This is a guest post on trading from Tusk Trader (check out the newly launched site: www.TuskFund.com), an experienced Bay Street trader who will be writing here until Tusk’s own blog is set up. Tusk had a front row seat to the twists, turns, and almost collapse of our capital market systems a few years ago and provides a unique perspective you won’t find anywhere else. For most people, financial literacy is the elephant in the room. Let Tusk Trader help change that. If you are on twitter, make sure to follow Tusk at @TuskTrader

Trading volumes have been down a lot over the last few years. Volume started to disappear in early 2009 and good volume days have been a rarity since then. This trend started off as being viewed as though volume was in a slump and would return soon.That has not happened. The markets have been melting up for the last 5 to 6 months and volume is still scarce.

A common phrase market watchers have been hearing since 2008, about all things financial, is that this is “the new normal”. Since the start of 2012, I can’t help but wonder if low trading volume is the new normal too and if traders need to just stop pining for its comeback. So many aspects of the markets have changed in the last few years. Why do we traders keep thinking that volume will come back to us? Maybe we just can’t seem to realize we have been dumped. It is Single Awareness Day next Tuesday and maybe traders should use that yearly chocolate holiday to close the book on our relationship with volume. It was good while it lasted. Volume made each day better. The sun shined a little brighter when you could get into a trade where you wanted and then be able to exit within a regular market swing.

Trading in a high volume environment has less risk. Traders can plan out a trade by looking at the trading book and volume charts. The entry and exit points can be chosen from the best possible options when there is good volume. When there is bad volume, entry and exit options are limited and an active trader’s volume per trade will also belimited.

The Financial Times has reported the January 2012 volume traded stats in the US and the numbers are startlingly low. The daily average volume for January was at levels not seen since 2005 and the three month average is at its lowest since 2007. A curious fact of this low volume is that the volatility last month was also down. The FT reports that, according to Deutsche Bank, price volatility in the S&P 500 index for the past month has fallen to 8.2 per cent, versus a three-month average of 21.8 per cent.

When volumes are down, volatility is usually up. This could just be a phase or it could be part of the new normal traders need to wake up to. Volume was the best partner a trader could ask for, but it appears to have moved on.

Thanks Tusk. Make sure to check out the site: www.TuskFund.com or follow Tusk Trader on twitter: @tusktrader

Related posts:

1. The Block Trade and Real Volume
2. Could go higher, might go lower
3. The Christmas season has witches?

NOTE: This is a guest post by Ross Taylor.

It never ceases to amaze me how many people gush about their expected income tax refunds; especially those generated by their RRSP contributions. What are they waiting for? Why did they decide it was a good idea to make an interest free loan to the feds over the past year? Why not have that refund coming to you every month you make a contribution, instead of waiting till late spring of the following year?

Back in the eighties, $7,500 was the maximum allowable annual contribution, and even then, it was still important for my clients to have their refund in their hands, rather than in the feds’ pockets. In 2012, the maximum RRSP contribution is $22,970 – that’s serious coin! If your marginal tax rate is say 40%, your contribution is going to generate a refund over $9,000.

If your take home pay is subject to deductions at source, all you have to do is talk to whoever manages payroll for your employer and explain your intentions for the tax year. You can do this at any time, not just during the so called “RRSP Season.” The net result will be your monthly payment will only incur an out of pocket cost of around 60% of the actual amount.

The conversation goes something like this:

You: So I plan to contribute $600 each month to my RRSP, and I want my withholding taxes at source adjusted with each pay check.

Payroll: No problem, let’s fill out this form T1213, and then send it in to CRA, and within a month or two you will see an increase in your take home pay.

You: It’s that easy?

Payroll: Yep. As a matter of fact, you can make the adjustment not just for your RRSP contributions. You can even include child care costs, certain support orders, charitable donations, and carrying charges and interest expenses on investment loans.

Payroll: Before you file the request to reduce source deductions you’ll need to provide proof that you have set up a pre-authorized contribution plan for your RRSP, and my contact info as your employer’s payroll administrator.

It sounds simple because it is. It’s not for everyone though. Some see their expected tax refund as a forced savings plan – they worry they won’t have the discipline to save that much if left to their own devices.

Doing it the old fashioned way, they know they will receive a lump sum of several thousand dollars which they can then use as they see fit – make a TFSA contribution or a lump sum mortgage payment, put it towards a home reno project or maybe even a dream vacation.

Others plan to pay down unsecured debt with their refund – but this means they carried debt at anywhere from 6% to 29.9% interest, while they loaned out their money at 0%.

