"I believe non-dividend stocks aren’t much more than baseball cards. They are worth what you can convince someone to pay for them."
–Mark Cuban, Billionaire businessman
Based on what you learned about dividends, why are non-dividend stocks compared to baseball cards?
i don’t know how to answer that.. please help!
wertyu_24 5:02 pm on October 22, 2010 Permalink
With non-dividend stocks, you never get a share in the company’s profits. The only benefit you might see from a non-dividend stock is a voting right, but besides that, the value of the stock will only grow with the value of the company.
For dividend paying companies, stocks are usually valued using the dividend payout, so no dividend equals no value. It will only have intrinsic value, like baseball cards.
Read more: What does this comparison mean when it comes to non-dividend stocks?
http://investing.hirby.com/what-does-this-comparison-mean-when-it-comes-to-non-dividend-stocks/
Keep INVESTING Simple and Safe (KISS) ****Investment Philosophy, Strategy and various Valuation Methods**** The same forces that bring risk into investing in the stock market also make possible the large gains many investors enjoy. It’s true that the fluctuations in the market make for losses as well as gains but if you have a proven strategy and stick with it over the long term you will be a winner!****Warren Buffett: Rule No. 1 - Never lose money. Rule No. 2 - Never forget Rule No. 1.
Showing posts with label dividend investing. Show all posts
Showing posts with label dividend investing. Show all posts
Saturday 23 October 2010
Thursday 29 July 2010
Free Cash Flow Yield trumps Dividends as a driver of returns
The chart below was adapted from research conducted by Empirical Research Partners – it depicts relative returns for U.S. large cap stocks sorted by dividend growth, share repurchases, and price/free cash flow over the 35-year period from 1970-2005.
You will notice the following:
- Strategies focused only on dividend growth have only modestly outperformed the S&P 500 Index.
- Companies that pay no dividends at all have the worst return records.
- Strategies focused on price/free cash flow were the most effective at outperforming the S&P 500 Index.
Even in today’s severely compromised market environment, companies are fiercely protective of their free cash flow. Despite the downturn, free cash flow has held up remarkably well due to a couple of factors: a low capital expenditure base and aggressive management of working capital.
https://www.phn.com/Default.aspx?tabid=1103
Saturday 24 July 2010
The single best strategy for investors – investing in dividend paying stocks.
The single best strategy for investors – investing in dividend paying stocks.
Doing this will:
1. Help you avoid making big mistakes in the stock market;
2. Increase your chances of beating the market; and
3. Be less volatile than the rest of the market.
Just look at the chart below,
http://www.investmentu.com/2007/November/dividend-paying-stocks.html
According to the most recent studies, dividend-paying stocks outperform non-dividend paying stocks by a wide margin.
Over the past 35 years, non-dividend paying stocks have gained an average annual return of 2.5%. That’s less than T-bills. But dividend-paying stocks have averaged an annual return of between 8.9% and 10.9%. That’s a huge difference.
Avoid “The Growth Trap”
Brokers usually tantalize their clients with hot tips about new and bold technology breakthrough stories, and investors bite. Big mistake.
The fact is, most technology “growth” stocks fail to deliver. Jeremy Siegel, the Wizard of Wharton, calls it the “growth trap” in his book, The Future for Investors…
“The most innovative companies are rarely the best place for investors,” he boldly declares.
Why? Because investors invariably overpay for tech stocks.
And Peter Lynch, the legendary money manager of the Magellan Fund, confesses, “I note with no particular surprise that my most consistent losers were the technology stocks.” Well, it’s a surprise to me.
Doing this will:
1. Help you avoid making big mistakes in the stock market;
2. Increase your chances of beating the market; and
3. Be less volatile than the rest of the market.
Just look at the chart below,
http://www.investmentu.com/2007/November/dividend-paying-stocks.html
According to the most recent studies, dividend-paying stocks outperform non-dividend paying stocks by a wide margin.
Over the past 35 years, non-dividend paying stocks have gained an average annual return of 2.5%. That’s less than T-bills. But dividend-paying stocks have averaged an annual return of between 8.9% and 10.9%. That’s a huge difference.
Where can one consistently find value in quality companies that are likely to succeed? The answer is simple: Buy a portfolio of stocks that pay rising dividends, or that start paying dividends. There’s plenty to choose from…
1. High-dividend U.S. stocks, funds and ETFs
2. High-yielding foreign stocks and funds
3. Rising dividend stocks and funds
4. High-yielding Dow stocks
5. Business development companies (BDCs)
6. Real estate investment trusts (REITs)
7. Energy and commodity stocks
Avoid “The Growth Trap”
Brokers usually tantalize their clients with hot tips about new and bold technology breakthrough stories, and investors bite. Big mistake.
The fact is, most technology “growth” stocks fail to deliver. Jeremy Siegel, the Wizard of Wharton, calls it the “growth trap” in his book, The Future for Investors…
“The most innovative companies are rarely the best place for investors,” he boldly declares.
Why? Because investors invariably overpay for tech stocks.
And Peter Lynch, the legendary money manager of the Magellan Fund, confesses, “I note with no particular surprise that my most consistent losers were the technology stocks.” Well, it’s a surprise to me.
Friday 4 June 2010
The Coming Bubble of 2010, and How to Avoid It
The Coming Bubble of 2010, and How to Avoid It
Adam J. Wiederman
May 30, 2010
Even though it has been barely two years since the latest investing bubble burst, sending the stocks of Fannie Mae and Freddie Mac to their knees, there's yet another bubble forming. And I believe it will burst this year.
Don't just take my word for it; even world-renowned investor George Soros agrees.
Just ahead, I'll tell you how to completely avoid it, and I'll present an alternative strategy you can adopt instead of following the crowd into this bubble.
But first, let's take a look at this bubble and how it formed.
All that glitters
Congress has spent billions of dollars in stimulus funds to jump-start the economy. This influx of dollars was funded almost entirely with debt. As the national debt level rises, the dollar becomes weaker, because currency investors shy away from high-debt countries. This causes higher inflation, which most everyone agrees is coming.
But the consensus right now is that the best way to counteract inflation is by investing in gold.
And the consensus is dead wrong!
Alas, gold is a luxury commodity. It has no coupon rate or growth prospects, and it can rise in price only as much as demand for it grows.
It's also difficult to value. Some believe the price of gold per ounce should match the Dow Jones Industrial Average. Others believe it must reflect the price of a top-tier man's suit. Still others believe it must account for global supply and demand.
In spite of this inherent confusion, many prominent investors -- John Hathaway of the Tocqueville Gold Fund, Jim Rogers of Quantum Fund fame, and even top hedge fund managers like David Einhorn and John Paulson, to name a few -- believe gold can do well right now.
Even more shockingly, a recent Value Investors Congress was full of lectures on how to profit in precious metals.
Even the best can be fooled
The average investor is blindly following these noteworthy financial wizards. That's why more than $12 billion of new money was invested in the SPDR Gold Trust in 2009 alone. I'm the first to admit that falling prey to other investors' moves is an easy pitfall, but it can set you up for disaster.
So what exactly are all these investors -- and their followers -- overlooking? These two key facts:
1. When gold demand rises, supply does, too, which brings gold prices back down.
Fortune magazine reports that gold miners invested more than $40 billion into new projects since 2001, and they "are now bearing fruit." Bullion dealer Kitco "predicts that these new mining projects will add 450 tons annually -- or 5% -- "to the gold supply through 2014, enough to move prices lower." The demand also brings out sellers of scrap gold, which adds even more to the supply.
