Stock Trading - Entry 43

While I am not dispensing financial advice in this article or any of my previous articles on Vocal.Media, what I am about to get into involves numbers that can lie to a micro-investor such as myself. I would be curious to know if any of these or other numbers have lied to other investors out there as well - so leave a comment at the very end of this page with a few details. Alrighty, let's get started.

The Lie Behind Dividend Yield

This little percentage is a quick indicator to compare the interest on a chequing account against the amount a stock will pay in dividends relative to the stock price. Why is this a lie? First up, that number is based on both the current dividend and the current stock price. Even if dividends don't change over time (most increase, but I digress), stock prices change constantly. What matters for me as an investor is the yield relative to the price I actually bought it at. So, if the yield is 5% and the stock price jumps up by a few dollars, the posted yield will drop and will no longer reflect my actual situation. (This is why I like simplywallstreet's portfolio analyser, free for up to ten different shares.) Second, you can lose your investment if the price of a stock you own plummets, but not so much in an insured chequing account.

For me, I stick with actual dividends earned and declared, in fact, I enjoy seeing the amount I can expect to earn in a calendar year if dividends don't decrease (in amount or frequency) for all the stocks I have.

How Debt Ratios Lie

For a regular make-then-sell company, too much debt is indicative of a number of things I consider important from a micro-investor point-of-view. In contrast, take something massive, like real estate. Those businesses are supposed to have debt!!! The more the better (typically) because then they can have more properties (AKA properties/assets under management)!!!

Using Real Estate Investment Trusts (REITs) as an example, that means I look at the market of the region invested in, what types of properties (residential, commercial, and industrial), and how well the debt is being managed. That last one is a boring read, but it did lead me to a great loophole any business in Canada can use that I will discuss later on in this article.

Market Cap

To be honest, I haven't quite figured out why micro-investors like myself would give a hoot about this. Bigger fish, sure, because those investors would need to know how much of their money they could park in a given company that could then grow.

For me, I don't pay much attention to market cap. I focus more on the market (AKA customers) a company serves.

When a Dividend is Greater than $0

This will bust the myth that dividends are always good. If a dividend is, say 5% and the stock price goes down 3% after you buy and then you decide to sell, you did make 2% overall. Typically, the dividend rate is the annual rate. So if dividends in company X are paid quarterly, then 5% divide by 4 is 1.25%. So, in this example, you've actually lost 1.75% and for what? Plus, this says speaks to nothing of the health of a company, which can be a whole other story sometimes (e.g. taking out a loan to pay dividends).

Honestly, after including dividend stocks in my investing strategy for over a year now, I have found that dividends only matter over time and in amounts somewhat significant to me. What is significant to me? Well, the amount a stock price goes up has to be higher than the dividend yield (based on the price at which I bought stock price). So if the dividend yield for me is 8%, if the price of a stock only goes up 3%, I would only sell if there were other serious considerations, otherwise, I would hold to get the full 8% over a year (or longer). As a result, they tend to slow my buying and selling a bit because I do want to park my money into a company that is doing well and thanking me for investing capital in them.

Outstanding Stock Options

This one can be a double-edged sword. Sure, reward insiders who invest in the company and become financially more motivated to perform better at their job. If there is a lot of these shares outstanding, that could flood the market and upset my ability to find a good deal on a stock price. Both SECU and KBL have significant stock options outstanding as of the publishing of this article, although I have only purchased the former to-date (as at the publishing of this article).

What I look for here is the exercise price. What does the company really want the stock price to be worth? I factor that price into my investing strategy.

A Great Loophole

Ok, this is even better than LQWD in entry 33, I promise. Apparently, just about any small business in Canada can do this. Take Automotive Finco Corp. (AAFC) as at the publishing of this article - their financial documents are available on sedarplus.ca (click on 'Search Sedar+', then type 'automative finco' in the 'select profile(s) to search on' textbox, then click on the company name, then click on 'search'). In section 6 on page 7 of their interim financial documents of 29 May 2025, AAFC has an eight-figure loan. They never pay it down, only the interest. The interest rate is 12%. The person behind that loan is an insider!!! But it gets better.

That insider, let's say they are a well-paid Director, earns an income that keeps them below the 26% tax bracket for 2024 (according to the salaries mentioned in section 12.1 on page 10). So they get a salary (let's say $100k to keep the math simple) and 12% interest on the loan ($2.5m). That means $2.6m per year. Not bad. But it gets even better.

The loan is with a company that insider owns, not the insider directly. As at the time of publishing this article, this site says that according to current Canadian tax law, you only need to pay 12% interest on the first half million and then 25%-ish on the rest. In short, the interest of 12% they earn from the loan means they found a way to pay only 1% on taxes for half a million dollars and a max of 13%-ish on the remaining two million. Compare that to the much higher income tax rate that would have applied if the entire $2.6m were all income. But I am sure it doesn't stop there.

You see, I am sure that other business is engaged in other activities that would likely further reduce the applicable tax rate and ditto for the salary dollars of the insider. I mean, why stop here? Ah...rich-people problems, rich-people solutions.

Speaking of which, I now have a problem I forecasted early in my investing journey (I touched on it in entry 8). My portfolio value recently broke $20k and I ran into the problem I predicted for roughly that amount: my investment strategy needs to change. So, I will need to look at a few things....

To find out how my investment strategy changes as well as what I do or don't invest in next, subscribe for free below to become notified right when I publish those articles. Alternatively, you can bookmark this page that contains a list of all my entries in my stock and blockchain trading journey I publish on Vocal Media.