Conventional Valuation Yardsticks: Dividend Yield

Dividend Yield

Why is my discussion of dividend yield so short?

• Although at one time a measure of a business's prosperity, it has become a relic: stocks should simply not be bought on the basis of their dividend yield. 

Too often struggling companies sport high dividend yields, not because the dividends have been increased, but because the share prices have fallen. 

• Fearing that the stock price will drop further if the dividend is cut, managements maintain the payout, weakening the company even more. 
• Investors buying such stocks for their ostensibly high yields may not be receiving good value.  On the contrary, they may be the victims of a pathetic manipulation. 
• The high dividend paid by such companies is not a return on invested capital but rather a return of capital that represents the liquidation of the underlying business. 
• This manipulation was widely used by money-center banks through most of the 1980s and had the (desired) effect of propping up their share prices.

Conventional Valuation Yardsticks: Earnings, Book Value, and Dividend Yield
Both earnings and book value have a place in securities analysis but must be used with caution and as part of a more comprehensive valuation effort.

Dividend Yield Theory - Buying and Selling tied to the Underlying Yield

THE DIVIDEND-YIELD THEORY:  BUYING AND SELLING ARE TIED TO THE UNDERLYING YIELD

UNDERVALUE – YIELD IS HIGH AND PRICE IS LOW

OVERVALUE – YIELD IS LOW AND PRICE IS HIGH


http://www.betterinvesting.org/NR/rdonlyres/837880CD-BF8D-41C8-8C38-033ECA4643F5/0/DividendsStillDontLie.pdf

Dividend Yield Investing

As deposit accounts pay very low interests or next to nothing, dividends on shares seem attractive. But you'll need to choose carefully.

Many large companies pay decent dividends once, twice or even four times a year. The yield – the dividend expressed as a percentage of the share price – is often attractive by comparison with interest rates on savings. There are now a wide range of blue chip companies yielding 4pc.



Warnings for those seeking Dividend Yield in their investing

When comparing a dividend yield with the interest rate on a savings account, however, certain warnings should be borne in mind.

1. The first point is that your capital is not guaranteed; share prices can and do fall.

2. Secondly, dividends can be cut drastically or axed altogether with little or no notice – and this can lead to a fall in the share price as well.


So just buying the shares with the highest dividend, without researching how safe that dividend is, can be a mistake.

There are now a huge range of high yielding blue chips but it is best to look for a dividend that is less likely to be cut even if that company's profits fall.

A high yield alone is not synonymous with a decent dividend.

If you carry out thorough research and pick the right shares, you will get better value for your cash than by leaving it in a savings account.



Measure of a dividend's reliability is Dividend Cover

The long-established measure of a dividend's reliability is dividend cover: the ratio of net profits to the size of the dividend payout.

Generally, a cover ratio of at least two – meaning that the company has twice as much net earnings as the amount earmarked for dividend payments – is considered a strong indicator.

Once again, for those who invest for yield or income - either Dividend Yield Investing or Dividend Growth Investing - STOCK SELECTION is still the key.

Search out for those companies that have a good chance of sustaining or even increasing their dividends.

If you are knowledgeable, you can even anticipate and avoid those companies that may skip or reduce their dividends in the future.




Stock selection is the key to dividend yield investing.

Some investors look at historic yields; some at forecast (or "prospective") yields.

But either way, those yields can be unexploded mines, lurking for the unwary.

Looking at yield on its own, in short, can quickly introduce you -- painfully -- to the meaning of the term "yield trap".



Yield Trap

The yield trap is simply explained.

You buy a share, attracted by the high yield. But the dividend is then cut, or cancelled -- leaving you without the anticipated income. Worse, unsupported by the payout, the share price usually falls as well, leaving you also nursing a capital loss.


Let's see it in action.

Company A pays out 9 pence a share, with shares changing hands for 100 pence per share. So the dividend yield -- which is the dividend per share, divided by the share price, and multiplied by a hundred to turn it into a percentage -- is 9%.

But that 9 pence is unsustainable. Company A then halves its dividend, slashing investors' income. What happens to the yield? If the share drops to -- say -- 80 pence, the historic yield the becomes 5.6%. The "yield on cost" figure, of course, is 4.5%.