All this while demand for gold (other than as an investment) dropped 20% in 2009.
2. Gold is historically a poor investment.
Perhaps the most damning fact is that, from 1833 through 2005, gold and inflation had nearly perfect correlation, according to Forbes. This means that, after taxes, you would have actually lost money in gold.
Warren Buffett once quipped:
It gets dug out of the ground. ... Then we melt it down, dig another hole, bury it again and pay people to stand around guarding it. It has no utility. Anyone watching from Mars would be scratching their head.
Truth be told, the only way to get the price of gold to rise is to get other investors to buy into the idea -- like a giant Ponzi scheme. And as we know from watching the unraveling of Bernie Madoff's empire, that can't last forever.
No wonder the vice governor of the Chinese central bank recently announced that the bank is holding off on purchasing gold.
All of this explains why buying gold today is a horrible decision -- and why investors would be better off looking elsewhere.
The absolute best place to look
The best way to invest for inflation is to invest in high-yield dividend companies. Unlike gold, which has no coupon rate and no growth potential, you should be sending your investing dollars to companies that pay a dividend (which often rises) and also have both stable growth potential (which also often rises) and strong assets (in inflationary periods, assets are more valuable since they cost more to replace).
Here are six solid candidates that fit that bill, all of which have a long history of dividends -- through periods of inflation and deflation alike:
Company
Market Cap
Dividend Yield
5-Year Compounded Annual Growth Rate of Dividends
Liabilities-to-Assets Ratio
Dividends Paid Since
United Technologies (NYSE: UTX)
$64 billion
2.5%
16.2%
66%
1936
McDonald’s (NYSE: MCD)
$72 billion
3.3%
30.7%
53%
1976
Abbott Laboratories (NYSE: ABT)
$74 billion
3.7%
9.2%
61%
1926
Coca-Cola (NYSE: KO)
$118 billion
3.4%
10.1%
48%
1893
Chevron (NYSE: CVX)
$149 billion
3.9%
11.4%
44%
1912
Johnson & Johnson (NYSE: JNJ)
$163 billion
3.7%
11.4%
43%
1944
Data from Capital IQ and DividendInvestor.com.
These are exactly the sorts of dividend-paying stocks that former hedge-fund analyst and current Motley Fool Income Investor advisor James Early looks for in his market-beating service.
In his newsletter, James has put together a "core portfolio" of top dividend stocks, consisting of six dividend stocks he believes every investor should use as a platform to profitable dividend investing.
This article was originally published Nov. 6, 2009. It has been updated.
http://www.fool.com/investing/dividends-income/2010/05/30/the-coming-bubble-of-2010-and-how.aspx
Take home message:
The best way to invest for inflation is to invest in high-yield dividend companies. Unlike gold, which has no coupon rate and no growth potential, you should be sending your investing dollars to companies that pay a dividend (which often rises) and also have both stable growth potential (which also often rises) and strong assets (in inflationary periods, assets are more valuable since they cost more to replace).
Adam J. Wiederman
May 30, 2010
Even though it has been barely two years since the latest investing bubble burst, sending the stocks of Fannie Mae and Freddie Mac to their knees, there's yet another bubble forming. And I believe it will burst this year.
Don't just take my word for it; even world-renowned investor George Soros agrees.
Just ahead, I'll tell you how to completely avoid it, and I'll present an alternative strategy you can adopt instead of following the crowd into this bubble.
But first, let's take a look at this bubble and how it formed.
All that glitters
Congress has spent billions of dollars in stimulus funds to jump-start the economy. This influx of dollars was funded almost entirely with debt. As the national debt level rises, the dollar becomes weaker, because currency investors shy away from high-debt countries. This causes higher inflation, which most everyone agrees is coming.
But the consensus right now is that the best way to counteract inflation is by investing in gold.
And the consensus is dead wrong!
Alas, gold is a luxury commodity. It has no coupon rate or growth prospects, and it can rise in price only as much as demand for it grows.
It's also difficult to value. Some believe the price of gold per ounce should match the Dow Jones Industrial Average. Others believe it must reflect the price of a top-tier man's suit. Still others believe it must account for global supply and demand.
In spite of this inherent confusion, many prominent investors -- John Hathaway of the Tocqueville Gold Fund, Jim Rogers of Quantum Fund fame, and even top hedge fund managers like David Einhorn and John Paulson, to name a few -- believe gold can do well right now.
Even more shockingly, a recent Value Investors Congress was full of lectures on how to profit in precious metals.
Even the best can be fooled
The average investor is blindly following these noteworthy financial wizards. That's why more than $12 billion of new money was invested in the SPDR Gold Trust in 2009 alone. I'm the first to admit that falling prey to other investors' moves is an easy pitfall, but it can set you up for disaster.
So what exactly are all these investors -- and their followers -- overlooking? These two key facts:
1. When gold demand rises, supply does, too, which brings gold prices back down.
Fortune magazine reports that gold miners invested more than $40 billion into new projects since 2001, and they "are now bearing fruit." Bullion dealer Kitco "predicts that these new mining projects will add 450 tons annually -- or 5% -- "to the gold supply through 2014, enough to move prices lower." The demand also brings out sellers of scrap gold, which adds even more to the supply.
All this while demand for gold (other than as an investment) dropped 20% in 2009.
2. Gold is historically a poor investment.
Perhaps the most damning fact is that, from 1833 through 2005, gold and inflation had nearly perfect correlation, according to Forbes. This means that, after taxes, you would have actually lost money in gold.
Warren Buffett once quipped:
It gets dug out of the ground. ... Then we melt it down, dig another hole, bury it again and pay people to stand around guarding it. It has no utility. Anyone watching from Mars would be scratching their head.
Truth be told, the only way to get the price of gold to rise is to get other investors to buy into the idea -- like a giant Ponzi scheme. And as we know from watching the unraveling of Bernie Madoff's empire, that can't last forever.
No wonder the vice governor of the Chinese central bank recently announced that the bank is holding off on purchasing gold.
All of this explains why buying gold today is a horrible decision -- and why investors would be better off looking elsewhere.
The absolute best place to look
The best way to invest for inflation is to invest in high-yield dividend companies. Unlike gold, which has no coupon rate and no growth potential, you should be sending your investing dollars to companies that pay a dividend (which often rises) and also have both stable growth potential (which also often rises) and strong assets (in inflationary periods, assets are more valuable since they cost more to replace).
Here are six solid candidates that fit that bill, all of which have a long history of dividends -- through periods of inflation and deflation alike:
Company
Market Cap
Dividend Yield
5-Year Compounded Annual Growth Rate of Dividends
Liabilities-to-Assets Ratio
Dividends Paid Since
United Technologies (NYSE: UTX)
$64 billion
2.5%
16.2%
66%
1936
McDonald’s (NYSE: MCD)
$72 billion
3.3%
30.7%
53%
1976
Abbott Laboratories (NYSE: ABT)
$74 billion
3.7%
9.2%
61%
1926
Coca-Cola (NYSE: KO)
$118 billion
3.4%
10.1%
48%
1893
Chevron (NYSE: CVX)
$149 billion
3.9%
11.4%
44%
1912
Johnson & Johnson (NYSE: JNJ)
$163 billion
3.7%
11.4%
43%
1944
Data from Capital IQ and DividendInvestor.com.
These are exactly the sorts of dividend-paying stocks that former hedge-fund analyst and current Motley Fool Income Investor advisor James Early looks for in his market-beating service.
In his newsletter, James has put together a "core portfolio" of top dividend stocks, consisting of six dividend stocks he believes every investor should use as a platform to profitable dividend investing.
