The Div-net Hates Me. Nice.

While I was checking out sitemeter the other day, I noticed that I was starting to get some hits from The Div-net. I was pretty surprised Moneygardener actually posted my writeup on Hating Dividend Growth Investors, since I pretty much called him a retard.

Oops.

Then I started to read his preamble:

A Feeble Attack On Dividend Growth Investors

That's the title? I'm screwed. It's gotta get better from there, right?

The post was written by a known sh#t disturber named Nelson at "No Communism", who apparently still lives with his Mom. Enjoy....

First of all, I like how I'm a sh#t disturber, and not a shit disturber. We're all adults here, plus I kinda like fucking swearing. Everyone knows you mean shit, just say it.

I also like how I'm a "well known" shit disturber. Take a look at the counter at the bottom of my site. I have 1886 god damn visitors. In 4 months. Calling me well known is like calling Paris Hilton a respected talented musician. You're overstating our abilities just a tad.

And for the record, I do not still live with my mom. I just go there to eat sometimes. Is that the best you can do? I write 2000 words on how you're an idiot and you throw out that?

Actually, he says some pretty nice things in between the title and calling me an ass, so I'm grateful. Besides, if I keep making fun of Moneygardener, he's gonna save up all his dividend cheques for a trip out here to kick my ass.

So I'll move onto someone else.

Dividend Growth Investor raised some interesting points in his comments. And by interesting, I mean stupid. Let's check some out.

1, Diversification is important. Just because I liked GE a lot doesn't mean I has all my portfolio in GE shares. That's why the cuts and freezes in the financial sector have not affected my dividend income a lot.

Oh, the irony of someone who exclusively is a dividend growth investor talking about diversification...

This just in: You are a dividend growth investor. I am a contrarian investor. By our very nature, we are not diversified. If you were truly diversified, you'd have a segment of your portfolio in broken beaten down names, as well as high growth names. Plus, you'd own debt and investment real estate and all sorts of other asset classes. I'm guessing you don't.

The whole reason for bringing up GE was to illustrate how illogical it is to punt a name from your portfolio simply because it is doing something sensible in this terrible market. Plus, the stock is flirting with a what, 10 year low? Great time to sell, dumbass.

GM is a bad example for dividend growth investors as it has never been a dividend achiever in its 100 year history

GM was never supposed to be an example for dividend growth investors. The whole fucking point was to show that a company can still make an investor money after it's cut it's dividend.

In the long term dividend payers outperform non dividend payers

That's because non-dividend payers generally become dividend payers as they mature and become more successful with predictable cash flows.

So basically what you're saying is that successful companies outperform shitty ones. Great analysis.

Of all the dividend payers dividend growers or initiators outperform dividend freezers, cutters or eliminators.

Once you read this sentence 8 times to get the gist of it, you realize that it says the exact same thing as the sentence before it. That is, nothing. Dividend payers outperform dividend freezers, cutter or eliminators? That's because companies that pay a dividend are doing well, while companies that cut aren't doing well.

Once again, successful companies outperform shitty ones. Give this guy a Nobel prize or something.

Nobody is suggesting that you go blindly buy stocks that have cut their dividend. Just like you wouldn't suggest that someone go out and blindly buy dividend stocks. The fact remains that there are hundreds of examples of companies that have cut their dividend, and gone onto be great investments.

3. You could always pick a stock to prove a point. Sure telus did cut its payment. ED also cut its payment in 1970's only to emerge as one of the dividend aristocrats 30 years later. But on average if you keep buying stocks that cut their payments you will lose money. Even AAPL eliminated their div's in the mid 1990's and the stock was a terrible investment for the next 3-4 years.

I like how I'm some sort of moron because I pick individual names to make my point, and yet 3 sentences later you do the exact same fucking thing!

Plus, the Apple example is probably the worst example you could think of. An investor could have picked up Apple in early 1996 for about $27, and then sold it during the tech boom run-up for well over $100. Let's say $110 for the purposes of this discussion.

Purchase price $27 (A very realistic average level of early 1996, when Apple eliminated the dividend on Feb 13th of that year)

Sell price $110 (Again, reasonable considering the stock reached a peak of over $135)

Total Return 407%

Total time invested: 4 years

Total Yearly Return: 101.75%

By the way, 3 years after your example, AAPL stock was around $37-$38, which represents a return of 39% over 3 years (13% a year). Hardly spectacular, but not a disaster either.

I'm the moron for picking individual stocks for making my point? At least mine make my own fucking point, and don't just help out the other guy.

By the way, I call bullshit on the comment that on average I will lose money by buying dividend cutters. Short term, you are absolutely correct. Long term I beg to differ.

4. Dividend Growth Investors buy when the stock appears cheap, the dividend is growing and the yield is attractive, and the dividned is well covered. They don't chase highest yields, and they don't time the market. They do sell after a dividend is cut or after their stocks are acquired by competitors and then move on.

First of all, everyone times the market. The only guy who doesn't is the dollar cost averager who plows his consistent amount every month into whichever mutual fund. You say that you "buy when the stock appears cheap", but you don't time the market?

All this does is further my point on how capital gains are merely an afterthought. Plus, if you had of paid attention to the post, my beef wasn't on the buying side of the strategy. As I said in the original post, dividend growth investors generally do a pretty good job on the buy side of the equation.

The beef was, and still is the buy and hold forever mentality. Selling when a dividend is cut is the epitome of buying high and selling low. What's your exit strategy? Explain it to me. That's because there isn't one.

Anyways I would really hope that there are more people who do not believe in buy and hold, dividend and other sound and proven forms of investing.

Huh? Isn't that exactly what you believe in? Why would you want people to not believe in it? Especially since you feel so strongly about it that you have a blog DEDICATED TO THE FUCKING SUBJECT.

Over the long run few people make money in the stock market. I hope to be one of the minority.

Oh, I get it. You want to be successful while everyone else is screwed? I'm actually okay with that. One thing we can agree on.

Now onto Brad Castro's great commentary:

What No Commie fails to understand is the compounding effect of rising dividends and dividend reinvestment. His example of a 3 cent a quarter dividend increase reinvested equating to retiring with an $46.27 understates the effect just a tad.

Brad's right about one thing. The $46.27 number was totally just pulled out of my ass, and it does understate the effect of compounding over time. But that wasn't the point. Let's look at an excerpt from my original post:

"Microsoft increased their dividend 3 cents a share? Score! Stock was down 60 cents because of whatever? Who cares!"

The whole point was, and continues to be that capital gains are merely an afterthought. As long as the dividend is there, then who cares what the stock does!

An 8% capital gain compounds faster than a 3% dividend guys.

One of his other points--the risk of a company cutting or suspending its dividend--is fairly easy to combat. The antidote: Only invest in truly high quality companies.

I call bullshit on anyone who tells me that any of the dividend cuts I mentioned weren't companies that were at one time thought of as truly high quality.

Bank of America in 2004 wouldn't have been considered high quality?

What if we were only allowed to invest in no more than 3-5 different companies?

This is a pointless exercise, since this doesn't happen in the real world.

What if we approached the stock market the same way we approached starting our own business?

Again pointless, because the stock market is an entirely different beast.

Wouldn't we be much more selective and demanding?

Probably.

But fuck this. This doesn't happen in real life.

I bet if I had lots of girls hitting on me, I'd probably be more selective too.

What does this have to do with investing?

Nothing.

Exactly.

Anyhoo, thanks to the Div-Net for the posting, even though I stand for everything they don't. It takes balls to post something like that, and they deserve to be commended for it.

Now I'm off before I suffer a massive stroke.