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Contrarian zeroes in on dividends, low costs

Joe Wood likes to invest in companies paying a dividend because the managers will be less likely to waste capital on unproductive projects. ‘In my opinion … failure to pay a regular, increasing dividend is just an invitation for mismanagement.’

Joe Wood, 25

Occupation

Purchasing specialist

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The portfolio

Includes Bank of Montreal, Automodular Corp., Vanguard MSCI Canada Index exchange-traded fund, credit union preferred shares, cash.

The investor

Joe Wood is another one of those smart young people – he graduated from university in 2009 with a 93.5-per-cent grade average and a major in business administration. A new Dad, Mr. Wood recently bought a house in Hamilton and now takes the train to his job in Toronto. It's a long commute but he puts the time to good use by writing posts for the personal finance blog, TimelessFinance.com.

How he invests

"If an investment doesn't have an attractive and sustainable yield … I ignore it," declares Mr. Wood. While capital gains are welcomed, he doesn't actively trade in anticipation of them. "The market is too efficient for me to outsmart it. Forcing myself to look only at dividend stocks helps tame any wild-eyed desire to speculate."

He likes to invest in companies paying a dividend because the managers will be less likely to waste capital on unproductive projects. "In my opinion … failure to pay a regular, increasing dividend is just an invitation for mismanagement."

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He is "a contrarian who fears hype and buys when the market has discounted something too heavily." For example, Automodular shares were acquired when it was trading at a low price-to-earnings ratio and had an "unbelievable dividend yield," one well-supported by a low payout ratio and debt level.

When his credit union offered special preferred shares to its members, he snapped them up. The yield is 5 per cent or 1.25 percentage points above the credit union's best five-year term rate – whichever is higher. Thus, there is some insurance against interest-rate risk.

Best move

"It was learning that private investments have the potential to earn an investor far more than public markets." An example is the blog, where outlays of a few hundred dollars and some "elbow grease" are now generating one- to two-thousand dollars a month.

Worst move

"Trading penny stocks during university …"

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Advice

"Probably the most important lesson I've learned is that minimizing investment costs can improve a portfolio's return by hundreds of thousands of dollars over a lifetime." So, his investment account is with Questrade "because of its awesome commission structure."

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