 15 years or so, with dividend growth, and with just a bit of luck, we can beat 9.7% with our yield alone. This the the primary reason why I don't invest internationally. And our Canadian dividends are essentially tax free.
The fund in 7th place had an annual average return of 2.85% over 15 years. Hello! "They" urge people to invest internationally. Quite often, I think it's because of the higher fees they change for off-shore funds, not for diversification. It's not, seeing these results, it seems, for the higher returns. The benchmark MSCI Europe Asia and Far East Index returned (income + gains) 6.5% over the same 15 years. Two funds beat it. Impressive, eh. If you don't happen to select the right fund, you might as well buy a GIC:-)
"Who could have known? Fifteen years ago, international equity fund managers looking for the best long-term returns were no better equipped to predict the future than the rest of us." This was my favourite part of Dale Jackon's column. In essence, they seem to be saying, so much for professional management.

Be conservative - "What's needed is a true oversold condition, a clear "buy spot" which would bring in the big institutional money. That could occur nearer to the October-November [2008] area, so we may have five or six months of waiting before the market arrives at an advantageous buy area. Until then, be conservative -- and please, try not to do anything stupid." Richard Russell, May 29 2008

The markets seem to have calmed down. I think there's more fuss to come, maybe not so much with the markets but with the effect of the credit crunch on the real economy. So does Avner Mandelman of Giraffe Capital writing in his May 24 2008 ROB column The Buy Side: 'Earth to Wile E. Trader: It's a long way down'. Mandelman had a lot of interesting ideas and concluded with these words "...stay cautious and liquid".

"High-dividend-yielding stocks will be the source of an important portion of your portfolio's returns as they have been in previous range-bound markets." This sentence is from the conclusion of Actve Value Investing by Vitaliy Katsenelson p265

Interesting about the BCE takeover offer floundering over a court decision regarding bond holders. One never knows with investing. Refer to the comment below about surprise occurring regularly. After I mentioned this possibility in one of my reports last fall, I received letters.

TSX at 15,000 - While reading the ROB on the way to the cottage May 20 (Louise was driving), I noticed the TSX had reached 15,000. I don't view the TSE as a good indicator any more. Right now it's skewed by the energy sector (remember when Nortel was a major fraction of the indexes value). Without saying commodities are a bubble, it's good when investors get excited about some sector. They tend to forget about good, solid dividend-paying stocks. This allows us to pick up more of our treasures at better prices. Then, when something nasty happens, think Bear Stearns, people come flocking back to our haven. The world is proceeding as it should. And the lilacs on highway #38 just north of the 401 'in Kingston' are stunning this year. So are the black flies!

TRP - I saw a wee write-up about TransCanada in the ROB recently in their BNN Market Call, Current Picks section. John O'Connell a portfolio manager with RBC Dominion Securities said TransCanada had a good dividend yield and stated he was "attracted to the exposure to the power generation market". I am too. This does not mean TRP is a good buy. TRP is near the bottom of our list sorted by yield difference, it has a G%D well above the list's average and its dividend growth is less than half that of our list average. TRP is not my current pick. I'm glad I have some, but not buying more.

KYC - Invest in non-cyclical common stock with an excellent record of dividend growth when they are fairly priced as determined by comparison with their historical yield, Graham's value* and P/E.
Here in Kingston, KYC is the Kingston Yacht Club, of course, but for brokers it means know your client. They can't sell you something that's not compatible. This is my first draft. It's an interesting exercise.
*Graham's value is the square root of ( average of the last three years earning per share times the current book value per share times 22.5) This value comes from The Intelligent Investor...the chapter on Stock Selection for the Defensive Investor. The average percent difference betweenGraham's value and the price of the stocks in my list, over the last three years, is -25. Your margin of safety is lowered if you buy a stock with a high G%D. The average G%D of our list hit a low of -13 in March. It's back up over 20 now. But if Grantham (below) is correct, and I think he is, it will decrease again along with stock prices. I plan to have a chart of this value going back three years in my next report. I completed it yesterday.

Jeremy Grantham was quoted many times on the front page of the Report on Business on Saturday May 17 2008 in Brian Milner's column under the headline: "Warning to equity investors: Watch your tail" Google the column while it's still fresh and free. After a bit, I'm not sure how long, the Globe and Mail charges $5 per column. This column would be worth $5 though, if it stopped you from rushing back into the market. Anyway, here's one quotation from Jeremy Grantham who runs over $145 billion for GMO out of Boston: "The contraction of liquidity might take years...it might very well be the end of an era. I suspect it is."

If you still need motivation to dump you funds, here's more data. According to Dalbar, Inc., a research and rating firm, the average equity mutual fund investor earned a paltry 2.57% annually over the last 19 years compared to the S&P 500 index earnings of 12.22% annually over the same 1984 to 2002 period.
Source: Active Value Investing by Katsenelson, page 19 (I just started reading Active Value Investing ($59 list) about making money in range-bound markets. I could be interesting...more on the book later. We could be in a range-bound market. It's hard to tell with the TSE index because of the influence of our resource stocks and trusts throwing off the TSE yield)
Why do mutual fund investors have such poor returns? In April of 2007, with the bull market still roaring, Canadian investors put $2.51 billion net into mutual funds. In April of 2008, after market setbacks, and with prices much more realistic, only $560 million went into funds. And, according to the Investment Funds Institute of Canada, the lion's share went into money market funds. Balanced funds and bond funds were also popular. People think bonds are safer: in an mutual fund they are not safer because they lose their guarantee of par at maturity. Equity funds, in April 2008 saw net redemptions of just over one billion dollars...over $1 billion taken out. People can't control their behaviour. They buy went prices are high and sell when prices fall. And they pay fees on average over 2.5% to do it. What a world!
We don't do this, do we? We use our indicators (yield difference, G%D and P/E to buy when prices are reasonable. Right.

"surprise occurs regularly" is my thought for the day from Against the Gods p221. To continue: "The consensus forecasts embedded in security prices mean those prices will not change if the expected happens." TC: If there's a negative surprise, beware. For instance, Sun Life's share price slipped after the early May announcement by Sun Life that "We face an environment where a scenario of little or no growth could be a reality" (ROB column by Tara Perkins 'Sun Life shares slip as insurer warns on 2008 earnings' on May 7 )
Markets are volatile: "Volatility is a proxy for uncertainty." Again from Against the Gods by Peter L. Bernstein

Telus and BCE had exactly the same yield at 3.91% the week ending May 9 2008. I could switch one for the other in my list and not affect the average. I do not plan to do this, though. I'm not excited about having a telecommunications stock in the list. RCI.B (Rogers), however, has had great dividend growth in recent years.

"Over the last six years, the dollar has lost almost 45% of its value against the other major currencies."
Richard Russell, May 13 2008
TC: It's no wonder the price of oil is rising. Would you want to be paid for oil in American dollars?

3.47% YIELD: Power Corp will increase its dividend on June 30 You can read what I think about Power and its dividend increase in the Montreal Gazette of Monday, May 12, 2008...front page of their business section. POW's 2008 dividend increase at 20.2% is about the same as last year's 22% increase, a good sign. And the increase is more than the 17%+ average of last five or six years. Eventually, Power's price will have to rise by the same 20 per cent to keep its yield in line (refer to the sentence from Graham and Dodd's Security Analysis just below). The closing price of Power Corp on Friday May 9 was $33.40. Hence, when you multiply $33.40 times 1.20 (for the 20% dividend increase) you get a price of $40 a share. We believe that, don't we, even in these troubling times.
According to Don MacDonald of the Gazette, who was at Power's annual meeting and talked to Paul Desmarais, senior, himself, the dividend is up 4.875 cents per quarter to 29¢. I'm glad I bought more Power in March. Power's dividend yield is now $1.16 / $33.40 or 3.47%. POW's average yield is 2.07%, so it's difference is 1.40%. That's a lot. Power moves up the list sorted by yield difference. And Power's G%D is positive too as it's trading below its Graham value of $34.80 (G%D is a rare + 4). Don MacDonald asked me what I thought of Power at this price and yield. Power's dividend has doubled since 2004. This significant change in Power's yield made POW #4 in my list sorted by yield difference under BMO, NA and CM.. Interestingly, IGM, GWO and Power Financial are the next three in the list.
Power Financial will also increase its dividend to .335 quarterly from .3125 on August 1st. That's up 15.5% from last year's $1.115 to $1.295.
To find this column, Google: Montreal Gazette + 'Power Corp. Quietly keeps making money'

If prices of some of the stocks you purchased in 2006 or 2007 are still below par, you might feel better to know that Berkshire Hathaway's net investment losses in the first quarter of 2008 totalled $991 million dollars. A year ago, the Omaha-based company recorded a $382 million investment gain. This is the one tid bit of information I selected from reports of the annual meeting of Warren Buffett's Birkshire Hathaway's annual meeting on May 3 2008. Some 31,000 people attended.
The prices of most of the stocks bought more than a couple of years ago, though, should be nicely above par: dividend growth is terrific. Does this next sentence from Security Analysis, originally published in 1934, say that as the dividend rises, so does the price?

"Since the market value in most cases has depended primarily upon the dividend rate, the latter could be held responsible for nearly all the gains realized by investors." Security Analysis, by Graham, Dodd amd Cottle 4th edition, 1962 p.480

Offer to purchase a car: We went through that abhorrent experience of buying a car on the weekend in the big city. They wanted my credit card to go along with the cash offer to the manager. I asked why? The reasons provided did not make sense to me. After a few minutes, I hesitatingly complied. He promised he would not swipe it. So, immediately again I said: "So, you don't need it then." The sales person took it with him to the office in the corner. We left the saleperson's desk to avoid any microphones.
They would not sign back my offer with a 5% discount off list, so I asked for my credit card back. That caused a bit of a flap. I finally got it back and we left the building...but not the property. That's why they wanted the credit card with the offer. They want you captured: they don't want you to leave. The salesperson came out onto the lot as I started our ten year old car and said they would now accept my offer on their 2006 low mileage car after all. The second offer (I ripped my signature off the first one trying to get my credit card back) had the terms printed on the back side (The clauses have changed quite a bit since I last taught them a couple of decades ago. In my view, the main one is: oral promises by the sales person are not binding unless written into the contract. Among other things, I always write in 'no logo').
Tomorrow I have to sell a stock or two to cover the purchase. I'm delighted prices rose last week and pleased I don't go through this car buying ritual more than once a decade. I'm also gratified that, with capital growth as a result of dividend growth, we can pay cash for a 'new' car. The financing over three years would have added close to $5,000 to the price. And it's non-deductible. I asked for a printout of the financing first...before the cash offer. I wonder now how much of a discount off list I might have obtained had started at a lower price.

The prices of our stocks have been moving up smartly in the last few weeks. I do not check prices daily, but noticed the numbers as I key in my weekly changes by hand. It is over? Maybe not, but it's nice to have our portfolios back close to their magic round number. Just this week, the food retailers jumped quite a bit. MFC is over $40 again and SLF over $50. If that is the worst they can throw at us, we're fine. Now, naturally, we wish we had bought more just after St. Patrick's Day. BMO at 7% would have been nice.

'Analysts recommend buying? Reach for the sell button' was the title of John Heinzl's April 28 column in the Report on Business. "Highly recommended stocks...underperform substantially" according to a Thomson Reuters study. If you think about it for even a moment, you will realize it's true. Don't buy highly recommend stocks: they are expensive. Were you the first one to hear about this particular recomendation? No. So? The price has already gone up. It's as simple as that.

BANK STOCKS: "Frightening as the markets look today, there will come a time when the liquidity crisis ends and today's prices for bank stocks look, in retrospect, like bargains." David Dreman, Forbes May 5 2008
This was the last paragraph in a column by Canadian-born Dreman titled 'Looking Beyond the Bailout' Dreman is writing about U.S. bank stocks. http://www.forbes.com/forbes/2008/0505/106.html
The same day I read this Forbes item, there was mention in the Report on Business of Royal bank possibly taking another hit for bad loans. It's hard to know what to do sometimes.

'Hope I don't die before I get old' was the title of a column on the front page of Globe (and Mail) Life section of April 28 2008. Among other things it contained an interesting list: nine secrets to longevity. I liked #4 Drink red wine (in moderation). The other items were: exercise, eat vegetables and avoid processed food, stop eating when your stomach is 80% full, put loved ones first, have a strong sense of purpose, join the right 'tribe', belong and relieve stress.

Earnings
"The [earnings] numbers we see every quarter are not necessarily an accurate gauge. They are, at best, guesses and sometimes outright fabrications."
"... the Street's consensus estimates, which by no coincidence, typically match those dished out by the companies."
There are two sentences from a column on the front page of the Saturday R.O.B. of April 26 2008 by Brian Milner 'Profit season: Separating the truth from the hype'
This column and the ideas in it by an accounting professor and an expert in financial statement analysis got me thinking. We do not rely on earning forecasts in our stock selection process. In fact, our Graham number contains an average of trailing earnings...going back three years.
I got thinking about this because I'm currently reading Chapter 27 of James Montier's Behavioural Finance. It's about using a cyclically adjusted PE ratio to enhance stock selection. Actually, the adverb Montier used was "massively" enhance stock selection. Montier's idea came from Graham and Dodd's 1934 book Security Analysis. One should cyclically adjust PE ratios by using a moving average of earnings of "not less tha 5 years and preferably 7 to 10 years" Graham and Dodd said in Security Analysis. Anyway, Montier back tested this idea on data from a number of countries (not Canada, though). The return differential is "exceptionally large" he stated: 25% per year when the 10 year moving average earnings are used. To quote Montier again: "The return on the most expensive stocks is now a negative (- 4% p.a.), while the cheapest stocks generate a 21% p.a. return." WOW! I plan to look into this some more.
For instance, BNS last ten years of earnings are: $ 1.26, 1.32, 1.47, 1.78, 2.03, 2.20, 2.35, 2.68, 3.10, 3.58, 4.03. Actually, looking at BNS' earning numbers, they don't need to be smoothed (cyclically). Value Line's estimate for 2008 earning is $4.35. There I go looking at an earning forecast. Well I do look. I notice, with all the turblance in the financial markets, that it's up, not down. That's a good sign.
I reckon, if you are buying a stock, you should write out at least a seven year history of earnings on a piece of paper. Even if you know nothing about accounting, you can quickly judge what's going on from their record of past earnings. There are a couple of other things you can do too, of course. For now, however, just look at this set of earnings for BNS. It's quite a record. And the dividend and book value have grown in the same way over the same period.

But you're [Warren Buffett] still bullish about the U.S. for the long term? "The American economy is going to do fine. But it won't do fine every year and every week and every month. I mean, if you don't believe that, forget about buying stocks anyway. But it stands to reason. I mean, we get more productive every year, you know. It's a positive-sum game, long term. And the only way an investor can get killed is by high fees or by trying to outsmart the market."
This is the last paragraph in an interview with Warren Buffett in Fortune magazine's current issue. I found it by Googling 'Buffett + Fortune + April 2008' at CNN Money.
There were a few other interesting paragraphs too. I cut and pasted four of them to read more carefully later. Here's another more sentence: "we're a long way from turning the corner"
One more thought from the great one in Omaha: 'And the truth is you never need to sell them [stocks], basically." What a guy! I feel better now still owning the stocks I bought decades ago. We (humans) need to re-enforce our beliefs now and then, eh. We need to convince ourselves we are doing the right thing, especially when our stock prices have fallen a bit. Some of you use me for that purpose...I use Mr Buffett and Mr Jarislowsky and others.

OPM: "When they asked famous robber Willie Sutton why he robbed banks, Willie replied, "That's where the money is." Willie was wrong. The money is in the money business, and the most profitable part of the money business is managing yours and other people's money. And, of course, I'm talking about the hedge funds who traditionally charge a flat rate based on the amount of money they handle (the rate is usually 2% of assets) plus a portion of the profits, if there are any profits (their take is usually 20% of profits). Trader magazine just wrote up the 100 most successful hedge fund guys of 2007. Now it can be told. The top five took home at least one billion dollars each last year." Richard Russell April 21 2008

WEALTH REVERSION: Retirement Planning for Boomers - An April 14 2008 column by Dr Woody Brock (www.SEDinc.com) about wealth growth in the United States contained some interesting facts. If you are a boomer, you should be thinking about this. I'm not a boomer: it won't bother us..as much. Unless they buy extra real estate, I don't think it will bother our children too much either: I did send them a copy of the column anyway (no 's').

According to Dr Brock, from1981 until 2006, U.S. net worth soared from $10 trillion to $57 trillion or 18% a year. Wealth mean reversion is now upon Americans ( maybe us a bit too). Mean reversion, in my non-Math mind, is roughly coming back to earth. What does this mean? (pun) Out to 2020 (yes that's 2020, over the next decade, give or take), wealth will grow at an average rate of only 2.5% so that, over the entire 40 year period (1981 to 2020), the average works out to 5.5% growth. Five point five per cent is normal long-run growth of nominal GDP...gross domestic product. (I majored in Economics, and taught it for a while, so I know what GDP is, but that's about it)
Here's the problem. Most baby boomers have most of their money in their houses, not in defined benefit pension plans. How will they obtain the income needed for retirement? Sell their house:-) To whom? Sell to another boomer trying to sell their house to invest for retirement. Dr Brock, an economist, put it this way: "Next joke." For many boomers, with house prices falling, early retirement is now out of the question. Sorry for your luck. "Ship happens!" as our son, a purser, who works on an RCCL ship says. Boomers should have been buying dividend growth stocks. A lot of them, however, also hold mutual funds. Portfolios of funds do not pay out much income. Ship happens! Next they'll be buying the guaranteed income products (annuities in disguise) with high fees. So much forboomer's retirement travel plans. I'll think of them when we're in France again later this year.
The title of Woody Brock's column was 'Five Delectable Examples of Stein's Law'. I found this paper through John Mauldin's Outside the Box at investorsinsight.com

+ + + + + April Report + + + + + All mailed by Wednesday the 16th. + + + + + +

Dividend Growth Potential: Did you notice that the Report on Business' table of 'Stocks with the greatest dividend potential' of Thursday April 10 2008 did not include any banks. Power and Power Financial were the only two in their list of twenty which are also in our list. Still it's worth looking at this interesting list. Shoppers is there and Telus, for instance. Industrial Alliance is too but not Manulife or Sun Life. Is an annual dividend growth rate of 75% for RCI (Rogers) sustainable (next month RCI's goes to .25 from .125 up 100%), or even 25% per year for Shaw?
A summary of my next report is posted now. I have dividend projections for the big banks by Value Line and I'll try to find room for Scotia MCLeod's dividend projections for the banks also. All are up, but not as much as last year: no dividend drops are projected. So, if not falling dividends, what are high bank yields saying?

Graham's Price: The week of March 28 2008, Laurentian bank's current price and its Graham price were exactly the same: $43. Four of our stocks were under their Graham price: BMO, NA, Metro and Empire. The average of the Graham column was minus -18. Stocks are being re-valued. The average yield of our list id 3.37. There were no dividend increases this week, except for AGF, no declareds of note, but a lot of payables.
On the new and completely revised dividendgrowth.ca I finally was able to get a chart of the 'yield of the list' to work. I'll be able to update charts now and then too, once this log-in site is up and running. PDF files of reports will be there too and this blog between reports.

The IncomePlus product by Manulife is outlined by Rob Carrick's Report on Business column of Saturday March 29
Google "Costly protection for the retiring type" or try the link below. This is a well promoted product...but it's. . . well I better not say it in my out loud voice. Let me put it this way: it's a package of seg funds, a wrap if you like, in lamb's clothing. It sounds good, but . . . http://www.reportonbusiness.com/servlet/story/RTGAM.20080328.wmain0329/BNStory/robColumnsBlogs/home

"Investment havens in a time of panic" Apocalypse now? At the top of The Economist web side search 'Buttonwood' then click on 'Apocalypse now?' is this link does not work:
http://www.economist.com/finance/displaystory.cfm?story_id=10881361

In Bull's Eye Investing, John Mauldin writes, "We have shown that much of the long-term and recent (book was written in 2004) rise in stocks is because of the rise in the price people are willing to put on a dollar of earnings or dividends, and not on the underlying growth of the earnings or dividends themselves."
It will be fascinating to learn how long it will take our capital growth to catch up with dividend growth in this milieu. Remember in my December 2007 issue, the average of the five year dividend growth column and the average of five year gain column were both 14 per cent.
www.donaldsoncapitalmanagment.com in Indiana has done work on dividend growth- price growth. Sorry. I can't get this link to work. Google Donaldson Captial Management
Interestingly, for most stocks in the States, according to Greg donaldson, dividend growth does not equal price growth...but it does with most of our stocks. Their example of Bank of America, though, is quite something.

Index Investing: In April of 1999 the S&P 500 was 1362.80. Yesterday the S&P 500 closed at 1325.76. Impressive, eh!
Unless you buy the right stock at the right time, and unless your stock pays a dividend, and a growing dividend at that, you might as well just buy a GIC or let mutual funds fleese you of 2.5% a year for not beating the market.

Wealth management for private clients - I accompanied a person on a visit to the swish 'private client' offices of a major Canadian brokerage firm here in Kingston yesterday. My it was fascinating. She wanted to dump her funds, get some cash and begin dividend growth investing. It was not to be. There was no help from this source.
First off, a broker is not going to want to talk to you unless you have some $300,000. They'll shuffle you off to 'a planner' or discount broker, if you have less than that. Then we were told they don't do stocks. If you insist on buying stocks, they'll farm it out. Imagine! We don't like to trade out clients money, he said. Yea right! There's no big money in individual stock portfolios any more and, on top of that, brokers know little about stocks...certainly not much about the great dividend growers.
Brokers are seeking the residual commissions generated every year by funds, portfolios of funds (wraps) and packaged products offered by insurance companies. They are concerned, he said, with asset allocation...making sure you have the right asset allocation. The new guaranteed Manulife 'product' was pushed by the broker a number of times. This broker, like all of them now, was interested in growing his business. As soon as he found out my friend did not have $300,000, we were out the door...politely, but summarily. Don't count on a broker helping you sell your funds, buying stocks or holding your hand. That's not his job. He or she must build 'the book'. Everything after is managed at head office. That's why you'll see brokers on the golf course many an afternoon.
This seemed willing, however, to talk about switching funds. The one she had, he said, was no longer appropriate: the good fund manager had left.
You will do better in the long run buying the common stocks of the companies who sell these products. That's why life insurance companies have dividend growth rates in the double digits. Their products, like the fancied up variable annuity being pitched yesterday to replace her 6% GIC maturing in a couple of years, are very profitable...both for the seller and the life insurance company. Who cares about the client?
By chance, our daughter and her Gary were in the offices of the same bank in Toronto D yesterday too. They were opening a RESP for our grand daughter Julia. Naturally, the in-house mutual fund based RESP was pushed. They were shown the andex chart (andexcharts.com) The only alternative was a GIC based RESP. The new tax free accounts coming in 2009 will affect some of these decisions.

PREFERRED STOCK: IT'S NOT. I love saying that, and Stephen Jarislowsky hates preferred. End of topic.
Regardless, a 5.8% preferred is being offered by BMO to shore up it's capital position by $200 million. Preferreds are fixed income instruments. There is no increasing dividends and hence, little chance of capital appreciation. If interest rates rise, what will happen to the $25 price? (Hint: the relationship is inverse)
Economics 101: If a bank has $200 in capital, how much can it lend? Yep, that's right...eight to ten times its capital. They create money out of thin air. Banking is a good business to be in...if the loans are backed. That's why we buy bank common stocks...we share the banks profits and our capital grows as the bank grows. Well...usually that's what happens. Preferreds do not share profits and hence do not grow. That Mr Jarislowsky does not even mention preferreds in The Investment Zoo is telling. But if your investment horizon is short, they will be better than ABCP. Well maybe not. I bet you can buy some high yielding ABCP right now, and if you waited until maturity, you most likely get nearly 100% on the dollar.
If you think a 5.8% preferred (which is not) is tempting, look back to my February 2002 front page 500. I send it to every new subscriber, so regardless when you began to subscribe, you have this important page. It discusses which is better in retirement a growing income or a static one.