How, then, should investors spot potential yield traps?  Answer:  Dividend cover

The most obvious reason for slashing the dividend is that the business simply hasn't got the money to pay it.

The business's earnings, in short, aren't large enough to support a distribution to shareholders at historic levels.

Put another way, actual earnings per share aren't sufficiently large when compared to the anticipated dividend per share.

Which is where the notion of 'dividend cover' comes in: earnings per share divided by dividend per share.



Interpret Dividend Cover with care

Now, dividend cover shouldn't be followed blindly.

Some businesses -- such as utilities, for instance -- can quite happily operate with lower levels of dividend cover than more cyclical businesses.

Other businesses -- such as REITs -- must pay out a fixed proportion of earnings as dividends, so again a low level of dividend cover is the norm.

Still other businesses have very high levels of dividend cover, because they are growing -- and therefore retaining earnings for future investment -- rather than paying them out as dividends.

But as a broad brush generalisation,

- A ratio of close to one is definitely the danger zone.
- A ratio much bigger than two indicates a certain parsimony.
- A ratio of 1.5-2.5 is usually what I'm looking for.



Stock Performance Guide on Dividends (by Neoh Soon Kean)

He considers dividend per share (DPS) as the most important factor when evaluating the worth of a share.

The ideal situation is for the DPS of a company to grow smoothly and rapidly over the years. (This is the Dividend Growth Investing I mentioned).

The DPS track record should be unbroken for many years.

One important caveat: you must compare the amount of dividend paid with the amount of earnings per share (EPS). (This is the dividend payout ratio).

- The growth of DPS must be proportionate to the growth of EPS.

- A company cannot sustain year after year of higher DPS thanEPS.

- On the other hand, the DPS should not be too small compared with the EPS unless the EPS is growing rapidly.

He advises, under normal circumstances, the DPS should be between 30% to 70% of the EPS.



Happy Investing

Income Investing - The Power of Dividends

3 Tips to Improve Returns With Dividend Stocks

By Matt Nesto | Breakout – Fri, Jul 27, 2012

At a time of such strong demand for dividends and safety, the quest for a reasonable yield amidst historically low interest rates has become quite a competitive sport. With that in mind, for this installment of Investing 101, we brought in Marc Lichtenfeld, author of Get Rich With Dividends and Associate Investment Director at the Oxford Club, to discuss ways to get more for your money by investing in income-producing stocks. He provided the following three tips to improve your performance and total return.

1) Perpetual Dividend Raisers

One of the best ways to get more bang for your dividend buck is to simply get more bang — that is, to get more and more money paid to you year after year. Lichtenfeld says the universe of these so-called serial dividend raisers isn't that big. "There's about 400 companies that have a track record of at least five years [of consecutive increases], but once you get out to 10 years, you cut that number in half," he says in the attached video. And, as you might imagine, in the case of Standard & Poor's Dividend Aristocrats portfolio of companies with a 25-year track record, the list shrinks down to just 51 companies. However, Lichtenfeld warns not all of the perpetual raisers offer great yields. He suggests finding the ones that have the track record but that also authorize the biggest percentage annual increase — and pay this highest yields, too.

2) Boring Is Good

In an increasingly active marketplace, many investors have embraced a trader's mindset and have declared traditional buy-and-hold investing dead. Lichtenfeld disagrees with that notion and has devoted a chapter in his book (called Snooze Your Way to Millions) to dispel this notion and make the case for low-turnover and reinvestment. "If you bought $10k of McDonald's (MCD) in 2001, by 2011 you had $46k, assuming you reinvested the dividends," he says, adding that the hamburger giant has a 35-year streak of dividend increases.

3) Aim Higher

Right now the yield on a 10-year Treasury is about 1.4%, while the S&P 500 currently has about a 2.2% dividend yield. Generally speaking, Lichtenfeld says 4.5% is a reasonable starting yield to shoot for, and says larger yields can often be found in REITs and MLPs. "It really goes across the board," he says, pointing out that above-average yields can also be found in consumer stocks, financials, telecoms, and utilities. "You can look through a wide range of stocks and diversify your portfolio as well," he says, reminding investors that higher yields typically carry higher risks.

