All posts by Financial Independence Hub

Dividend Stocks: Completing the Income Puzzle

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Franklin Templeton, iStock

By Les Stelmach and Ryan Crowther

Franklin Bissett Investment Management

(Sponsor Content)

It’s no secret that yields on fixed income investments have been in a prolonged slump for decades, challenging both individual investors to meet their income needs and institutional investors like pension funds and insurance companies to deliver on their obligations to retirees.

While some investors have moved further out the fixed income risk spectrum in pursuit of higher yields, others are diversifying their income sources by adding to their investments in shares of dividend-paying companies.

Dividends are playing catch-up

Despite recovering economic conditions, dividend-paying stocks lagged the overall market in 2021. Given continued uncertainties directly and indirectly related to the COVID-19 pandemic, dividend growth in general reflected some conservatism. Many factors influencing earnings growth in 2021 were sector-specific. Some industries continued to deal with subdued demand compared to pre-pandemic levels, while in other cases, regulators prohibited dividend increases at the onset of the pandemic.

Lately, however, dividend payers’ shares have performed well for several reasons:

  • Despite rising inflation, supply-chain pressures and labour shortages, corporate fundamentals have generally remained supportive as revenues, earnings and profit margins have continued to perform well.
  • Valuations for many dividend stocks are firmly anchored to those fundamentals, insulating them somewhat from market concerns over valuations in a higher-rate environment.
  • In addition to many companies initiating, restoring or raising their dividend payouts, the share prices of many dividend-paying stocks benefited from market momentum in a “best of both worlds” environment.
  • Market sentiment has shifted in response to signals from both the U.S. Federal Reserve and the Bank of Canada indicating a faster pace of interest rate increases in combination with quantitative tightening.

Dividends likely to grow

The average earnings per share growth for the Canadian S&P/TSX Composite and the U.S. S&P 500 Indices spiked last year. Dividend increases were broad-based throughout the year. Barring any major economic setbacks, we expect continued steady dividend growth from companies across many sectors. Average cash as a percentage of total assets held by constituents of the S&P/TSX Composite Index is at levels not seen in more than 20 years: another positive development for dividend growth.

In Canada, we are finding certain sectors particularly attractive:

Financials: Banks are an example of dividend growth held back by regulators from the pandemic’s onset. In 2021, even though  earnings grew, dividends were temporarily constrained; however, this restriction was lifted last November. Most recently, we have seen the Canadian banks increase dividends between 10% and 25%, but we believe there could be room for further increases. Banks retain excess capital, and at the very least, we believe the group will resume their annual pattern of increases from this point. In our view, Canadian banks are on very solid footing and offer some of the most attractive valuations.

Commodity-related: Commodity prices are high as economic activity resumes from pandemic lows, which is positive for the energy and materials sectors, and by extension, industrials. We have seen a remarkable recovery in oil prices since the precipitous drop in the spring of 2020 when the global economy shut down in response to the spread of COVID-19. At that time, a number of energy stocks had their dividends cut as the depth and duration of the economic downturn were unknown.

Since then, the oil and gas sector has staged a dramatic comeback, with higher prices boosting cash flows. Along with the recovery of prices, we also have seen a significant pick-up in dividends. Companies are employing various dividend strategies. Some prefer methodical increases to the base dividend level at a rate sustainable under a range of commodity price scenarios; others are considering variable dividends or periodic special dividend payments on top of the base dividend level. We believe boards and management teams are exercising a certain degree of caution to avoid being vulnerable if oil or gas prices experience a sharp decline in the future.

Real estate: In certain property categories (primarily retail), real estate investment trusts (REITs) had to absorb higher vacancies and deferred rent payments from tenants as stores were temporarily closed due to pandemic restrictions. These stresses often manifested as flat cash distribution profiles or, in some cases, temporary reductions in distributions. Although it’s too early to be certain of a return to historical norms across all property classes, we are seeing encouraging signs in rents and occupancy, and we note some REITs are again raising distributions.

Utilities and telecoms have maintained their dividends throughout the pandemic and we expect their dividend growth trajectories will be in line with historical experience.