ABCP - Asset-Backed Commercial Paper: The ABCP mess (it should be called debt backed, but it was not even that, some was unsecured) has highlighted another great advantage of investing on our own: we don't the calls: the calls to sell us "stuff" brokerage firms are being paid well to push. Rob Carrick put it well in his March 25 Report on Business column about the ABCP mess: "If you work with an advisor...you've indicated you want a professional to guide your investment decisions and keep you on the right path. But sometimes professional advice isn't the right advice."
The yields on ABCP were higher. Hello! There is a reason for higher yields. People forgot about risk and liquidity.
Over night I can up with this thought. It's a combination of the ideas in Peter L. Bernstein's column below and the ABCP mess. These fancy new products, ABCP and its ilk, did not work. Perhaps the tried and true common stock will become more popular and our prices will rise more than they would on their own. Perhaps good old dividends will come back into their own again and we'll benefit from being their first. I read 'The Shape of the Future' again this morning as the sun rose over RMC at exactly 7:00. It is a great column.

"The Shape of The Future" + Bernstein
Google this four page column, print it, read it a few times and savour the wisdom of Peter L. Bernstein's 87 years. Peter L. wrote Against the Gods and a lot of other journal quality papers. This column is dated March 24 2008. It's about what's happening now "As Goldilocks shreds..." and what kind of long-term new environment is likely to replace it. It's one of those once a decade articles you just have to read. "The economic malaise will not be brief..." It's about re-building the credit markets brick by brick. This transition will take time..."an extended period of time".

By acting to facilitate the sale of Bear Stearns, "the Fed simply bought time for an orderly liquidation. (TC: This action certainly was not a bailout of Bear Stearns shareholders.) And it is going to take some time to get back to functioning debt markets and normal mortgage credit markets. The problem of bad mortgages being written off by a host of institutions is still with us (meaning Americans, mostly). We (again meaning Americans, mostly) will see hundreds of billions of dollars of write-offs more than we have seen so far." John Mauldin March 21 2008

Power Corporation - John Heinzl's column on March 19 in the ROB "Sideswiped Power could be a bargain" is worth Googling for if you did not see it and own, or are thinking of buying Power. Let's hope Heinzl's column works and others see POW as a bargain too. I've been nibbling at Power again. I'll soon have control wrested from the Desmarais family:-)

Stephen Jarislowsky's The Investment Zoo has a couple of pages on what he calls panics. It's worth reading again: pages 115 to 117. For instance, on page 116, Mr Jarislowsky says: "In the case of a longer-term crisis, take your time [buying]." And also on page 116 this guidance: "Just wait until the panic has exhausted itself fully and the recession is at a very deep point. Then, when all is darkness, you will have your pick and your patience will be well rewarded."
Your time will be much better spent readingJarislowsky than most of the stuff in the papers now a days.
On March 18, for example, we stopped in Belleville for a tea on the way back from Toronto (I was at Murphy's Law at the corner of Queen and Kingston Road for many hours on Saint Patrick's day with our son-in-law, both in our kilts, as the markets roiled over Bear Stearns). I noticed that the Toronto Sun's financial page refered to Bear Stearns as "the fifth largest U.S. bank". Bear Stearns was (Can we use the past tense if the stock price goes from $170 to $2 in just over a year?) not a bank. Banks have a much difference capital structure than brokers and investment banks. Canadian banks are well capitalized: there is no problem here with our big banks although a couple might have to shore up tier 1 capital a bit. I'm not saying there might be not be a dividend reduction. That is possible: anything more serious is not, in my view. Bank dividends from 1977 to 1988 were fearured in my April 1988 issue. I'll review that historical dividend record in my upcoming report. The link just below might still work.
Off the top of my head, I happen to know that the last bank failure in Canada was the Home Bank in 1923. My maternal grandfather, William Thomas Kerhahan, a chartered accountant, was treasurer of the Home Bank for a few years, around 1912 as I recall, but he was not connected with it when it went under in 1923. In the thirties thousands of American banks went under...not one bank in Canada failed.

Goldman has replaced Abby Cohen as their leading economic spokesman. "Abby meant well, but she was always optimistic, never varied. She was optimistic one time too many, and Goldman finally said "Bye" to Miss Abby."
Richard Russell March 18 2008

381 was the Dow high in 1929. It took until 1954 to reach 381 again. I'm not saying anything here...just posting a tidbit I saw yesterday. We don't 'index invest' anyway (no 's' on anyway), do we? The number 381 is not relevant. Off the top of my head, from the work I've done on dividend growth back then, a fair number of companies increased their dividends in 1930. I'll have to dig out that December 1997 Connolly Report issue which summarized that research project and read it again. On the new dividendgrowth dot ca website, I'll be able to post it in the subscribers only section.
Speaking of index investing, the opposite is a concentrated portfolio. I run concentrated portfolios...very few common stocks. There was an interview in Barron's of March 17 with a manager out of Miami who oversees some $9 billion (Fairholme Capital Management) and has finished near the top of Morningstar's list with a 'since-inception' return of 16.3%. He runs concentrated portfolios and, apparently, has kept a lot of powder dry waiting for opportunites in "companies that throw off a lot of cash". I love to find items like this as most investors are over-diversified.

Withdrawls Haulted - According to Harry Koza's ROB March 14 column 'Hedge funds now feeling the pain from The Great Unwind' some big hedge funds have stopped investors from withdrawing money. This can happen to mutual funds too. As Mr. Jarislowsky says in The Investment Zoo on page 115, this can be precipitated by massive mutual fund redemptions. "Once mutual fund owners run for cash, the funds must sell forthwith." At the top of page 116 is one of my favourite sentences in the book: "Not many of these shares were actively, intelligently purchased in the first place..."

For the dividend record of major banks going back to 1974 go to Mike Higg's blog at
http://www.dividendgrowth.org/blog/?m=200802
As this is a blog, notice, this table of dividends might not be there anymore. If not, down left side, click on February 2008. It is worth digging for if you own, or plan to buy, a bank stock. Alternatively, I could send you a copy of my April 1988 (twenty years ago) report which reviews dividend growth over the previous decade. (I must take that data back from 1977 to see what happened earlier in the last major bear market.) Some firms did not grow their dividends in some years over this 1977-1988 period, but encouragingly, there were no reductions (except for TransMountain). I plan to have some of this historic dividend data in my April report. My own dividend records go back to 1977.

"Siegel sees summer relief" was the headline over a Report on Business column onWednesday March 12 2008.
Jeremy Siegel, 62, of Wharton, is the author of Stocks for the Long Run, now in its fourth edition, retains his unalloyed optimism about stocks. The column contained some interesting ideas.

Behavioural Investing by James Montier - I'm reading Montier's new (2007, Wiley) 705 page book. I think it's great. The following ideas might help you decide if it's worth the $132 list price.
C-20 "We have shown many times before that long-run returns are dominated by valuation [of the market at the time of purchase]. The essence of the argument is simplicity itself. Long-run returns can be decomposed into three component parts:
dividend yield
real dividend growth and
any change in valuations that occur during the holding period." p.237+ C-46 565 & chart 568
TC: I'm not expecting much upward change in valuation in the years ahead.
C-10 What Value Analysts? "...analysts' favoured valuation measure is the forward PE. However, investors are just as well off using historic earnings..." Analysts "do not rate value as an input" Montier maintains. "Instead they prefer to concentrate on short term momentum growth stocks". P.123
TC: We use historic earnings. We also use dividend yield, G%D and p/e as a value inputs to try and not buy expensive common stocks.
C-14 ADHD - attention deficit hyperactivity disorder - an example: "the average holding period of mutual fund investors has fallen from over 10 years in the 1950s to around 4 years currently" p.179
TC: Don't feel badly about dumping your mutual funds: a lot of people must be dumping their funds if the average holding period is only four years.
C-15 The Story is the Thing (or The Allure of Growth) "stockbrokers exist to sell dreams" to which Montier thinks the corollary should be "but they deliver nightmares". Investors end up overpaying for the hope of growth. p.190
C-25 Montier's Chapter 25 is titled Why Not Value? The "chapter seeks to explore the behavioural stumbling blocks that conspire to prevent us from doing what we know it right [value investing outperforms over the long term]. The stumbling blocks include: loss aversion, delayed gratification, the social pain of contrarian strategies, poor stories, overconfidence and fun.
C-46 The Purgatory of Low Returns - Buying the US market at current levels (written in 2002) is likely to condemn you to the purgatory of low returns. Valuations are all important in long-run- return valuation." p.563
"When the simple PE is in its highest quartile, the median geometric real return over the subsequent 10 years is a truely paltry 0.1%." p. 566
++++++++++++++++++++++++++++++

'There are plenty of dividend options beyond banks' was the title of John Heinzl's most recent column about dividends in the ROB of March 6 2008
http://www.reportonbusiness.com/servlet/story/RTGAM.20080305.wheinzl0306/BNStory/robColumnsBlogs/home

FEES charged by financial planners: Investment Executive runs a 'Financial Checkup' column each month. I don't usually read them, even though the columnst is Catherine Harris, as the advisors contacted by IE seem more interested in peddling mutual funds than anything else. The last paragraph of the March 2008 financial Checkup column contained some interesting figures on fees. Neither advisor would charge 'the couple' a fee for investing their money, they said, provided the funds pay service fees to advisors. One said she would not charge a fee to develop a plan that she would implement, but that she charges between $1,500 and $4,000 if she won't be involved in the implemption. The other advisor charges $125 for the initial interview and $375 for completion of the plan. TC: Mutual funds must pay advisors an awful lot of money if 'she' would charge up to $4,000 for a plan that does not involve implemptation. Think of what we save by doingour dividend growth investing by ourselves. And there's really not that much to it either.
As Stephen Jarislowsky say on page 80 of The Investment Zoo: "financial advisors are only too often just mutual funds and insurance sales people in disguise".
With a friend of a friend, on the weekend, I went over some statements she has been receiving from her present advisor at Dundee. She wants to dump her funds and switch to dividend growth investing with a discount broker. There is no mention of fees anywhere on the Dundee statements. And they continue to get away with that non-disclosure of their fees. It's outrageous.

Martin Barnes of the Bank Credit Analyst writes, "The latest batch of US economic data gives further support to the view that a recession is underway. It may not be particularly severe, but the recovery is likely to be unusually shallow given the headwind of an extended deleveraging cycle."

Carlyle Dunbar's column in March 2008's Investment Executive contained a couple of statistices which caught my eye.
"At 3.6%, the financial sector yield is 26% higher than that of 12 months earlier. This results in a price drop of 9% and a 15% increase in dividends."
"Income trust distributions have risen by by 18% in the 12 months [ended January 2008]. As a result, distributions are now 2.4 times earnings. Two years ago, the ratio was 1.4 times earnings" Mr Dunbar continues with this sentence: "The payout ratio [on the equities S&P/TSX sub-index] is 31%." Much safer, he says.
TC: You have to ask yourself, how income trusts distributions can be more than two times earnings...

The DIVIDEND TAX CREDIT will be lowered was the bad news in the recent 2008 federal budget. The good news is we will not pay more taxes on our Canadian dividends until 2010, and even then the increase will not be significant. And there will be offsets. The top marginal tax rate on eligible Canadian dividend will rise to 24.56% in 2010 from the current 23.96%. The tax increase on dividends is being phased in, so the top marginal rate will rise more in 2011 and 2012.
Rob Carricks' column in the Report on Business on Thursday February 28 on this topic was, again, excellent. If you missed it, the title to Google is 'Dividend tax slides below budget radar'
This change will not bother me. All my dividend-growing common stocks are in an RRSP and I will be paying full tax on the the RRIF withdrawals in 2012. The change will not bother Louise either: She pays no tax on her Canadian dividends as she has very little other income..

TransAlta - There was a little item about TransAlta early in February 2008 (maybe the 12th) in the ROB's Globe Investor section under BNN Market Call. I still can't get over the logic.
"There is a buying opportunity when this stock [TransAlta] breaks out. The utility stocks have been outperforming all averages this past year in both Canada and the U.S. and we [CastleMoore Inc., a portfolio management company] expect that to continue. Once TransAlta breaks above $35 there will be no resistance."
My thought: Thanks be there are people who think differently than we do. It allows us to sell our low dividend growers at higher prices than would ordinarily be the case.

"Dividend growing stocks consistently outperform those with higher yields and little or no dividend growth, as well as the overall market" George Vasic, UBS strategist, ROB Tuesday February 26 2008
There were comments in the column about the banks with the highest yields just now too. "A higher yield can be a sign of the market suspecting problems with future dividend payments" George Vasic "that's effectively the question you have to ask yourself at this time.". It's not likely dividends are going to zero, Mr Vasic added. "Maybe dividend growth continues but perhaps at a lower pace."

Wealth Creators: Did you notice that Rob Carrick's Thursday February 21th list of 'top wealth creators' included a dozen of our common stocks (if you are into trusts, a number of them were there too, BDT, SIF and CIX for instance):
Power Financial, BNS, RY, Great West, Leon's, IGM Financial, Fortis, Manulife, TD, Sun Life F, TransCanada and Laurentian Bank.

Fortis, seven years ago in February 2001, was #1 in my list, then sorted by yield, at 5.2% and priced at a split (4:1) adjusted $9 per share. My how things change. Now FTS is near the bottom of the list and trading near $29 with a yield of 3.5%. I noticed this, as I'm working on moving the average of our list back to 2000. Each weekly list has to revised. I removed from the list stocks we've dropped for various reasons (Westcoast taken over by Americans, for instance) and then I include in the revised computations, the yield of the new additions to our list since then: Leon's, Empire and Metro, MFC and Sun Life and GWO, Power and PWF and IGM and CNR.

"You only have to do a very few things right in your life so long as you don't do too many things wrong.? - Warren Buffett

5.6% was the aveage return on depositor's funds of the Caisse de dépôt et placement du Québec in 2007. Is that good? The Caisse is the pension fund giant, a $154 billion institution, and 5.6% puts the Caisse in the top 10th percentile of its peers. This is after the Caisse wrote off $1.9 billion in asset backed commercial paper.
The median return for Canada's pension funds was 2.1% in 2007.
OMERS earned 8.7% in 2007 for its municipal governments, police and fire departments.
I don't usually compute my total return, year to year. There's little point: I don't intend to sell my common shares, and in addition, a year is kind of an artificial period. I'm not good at Math either. Our dividend income was up over 12% and, being Canadian, most of that was not taxable.. That's what is important to me: our assets generating an increasing retirement income.

Dow Theory - Here are a few sentences from The Economist, February 16 2008 under the title 'Dow wager'
"For a sell signal to be generated, Dow theory requires there to be big declines in both the Dow Industrials and in the Transportation Average (the idea is that economic weakness should show up in the shares of manufacturers and the companies that ship their goods).
But as Mr Watling [of Longview Economics, a consultancy] points out, this reasoning is circular. The theory states that, if prices have fallen a long way, a bear market is on the way. But the definition of a bear market is a period when prices fall a long way. It is a bit like advising a hiker to watch out for the cliff edge when he has already fallen 15 feet from the top.
The Holy Grail has never been found. Annoyingly, the stockmarket equivalent seems unlikely to be discovered either."
http://www.economist.com/finance/displaystory.cfm?story_id=10701723
According to Mr Mr Watling, "there have been 43 sell signals since 1920. Of these, 17 resulted in a bear market, as defined by a fall in share price of more than 20%. The Economist said: "That sounds no better than chance."

'America's Economy Risks the Mother of all Meldowns' was the title of Martin Wolf's February 19 Financial Times column.
If you'd really like have a reason not to buy now, to keep some money in reserve for the fat pitch, Google: Mother of all Meltdowns + Martin Wolf, or copy this link into your browser:
http://www.ft.com/cms/s/0/4d19518c-df0d-11dc-91d4-0000779fd2ac.html

= = = = = = = = = = = = 2008 February REPORT = = = mailed Friday February 22nd = = = = = = = =

http://online.barrons.com/article/SB120251582071855267.html
This link get you Grantham's interview in February 11 2008 Barron's. He runs $150 billion out of Boston.
If not, get to the Barron's sight under 'this week's magazine' and enter Grantham in their search engine. Then cross your fingers. You might be able to get it for free. It's worth finding.
I will not have room for more than a few lines in my February report. If you think the Fed can save us, read Grantham's words. It's an interview: Grantham's words. Not a column about him. There's a big difference.
http://online.barrons.com/article/SB120251582071855267.html

February 2008 report. I re-organized a lot of ideas from this page (Buffett, Soros, Montier, Grantham, Jarislowski, Gross and Mauldin) as my page one. You read it hear first. Eventually, I expect, there will be no printed report. I will all (charts and sortable tables) be available here on line to paid subscribers. And to think I started out keying the report in the early 1980s on an IBM Selectric typewriter. When I made a mistake, in those days, the entire page had to be re-typed. Things have changed:-)

Letter to the editor - but not published
Someone at The Globe and Mail selected "Buffet sitting on his wallet" as a headline over Derek DeCloet's column about Mr. Buffett recent visit to Toronto (February 7). If Mr Buffet is sitting on his wallet, he has a good chunk of change in his front pocket. Berkshire Hathaway purchased 2,956,000 more shares in Burlington Northern in January 2008.
Tom Connolly
Kingston, Ontario

George W. Bush was elected in the year 2000 and has ruled, so far, for seven years. During Bush junior's reign, the S&P total return was under 1.00%. You would have done better being invested in T-bills. Richard Russell February 7 2008

"The average Canadian money market fund has a MER of 1.04 per cent, which is one of the worst fee grabs in the investing world when you consider how low interest rates are." R.O.B. Feb 7 2008 p.B17
I just let a lot of my cash lanquish in my broker's account. I don't get much in interest but I'm glad I've got it there now. Bargains are appearing. It will be all worth it soon. Some cash I keep in my Citizen's Bank savings account. It's kind of like an ING account, but instead of being in a Dutch multinational, it's in a small Canadian bank in Vancouver...but then van couver is Dutch, if I remember correctly, for cow crossing.

BEAR MARKET INVESTING - Bull' Eye Investing, by John Mauldin (2004 Wiley) has some interesting material on bear market investing on pages: 2, 10, 29, 46, 57, 58, 79, 226 and 262. Here are a few sentences from Mauldin's introduction on page 2: "the essence of Bull's Eye Investing [and bear market investing] is to focus on absolute returns [relative returns are for bull markets]. Your benchmarket is a money market fund [not the broad stock market]. Success is measured in terms of how much you make above Treasury bills [not a market index]. In secular [a long period of time] bear markets, success is all about controling risk and carefully and methodically compounding your assets."
That's what we do, eh.

In The Investment Zoo, Stephen Jarislowsky has material on what he calls panics from pages 115 to 117. The second sentence of the first paragraph which begin on page 116 concerns "a long-term crisis". Mr. Jarislowsky, remember, wrote his book anticipating the period we are now in. He mentions discipline again on page 117. "Take your time."

I don't worry too much about down markets. Only a fraction of shares outstanding on any day are trading and most of the people who are selling are undisciplined, or are professionals. They don't usually do well, in any case. "The methods of classical finance are fatally flawed." Peter L. Bernstein

What should an investor do? This question was answered by James Montier on January 15 2008 in an essay titled 'The Dash to Trash and the Grab for Growth' in John Mauldin's Outside the Box January 28 at investorsinsight.com. I love Montier's writing. His Behavioural Finance book was close to being worth the $150 price. Google the title of the essay, if youwish to get a taste of what Montier does. It's 15 pages and most interesting and there's a lot on dividends.
Here are a couple of thoughts from one paragraph:
"Those who can should hold cash and wait for the arrival of the 'fat pitch." I Googled 'fat pitch' too.
"Focusing on the longer-term leads us to concentrate on dividends as these account for nearly half of the total return with a five-year time horizon. Thus large cap stocks that either pay a dividend (preferably a well covered one) or have the potential to turn cash piles into dividends are likely to be the best places to hide."
I've ordered James Montier's new book: Behavioural Investing
You can tell he's not an American, eh...the 'u' in Behavioural.

YIELD CHARTS - I'm updating my yield charts today trying to discover if they will tell us anything we don't already know...looking for ideas for my February report. Some stock yields have not (should we say 'yet'?) reached their peak yield in early 2000. Some are close: GWO, CNR, PWF.
I've done four bank yield charts so far: CIBC, BNS, RY and BMO have past previous peak yields in 2000 (2002 for CIBC). For me this is a signal things are worse now and might get worse. But then yield might have peaked. One never knows.
Sun Life's yield has not been higher since its IPO in late 2002 when it came on the market at a yield of some 1.4%. Is this further evidence not to buy an IPO? I bought an IPO stock once. In 1958: TransCanada Pipeline. Dad thought it might be a good one. TRP did not start paying a dividend until a few years later.

Russell Metals yield is over 8%. I'm thinking that's too high. Jarislowsky does not like us to buy cyclicals. Is RUS a cyclical and hence a no no? I think so.
I wondering where the BCE money will go in the next quarter.
When did you realize we were in a serious bear market? The market peaked in mid-July 2007 (or early 2000, according to some people). If you purchased stock during the August 2007 dip, do not answer August. My December 2007 report? Was it Monday, January 21 2008? Some of our stocks have rebounded nicely since then.

A letter to "Scott Adams,
The title of your Wednesday January 23 R.O. B. column was: 'Sherry Cooper's dividend prescription.'
The table you included with this article did not have a column for the dividend of the stocks listed.
HELLO!
How can investors figure out dividends and dividend growth if they are not provided by the Report on Business?
Tom Connolly, Kingston
Mr Adams kindly replied saying he'd keep dividend in mind in the future.

Dividend increases are a sign. CNR announced a dividend increase this week of 9.5% That's up from 21¢ to 23¢. It that a positive sign? Last year, CNR increase their dividend by 29.2%. Does this fact change your answer? CNR's five year average annual dividend growth record is 24.6%. Maybe they will announce another dividend increase later this year. They didn't last year, though.
CNR is now below our purchase price of $51 in March of last year...but our yield is now up. I'm glad I didn't buy our full position last year. If you own CN, don't forget to jot the dividend change up from .84 to .96 per share, per year on your little tally sheet. And adjust the yield upward too.
Our tally sheet has seven columns: number of shares, stock name, date of purchase, purchase price, original yield, yield on cost and amount of dividend. When ever there is a dividend increase, I make the change on Louise's sheet, and then ask if she is paying for our next lunch out. Sometimes her reply is positive. I do not think this reply will be positive. We did not buy very many shares of CNR last March and the dividend increase is relatively small. Still, an increase in retirement income of 9.2% is nothing to snear it. I'll have to work our Louise's overall dividend increase in 2007. Maybe then I'll get a free lunch:-)
I just computed it. Louise's dividends increased 12.3% in 2007. YES!

Reduced payouts: While checking for dividend increases this weekend in the Financial Post (The Report on Business does not provide dividend data), I noticed that 12 income trusts had reduced their payouts and two had omitted their payout entirely. In a week, that's a lot. I'm glad I did not buy any income trusts. A dividend reduction among the real stocks we follow, in contrast, is a rare event. I can't think of when the last dividend reduction was...maybe TransCanada's in 2000 from $1.12 to 80¢. TRP's stock price has quadrupled since then. And Telus in January 2002. Does National Bank's reduction in 1992 count any more? Dividend reductions by companies in our list are few and far between.

