The 'Dividend Puzzle': Dividends, Earnings and Income

We like dividend shares at the DIY Income Investor - as described here and here. But how much evidence is there for a relationship between dividend yield and total shareholder return?

Until 2003, the economics 'establishment' believed that there was little relationship between a company's dividend level and its future earnings (and therefore the value of the share). Since then a lot of evidence has emerged to support the existence of such a relationship - but it does not completely answer this 'dividend puzzle'.

Review Hundreds of Personal Finance Books!

There are hundreds of books about personal finance and many of them are likely to have some insight or new technique that can improve our approach to money management and investing. But how can you work your way through them without spending a lot of time and money - and how can you separate the grains of truth from the chaff of puffery?

Well, (for once on the DIY Income Investor) you don't have to do it all yourself - someone's already done the hard work and summarised the key ideas. Now you can find the books that look like they will really interest you.

10 More Tips for Income Investing

In the past I have suggested 10 'rules' for income investing and 10 steps to financial nirvana plus 10 resolutions for the new financial year.

So, continuing my theme of decaphilism (if that word even exists) here are 10 distilled tips that might be useful if you are looking for new ideas to improve your income investing.

Are Dividend Shares Better Than Bonds/Gilts?

Some investors in high-yield share portfolios ('HYPers') won't look at bonds or other fixed-return investments. Is that rational? Here at the DIY Income Investor we like a mix - Level 5 (Gilts), Level 6 (HYP) and Level 7 (Commercial Bond) on the Income Pyramid.

Who is right? Should you put your money on the fixed-return hare or the dividend tortiose  to win?

Understanding Yield

I came across an interesting article on yield by John Hussman (written in 1998) that set me thinking that most of us (me included) haven't thought deeply enough about yield and what it means for our investment strategy.

PIBs For High Returns - But With Risk (UK)

I have examined PIBS as a potential investment in a previous post and subsquently bought Nationwide PIBS (Permanent Interest-Bearing Shares), which at the time were yielding 7.7%. PIBS are special shares issued by building societies (similar to US Savings & Loan banks) that pay a fixed rate of interest. They cannot (usually) be sold back to the society but can be bought and sold on the stock exchange, which means the price varies.

A PIBS is similar in character to a Corporate Bond and therefore forms part of my Level 7 holdings on the DIY Income Investor Income Pyramid - the most risky tranche of investments.

The yields on PIBS are attractive - but there are the risks and you will need to tread carefully and do your research. A bit like rock climbing - exhilarating but potentially dangerous!

Two in Three Americans Don't Have an Emergency Fund of $1000

I can't remember NOT having any savings, although at times it wasn't much - with even the odd temporary overdraft. But then, I'm getting on - and the culture of saving seems to be dying out.


One statistic that caught my eye recently was that 64% of Americans don't have $1,000 in a savings account to cover emergency expenses. That's nearly two-thirds of the population surviving between paychecks - and in a county with notoriously expensive healthcare.

75% of US Shares Lose Value

According to research on the US share market (as represented by the University of Chicago's CRSP total equity market database), between 1980 and 2008, three-quarters of shares lost value; all the market gain (of 10.4%) was due to just 25% of the shares. The study goes a long way toward explaining why most investors and fund managers fail to beat the market average.

So, if you had been in a market tracker you would have made the average market gain. However, if you could have identified those 25% of 'superstocks' (and avoided the 'losers') you would have done a lot better!

Are You an Investor or a Speculator?

Business legend John Bogle (who popularised low-cost index funds) argues that this is the very first question you should ask yourself. According to Mr. Bogle, that single distinction makes all the difference in investment returns over a lifetime. True investors - those who do not try to time the market - take home most of the rewards of the market.

How To Sit On Your Hands

Not literally, of course - although that would help to keep you out of trouble - but a lot of the time for a DIY Income Investor there is not a lot to do. And, what is more, it is usually a good thing to do less trading rather than more, as studies have shown that over-trading leads to poor results.

So, figuratively sitting on your (trading) hands is an activity that you will need to learn to do, although it might seem a little boring..

HYP Watch List: Thomas Cook (TCG)

As always, I continue to be on the lookout for good new dividend-paying shares for my High Yield Portfolio. These high-yield shares form Level 6 on the DIY Income Investor Income Pyramid).

As I have just returned from holiday, it seemed appropriate to revisit Thomas Cook, the famous FTSE 250 travel company. Does it fit the bill - or is it potentially a 'holiday from hell'?