Back in 1988, a very smart marketing visionary named John Ritchie (who was the coach of the Crazy Canucks ski team during their glory days) loved the Form T1213 so much he decided to give it a name, and he developed an entire financial product strategy around it.

He called it ProAct. And he dubbed it “the greatest innovation since the pay check”

In those days, even humble GIC’s were paying yields of around ten percent, and the highest marginal tax rates were closer to 50%. So the opportunity cost of NOT receiving your tax refund each month was rather high.

It was a brilliant stroke, and John poured a ton of energy into making a product out of a simple administrative process. Alas the financial institution he toiled for was not prepared to back the idea sufficiently to give legs to the product launch, and as a result, ProAct quietly disappeared in a few years.

Related posts:

1. Why Wait for your RRSP Refund?
2. Deferring your RRSP Deductions to Higher Income Years
3. Productive Uses for Your RRSP Refund

I have no relationship with H&R Block and am not receiving any compensation for running this give-away other than the free access codes to give away.

Contest runs until 12:01 AM (Eastern Standard Time) on Friday, February 12th. That means that effectively, the contest runs until midnight this upcoming Thursday. There are multiple ways to increase your odds of winning, which are detailed in the form below. You can choose to employ as many or as few methods as you like. Good luck!

*Note: I’m trying out a new piece of software to help me manage give-aways. You don’t have to login with Facebook, you can enter your name and email address instead by clicking the line below the “Login with Facebook” button.


a Rafflecopter giveaway

Also, for those interested: I’ll be on CBC’s The National with Peter Mansbridge on Tuesday night talking about pensions and retirement as part of the monthly “The Bottom Line” panel discussion.

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Related posts:

1. Giveaway: Four Copies of TurboTax Canada
2. The Block Trade and Real Volume
3. GIVEAWAY: Two Copies of QuickTax Standard from Intuit

Today, February 2, will bring even more changes to the Canadian mortgage industry, as one by one, lenders will have no choice but to announce major changes to their lending guidelines.

Why is this happening? In recent months, some financial institutions have been quietly offloading the risk of even their low loan to value mortgages (previously uninsured) by securitizing these mortgages and bulk buying CMHC insurance – thus quickly pushing the amount insured quite close to the threshold of $600 billion set by the federal government. Only three years ago, the cap was $450 billion.

Yesterday, FirstLine Mortgages announced they were no longer offering mortgages for self- employed folks and for investors who have a rental property. Once the darling of the mortgage broker community, this company (interestingly, CIBC’s wholesale mortgage arm) has fallen off many agents’ radar over the past few months as their product line became increasingly uncompetitive.

Today, February 2, Street Capital Financial Corporation, currently the most sought after lender in the mortgage broker community, has also announced major lending guideline changes. Effective immediately, for their conventional product offerings (20% or more down payment) they will not accept rentals, stated income applications or equity based deals. Actually CMHC insures all their mortgages, not just the high ratio ones.

Other lenders will follow suit very quickly, you can be sure.

This is not about the Canadian Government losing faith in self-employed individuals, nor is it about the feds trying to punish people who invest in rental properties. Rather it maybe about lenders trying to decide which socio economic group can take the hit of increasingly tougher lending guidelines, and have the least impact on the lenders’ image.

But according to Industry Canada, some 15.6% of all working Canadians were self-employed as at March 31, 2011, one third of them female. It’s not clear what percentage of all residential homes are rentals, but anyway, lenders have probably decided the public will perceive rental unit owners as wealthy, and again, the majority will be indifferent towards their plight.

But if you take out a significant segment of the population from buying homes, is it not natural that would impact demand? Self-employment is not an automatic high risk, just as a person on payroll is not automatically low risk.

In recent months, the media has done an admirable job of painting a picture of pending doom and gloom for the Canadian real estate market. No one wants to follow our American friends into the abyss of financial chaos, as began in 2008 to 2009, when lax underwriting standards (amongst other things) led to an overly heated national housing market, and the result today, according to Zillow , is 28.6% of all American single family homes with mortgages have negative equity.

The risk today is the whole thing becomes a self-fulfilling prophecy, fuelled by the media, and orchestrated by our chartered banks.

Our banks quite rightly trumpet their financial strength and integrity to the rest of the world – and such moves will be perceived as sane and prudent. Perhaps it is not a coincidence that a byproduct of this move will be to hurt and perhaps squeeze out some of their major competitors for mortgage product offerings who rely heavily on CMHC and other mortgage insurers to ensure their portfolio.