This article was originally published Nov. 6, 2009. It has been updated.
http://www.fool.com/investing/dividends-income/2010/05/30/the-coming-bubble-of-2010-and-how.aspx
Take home message:
The best way to invest for inflation is to invest in high-yield dividend companies. Unlike gold, which has no coupon rate and no growth potential, you should be sending your investing dollars to companies that pay a dividend (which often rises) and also have both stable growth potential (which also often rises) and strong assets (in inflationary periods, assets are more valuable since they cost more to replace).
Buffett's a Dividend Investor, Why Aren't You?
Buffett's a Dividend Investor, Why Aren't You?
http://www.fool.com/investing/dividends-income/2010/05/27/buffetts-a-dividend-investor-why-arent-you.aspx
Jim Royal, Ph.D.
May 27, 2010
One of the worst misconceptions about dividend investing is that it's boring. If you mean regularly increasing gobs of cash delivered to your brokerage account, then OK, it's boring. Heck, some even think dividends are dumb.
But for those of us who love it when someone deposits money into our accounts, it's the most powerful and low-risk form of investing around, I would argue. And I have.
In fact, dividend investing is so powerful that the world's greatest investor, Warren Buffett, has made it a staple of his portfolio, a good reason that you should too.
Buffett, a dividend investor?!
Sure, Buffett is known primarily as a value investor, but the Oracle of Omaha has made a career of finding businesses that pump out cash like oil from a well, a trait that makes them primed to be outstanding income stocks. Such cash-flow companies include high-quality insurers like GEICO or other well-run financials such as Wells Fargo and American Express.
One of Buffett's finest picks has been a dividend monster. The stock? Coca-Cola (NYSE: KO). Buffett first started acquiring Coca-Cola shares in 1988 and has built a position of 200 million shares as of March 2010, meaning he owns nearly 9% of the soda king. Coca-Cola forms 21% of Berkshire's investment portfolio, followed by Wells Fargo at 18%.
But in 1988 Coca-Cola wasn't the clear slam-dunk choice it appears today. Buffett was one of the first investors to see its enviable Coke brand as a serious competitive advantage. The superinvestor has now held shares for over 20 years and has repeatedly praised the efficiency of its capital-light business model, which spits out tons of free cash.
That free cash has allowed the company to consistently raise its dividend, making a small fortune for a long-term holder like Buffett.
Because Coca-Cola has raised its dividend by 12% on average over the last 21 years, Buffett now manages to get back about one-third of his original investment every year. If the company continues to increase its dividend at this historical rate, in about nine years Buffett will manage to get back his original investment in dividends every year!
Given Coca-Cola's steady economic performance and solid record of increasing dividends, there's every indication that it will continue those growing payouts. That's the power and excitement of income investing with a rock-solid company: increasing payouts for life.
And that's not all ...
As Buffett did with Coca-Cola, when screening for dividend stocks you should look for strong fundamentals such as steady profitability and increasing growth over time.
Generally, you should avoid cyclical companies, since they may be unable to maintain consistent profitability, which could endanger their ability to pay a dividend. Instead, focus on businesses whose products will be in demand regardless of the financial climate, helping to ensure a steady payout.
Here are a few that fit my criteria.
Company
Trailing Dividend Yield
5-Year Dividend Growth Rate
5-Year Earnings Growth
Procter & Gamble (NYSE: PG)
3.2%
11.9%
13.5%
McDonald's (NYSE: MCD)
3.2%
30.7%
13.3%
Microsoft (Nasdaq: MSFT)
2%
16.7%
9%
Johnson & Johnson (NYSE: JNJ)
3.6%
11.4%
8.5%
General Mills (NYSE: GIS)
2.7%
9.1%
9.7%
Nike (NYSE: NKE)
1.5%
18.2%
8.1%
Source: Capital IQ, as of May 27, 2010.
Each of these companies has a remarkably strong franchise for consumer products that we use day in and day out, as you can see in their consistent earnings growth.
While Procter & Gamble offers the detergents and shaving products we use on a daily basis, McDonald's offers the most known fast-food brand along with its famous fries. It's hard to operate a computer without using Microsoft software somewhere, and Johnson & Johnson's health products cover a wide swath, from mundane goods such as Band-Aids and Tylenol to ultra-high-tech medical devices. General Mills profitably serves up its cereals, as well as yogurt and pizzas -- in short, some of the popular foods in the grocery. And Nike is so ubiquitous that it's hard to imagine sports without this brand.
The indispensability of their products ensures that payouts from such blue chips can grow for decades, turning even a small initial investment into a dividend dynamo, just like Buffett did with Coke.
Follow these dividend stars
Like Buffett, the experts at Motley Fool Income Investor are focused on "boring" companies that mint money -- including Coca-Cola. Advisor James Early and the whole Income Investor team look for companies offering a yield of 3% or better and that are primed to increase their payouts for the long term.
Jim Royal, Ph.D. owns shares in Procter & Gamble and Microsoft. American Express, Coca-Cola, and Microsoft are Inside Value selections. Johnson & Johnson, Coca-Cola, and Procter & Gamble are Income Investor recommendations. Motley Fool Options has recommended a buy calls position on Johnson & Johnson and a diagonal call position on Microsoft. The Fool owns shares of Coca-Cola and Procter & Gamble. The Fool has a disclosure policy.
http://www.fool.com/investing/dividends-income/2010/05/27/buffetts-a-dividend-investor-why-arent-you.aspx
Jim Royal, Ph.D.
May 27, 2010
One of the worst misconceptions about dividend investing is that it's boring. If you mean regularly increasing gobs of cash delivered to your brokerage account, then OK, it's boring. Heck, some even think dividends are dumb.
But for those of us who love it when someone deposits money into our accounts, it's the most powerful and low-risk form of investing around, I would argue. And I have.
In fact, dividend investing is so powerful that the world's greatest investor, Warren Buffett, has made it a staple of his portfolio, a good reason that you should too.
Buffett, a dividend investor?!
Sure, Buffett is known primarily as a value investor, but the Oracle of Omaha has made a career of finding businesses that pump out cash like oil from a well, a trait that makes them primed to be outstanding income stocks. Such cash-flow companies include high-quality insurers like GEICO or other well-run financials such as Wells Fargo and American Express.
One of Buffett's finest picks has been a dividend monster. The stock? Coca-Cola (NYSE: KO). Buffett first started acquiring Coca-Cola shares in 1988 and has built a position of 200 million shares as of March 2010, meaning he owns nearly 9% of the soda king. Coca-Cola forms 21% of Berkshire's investment portfolio, followed by Wells Fargo at 18%.
But in 1988 Coca-Cola wasn't the clear slam-dunk choice it appears today. Buffett was one of the first investors to see its enviable Coke brand as a serious competitive advantage. The superinvestor has now held shares for over 20 years and has repeatedly praised the efficiency of its capital-light business model, which spits out tons of free cash.
That free cash has allowed the company to consistently raise its dividend, making a small fortune for a long-term holder like Buffett.
Because Coca-Cola has raised its dividend by 12% on average over the last 21 years, Buffett now manages to get back about one-third of his original investment every year. If the company continues to increase its dividend at this historical rate, in about nine years Buffett will manage to get back his original investment in dividends every year!
Given Coca-Cola's steady economic performance and solid record of increasing dividends, there's every indication that it will continue those growing payouts. That's the power and excitement of income investing with a rock-solid company: increasing payouts for life.
And that's not all ...
