Dividend Growers Have Outperformed with Less Risk

Investors continue to be rewarded with better risk adjusted returns by maintaining a focus on investing in dividend growth stocks. A recent report from Oppenheimer contained a Ned Davis Research chart noting the dividend growers and initiators continue to achieve higher risk adjusted returns for the period 1972 - 2008.

For investors then, continuing to focus on stocks/companies that increase the company's dividend on an annual basis can be a rewarding investment approach.

"...many of the dividend payers of final interest will likely tend to be large, more established, companies with market capitalizations of more than $5 billion, and this select set will comprise the bulk of our group. In an effort to boost returns, though, we will also seek out mid-cap stocks with good dividend prospects."


http://disciplinedinvesting.blogspot.com/2009/03/dividend-cuts-no-worse-than-in-prior.html

Dividend Aristocrats: A Comprehensive View

There tends to be much debate on whether dividends are a critical factor in determining the suitability of a particular investment. One fact is clear though and that is since 1926 the dividend component of the S&P 500 has accounted for one-third of the index's total return

Dividend Aristocrats have outperformed the S&P 500 Index on both a return basis and with less risk (beta).

The ability of management to maintain stable or increasing dividends indicate the quality of the firm’s earnings and its growth prospects.














The math behind compounding shows if one looses less in a down market, it takes a lower return to get back to even. In essence, if one looses less in the down market period, the portfolio will have more invested when the market turns around and moves higher.

http://seekingalpha.com/article/183829-dividend-aristocrats-a-comprehensive-view

The Principles of Dividend Investing

The point is that dividend growth followed earnings growth.















http://seekingalpha.com/article/176988-the-principles-of-dividend-investing

Relative Contributions of Price Returns and Dividend Returns to Total Returns over the Decades

Stocks that pay dividends provide a nice inflation hedge since their revenues and net income would be affected by an increase in overall prices paid by consumers. Dividends soften losses during bear markets, and they provide the only sources for investment gains in troublesome times. In addition, dividend income takes away the need to sell large chunks of your portfolio in a declining market. Retirement income could be solely derived from dividends and their growth would compensate the dividend investor for the erosion in the purchasing power of the dollar.

If a retiree holds a diversified portfolio of stocks which have the ability to grow their dividend payments over time, they would be well prepared for retirement. They should be focusing on stocks with high yields and ability to grow dividends; stocks with average yields but with above average dividend growth and some domestic and foreign index funds for diversification.


http://www.dividendgrowthinvestor.com/2008/03/case-for-dividend-investing-in.html

The power of dividends is substantial, especially when you reinvest them.

This chart, from Bernstein Global Wealth Management, demonstrates how reinvesting dividends can substantially improve your total returns.

http://www.investmentu.com/2008/April/mark-skousen.html

The Sweet Spot of Dividend Investing

The green area in the middle is the sweet spot: Initial dividend yields of between about 3% and 9%, combined with dividend growth rates of about 4% to 17%. Those are generally sustainable numbers, and it is where we will find most of the best dividend stocks for long-term investing.

In long-term dividend investing, one needs to control risk in many areas. Risk comes in many forms: selecting unsound companies; purchasing companies whose dividends are in peril; creating a portfolio that is insufficiently diversified; and so on.


Two important areas of risk to a long-term dividend strategy are the initial yield and expected growth rate of the dividend itself.


If you start out with too low a yield, it will take many years for the dividend to grow to where it provides a worthwhile return on your original investment. On the other hand, if you start out with too high a yield, it may well be that the dividend is unsustainable and in peril.


If the company typically increases its dividend at too slow a rate, again the dividend will take too long to grow into a desirable return. On the other hand, if you anticipate too fast a growth rate, the company may not achieve it.Plotting these two characteristics against each other--initial yield and anticipated dividend growth rate--gives us a diagram of the "sweet spot" in dividend investing.