To be sure, dividends play an important role for the total return investor but are not the only consideration. Still, research has shown that owning a portfolio of quality stocks that have shown a commitment to shareholders via consistent dividend increase is a proven formula for long-term success.

http://finance.yahoo.com/blogs/breakout/3-tips-improve-returns-dividend-stocks-172506087.html

Getting Rich with Dividends: 3 Tips to Improve Returns With Dividend Stocks

http://finance.yahoo.com/blogs/breakout/3-tips-improve-returns-dividend-stocks-172506087.html

Beware the "yield trap".

Understandably, income investors study dividend yields quite closely. After all, a share on a dividend yield of 5% will pay out twice as much as a share rated on a more miserly yield of 2.5%.

Some investors look at historic yields; some at forecast (or "prospective") yields. It's not a deal-breaker either way, although personally I prefer forecast yields.

But here's the kicker: either way, those yields can be unexploded mines, lurking for the unwary. Looking at yield on its own, in short, can quickly introduce you -- painfully -- to the meaning of the term "yield trap".

Siren call

The yield trap is simply explained. You buy a share, attracted by the high yield. But the dividend is then cut, or cancelled -- leaving you without the anticipated income. Worse, unsupported by the payout, the share price usually falls as well, leaving you also nursing a capital loss.

Let's see it in action.

Company A pays out 9 pence a share, with shares changing hands for 100 pence per share. So the dividend yield -- which is the dividend per share, divided by the share price, and multiplied by a hundred to turn it into a percentage -- is 9%.

But that 9 pence is unsustainable. Company A then halves its dividend, slashing investors' income. What happens to the yield? If the share drops to -- say -- 80 pence, the historic yield the becomes 5.6%. The "yield on cost" figure, of course, is 4.5%.

Dividend cover

How, then, should investors spot potential yield traps? The most obvious reason for slashing the dividend is that the business simply hasn't got the money to pay it.

The business's earnings, in short, aren't large enough to support a distribution to shareholders at historic levels.

Put another way, actual earnings per share aren't sufficiently when large compared to the anticipated dividend per share.

Which is where the notion of 'dividend cover' comes in: earnings per share divided by dividend per share.

Interpret with care

Now, dividend cover shouldn't be followed blindly. 

• Some businesses -- such as utilities, for instance -- can quite happily operate with lower levels of dividend cover than more cyclical businesses. 
• Other businesses -- such as REITs -- must pay out a fixed proportion of earnings as dividends, so again a low level of dividend cover is the norm.
• Still other businesses have very high levels of dividend cover, because they are growing -- and therefore retaining earnings for future investment -- rather than paying them out as dividends.

But as a broad brush generalisation, 

• a ratio of close to one is definitely the danger zone. 
• A ratio much bigger than two indicates a certain parsimony. 
• Personally speaking, a ratio of 1.5-2.5 is usually what I'm looking for.

5 Shares At Risk Of A Dividend Cut

Danger signs

The table below highlights five shares with dividend cover well into the danger zone that I've mentioned. They're all big names, and -- given their yields -- are popular with income investors. And in each case, I've shown the last full year's earnings per share and dividend, yield and dividend cover.

There are shares with lower levels of dividend cover, to be sure -- but they tend to be REITs, or other special cases. The five highlighted have fewer extenuating circumstances, and seem to me to be more in danger of reducing their payout.

Company	Forecast yield %	Full-year earnings per share	Dividend	Dividend cover
Standard Life (LSE: SL)	6.6%	13p	13.8p	0.9
United Utilities (LSE: UU)	5.3%	35.3p	32.1p	1.1
Hargreaves Lansdown (LSE: HL)	4.7%	20.3p	18.9p	1.1
Admiral (LSE: ADM)	7.7%	81.9p	75.6p	1.1
Aviva (LSE: AV)	10.1%	5.8p	26p	0.2

So should holders of these shares be worried? There isn't sadly, a clear-cut answer -- a fact that highlights the importance of looking at the underlying data quite carefully, and considering the full set of circumstances.