Empty Houses - Apparently there are 17,000 empty houses just in Cleveland. My thought: That's a lot. 'It' is not over yet.

Stock Prices: I've been goiong down our list of stocks to see how well they have held up in recent weeks. Some have broken through to below their 2006 low price (listed below). Most have not (as of January 25 2008): BNS, RY, TD, LB, Saputo, Shoppers Drug, TRP, ENB, TA, Emera, Sun Life, MFC, GWO, Leon's, Power and PWF. E.&.O.E. as usual.
I had this thought after looking at the data: Leon's, for instance, is down from a high of just over $16 last year, but we did not buy LNF at that price, so it's not relevant.

Do professionals really do a better job of investing? The plan to take BCE private was done in June 2007. The global credit crisis emerged within a few weeks. Your guess as to the future price of a security, BCE for instance, is just as good as their guess. The professionals might have more information, but they can't see into the future any better than you...or me.

"The worst market crisis in 60 years" by George Soros in the Financial Times of January 22 2008
http://www.ft.com/cms/s/0/24f73610-c91e-11dc-9807-000077b07658.html
READ THIS SHORT COLUMN ...carefully.
Then I read it again. I noticed Soros' last word! I read what Soros said againthe next morning. It was a nice summary. After you read it, you'll be able to answer the question: should I buy stocks now?
I'm so glad I own common stock in good companies which pay dividends...even though dividend growth might be slower now (another example: CN). In the couple of years,dividends might be the only return we get. Eventually, though, price growth will catch up with dividend growth, so we'll be fine. Don't believe it. Ask yourself what would happen if the price did not increase and the dividend did. The yield would rise: people would notice and buy the stock. The price would rise. We would be happy:-) It's all part of our plan.
I can't get over I just happened to write that item on 'dump your funds' last July just as the market peaked. I must ask 'him'*, when next we meet, if he did dump his mutual funds. If so, he buys dinner; and the wine; and he pays the tip...for the four of us! * a new friend of a new relative...long story.

The Federal Reserve cut its interest rate by seventy five basis points before the market opened on Tuesday, January 22 2008...in a rare inter-meeting announcement. The Fed has limited ammunition left, and it fired three shots. I wondered about this at the time and said here it was scary. Believe it or not, the Fed may have been duped. It seems the Fed's action might connected to the unwinding of that French Societe Gererale bank trader's trades. Regardless, as I said in my last report, the great unwinding has begun. It's not over yet. I'm thinking our bank yileds might go higher. I'll up data my yield charts for my next report.

Apparently the Dow was down some 300 points on January 23 and then up some 300 points...on the same day. Investors are uncertain about the future. Relax and enjoy the turmoil. We've positioned ourselves well:-)
It will be interesting to see if BCE delivers at $42.75 this spring. What a time to be getting cash. And after they were so kind to those of us who sold Nortel in 2000. I have those three sell slips framed: prices of $81.55 on May 30, $115.70 on July 26 and $120.75 on August 24 2000. There was a lot of time to sell...months. If you did not sell, ask yourself why you did not sell. Most people say they didn't want to pay tax on the gain. I don't think that's the truth.

International Exposure - Remember what is happening to markets around the world. Then, the next time an advisor tells you to diversify internationally, so she or he can sell you a higher MER fund, tell him/her, politely, where to go...in the world, I mean.

Excitement in the Markets - January 21 2008
Did the markets ever go down on January 21 2008, eh. And the U.S. markets were closed for Martin Luther King Day...the Americans must have being going nuts. The TSE was down some 600 points. I'm so glad I have never owned a mutual fund or index invested. Why would you buy a stock which didn't pay a dividend? I reckon the people who do buy non-dividend paying stocks just hope the price will go up. It's the only way they can make money. Our stocks provide a growing income, na na de na na.
A thought: the baby was being tossed out with the bath water on January 21 2008. People are selling perfectly good dividend growth stocks. It's foolishness. (But then, a lot of people buy Kraft 'Extra Cheese', a "processed cheese food" product: that's just a stupid. After reading Foods Which Fight Cancer, we now drink Japanese Gyokuro green tea exclusively. Gyokoro is $33 per 100 grams...about the price of a decent St-Émilion Grand Cru. The gyokuro lasts much longer:-) Jananese Gyokuro tea is hard to find. Luckly two good tea shops opened here in Kingston in 2007...one on Princess Street, 'kind of' across from the Grand Theatre.

Down the least on the January 21st 2008: Metro only 5¢, Empire only 15¢
Even with the large price drops in the last two days, Atco , for instance was down $4 on the 21st alone, quite a few of our stocks have not pierced their 2007 lows. These include the electrical utilities and pipelines and Power. But POW is close to it's 2007 low.
A few of our commons, however, as of January 25 2008, have broken below 2006 lows: CNR, BMO, CM, NA; Loblaw, Empire and Metro; IGM, TOC, Telus, RET.A and Russell Metals. E.& O.E. always...not double checked.

I'm getting out my little list of good 'stocks to buy' today and nibbling. Which to buy is my problem now. After reading Mr. Jarislowsky's thoughts last Friday in the ROB, it has to be recession proof and non-cyclical; and, in my mind, a good dividend grower. I'm doing three year stock price charts and looking at 2006, and even 2005 low prices. It's all most exciting. I've been waiting for this for years. The dividend growth strategy is being tested.

Stephen Jarislowsky made some comments in the Globe and Mail on Friday January 18 2008 about how to invest during downturns. His comments were in an ROB column by Theresa Ebden, a Business New Network producer. I don't watch BNN. Maybe Mr. Jarislowsky was on television too. Google "Where to turn during downturns?" and see what you get. This column made my day, my week and my year so far, until tomorrow, at least, when we see our grandchild again. Mr Jarislowsky said he liked a stock I have a big position in. YES! Much of what he said, however, is in his book. If you don't own The Investment Zoo and are trying to invest on your own, you are foolish...in my opinion. At the very least, read my book review of The Investment Zoo. That Jarislowsky's book is not recommended by brokers is telling.

Steven Jarislowsky " suggests staying away from the preceived safety of so called 'cash' investments such as bonds or money market funds. In the current economic environment [January 18 2008], any interest earned here will be wiped out by interest fees and taxes"
"Instead, he said, investors should focus on investments that will weather a recession: non-cyclical stocks. These include shares in companies that sell or distribute things that we always need to buy, such as groceries and fuel."
"I see very difficult economic times ahead, but I do believer my philosophy of investment. People have to buy these necessities," Mr. Jarislowsky said. About a dozen specific stocks were mentioned in the Report on Business column by Theresa Ebden, a producer of the Business News Network. The title of the column was 'Where to turn during downturns'.
_________________________________

There will not be too much here for a while. I'm working on loading the new web site and reading the kind notes enclosed with your renewals. It's not me folks, it's the strategy. I just try to keep us on track. And provide some data. Thank you for your continued support of my efforts.
In the mean time, don't get excited and do something foolish...like sell a good dividend growing stock.
I trust you read Rob Carrick's column in the R.O.B. of Thursday January 17 2008 about bank dividends. Carrick knows his stuff, it's well done, as usual: 'Could U.S. bank dividend contagion spread north?' Google 'dividend contagion' or try this link.
http://www.reportonbusiness.com/servlet/story/RTGAM.20080117.wrcarrick17/BNStory/SpecialEvents2/?page=rss&id=RTGAM.20080117.wrcarrick17

The cost of our BNS shares purchased in 1990 is $3 a share. The current price is about $47. That's down from a high earlier this year of some $54. Ask me is if really give a rat's %&*! that BNS is down $8 a share? I am enjoying this meltdown:-) It's fun to watch other investors squirm because they bought, or more likely were sold, the wrong product. Life is good...except that I lost my Godfather and uncle Christmas Eve. He lived 25 years longer than my dad. I'm now the oldest Connolly. That is what's scarey, not the market! SC is holding up well, eh. But it's yield is very low and it's awfully expensive by Graham...something like minus -65 G%D of the top of my head. Hum! (As of February 5, SC is a couple of dollars below $50)

"The investor with a portfolio of sound stocks should expect their prices to fluctuate and should neither be concerned about sizable declines nor become excited by sizable advances. He [/she] should always remember that market quotations are there for his [/her] convenience, either to be taken advantage of, or to be ignored." Benjamin Graham

This is a good time to remember what Peter L. Bernstein said: "Your wealth is in many ways dependent upon what other people will pay for your assets." We have great income producing assets. Right now investors are scared and aren't willing to pay, but people will eventually pay good money for our top-notch dividend growing common stocks again. Hang in there. Have you calculated how much your dividends increased from 2006 to 2007 yet? Do it. Our dividends have grown. That's the purpose of our efforts. Louise's portfolio is down below the number she likes to see it at, but her dividends rose to a new benchmark in 2007...and they are not taxable.

"When a bear market signal is issued under Dow Theory, that doesn't mean that a bear market has started. The signal confirms the fact that a primary bear market is underway. Actually, the bear market started back on July 19, 2007. That was the last day when the D-J Industrial and Transport Averages reached new highs together. On that basis, the bear market has been in force ever since July 19 or for six months. After six months into a bear market, things start to happen. And yes, now they are most definitely happening." Richard Russell, January 14 2008

Canadian banks - Under Current Picks in the ROB's BNN Market Call column of Friday January 12 2008, David Taylor, the lead portfolio manager for all of Dyamic's Canadian Value funds was quoted as saying "It's unlikely that [bank] dividends will be cut and [bank] yields remain extremely attractive. The recent stock price performance is not justified." Connolly thought: Professional money managers, even though they might have more information, do not know any better than we do what will happen in the future. What does 'unlikely' mean? Dividends might not be cut, but will they increase? Will they increase as much in the future, as they have in the past? We do not know. Maybe the recent stock price performance is justified: there are concerns. Maybe banks prices will go lower. You put up your money and take your chances...or you wait. You have to rely on a sense of the probabilities of future events. Bank yields are attractive. But, and it is a big but, will yields become more attractive? As I said in my last report, quoting from Capital Ideas Evolving: "Certainty in response to questions does not exist." Sorry. I'm not being much help, but I don't know what will happen next either.

"The 'great revaluation of asset prices' will spread" was the title of Carlyle Dunbar's column in the Investor's Digest of January 18 2008. That's what's going on and it is not over yet. (If it was not for Dunbar's column, I would not get Investor's Digest, even though it's now selling at much reduced prices.) Dunbar's column contained this sentence too: "a massive credit crisis never ends neatly and promptly"
GOLD - Dunbar had a few paragraphs on gold in his column too, including this comment: "For years I have said gold was rising not because of fear of inflation but because of fear a financial or currency disaster is ahead. Should the credit crisis result in a financial or currency disaster, the public will stampede to gold."

"Moves in bear markets are notoriously difficult to deal with. Frankly, I have no idea whether the Dow is going to continue steadily lower -- or whether the Dow is somewhere near support and therefore ready to rally ("the bounce"). Through over half a century of experience, I've learned to respect bear markets. I don't trade them, I don't fade them, I don't short them -- I stay out of them. I've learned to stay on the sidelines." Ricard Russell January 9 2008

SALT: "Walk through any grocery chain and read the labels. Almost everything being sold has either a lot of salt in it or a lot of sugar or corn syrup. It's disgusting and a damn shame. America is hooked on salt and sugar. And America is obese. There's nothing wrong with a little salt or sugar but America's food is loaded with both." Richard Russell Jan 8 2008
Connolly Comment: I make our food from scratch to get around this problem. But most people don't have the time to do this. Corporations should be taken to task for loading our food with so many additives. I buy tomatoes canned in Italy because there's no salt added. Canadian canned tomatoes are loaded with salt. I have to make by own sun-dried tomatoes too. It's boardering on criminal what these food companies are doing to our food.

MARKET PROGNOSTICATORS - "But given the record of most forecasters and stock pickers in 2007, the best thing to do this year might be to ignore them all.
Indeed, Birinyi Associates, which has long tracked the less than sterling performance of market prognosticators, says that's good advice at any time.
'Predictions, outlooks and forecasts are about marketing and getting the analyst and the analysts's firm in the paper and on TV', declares Laszlo Birinyi, who began his Wall Street career 35 years ago..."
R.O.B. front page January 5 2008, the column by Brian Milner

2007 dividend increases: S&P 500 up 9.7%; DJ Industrials up 11.7%; Connolly Report list up 14.1%
The TSX will not provide dividend increase data.

Do you believe that your return is yield + dividend growth? If so, after adding the Dec 31 2007 yield to the dividend growth 5 year average figure, the top five are: Empire, 29.%, ManuLife 26%, BNS 25%, GWO 23%, NA 23% .
The bottom of the list: BCE 4% (yield + div growth), CU 6.8%, LB 8.2% Fortis 8.5% and TransCanada 9.9%.
Does this data say it's okay to buy a lower yield stock as long as its dividend growth is terrific?

DOW THEORY - As of December 31 2007, the DJIA closed 521 points above its November 2007 low and the Dow Transports closed 204 points above their November 2007 low. So far, the market is saying, by staying above the November lows, that it has discounted the worst that lies ahead. But the final answer is not yet in.
How will the market do in 2008? This time of year all kinds of people offer their views. My answer is to quote Peter L. Bernstein: "Certainty in response to questions does not exist." from Capital Ideas Evolving. No one knows. It should be a good ride. I look forward to it.
DIVIDENDS: Last year our* dividends were up 14.1%. That's all that matters, isn't it. Eventually, our capital will grow by 14.1% too. (In 2007, dividend of the S&P 500 were up 11.5%) If you don't think dividend are important, here's a number for you: in 2007, $246.6 billion dollars were paid out in dividends by S&P 500 companies. * the list of companies I follow in my report

Cooking with Foods that Fight Cancer - I have not had time to finish reading this book nor to work on the unfinished book report on it below, but I tried another receipe from the book last night: poached salmon escalopes in white wine (page 183). Sensational! The sauce, a reduction, includes the juice of an orange and of a lemon with shallots and honey. I won't mention the 3/4 cups of table cream that goes in after you boil down the citrus juices. We enjoyed the salmon with edamame [Loblaws' organic feezer], a barley risoto and a glass of 2003 Cathedral Cellar, South African Shiraz. WOW!

________________________December 2007 Report _____________________

2007 PRICE CHANGE - I working on page 3 of my December 2007 report ( the table of data) this fine Saturday morning and, as usual, have sorted our common stocks in different ways to see if there is anything interesting to make a note of. I've just decided to add a column for the price chage of each stock in 2007.
At the top of the list at + 28%, with the largest gain, is BCE. Next is Power +14 then SLF +11...
At the bottom is CIBC at -28. Metro is right behind at -27, NA at -26, BMO -19, Royal bank at -10
All the rest are single digit gains or losses and the average is essentially a break even on the year. Considering what went on since the July 19 peak, that's not bad I reackon. Louise is doing envelope labels and stamps and watching Holiday Inn. She will be glad when the new web site means a lot fewer mailings.

Half a Trillion? If theEuropean Central Bank is injecting $500 billion (R.O.B. front page December 19 2007), you have to ask your self if things are okay. Obviously, they're not. Be cautious! Much lower prices could lie ahead. Credit contractions are not good for the market. Opt only for top quality.
I'm certain Americans don't, but I love the fact that China's Sovereign Fund is investing $5 billion into Morgan Stanley eventually giving China close to a 10% stake in Morgan Stanley.

I'm working on my December report to be printed right after Christmas. It was mailed Thursday the 27th.

My letter to John Heinzl, [Report on Business columnist] December 13 2007
Your column about Fortis' dividend growth this morning (December 13) was terrific.
However, how would a reader of the Globe and Mail find out about Fortis' dividend increase. The Report on Business no longer publishes the amount of the dividend beside the stocks it lists on Saturdays. Nor does the Report on Business publish information about dividend increases.
The dividend is a rather important piece of information for the conservative investor looking to invest on his or her own. Yet the Globe does not carry information needed to invest in dividend stocks on your own.
I know, I know, one could go to Globe Investor to look it up, but there it's on an individual stock basis. How would I know to look up Fortis? How would I know Fortis, or any other stock had increased its dividend by reading the Globe and Mail? I wouldn't.
Tom Connolly
a dividend investor

Mr. Heinzl tells me the person to write to about this is the editor of the Report on Business, John Stockhouse:
jstockhouse@globeandmail.com

+ + + + + + + + + + + + + + +

"Standby for a tumultuous 2008" - Bill Gross - runs the world's biggest bond fund: PIMCO

James O'Shaughnessy, chairman and chief executive of O'Shaughnessy Asset Management, forecast at the Reuters Investment Outlook 2008 Summit in New York that the S&P 500 index SPX would return 3 percent to 5 percent a year until 2020, compared with 13.85 percent in the 20-year period up to 2000. Reuters It's called reversion to the mean.

Replacement for BCE - some ideas:
Essentially I'm looking at the 'other' dividend growers I listed in my February 2007 report. I refer to that issue quite often.
Your ideas for a replacement for BCE were all over the map: no consensus at all. Thank you for them. I've decided.
Model portfolios recommended by various investment firms vary just as much. And they all seem to have a trust in them. Scotia McLeod's Canadian Income Plus Portfolio, for instance, includes these four which are not in our list: Calloway REIT (CWT.UN), Telus, Thomson (TOC) and YLO.UN.
"Natural resource industries are cyclical, volatile, emotional, over regulated and capital intensive. That's the good news."
A Letter from Rick Rule, fall 2007 . Hence, even though I began working in this field, my original degree was to be in Geology, and even though their dividend growth has been terrific of late and their yields not bad, I've decided not to add TCK.B (TeckCominco), HSE (Husky Energy) or EnCana (ECA) to my list.
I will not be adding Saputo to my list either. It not because of the columns in the Globe and Mail and the Toronto Star on Wednesday December 12 about Lino Saputo himself, it's because I already have two food retailers in the list. It's also because a couple of years ago, Saputo bought a local cheesemaker in Harrowsmith, took their milk quota and closed the place down. Over 100 jobs were lost. I know that's the way business is often conducted, but I don't have to buy the stock. I certainly do not buy Saputo products either. Their big trucks are a common sight here in Kingston.
I can't in all conscience add a stock with a very high G%D. Shaw (SRJ.B), for instance is minus - 65.
I already have too many financials so I can't add IAG or CWB.
Russell Metal's yield is to good to be true, too high. Something must be wrong.
I have my eye on a couple of good dividend growers, but their yields are low. How firmly do I believe that return is yield plus dividend growth is what it boils down too and how recession proof is the sector.

I'm working on my December report...a lot of it is here on this page and will be mailed just after Christmas.
This morning I'm putting together a list of the dozen or so stocks which have rallied since August and are now above previous 2007 high prices, or close to their 2007 high. Our stocks have resilence. Five of our stocks have really been stable through all the 2007 turmoil: Power, SLF, MFC, GWO, SC. Do a one year price chart to confirm and compare with the stock(s) you are thinking of (I like to define a preposition as a word you can end a sentence with). I am also preparing, for my December report, a list of stocks we follow that have yet to rally from August lows.
Also, this page will be really hidden early in the new year: subscribers only...log in required and password protected as part of a new web site. I'm working on that too. And handling quite a few renewals every day.

Richard Russell had a chart of the DJIA from 1981 (1981...the year I began my report* We've had quite a run!) in his daily of December 10. I've put this chart as my wallpaper...replacing our new grandchild Julia...for a day or two. The chart is fascinating. The bleep of late 1987, while significant at the time,was just that, a bleep. However, in 1999, the DJIA stopped going up and went sideward (or is it sidewards, hum). It's higher now than it was in 1999, after the rally that began in 2003, but not by much.. One can easily see from this long term chart of the DJIA why Richard Russell thinks we are in the process of forming a giant top. 2008 will be exciting.
* Mr Russell has been writing his Dow Theory Letter since 1958.

"In all history, stocks have always been subject to two major forces. These two forces are as follows -- the first force is the one that takes stocks ever-higher to overvaluation. The second force is the one that reverses at the top, and then takes stocks down to undervaluation. How stocks get from undervaluation to overvaluation and then back to undervaluation, that's what we struggle with. We call the move from undervaluation to overvaluation a primary bull market. We call the journey back to undervaluation a primary bear market.
The two journeys are always complex and deceptive. They're never clear-cut and obvious. If they were clear-cut and obvious, we'd all be wealthy, we'd all be market-beaters. But we're not. The complexity and deceptiveness of the price movements see to that." Richard Russell, December 10 2007

John Heinzl's column on December 4 2007 in the ROB was about learning to invest on your own. It, and the sequel on December 7, were well done. It can be quite worthwhile to do it on your own. Heinzl provide this example: "$100,000 invested over 20 years at 10 percent would grow to $672,750. But if fees ate up just two percentage points of the return, the same $100,000 would grow to just $466,095. That's a difference of $206,655." Doing it yourself, over 20 years gives you an extra fifth of a million dollars! Learn to do it. Have faith in your own abilities. Select good dividend growers. Your guess as to the buy price in the short term is as good as mine. In the long term, the price you pay will not matter...as long as the dividend growth continues.

Yields of bank stocks - Richard Blackwell had a column in the Report on Business on Monday December 3 2007" Dividend yields renew interest in bank stocks'. His first sentence: "Dividend yields on Canadian bank stocks are at a five-decade high relative to government bonds, creating a great buying opportunity for investors looking for income..."

"I'll remind subscribers that rallies in bear markets can arrive suddenly and they can be violent. In fact, bear market rallies often look better than the real thing. Bear rallies often recover in a few days what it took the bear weeks or even months to accomplish on the downside." Richard Russell, December 3 2007
Connolly comment: This is what happened last week...indexes up over 500 points in two days.
From just below (Dow Theory signal), notice that Richard Russell did not state that we were in a bear market: the market spoke when both the industrials (making stuff) and the transports (delivering stuff) broke through previous lows.

"Rallies in bear markets, in any case, are among life's more pleasant inevitable interruptions and, as we've just seen, they can be pretty darn vigorous, the better to tempt the unwary and set them up for an even fiercer shellacking. Which is why we believe that any bounce worthy of its name that rekindles speculative fancies should be approached with extreme caution and relished as an opportunity -- to sell." Allan Abelson, Barron's Monday December 3 2007

We'll be watching dividend increases in 2008, won't we?. Dividend increases are signs. Here's one. Is it a positive or negative sign? National Bank will increase its dividend in February 2008 as it did last year. Last year's NA February dividend increase was 8% (from .50 to .54). This year it was 3.3% (from .60 to .62).
BMO will not increase its dividend this coming February as it did last February. Maybe it's because BMO had three dividend increases last year, and one as recently as last month.
BNS was the only other major bank to incrase its dividend in January or February 2007. I was at the cottage this week (ice is forming on our lake) and did not see their fourth quarter results yet. I'm a couple ROBs behind.
I've also been reading Plight of the Fortune Tellers: Why We Need to Manage Financial Risk Differently by Riccardo Rebonato. The first chapter is available the the Princeton Press web site. Google the title if you are interested.
I'm looking at my 2007 dividend summary sheet for this dividend information. It, and the up-dated six year dividend record sheet, goes out to you upon your renewal. Louise and I have handled about 200 so far. Thank you for your continued confidence in my efforts.
TD - Did you notice that TD bank's stock price, most likely because it did not report any subprine exposure, jumped from $66 to $75 this week?