Read more here:  The Sweet Spot of Dividend Investing

Relevant Articles:

- 10 by 10: A New Way to Look at Yield and Dividend Growth
- Yield on Cost Matters
- The Dividend Edge
- My Dividend Growth Plan - Strategy


This company grew its earnings and dividends healthily over the years. The point is that dividend growth followed earnings growth.



http://seekingalpha.com/article/176988-the-principles-of-dividend-investing

The DJIA Dividend Yield Points the Way

The Dow Jones Industrials Average dividend yield, for sixty years was a key bull and bear market-timing indicator.

http://www.gold-eagle.com/editorials_08/lundeen011009.html

Dividend Yield Investing

The dividend growth of this company is not fantastic.

There are also companies in Bursa paying increasing dividend over the years quite similar to the above company.

Stock Market vs. Dividend Yield

The Dividend Yield is another way to measure values in the stock market. This is the total dollar amount of the dividends paid on the DJIA stocks divided by the value of the DJIA.

Looking back at over 100 years of data for the DJIA, it is clear that stocks become over valued, i.e. too expensive, when their Dividend Yields are less than 4%. These low Dividend Yields represent major tops, and prices fall from there until Dividend Yields return to the long-term average of 6%, and then continue beyond that to a level where they are under valued, i.e. cheap, around 8-10%.

The 1929 top was formed at a DY of 3.5%, which resulted in a 3-year bear market that bottomed in 1932 at a DY of 17%.

The 1966 top was formed at a DY of 3.5%, which resulted in a 16-year bear market that bottomed in 1982 at a DY of 8%.

The 2000 top was formed at a DY of 1.2%; 66% lower than the top in 1929!! Currently, the DY stands at 2.5%, which is hardly cheap!! It is still beyond the level that formed the 1929 and 1966 tops!

History has shown that after a major top, a multi-year bear market should take prices back to a DY of about 10%, in order to work off the excesses of the previous bull market. This means that, by this measure, the DJIA should eventually drop to 3,500-4,000. That's when stocks will be cheap again!  


http://www.thefinancialhelpcenter.com/Stock-Market/Are-Stocks-Cheap.html

****The power of dividends is pretty obvious!

Investing in stocks that continually increase their dividends has the dramatic effect of consistently giving investors a raise each and every year. I have kept track of my own personal dividend income since really focusing on dividend growth as a strategy in 2005. Shooting forward almost 3 years and my dividend income has gone from $727 per year to its current $1320 per year.

The growth in this dividend income has come from two sources.

1. The first and most obvious is that I have continued to add dividend growth stocks to my portfolio. Every time that I add a stock the resulting income can be quite substantial. For example when I added Coca-Cola in March 2005 I immediately added almost $30 in dividend income per year to my earnings.
2. The second and less obvious source of the increase in dividend income is the dividend increases that my dividend stocks have done every year. This is metric that can move quite slowly at first, sometimes feeling like you are getting nowhere. However, over time as dividends are reinvested into more stock and the dividends are raised then the results can be quite dramatic. For example, in June 2006 I bought 16.4821 shares of Wal-Mart when it was throwing off $0.67 per share in dividends. Today, with no additional money added to the stock I now hold 16.9761 shares and the yearly dividend payment from the company is $0.95 per share. My hypothesis is that in 20 years from now the yearly dividends will have risen dramatically and my reinvested shares will be throwing off a very substantial sum of money – enough to retire on.

To create a reminder of the power of my strategy during times when dividend stocks are not performing as well in the market, I have created a quick and dirty chart that shows the trend in my dividend income. Every once in a while I create a new data point with my current dividend income and inevitably it shows my income rising.



http://www.thedividendguyblog.com/a-review-of-my-yearly-dividend-income/

Dividends for Top Bursa Malaysia Companies

It shows the normal dividends (Interim & Final) and any special dividend as well.
http://www.horizon.my/2008/11/dividends-for-top-bursa-malaysia-companies/

S&P 500 Dividend Yield versus 10 Year Treasury Yield

The 10 year U.S. Treasury yield has been greater than the S&P 500 Index dividend yield since 1958. However, in November 2008 the roles reversed when the S&P 500 yielded more than 10 year Treasuries. The chart above compares these yields from November 1993 to November 2008. Why do stocks, as represented by the S&P 500 Index, now yield more than bonds, as represented by the U.S. 10 Year Treasury?