Reading the runes

Standard Life, for instance, seems clear-cut, on both a historic and forecast basis: by my reckoning, the dividend is genuinely sailing close to the wind.

But Hargreaves Lansdown and Admiral, though, complicate matters by distinguishing between an ordinary dividend and a more discretionary extra 'special' dividend. But either way, a cut is a cut, and both firms have a level of dividend cover just above one, implying that there's very little margin of safety.

United Utilities may surprise you, depending on which stock screener you use. I've gone back to the annual accounts, and used the underlying earnings per share of 35.3p, described by the company as "providing a more representative view of business performance" -- implying the level of dividend cover that I've shown. Plug the statutory basic earnings per share of 45.7p into the calculation, though, and the dividend cover is a healthier 1.4.

And finally, there's Aviva, where the opposite problem applies. On a statutory basis, the earnings per share of 5.8p delivers a disturbing level of dividend cover of 0.2. Throw in the company's own preferred definition of earnings per share, and a healthier level of earnings of 53.8p emerges, giving a dividend cover of almost 2.

The Most Hated Company on Earth Is Making Investors Rich

I can't think of a stock that's more hated. I've written about this company several times before. I've personally owned it for years. But just about every time I mention it, I end up receiving nasty emails admonishing the fact that I would cover... let alone recommend... investors own shares of this company. In fact, it happens so often that I instruct our staff to put in a mention that this investment isn't for everyone whenever they cover it. If you don't want to invest in this stock, I can certainly understand. But if you have an open mind toward this black sheep, you're likely to appreciate what it can do for you. Simply take a look at its performance so far in 2011... In a year marked by credit downgrades, the European debt crisis, and stagnating growth, the most hated company on the planet -- Philip Morris International (NYSE: PM) -- is still making investors rich. And that comes when the broader market has been a roller coaster ride. In fact, Philip Morris stock is within pennies of its 52-week high hit earlier this month. Unfortunately, I've noticed that more and more investors seem to be tricked into thinking investing has to be complicated. But stocks like Philip Morris prove that making money doesn't have to be hard. Philip Morris doesn't have a complicated business model. It is simply one of the most dominant and shareholder-friendly companies on the planet. The company does business in 180 countries and owns 7 of the world's top 15 global brands in its market.  But it has also made a mission of rewarding its shareholders. In the last three years alone, it has returned more than $12 billion in dividends while increasing the payments per share by 43%. Today, the shares pay a yield of more than 4%. Then there are the buybacks. Since May 2008 the company has repurchased more than $20 billion in stock -- or nearly 20% of the outstanding shares. All of these moves simply make the stock more valuable, even if earnings don't rise a cent. And as you can see, that's showing up in the share price as well. I must admit, I'm a bit biased though. I personally own Philip Morris and also selected it as one of my 10 Best Stocks to Hold Forever. Of course, with investing there's never a surefire thing. There's no quality a company can possess that will guarantee its success. But when you can find companies like Philip Morris that dominate their market and are returning billions to investors, these are the sort of stocks that can still deliver strong returns in nearly any market -- including this one.

http://globaldividends.com/newsletter.asp?d=5797&utm_source=outbrain&utm_medium=referral&utm_campaign=do-ob-1011

The 8 Rules I Use to Earn $124.29 in Dividends Per Day

By Paul Tracy This easy list of rules has helped grow my daily income from almost nothing to more than $100 per day. The 8 Rules I Use to Earn $124.29 in Dividends Per Day