This could just be a much more subtle way of the major banks trying to assert dominance and control of residential mortgage lending in Canada. BMO’s 2.99% five year fixed mortgage rate in January may just have been their opening salvo.

Over the years, Ross Taylor has been a stockbroker, fee based financial planner, income tax specialist, mutual funds company executive, retail banking VP, tech company executive, and has raised capital for small to mid-size businesses. These days he is a licensed mortgage broker agent and registered credit counselor, and still provides advice on most personal finance matters. He writes a blog at www.askross.ca

Related posts:

1. New Mortgage Rules For Canadians Starting April 19th 2010
2. Do you know who owns your mortgage? You probably don't…
3. So what IS a Mortgage-Backed Security? (MBS)

This is a guest post on trading from Tusk Trader (check out the newly launched site: www.TuskFund.com), an experienced Bay Street trader who will be writing here until Tusk’s own blog is set up. Tusk had a front row seat to the twists, turns, and almost collapse of our capital market systems a few years ago and provides a unique perspective you won’t find anywhere else. For most people, financial literacy is the elephant in the room. Let Tusk Trader help change that. If you are on twitter, make sure to follow Tusk at @TuskTrader

All market watchers have been buzzing about the news that Facebook is going public. The upcoming Facebook IPO is going to be different than other tech IPO’s that many traders and investors have been seeing lately.

Overall, companies go public to raise money to expedite growth for their firm. Facebook, however, is actually being forced to go public. Once a private company crosses the threshold of having more than 499 individual investors, they must disclose financials publicly. If firms have to disclose financials publicly, there is no reason to not be a full publicly traded company. It has been reported that Facebook crossed that threshold of investor numbers sometime in December. Facebook knew this was coming so they most likely have a very solid plan in place for how they want to conduct themselves while going public and how they want to arrive at a fair price for their stock.

Many people like to invest or trade stock in companies that they know and where they have a clear understanding of the business the firm is engaged in. This does not apply to the Facebook IPO. Do not try to acquire shares just because you think you know and understand the business well. Avoid thinking, “ I like Facebook, they make a lot of money, they have good management, and therefore I should buy Facebook stock.”

I am a trader and I care very little when someone tells me what stock they own. It is meaningless to a trader. I don’t care that you own Apple unless you tell me where you bought it. There is a big difference between owning Apple at $100 and owning Apple at $450. What is important with a trade or an investment is the price you paid and how long you have had it. With a company like Facebook, the price will be everything. Facebook makes money and has over 800 million users. They have great management and are not afraid to innovate, or to make strategic acquisitions. The issues for investors and traders will be the price of the IPO and what Facebook plans to do with the cash they are raising.

Because Facebook is not raising money for a specific purpose (like what many firms do), trying to get solid answer to what Facebook will do with this money is key.  Having a ton of cash is a good thing from a balance sheet perspective but not always from an investing one. Investors want a return on their money, not just the return of their money.

Facebook as a firm has a lot of things going well for it, but that does not always translate into a good trading or investing decision. Facebook has been an investable company for institutions and large individual investors for a while, it’s just the retail investor that has been left out. This Facebook IPO is not the same as most tech IPO’s of the past. Facebook has already passed through the phase of hockey stick style growth. It is an 8 year old company. If you are considering the Facebook IPO for yourself, think of it like buying a car. A lot of people like the 325 BMW. It has good handling, good horsepower, and a healthy selection of luxury features. The key element is that this car also comes at a price that many buyers see as fair value for what is being purchased, even if that price is high. The car would not get as many positive reviews if the price was higher, or let’s say, double. As good as that car is, it is not worth $100,000. It would no longer been seen as good value for money. Investors buy stock to either get a capital gain or income generation. If you choose to dip into the Facebook waters, make sure you are doing so at a price where you are receiving value for your money and a fair return on your investment.