Experts differ on the reasons, but one reason is simply market forces. The 10 year U.S. Treasury yield has been driven down as investors have moved out of stocks and into the safety of U.S. Treasuries, driving bond prices up. Bond yields go down when bond prices go up. The S&P 500 dividend yield has increased due to the recent sharp declines in stock prices. Dividend yield represents the trailing annual dividend per share divided by the current share price. Current stock prices have dropped at such a sharp rate that when dividing trailing annual dividends by current price, the dividend yield increased.

http://www.icmarc.org/xp/rc/marketview/chart/2008/20081212SP500DividendYield.html

An Increasing Dividend, but Lower Dividend Yield?

The graph above compares the annual cash dividend per share for all of the S&P 500 companies to their dividend yield since 1960. While it is evident that companies increased their cash dividends per share over time, it is also just as clear that their dividend yield fell. Many investors use dividend yield to find the percentage of a stock’s purchase price that the company will return to shareholders in dividends. Dividend yield can be calculated by dividing a stock’s annual dividend by its share price. For example, if a stock pays an annual dividend of $2 and is trading at $40 a share, it would have a yield of 5%. In 1987, the dividend yield on the S&P 500 Index reached 3.17% and over the following 20 years, the dividend yield declined to 1.77% during 2006. In the late 90's and early-to-mid 00’s, increases in stock price significantly outpaced the increases in dividends, which sent the S&P 500 dividend yield down. According to The Wall Street Journal, one of the reasons dividends grew at a slower pace than stock prices was due in part to companies reinvesting profits back into company operations instead of distributing dividends to shareholders. Although dividend yields for the S&P 500 Index remain lower than the historical average, dividends continue to increase shareholder wealth by providing a source of current income and total return for the investor.


http://www.icmarc.org/xp/rc/marketview/chart/2007/20070914dividendyield.html

I’ve never seen a company with such total dedication to its dividend.

The Ultimate Dividend Investment




The Monthly Dividend Company is in its 37th year of business. As of May 11, 2007, The Monthly Dividend Company had paid 440 consecutive monthly dividends and 38 consecutive quarterly dividend increases. The annual dividend has grown from $0.90 in 1994 to $1.53.

Here’s what some current shareholders had to say about their company:

“I’ve owned this stock since 1998. I can’t imagine selling it. My original shares pay a 15% dividend and have risen 175%. That’s better than 20% per year.”

http://drnaz.wordpress.com/2007/09/06/the-ultimate-dividend-investment/

Nice way of depicting total shareholder returns

Dutch Lady sees higher revenue, profit this year

Dutch Lady sees higher revenue, profit this year
By Vasantha GanesanPublished: 2010/05/20

DUTCH Lady Milk Industries Bhd (3026) expects to grow both revenue and net profit this year and to possibly pay as much dividend as it did in 2009.

In the year to December 31 2009, Dutch Lady posted a record net profit of RM60.4 million on the back of RM691.85 million in revenue.

The dairy manufacturer also paid a gross dividend of 86 sen per share in 2009, which translates to RM42 million in total.

Recently appointed managing director Sebastian Van Den Berg said the improving economy will be reflected in consumer behaviour and spending trend which he expects will contribute to the dairy market growth.
Moreover, the company will raise its advertisement and promotion budget this year to push sales.

"We will increase it by 20 per cent this year," Van Den Berg said a press conference following its annual general meeting in Petaling Jaya, Selangor, yesterday.

Dutch Lady saw its net profit jump by 41.6 per cent in 2009 compared with the previous year, supported largely by favourable skimmed milk powder price.

However, the price of the commodity, the main dairy raw material, is currently rising.

Van Den Berg expects the commodity's price to increase to over US$3,000 (RM9,720) per tonne this year compared with US$2,100 (RM6,804) in the fourth quarter of 2009.