"The bond market is saying that another [Federal Reserve] rate cut is almost guaranteed. The stock market believes that Fed action will avoid a recession and everything will come up roses in 2008. That's the trillion dollar bet. Will it happen?" Richard Russell, November 30 2007

Dividend Mutual Funds - Suzane Abboud's column in the December/January issue of Moneysense magazine could be enlightening for many investors. Her title was: The label is a fable. The sub-title was: "You want to hear a good one? Dividend funds don't actually pay you a lot of dividends. Oh, and they're risky too."
Of course we knew that, didn't we. By doing it ourselves, we get to select the good dividend-growing common stocks and not the ones with high, stagnant yields, or preferreds. Some dividend funds even attempt to juice up their income with trusts and non-dividend paying stocks.
I was intriged by the author's second* reason for liking dividend-paying stocks.Dividend stocks "cushion you from harm if the market tumbles", she said. True. Then Abboud continued, if the market falls 10%, and "if you are receiving a 3% dividend, you can console yourself with the thought that three years of those dividends will largely make up for your loss. Hum! I've never considered things quite that way.
* Her first reason was their strong performance. Her third: dividend paying companies "tend to be disciplined firms... less likely to take silly risks".

Principal Protected Notes - Rob Carrick's column on PPN's on Tuesday November 27 was terrific: 'Finally, realism is a part of protected-note fairytale' was the title. I read his PPN column carefully on the streetcar coming back from the One of a Kind show at the Toronto CNE: I like Toronto streetcars.There are some $21 billion of these notes out there: a lot of people have fallen for the puffery surrounding what Carrick calls "one of the worst investment products out there". The proposed new federal regulations, however, still do not require the banks to disclose the fees in any detail. Here are Mr. Carrick's last two sentences: "Ideally, there would be enough information to persuade thinking investors to avoid PPNs and get their conservative market exposure the old-fashioned way. In case anyone's forgotten, that means building a diversified portfolio with bonds, cash and blue-chip dividend stocks."

AUGUST LOWS - like the DJIA and the Dow Transports (refer to Dow Theory market signal below ), and now the S&P 500 (but still not the Wilshire 5000, watch for below 14,200) a number of our stocks have broken through their August low prices:
Russell Metals, Reitmans, Leon's, CNR; Loblaw, Metro, Empire; MBT, Telus; BMO, CIBC, RY, NA; Thomson, Toromont; Manulife, Sun Life, Power, Power Financial, IGM.
As of November 27, a number have held above their August lows:
BNS, TD; Fortis, CU, Atco, TA, Emera; Enbridge, TRP, GWO, BCE, Saputo, Shopper's. Done quickly E. & O. E.

"I believe that the bear market signal is telling us that the great unwinding has arrived. I think we are on the edge, the very edge, of international deflation. Prices of everything will be coming back to earth. It's going to be a long, slow, deceptive process. And obviously it's going to be a painful process. The world's "punch bowl" has sprung a leak."
Richard Russell, November 28 2007
I was expecting the 'great unwinding' a number of years ago. A lot of liquidity was pumped into the system and so it never arrived. Maybe it's coming now. My thoughts on this, written some time ago, are under Bear Market Rally on my front page.

"If you buy shares today, you are buying a stream of cash that has the same value to you--no matter what others decide to pay for stocks later. That stream of cash is extremely generous. Only if you want to cash out, do you care what the market is paying for stocks. If you are in for the long haul, and if dividends--and the flow of cash in general--continue to rise at historic rates, then you can ignore prices and enjoy a delicious retirement..."
(I don't like to mention the title of the book this quotation is from...it's a book I don't favour, but the book had a couple of excellent points on investing, including: add yield and dividend growth to get your total return. I remember this book too well as I lent it to a neighbour who drowned while sailing in Lake Ontario a few weeks after he returned it.)

Thinking out loud: One could put money into BCE now (just below $40) and know, with some certainty, they would get $42.75 back in the first quarter of 2008, plus the 36 cent per share dividend in January (one quarter of the 3.7% yield at $39.65 = .93%) and a probable 7.9% capital gain. (.93 + 7.9 = 8.8). This would be a close-to-being-guaranteed return: for these troubling times, it is excellent.

Hold or Sell dividend stocks in a bear market? On November 20 2007, Richard Russell replied to a question from a reader in London about holding or selling dividend stocks during a bear market. I plan to comment on it in my next report. Here's the question: "..."could you offer your thoughts on whether you hold or sell your favourite dividend-paying stocks during bear markets. Seemingly the virtue of dividend paying stocks is they allow constant compounding of value and seemingly they represent long-term holds in a portfolio. You have frequently mentioned in the past buying stocks paying solid dividends for your kids portfolios as long-term investments. Does your market timing assessment nevertheless dictate selling even those stocks paying the rich dividends you count upon to achieve compounding of total returns?"
I hope to begin commenting on Richard Russell's answer to this question soon...or maybe it will be in my December report. His answer was most interesting. I don't agree with it all, however. Mr. Russell has been writing his Dow Theory Letter since 1958 (the year I 'graduated' from high school). But I think, after over 25 year of following them, I know my dividend stocks pretty well. Thinking of the experience, the manager who was given the whole page feature in the most recent Investors Digest has only work for them for a few years, and, they say, the average experience of mutual fund manager is just over three years. Compared to this, 25 years working with dividend common stocks is not bad. I hope I'll have a few more years to go. I still enjoy it. If I can get it web based, and not have to do a mailed copy to so many hundreds of people, it will be even better. I'm working on that as my fall project. Next year, you'll need a password to read these comments on a secure site.

Gains so far (to Nov 23 close) in 2007, per cent increase: Saputo +53, BCE 26, Shaw 25, Atro 24, Toromont 14, Bell Aliant 10, Telus 10, shoppers 7, Power 6, CU 6, sun Life 4, IGM 2, MFC +1
Losses: TD -1, GWO -2, RY -2, PWF -2, Thomson - 4, TRP - 4, BNS -5, MBT -5, CNR -8, Emera -8, Embridge -8, Empire -8, Fortis -11, CIBC -13, BMO -19, Reitmans - 24, NA -25, Loblaw -31 (Done quickly E. & O. E.)

"He has never been more bearish" was the title of a column on the front page of the Report on Business on Friday, November 23 2007. The 'he' was Prem Watsa, chairman of Fairfax Financial Holdings Ltd. The sub-title of the column by Derek DeCloet was "The head of Fairfax Financial had a front row-seat when the Japanese market began its 15-year retreat [in the late 1980s]. And he thinks the U.S. indexes might be about to do the same". Thankfully the ROB editors put the item on the front page. Watsa's view is important.
DeCloet's opening paragraph was: "The global credit squeeze is in its 'early days' say investor Prem Watsa, who is so bearish that his insurance company has stashed the bulk of its $18 billion investment portfolio into ultrasafe government bonds."
Connolly Comment: I'm not selling my good dividend growth stocks, nor buying bonds, but I decided last night to stay in cash. I'll not be buying more stocks any time soon. Better prices lie ahead. I think Prem Watsa is right: the United States could be on "the cusp of a prolonged market slide".

For the record, the great bull market ended July 19 2007. On July 19 2007, the DJIA closed at 14,000.41 and the Dow Transports closed at 5,446.49. Neither average has closed higher since then. Both have now broken through their August 2007 lows
It will be interesting to see when others (including you, dear reader) realize we are already in a bear market. Richard Russell put it this way: "we now know we're dealing with a primary bear market, not just some minor decline." Nov 23
Be very cautious. Savour cash. Hopefully, you don't have much debt.
"The act of staying out is just as much a positive action as buying or selling and in fact requires more courage at times."
Bear Markets How to Survive and Make Money in Them, Harry D, Schultz, 1964, Prentice Hall

DOW THEORY SIGNAL: Another triple digit down day for the Dow Jone Industrials on the day before American Thanksgiving. A lot (two words) of triple digit up and down days indicate buys and sellers can't decide what's going to happen. Hold on tightly. It's going to be quite a ride! Our metal will be tested. Now that the DJIA has broken through its August low of 12,845 with its 12,799 close today, The Dow Theory indicates a primary bear market... the chance of a recession in 2008 has increased...as both the Dow Transports (getting the goods there) and Dow Industrials (making the goods) have broken through their August lows. It's a rather rare event.
A few minutes ago I've pulled out: Bear Markets: How to Survive and Make Money in Them by Harry D. Schultz, 1964, Prentice Hall 3321.645 S17 or HG 4539.S38 at university libraries.
I plan to look through Andrew Sarlos' Fear, Greed and the End of the Rainbow tonight too.
"One of the precepts of the Dow Theory is that neither the duration nor the extent of the primary trend can be predicted in advance. I have absolutely no idea whether this is fated to be a mild bear market or a severe one." Richard Russell, November 21 2007
Connolly comment: That other indexes (The Dow Jones Wilshire 5000 Composite Index, for instance) did not confirm with new lows may be good news.

The Plan is Working - This link gives a few Connolly comments written on December 12 1998 during the last bear market for dividend-paying stocks. Notice the date: December 1998. Our dividend stocks sank earlier than the index. Once investors realized there was a bear market, in early 2000, our stock rose. Investors seek security in a storm. Do not lose faith now. Hang in there. It will be fine...but it might take months. Investors will duly realize our quality stocks and and reward us once again with higher prices, or as John Neff put it "garner returns well worth the wait". Meanwhile, we have our growing dividends to relish. One example: BMO shares have fallen from a high of $72.55 earlier this year to under $60. As I write this, BMO's yield is over 5% and BMO's price is below its Graham price. Ask me if I care? Our cost on BMO, bought during the last big market correction in 1987, is $6.90 adjusted for splits and our yield is now over 40%. Sell! Not a chance. That would be a foolish thing to do. Work out your yield on the cost of the shares you bought years ago. Many of ours are double digit. Our strategy works.
On the other hand, shaes of common stock you purchased more recently, in the last couple of years, might be below your purchase price. Some of mine are: Power, CNR and Loblaw. That happens. No one can time the market in the short term.

John Heinzl's column from the new Globe Investor Magazine(November 21 2007) is worth downloading. We did not get the magazine here in Kingston. John Heinzl has received 'the message'. His column is about taxes on Canadian dividends. (Heinzl did not mention this, but you can make a few thousand of 'regular' income and still pay no income tax on mostly Canadian dividend income. Louise is thinking of selling her BA.UN (Bell Aliant) as the fully taxable income is 'messing up' her tax free status. She already has employment income from The Connolly Report. I would not be able to do the report without her.)
http://www.theglobeandmail.com/partners/free/globeinvestor/income/tax_free_living.html

BANKS and Berkshire Hathaway
Did you notice the column in the Report on Business on Friday November 16 with the title 'Buffet bets on home lenders'? Berkshire has increased its stake in some American banks, and a number of other companies, according to their regulatory filing on September 30 2007. One analyst's comment: "[Mr. Buffett has] picked good companies that are well managed and offer attractive value."

I'm wondering if the DJIA will break through its August low this week. (IT DID!) If it does, hold on tightly. Skat will, most likely, hit the fan. Do not sell. We have good stocks. Instead rejoice and look for bargins. This data might help. It fascinating to see which ones are up, and which down. Empire and Loblaw, for instance. The insurance companies have held nicely and the Power group too.

Percent gain in price this year (2007)...to November 18, in order:
LB 30%, Empire 22%, CU 15.2%, Power 7.85%, Sun Life 6.5%, IGM 6.33%, PWF 4.95%, BA.UN 4.6%, MFC 4.1%, TRP 1.43%, Leon's .3%, ATCO?

Loss on the year, so far: (looking for bargins here?)
Loblaw -26%, NA -21%, BMO -19.8%, Metro - 16%, Telus - 11.3%, Enbridge -6.5%,
BNS -5.28%, CIBC - 4.4%, RY - 4.34%, Fortis - 4.2%, TD - 1.9%, GWO -.5%, ATCO?

Still own mutual funds? Here's an example that might make you re-consider. It's one of six provided in a column in the Report on Business by Shirley Won on Monday October 29th.
If you were convinced to invest $10,000 in the CI Global mutual fund at the end of 1994, your money would have doubled ( to $20,916) by the end of September 2007. Great, eh! Well maybe not. It's all in the comparison. If you had put the same $10,000 into the stock of the company that that runs the fund, the same twelve years ago, CI Financial, your capital would have grown to $246,426 by the end of September this year. WOW! That's quite a difference, eh. The title of Won's column, by the way, was "Buy the fund, or buy the company?" The answer is clear.
I added the above to the 'dump-your-funds' page I started in July and a few other sentences too.

Warren Buffett
"Investing is laying out money now to get more money back in the future - more money in real terms, after taking inflation into account." Warren Buffett, Fortune November 22 1999...an interesting article. Mr. Buffett also mentions that on December 31st 1964 (the year Louise and I were married) the DJIA was 874.12. On December 31st 1981 (the year I started the Connolly Report) the DJIA was 875. "Now I'm known as a long-term investor and a patient guy," Mr.Buffet continues, "but that is not my idea of a big move".
My thought: I'm glad I'm not an index investor, or hold mutual funds which are similar to an index. And yet, few professionals beat the index...the market. What does one do? My solution: select a few good dividend growth stocks when their yields are higher than they normally are and hold, like Warren Buffett, for years.

Long term, mutual fund fees can be crippling. "After 25 years, a 2.1% mutual fund management expense ratio (MER) will gobble up 39% of the value of an investor's registered retirement savings plan."
Jonathan Chevreau, Financial Post, November 22 1997 reporting on a study by William Merser Ltd, Connolly Report December 1997, p.398

"The D-J Transportation Average has closed below its August 16 low of 4672.35. Thus, we've received one half of a Dow Theory bear market signal. But that doesn't mean a thing unless the Industrials confirm by closing below their own August 16 low of 12845.78. As far as classic Dow Theory is concerned, half a signal is no better than no signal at all. In other words, for a primary bear market to be signaled, the Industrial Average must close below its own August 16 low of 12845.78.
So as matters stand, it's all up to the D-J Industrials Average. Will they or won't they? It's the trillion dollar question, and there's not a man or woman on the face of the earth who can give us THE correct answer." Richard Russell November 8 2007

NINE TRILLION - There was a little item of filler in the Kingston Whig Standard this morning. The American debt is now up to nine trillion dollars. Since Bush junior took over, it's up U.S.$ 3.8654 trillion. Think inflation. That's the only way they'll be able to handle that debt. Seek growing dividends from business ownership, not fully taxable interest income from bonds.

"The hardest work in investing is not intellectual, it's emotional. Being rational in an emotional environment is not easy."
Charles D. Ellis, Winning the Loser's Game, 4th edition, p 26

From the Financial Post in January 1931: "As the markets become more settled your client might sell her Dominion of Canada bonds and re-invest in the best common stocks. The stocks mentioned here are sound investments. Dominion Bank, Imperial Bank, Bell Telephone and Canadian Pacific Railway. Keep your Gatineau bonds and your Montreal Light Heat and Power." Connolly Report, December 1997, page 399 under the heading 'Dividends in the Thirties'. Things have not really changed, have they? They recommend a couple of banks, a utilty and a railroad.

"In investing over the longer run benign neglect really does pay off. After basic decisions on long-term investment policy have been made, with care and rigor, you should - with great respect - hold on to them. The problem, as Shakespeare put it, 'lies not in our stars but in ourselves,' so above all else, resist the insidious temptation to do something."
Winning the Loser's Game by Charles D. Ellis p.158 I'm back to reading this great book again. TCR April 2003 book report.

The U. S. Dollar - Here's an interesting way to measure the depreciation of the American dollar. Since 2002, the price of oil has risen by 3.5 times in terms of the euro and 5.8 times in dollar terms.

How bad is the subprime asset-backed securities market? The price of Residential Mortgage Backed Securities (RMBS) rated BBB is now .18 cents on the dollar. That's down 82% on the year. Even the A rated paper is down 71%, according to data in John Mauldin's October 26 letter. Some $500 billion of RMBS were issued last year. Can you imagine! It's no wonder the investment banks have been writting off billions.
Apparently there's a good example of this subprime mess in a recent issue of Forture magazine (by Allan Sloan, Junk mortgages under the Microscope). I might just walk up to Queen's this afternoon and read it. It's a nice fresh day here. We're just back from visiting ourfirst grandchild, Julia, in Toronto along the Danforth. She'll be a month old in a couple of days.
There's a lesson here. The funds that bought this paper, and that's just what it is, paper, if the backing is not there, were after a higher yield: 10½% on some of it. Greed got them what they deserved. We don't do that do we? We don't go after yields which are too high:-) Our first rule is don't lose money. If you don't have losses to average into your results, you returns will be spectular. If we buy a common stock with a yield of say 3.4% and get 17% dividend growth, what return will we get on our money? Do you add yield and dividend growth to get 20.4%? Do you believe? Roughly, your money should double every five years, at the rate. And these funds which bought the subprime paper were after half that: 10.5%. But they want it NOW. We win because we have patience and are careful which common stocks we buy and when we buy it.
Cooking with Foods the Fight Cancer by Richard Beliveau "...three foods containing some of the highest levels of anti-cancer compounds found in nature: green tea, soybeans and tumeric". When using tumeric, be sure to include oil and pepper in the recipe.
7. "A good way of achieving the optimal omega-6/ omega-3 balance is to prefer olive oil over other oils (avoid sunflower and corn oils in particular and keep to a minimum the consumpition of industrially produced modified food."
Chapter 7 on Flaxseed, p.83
13. TOMATOES: "Studies have shown that the incidence of prostrate cancer is less widespread in regions where the population regularly consume different kinds of dishes prepared with tomatoes."
14. Berries: "Ellagic acid, found in large amounts in raspberries and strawberries, and anthocyanidins, principally associated with blueberries, are able to selectively block the the activity of at least two proteins essential to the development of cancer (PDGF and VEGF receptors)."
15 Citrus Fruits - "...the anti-cancer molecules present in citrus, monoterpenes and flavanones, carry out two tasks: first, they interfer with different processes, especially cancer cell growth, that are necessary for tumour development; and second, they reduce inflamation, thus depriving tumours of an important stimulus for growth."
16 "Choose Jananese green teas, richer in catechins, over chinese teas; and brew the tea for eight to ten minutes, to extract the maximum quantity of these molecules."

Investors believe central bankers will save them. I don't. "It is not easy for any central bankers to do unpopular things."
Stephen S. Roach, October 22 2007

Power Corp - I got 200 of my POW at under $40, I am waiting to buy the rest...as per the next two items. I always hand write the amount of the dividend, the yield and reason(s) for buying the stock down on the confirmation slip. Sometimes I jot down what I'm leary about at the time too. This time I'll write "recession coming?".

"...clearing up the subprime mortgage crisis could be even messsier than many people thought" The Economist p 86 October 13 2007

"New lows on the NYSE have been rising. Here are the new lows for the last six days -- 56, 80, 103, 122, 152, and today 176." Richard Russell October 22 2007

RISK "is often lowest when it is most visible". Avner Mandleman, Report on Business, Saturday October 20 2007. I enjoyed this column with the title 'Investing in turbulent times could be your best move'. Here's another sentence: "When risks are most visible, not only are they on the way to being addressed, but the panic they generate often causes otherwise sane people to dump perfectly good stocks..."

"This bull's got legs, experts says" was the tile of a small column on page 11 of the Report on Business of Friday the 19th of October...the day the TSX dropped 330 points. I did not read Friday's ROB until Saturday when I had already heard the TSX had dropped 330 points. So, when I saw the headline, I thought, poor fellow, he expressed his opinion on the market just hours before the market headed down. I would not have read on, except my scanning eye caught the name of the expert: Martin Barnes, managing editor of The Bank Credit Analyst. I respect Mr Barnes' opinion more than that of most anyone else. Could Martin Barnes be right? He was talking, after all, about 'the global bull market', not our TSX specifically. He might be correct. But we will not know for a while. Then I thought of this sentence I wrote down in a number of places over the summer. It's from The Black Swan: "Certainty in response to questions does not exist."

BORROWING to INVEST "Margin debt rose from $32 billion in 1990 to $278 billion at the height of the dot-com boom in 2000, then fell to $134 billion by 2002. But it's been climbing steadily since, eclipsing $300 billion in April." Just before July 19, margin debt was $381 billion. Barron's October 22 2007

Sun Life - I found that the 'corporate action memo' about Sun Life Financial's new issue/exchange offer quite confusing...poorly written. I told Louise she can ignore the memo and showed her, on page two, the bold caps which said: "Holders [of SLF shares] who do not wish to exchange their shares to this offer need not submit instructions."

Which Indicator?
Which indicator works best in selecting a stock?
I use yield and Graham value (this involves both book value and trailing earnings). Scott Adams in the Report on Business (the paper which does not show the amount a stock pays in dividend in its listings) of Wednesday October 17 2007 under the title 'CPMS is back to help pick bank stocks' (kind of a useless title, I thought) outlined ten indicators which were used (past tense, notice )to select a bank stock...ten years ago from the CPMS data base. Lowest price to book worked best, but highest dividend yield was right up there. We do not strictly use high yield. We use yield in relation to it own average yield. I'm happy with my indicators. I notice price to book when I'm ever looking at data on any stock but I don't officially keep track of it. Book value is part of our G%D computation.
According to Adams' table, low dividend yield did not work. We know already know this, eh. If the yield is low, relative to its own average, the stock is expensive. I talked about that on the front page of my October 2007 report. I hope there are no errors in this issue. I was a bit rushed getting it out as our first grandchild, Julia, was born on October 2 at Toronto East General. Although I had material ready in advance, it did not come together until the weekend before printing. We were quite excited. There will be no France for Christmas this year: Julia has arrived. My December issue will not be late.

Concentrate holdings:
"Our policy is to concentrate holdings. We try to avoid buying a little of this or that when we are only lukewarm about the business or its price. When we are convinced as to attractiveness, we believe in buying worthwhile amounts." Berkshire Hathaway 1978 Annual Report
"To weather storms, the solution for me in not diversification as most advisors recommend, it's concentration in dividend growth stocks. You have to decide on your solution." Connolly Report, October 2007 Some buy bonds, others annuities...

+++++++++++++++++++++++ October 2007 Report ++++++++++++++++++++++++++++++

BE CAUTIOUS!
"The size of the Fed's [interest rate] cut and the statements that accompanied it signified fear more than hope. The central bank hopes to 'forestall some of the adverse effects' of the credit crunch on the economy. But trouble may be coming anyway. The housing market's malaise is deeping all the while." The Economist September 22 2007.

Risk is being repriced. I don't think the excitement is over yet. The S&P 500, for instance, looks like it has made a 'double top'. The S&P 500's 2000 bull market high was 1,527. Its recent high, seven years later was about the same. That's one ominous sign. That the Bank of Canada injected $1-billion into the money markets on September 27, is another sign all is not well: be cautious.

"Bubbles are easier to inflate than to sustain. The US property bubble is now beginning to deflate, and the risks to the US and the global economy are greater now than they were when the stock market crashed six years ago -- greater because the global imbalances have become so much larger as a result of the US property bubble. If US consumption now begins to contract, as appears likely, US imports will decline, and the world will also go into recession, possibly a very severe one." Richard Duncan

"When trading in any overpriced asset-class slows dramatically, there's only one "cure." That cure is lower prices."
Richard Russell, September 24 2007. In other words, lower interest rates are not going to help Americans with their mortgage problems.

BCE - Rob Carrick's column on Saturday September 22 in the Report on Business [which no longer provides the amount of the dividend for the TSE stocks it lists] raised some good points about what to do next if you have owned BCE for a long time. Compute your cost per share. You'll most likely have capital gains tax to pay....but thankfully on only half of the gain. I don't, however, have any losses to offset the gains against. Our strategy does have that disadvantage, luckly.
For us, replacement is not a problem. We've got the list sorted by yield, data on dividend growth and G%D valuation measure too. Additional dividend growth common stocks were mentioned in my February 2007 issue, remember. I'm thinking of one of those: the top graph on page 618, for instance.