As Buffett did with Coca-Cola, when screening for dividend stocks you should look for strong fundamentals such as steady profitability and increasing growth over time.
Generally, you should avoid cyclical companies, since they may be unable to maintain consistent profitability, which could endanger their ability to pay a dividend. Instead, focus on businesses whose products will be in demand regardless of the financial climate, helping to ensure a steady payout.
Here are a few that fit my criteria.
Company
Trailing Dividend Yield
5-Year Dividend Growth Rate
5-Year Earnings Growth
Procter & Gamble (NYSE: PG)
3.2%
11.9%
13.5%
McDonald's (NYSE: MCD)
3.2%
30.7%
13.3%
Microsoft (Nasdaq: MSFT)
2%
16.7%
9%
Johnson & Johnson (NYSE: JNJ)
3.6%
11.4%
8.5%
General Mills (NYSE: GIS)
2.7%
9.1%
9.7%
Nike (NYSE: NKE)
1.5%
18.2%
8.1%
Source: Capital IQ, as of May 27, 2010.
Each of these companies has a remarkably strong franchise for consumer products that we use day in and day out, as you can see in their consistent earnings growth.
While Procter & Gamble offers the detergents and shaving products we use on a daily basis, McDonald's offers the most known fast-food brand along with its famous fries. It's hard to operate a computer without using Microsoft software somewhere, and Johnson & Johnson's health products cover a wide swath, from mundane goods such as Band-Aids and Tylenol to ultra-high-tech medical devices. General Mills profitably serves up its cereals, as well as yogurt and pizzas -- in short, some of the popular foods in the grocery. And Nike is so ubiquitous that it's hard to imagine sports without this brand.
The indispensability of their products ensures that payouts from such blue chips can grow for decades, turning even a small initial investment into a dividend dynamo, just like Buffett did with Coke.
Follow these dividend stars
Like Buffett, the experts at Motley Fool Income Investor are focused on "boring" companies that mint money -- including Coca-Cola. Advisor James Early and the whole Income Investor team look for companies offering a yield of 3% or better and that are primed to increase their payouts for the long term.
Jim Royal, Ph.D. owns shares in Procter & Gamble and Microsoft. American Express, Coca-Cola, and Microsoft are Inside Value selections. Johnson & Johnson, Coca-Cola, and Procter & Gamble are Income Investor recommendations. Motley Fool Options has recommended a buy calls position on Johnson & Johnson and a diagonal call position on Microsoft. The Fool owns shares of Coca-Cola and Procter & Gamble. The Fool has a disclosure policy.
Thursday 29 April 2010
Dividend slump ends as record cash lifts payouts
"Balance-sheet management has been stellar over the past two years," Jonathan Golub, the US equities strategist for Zurich-based UBS AG, wrote in a note to clients on March 29. "We continue to like high dividend yielding stocks as alternatives to money-market and short-duration bond funds."
More than 800 dividend decreases were announced in 2009, a year after the S&P 500 plunged 38 per cent for its worst annual performance since the 1930s. The January-to-March period in 2009 was the worst quarter ever for S&P 500 dividends with $US38.7 billion in reductions, according to S&P. The stock index sank to a 12-year low on March 9, 2009.
Billions in Cash
As the economy rebounded, cash balances rose to a record $US831.2 billion at the end of the fourth quarter, according to S&P data. One company cut its dividend and another suspended it during the first three months of 2010, the fewest since 2006, according to S&P.
"Dividends are emblematic of corporate strength," Jack Ablin, chief investment officer at Chicago-based Harris Private Bank, who oversees $US55 million, said in a Bloomberg Television interview. "It is remarkable to me the level of cash on corporate balance sheets. It's certainly a strong vote of confidence for corporate America right now."
Bloomberg
http://www.smh.com.au/business/world-business/dividend-slump-ends-as-record-cash-lifts-payouts-20100429-tssi.html
More than 800 dividend decreases were announced in 2009, a year after the S&P 500 plunged 38 per cent for its worst annual performance since the 1930s. The January-to-March period in 2009 was the worst quarter ever for S&P 500 dividends with $US38.7 billion in reductions, according to S&P. The stock index sank to a 12-year low on March 9, 2009.
Billions in Cash
As the economy rebounded, cash balances rose to a record $US831.2 billion at the end of the fourth quarter, according to S&P data. One company cut its dividend and another suspended it during the first three months of 2010, the fewest since 2006, according to S&P.
"Dividends are emblematic of corporate strength," Jack Ablin, chief investment officer at Chicago-based Harris Private Bank, who oversees $US55 million, said in a Bloomberg Television interview. "It is remarkable to me the level of cash on corporate balance sheets. It's certainly a strong vote of confidence for corporate America right now."
Bloomberg
http://www.smh.com.au/business/world-business/dividend-slump-ends-as-record-cash-lifts-payouts-20100429-tssi.html
Thursday 22 April 2010
Your investment goals determine which stocks to include in your portfolio
The investment goals you have established are another important ingredient in determining which stocks to include in your portfolio.
Keep in mind that constructing a portfolio of stocks that meets your investment goals does not lessen the need to maintain a diversified portfolio.
- If your investment goals are primarily long-term in nature, you should build a stock portfolio that is best able to meet these long-term goals. Choose the stocks of companies that have good long-term growth prospects.
- If your main investment goal is to enjoy a stable source of current income, you should own stocks that pay liberal but secure dividends.
Keep in mind that constructing a portfolio of stocks that meets your investment goals does not lessen the need to maintain a diversified portfolio.
Tuesday 6 April 2010
Do Dividend Plays Pay?
PERSPECTIVE | 12 MARCH 2010
Do Dividend Plays Pay?
Dividends matter and they matter a lot! Had you bought Singapore Post at the start of 2005 and held it till the end of February this year, inclusive of dividends, it would have compounded at 9.4% over the 5 odd years, against the Straits Times Index’s 5.6%.
During that time frame, Singapore Post’s management had been very generous, rewarding a total $0.357 per share to its shareholders. Stripped of those distributions, Singapore Post would have lagged the market badly, compounding at only a paltry 3.4%.
During that time frame, Singapore Post’s management had been very generous, rewarding a total $0.357 per share to its shareholders. Stripped of those distributions, Singapore Post would have lagged the market badly, compounding at only a paltry 3.4%.
This is not a case of cherry picking. In fact, a recent Citi Investment Research report noted that in the past 10 years, equities in Asia ex-Japan have generated a compounded total return of 5.9% per annum in US dollar terms, 46% of which came from dividends.
Dividend Matters
Some formulae are in order before proceeding further. Dividend yield, the most basic metric, is calculated by dividing total dividend per share paid out during a full financial year over the stock’s current market price.
Some formulae are in order before proceeding further. Dividend yield, the most basic metric, is calculated by dividing total dividend per share paid out during a full financial year over the stock’s current market price.
Dividend payout ratio (DPR) is more instructive as yield tends to fluctuate depending on the time of the day. This is calculated by dividing total dividend per share paid out during a full financial year over that respective year’s earnings per share (EPS).
Singapore Post, for example, paid out a total of 6.25 cents in dividends per share, when EPS was 7.7 cents in FY09. Be sure to exclude special dividends as they are one-off. Dividend payout ratio works out to about 0.8, which means 80% of FY09 profits were returned to shareholders. The importance of the dividend payout ratio will be elaborated later.
There are companies, particularly those of blue chip pedigree, that have a formal dividend policy stating the percentage of operating or net profit to be paid out. This can be found under the CEO/Chairman’s statement section of the annual report.