I counted twice, just to be sure...  $41,513.18. That's the amount in "daily paychecks" -- more commonly known as dividends -- I've received from my investment portfolio in 2011. That total comes to $124.29 for each day of the year. Cash. Why am I telling you this? It's not to brag. I was born and raised in Wisconsin. The typical Midwestern mentality is so ingrained in me, I veryrarely talk about money. And I'm not one to show off, either. I drive a Nissan I bought six years ago. I get my hair cut at Supercuts. No, I'm telling you this because I honestly think what I've discovered is the single best way to invest, hands down. I'm talking, of course, about the "Daily Paycheck" strategy. If you've read Dividend Opportunities for even a couple of weeks, you're likely familiar with Amy Calistri and this strategy. Amy is the Chief Strategist behind our premium Daily Paycheck newsletter. Her goal is to build a portfolio that pays at least one dividend every day of the year. The idea for her advisory came from my personal "Daily Paycheck" experiment.  I've been following the strategy personally for a few years now. In that time, I've not only been able to build an investment portfolio that pays me more than 30 times a month, but the checks are getting bigger and bigger as time passes. What I like best is that it's the easiest way to invest you can imagine. Once you get started, it runs on autopilot. Of course, you'll make a few portfolio adjustments now and then, but you won't have to anxiously watch your holdings every day.  Now it's time to come clean. If you start this strategy tomorrow, it's unlikely you'll be earning $124 a day by the weekend. I've been fortunate to start with a healthy-sized portfolio. And as I said, I've enjoyed the benefits of implementing the "Daily Paycheck" strategy for a few years now, so my payments have grown much larger than when I started. But here's the good news... it doesn't matter. Whether you have $20,000 or $2 million, you can start your own "Daily Paycheck" portfolio today. The results are fully scaleable, and anyone can have success, as long as you follow eight simple rules Amy and I created to not only build our portfolios, but also manage risks... 1. Dividend payers beat non-dividend payers. According to Ned Davis Research, firms in the S&P 500 that raised dividends gained an average of 8.8% per year between 1972 and 2008. Those that cut dividends or never paid them produced zero return over this entire time span. 2. Higher yields beat lower yields. This is such a "no-brainer" that it doesn't require explanation. Clearly, a bigger dividend puts more cash in your pocket.  3. Reinvesting your checks beats cashing them. Reinvesting buys you more shares, which leads to larger dividend checks, which buy you even more shares, and so on (this is how my dividend checks have grown). 4. Small caps beat large caps. A 70-year study of different equity classes showed that $1,000 invested in small-cap stocks grew to $3,425,250. In large-cap stocks it grew to only $973,850.  5. International beats domestic. The average U.S. stock pays just 2.1%. That's peanuts compared to yields overseas. Stocks in New Zealand yield 4.9%... stocks in France yield 4.7%... in Germany 4.0%... and in the U.K. 3.9%. 6. Emerging markets beat developed. It's much easier for a small economy to post fast growth than a large one. And investors who know this benefit. Over the past 10 years, Vanguard's MSCI Emerging Markets ETF (NYSE: VWO) has gained an average of 10.7% per year. Stocks throughout the developed world, as measured by the MSCI EAFE Index, have been up an average of just 4.8% per year. 7. Tax-free beats taxable. Tax-free securities often put more cash in your pocket at the end of the day -- especially if you're in a high tax bracket. A muni fund yielding 6.0% pays you a tax-equivalent yield of 9.2% if you're in the 35% tax bracket.  8. Monthly payouts beat annual payout.  Getting paid monthly is not only more convenient -- you actually earn more. Thanks to compounding, a stock paying out 1% monthly yields far more than 12% -- it can actually pay you 12.68% if you reinvest. It's these eight rules I've followed to build a portfolio that has not only paid me $124 a day in 2011, but that is also seeing rising payments. In November, I earned 37 checks, at an average daily amount of $160.30.  I've been investing for the better part of two decades. During that time, I've tried just about every strategy and style you can imagine. And don't get me wrong -- you can make money any number of ways in the market.  But earning thousands of dollars each month consistently? I never experienced that until I implemented the "Daily Paycheck" strategy. Good Investing! Paul Tracy Co-Founder -- StreetAuthority, Dividend Opportunities P.S. -- My ultimate goal is to build a portfolio that pays me $10,000 a month. In November I pocketed $4,808.87, so I'm well on my way. To learn how easy it is to set up your own "Daily Paycheck" portfolio, be sure to read this memo. It has all the details on how to get started yourself. http://globaldividends.com/newsletter.asp?d=5715&utm_source=outbrain&utm_medium=referral&utm_campaign=do-ob-1011

Dividend growth challenge for EPF

Dividend growth challenge
By Rupinder SinghPublished: 2011/03/14

The Employees Provident Fund (EPF) will find it tough to consistently pay high dividends as uncertainty over the prospects of major economies could have a big bearing on open economies like Malaysia, economists said.