"Those are my thoughts here on Thursday, September 20, in the year 2007. You see, I don't believe we've seen the final speculative third phase of this international bull market, I just don't believe we've seen it yet. It lies somewhere ahead. And it should be bigger, wilder, and crazier than anything we've ever seen before. What we see now is the preamble, the base-building, the coming surprise when history's greatest speculative bubble takes place. OK, you heard it here first. "
Richard Russell September 20 2007

The Federal Reserve lowers its interest rate by half a point (September 18) and the market goes up over 300 points within a couple of hours. Investors must think the Fed can prevent a recession. What a world! Let's see what happens over the next few weeks/months. Watch for 12,845 on the Dow (see below). The answer to what lies ahead will be given by the market.

"... this is the highest volatility I've seen in 50 years. High volatility is a function of differences of opinion and fear. One day the bears are scared to death and load up on puts. The next day the bulls buy stocks and sell the puts short. The market is in a turmoil of wildly mixed emotions. The Dow and the S&P fluctuate madly, up one day, down the next. It's hysteria on Wall Street, and, of course, the professional traders love it. The public is confused, the institutions wait for things to calm down, and most investors have no idea what's going on. " Richard Russell September 17 2007
Connolly comment: In the last while, though, our dividend growing stocks have quieted right down...well maybe except for some banks. Take Great West Life as an example. So far this year, in spite of all the excitement, it's been calming moving in a range of $34 to $36. Give or take a dime, maybe two bits, now and then, that's a $2 range. Not to worry! We are well positioned. Dividend stocks are great, eh.

"... the Fed needs to ease and will ease, substantially I firmly believe, not to bail out Wall Street but to make certain that weaker growth on Main Street does not morph into recession, which would carry serious debt-deflation consequences. It's a risk management world: recession may be a low risk (though not as low as only a few months ago), but the consequences would be very severe..." Paul McCully, Managing Director, PIMCO Sept 2007

Price to Sales Ratio - In early September, the ROB carried a couple of columns by David Parkinson about the price to sales ratio. According to James O'Shaughnessy, the price to sales ratio is the "king of value factors". It's not to me. My favourite value factor is yield. Anyway (no 's'), a number of stocks were listed in order of their price to sales ratio. Most stocks mentioned were not in my list. Empire was near the top of the ROB price to sales list. Weston, Loblaw, Metro and Jean Coutu were in this list of low price to sales stocks too. I was curious. I did the price to sales ratio for all the non-bank stocks in my list, and a few other commons I'm watching. (Dividends were not mentioned in the table...it's the Globe and Mail, remember:-)
The cheapest by price to sales (low price to sales), of stocks in my list, are: Empire .2; Metro and Loblaw at .4 and Power at .6
At the bottom of the list, expensive by price to sales are: IGM at 4.9; CNR at 3.7; CU at 2.4 and TransCanada at 2.2.
There rest were in-between...over 1 and less than 2. Shoppers was 1.4, for instance. ManuLife at 1.9 was more expensive tha Sun at 1.3 price to sales. Generally, results from the price-to-sales ratio line up with our indicators.

BONDS: 5.9% Total Return - According the the September 17 2007 Forbes mutual fund survey, the annualized total return of Bill Gross' Pimco Total Return bond fund was 5.9% over the last decade. Total return is interest plus appreciation. In the latest twelve months, the total return was 4.4%. Pimco has an 80 person trading floor overlooking the Pacific and assets of $103 billion dollars in this fund. My thought: I can get over 4% on a couple of Canadian bank stocks and dividend growth to boot. Gross is expecting Bernanke to hold off for a bit, but to cut their rate by a full point with a year to revive an economy that Gross believes is "close to the rocks". If interest rates go down, bond price fall. I really don't understand why anyone would buy a bond, especially now.

"When times get tough, fear leads people to overdiversify their investments in hopes of minimizing losses. Bad idea.
There are a number of sectors I don't buy becuase they are outside my circle. Maybe some people can consistently predict commodity prices. I can't, so I don't try." John W. Rogers Jr. Forbes p. 212 September 17 2007

"This market is the most volatile market of the last 60 years. Since July 23, the Dow has been rallying or declining 100 to 200 points every 3.5 days. Based on the way this market is acting, it would be foolish to hold stubbornly to any preconceived notions. The only intelligent stance at this time is to let the market itself tell its story." Richard Russell Sept 10 2007

"The stock market is in a sort of "no-man's land" now, trading between the July highs and the August lows. So we're constantly looking for hints as to direction." Richard Russell, September 6 2007

SLIPPAGE: "We don't own mutual funds so we have no MERs to drag performance down." L. Ames

Dow Industrials: 12,845.78
Dow Transports: 4,672.35
According to Richard Russell, these are the numbers to watch for in the next few weeks, months perhaps. They are the August 16 lows. If both averages violate these lows, it would be bearish and Russell "would expect the correction to continue down into the October-November period". If not, the worst that can be seen ahead has been discounted in the price structure.
If you did not get enough buying done between July 19 and August 16, hope the lows are violated.

August 29 - off to Georgian Bay for a week...no e-mail or internet or television...walks on the long sandy beach: thinking.
And installing a few new receptacles...we moved the fridge and a few other things after 59 years. The hole where the drain hose from the old ice box showed up. Maybe that's where the mice are getting in.

'I asked Cabot if State Street tried to catch market swings - to buy low and sell high.' "No", he said, "It's luck. If you're lucky, you win. If you aren't, you lose. What the hell good is that?" from The Money Masters by John Train, page 55-
I was going through this book I bought in 1980 again at the cottage the other day. From the same book, I added this 'item' on brokers to my broker's page. It's a bit strong, perhaps, but thensometimes people do have strong beliefs: "Most of the registered reps the customers are talking to are losers themselves who happen to be plausible salesmen." p. 127
There was some excellent materialabout Warren Buffet in The Money Masters. Letters to shareholders from the 1970s, for instance. Some of these early letters are Mr. Buffett's best.

July 19 2007 - the day the markets peaked (TSX at 14,625).
Did a bell go off? No.
Did the asset allocation people tell you it was a good time to switch? No.
Asset allocation alway sounds great in theory, but 'they' don't know when to switch allocations...a slight problem in practice.
According to a column in the Report on Business (where dividends are no longer itemized, even on Saturdays) of August 16th, the average cash holding of professional money managers was 3.4% in July 2007. Three point four also happens to be the amount in trillions of dollars erased since July 19 (to August 16) from the value of equities. The professionals were not prepared for the turmoil with only 3.4% in cash. They don't know any better. We can do it with out them.
DIVERSIFY INTERNATIONALLY? From July 19 to August 16 the TSE was down 8%, the Morgan Stanley World Index was down over 9%. And 'they' tell you to diversify internationally. I don't. One reason: I'd lose the tax credit on Canadian dividend income. Another: I'd most likely have to buy a mutual fund to diversify internationally. Yet another: There could be a currency loss. I'd rather stick to what I know best. What about to buy into a sector not represented in Canada? I'm into five sectors here. Most heavily in the companies with the best dividend growth. That's what I'm after, dependable, growing retirement income. (In 2007, Royal Bank's dividend went up 25% When's the last time you received a 20% raise.) Why do I need to cover all sectors? Even though I was employed in the resource industy across northern Canada years ago, I no longer own 'mining' stocks. Their dividends are not all that reliable, long term.

"The housing situation will be a problem for the government [American], not the Fed, to solve. My guess is that the government will step in with new guarantees or a revival of something like the FHA (Federal Housing Administration). And you can bet that Bennie and the Feds will fight any signs of recession 'tooth and nail." Richard Russell August 24 2007

Selecting Stocks: If you are doubtful about you own skills in buying stocks, this sentence from the August 18 2007 Economist might make you feel much better. "In a conference call on August 13th, Goldman Sachs said its leading global equity fund - which relies on a quantitative trading model - had lost more than 30% of its value within a week." Even with their fancy math, the quants, the professionals, blew it. Have faith in your own abilities. "The methods of modern finance have been found wanting" The Economist said in their lead editorial. Having just read Capital Ideas Evolving about these models, I loved it. In Behavioural Finance, John Montier said, "the models of classical finance are fatally flawed". He was right.
This issue of The Economist (cover was a surfer riding a collapsing wave in shark infested water) had a number of excellent columns about events in early August. I like the one on structured investment vehicles and asset-backed commercial paper a lot. Greed and leverage brought them down. They certainly do not have the patience to wait for a dividend increase. We win: they lose.

"If you are a saver and a buyer of shares - as most investors are and will continue to be for many years - your real long-term interest is, curiously, to have stock prices go down quite a lot and stay there so yo can accumulate more shares at lower prices and therefore receive more dividends with the savings you invest."
Winning the Loser's Game by Charles D. Ellis, page 137

"the cycles of risk taking in the economy follow a pattern: stability and the absence of crises encourage risk taking, complacency and lowered awareness of the possibility of problems. Then a crisis occurs, resulting in people being shell-shocked and scared of investing their resourses." A couple of sentences from The Black Swan which seem appropriate after July 19 2007

Page 2 of my August issue deals with stock valuations, how they have changed since the tech crash of 2000 and how this relates to dividend growth investors. My brother-in-law, they have the cottage next door to us on Georgian Bay now, read it over and suggested a few changes. Bernard teaches Corporate Finance at Ryerson University. We have good chats. My brother, a C.A., helped me import the Excel spreadsheet into WordPerfect. Next year will be our 60th year in the cottage on Georgian Bay. Mum bought it just after the war for $3,750. We are planning a party...although I'm happiest just walking along the beach very early in the morning when it's quiet and having 'a sip' before dinner on the deck with Louise before dinner. We can see Meaford and other places along the Bruce some 48 km across the wide expance of the Bay.

"A veritable army of experts are voicing their opinions regarding what this market is doing and where it's going. As far as I'm concerned, their opinions are largely worthless. The condition and direction of the market will be defined by the action of the market itself -- and as I said, it's still early." Richard Russell, July 31 2007

Poor Barron's. They did it again. This headline, and the feature story the week of July 23 was: "The reluctance of retail investors to buy stocks as the Dow hits new highs suggests that the rally has further to run." In the following days {will it be weeks, months perhaps?), the market headed south. LESSON: There is little reason to read the financial press, let alone watch the financial 'experts' on television. They can't predict: The Black Swan tells you this. Nassim Tabeb does not read newspapers either. We do not have television or internet at our cottages. This could be a problem for the Rugby World Cup in September (Canada play Wales on September 9th). We have fine company at the cottages, good books, nutritious food, butterflies, warblers, the sound of waves and The Economist. What else does one need? Falling stock prices...hopefully. If you are nervous about falling stock prices, read the front page of my April 2007 issue again: "Our Risk Controls" Relax. Think about what you are going to buy, and when. "Rejoice when prices decline." Warren Buffet

"Most people probably don't realize it but on May 30 2007, finally, the S&P finally closed above its March 24, 2000, record high of 1527.46. The S&P closed above the old high for a few days, then dipped. Yesterday (July 10th) the S&P closed at 1510.13, which was 17 points below the old high of March 2000...Strange when you think about it, but after 7 years of action, the S&P has made no progress, and, in fact, as of today [July 11 2007] the S&P is still below its peak of seven years ago." Richard Russell.
Connolly's thought: I'm glad I have not been an indexer. In the last seven years our Canadian dividend growth stocks have done spectacularily. An indexer, by the nature of the beast, picks up stocks which don't pay dividends: that's not good.

FECUNDITY: James P. Garland - I've been reading some of my own back issues: October 1996 specifically. It mentioned a column from Forbes in June 17 1996 issue where they interviewed a money manager named James P. Garland who says put most of your money into common stocks and avoid bonds. I googled James P. Garland (president of The Jeffrey Company) and found some very interesting material about FECUNDITY - a portfolio's long-term ability to generate spendable cash. Try www.peterlbernsteininc.com looking for "The Fedundity of Endowments and Long-Duration Trusts" or www.tiff.org/TEF if you are interested in this topic.

"I believe we are going into an international third phase of the bull market. The third phase is the highly speculative phase. In the third phase of a bull market, stocks may rise faster and farther than what they did during the first and second phases combined. You may be sceptical, you may not be aware of it, you may not know about it -- but I believe the third phase is just about here." Richard Russell July 9 2007

Some thoughts as we're back home for a couple of days travelling between cottages. July 8 2007

BOOKS: From our local independent book store, as I don't like to buy from Heather, I've ordered:
Capital Ideas Evolving by Peter L. Bernstein (I loved his Against the Gods book on risk), (Capital Ideas is an interesting book, but won't be in my top 20) and
Your Financial Edge by Jonathan Fuerbringer and 'they' say Paul McCulley who runs a rather large portfolio at Pimco is not a very good book. I'm not sure McCully wrote much of it.
I've finished The Black Swan by Nassim Taleb. It was heavy going, there's not much on investing but it's all about investing. The Black Swan is different and interesting.Consider the unlikely happening: it just might. Perhaps it's happening in the markets now. Experts don't know the future any better than you: it's uncertain.

John Mauldin* (Bull's Eye Investing and Outside the Box at investorsinsight.com*), Martin Barnes (editor of the Bank Credit Analyst) and a few others are flying into a camp in Maine this weekend...maybe even in a Beaver or an Otter...what wonderful planes...I miss them. Would I ever like to be a sous-chef there, or offer to paddle their canoe. I don't imagine them roaring around a quiet lake in a power boat.

* Look for 'US Equity Returns: What to Expect' by Dr. Prieur du Plessis on investorsinsight.com
There is a "strong long-term relationship between real returns and the level of valuation at which the investment was made". And they use yield as a valuation measure. Can life be better!

Leon's split 4:1 on June 27 2007. LNF has a very high G%D

Empire's dividend rises 10% to .66 (.165 times 4) from .60 on July 31 2007. Last year EMP.A's dividend rose 7.1%, the year before it was 18.2%. The yield went from 1.4 to 1.54%. EMP.A's price juimped a couple of dollars too. Yields on stocks with low yields take a long time to build, eh. (More on this in my august report.) I'm inclined to buy stocks with higher yields (the 2.5% range to still get double digit dividend growth) unless I need the diversification.
G%D - The important point with G%D is its long term averages and where the current G%D is in relation to its average G%D. Empire's average G%D from 2005 to the present is: 2. EMP.A was added to my list in September of 2005. On July 6 2007, EMP.A's G%D was 2. Compare G%D as we do with yield. It's right on average. That does not make it a good buy necessarily. It just says EMP.A is not expensive, not cheap.
I use yield to make these judgements: Empire seems to be the least popular food stock, Metro the most popular, and Loblaw the most out of favour.



Here's an encore book report on Building Wealth with Dividend Stocks by Joseph Tigue. I've been reading the most important pages again. Tigue worked at S&P for years. They have the data on dividends. Chaper 5 is particularly good and worth the $34 price if you only read that chapter.
Here's a paragraph from the page opposite a table of over 100 stocks which have raised their dividend each year for the last decade...eight of these were Canadian and all are in my list. This concept is perhaps the most inportant in dividend growth investing. I underlined 'just the dividends'. Imagine, after a decade, you beat the market with just your dividend income.

"Many of these [dividend growth]stocks now provide above-average yields on their 1995 prices. Assuming there are no dividend cuts, with just the dividends from these issues, the returns on the stocks over 10 years will outpace the average annual total return of 11.9 percent that Standard and Poor's has posted since 1926. If price appreciation were factored in, the returns are juicy indeed."

Did Tigue say the yields are over 12% after 10 years of growing dividends? Yep! I'm not the only one who believes in YOC (yield on cost). Tigue had a terrific example in Chapter 5 (page 65) about this too. You've seen Cintas trucks around town delivering uniforms to firms and replacing entrance mats. It's a simple but profitable concept. Cintas increased its dividend at a rate of 27% compounded annually from 1983 to 2005. The yield went from .6 percent to 34%. And, of course, as we know as the dividend rose, so did the price: it gained 4,631% from 93 cents in 1983 (adjusted for splits) to $44 in early 2005.

* * * * * * * * APRIL 2007 * * * * * * * *

BCE - I meant to put this sentence in my April report. I forgot to.
Until the offers firm up, it's just a matter of guessing now when to sell BCE. Your guess is as good as mine. As Nicholas Taleb says in The Black Swan: "We just can't predict." Taleb also says: "avoid the newspapers" p.17. I love it
I'm glad I used BCE as a parking spot. Some things work out better than you expect, some, things, thinking Loblaw, worse. You never know. "We just can't predict." That's why I have four stocks in my RRSP instead of just one. Now with the proceeds from BCE, I'll buy my fifth, and last common. At that point I'll have roughly $20,000 in each. Waiting for a value (or "fair" as Mr. Buffett, says) price is hard. This quotation from Gerald Loeb's, Battle for Investment Survival, C-12. It was originally written in 1935. My copy is dated 1965. The book is a collection of columns Loeb wrote.
"Willingness and ability to hold funds uninvested while awaiting real opportunities is a key to success in the battle for investment survival. Market valuations of most securities change in a single period of a very few months by an amount equivalent to many year of dividends..."

"Twenty years ago Moody's listed 61 US companies as AAA rated. Twelve years ago the number was 12. What about today? Alas, only six US companies make the AAA grade. And they are Automatic Data Processing, Berkshire Hathaway, Exxon, Johnson & Johnson, GE and UPS. That's it..." Richard Russell, April 17 2007

Bill Gross, PIMCO Managing Director: "the tightening of credit conditions" - " threaten future economic growth", not loan losses. April 2007

G%D - What a difference a year makes. Graham prices in my April report have been up-dated for 2004, 2005 and 2006 earnings and 2006 book values...except for Leon's, hence the "?" beside the $28 Graham price for Leon's in my April report. I could not find 2006 earnings or book value for Leon's.
Leon's was up over $7 in the week after Easter. It moved from position #2 in my April 5 list to #13 in my April report, a week later. Wow! So much for Leon's with a minus - 52 G%D. Revised data for 2006 will bring that down somewhat, but not that much.

I bought our first batch of CNR at $51.30 in March 2007. Using last year's data (2003, 2004 and 2005) Graham's price was $28.70, so the G%D was - 44%. I would not have bought CN at -44% G%D.
I up-dated the data. With 2004, 2005 and 2006 earnings and 2006 book value, Graham's price was $36.10 for a G%D of -29. Still a tad too high, in my view, but I was impressed with the 1.64% yield of CNR...in its high range. We purchased a few hundred shares. We're out on a limb but Berkshire Hathaway just bought Burlington, Northern Santa Fe so there's company on the limb. It's interesting how Mr. Buffet has changed his views. He now seems to be buying good companies at fair prices...not out of favour companies. I wonder if he's buy Loblaw?

A DIVIDEND GROWTH DISTRIBUTION PORTFOLIO - more on this in April's report
Go to http://www.mhinvest.com
(Miller-Howard Investments Inc. This is the Lowell Miller of The Single Best Investment)
and click on Quarter Reports. Scroll down to 1st Quarter 2007 and read the first three pages.
This is fantastic. This is what we do. This is why you don't have to be concerned about a correction...at any time. Print the first three pages. Read them again. Study the chart. Send the file to your children and good friends. Let the ones you don't like as much remain mired in mutual funds, principal protected notes and bonds:-)

If you go into retirement, or into a RRIF,at age 72, with a portfolio quality, dividend growth common stocks purchased years ago, you will be spending income, not capital and market fluctuations will recede in importance. As Miller says, "the income portion of the return is always positive" and "if you are spending income rather than 'total return', market fluctuations become irrelevant". YES!
======================================April 2007 Report

"So let me put it this way -- I feel reasonably safe when I'm buying or holding stocks that pay me 5%, 6% or more. But when most stocks provide little or no dividends at all, I'm always a bit worried and a rather wary. Maybe that's just me, but I've lived thorough bear markets before, and there's nothing scarier than riding a bear market while holding stocks that have low dividend yields. Suddenly, you sense that there's "nothing under these stocks," and subscribers who lived through the 1973-74 bear market know what I'm talking about." Richard Russell, April 13 2007

Prepare for a Storm
"when a central bank sets short-term interest rates too low and allows credit to expand artificially. The result is an asset-price boom. Assets-price booms sow the seeds of their own destruction: they end in slumps" Steve H. Hanke, Forbes, April 16 2007 under a title: Prepare For A Storm
Hanke's recommendation to prepare for the storm: buy the yen. I'm just holding my great dividend growers, as Laszlo Birinyi says:
"Take a more cautious stance now, opt for good dividend payers." Forbes April 16 2007 p.182

"I've been emphasizing the importance of dividend yield for decades. A stock dividend is something tangible, it's not an earnings projection, it's something solid "in hand." A stock dividend is a true return on the investment. When I buy a stock, I view that stock as the source of a stream of cash dividends. Everything else is hope and speculation. The one thing I care about above all else is whether that stock is paying an attractive dividend, and secondarily, how safe is that dividend?"
Richard Russell March 23 2007

Dividend Stocks - Richard Russell in his daily comment of March 20 2007 had a number of terrific thoughts about dividend stocks. Here are some of them:
"Famed Jeremy Siegel of the Wharton School wrote a book in 2005 entitled, "The Future for Investors." The cover of this book carries an endorsement by Warren Buffett. Siegel spends a good part of the book warning about what he calls "the growth trap." Siegel opts for what he calls values in oppositions to growth. He compares buying values with buying growth (over the long pull), and he shows why buying values is the better, safer and more profitable procedure. Like Buffett, Siegel advocates buying top-grade stocks which pay dividends. Then reinvest the dividends and give the portfolio time.
Of course, this is what I've advocated for decades. This is the compounding method, although, ironically, Siegel never once uses the word compounding. The compounding word doesn't even appear in the index of Siegel's book."

DIVERSIFICATION - The Economist of March 10 2007 (cover: China's next revolution) had a most interesting column about diversification on page 68. During the just past RRSP season, floggers of funds were pushing global diversification. As we learned on February 27 of this year, it did not work. Even gold, "took a hit" that day. And corporate bond spreads widened [prices dropped]. "Diversification", The Economist said, "did not bring the benefits that investors might have expected".
We have yet to diversify out of Canada for equities or to diversify into bonds in our own portfolios, but then we're just over $1 m. Maybe I will for our second. However, it will be hard to beat the returns we obtained right here with Canadian dividend growers. I have no plans to diversify even though I have the feeling the biggest test in decades is approaching. I don't think the storm is over. I'm looking forward to the excitement. The last time the market swooned badly, from 2000 to 2002, our type of stocks rose. But I digress. Here are some numbers from The Economist: international markets showed a 94% correlation with the S&P 500 and hedge funds, dispite all the hype and borrowing to enhance returns, were 94% too. I love it :-) Property was 81% correlated, according to Merrill Lynch.
The Economist column concluded: "So before investors diversify, they should choose which risks they are trying to avoid." As Christopher Browne says In The Little Book of Value Investing:
"Risk is more often in the price you pay than in the stock itself."
I reckon if you pay a reasonable price based on our yield and G%D value measures (I'll have a new, and quite different, valuation tool in my next report) and the dividend keeps increasing, there should be no reason for concern. We'll find out for sure over the next few months.

"rejoice when markets decline" Warren Buffett in his 1997 Letter to Shareholders (Last used in the connolly report of June 2006.)

Graham on Price fluctuations:
"Basically, price fluctuations have only one significant meaning for the true investor. They provide him [/her] with the opportunity to buy wisely when prices fall sharply and to sell wisely when they advance a great deal. At other times he [/she] will do better if he [/she] forgets about the stock market and pays attention to his dividend returns and to the operating results of his companies." from The Intelligent Investor, by Ben Graham, originally written in 1949, Chapter 8 entitled The Investor and Market Fluctuations. There a a lot of other ideas along this line in Chapter 8 of The Intelligent Investor. My copy dates from 1973 so I can't give you page numbers from the up-dated version. The Intelligent Investor is a good basic book on investing...particularly if you are interested in defensive investing. There's a bit of a review of the book on my book report page.