Thanks Tusk. Make sure to check out the site: www.TuskFund.com or follow Tusk Trader on twitter: @tusktrader

Related posts:

1. Traders make fun of analysts all the time
2. The Truth About Insiders’ Buying and Selling
3. An Investment Company Owned By Its Clients

This is a guest post on trading from Tusk Trader (check out the newly launched site: www.TuskFund.com), an experienced Bay Street trader who will be writing here until Tusk’s own blog is set up. Tusk had a front row seat to the twists, turns, and almost collapse of our capital market systems a few years ago and provides a unique perspective you won’t find anywhere else. For most people, financial literacy is the elephant in the room. Let Tusk Trader help change that. If you are on twitter, make sure to follow Tusk at @TuskTrader

I have heard that question asked between friends numerous times this week and I have been asked that question personally about 10 times in the last 3 days. I cannot share my opinion on that topic in this blog but I can tell you the first thing that a trader will do to formulate an opinion on a particular stock. The first thing a trader will do is look at the stock chart. Charts do not tell you everything that is going on with a firm but it does tell you a lot. Charts tell you historical action, volume, price ranges, support levels, resistance levels and trend lines to name a few.

When you have a stock like RIM, which has been trending down for a while, people start to look for a reason to buy. The opposite is also true. If a stock has been trending up, people start to look for a reason to short. What sometimes can happen when looking at a chart is that people start to see things that are not really there. They see small signals and confuse them with legitimate chart patterns and reversal signs.

Traders use charts to gain market information every day. Some traders solely use charts to trade from and no other information, but most use charts as part of a larger toolkit. One thing the at home trader does not do often enough, that the professional trader does, is change their chart settings. Change your chart settings to get a different perspective on the same chart. An under used chart viewpoint is the candlestick chart. That is the chart where the lines are thick bars and usually shown in red and green. The aspect of the candlestick chart that makes it useful for a stock reversal is the tail, or what looks like the wick of an actual candle. Tails can be on the top, the bottom or both. The tail indicates that although the stock did trade at those prices, the bulk of the volume was not there. If a stock traded in a large trading range through out the day, glancing at the candle stick will give you a snap shot of where it actually had most of the activity and where the biggest volume was.

Candlestick charts and the tails they display are great for giving an indication of a possible change in direction. When a stock has been trending in one direction for a while, start to look for a candle with a long tail pointing in the direction of the trend. When there is a long tail on one end of the candle, it can point to a reversal of the trend. No chart signal is equal to a crystal ball but it can help to formulate an educated trading decision.

If you find yourself only using one type of chart, switch it up for a fresh perspective. It is like looking at the same chart with new eyes. You might see things more clearly even if you don’t see what you want to see.

Thanks Tusk. Make sure to check out the site: www.TuskFund.com or follow Tusk Trader on twitter: @tusktrader

Related posts:

1. The Block Trade and Real Volume
2. Could go higher, might go lower
3. The Candlestick Chart

This is a guest post on trading from Tusk Trader (check out the newly launched site: www.TuskFund.com), an experienced Bay Street trader who will be writing here until Tusk’s own blog is set up. Tusk had a front row seat to the twists, turns, and almost collapse of our capital market systems a few years ago and provides a unique perspective you won’t find anywhere else. For most people, financial literacy is the elephant in the room. Let Tusk Trader help change that. If you are on twitter, make sure to follow Tusk at @TuskTrader

High Frequency Trading. A very large topic, with more nuances, sub-topics and Street opinions than a conversation about Tebow. High Frequency Trading is a contentious issue with many variables that cannot completely be viewed in isolation. I hope this is just the start of a longer conversation about a complicated trading issue.

First, I want to get everyone up to speed on what High Frequency Trading (HFT) is. HFT computer programs generate buy and sell orders at lightening speed as the HFT program reacts to market data that is constantly changing. These orders are inputted at such a rapid speed that trades generated by a human have zero chance of competing (getting the fill first) and the average computer generated orders (a non HFT one) will also get left in the dust. The timing is calculated down to the millisecond. HFT trading occurs in equities, commodities, ETF’s and almost all things traded electronically. These orders can be generated from things like movements in an order book, or produced while following and tracking information from another market or indices that a particular stock is connected to.

Not all computer trading programs are HFT. And not all HFT programs are predatory. The issues surrounding HFT usually stems from the fact that it only takes one predatory HFT program on a stock to dramatically affect how the trading is occurring on that particular stock. On an average day on a trading floor, 80% of swearing by a trader is now directed at this type of program that he or she encounters in their day.

There is one specific type of HFT program I would like to shed some light on and to pose some questions about; The HFT programs that are only about providing liquidity to collect credits. These programs (and there are frankly a lot of them out there) have a singular goal to accumulate credits. When you trade passively on many electronic exchanges, you get a credit and when you trade aggressively, you pay a fee. (These fees and credits are separate from any charges accumulated by the at home investor trading through a platform). The HFT programs are designed to follow and react to orders in the order book on a stock so that the program is able to step in first and be filled passively. This forces others to trade aggressively when they otherwise would have been able to trade passively. These fees and credits have been around for a long time at varying amounts. I am, as a trader, okay with the idea of being rewarded for being passive. When placing an order in passively you are providing liquidity to someone else. Receiving credits makes sense when there is a decision a market participant has to make about placing an order that has a bigger purpose than just getting a credit.