Risks and opportunities

Consistent and growing dividends are characteristic of higher-quality, established companies that by definition tend to sit comparatively lower on the equity risk spectrum. It’s important to remember that like any stock, they are subject to equity market levels of volatility; but stable to growing dividends can reduce part of that risk as investors continue to receive income distributions even in a volatile market. In a rising market environment, investors could benefit both from the dividend yield and a higher stock price. Continue Reading…

12 creative ways to earn money Post Retirement

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What is one creative way to earn money post-retirement? 

To help retirees find creative ways to earn money, we asked business consultants and entrepreneurs this question for their best tips. From offering peer-to-peer storage to substitute teaching, there are several creative ways that may help you earn money and stay active post-retirement.

Here are 12 creative ways to earn money post retirement: 

  • Peer-to-Peer Storage
  • Lease a Car On Turo
  • Become a Movie Extra
  • Get a Part-time Audio Transcription Job
  • Freelance Writing
  • Consider Airbnb
  • Rent Out Property
  • Try Driving
  • Affiliate Marketing 
  • Blogging
  • Become a Consultant 
  • Become a Substitute Teacher

Peer-to-Peer Storage

During retirement, many folks seek out sources of passive income like renting, yet often want to avoid the responsibilities and potential problems associated with landlordship. Peer-to-peer storage is a creative compromise. Instead of renting out living space, owners can rent out storage space, such as garages, spare rooms, and closets. These arrangements tend to be easier to end if necessary than tenancies, and involve much less interaction with renters. Retirees are likely to have some extra space in their houses, and putting these rooms to work is a great way to generate extra revenue. — Michael Alexis, TeamBuilding

Lease a Car on Turo

Services like Turo allow customers to borrow someone else’s car for a set period of time. Why not lease out your car to them? Yes, if you’ve got a car, or multiple cars, then you’re ready to become a car-sharing entrepreneur. Some people can earn $10,000 or more by sharing their cars on Turo. The more cars you offer, the more you can earn! — Brian Greenberg, Insurist

Become a Movie Extra

Although it is usually not a very profitable venture, it can become a lifestyle for many. Playing a small part or a background role in TV or cinema productions can be very enjoyable and allow to meet interesting people and even see famous actors. After establishing relationships with casting agencies, it is relatively easy to find some gigs regularly. That’s especially the case for productions recorded during working hours when most professionals are busy with their 9-5s. — Michael Sena, SENACEA

Get a Part-time Audio Transcription Job

Audio transcription is the process of typing out recorded audio, such as podcasts, business meetings, and qualitative research interviews. Transcription agencies regularly hire typists to work 100% remotely as independent contractors. The work is often flexible and can be done on your own schedule. When applying for a transcription job, you’ll usually required to complete an aptitude test that involves transcribing some sample audio. — Chloe Brittain, Opal Transcription Services

Freelance Writing

A great backup plan or extra income is freelance writing. There are so many writing opportunities and contracts for part-time work or a side hustle. Fiverr is an easy place to find extra writing work on the side, you can create your own profile and upload previous work for companies to find and hire you. Plus, you can work from home with freelance writing. — Michael Jankie, Natural Patch

Consider Airbnb

If you have an extra room or an extra property you only make use of seasonally, you may want to consider listing it on Airbnb. Hotels are often too expensive or inconvenient for some travelers, making Airbnb an attractive alternative. You can be as involved in running your Airbnb as you want, or take a largely hands-off approach to making money post-retirement. — Lily Yu, Oak Springs Realty

Rent out Property

One popular option for retirees and senior citizens with extra space or multiple properties is to rent out their spare rooms and suites to people looking for short-term housing options. This can be especially beneficial if you own a vacation property that you only use sparingly but would like to earn an extra income. Many websites allow people to find renters quickly, so take some time to research which ones are best suited to your needs. — Chris Thompson, Backdoor Survival

Uber or Lyft Driving

The best Uber and Lyft drivers I’ve encountered have been retirees. They’re working because they want to, not because they have to. They’re upbeat, conversational, and usually know the geography of the area like the back of their hand.