AVERAGE OF LIST
I have finished computing the average of our new revised list back to January of 2003. The peak in 2004, and it was a good time to buy stocks, was at 3.07 in early August of 2004. Yields slowly moved down from that peak to a low of 2.6? in early 2006.
What I noticed from keying in all this data...and it took quite a while to do it...was that it takes months for the yield of the list to move from nadir to zenith. As I write this on March 16 (Tomorrow our son-in-law and himself will dawn our kilts and consume some Guinness in the big city. Gary is selecting the pub.), I'm thinking that it will be weeks, most likely months before, the yield of the list gets into its buy range. I'm not rushing to buy on the 'dip' we had had so far. I'll put this 'yield of the list' chart with weekly plots in my April 2007 report.
2.80% (two point eight) was the average of our revised list as of March 2 2007. That's up from 2.74% a week before. G%D has declined from -33 to -31 in the last week too. The week of March 9, it went down to 2.76%. This week (ending on St Patrick's Day), it seems, the average will be higher again.
The high yield in 2006 was 3.0% in early July. The low last year was 2.60% in early January. The year I'm anxious to do is 2004 as it was a good time to buy in summer of 2004 and I want to know what the average was then at its peak. It might give us a feel for how much more prices have to decline to match that benchmark yield.
Barron's March 5 2007. The lead story had the headline: "Still Betting on the Bull". The first sentence was: "The global stock-market sell off that stunned investors Tuesday [February 27] looks more like a passing squall than a full-throttle hurricane." COMMENT: I was not stunned...it was long overdue. And I think it's more than a squall. I hope it's at least a correction. We have money to invest and I'm tired of waiting for better prices.

Driving back from the cottage yesterday [March 1], I heard what happened to the stock markets on Feb 27) while I was skiing in the forest and listening to the chickadees...what happy creatures chickadees are. In no uncertain terms, I yelled at this one guy on the radio. He was preaching diversification. "Will bonds keep my stock prices from sliding, you *!expletive*@."? Why anyone would bulk up their portfolio with underperforming, depreciating assets like bonds¹, is beyond me. A few for short term, perhaps, but beaucoup de bonds...I think not.
These 'experts' the media contact when the market swoons do not know what will happen next. There's no value in listening to their dribble. I do not know what will happen next either. I do know we bought good companies at fair prices, our dividends with support our prices and dividend growth will lead to higher prices...eventually. We have no cause for alarm. We've had a lot of time to to re-arrange things in our portfolios. Now, hopefully, there will be some bargins for our cash. The only problem now is when to buy? That's a tough one
¹ Remember Jarislowsky's comment about bonds in the November 2005 issue of MoneySense magazine. 'But if you don't invest in bonds at all', the interviewer said, 'and the market turns, couldn't you go through several years of negative returns?' Jarislowsky's reply: "I don't think you can make any money at all in the bond market..." TCR December 2005, page 590
SECURITY - I brought to the cottage, for reading over lunch ( haggis leftover from Robbie Burns Day), an interview with Kathryn Welling, Peter L. Bernstein and James Montier I wanted to read again more carefully. It's called 'Capital Ideas or CRAP' and is available at investorsInsight.com. It's John Mauldin's weekly e-mail. Quite often it's terrific material.
On page 12, Peter L. Bernstein said that "your wealth is in many ways dependent upon what other people will pay for your assets". This statement got me thinking, as can often happen at the cottage. This, in my view, is our ultimate security. We own common stock in very good businesses. They pay solid and growing dividends. People want income and will, and will be willing to pay in the future, good prices for our kind of stock. Regardless of what happens in the next few days or weeks, people will eventually want our stocks. Our prices will rise from the rubble.
RISK - In this dialogue, Montier (I read James Montier's Behavioural Finance book in France last December) and Bernstein (he has a new book coming out this Spring) also talk about RISK. Risk should not be equated with volatility. Risk means we don't know what's going to happen. Bernstein says: "For a longer-term investor, volatility is opportunity". Still, "if the market gets more volatile, we worry. What's going on? Someone knows something more than I do...volatility works in the gut too."
One other part of the dialogue struck a cord with me. Bernstein is a consultant to a big (billions of dollars) family trust. It was set up in the early 1970s and cannot be distributed until a certain person dies. She's 102 now and fine. The money is 100% in common stock with a rising income stream. The family sees "market declines as opportunities because they can take lower capital gains if they want to make changes in the portfolio. But that sort of investor is a very rare bird. In particular, the steadfastness with which these people have held to their policy..." Bernstein said.

Alan Abelson, Barron's March 5 2007: "The tinder, though, was waiting to be lit. Chinese stocks had doubled over the past year (at one point, the market was up something like 170%) and the country has been in the giddy grip of a speculative mania, not unlike the one that gripped ours in the late 'Nineties (and enjoyed something of a revival the past six months or so)."

"Risk is more often in the price you pay than the stock itself."
This could be my favoutite quotation from The Little Book of Value Investing by Christopher H. Browne, page 64
We've paid reasonable prices for our stocks, so our risk is low.

http://www.wachoviasec.com/wachoviasec/WSICommentary/mktcomm02-26-07.pdf
There's a terrific chart (U.S.) of dividend growers from 1972 on page two of the report. Notice the first decade or so, though: it takes a while, as we know, for dividend growers to work their magic. Also notice, that if you did not hold dividend growers, you did not beat the market.

Global Investing is all the rage. Here are a couple of thoughts on the topic from The Little Book of Value Investing by Christopher H. Browne.
'global stock markets seem to move in tandem" 47 (Browne was correct. February 27 2007 certainly proved it again.)
"The drastic sell-offs of the early 1970s, the stock market crash of 1987, and the bubble burst in 2000 were shared across the globe so diversification offered scant protection." 44

The average yield of the revised list (three stocks gone, three stock added) at the end of February 2007 was 2.74%. In early March 2006, the average yield of this revised list was 2.69%. In between time, the average rose to 3.0% in early July 2006. I plan to take the revised average list back into 2005 soon to get an average over a longer period. It's a good indicator.

Richard Russell, February 26 2007 - "Something unusual is going on. Gold is telling us a story. And that story is inflation. Too much paper currency is being created, and this international sea of currency is chasing everything -- it's chasing houses, commercial real estate, farm land, stocks, bonds, salaries, medical bills college tuition, commodities, you name it. The price of almost anything you can think of is going up in terms of fiat paper currencies. The Fed may not admit to this, but they don't have to -- if you're living in the real world, you know that inflation is the name of the game."

The Little Book of Value Investing by Christopher H. Browne, 2007 $24 in Canada
I bought this book the other day because Browne is one of the Brownes of Tweedy Browne, a long time value investment firm on Wall Street. I'm a third of the way through it. It's a great book on basic investing ideas and value investing. However, I have yet to run across anything on dividends. Here's a sample of Browne's writing.:
"The conventional model of portfolio construction, the one-third bonds, two thirds stocks, requires that you periodically rebalance your holdings. By this they mean that if your stocks had a particularly great year and now are 75 percent or 80 percent of your portfolio, you should sell some stocks and invest the proceeds in more bonds. That is like selling your winners and reinvesting in your losers. How smart is that?" p.137

Richard Russell, January 30 2007: "I get a load of investment reports, and they all list stocks that I ought to buy. It's a hopeless procedure, as far as I'm concerned. I can't tie up my money in all these stocks. Most pay little or no dividends, and that stops me right there. Furthermore, these are not outstanding values. Sure they are "good" stocks, but when the market is overbought or overvalued or just plain "tired," good stocks can go down along with the bad, particularly if they offer low dividend yields."

Foods that Fight Cancer (preventing cancer through diet) by Richard Beliveau (Beliveau was on CBC in Januray 2007) and DenisGingras $30. I'm trying to find time to read this super book between doing 20 to 30 renewals a day (thank you for your continued confidence) and working on whittling a list of forty dividend growth stocks down to three, maybe four, to be added to my list. I plan to put the entire list of of forty possibilities in my February report with their yields, dividend growth rates and Graham percent difference.The numbers are most interesting. The good ones are expensive, however. I'll have a page of comment too with a sentence about most of the common stocks in the list forty divided into three paragraphs: dividend growth order, Graham order and yield order.
To give you an idea of which foods fight cancer, Part Two of Foods that Fight Cancer has separate chapters about: the cabbage family, garlic and onions, soy 101, tumeric, green tea (Japanese is better), berries, Omega-3s, tomatoes, citrus fruit, in vino veritas and dark chocolate. The colour photographs and tables in Foods that Fight Cancer are terrific too.

The "world is awash in liquidity", John Mauldin said in his January 20 2007 remarks. Hence, "Yields on all manner of investments have been compressed." There is a Eurasian savings glut. Should one accept such a low return, or wait? If yields are low, returns going forward will be lower. It's not a good time to buy. For me, liquidity also translates into rising markets and inflation down the line. I'm glad I hold stocks that grow their dividends and not bonds.

"Don't do something -- just stand there." Richard Russell, January 19 2007

Dividend income of the S&P 500 grew at over 11% in 2006 and total 2006 dividend payments by S&P 500 companies were, get this: $224 billion dollars. This is no trivial amount: dividends are important!
In 2006, the average hedge fund returned 10.6%. In 2005 it was 7.5%. We did better, eh:-)

I noticed the week of January 19th that nine income trusts reduced their distributions.

* * * * * * * * * * * * * *

Last entry...for 2006...off to the Dordogne. My December issue will be mailed in early January. Most of it will be cut and pasted from the material below, after I read all the Report on Business issues I missed and update my yield charts.
If you are interested in where we are, you could click on the French flag at http://www.connollys.ca

December 10 2006 - Excluding MBT, BMO, with its recent dividend increase and drop in price, is now on top of a list sorted by difference from its own average yield (BMO -.61 yld diff; -27 G%D). BCE is next and it's price is now close to $29...one never knows, does one. MFC is ahead of Sun Life on difference from average yield for the first time but MFC at - 40 G%D is expensive compared to SLF's -23 G%D. Great West (- 42 G%D) is next...three life companies in the top five...interesting. BNS and PWF follow in the list sorted by yield difference, but both are rather expensive at - 40 G%D and - 41 respectively. Power is getting closer to its average at -18 yield difference from average, but perhaps still interesting as POW's G%D is a below average -24. After Power, is Empire, at -12 G%D as EMP.A's price has risen recently.

TransCanada is at the bottom of the list sorted by difference from its own average yield (YAD) as of December 10 2006 with a - 1.36% difference (4.54 - 3.18). ENB is - 65. Our stalwart electrical utilities and pipelines are quite dear now. Lucky we got in when we did, eh!
A few minutes after I noticed TRP on the bottom of our list sorted by YAD (yield difference from it's own average), I noticed a 'buy' for TransCanada by analyst Bob Hastings of Canaccord Adams. We are not suprised, are we?
TRP has a yield of 3.18% and a respectable five year dividend growth rate of 6.5%. One can understand why folks who do not use our stock selection criteria might be interested in TransCanada. In the back of my mind, I think of it this way. Three point two percent is about the return of a five year GIC at a big bank. What will TransCanada shares be worth five years from now? What will TRP's yield be? If dividend growth continues at 6.5%, TransCanada's price should rise to $55.15 from $40.25. Five years from now. TRP's dividend should rise to $1.75 from $1.28 and the yield should become 5.12%. So, is TRP a good buy at current prices? Can you get a better dividend growth rate at about the same, or slightly lower yield? Three banks commons have higher yields than TRP and have had (past tense) double digit dividend growth rates in the last decade. Do you want another financial stock? All this comes into the equation. Investing is fun, eh!
Financials make up the top 15 positions in my list...except for BCE and EMP.A. I'll have to add a few non-financials for diversification in 2007. Which dividend-growing non-financials to add is my problem.

Martin Barnes, managing editor of the Bank Credit Analyst, was Barron's feature interview person on December 11 2006. I have put the column in my little pile to read again in Trudeau Airport (YUL) this Wednesday evening. The interview was most interesting and where better to read the words of Martin Barnes than in Montreal.
Barnes posits that the economy is still resililent and that the U.S. is " in a long-wave, technology-driven upturn. A characteristic of a long-wave upturn is that expansions are long and strong, and recessions are short and mild, and the suprises tend to be on the upside."
"a positive structural backdrop that's still in place" and "we are still living with the tailwinds of a long period of exceptionally easy monetary policy". The fundamentals of the market and the economy "don't look that bad."

Nortel's reverse split. They couldn't have a company like Nortel trading for a few dollars a share, could they? If you owned 1,000 shares of the 'old' Nortel, you now own 100 shares of the 'new' Nortel. When you take Nortel's consolidation into consideration, Nortels' high was $870 at the height of the bubble era. It fell to $4.40. Now NT is trading at $26.

Asset Allocation - According to Capgemini/Merrill Lynch, the world's wealthiest people (the 85,400 people with more than $30 million in financial assets), have 30% in equities, 21% in fixed income, 20% in alternative investments, 16% in real estate and 13% in cash/deposits.

Yield of TSE 1.7% "With trusts included, the index [TSX composite] has an indicated yield of 2.4%. Take away the trusts, and the market yield is 1.7% - close to the yield of of a year ago, as well as that of five years ago, and slightly below that of 10 years ago. This steady dividend return shows the market has been highly valued over the past decade, because a market yield below 2% is in the historica low range - the range that is found at market tops." Carlyle Dunbar, Investment Executive December 2006.
Canadian Investment Guide - I receive a lot of junk in the mail from financial organizations. The latest is the 2007 Canadian Investment Guide. Looking quickly through the ads, not the columns, I did not notice any ads by non-mutual fund firms, except maybe for CIBC ad for principal protected notes, another rip. I conclude, therefore, that the publication is not worth reading. Mostly likely, the information will not be objective. I do not plan on reading anything in the magazine. If you advisor gives you a copy next year, you have the wrong advisor. I'd get rid of him/her, forthwith.
As I was walking to re-cycle the 2007 Canadian Investment Guide, I saw a column on wraps and glanced at it. They think wraps are good. I knew they would, just from the ads in the publication. Wraps (professionals lumping funds together) mean your planner does less work for you and charges more.

December 2 2006 - In our list this week I'm noticing that the four electrical utilities are again and still at the bottom of a list sorted by difference from the own average yield, and the difference for all four of these electricals is now more than 100 basis points. (Atco is close behind at - 72 basis points. TransCanada is - 89.
Since June, these stocks have risen about
2.57% Cdn Utilities up $7 near high of $ $47.37
2.68% Fortis up $7 near high of $28.74
1.76% ACO.X up $7 near high of $47.29
3.94% Emera up $5 near high of $22.65
3.86% Transalta up $3 near high of $ 26.91
When you find stock spiking up to new highs like this, you might consider selling. There are, of course, caveatsIt's certainly not automatic. I would not sell if I bought the common stock years ago, and with dividend growth, the stock now has a fine yield on cost. Also, most of the stocks in our list are in the financial sector. It's good to have some diversification. I'd be inclined to hold an electrical utility for this reason too. There could be more steam in this price rally. Imagine. There are people out there that think these stocks are good buys at these prices. That's scary. They couldn't be right, could they? Why would one buy an electrical utility at two and a half percent yield, when, with similar yield, you can get much better dividend growth...with a bank, for instance? Why would you buy an electrical utility, or any stock, for that matter, with poor dividend growth. We learned that lesson years ago: no dividend growth, no capital growth...unless there's excitement generated by some event. If you've held TransAlata for the last decade you know what I mean. All you get is the yield if there's no dividend growth.
TOP OF THE LIST as of December 3rd
With the recent price drop of some $4 and another dividend increase, the common which was #4 (counting MBT) in my list last issue is now #1 (if we ignore BCE and MBT) with a difference in yield of (3.77-3.13) = +.64. Sun is right up there too at +.47 yield difference.. As an aside, Loblaw has a difference in yield of +.82, quite large considering L's yield is only 1.76%.

In order of G%D as of December 10 2006: LB at +1, Empire at -12 (Sobeys +6), BCE -16, Emera at -20 G%D, Sun -23 Power at -24, BMO at -27 and NA at -28G%D. The average G%D the week of December 10 2006 is -31.
At -51G%D Reitman's is very high.
JAMES GRANT - James Grant's Forbes column was about David J. Winters, a value investor. I like reading about value investors. Here's a thought fromGrant's November 13 column (The Fat, Slow Pitch): the future is a closed book...nobody and forecast stock prices...arm youself with a margin of safety. "The less you pay for an investment, the less you have to fear from the unfathomable future."
"For Winters, as for all value seekers, cash is the default investment. It's what you own until something better comes along." Wintergreen, Winters' new fund, has a 25% cash cushion. www.forbes.com/grant

BMO dividend increase from .62 to .65 on February 27 2007 up 4.8%.
I made the announcement of this increase to Louise and we went to the laundry room where she keeps a list of her holdings on a tack board. We change the dividend and divided the new annual dividend of $2.60 per share by our purchase price of $13.80 in 1987. Her Bank of Montreal's yield is now 18.8%. Without a doubt, it was worth the wait. That's just the yield. BMO is now trading for close to $69, so there's quite a gain too. Her February BMO dividend deposit will be up $45 ( three cents times 1,500 shares.) I suggested $45 would be enough to take her favourite financial advisor to Casa Dominica for lunch. Casa Dominica is across Market Square from us, and from the rink which was just flooded, here in downtown Kingston. We go to Chez Piggy and Chien Noir most often, but Casa Dominica is fine too. Upstream, which used to be in our building here on lower Clarance Street, was a great restaurant great for fish, but now it's Kingston's marina office.
I am not the least bit concerned that Louise holds only shares in one bank and that she has so many shares in the same bank. I would not advise anyone to do the same thing, however. Conventional wisdom would recommend a number of shares in different companies for a $100,000 holding. I'm not conventional. I know that dividend growth shares, bought at a fair price, are safe. Most people think shares are ricky. None dividend-paying shares are unsafe. Ours are fine.
BMO's current yield is high historically. Would I buy more BMO at current prices? BMO is up from below $60 in June but down some $3 on the week We are not thinking of buying more BMO, but at 3.78% and with an improving dividend growth record, BMO is tempting. That yield should keep the price from falling too far and the demand from former income trust junkies will help firm the price too. Say BMO fell to $60 again...just surmise, for a minute. Then the yield would be 2.60 / 60 = 4.3%. That yield on a major bank would be very tempting to investors. BMO's G%D is -28 as of December 1 2006.
I would never have dreamed that the 400 Bank of Montreal common shares we bought in 1987 would ever be worth over $100,000 or that, with dividend growth, the annual dividend cheques would some day be worth one fifth of the price we paid for the shares. These examples should keep us from wavering of the dividend growth track, or as Jarislowsky says in The Investment Zoo "stick to the highway of investing in well-performing stocks."
100% stocks - In my December 2005 issue, I commented on Jarislowsky's belief that one should be 100% in common stocks, no bonds (page 590). This BMO example is more proof of that wisdom. Our portfolios are full of examples like BMO. Over the years, I mentioned many of them. Fortis, for instance, was on the front page of my last report. With results like this, why would one ever consider a bond...especially when interest rates are low. If interest rates rise, what happens to bond prices? They go down.
One more thought along this line: say you did err and ended up with a stock that did not perform well. Any loss would be more than made up by all the winners.
CAPITAL GROWTH - BMO's results show another important point. With dividend growth, there's capital growth. We paid $13.81 for our BMO. It's worth tens of thousands more now. In comparison, the dividends generated by BMO pale. With this thought in mind, think of a common stock with low yield stock, but one with a great dividend record. Maybe we can stoop down to lower yields and still get spectacular results. More on this in 2007.
National Bank also increased its dividend this week from 50 cents to .54 or 8% to take effect on February 1 2007

TRANSALTA - You might have noticed a wee item about TransAlta on the top of page 20 of Thursday's Report on Business, the 30th of November 2006. "Desjardins raises TransAlta to buy" was the headline. Desjardins have raised their target price to $28.25 from $25. They had to, I reckon...TA is trading above $25. Also, the December 1st Investment Planning Guide from the Investment Reporter had TransAlta in their list of six Best buys for income yellow sheet.
We still have some TransAlta and I'm hoping to sell our TA into any good news. TA has a good yield, but no decent dividend growth in the last decade. I'd like better dividend growth and will drop to a lower initial yield to get it...without hesitation. Now it is a question of guessing how high TA will go. I looked at a two year price chart of TA earlier this morning...maybe another dollar. More than that and TA is into new high territory. Higher prices are quite possible, as long as this quest for yield by investors continues. But buying TA at these levels at Desjardins recommends: I think not, though the Desjardins item made TA sound good. What else would Desjardins say, if they were recommending purchase. I'll enter a sell order for TA before we leave for the Dordogne.
I'll probably take TA out of my list in 2007. We are keeping two electrical utilities in our portfolio for diversification value and because the yields alone of the two we are keeping are now higher than the average annual return of the TSE over the last 25 years. On one electrical utility we are beating the market by just holding. I love it: what a terrific strategy dividend growth investing is.
I finally found my book review of Lowell Miller's first book Creating Wealth with Dividend Growth in my August 2001 issue...the month our daughter married her Gary in the back yard of our century home in Cobourg. As soon as she left, we sold our home of 32 years and moved here to downtown Kingston.
"It [dividend growth investing]is the easy path and the sure path in the stock market", Lowell Miller says, "one that requires patience more than it requires cleverness." I'll report on Miller revised edition of Creating Wealth with Dividend Growth after we are back from Bordeaux and St Emilion, Sarlat and Cahours (for the wine), Lascaux and Les Eyzies...the Dordogne...Perigueux.

November 27th comment: I'm back from two marvaleous days at the cottage where my big thrill was watching seven otters enjoy life: 'what a wonderful noice' they make. Now I have to face 70 requests for sample copies of my report as a result of John Heinzl's column. I dislike saying no to all those keen people, but I do not plan to expand my list. I value our time at the cottages too much.
The average of our list is down to 3.10%. (Dec 2nd 3.10% too) Only eight stocks (not counting MBT and BCE) are in the top portion of the list. Four electrics are on the bottom with a negative yield difference of more than one percent from their own average, give or take a few basis points. I plan to drop one or two electrical utilities from my list. What to add is the problem...
Reitman's dividend is up from .56 to .64 or 14.3% (or in yield terms: from 2.53 to 2.89).
Sun, although it's price has risen, is still only -19G%D. Quick Test: what's the approximate average G%D of our list? You need to know that to make a judgement on an unfamiliar common. In my October report, the G%D was -26. Now it's -30: the market is not getting cheaper. Back to writing thank you notes for your renewals and enclosing the dividend data.
David Dreman in the November 27 issue of Forbes said "My bet is that we are in a solid rally that could gain steam as 2007 progesses. But there will be speed bumps along the way." I respect Dreman's opinion. I also respect Hussman's position stated just below. You put up your money and take your chances...no one really know for sure. Here's the way Stephen Jarislowski put it in a speech he gave in 1986: "...something you can never do in the stock market: predict what the animal [stock market] is going to do on a short or medium term time hozizon. You can't do that."
On the way to the cottage this weekend, I listened again to my tape of a speech Stephen Jarislowski's gave in 1986. Some of you people kindly say I keep you on track. Well, Jarislowsky keeps me on track. Here another sentence I wrote down from the tape...after stopping in Harrowsmith to do so. I no longer write while I drive. "Anyone who listens to his broker...is doomed to make less money than the averages."
Eric Sprott - "We still believe we are in a secular bear market" November 23 2006. Mr Sprott's firm, Sprott's Asset Management, manages $4-billion. I agree with Sprott. He's worried about bank loans to hedge funds: me too. At current yield levels, bank common shares are tempting considering their stellar record of dividend growth. But I'm not buying banks. I'm waiting.