They expect the EPF dividend payment to ease to around 4 per cent to 5 per cent this year, from nearly 6 per cent in 2010.

Malaysia Rating Corp Bhd (MARC) chief economist Nor Zahidi Alias said as external trade and portfolio flows influence financial market performance, the Malaysian financial market could experience some knee-jerk reactions if risk aversion starts to escalate.

Nor Zahidi Alias said he would not be surprised if the present market correction continues in the next few months, especially when the overall sentiment is soured by the still struggling European economies and persistently high unemployment in the US.

"Such developments will no doubt have negative repercussions on Malaysia's external sector. Therefore, paying consistently high dividends will be challenging not only for the EPF, but also for other asset managers," he said.

Among the macro factors that will affect EPF's performance in 2011 are the country's gross domestic (GDP) growth, inflation, oil prices, interest rates and ringgit exchange rates.

"Based on the moderate gross domestic product (GDP) growth anticipated at between 5 per cent and 6 per cent this year, we expect EPF's dividend payout to also ease to the 5 per cent average level," RAM Holdings group chief economist Dr Yeah Kim Leng said.

Over the last 10 years, EPF's dividend payout ranged between 4.25 per cent and 5.8 per cent annually with an average of 5 per cent. The highest dividend rate ever paid was 8.5 per cent in 1983 and 1986.

Last year, EPF's top-of-the-range payout of 5.8 per cent corresponds to a strong rebound of the economy where the GDP expanded 7.2 per cent following a contraction of 1.7 per cent during the global financial turmoil in 2009.

EPF's major challenge, Yeah said, is to find investible instruments for the RM10 billion-RM12 billion net contributions that it will receive this year.

Besides that, he said, the pension fund would find it hard enhancing or rebalancing its portfolio towards safe and higher yielding asset classes to achieve the highest possible returns without compromising its mandate of capital preservation.

EPF is one of Asia's largest pension funds with a total asset of RM440.5 billion as at December 31 last year.

Allianz Life Insurance Malaysia Bhd chief investment officer Esther Ong estimates EPF dividend payout to be between 4 per cent and 5 per cent this term.

She said it may not be easy for EPF to sustain its performance this year unless some gains earned in better years previously are being used for distribution this year.

Ong believes that due to a more challenging macro environment, higher rates are expected for the bond portfolio.

"Meanwhile, we anticipate a more moderate return from equities given rising inflationary risks and the more moderate economic recovery path could result in lower earnings growth compared to last year," she noted.

In retrospect, equities were the largest contributor to the EPF's gross investment income in 2010, representing 45.45 per cent of its total gross investment income.

A total of RM10.94 billion was earned by EPF from equities last year, reflecting a significant 125.69 per cent increase from RM4.85 billion earned in 2009.


Read more: Dividend growth challenge http://www.btimes.com.my/Current_News/BTIMES/articles/epf08/Article/index_html#ixzz1GZ2W7IPy

Forget the dollar and gold, here are the real safe havens

Forget the dollar and gold, here are the real safe havens


Contemplating eurozone disintegration, renewed hostilities in Korea and an anti-inflationary clampdown in China, investors' default reaction has been a time-honoured retreat into the perceived safe havens of the dollar, Treasuries and gold. I'm not sure this makes much sense.

'There has never been a better time to invest in high-yielding equities' Photo: AFP

By Tom Stevenson 10:00PM GMT 27 Nov 2010

Comments

Increasing exposure to the liabilities and currency of a debt-burdened economy flirting with deflation and a metal with little utility and less yield seems like an odd response to extreme market stress. Faced with the probability of heightened volatility, I would rather protect myself with the factor that all real investments have in common – a reliable income.

Over the long haul, the most important element of an investor's total return is the re-investment of this income. Capital appreciation comes and goes but the steady compounding of dividends, coupons and rental income is what really makes the difference. Arguably it is the difference between real investment and speculation.

