Kanwal Sarai, 40
Software product delivery co-ordinator
Includes AT&T Inc., BCE Inc., Bank of Montreal, Canadian National Railway Co., Exxon Mobil Corp., Johnson & Johnson, Power Corp., TransCanada Corp. and Wal-Mart Stores Inc.
Kanwal Sarai began investing in 1988, starting with mutual funds. After a few years, he decided to manage his own investments. His search for role models led to Warren Buffett, Benjamin Graham and other value investors who focus on buying value-priced shares in quality companies for the long term. Influenced by dividend investors such as Tom Connolly, editor of the Connolly Report, a tilt toward dividends was added.
"To me a stock is undervalued when its current dividend yield is higher than its 10-year average yield. I also look for a price-earnings ratio under 20. But lower - around 12 - is even better."
"Generally I look for companies that have been around for a very long time, are household names and virtual monopolies in their market." Examples include Coca-Cola Co. in the U.S., and the big banks in Canada.
Being financially healthy is important, too. "The long-term debt-to-equity ratio should be under 70 per cent, preferably even less than 50 per cent." Good credit ratings count as well.
Companies should be recession-proof and have grown earnings per share and dividends more than 8 per cent annually over the past 10 years. The dividend payout ratio should be less than 75 per cent of net income.
He bought TransCanada in 2000; if he sold now, his total return would be more than 340 per cent.
"Buying Nortel shares based on a 'hot' stock tip from friends."
"Do not make investment decisions based on stock tips." Mr. Sarai offers more advice at simplyinvesting.com.
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