Even though a dividend policy is a legally binding commitment, companies that have one loathe changing it, as a downward revision or omission of dividends generally signals financial woes.
Even though a dividend policy is a legally binding commitment, companies that have one loathe changing it, as a downward revision or omission of dividends generally signals financial woes.
Finding Dividend Plays
To be able to consistently return profits to shareholders requires disciplined management as well as strong cash flow on the company’s side. These companies tend to be larger and/or more mature and are found mainly in the banking and finance, consumer staples, utilities and energy sectors.
To be able to consistently return profits to shareholders requires disciplined management as well as strong cash flow on the company’s side. These companies tend to be larger and/or more mature and are found mainly in the banking and finance, consumer staples, utilities and energy sectors.
Those that do have consistent and high dividend payout ratios – so called dividend plays – are likely past their growth phase. The stability in their earnings is generally accompanied by lower levels of R&D and capital expenditures. This is where we return to the dividend payout ratio.
Take the company’s return-on-equity (ROE) and multiply it by the earnings retention rate, which is one less the dividend payout ratio, and you will get the sustainable growth rate (SGR).
Again using Singapore Post as an example, based on FY09’s ROE of 59.2% and earnings retention rate of 18.8%, its sustainable growth rate works out to around 11.1%.
The sustainable growth rate is helpful in gauging whether a company’s growth plan is realistic based on its profits but it will not tell you whether a company has the opportunity to grow.
In this instance, if the opportunity exists and should Singapore Post want to grow its FY09 earnings by more than 11%, it would have to increase its net profit margins (this increases ROE) or fund future investments with debt or the issuance of new stock.
Books To Read
Modestly named “The Ultimate Dividend Playbook” by Josh Peters and “The Future for Investors” by Jeremy Siegel are great books to read for ideas and strategies on investing in dividend plays.
Modestly named “The Ultimate Dividend Playbook” by Josh Peters and “The Future for Investors” by Jeremy Siegel are great books to read for ideas and strategies on investing in dividend plays.
Peters’ book is very comprehensive and provides a detailed explanation on how to select and formulate a portfolio comprising of dividend plays, and the underlying mechanics. Be forewarned “The Ultimate Dividend Playbook” might be too textbook-ish for some and that it is focused mainly on American companies.
Siegel’s more readable account is a must-read for investors worried about the how the impending demographic age wave in developed world would impact future asset returns. While repeating his argument that common stocks are the best asset class in the long run, he highlights the importance of dividends and stock valuations as well as including international stocks in your portfolio.
For non-bookworms, the table below lists a few companies with a history of consistent dividend payments as well as relatively high yields. As usual, more research on the reader’s part should be done before investing.
*As of 10 MARCH 2010 Noon
*As of 10 MARCH 2010 Noon
Saturday 20 March 2010
Sure and steady in volatile times - Investing conservatively means selecting good, dividend-paying companies.
By John Collett
February 3, 201
Conservative investing in dividend-paying companies will soften the blow of negative returns
Fund managers know and understand the benefits of capital preservation. They know negative returns are best avoided because of how difficult it can be to just get back to square one.
But ordinary investors probably don't appreciate the maths and the sort of high returns required to recover from losses. For example, a loss of 10 per cent requires a return of 11.1 per cent to get back to square one. A 20 per cent loss requires a return of 25 per cent and a 70 per cent loss requires a return of 233 per cent.
So big losses are likely to take a long time to recoup, which is why investing with an eye to avoiding losses in the first place is so important in growing an investment portfolio.
However, the mathematics of capital losses say that for Australian share prices to return to record levels, share prices need to rise by almost 50 per cent from here. And that could take years, says the head of investment market research at fund manager Perpetual, Matthew Sherwood.
Sherwood cautions investors who, tempted by the easy gains, are considering throwing caution to the wind and going headlong into the sharemarket hoping to quickly recover earlier losses.
He says most of the easy gains on the back of the economic recovery have probably already been made.
"The best thing to do is to invest conservatively and reduce the risk in what is going to continue to be a volatile environment," Sherwood says.
Investing conservatively means selecting good, dividend-paying companies. A portfolio of income-paying shares helps take some of the sting out of the tail of the capital losses, he says. As economic conditions improve, so do dividends.
Fund managers tend to favour companies that pay consistently high dividends because of the fact that it helps smooth out the volatility of share prices for the investors in their funds.
Even when a company's share price is falling, it usually keeps paying dividends to investors. "Since 1882 the Australian sharemarket, on average, has returned about 12 per cent a year and half of that has come from dividends," Sherwood says.
The importance of dividends to Australian investors is not only that more of the total return from Australian shares is made up of dividends than is the case with overseas shares but that the dividends are favourably taxed in the hands of investors through our dividend imputation system.
The point for investors is simple. The best way for investors to get ahead is by having a well-diversified portfolio of consistently performing investments. That is likely to be a much more profitable route for investors in the long-term than holding a portfolio of investments whose returns are highly volatile and do not pay much by way of dividends.
Successful fund managers, such as Perpetual and Investors Mutual, have an investment philosophy that focuses on capital preservation and on investing in income-paying investments with the aim of delivering consistent total returns of regular income and capital growth.
Such an approach means the fund manager is unlikely to appear at the very top of performance league tables in any year but instead will provide the unit holders in their share funds with higher returns in the long run. Individual investors would do well to follow their lead.
The smoother ride provided by a lower-returning, income-paying investment will also help ensure investors stay invested.
Faced with significant losses, investors are more likely to take fright, sell their shares and put their money into cash, which in the long-term is the lowest-returning asset class of all.
Sticking with a portfolio that produces consistent returns has another advantage in that investors do not feel pressured to seek out the next big thing in the hope of making spectacular returns.
Trading not only takes up much more time, "churning" a portfolio also increases both transactions costs and taxes, particularly if the share is held for less than a year.
February 3, 201
Conservative investing in dividend-paying companies will soften the blow of negative returns
Fund managers know and understand the benefits of capital preservation. They know negative returns are best avoided because of how difficult it can be to just get back to square one.
But ordinary investors probably don't appreciate the maths and the sort of high returns required to recover from losses. For example, a loss of 10 per cent requires a return of 11.1 per cent to get back to square one. A 20 per cent loss requires a return of 25 per cent and a 70 per cent loss requires a return of 233 per cent.
So big losses are likely to take a long time to recoup, which is why investing with an eye to avoiding losses in the first place is so important in growing an investment portfolio.
- That is particularly pertinent to the sharemarket because shares quite regularly lose 5 per cent or 10 per cent of their value and, occasionally, much more.
- From the bull market peak of November 2007 to the bear market trough of March 2009, Australian share prices fell by more than 50 per cent.
- While the Australian sharemarket has risen by about 45 per cent from the trough, it remains more than 30 per cent off its all-time high of November 2007.
However, the mathematics of capital losses say that for Australian share prices to return to record levels, share prices need to rise by almost 50 per cent from here. And that could take years, says the head of investment market research at fund manager Perpetual, Matthew Sherwood.
Sherwood cautions investors who, tempted by the easy gains, are considering throwing caution to the wind and going headlong into the sharemarket hoping to quickly recover earlier losses.
He says most of the easy gains on the back of the economic recovery have probably already been made.
"The best thing to do is to invest conservatively and reduce the risk in what is going to continue to be a volatile environment," Sherwood says.
Investing conservatively means selecting good, dividend-paying companies. A portfolio of income-paying shares helps take some of the sting out of the tail of the capital losses, he says. As economic conditions improve, so do dividends.