One of the curiosities of today's markets is the fact that despite interest rates being at historic lows in many countries, there is no shortage of income if you know where to look for it. I've found it in three places – one you'll most likely be familiar with, one you probably gave up on a few years ago and one you may have never considered.

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The familiar source of income is right under the noses of investors in the UK and right across Europe – the shares of blue-chip companies. I recently compared the dividend yields of some of the biggest, most reliable companies and was surprised to see that their shares currently offer investors an income of 2pc, 3pc, even 5pc more than the 10-year bonds of their own governments.

What do Telefonica, National Grid, Total, GlaxoSmithkline and telecommunications company KPN all have in common? They all yield considerably more than the medium-term debt of their respective governments. In each case the gap between the two income streams is wider than the average over the past three years, too. There has never been a better time to invest in high-yielding equities.

This matters for two reasons. First, because in a low interest rate environment many investors are desperately searching for income. If a big, reliable company, often running a utility or quasi-utility in a safe democracy, will pay you such a decent income it seems churlish to turn your back on it these days.

Second, there is plenty of evidence that investing in high-yielding stocks is a proven way to secure better capital performance, too. All around the world, the top fifth of high dividend payers has been shown to out-perform the market as a whole.

Another high-yielding area of the market is one that you may have been rather over-exposed to as the financial crisis hit in 2007 and consequently may have not given much thought to since – commercial property.

During the real estate boom in the middle of the decade, rising property prices pushed yields lower and lower until they offered an income worth just 0.8pc more on average in Europe than those government securities. When you consider that back then people had faith in governments repaying their debts, that was a minuscule premium to compensate for the higher risk of default. Today, investors earn on average 3.8pc more than on a government bond, a higher spread than at any point in the past 10 years.

As with high-yielding equities, the search for income is likely to see more and more capital chasing these higher returns, which should in turn underpin the prices of the best assets. Like equities, too, commercial property offers investors a degree of protection against inflation. Three of the four property bull markets since the Second World War have been driven by inflation and only the most recent one by credit expansion.

A third area in which investors might reasonably look for income is one which a comparison of risk and historic return suggests might be the most interesting of all – emerging market government debt. A better performer in capital terms since 1993 than any of US equities, emerging market equities, commodities and property, emerging market debt continues to offer a big income advantage over perceived havens like US Treasuries.

When you consider that emerging market growth is set to outstrip developed markets for years to come, that the last significant default in this area was Argentina in 2001 and that many so-called developed government bonds look like they are heading for junk status, the argument against emerging market debt gets harder and harder to make.

Perhaps equity income, commercial property and emerging market debt will turn out to be the real safe havens.

tomrstevenson@fil.com

Tom Stevenson is an investment director at Fidelity Investment Managers. The views expressed are his own.

http://www.telegraph.co.uk/finance/comment/tom-stevenson/8163647/Forget-the-dollar-and-gold-here-are-the-real-safe-havens.html

KLCI highest Dividend Yielding Stocks

FTSE Bursa Malaysia KLCI 30 (Malaysia) highest dividend yielding stocks top 30

The Dividend Play: High Growth vs. High Yield

The Dividend Play for a Lifetime

By Jim Royal | More Articles 
July 28, 2010 | Comments (2)

Netflix Hits $100!

David Gardner called Netflix in 2004 at $15.42. He’s up 546% as of April 23rd. See what David’s recommending that you buy NEXT.

• Click Here Now

Last week I highlighted Yum! Brands (NYSE: YUM) as the best China play that wasn't Chinese. As the company behind such brands as KFC and Taco Bell, Yum! offers a compelling prospect for gain. McDonald's (NYSE: MCD)also allows dividend investors to reap payouts for a lifetime, and has a few less-obvious catalysts up its sleeve to unlock value.

High growth vs. high yield
Over the years, McDonald's operational performance has been exceptional, leading to its ability to pay and increase dividends for decades. The restaurant titan currently yields 3.1%, or $2.20 per share. That dividend has more than tripled over the past five years. Nice if you owned the stock since then, I hear you grumble. As a dividend investor, you need to consider how your company might increase its payouts in the future. Knowing the dividend growth rate is as important as knowing the dividend.

