I was very lucky to interview the one and only Tom Connolly last week. For those new to the investing world in Canada, Tom Connolly has become synonymous with investing in dividend growth common stocks. He has been interviewed and mentioned in countless articles and newspapers from the Toronto Star to Investor’s digest. Tom has been writing “The Connolly Report”, a quarterly newsletter since 1981. Although the report is closed to new subscribers his website, dividendgrowth.ca, was where I first learned about the strategy of purchasing dividend growth stocks for the long term. It’s chock full of information, personal thoughts and examples of how his strategy has worked. Here is quote to sum up his strategy in one sentence, “When they are value priced, I buy dividend-growing common stock and hold them for the income.” And now for some wise words from my personal investing mentor, Tom Connolly!
How did you first learn about investing in dividend stocks?
I started investing while working on my B. Commerce degree in the early 1960s. I began with dividend growth investing in 1984.
Who would you consider to be your investing mentor?
If you were fleeing your house during a zombie outbreak and you grabbed only one book on investing, which one would it be and why?
Ed Easterling’s Probable Outcomes. A novice investor would grab The Investment Zoo by Jarislowsky in a fire.
Have you ever considered writing a book on your success investing in dividend stocks?
I’m writing a book about dividend growth investing inside dividendgrowth.ca. I’ve been at it 31 years, and I’m still learning.
What was one mistake you made with investing that taught you a valuable lesson?
Do not purchase a common stock with a yield that’s too high. Too high is a relative term, but in 1991, Royal Trust’s yield reached 9%. It was a warning sign. I should have sold. RYL eliminated its dividend, the only company in my list that ever did. Is Bell Aliant’s yield at 7% too high now?
Name one Canadian stock you think has the potential to still be in business 50 years from now and why?
A utility, most likely.
If you could have one Super Hero Power, what would it be?
Normal thinking would be fine by me as my mother and her two sisters had Alzheimer’s when they died. I’m 72
What’s your least favourite thing about mutual funds?
Mutual funds are not noted for paying income, so you have to sell to finance retirement. As stock prices will be down in the years ahead in this secular bear market, folks who are sold funds will have to work longer.
What are your thoughts on using a TFSA for investing in stocks that pay a dividend?
TFSA’s are fine for quality dividend-growing common stocks now that the limit is up more so that worthwhile amounts of four or five stocks could be selected in different sectors, say $5,000 in each for the growing stream of income. Total return can be estimated by adding yield and dividend growth. I’m not certain you still get the dividend tax credit, though. One would have to check that point.
Do you have any sage advice for people who are starting to invest on their own?
To invest on your own you need behaviour control and patience. Only purchase quality dividend growth common stocks at reasonable prices. Valuation is everything. Use ‘cyclically adjusted price to earnings’ (cape) as a valuation measure.
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