Fund managers tend to favour companies that pay consistently high dividends because of the fact that it helps smooth out the volatility of share prices for the investors in their funds.
Even when a company's share price is falling, it usually keeps paying dividends to investors. "Since 1882 the Australian sharemarket, on average, has returned about 12 per cent a year and half of that has come from dividends," Sherwood says.
The importance of dividends to Australian investors is not only that more of the total return from Australian shares is made up of dividends than is the case with overseas shares but that the dividends are favourably taxed in the hands of investors through our dividend imputation system.
The point for investors is simple. The best way for investors to get ahead is by having a well-diversified portfolio of consistently performing investments. That is likely to be a much more profitable route for investors in the long-term than holding a portfolio of investments whose returns are highly volatile and do not pay much by way of dividends.
Successful fund managers, such as Perpetual and Investors Mutual, have an investment philosophy that focuses on capital preservation and on investing in income-paying investments with the aim of delivering consistent total returns of regular income and capital growth.
Such an approach means the fund manager is unlikely to appear at the very top of performance league tables in any year but instead will provide the unit holders in their share funds with higher returns in the long run. Individual investors would do well to follow their lead.
The smoother ride provided by a lower-returning, income-paying investment will also help ensure investors stay invested.
Faced with significant losses, investors are more likely to take fright, sell their shares and put their money into cash, which in the long-term is the lowest-returning asset class of all.
Sticking with a portfolio that produces consistent returns has another advantage in that investors do not feel pressured to seek out the next big thing in the hope of making spectacular returns.
Trading not only takes up much more time, "churning" a portfolio also increases both transactions costs and taxes, particularly if the share is held for less than a year.
What you need to make to recover your losses
Cost Loss Price Return
price (%) After required (%)
loss (%)
$100 5 95 5.3
$100 10 90 11.1
$100 20 80 25
$100 50 50 100
$100 70 30 233
$100 90 10 900
SOURCE: FAIRFAX
http://www.businessday.com.au/news/business/money/planning/sure-and-steady-in-volatile-times/2010/02/02/1264876022132.html
Saturday 13 March 2010
Why Stocks That Raise Dividends Trounce the Market
Why Stocks That Raise Dividends Trounce the Market
There are many different approaches to investing, some of them successful.
But few attain the time-tested success of investing in stocks that consistently raise dividends. And there’s no doubt these stocks have produced astonishing returns, decade after decade.
Unbiased research shows stocks that raise dividends trounce the market, while stocks that simply pay dividends roughly match the market. In what I suppose is an obvious corollary, these stocks historically beat the snot out of stocks that don’t pay dividends, without breaking a sweat between punches. It’s really been easy for them.
OK, let’s run through the research numbers first, then move on to the more interesting discussion of what might be firing them up.
A well-known study by Ned Davis Research shows that from 1972 through April 2009 (the latest data I found) companies with at least five years of dividend growth, and those initiating dividends, punched up average yearly gains of 8.7%, compared with 6.2% for the Standard & Poor's 500.
Companies that maintained steady dividends also gained 6.2% annually, same as the market, but well below what dividend raisers scored.
And non-dividend payers? Lightweights. Beaten down to under a measly 1% a year. Right, under 1% a year for over 36 years. Same story for stocks that cut or eliminated dividends.
In another study, using a different group of stocks, time period and performance measure, AllianceBernstein researched the largest 1500 stocks by market capitalization from 1964 to 1999.
Results? In the year immediately following a dividend increase, dividend raisers’ average total returns were 1.8 percentage points higher than stocks that did not raise dividends.
Compound that over a decade or two of dividend hikes and you can head for the Porsche dealership. (Think I’m kidding? Over 15 years, an extra 1.8 percentage points pops nearly $90K more out of a $285,000 stock portfolio. You don’t have to spend it on a Porsche. But you could.)
Want some more recent numbers, from stocks with decades of dividend increases already under their belt?
Standard and Poor’s research through the end of 2009 shows their Dividend Aristocrats, stocks with at least 25 years of dividend increases, beat the S&P 500 over the trailing 3-years, 5-years, 10-years and 15-years.
And the beating was another knockout, ranging from as ‘little’ as two percentage points annually to as much as nearly five percentage points, depending on the time frame.
So it’s abundantly clear these stocks have better returns. Much better returns.
But why does dividend growth achieve such superb performance? And should investors even care why? After all, more money is more money and that Porsche is still a Porsche.
My opinion? I think there are at least three reasons, and many investors could likely benefit, if they care to look at them.
1. First, it takes an outstanding business to increase dividends for decades, and outstanding businesses are often outstanding long-term investments. Weak businesses simply can’t and don’t raise dividends for decades.
- So if it’s true, like I think it is, that dividend increases and higher stock prices are both caused, in part, by strong businesses, then it’s vital to understand and monitor dividend-growth companies’ underlying business strength.
- That’s why you see successful investors evaluating these companies’ revenues, earnings, cash flows, debt levels, returns on capital, stock valuations, and so on, rather than just jumping on the dividend.
2. Second, I think it’s also likely that a series of dividend increases, in and of itself, eventually helps pull a stock price up.
- After all, if share prices did not follow dividends upward, over time these stocks would end up with monster double-digit yields.
- But that doesn’t happen because if a yield gets higher than investors think the good health of the business justifies, they buy more of the stock until the yield reverts back down to a more normal range.
All other things equal, there's simply more buyer demand for Johnson and Johnson (JNJ), McDonald’s (MCD), Procter and Gamble (PG) and other outstanding businesses (name your choice) at 4% yields than at 2% yields, so the stock prices move in response.
Of course, all other things aren't always equal. Stock prices are messy, impacted by companies’ outlooks, the economy, market conditions and so forth.
- But over time, yields that grow too high on healthy stocks revert to normal levels through the mechanism of buyers bidding up stock prices.
3. Finally, in all that market messiness, investors who stick with a dividend growth strategy enjoy a powerful statistical advantage that amplifies their stock picking.
- This advantage is something statisticians call “baseline probabilities.”
- To illustrate, suppose a fisherman can choose either of two nearly identical lakes. But one lake has two big fish and eight little fish in it, while the other has the opposite: eight big fish and two little ones.
- At any level of skill and experience, the fisherman’s chances of landing big fish are much better at the second lake. That’s the idea of baseline probabilities.
- And research studies show there are lots more big fish in the pool of dividend raisers than in the other pools, especially the pool of stocks that don’t pay dividends, filled with so many little fish its average returns approach starvation.
All that said, a dividend-growth strategy isn’t for everyone. (It’s only for people who want to make money … kidding, just kidding!)
For example, skilled traders, technical analysts and investors who’ve simply developed unique expertise in other areas of the market certainly might decide that dividend growth is irrelevant to their investing approach.
As might those who believe corporate America brims with budding Warren Buffetts, all doggedly toiling away at brilliant but so far unrewarded capital allocation programs that make far better use of company cash than dividends would.
And on that note, oddly, some investors seem to delight in arguing that dividend raisers are inferior businesses and, despite the numbers, inferior investments. This, because finance theory says ever-higher dividends waste capital these companies could reinvest back into their business, as non-dividend payers do.
I say “oddly” because the most rudimentary logic tells you that if dividend raisers as a group were capital wasters, and non-payers were capital multipliers, the market wouldn’t reward the raiser-wasters with such monumentally higher returns.
For an in-depth look at the pros and cons of dividends, one that generated a geyser of often coherent comments, check out David Van Knapp’s Seeking Alpha article “Why I Love Dividends.”