Relative Performance - Fund managers work on a relative performance basis. If at the end of some period of time, their benchmark (some index, say the TSE) is down 15% and their fund is down only 12%...even though their clients actually lost, notice...they are considered good managers and will keep their job and/or pick up a bonus, because, relative to the benchmark, they performed better. That's relative performance. We, in contrast, practice absolute performance.
There is no motivation in the system for the manager to make money for the client. What a world, eh! LESSON: we must learn to invest ourselves. Before the funds came along in the 1960s, remember, most people did invest themselves.
RAMIFICATIONS: If I am a fund manager and have to at least stay even with my benchmarks to keep my job, I must buy what other managers are buying...the popular stocks. If they sell, I must sell...regardless of price.
Think about this in relation to two stocks: T and L. Telus is the popular telecom right now (fall of 2006) and not going to convert to a trust. BCE is not a popular telecom. In contrast, Loblaw is not popular, Metro is. Which. of Telus or Loblaw, would appeal to value investors?
I got these ideas listening to a 2003 tape, on the way back from the cottage, of a speech by Richard Geist, PhD. Geist is a financial advisor and therapist connected to both Harvard and Institute of Psycholgy and Investing.

YIELD of our LIST - Compare the November 18 2006 yield of our list is 3.14% to the data on the chart on the front page of my June 2004 issue. The yield has never been lower since 1998. A few more comments are just below at ***

If you are thinking of buying a stock, consider this comment from Dr. John Hussman who runs Hussman Funds: "valuations are sufficiently high that we can already conclude that total returns on the S & P 500 over the coming five to seven years will probably fall short of Treasury bill yields." (Via Richard Russell October 16 2006). Read Hussman's comment again. Is Hussman saying a flat market at best?

PARKING MONEY - If you are going South, where do you park money?
I recently opened an accout at Citizen's Bank in Vancouver. Their rate is much higher than the rates at normal banks. It's kind of like an ING account, but at a Canadian bank so the profits stay in Canada. I'll withdraw Euros from that account in Sarlat, France on Saturday mornings in December...market day. If the withdrawal does not work, my cousin will be buying lunch and getting nothing for Christmas:-)
Would you park money in BCE at $27 plus? The November 17 2006 issue of The Investment Reporter says "Keep buying BCE Inc. $27.80"
I parked some in SLF at $45 a few weeks ago, but the now $50 is steep!
What about Loblaw? I'm thinking about parking in Loblaw, but I already have a lot of it. L is value priced.
I'm having trouble going back into K (Kinross gold) at current prices, as I sold at these levels a few months ago.
Are there no good places to park funds? Hussman's comparison was with Treasury bills...maybe Treasury bills then.
If Hussman's comment is not enough to slow down buying thoughts, here's another similar thought from Steve Cohen (according to Richard Russell, one of the most successful hedge fund managers).
"There are no more easy pickings...We are entering a new environment. The days of big returns are gone."
One reason for this, according to Cohen, is the almost frenzied operations of 7,000 hedge funds, all competing with each other.
I'm told you can buy a money market fund with a constant $10 price through a discount brokerage account, that the MER is low and the return is not bad...presently 3.75%. I've never tried to do this and don't plan to do it.

After seeing John Heinzl's column, an A1 associate e-mailed to say that she has held Fortis and Canadian Utilities since 1988. She invested $42,500 in the two with, at the time, a 7% dividend of $3,000. The value now would be $210,860, if she had not sold 1000 shares of Fortis over the last few years to give to charity. That's a 19% CAR. Dividends would now be $5,663. or 13% on her original investment.
That's a long time to hold: is it worth it? Do you have the patience? If her dividend just remains steady from now on, and regardless of what the stock price does, the 13% yield will best the average annual return on the S&P 500 since 1926. Just by holding, she will beat the market. If the dividend continues to rise, or if the price does, she beats the market by even more. Buy a good dividend-growing stock and HOLD. Don't waiver.

Many 52 week highs - The week ended November 17 2006 produced at least six new high prices from my list.The six I noticed were: TD and RY; Power Fin and Great West Life; ManuLife and Fortis to $28.50.
Also at new 52 week highs, I noticed, were: TOC, Leons (up $3.25), Metro, SZ $8.75 and SC to $51.05.
Message: IT IS NOT A GOOD TIME TO BUY STOCKS.
Other evidence: There are now only 8 stocks in the top of our list sorted by their own yield difference, not counting BCE and MBT. The positions at the top of the list, however, have not really changed too much since last issue. POW and NA have moved down a little, RY up a bit.
*** Other evidence that it's not a good time to buy: the yield of our list is down to 3.13% Look back to the yield chart of the list on the front page of my August 2005 issue. Three point one four will not fit on that graph. It's below the low yields of early 2004. Yields don't lie, do they? The composition of the list has changed since then, but not by that much. I'm thinking of dropping three from the list in the new year, and adding three new ones. Our list is quite concentrated in the financial sector. These changes will not alter the financial sector tilt: I'm removing utilities with poor dividend growth and adding consumer retail and ...

BA.UN - I've been thinking about our 500 units of Bell Aliant Regional Communications Income Trust which used to be shares in Aliant. I did not get it sold by Trust Wreck day, October 31 2006.
We bought our original shares as MT&T in September 1995 (TCR April 2000 page 453). We sold enough shares into the tech-telcom bubble at $41.05 in April of 2000 to get our money back. In the back of my mind, as we sold, I had our daughter's wedding in the back yard of our former home in Cobourg the next August.
I kept the rest of the MT&T because our yield on cost was 6.9%. With subsequent dividend increases, it reached 10.7% Our Aliant, and now BA.UN, owes us nothing. As I key this on November 19 2006, BA.UN's price is $27.60. That's down some five dollars since trust wreck day. So what! We can't lose: we already have our money back. The distribution will be $2.74. Hence, next year we will receive $1,370 from it. That's not bad from a 'no-cost' investment. It's free money, in a way. This income, however,might not be taxed as favourably as the dividend from Aliant would have been, and I'll have to look into that. Or maybe it will and Bell Aliant Regional communications Trust will be taxed first. Maybe we'll hold BA.UN for a while. It seems to have bottomed out. The good trusts, will after all, survive.
I used sell shares when their price had about doubled to 'get our money back' and re-invest in another dividend grower. Now that I am completely convinced of the strategy, I just hold. I consider selling only if there is a bubble...like what happened to BCE and Telus after their trust conversion announcement. Or to Nortel in August of 2000 (I have those three sell orders framed), or to TransAlta during the California energy crisis a few years ago.
The market is largely emotional. If people get excited about something, we, who can control our emotions, might as well take advantage. Right now I'm hoping something will trigger a market fall. There has not really been a correction of over 10% in over three years. It's due. Then we can get better prices. I have money to invest: I'm waiting. Well except...maybe... for one stock. The yield of our list is falling, though.

DIVIDEND GROWTH INVESTING - You might wish to look for John Heinzl's column in the Report on Business of November 18th. Mr. Heinzl and I discussed dividend growth yesterday (November 16th) at length. He could mention my efforts.
He did, and on the front page of the Report on Business, no less. How exciting for yours truly. I must write a thank you note to Mr. Heinzl. Mum said we should sent a note when people do nice things for us. She grew up on Elm Avenue just north of Bloor Street. Sometimes an e-mail is just not enough.
Good manners are important. I used to bring an old tin pie plate and a knife and fork to class now and then. I'd place it in front of one of my Accounting students, tell him or her dinner had just been finished, and ask them to show us how your knife and fork should be left. The odd time a student would question the relationship between income statements and dinner plates. I'd say, "You are only going to need to know how to eat properly maybe thrice in your life." One could be a luncheon interview with the C.A. firm you'd really like to work for. We had fun discussing what the other two occasions were. Meeting 'her' or 'his' parents for the first time, was often mentioned. As an aside: Louise remembers I used the front door the first time I brought her to our home on Glengowan Road in north Toronto in the early 1960s.
My method of selecting students was different. I had all their names on a card. I'd shuffle the cards and draw a name. The unlucky one, got the tin plate with the knife and fork. To check balance sheet assignments, I'd draw five names. It saved me time and kept them on their toes: they'd never know who would be checked. Every now and then,our daugher's name, or that of our son (in a Law class of mine nine years later), wouldbe drawn. My...the class enjoyed that.

GIF guaranteed income fund - Perhaps you've noticed ads for GIFs. The ads play on fear, and the product claims to lower risk to retirement income. GIFs are very expensive. In a letter to the editor of Investment Executive in November 2006, one financial planner quoted a figure of 3.71% for the MER. That's per year, as in annually, I understand. WOW! Paul Partridge, product director, segregated funds at Manulife Investments, confirms this figure and defends it by saying: "That MER includes the guarantee costs associated with the maturity and death benefits available within that contract." That make me feel better. You?

Corby has announced a special dividend of $1.50 a share. That's why CDL.A's price rose a couple of dollars on November 13th 2006. Some of you will remember, and perhaps you did the same, I was buying CDL.A back in 2000 when it was reasonably price in the $45 ($11.25 split adjusted) range. I sold my own shares after the price rose significantly as Corby has not been noted for providing regular dividend increases. However, I kept the shares in an account I run for a person who needs the income and can't touch capital because Corby pays extra dividends every now and then. For this account we purchased 500 shares, also in August of 2000. Corby split 4:1 in February of 2006 so now there are 2000 shares getting the special extra dividend of $1.50 a share: total $3,000. Not a bad little bonus. And, since 2001, the price has more than doubled. I don't even drink any of their products and it's quite a product list. But Corby does not grow its dividend regularly, so CDL.A is not in my list. Dividends: in 2003 = .50; 2004 = 51.25; 2005 = .55; 2006 split adjusted: 3 payments at .1375 + one at .14 = 55 cents...no increase in 2006.

Dividend Increases - Here's a thought on dividend increases from The Single Best Investment - Creating Wealth with Dividend Growth by Lowell Miller...revised edition. I'm reading Miller's book again on the plane to France in December. Coming back I read the latest Economist.
"an investor can mark up the valuation of a company that increases its dividend because in a world characterized by everlasting tension between promise and certainty, at a minimum, the certainty side of the equation has been strengthened." 224

Dividend Stars: You might have noticed Rob Carrick's 'portfolio strategy' column in the Report on Business of Saturday November 11 ('Dividend stars: How to make up up for the trust tax'). If so, you could tell that Rob has been reading my report for years. He's learned well. He had lists of dividend stars selected by a Thomson Financial analyst based on five criteria: yield above 1.3%, a strong record of dividend growth, more than one dividend increase in the last five years, a reasonable payout ratio and solid earnings growth (average annual increases of at least 10 per cent over the past five years). Carrick's main list was in order of yield, another list was in order of difference from five year average yield. His lists churned up four common stocks that were not in my secondary list either: Husky Energy, CHC Helicopter, Tech Cominco, Ensign Energy Services. My next questions was: are these four expensive by Graham? I looked up the book value and earnings for the last three years at my Scotia Discount brokerage site under their FP DATA and computed the Graham value. (Graham's price is the square root of (three years trailing earnings per share times book value times 22.5)) Then I compared it to the current price. HSE -52% G%D, FLY.A -24%, TCK.B -52%, ESI -46% (Home Capital was -62 G%D). Next question: are they cyclical? Jarislowsky does not like cyclicals. What about consistancy of the dividend going back 10 years at least? I have not done that yet, and might not: these commons are too high by G%D and cyclical. I'm still looking for some diversification in my list.
I'm not buying any common stocks or even thinking of buying anything. November 15 2006 (Refer to the Tweedy Browne item just below)

Here's a book report on Building Wealth with Dividend Stocks by Joseph Tigue. Chaper 5 is particularly good and worth the $34 price if you only read that chapter. I've added more to my preliminary book report below too.
Here's a paragraph from the page opposite a table of over 100 stocks which have raised their dividend each year for the last decade...eight of these were Canadian and all are in my list, except Metro Inc:
"Many of these stocks now provide above-average yields on their 1995 prices. Assuming there are no dividend cuts, with just the dividends from these issues, the returns on the stocks over 10 years will outpace the average annual total return of 11.9 percent that Standard and Poor's has posted since 1926. If price appreciation were factored in, the returns are juicy indeed."
Did Tigue say the yields are over 12% after 10 years of growing dividends? Yep! I'm not the only one who believes in YOC (yield on cost). Tigue had a terrific example in Chapter 5 (page 65) about this too. You've seen Cintas trucks around town delivering uniforms to firms and replacing entrance mats. It's asimple but profitable cocept. Cintas increased its dividend at a rate of 27% compounded annually from 1983 to 2005. The yield went from .6 percent to 34%. And, of course, as we know as the dividend rose, so did the price: it gained 4,631% from 93 cents in 1983 (adjusted for splits) to $44 in early 2005.
OLIVE OIL
"olive oil is superior to other monounsaturated fats"
"olive oil contains lots of polyphenols, plant substances that appear to protect the heart"
"virgin olive oil has much higher amounts of polyphenals"
Paul Taylor, Globe and Mail, November 2006

the housing correction - "I believe that the key to both the economy and the stock market in the coming months", Richard Russell wrote on October 6, "is the developing housing correction. The consensus view seems to be that housing is heading for a soft landing. Whether or not this is to be the fate of housing will determine the action fo both the stock market and the bond market over coming months."

If you are thinking of buying stock, read John Heinzl's column in the Report on Business of Wednesday November 8. It's a terrific column about the value investing firm Tweedy Browne. They manage $13 billion. They scour the world looking for value. There is nothing in Canada they like given the huge run in our market the past several years. 'Nough said.

The stock which was #11 in my October report, announced a dividend increase last week...in total, the dividend was up 33% in 2006. Its yield has only been as high twice before: in May of 2005 and November 2003. Refer to the yield chart on the bottom right side of the front page of my August 2005 report. On the right side of that chart pencil in a vertical line 1 and 1/2 cm straight up from the last plot. Study the result. Then do a price chart. Consider.
Last December the price of this stock was $34. Is 'its' price up 33% yet like the dividend is? Do you believe that as the dividend rises, so does the price? Would you buy at the current price? If not, at what price? What about the the Tweedy Browne view above.

According to Richard Russell on November 6 2006, "The M-2 money supply over the last 52-weeks has been rising at a 4.5% annualized rate. But what's this? Over the last six weeks M-2 was up $90 billion or at a 7.8% annualized rate. Why the speed-up? Could it be that the Fed is worried about the deteriorating housing picture?" This liquidity, in my view, is supporting the stock market.

Pension Income Splitting - If you receive pension income and your resident spouse or common law partner does not, Flaherty's new rules allowing older Canadians to split pension income beginning in 2007 will a windfall worth a thousand dollars, or more, or less, depending upon a couple of variables. Be certain to look into it. Up to one half of the eligible pension income can be allocated to the lower income person. There is, of course, an interesting definition of eligible pension income and what qualifies is much more restricted if you are under age 65. If you are over 65, income from a registered pension plan (RPP) qualifies, and also RRIF, RRSP, DPSP and lifetime annuity payments.
The government is also raising the age credit by $1,000. Appease us seniors, eh!
Dividend investors will get the best of both worlds: the new tax benefits and no losses from income trusts. Life is good!

Building Wealth with Dividend Stocks by Joseph Tigue - I've started to read this American book because Tigue worked for Standard & Poors for decades: they have the data...the proof that dividend investing works. (The book is 150 pages with that many pages again in Appendix...great S & P data, but it's all American.)
Here are lines from pages 8 and 9:
"Dividend payers fluctuate less because, when stock prices are falling investors have a monetary incentive to hang onto them."
"In the past 75 years, there have been ten year periods where dividend have provided the only return for the S&P 500." Think about that for a minute. Hopefully, later in the book, these periods will be detailed.
"If you hold a dividend-paying stock for a certain number of years - particularly one that boosts its payout regularly - you dividend could eventually cover what you paid for the shares."
I up to about page 60 now. It's not a bad book for novices, actually...but for the American examples. Chapter 7 has a page on 'yield on cost' and is worth the price of the book: $34. If you understand this and believe in it as I do, you'll be richer by thousands upon your retirement because you will have purchased dividend growth stocks.
The first page of Chapter 3 will save you from a costly mistake and it's worth the price of the book again to learn this lesson: "the worst way to come up with a list of candidates" to provide you income is to "start and end the search by looking for the highest-yielding issues."p 29

Shopping List: I am not active in the stock market. On most days, I don't even think about it. Newsworld's financial news is on at the same time as As it Happens on CBC radio. I've listened to AIH since its beginnings in the1970s.
However, there was a wee window of opportunity for buying just after you received my October report...lucky that report was early, eh. I always keep a little list of stocks I'd like to buy with an approximate price pencilled in along side. SLF was on my little list in late October. When SLF's price dropped...past tense, notice...I bought more Sun Life. I bought more than I planned too: I used SLF as a parking spot too. Because investors began switching to our stocks from income trusts after October 31, our stocks are no longer reasonably priced. Hope for a major correction. There really has not been a correction in three years. Make a little list: have it ready. Pounce when you think the price is fair.
After looking at my portfolio on each monthly statement, I write, right on the statement, a little note about what I plan to do next...and why. It's amazing how those thoughts change with time.

BCE - I might park (tempory investment only) funds again in BCE, but I'm in no rush. Investors often overreact to events and BCE might will go below $27 again. If it does not go lower, I won't buy BCE back. Remember to check dividend payment dates. My 2006 dividend payment table comes with your renewal and the six year dividend growth summary table too. If you forgot to renew last year, $50 will do it for 2007. I have kept ten spots for people in this category...the other 20 have been replaced by new people. It happens every year.
The Investment Reporter's issue of October 27 2006 specifically recommended buying BCE and Telus (page 339). I bet they wish now they could eat those words. With the big price jump on the trust conversion news of both Telus and BCE, I took the opposite tack, by saying in my October issue "a chance to get out, if there ever was one." this statement was three lines under my headline: "Telecoms - fundamentally lower levels of earnings than we've seen historically". I don't think the Investment Reporter people read Jarislowsky's The Investment Zoo.

Dividend paying stocks - There will be more demand for 'our' stocks going forward because the income trust craze has ended. This will make them safer for us, but harder to obtain at good prices.

Selling - While selling, a rare event for me, I often enter a price slightly above market. After the experience of late October, I might no longer quibble over a few pennies. "If you have decide to sell", Tom, "sell." You never know what will happen tomorrow.

I am interested in the common stocks which were selected by investors in the few days after the October 31 2006 Income Trust 'announcement' by Minister Flaherty: The banks were up the most: a couple of dollars each, as were TRP and ENB. Most of the rest were up a dollar or so: SLF $1.78, ManuL 1.57, PWF 1.39, GWO 1.34, Power 1.15.
As might be expected, IGM Financial was down a quarter, TA was down 30 cents, CU up a dime, Fortis up, Emera up 4 cents, but Atco down a quarter. Empire was down $2.15 and MBT -.48

"Our latest Big Money poll has a decidedly bullish tilt: more than a third of the money managers surveyed expect the Dow industrials to reach 13,000 by mid-2007." Barron's front page headline November 6 2006. My thought: does this headline say two thirds of money managers don't? The Dow Industrial index fell back below 12,000 this week. We'll see.

Income Trusts - According to Jonathan Chevreau writing in the Financial Post of October 30 2006, Blackmont Capital has produced a report with the title Eyes Wide Shut: Exit the Party Before More Wolves Unmask. "It finds that from a credit perspective business trusts are riskier than high-yield bonds. The number of 'fallen angels' has been steadily rising and 'half of business trusts will become fallen angels in [the] next two years.' "

http://www.mhinvest.com/newsbi/index.html
The Single Best Investment - Creating Wealth with Dividend Growth by Lowel Miller ISBN - 13:978-0-9651750-8-1
second edition - revised and updated in 2006 - hard cover $38 Cdn. Try to buy it for $28 U.S. and see what happens.
"Pay attention. This is a simple idea, but is also the single most important idea for long-term investors. The reason it is so important is that dividend growth drives the compounding principle for individual stocks in a way that is certain and inevitable. It is an authoritative force that compels higher returns regardless of the other factors affecting the stock market."
I like this book and have ordered the second edition from Novel Ideas, our local independent book store. I shall re-read The Single Best Investment - Creating Wealth with Dividend Growth in CDG while waiting for our flight to from CDG to Bordeaux and sipping some Cahours (We like downtown Bordeaux city). I shall make notes and report on it. This book outlines what I do, but with American examples.

Financial Advisors - I'm reading a little brochure which came along with the October 2006 issue of Investment Executive. The information in it is based on a survey done by Advisor Impact. For instance, the average financial advisor who works with Mutual Fund Dealers Association has 365 clients. If they work for the Investment Dealers Association (71%), they have 299 clients. Apparently they spend 12 hours a year with their top 50 clients, a lot fewer with the other 200 poorer clients. The move to wrap accounts and other managed products helps advisors streamline their processes. Apparently, given the data, clients don't seem to be concerned about the additional fees, the brochure says. MY THOUGHT: I bet the clients don't know there are additional fees with wrap accounts and other managed products. If your advisor is touting a wrap account it means he will do less work and you will pay more. Good deal, eh! A wrap account is where they bundle a bunch of funds together and have it all managed professionally. Sovereign by Russell is an example of a wrap.
Were they not supposed to be professionally managed in the first place? I remember the days when people bought just one fund and were sufficently diversified. But when the downturn came in 1973, fund values plummeted and did not really recover until 1982. That got me thinking of dividend stocks and the security they offer...then dividend growth and the Connolly Report got started. My dad was my first subscriber, then Sue, Louise's good friend and soon colleagues where I taught business signed up. Eleven of those people are still with me. They are my most precious subscribers: they knew me and had faith in what I was doing. My dad died in 1982. Dad helped me buy my first stock: TransCanada Pipelines...the IPO in 1958, as I remember. TRP did not pay a dividend in those first few years. TRP dividends began in 1964...so did my career teaching Business and my marriage with Louise.

Food Retail - I'm working on the 2006 dividend data sheet I send out along with my acknowledgement of your renewal. I noticed that there was not much in the way of dividend increases from the retail food group this year. None at all from Loblaw, a 7.1% increase from Empire and Sobey's and 5% from Metro. I also noticed that expected earnings from Loblaw for next year, from one source anyway (no 's'), was up by a fair bit. Let's hope the worst is over.

12,000 Dow - Derek DeCloet's column in the Report on Business of Saturday October 21 2006 talked abou the Dow Jones Industrial average closing above 12,000 for the first time ever. He stated that the Dow was up 590% from October 19 1987 or 10.7% compounded annually. DeCloet went on to outline which stocks in the Dow did best over that period (Microsoft) and the ones which did not do as well.
I thought of this Dow 12,000 milestone a different way. The Dow has just reached a new high for the first time since its peak just before the Tech bubble burst in early 2000. In essence then, the Dow has gone sidewards* since 2000. In my out loud voice I say to myself, Thomas: "I'm glad I don't own any Dow stocks and I'm glad that I'm not into index investing. My dividend growth stocks have done very well since 2000."
The 12,000 Dow can be thought of this way too. Back in 2000, the U.S. dollar was worth a lot more. To reach a new high in dollar terms, according to computations in Richard Russell's recent daily, the Dow would have to be above 15,000. In terms of gold, which was priced at $330 in 2000, the Dow should be at 23,450 with gold now up to $600. It's all a matter of perspective, eh! The Dow at 12,000 is no big deal. It it a bull market?
Interestingly, the Dow industrials new high had not been confirmed by the Dow Transports. That's not good according to the Dow Theory. The basic logic of the Dow Theory is simple: the industrials make the goods, the transports, UPS, for instance, deliver them.
The Dow, remember, is price weighted. Most other indexes, the S&P 500, for instance, are market cap weighted. If the Dow was market cap weighted, and dividends were excluded, the Dow would be down some 13% since 2000. Only ten of the 30 stocks in the Dow are above highs reached in 2000. Most of the remaining 20 are down significantly. The S&P 500 is only up 6% from where is was in early 2000. Talk about a sidewards* market. Are you not glad we are into dividend growth common stocks. Since 2000, we have done marvellously. Stay the course. Hold.. Do not get nervous...regardless of what happens. We are well positioned to weather any storm.
* I had some comments and a graph about a sidewards market on the front page of my February 2003 report.