Consider the companies in the following table:

Company	Dividend Yield	5-Year Dividend Growth Rate
McDonald's	3.1%	31.3%
Procter & Gamble (NYSE: PG)	3.1%	11.9%
Frontier Communications (NYSE: FTR)	9.7%	0.0%
Annaly Capital (NYSE: NLY)	15.2%	6.9%

Source: Capital IQ.

While McDonald's and Procter & Gamble offer lower yields, they also have the ability to raise their dividends because of their strong consumer franchises. In fact, it's difficult to think of better consumer companies.

On the other hand, both Frontier and Annaly are less able to sustainably deliver dividend growth. While their yields are both sizable, the prospects for future gains are limited. Frontier operates in the declining fixed-line telecom space, and just cut its payout as it integrates some rural operations recently acquired from Verizon.

Meanwhile, Annaly has been able to increase its yield because net interest margin has increased as interest rates dredged the bottom. While Annaly is a nice play in disinflationary times, interest rates won't remain low forever, so there's likely to be a hiccup in its dividend at some point. Those criticisms, though, don't mean either company isn't worth owning -- I own both -- but rather a reminder that you need to know the sustainability of your dividends. Blending high payouts with high dividend growers could make a lot of sense. (I also own Procter & Gamble.)

McDonald's occupies something of a middle ground, and its recent massive increase in its payout is just the beginning. There are good signs that the company has plenty more in store.

Two hidden dividend sources
McDonald's has indicated that for the future it intends to pay out all its free cash flow. Now, some of that cash will go to repurchase shares. In September 2009, McDonald's authorized a $10 billion repurchase plan, and the company has wasted no time in snapping up shares. It bought back about $1 billion in shares in the recent quarter, and nearly $480 million the quarter before that.

But the rest of that cash looks earmarked for dividend increases, which could be very significant.

McDonald's also has at least two other potential opportunities to unlock cash. The company has been undergoing significant refranchising, selling off its company-operated stores to franchisors, and it now operates just 19% of its locations. That's great news, because franchise fees allow McDonald's to realize a better-than-80% margin on franchised stores. In contrast, its company-operated stores have less than a 20% operating margin. By refranchising more stores, McDonald's has been increasing its margins and freeing capital tied up in its stores, even though refranchising makes revenue growth look sluggish.

OK, McDonald's is a mature franchise, even if it does have a few growth areas left, such as China. So McDonald's can't post the type of stellar top-line numbers that quickly growingChipotle (NYSE: CMG) and Buffalo Wild Wings (Nasdaq: BWLD) are able to. Those companies can take advantage of store build-out and increasing efficiency to grow margins, which is why McDonald's spun off Chipotle more than four years ago so that the market would appreciate this distinction. Still, according to perhaps the most honest gauge of retail -- same-store sales -- McDonald's is truly holding its own.

The second hidden store of value is in McDonald's real estate holdings. Even as the company sells off franchises, it maintains the rights to most of its land and buildings. Some of that real estate is in prime locations and has been sitting on the company's books at cost for decades.

The mechanism that Mickey D's might use to unlock that value is unclear, but the value is certainly there. And given how CEO Jim Skinner is pulling out all the stops to make the company a more efficient user of capital, it won't be surprising if he gets that value back to shareholders somehow. I don't factor that into my valuation below, but it offers some potential upside nonetheless.

An apple pie to go
A quick dividend discount valuation suggests that McDonald's may be undervalued. Assuming annual dividend growth of 10% in years 1-5, 7% in years 6-10, and a 2% terminal increase, McDonald's shares should be valued at $82. OK, so you don't think McDonald's dividend can grow at 2% for that long? The current price of $70 implies the same growth rates as above, except no dividend increase ever again after year 10. Given the company's willingness to return all its free cash flow, I'm willing to bet that the company can do much better than no dividend growth after year 10. Are you?

http://www.fool.com/investing/dividends-income/2010/07/28/the-dividend-play-for-a-lifetime.aspx