And for profiles and analyses of a number of dividend-growth stocks, click thisMore Articles link and take your pick.
Finally, investors who prefer ETFs to stock picking might look at the Vanguard Dividend Appreciation ETF (VIG). VIG’s total returns and dividend reliability have outperformed both the market and popular, higher yielding dividend-growth ETFs.
References and Links
Kiplinger Magazine, “Stocks That Pay Rising Dividends,” August 2009.
AllianceBernstein, “Why Dividends Matter,” November, 10, 2004.
Seeking Alpha, “Dividend Aristocrats: A Comprehensive View,” by David I. Templeton, January 22, 2010.
Additional acknowledgements: Thanks to all the Seeking Alpha authors and commenters who posted data and opinions that helped inform this article.
Friday 12 March 2010
But how do you know if a stock is "quality"?
Go for dividends.
It's a no-brainer that quality matters in a market like this. But how do you know if a stock is "quality"?
Dividends are one indicator. That's because dividend income--which is essentially a portion of company profits paid out to shareholders--helps offset fluctuations in a stock's share price, creating a cushion during turbulent markets.
"During trying times, dividend-paying stocks tend to do well," says Paul Alan Davis, portfolio manager of the Schwab Dividend Equity Fund. Davis also looks for companies on solid footing, which have plenty of cash and aren't in "financial straits." During the first 11 months of year, Davis says, the S&P's dividend-paying stocks fell by roughly 36 percent; meanwhile, nondividend payers were down about 45 percent.
You'll find those dividend payers in more developed industries such as consumer staples, utilities, and healthcare. Examples include Philip Morris, Coca-Cola, General Mills, Bristol-Myers Squibb, and Pfizer.
It's a no-brainer that quality matters in a market like this. But how do you know if a stock is "quality"?
Dividends are one indicator. That's because dividend income--which is essentially a portion of company profits paid out to shareholders--helps offset fluctuations in a stock's share price, creating a cushion during turbulent markets.
"During trying times, dividend-paying stocks tend to do well," says Paul Alan Davis, portfolio manager of the Schwab Dividend Equity Fund. Davis also looks for companies on solid footing, which have plenty of cash and aren't in "financial straits." During the first 11 months of year, Davis says, the S&P's dividend-paying stocks fell by roughly 36 percent; meanwhile, nondividend payers were down about 45 percent.
You'll find those dividend payers in more developed industries such as consumer staples, utilities, and healthcare. Examples include Philip Morris, Coca-Cola, General Mills, Bristol-Myers Squibb, and Pfizer.
Thursday 11 March 2010
Stock Picking Strategy- The Parameters That One Needs To Look At
October 4th, 2009 | Author: admin
When investing in stocks, an investor needs to be aware of what they are putting themselves into. This is to say that, they should have the facts right about the securities they hope to invest in. Stocks, in this case, come in many characteristics and an investor needs to be fully aware of their behaviour before committing their money. A characteristic of stocks is that, they are those that are value-oriented and others are growth oriented.
Value oriented stocks are those that are trading at a price that is lower than what they are really worth. An investor buys them with the hope that, the price will rise above the stocks worth and that, they will then realize a profit, hence adding value to their investment. On the other hand, the growth oriented stocks are focused on future prices. They look at the potential of the company, and not necessarily the securities.
Under the growth stocks, there are those that grow faster than others and it is upon the investors to find to more about them. There is no laid out formula as to how the stocks experience growth, but the growth is based on speculation. As an investor chooses to look at growth as a stock picking strategy, they should first make an observation of how they have performed in the past.
Another stock picking strategy that an investor may chose to adopt is the income factor. As we can see, there are value and growth stocks and income stocks as well. Stocks that generate dividends are popular among many people today. Many investors have preference over high yield stocks, or those that guarantee them a steady income.
http://www.stockmarket-results.com/stocks/stock-picking-strategy-the-parameters-that-one-needs-to-look-at/comment-page-1
Friday 5 March 2010
Six Significant Dividend Increases
Six Significant Dividend Increases
Any company could afford to boost distributions in a single year. Any type of business could also have a high yield, especially if it distributes all of its cash flows to shareholders. It takes a special kind of a business model to afford a proper balance between investing back into the business and distributing excess profits to shareholders. It is even more exciting when those distributions have been increased regularly for over ten consecutive years. I have highlighted six dividend stocks each of which has consistently raised distributions for over two decades. Altria Group, Inc. (MO: 20.4, 0.06), through its subsidiaries, engages in the manufacture and sale of cigarettes, wine, and other tobacco products in the United States and internationally. The company's board of directors raised its quarterly dividend by 2.90% to 35 cents/share. This is the 43rd consecutive dividend increase for Altria Group. The only reason why the company is not on the dividend aristocrat list is because its dividend payment is lower due to the spin-off of Phillip Morris International (PM: 50.65, 0.68) in 2008 and Kraft Foods (KFT: 29.06, 0.07) in 2007. The company does have a policy to return approximately 75% of earnings to shareholders in the form of cash distributions. Stock currently yields 7%. (analysis)
Kimberly-Clark Corporation, (KMB: 60.01, 0.02) together with its subsidiaries, engages in the manufacture and marketing of various health care products worldwide. The company's board of directors raised distributions by 10% to 66 cents/share. This is the 38th consecutive annual dividend increase for this dividend aristocrat. The stock yields 4.40%.
The Chubb Corporation (CB: 51.21, 0.09), through its subsidiaries, provides property and casualty insurance to businesses and individuals. The company raised its quarterly dividend by 5.7% to 37 cents/share. This was the 45th consecutive annual dividend increase for this dividend aristocrat. The stock currently yields 2.90%.
CenturyTel, Inc. (CTL: 34.13, -0.44), together with its subsidiaries, operates as an integrated communications company. The company raised its quarterly distributions by 3.60% to 72.50 cents/share. This increase would represent the 37th consecutive year where this dividend aristocrat has boosted annual distributions to shareholders. The stock currently yields 8.50%.
Piedmont Natural Gas Company, Inc. (PNY: 26.38, -0.12), an energy services company, distributes natural gas to residential, commercial, industrial, and power generation customers in portions of North Carolina, South Carolina, and Tennessee. The company boosted distributions by 3.70% to 28 cent/share, marking the 32nd consecutive annual dividend increase. This high yield dividend aristocrat yields 4.30%.
Donaldson Company, Inc. (DCI: 42.37, 0.1), together with its subsidiaries, engages in the manufacture and sale of filtration systems and replacement parts worldwide. The company's board of directors raised distributions by 4% to 12cents/share marking the 24th consecutive year of dividend increases. This dividend achiever currently yields 1.20%.
I view Kimberly-Clark (KMB: 60.01, 0.02) and Chubb (CB: 51.21, 0.09) as attractively valued stocks. I plan adding to my position in Chubb (CB) this month. Piedmont Natural Gas Company (PNY) looks like an interesting company for further research. Altria (MO: 20.4, 0.06) and CenturyLink (CTL: 34.13, -0.44) are two high yielding dividend growth stocks, which also spot high dividend payout ratios. I would choose tobacco over telecom however, because once you are addicted to it is difficult to stop using the product. With telecom you could easily cancel your telephone and get a cell phone or simply use Skype instead. Donaldson (DCI) does seem like a company that could be included in the dividend aristocrat list over the next one or two years. The problem is the low current yield, the anemic dividend growth rate and the high price/earnings multiple of 27.
http://www.istockanalyst.com/article/viewarticle/articleid/3904657
Kimberly-Clark Corporation, (KMB: 60.01, 0.02) together with its subsidiaries, engages in the manufacture and marketing of various health care products worldwide. The company's board of directors raised distributions by 10% to 66 cents/share. This is the 38th consecutive annual dividend increase for this dividend aristocrat. The stock yields 4.40%.