The questions I pose, however, are:

• Where is this money for the credits coming from?
• Who is the ultimate payee of these credits and are these market participants receiving the benefit of paying that fee which is ending up as profit to the HFT firms?
• What fees are being charged to other market participants so that High Frequency Trading programs can trade to solely collect credits and not actual trading profits?

Many of these programs are predatory to the extent that they are out right manipulating the market. That needs to stop. I wonder how much market liquidity would be lost if aggressive fees were lowered to a fraction of what they are now and passive credits were zero. Would the markets function and have better flow if the goal of every trade was to actually get filled at the price, not to receive a credit for doing so?

HFT programs need to dominate a lot of the activity to collect the credits and be profitable. It is not an exaggeration to say that 30% or more of all traded volume currently comes from some type of HFT program. At any given time, up to 70% of orders in a trading book are generated from HFT programs like this. How much volume would the markets be left with if these programs disappeared? Is forcing everyone else to pay fees so that there is a big enough pool to collect credits from reasonable? How much liquidity is being provided? Do these HFT programs scare off real volume that could be in the market at a lower fee for all?

I am sure some of you are frustrated by the number of questions and lack of answers, but that is a reflection of the current market reaction to HFT’ing. Most of these questions have no definitive answer. It will take regulatory and exchange related changes for the answers to become clear.

My chief concern is that the people paying the aggressive fees are not getting any benefit. The people funding the credits should be the ultimate benefactors of it, and I don’t think they are with HFT’ing in its current form.

*To trade passively is to place your order in the order book, outside of where it is currently trading, and to wait to be filled. To trade aggressively is to hit or take out orders in the order book and hence, be filled immediately.

Thanks Tusk. Make sure to check out the site: www.TuskFund.com or follow Tusk Trader on twitter: @tusktrader

Related posts:

1. High Frequency Trading Explained
2. High Frequency Trading Judgment Day
3. The High Frequency Trading Arms Race

*The following is written by Norm Klatt of Concentra Financial

Economic Impacts and Social Values

In today’s uncertain economic times, there’s value in taking a closer look at a group of reliable financial institutions that are operating within an under-utilized and largely misunderstood alternative business model. These organizations, which began in December 1900, are positioning themselves to re-assert their differences and become more prominent in the financial industry.

This alternative business model is a co-operative; the institutions are credit unions.

Adhering to a basic philosophy that the most important business strategy is to serve the member/owners has enabled credit unions to develop into the competitive organizations they are today. Understanding of, and adherence to, the co-operative principles is the raison d’etre for Canada’s credit unions.

If you weren’t already aware, 2012 has been designated International Year of Co-operatives by the United Nations. What better excuse to share some numbers about Canada’s 419 credit unions. According to the Credit Union Central of Canada, credit unions in Canada employ over 25,000 individuals to serve the 5 million-plus member/owners. This service is delivered in over 1730 credit union branches located in all areas of the country from the largest cities to small rural settlements. Credit unions hold over $117 billion in assets. Together, they constitute the second largest lender to small businesses in Canada…a significant contribution and critical to the economic strength of the country.

But, when talking about credit unions it is important to look behind or perhaps beyond the economic impact. In addition to lending to the businesses that fuel the economy, credit unions are critical to the community itself. In many instances, if it were not for the credit union, the community would not have access to a financial services provider. More often than not, employees of credit unions also live in the community they serve. This allows them the advantage of being able to understand the needs of that community and support the objectives that are important to its growth and well-being.

Credit unions epitomize ‘co-operative’ social responsibility by making a real and sustainable difference in the lives of their member/owners and their community. They lead the way in community giving and volunteerism; through donations, services, scholarships and volunteerism, credit unions contributed more than $37.5 million to individuals and organizations in their communities in 2010.

The small community of Churchbridge, Saskatchewan is a great example. One of the flagships of their community is the town’s public swimming pool. When the staff of Churchbridge Credit Union learned of the need to replace the worn, 40-year old relic, they dove right in as it were. By pioneering initiatives such as staff and board matched donations, holding community BBQs and offering town residents a 0% interest free loan program to encourage participation, over $32,000 was raised. And if that wasn’t enough, staff members voluntarily sat on the planning committee and worked on the building and on the fundraising efforts to support. A true community approach for the 900 residents.