* * * * * * * * * *

I'm working on yield charts for my August issue which went to the printer Monday August 21. The stock which was #8 in my list last time, is looking even better this time, partly because of the recent dividend increase from .275 to .30. This common's yield chart will be on the front page. Unfortunately it went up by some $2 on August 14 and 15.

As of July 21 2006 these stocks had yields higher than their yields in my last report: Empire, Metro, Loblaw, Sobey, Weston and IGM, Fortis and BCE.

As of July 9 2006, on average, the stocks in our list have fallen 11.8% from their high price in the last six months and have recovered, since their low in the last month or so by 7%.
The stocks that have recovered the most in price in the last few weeks are: MFC -1.4%, GWO -2.4%, ENB -2.5%, TA-2.6??% and Atco -3.7%.
The commons which are still down in price are, in order: LB -20%, TD -15%, IGM -11.6%, AIT -11.1% and CU -10%.
The rest are in between. For instance, Power was down 15.6%, is now up 7.7%, so POW is still down 7.9% from its high.

"The S&P 500 has underperformed the total return on lowly 3-month Treasury bills for what is now more than 8 years, earning average annual total returns of just 3.2% since early-1998." John P Hussmann
Go to http://www.hussmanfunds.com for more along this line. For istance, Hussman thinks the fair value of the S&P 500 is close to 800. Today it's at 1260. Could the S&P 500 lose 36% of its current value?

Not bargain time: "My advice -- If you already have the gold position that you want, my advice is to build up your cash position. Why cash? Cash so that when the stock market declines to the point where great bargains are available, you will have the cash to buy those bargains. My appraisal of the situation is that the current period may be a lot of things, but one thing that it is not is "bargain time." What we need now is patience, a lot of patience." Richard Russell June 19 2006

Percent decline in price: As of June 16th, prices in our list are down, on average, just over 12%. Down the least are Manitoba Telecom 2%, Manu Life F 6%, Empire 6%, Aliant 5%, ENB 8%, BCE and GWO 10%, CIBC 11%, BNS 8% and National Bank 9%.
Down the most are LB 21%, IGM and ATCO 18%, IGM 17%, BMO and TD15%, CU 22%, TransCanada15% and Power, PWF, TA, RY, Emera and SLF 13%. I found room to add a column for this in the table this issue.

Richard Russell May 31 2006 "...certainly the markets of the world have been telling us something. Check out this list of various stock markets and their percentage descents from recent highs. Dubai down 64%, Saudi Arabia down 54%, Egypt down 36%, Russia down 26%, India down 22%, Argentina down 21%, Austria down 19%, Brazil down 17%, Mexico down 15%, South Korea down 12%,Germany down 10%, England down 10%.
In other words, the markets of the world have been deflating. Could the world's economies be next? Deflation? This is a thought that would make Ben Bernanke's hair stand on end. But forgetting his hair, what might Bennie do about it? If even a whiff of deflation comes to the US, you can bet that Bennie and the Feds would spring into action. The action would be in the realm of more liquidity and lower rates." Connolly's thought: Investment advisors and planners have, in recent years, have been recommending foreign securities for diversification. I stuck to our dividend growing Canadian stocks. I'm smiling now:-) Our dividend stocks will be good for inflationary and deflationary periods. I'm relaxed. We bought quality at value prices. There's no need for concern. Don't sell!

31st. In my June report, for the first time since I began my list back in the early 1980s, I'm putting our stocks in order of difference from average yield with the most favourable first...just to try it for an issue. The top part of the list will be similar to the order in paragraph 13 below. (The first few in the list are mentioned in the next paragraph.) It's most interesting. Except for Manitoba Telecom and BCE, our 'old stalwarts' are mostly at the bottom of a list ordered by difference between current and average yield: our old stalwarts are over valued.
BCE and MBT are at the top of both lists: difference in yield above average and in order of yield.
Interestingly, Bank of Montreal is number 3 now in a list sorted by difference above average yield. Why? BMO announced another dividend increase (up 8.2% earlier this year, now up another 17% from .53 to .62 for a total of 26.5% in 2006), so with the price down some $7 from its high of just over $70 in mid-January 2006, and the yield up, BMO's yield difference is 86 basic points. BMO's revised Graham difference, at -20%, is a bit pricy though (I compute BMO's Graham price at close to $50 using a book value of $26.53 and earnings, 2005 first, of $4.74; $4.53 and $3.51).
Next in the list is GMO with a difference above average yield of .62 as of the May 26th close. Great West's G%D, though, is -30%. Number five is Power: there's more on POW below. PWF, Sun Life and BNS follow and are close to half a point in yield above their own average. Next are in order are MFC, ENB and Empire. E. & O. E.

"This market is sicker than most people realize." Richard Russell, May 23 2006

Did I notice that Tim Horton's share price is below its IPO issue price already? I love it. The world is unfolding the way it should:-). MESSAGE: shun hype. If the crowd is going one way, go the other.

At first sight, 'our' stocks held up quite well the week ending May 19 before the long two-four weekend.
Fortis, for instance, was up $ 1.67 and many others up a dime or two. People consider these stock havens. They are safer than those other stocks which don't pay dividends. These common stocks changed by about a dollar the week of May 19th: IGM -$2.65, Weston -1.59, Metro -1.44, MBT -1.32, BAM -1.20, Nat bank -1.11, Sun Life -.93, Aliant -.90 and on the plus side: Fortis +$1.67, Atco +1.45, CU +1.20, MFC +.93, TransAlta +.90. Verify these numbers before you act upon them: I keyed them quickly.
The average yield of the list for the week ending May 19 2006 was 3.30%. There's a way to go yet before 3.60% is reached. Look back to my June 2004 report with its chart of average yield of the list. The 'magic' yield range is 3.76% to 3.84%. If interest rates are rising, our stock prices will have to adjust. So far, they really haven't. I noticed, however, that yield of the utilities and pipelines seemed to have bottomed out last fall.
Remember: stock prices can go down and dividends can go up...for a time. In the long run we have no concern as prices will eventually catch up to increasing dividends.

"Stocks with low P/Es and fat, well-protected dividends are a major plus when the market heads south."
Richard Russell May 19 2006

"... rejoice when markets decline."
May 13th: Finally! I've been waiting for a 'price adjustment' for years and holding cash in anticipation. The excitement seems to have started. Remember what Warren Buffett said in his 1997 Letter to Shareholders: If you have money to invest, "...rejoice when prices decline." It will allow you "to deploy funds more advantageously". YES!
I was wondering what I would write about in June. Now I have the topic...the answers, though, will be more difficult. There will be more updated yield charts, for sure, to help you make decisions. Is this return to the ground The Economist mentioned on page85 of their May 13th issue in a column called 'The fear gauge'?

13. I have updated all my Graham value numbers and the new data will be in my June report. The G%D (with 2005, 2004 and 2003 earnings and 2005 book values) for common stocks in our list with a favourable difference between current yield and average yield, sorted by difference from average yield (most favourable first, as of May 12) are: MBT -20%, BCE -9, GWO -30, Loblaw -29, Power -10, PWF -30, SLF -14, MFC -31, BMO -11, BNS -23, ENB -31, RY -22, CM -28, NA -12 (e. & o.e.) If you compare these revised G%D's with those in my last report, you will notice that some of these G%D's are significantly different.
Sun Life, Power Corp, IGM and BMO have significantly improved Graham differences.
Next step: take these four and work out the difference between their current yields and their average yield...the bigger the positive difference the better. Look back in past reports for the yield graph of each. Pencil point in the current yield.
I'd look at the price graph of each on the net too. SLF, for instance is down $5 since the end of March.
At $44.75, SLF has a yield of 2.46% with their $1.10 dividend.
IGM's G%D is -29%. It that still too dear?
BMO's G%D at -11% is much more realistic. BMO's yield is 2.12/61= 3.48% and it's down $9.00 since the end of March.
Power: G%D of -10 and currently above its yield average by over 60 basic points.

Price changes for week ending May 12 2006 - a ray of hope for better prices. Done quickly: E.& O.E
BMO -.93, BNS -2.00, CM -1.13, LB -1.17, NA -.13, RY -1.56, TD -1.25
GWO -1.12, IAG -.64, MFC -.32, SLF -.21
Empire -2.79, L -.87, Metro -.44 Sobey -.59
AIT -.48, BCE -.32, MBT +.82, Telus -1.46
Atco +.89, CU +1.13, Emera -.24, Fortis -.34, TA +.44
ENB -.79, TRP -.49
IGM -2.60, Power -.97, PWF -1.35
BAM.LVA -1.18
With recent dividend increases, and the recent 'price adjustment', a couple of stocks are now at a 'many year' high yield. The one that was underlined in my last report, for instance, in the table of page 598...right side. This stock was featured in my October 2005 report where its yield chart can be found. It's yield is now 2.61%, if my calculations are correct and its G%D is only minus 10. Two of its cousins also have high yields relative to their average: one was fourth on that list on page 598, the other has moved up from a .09 difference to a .52 difference. The rest in the list are about in the same order a month on: MBT and BCE still on top.
I can't wait to see what happens. It's so much fun investing. Will this $30, give or take two bits or so either way, be the bottom price for this stock because its yield is now higher than it has been in at least five years (October 2005 report...inside, left side. Plot 2.6% on the chart)? We will not know for some time, but if it is the low price, one should buy now. Will worse things be coming down the chute in the months to come that will drive this stock's price lower? That's the question. Or, put another way: will the yields on our common stocks be higher in the future? I'd rather buy this stock when it has a 2.6% yield, than a 1.7% yield, but will it's yield be 2.8% next month? One is never sure, which is why buying in stages, which I mentioned in my April report, is a good idea. And, Thomas, remember not to make forecasts...especially about the future. I love that line: can't remember where I saw it.
GOLD I sold the last of my Kinross gold stock on April 28 2006 for $13.75. K went higher after that, of course. It's good to be kept humble. I plan to buy K back again at $ ?(still thinking on the price...probably between $10 and $11) but we'll see what develops. Fiat currencies are the concern here. In 1971 the Americans effectively went off the gold standard because the French were demanding gold for American dollars. Imagine. Talk about gall (it was in fact, himself: Charles de...smile intended). Oh that we could still do it. Remember when it actually on our Bank of Canada notes that we could convert too.
I am not selling my "premium, high compound growth non-cyclicals". The common stocks Stephen Jarislowsky mentions at the top of page 104 (the sentences committed to memory) in The Investment Zoo, because, as Jarislowsky says there, "it is not really necessary to get out". We hold great stocks, purchased long ago at reasonable prices. Their dividends are solid and growing, and many of our yields are double digits. We'd be foolish to sell. Don't even think about selling even though the road ahead will not be free of bumps. We are well positioned for this stock market wobble. And don't rush. These things take a long time to play out. The scat has just hit the fan...it will take a while to spread out. Among other things, think end of the housing bubble and the amount of debt people have. (As an aside, I used to tell my students if they are at a family event and some particularily nosey relative asked what they were going do next, tell them: paleoscatology. After the Christmas holiday, some of them came back with fantastic results from having used paleo scat ology as a possible career choice.)
Remember that when you hear on any particular day the the TSX is down by what seems to be a large amount, that close to half the TSX is resource/commodity/gold type companies. Because the index itself is down, does not mean that our dividend stocks are done a lot too. And don't listen to the financial news; those 'experts' don't know what will happen. I certainly don't either. Input from reliable sources, and make your best guess. Buying premium common stocks at good prices is prudent regardless of what is going on in the market as a whole..

Aliant - There has not been much in the press about the May 17 2006 decision of shareholders to convert good old Aliant (formerly for us M T & T) common shares into the Bell Aliant Regional Communications Income Fund. It looks to me like, whether we hold and convert or sell before 'the arrangement' is complete, we'll have a gain and tax to pay on it: pages vi and viii of the half inch thick 'book' they sent us about 'the arrangement'. Actually, I was amazed at how little tax there was to pay, when all was said and done, on the gain we made on Terasen last year.

Canadian Utilities made an announcement on Friday May 12. They are, apparently, considering alternatives for "midstream assets". I wondered about CU when I saw the surprise, and special 25 cent per share, dividend. There's not much more on their web site, yet, at www.canadian-utilities.com.
In the announcement, Canadian Utilities mentions three possibilities: an income trust for their midstream assets is one. It all has to do with 'enhancing shareholder value': I hate that expression...it usually means GREED!
CU's yield is half a point below its average yield: expensive...that table of our list in order of difference from average on page 598 again. CU's press release is most likely why Atco and CU showed a plus last week in the numbers just above, when most of the rest were negative.

"It has been said here more than once that investors in funds should avoid putting their money where the bulk of other investors are directing their cash." Jonathan Davis writing in The Independent on May 6 2006
In my view, the same holds true for individual investors: you should not buy the popular growth stocks if you want outstanding returns. It does not seem logical, does it. Why is it true? Popular stocks are priced appropriately: priceilly...if there is such a word.

Robert Shiller, the Yale University professor who wrote Irrational Exuberance in 2000, was speaking at U of T on May 10 2006. He did an interview with the Globe and Mail and the column, with some of his current thoughts, was in the Report on Business of Thursday May 11. In essence, Shiller is concerned about the consequences of the burst in the housing bubble and the effect it will have on consumer confidence, on corporate profits, and stock prices. I am too.

"If you were running China's finances and only 2.1% of your reserves were in gold and at the same time you were loaded with $850 billion of US securities, what would you be doing?" Richard Russell, May 11 2006
"You have to choose between trusting to the natural stability of gold or the natural stability and intelligence of the government, and with due respect to these gentlemen, I advise you, as long as the capitalist system lasts, to vote for gold." George Bernard Shaw, theorist, writer, philosopher (1856-- 1950). This was the way Richard Russell opened his May 3 2006 remarks. I love it.

April 24 2006 - We're off to the cottage for a few days, before the black flies decend, to relax after my April issue. There's a lot of stress during the last few days of checking any issue. Writing the report is still a pleasure: checking it for accuracy, especially page 4, is a pain. I erred with the ticker symbol for Empire on page 3 (598): it's EMP.NVA not EMP.SVA. It's correct on page 4. I should have mentioned too, that Ind.Al was Industrial Alliance (IAG) a life insurance company based in Quebec with a great dividend growth record but very low yield.

The Little Book that Beats the Market - I read this on RCCL's Adventure and Empress of the Seas in March while our 'kids' were working: they are all pursers and do not get much time off. The essence of the author's formula is in italics on page 45: "... stick to buying good companies (ones that have a high return on capital) and to buying those companies only at bargain prices (at prices that give you a high earnings yield), ..." Sound familiar?
There is precious little in this little in this little book on dividends (just on page 148 as a value indicator).
I was able to find four more reasons not to buy mutual funds: pages 114, 74, 104, 148.
I liked the author's views on diversification on pages 107, 108 and 109. He begins "How can owning just five to eight stocks possibly be a safe strategy? Think of it this way."...

* * * * * * *

It's mid-April and I'm back from the Caribbean to complete my next issue. I took our list of stocks mixed in with 10 HDGs and sorted in order of five year dividend growth plus yield, with me. I developed some thoughts for my April issue while sitting, in the shade, on various beaches in the Lesser Antilles and Aruba/Curacao listening to the surf.

Retirement Planning - the cover story of Barron's March 20 2006 issue - I have not read it, but printed a copy to read on the plane to San Juan. Their plan will most likely not be as good as our plan:-) It was not...no mention of dividend growth.

Did you notice how much the price Home Capital (HCG) fell this week? HCG's average, five year dividend growth rate, per year, to December 2005 was 37%. WOW, eh! But, and it's a big, big but, Home Capital's G%D is minus 70%. Forget it!
Is it not nice to have an indicator that can keep you from buying an overvalued stock...keep you from making a mistake? At minus 70% difference...there are no if, ands or buts for me. Remember the fourth word on Page 104 Jarislowsky's Investment Zoo: "premium". Is HCG a premium company? There was quite a column about Home Capital in the R.O.B. on Friday, March 17 by Derek Decloet (Vox).
What's our average G%D...quickly now. Don't you walk around with that number in your head...in your mind right beside your marginal tax rate on Canadian dividends? And, while you are at it, which stock in our list has the best G%D? Which five have the worst Graham percent difference and are, therefore, over priced?

"The median [American] family has about $3,800 in the bank, do not have a retirement account, has a home worth $160,000 with a mortgage of $95,000. No mutual funds, stocks or bonds populate their investment portfolios. They make (jointly) $43,000 and struggle to pay off their $2,200 in credit card debt. That means 50% of Americans are in worse shape than the above. It is not a pretty picture." John Mauldin

"I have a sinking "feeling" that the primary bear market that started in late-1999 to 2000 is in the process of resuming. If so, then the investment position that I've been talking about most recently becomes very important. That position is mainly cash and gold bullion (gold coins). By cash I mean 91-day Treasury bills." Richard Russell, March 8 2006

Leon's (LNF) You have most likely noticed Leon's on my annual dividend data sheet. Over the years LNF has had good dividend growth (16.1% average annual dividend growth for five years to December 2005) . Toward the end of February, Leon's announced a 25% increase in their dividend, from 20¢ a quarter to 25¢. In addition, on May 5 they will pay a special dividend of 50¢ to shareholders who owned the shares April 7 2006. Leon's has done this before. My six year dividend summary sheet, the one you received with your renewal thank you note, shows extra dividends being paid in 1999, 2000 and 2002. LNF's stock price moved up on the news, naturally.
I did not show a dividend increase for Leon's on my 2005 dividend data sheet. I should have. The dividend did not actually go up in 2005 (there were four payments of 20¢ totally 80¢), however, but the dividend in 2005 (80¢) was higher than it was in 2004 (68¢) by 17.7%. This happens from time to time and I missed it. Leon's is not rated by DBRS: it has no debt.
Leon's yield chart and dividend data were in my June 2004 report and Leon's was included in the table of HDGs in my August 2005 report. At that point, Leon's had a -30 Graham percent difference. Here's a thought. If you buy a stock with a -30 Graham value (expensive) and it remains at -30 for the next bunch of years, have you lost?

Aliant as an income trust...drats. Our yield on AIT is 10.8%. This move, 'they' hope, will help BCE's price. Bell will not be such a big land-line company anymore so some excitement will be generated.and the price could rise. What to do if you hold Aliant...the old MT&T is the question? I'm trying to figure it out. I don't want to own an income trust.
I still can't get over the big discrepancy between the popularity, and yield, of Telus and BCE...they are both in the same business.

"If asked what's happening, I'd say that the big counter-trend advance since 2002 in the stock market is over, and that the primary bear trend is in the process of re-asserting itself." Richard Russell, March 7 2006

Margin of Safety - I'm was working on a book report on Seth Klarman's Margin of Safety 1991 book which, unfortunately, is out of print and very expensive to buy used. I'll get back to it in the Spring.

FORTIS GRAHAM VALUE: My error...after the 4:1 stock split last fall - on page 4 of my December and February reports, the Graham price for Fortis should be divided by 2...it should be $16.60 for a Graham value (square root of 47.21 times average of 3.89+4.25+4.29 times 22.5) I forgot Fortis was split 4:1 and erred by dividing by 2 and not 4. The Graham percent difference (G % D) is okay. Next issue all Graham values will be adjusted for 2005 earnings and 2005 book value.
To review: Graham's price is the square root of (earnings per share times book value times 22.5). For earnings per share use average of EPS over last three years. Revised Graham data with 2005 earnings and book values will be in my April 2006 report. Three year earnings and book value for HDGs were on front page of my August 2005 report.
Where does the 22.5 come from? Ben Graham explains this number in Chapter 14, item 7 of his Intelligent Investor (page 185 of his 1973 edition). "This figure corresponds to 15 times earnings and 1½ times book value. It would admit an issue selling at only 9 times earnings and 2.5 times asset value etc."

Buying stocks risky "Right now the stock market look strong, the major averages have been climbing, individual investors are pouring into the market, analysts are bullish, and volatility is extremely low. It "feels" like a great time to buy stocks, even if they appear statistically expensive. However, in this area with high price/earning ratios and low dividend yields, history would deem buying stocks here as a risky move." Richard Russell, February 23 2006

CASH - in the Barron's interview of April 6 2006, Jeremy Grantham, a founder and investment strategist of the Boston-based GMO which manages $115 billion, was asked "Where are you funneling money to?" Grantham said "Cash..." Grantham had some interesting comments on, among other things, oil ("oil prices have shifted into a new range"), bonds ("they don't pay you much"), and hedge funds ("returns aren't what they were crackd up to be").

Dividend Tax Credit - My lead in the February 2006 issue will be the enhanced dividend tax credit. You must find out what your 2006 marginal tax rate on Canadian dividend income will be as soon as possible. Why? Most likely it will be so low, perhaps even negative, that you might not wish to contribute to you RRSP. I am NOT going to contribute this year and probably never again. I have only three years left to contribute. If there is no tax on eligible dividends outside and RRSP, why would you contribute to an RRSP and pay tax on dividend income when you have to make withdrawals from the plan after age 69? Actually, I can think of one reason: to buy an interest bearing certificate ( I won't say investment) inside the plan. I don't buy interest-paying investments, inside or outside registered plans...there is no income growth or capital growth...well maybe there'd be some appreciation if you bought a bond when interest rates were high. Are rates high now?

Loblaw - On January 19 2006, Loblaw announced it expected much lower fourth quarter earnings. Profit per share could be in the 71¢ to 76¢ a share range, rather than the $1.22 profit in the same fourth quarter last year. L's price fell again. Did you buy? Is Loblaw a wonderful company? Is $54 and change a fair price?
"It's far better to buy a wonderful company at a fair price than a fair company at a wonderful price."
Warren Buffett's 1989 Letter to Shareholders of Berkshire Hathaway - page 178 of Value Investing from Graham to Buffett and Beyond

"We believe that short-term forecasts of stock or bond prices are useless."
from Warren Buffett's 1980 letter to shareholders of Berkshire Hathaway

James Grant - Forbes January 9 2006 - "Life and the markets are cyclical. Nothing goes straight up. To protect against the unavoidable intermittent setback, arm youself with a margin of safety. When investing this New Year, resolve to underpay."
"Bargains are what we want, but they are all too scarce in the 2006 stock market. Much more common are the quasi-bargains, fine companies selling at almost cheap prices."

Link to additional thoughts in November and December 2005
Link to comments comments from 2005.

I can't believe this person said this in his out loud voice: Wrap accounts free up advisors from having to concern themselves with asset allocation, oversight and monitoring the mix of client portfolios. "What advisors do best is manage the client relationship and build their businesses." Brian Moore, senior vice president of marketing at CI Mutual funds Inc. Investment Executive March 2005, page 31 (I would never, ever, consider a wrap account. There are fees on fees.)

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Graham's price is the square root of (earnings per share times book value times 22.5). For earnings per share use average of EPS over last three years. Three year earnings and book value for HDGs were on front page of my August 2005 report.
Where does the 22.5 come from? Ben Graham explains this number in Chapter 14, item 7 of his Intelligent Investor (page 185 of his 1973 edition). "This figure corresponds to 15 times earnings and 1½ times book value. It would admit an issue selling at only 9 times earnings and 2.5 times asset value ect."