The Chubb Corporation (CB: 51.21, 0.09), through its subsidiaries, provides property and casualty insurance to businesses and individuals. The company raised its quarterly dividend by 5.7% to 37 cents/share. This was the 45th consecutive annual dividend increase for this dividend aristocrat. The stock currently yields 2.90%.
CenturyTel, Inc. (CTL: 34.13, -0.44), together with its subsidiaries, operates as an integrated communications company. The company raised its quarterly distributions by 3.60% to 72.50 cents/share. This increase would represent the 37th consecutive year where this dividend aristocrat has boosted annual distributions to shareholders. The stock currently yields 8.50%.
Piedmont Natural Gas Company, Inc. (PNY: 26.38, -0.12), an energy services company, distributes natural gas to residential, commercial, industrial, and power generation customers in portions of North Carolina, South Carolina, and Tennessee. The company boosted distributions by 3.70% to 28 cent/share, marking the 32nd consecutive annual dividend increase. This high yield dividend aristocrat yields 4.30%.
Donaldson Company, Inc. (DCI: 42.37, 0.1), together with its subsidiaries, engages in the manufacture and sale of filtration systems and replacement parts worldwide. The company's board of directors raised distributions by 4% to 12cents/share marking the 24th consecutive year of dividend increases. This dividend achiever currently yields 1.20%.
I view Kimberly-Clark (KMB: 60.01, 0.02) and Chubb (CB: 51.21, 0.09) as attractively valued stocks. I plan adding to my position in Chubb (CB) this month. Piedmont Natural Gas Company (PNY) looks like an interesting company for further research. Altria (MO: 20.4, 0.06) and CenturyLink (CTL: 34.13, -0.44) are two high yielding dividend growth stocks, which also spot high dividend payout ratios. I would choose tobacco over telecom however, because once you are addicted to it is difficult to stop using the product. With telecom you could easily cancel your telephone and get a cell phone or simply use Skype instead. Donaldson (DCI) does seem like a company that could be included in the dividend aristocrat list over the next one or two years. The problem is the low current yield, the anemic dividend growth rate and the high price/earnings multiple of 27.
http://www.istockanalyst.com/article/viewarticle/articleid/3904657
Tuesday 2 March 2010
Dividends Are Dumb
Dividends Are Dumb
By Anand Chokkavelu, CFA
February 26, 201Question everything.It's a good motto if you ever find yourself in a government-conspiracy movie. And it'll also serve you well any time money's involved.The folks who question seemingly self-evident principles can make an absolute killing.- Ask the Super Bowl bettors who took the so-called suckers' bet of the Giants over an 18-0 Patriots team.
- Ask hedge fund manager John Paulson, who made more than $10 million a day in 2007 ($3.7 billion total) because he figured out housing prices could actually fall.
- Or ask some guy named Craig who questioned the virtual monopoly that newspapers had on classifieds (yes, that's a craigslist reference).
So when I heard the argument recently that dividends are actually a bad thing, I was willing to listen.In fact, it's a more compelling argument than you may think.These dividends are just dumb
Why do we invest money in a company? Ultimately, it's because we think that company can grow our money by using that money to invest in its growth.When a company turns around and gives us that money right back (creating a taxable event in the process), it defeats the purpose. If we want out, we can simply sell our shares. And do so on our own timetables.Hence, anti-dividend people maintain that even the modest dividends that companies likeHalliburton (NYSE: HAL), General Electric (NYSE: GE), and Microsoft (Nasdaq: MSFT)pay out are just plain dumb.But hear them out. The case against dividends gets stronger given the reason folks buy dividend stocks in the first place.Frequently, investors who buy shares of companies that pay large dividends are seeking safety and stability. Why? Because a company that commits to a regular dividend payment is signaling exactly that -- safety and stability.So it's ironic that a dividend can act like debt -- an obligation that makes the bad times worse. Although paying dividends is optional (while missing debt payments leads to bankruptcy), a company that chooses to cut its dividend signals weakness, often leading to a further weakening of its stock price. That's a double whammy no investor wants to face.Yet I still heart dividends
So why am I still bullish on dividend payers?I'll leave aside the empirical evidence that dividend payers have handily outperformed non-payers historically. Instead, let's look at a company's life cycle.Early in a company's history, it feeds on cash like a baby sucks down formula. Investors don't care, though, because the company needs that capital to fuel its growth. Soon enough, that company either fails or becomes bigger and stronger.At some point, it starts producing more cash than it's consuming. It can then build a war chest to ensure its survival through good times and bad.But then what? If there aren't any compelling internal opportunities, a company has four choices: - Sit on the cash.
- Buy back shares.
- Make acquisitions.
- Pay dividends.
When you look at all four options carefully, dividends make a heck of a lot of sense.Dividends stand alone
Sitting on cash is safe, but it’s a drag on a company's return on capital -- especially when interest rates are hugging 0%. Apple's (Nasdaq: AAPL) chosen this path, hoarding more than $20 billion. But few companies have the amazing innovation-driven growth that can hide this drag.Buying back shares is almost like a dividend with no tax consequences. In fact, if a company can buy back its stock at low points, it can really juice returns to current shareholders. Unfortunately, most managements don't do a good job of timing. Even Goldman Sachs(NYSE: GS), the reputed master of the markets, made massive repurchases of its stock throughout the heady bubble years only to have to sell new stock to raise cash when its stock price was hammered. Classic "buy high, sell low" behavior.Acquisitions are the scariest of all. You see, management is often judged on its ability to grow the business, specifically earnings per share. That's why they’ll buy back shares at inopportune times. And that's why they'll pursue ill-advised acquisitions and poorly conceived internal projects with such gusto. This growth at an unreasonable price helps management but hurts shareholders. Which leads to the reason I love dividends. The issuance of a regular dividend instills management discipline by removing some capital from consideration. You can't waste what you can't touch.Meanwhile, as shareholders, we get a nice income stream ... the classic stock play that yields like a bond.With 10-year Treasury bonds currently yielding just 3.6%, dividend stocks are that much more attractive. Because of this, let me share three dividend plays that the dividend hounds at ourMotley Fool Income Investor newsletter have identified and recommended.
Company Description Dividend Yield
America's largest payroll processor for small and medium-sized businesses 4.1%
Maker of Clorox bleach, Glad trash bags, Kingsford charcoal, and Pine-Sol 3.3%
Philippine Long Distance Telephone The Philippines' leading fixed and mobile telecom provider 4.9%
One of the companies above is a "buy first" recommendation -- and only six companies get that nod from the Income Investor analysts.
February 26, 201
Why do we invest money in a company? Ultimately, it's because we think that company can grow our money by using that money to invest in its growth.
So why am I still bullish on dividend payers?
Sitting on cash is safe, but it’s a drag on a company's return on capital -- especially when interest rates are hugging 0%. Apple's (Nasdaq: AAPL) chosen this path, hoarding more than $20 billion. But few companies have the amazing innovation-driven growth that can hide this drag.
Company
Description
Dividend Yield
America's largest payroll processor for small and medium-sized businesses
4.1%
Maker of Clorox bleach, Glad trash bags, Kingsford charcoal, and Pine-Sol
3.3%
Philippine Long Distance Telephone
The Philippines' leading fixed and mobile telecom provider
4.9%
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