If you’re retired and don’t like sitting around the house all day, why not carve out a few hours of your afternoon giving people a lift (no pun intended)? If you live in proximity to the airport, most of your customers will be people from out of town that you will enjoy conversing with. It’s an easy way for retirees to earn extra spending money and passengers generally enjoy their company. — Jon Carder, Vessel Health

Affiliate Marketing

Affiliate marketing is one of the most effective strategies to boost retirement income. Once set up, it will continue to generate income pretty much without any intervention. And there lies the appeal, it can be completely passive or operated with just a few hours a week and the help of a virtual assistant, or a younger family member. Continue Reading…

How to correct a Business Deficit

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Image via Pexels

By Jim McKinley

Special to the Financial Independence Hub

You want your business to succeed and generate a profit; however, an unexpected expense or change in the economic climate can lead to a deficit.

In fact, an estimated 70% of small businesses have outstanding debt, and businesses in Toronto, Canada, are no exception. While it may cause you to worry about your business’s future, you can proactively take steps to get your business out of debt.

Small Business Grants

Search for grants for small businesses, which provide money you won’t need to repay. The process of finding the right grant, especially one that you qualify for, may seem tedious, but you can find them.

Before beginning the grant application process, you should have created a business plan. Make sure it includes a detailed description of your business with clear objectives. You can use this plan to show you’re serious about your business. Besides applying for grants, you can use your plan to intrigue prospective investors.

As you’re searching for grants, look for ones specific to your business type. Some examples of grants for Canadians include the Amber Grant and Cartier Women’s Initiative Award.

After finding grants that you qualify for, you’ll need to complete an application that highlights the business’s best attributes and usually include your comprehensive business plan.

Small Business Loans

If you’re merely going through a hard time at the moment, consider a small business loan. In most cases, lenders only extend these loans to companies that have been in business for at least two years.

You’ll also need to have a decent credit score to qualify. Additionally, the lender will want to see your personal and business income taxes as well as income and balance statements. The lender may also ask to see your business plan.

Carefully analyze your Budget

Know your company’s finances. Review where your major spending is and determine if you could reduce or eliminate any of it. Continue Reading…

Risk Management: A Four-Letter Word?

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By Noah Solomon

Special to the Financial Independence Hub

Since the global financial crisis of 2008, markets have for the most part been a one-way train. Even the precipitous decline of the Covid-crash of early 2020 was erased so quickly that several months later it seemed like little more than a bad dream.

In such a favourable and long-lasting environment, risk management has increasingly become regarded as a four-letter word. Any attempt to mitigate risk and protect investors from large losses has been a money losing proposition. It has been a drag on returns and has done little to reduce volatility. Simply stated, risk management isn’t of much use when there has been no risk to manage.

Defining a Bubble: Like Catching Water in a Net

There is no universally accepted definition of a bubble. Identifying one is part art and part science and can only be done with certainty in hindsight once a bubble has become a matter of record.

Parabolic gains in markets in and of themselves may or may not signal a bubble. Similarly, situations where valuations stand significantly higher than their long-term historical averages cannot be conclusively classified as bubbles.

Further complicating matters, bubbles tend to be accompanied (if not caused) by a broad-based mindset among investors, which by definition is difficult, if not impossible to measure or define.

Behavioral Characteristics of Bubbles: Zero Fear & Speculative Frenzy

One of the most common and powerful characteristics of bubbles is a widespread belief that stocks can only go up. Aided and abetted by historical precedent, many investors have become emboldened by growing faith in a perpetual Fed “put,” whereby the central bank will move aggressively to support (and even reverse) any significant decline in markets.

Relatedly, this complacency has led to a surge in speculative madness during which a growing number of investors have piled into riskier assets, causing parabolic gains. One does not have to look far to see several signs of such behaviour, including:

  • Meme stock madness: GameStop and AMC, two companies in declining industries which respectively rocketed up 120x and 38x from their post-pandemic lows to their 2021 highs.
  • Crypto craziness: Dogecoin, which was originally conceived as a parody, went up nearly 300x to a market cap of $90 billion, spurred by tweets from Elon Musk.
  • Electric vehicle ecstasy: Hertz’s stock surged by simply announcing that it would purchase a fleet of Teslas. Similarly, Avis tripled in a day based on the mere suggestion that it might follow suit!