The stronger ringgit will help cushion an increase as imports will be cheaper. Dutch Lady imports 95 per cent of its dairy needs.

Dutch Lady does not expect to raise the price of its products at least until August 2010.

"We are not sure yet. We will try our utmost best not to. But I can't promise that there will be no price increase ... not before August (at least)," he said.

Dutch Lady has forward purchased its skimmed milk needs that will last it until August or September this year.

On dividends, the group has announced a gross dividend of 45 sen per share. The remaining quantum will be announced later based on the performance of the company.

In the first quarter to March 31 2010, Dutch Lady saw net profit swell to RM20.81 million from RM8.75 million in the corresponding period of 2009.

Dutch Lady shares climbed 16 sen before closing at RM12.46 at the end of trading yesterday.

Read more: Dutch Lady sees higher revenue, profit this year http://www.btimes.com.my/Current_News/BTIMES/articles/agmdutch/Article/#ixzz0oQOWiqkY

Dividend-paying companies: major shareholders must be willing to share their profits with their investors through good dividend payments.

Wednesday March 24, 2010

Dividend-paying companies

Personal Investments - By Ooi Kok Hwa

Despite investing in profit-making companies, a lot of investors have been complaining that they are not getting the desired returns from the companies that they have invested in.

One of the main reasons is that these companies usually pay very low dividends or no dividends to their investors.

Hence, even though these companies make good profits from their businesses, they are not sharing the profits with their minority investors.

Companies that pay good dividends to their investors imply that the major shareholders of these companies are willing to share their wealth with minority investors.

Given that minority investors have no control over these companies, they have only two sources of returns from their investments, namely 

• dividend returns and 
• capital gains.

If the companies refuse to reward their investors with good dividends, then investors need to make sure that they buy low and sell high in order to get capital gains.

Warren Buffett proposes one concept, which is called the one-dollar premise - for every dollar profit that a company makes, it either pays one dollar dividend to its shareholders or if that dollar is being retained, it needs to bring additional one dollar market value.

Companies with good management will always try to maximize the wealth of their investors.

The following table will show the importance of dividends to an investor.

Assuming you have invested in Company A with an average cost of RM15.

Company A generates earnings per share (EPS) of RM1.00 with price-earnings ratio (PER) of 15 times and pay out 80% of its profits as dividends or dividend per share of RM0.80.

Hence, with the purchase price of RM15, the dividend yield (DY) is 5.3%.

We also assume that Company A has a constant PER of 15 times and dividend payout ratio of 80% for the next 20 years.

Annual growth rate of EPS is 8% based on our country’s average nominal GDP growth rate of 8%.

For the first 10-year period, given that our original cost of investment is fixed at RM15, our dividend yield will be getting higher and higher.

For example, first year DY of 5.3% is computed based on DPS of RM0.80 divided by RM15.

And second year DY of 5.8% is calculated based on DPS of RM0.86 (RM0.80 x 1.08) divided by the same original purchase price of RM15.0.

As the company’s businesses continue to grow and generate higher profits, as long as the company practices a fixed dividend payout policy (our example is based on a fixed dividend payout ratio of 80%), investors’ DY will increase.

At Year 10, given that our purchase price remains the same at RM15, with a DPS of RM1.60, our DY is 10.7% (1.60/15.0).

Thus, the average DY for the first 10-year period is 7.7%.

Coupled with the annual capital gain of 8% (the share price has grown by annual growth rate of 8% from RM15 to RM29.99), investors will generate an annual total returns rate of 15.7% (7.7% + 8%)!

If we keep this stock for another 10-year period, our next 10-year annual total return is 24.7% (16.7% + 8%)!

From here, we can see that if we have invested in good companies that always reward their investors with very high dividend payments, our returns will be huge if we hold it long term.

Normally, consumer-based companies and companies that do not need high capital expenditures will be able to reward shareholders with good dividend payments.

Besides, major shareholders must be willing to share their profits with their investors through good dividend payments.