There are success stories like this one all across Canada. With help from local credit unions, many communities continue to prosper, both economically, and in corporate giving thanks to the creation of the co-operative principles over 100 years ago. Those principles are still alive – and are a viable alternative for us all in 2012 and beyond.

Norm Klatt
Senior Vice-President, Credit Union Markets
Concentra Financial

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This is a guest post on trading from Tusk Trader (check out the newly launched site: www.TuskFund.com), an experienced Bay Street trader who will be writing here until Tusk’s own blog is set up. Tusk had a front row seat to the twists, turns, and almost collapse of our capital market systems a few years ago and provides a unique perspective you won’t find anywhere else. For most people, financial literacy is the elephant in the room. Let Tusk Trader help change that. If you are on twitter, make sure to follow Tusk at @TuskTrader

Trading volume is looked at often, but do you consider the effect of block trades?

Traders love volatility

It is well known that traders love volume. We do. Traders are some of the few market participants who are able to react quickly enough to a surprise market move, and profit from it. They can hit the sell or buy key before the reporter has finished stating the market rattling sentence. Participants, who have a job that involves more calculated fundamental analysis, will be trying to analyze the new information and come up with a plan. Traders are not making a decision about where a stock will close at the end of the quarter or even the end of the day. They are reacting to surprising news by making money off of a surprised market. If strong negative news comes out on a stock, a trader might go short, and then long once it feels oversold. Direction is irrelevant. A market can take some time to react to a new piece of information and to come to a consensus on what it means. The process of market participants coming to a consensus is what creates the volatility. Volatility on its own though, does not make a great trading environment. It’s like staring at a 14-ounce piece of raw rib eye on the counter. So much potential, but that meat needs to be placed in the correct environment to bring about the desired result. (In my case, that would be a smoking hot 600 degree grill until the outside is charred and the inside still juicy and red.)

The same is true for volatility. A trader needs volume, like the rib eye needs some heat. The better the volume, the better the trading environment. The reported volume is only one indication of the trading volume situation. Regular reported volume usually automatically includes block trades.

Block Trade

A block trade is when an institution trades a large volume of shares all at once, either with themselves (a cross) or with another institution. A block trade is a pre-arranged trade. The price, timing and participants are all set before the trade happens. To be considered a block trade, it must have at least 10,000 shares involved. As a trader, it is important to separate block trading volume from normal volume traded on a stock. If a particular stock trades 1 millions shares in a day, but 600,000 of the shares traded are from one block trade, it can be a key piece of information. Regular trading volume is what creates the access and execution potential for a trader, not the block trades. Traders need to be able to participate in a stock move and to do that, they need to be able to get in and out of trade. They need real trading volume. Knowing the difference between real volume and block volume will help you on your quest for a profitable trade.

Thanks Tusk. Make sure to check out the site: www.TuskFund.com or follow Tusk Trader on twitter: @tusktrader

Related posts:

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There are various reasons as to why this strategy is appealing. Companies that pay dividends are often larger and more stable than non dividend paying companies. If a dividend paying stock’s price gets beaten up, the dividend yield increases making the stock more attractive which means there is a bit of a brake on the price falling. For example if company XYZ is $100 per share and pays annual dividends of $4, it has a 4% dividend yield. If the market tumbles and XYZ is now trading at $50 per share, so long as they maintain their dividend payments, the yield is now 8% ($4 dividends / $50 share price). Many investors would initiate or add to positions in XYZ if they believed the dividend was safe. This extra buying interest can help buoy the stock’s price compared to stocks that don’t pay dividends.

In any case, there are plenty of websites dedicated to dividend based investing. If you want opinions on dividend stocks, there is no shortage.

Instead, here’s a chart that will be sure to be popular with dividend investors and bloggers. It shows the breakdown of S&P 500 Total Returns by decade (including the first four years in the 1920′s) of dividends versus capital appreciation. I circled the last bar on the chart which indicates that capital appreciation accounted for an annualized return of 5.5% between 1926 and 2009. Dividends, however, accounted for 4.1%. Thanks to JP Morgan Asset Management for the chart.

(Click on the chart for a larger version.)

Source: Standard & Poor’s, Ibbotson, J.P. Morgan Asset Management.

Related posts:

1. Split Shares – Your Choice: More Price Participation or More Yield?
2. Dividend Capture Strategy
3. Global diversification of S&P 500 increasing