The Daunting and Consistent Math of Bubbles: It’s A Long Way Down

In the world of statistics, a 2 sigma event refers to something that occurs only 5% of the time. Using this framework, a market that is 2 sigmas above its long-term trend can be considered to be in bubble territory (or at the very least quite frothy). Using the same logic, a market that stands at 2 sigmas below its long-term trajectory can be thought of as mouth-wateringly cheap (or at least as somewhat of a bargain).

Founded in 1977, Boston-based Grantham Mayo Van Otterloo (GMO) is an investment management firm with roughly $75 billion in assets under management. It is well-known for its strong track record of asset allocation. The firm successfully identified and navigated both the tech bubble of the late 1990s and the real estate/financial bubble of 2006-7.

GMO analyzed the available data over financial history across all asset classes and identified more than 300 2 sigma observations. In developed equity markets, every single one of these observations over the past 100 years has fully deflated with prices falling back to their long-term trends. This pattern strongly suggests that:

  1. The higher markets go, the lower their expected future returns.
  2. The higher markets go, the longer and greater pain investors will have to endure to get back to trend.

Importantly, if you think that the recent decline in stock prices presents a golden opportunity to scoop up cheap assets, the fact that the S&P 500 currently stands about 40% above its long-term trend should be cause for sober second thought. This prospective downside is corroborated by Warren Buffett’s favourite valuation gauge, otherwise known as the Buffett Indicator, which is the ratio of the total value of the U.S. stock market to GDP. The indicator currently stands at 193%, which is approximately 50% above its historical average.

Make Mine a Triple

Using the 2 sigma definition of a bubble, in early 2021 it looked as if we might have a standard bubble. However, as the year progressed, the 2 sigma deviation progressed into an even rarer 3 sigma anomaly, which comes with an associated increase in potential pain.

Adding to concerns, real estate assets have arguably joined the bubble-party in stocks. Houses in the U.S. stand at the highest multiple of family incomes ever: even ahead of levels that prevailed prior to the housing bubble of 2006-2007. Alarmingly, this lofty multiple is lower than the corresponding level in other countries (Australia, the UK, China, and our very own Canada). Continue Reading…

Get started on your investing journey

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RBC/Getty Images

By Michael Walker,

Vice-President & Head, Mutual Funds Distribution & RBC Financial Planning, RBC

 (Sponsor Content)

Whether you’re investing to build up a nest egg for retirement, to buy your first home or for a special vacation, finding the right investing solutions can play a big role in helping you achieve your financial goals.

If you’re just starting on your investing journey, however, I know that taking that first step can feel overwhelming.

To help get you started, I’ve responded below to four of the most common questions I hear about investing:

  • Do I have enough money to get started?

You don’t need to have a lot of money to start investing. It’s important to start early, however, as even small amounts of money can grow into big investments with the power of compounding.

As a simple way to think of this, compounding enables your investment to generate earnings and then those earnings are reinvested. In other words, compounding helps you grow earnings on your earnings.

The basic idea is to start investing with an amount you’re comfortable with and increase that amount over time. Once you’ve decided how much you can invest, consider setting up an auto-deposit that automatically moves that money from your chequing account into your investment account on a regular basis. This could be weekly, bi-weekly, monthly: whatever works for you and your finances. Then, as your available funds increase, you can increase the amount you deposit.

In this way, you’re benefiting from paying yourself first and the money you’re depositing will be in your investment account before you can even miss it.  

  • How do I decide which investing options are right for me?

Finding the right investing solutions starts with understanding your investing style. Here are some questions you can ask yourself, to help determine that style:

  • Why do I want to invest? How does this fit into my overall financial goals?
  • Do I want to make my own investing decisions and do I have the time to manage my own investments?
  • Am I comfortable with virtual investing, knowing there are professionals managing my investments in the background?
  • Do I want advice and support from an advisor, and if so, how much?
  • Do I want to combine doing some investing on my own with working with an advisor?  

Once you understand your investing style it will be much easier to determine the investing options that suit you best. Continue Reading…