Ooi Kok Hwa is an investment adviser and managing partner of MRR Consulting.

http://biz.thestar.com.my/news/story.asp?file=/2010/3/24/business/5919730&sec=business

Also read:

*****Long term investing based on Buy and Hold works for Selected Stocks

Dividend Yield Investing - Stock Selection is still the Key

*****Long term investing based on Buy and Hold works for Selected Stocks

It sure beats FD rates and it is safe too.
http://spreadsheets.google.com/pub?key=tWENexpUrXS_RMxB7k73RgQ&output=html

Click: Dividend Yield Investing - Stock Selection is still the Key
http://myinvestingnotes.blogspot.com/2010/03/dividend-yield-investing.html

Click also:
How can the average investor improves his investment returns in stocks?

and here too:

Dividend-paying companies: major shareholders must be willing to share their profits with their investors through good dividend payments.

Dividend Yield Investing - Stock Selection is still the Key

Mr has left a new comment on your post "Dutch Lady posts 4Q net profit of RM16.05m, warns ...":

Dear Mr bullbear,

Sorry to write to you here, but I don't know how to reach you.

....I want to ask you if you can recommend say 5 stocks with High Dividend Yield that you can recommend to invest for long time.

I am a 43 year old family man with a full time job and no interest nor time to monitor the market. Maybe once or twice a month.

My goal is to just beat the fixed term deposit rate. Now is so low, only 2% to 2.5%. Very hard to earn passive income like this.

I need some real solid recommendation, stocks that I can hold for a long time. A friend swears by PBBANK. But I am concerned the price may be too high now.

I plan to start with RM50k first. Maybe split into 5 stocks with RM10k each.

What do you think of PBBANK? What is a good entry price? Can you recommend a few others that pay high dividend for me to consider? I appreciate the final decision is mine and mine alone, and I will not blame you for any losses. But please explain your reasons.

Thanks and kindest regards,

Mr Teoh

-----

Dear Mr. Teoh,

It is not easy to give you advice other than some very general ones.  You will find enough materials in this blog to answer your questions.

Since you asked, I thought a better approach would be for me to collate some examples to help you answer your own questions. 

Click here:  It sure beats FD rates and it is safe too.
http://spreadsheets.google.com/pub?key=tWENexpUrXS_RMxB7k73RgQ&output=html

Warren Buffett often looks at the stock he buys as equivalent to a bond.  The cost price for the stock is the 'equivalent' to the price paid for a bond.  The earning yield of the stock is the 'equivalent' to the coupon rate of a bond.

He likened his stock as equity bond.  Unlike a bond that pays a fixed coupon rate for its lifespan and repayment of the initial invested capital, an equity bond (stock) if chosen well, can deliver increasing earnings (and dividends) over many years.  Its share price likewise will appreciate with its increasing earnings.

The trick in dividend yield investing is still to focus on the earnings and earnings growth potential of the company.  All these are embodied in a simple phrase, that is, choose and only invest in good high quality companies bought at bargain or fair prices.

Regards.


Click:

Dividend-paying companies: major shareholders must be willing to share their profits with their investors through good dividend payments.

http://dividendsvalue.com/

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The best dividend-paying stocks

The best dividend-paying stocks
The best dividend-paying stocks, provide not only income, but significant capital appreciation.


Related readings:

Evaluating Dividend-Paying Companies
The importance of not buying shares near the top of the market peaks
Dividends Are Still the Linchpin
Ten Principles of Dividend Growth Investing
How and Why Do Companies Pay Dividends?
The 10 Best Dividend Stocks of the Past Decade
Investing for income: Dividend yield and Dividend cover ratio
The case for Dividend Growth Investing
The concept of valuing a share according to its dividend
Importance of dividend yield in the evaluation of the worth of a share.
Dividend yield prevents investors from being side-tracked by irrelevant events.
Dividend is a sure thing
Recession or not McDonald's increases dividend for the 32nd year 

Warren Buffett's concept of Equity Bond

Warren Buffett’s Concept of Equity Bond in Action