There are 2 paths of returns for the stock investors. These are:
1. Capital appreciation
2. Dividend yield.
Although every investors hope for capital appreciation, hope is not a really sound investment strategy.
We need something more concrete and more dependable, that is when dividend comes in.
Dividend being paid on a regular basis provides a more dependable return. You know you get a tangible return on your investment whenever the dividend is in your pocket, to either spend on your need or to be re-invested.
http://www.moneyshow.com/video/video.asp?wid=3508&t=3&scode=009393&th=1
Also read:
3 measures of a stock's value
Showing posts with label dividend. Show all posts
Showing posts with label dividend. Show all posts
Sunday 10 May 2009
Saturday 11 April 2009
How and Why Do Companies Pay Dividends?
How and Why Do Companies Pay Dividends?
by Investopedia Staff, (Investopedia.com) (Contact Author Biography)
Look anywhere on the web and you're bound to find information on how dividends affect stockholders: the information ranges from a consideration of steady flows of income, to the proverbial "widows and orphans", and to the many different tax benefits that dividend-paying companies provide. An important part missing in many of these discussions is the purpose of dividends and why they are used by some companies and not by others. Before we begin describing the various policies that companies use to determine how much to pay their investors, let's look at different arguments for and against dividends policies. (Read more about widows and orphans in Widow And Orphan Stocks: Do They Still Exist?)
Arguments Against Dividends
First, some financial analysts feel that the consideration of a dividend policy is irrelevant because investors have the ability to create "homemade" dividends. These analysts claim that this income is achieved by individuals adjusting their personal portfolios to reflect their own preferences. For example, investors looking for a steady stream of income are more likely to invest in bonds (in which interest payments don't change), rather than a dividend-paying stock (in which value can fluctuate). Because their interest payments won't change, those who own bonds don't care about a particular company's dividend policy.
The second argument claims that little to no dividend payout is more favorable for investors. Supporters of this policy point out that taxation on a dividend is higher than on a capital gain. The argument against dividends is based on the belief that a firm that reinvests funds (rather than paying them out as dividends) will increase the value of the firm as a whole and consequently increase the market value of the stock.
According to the proponents of the no dividend policy, a company's alternatives to paying out excess cash as dividends are the following: undertaking more projects, repurchasing the company's own shares, acquiring new companies and profitable assets, and reinvesting in financial assets. (Keep reading about capital gains in Tax Effects On Capital Gains.)
Arguments For Dividends
In opposition to these two arguments is the idea that a high dividend payout is important for investors because dividends provide certainty about the company's financial well-being; dividends are also attractive for investors looking to secure current income. In addition, there are many examples of how the decrease and increase of a dividend distribution can affect the price of a security.
Companies that have a long-standing history of stable dividend payouts would be negatively affected by lowering or omitting dividend distributions; these companies would be positively affected by increasing dividend payouts or making additional payouts of the same dividends.
Furthermore, companies without a dividend history are generally viewed favorably when they declare new dividends. (For more, see Dividends Still Look Good After All These Years.)
Dividend-Paying Methods
Now, should the company decide to follow either the high or low dividend method, it would use one of three main approaches: residual, stability, or a hybrid compromise between the two.
Residual
Companies using the residual dividend policy choose to rely on internally generated equity to finance any new projects. As a result, dividend payments can come out of the residual or leftover equity only after all project capital requirements are met. These companies usually attempt to maintain balance in their debt/equity ratios before making any dividend distributions, which demonstrates that they decide on dividends only if there is enough money left over after all operating and expansion expenses are met.
For example, let's suppose that a company named CBC has recently earned $1,000 and has a strict policy to maintain a debt/equity ratio of 0.5 (one part debt to every two parts of equity).
Now, suppose this company has a project with a capital requirement of $900. In order to maintain the debt/equity ratio of 0.5, CBC would have to pay for one-third of this project by using debt ($300) and two-thirds ($600) by using equity. In other words, the company would have to borrow $300 and use $600 of its equity to maintain the 0.5 ratio, leaving a residual amount of $400 ($1,000 - $600) for dividends. On the other hand, if the project had a capital requirement of $1,500, the debt requirement would be $500 and the equity requirement would be $1,000, leaving zero ($1,000 - $1,000) for dividends. If any project required an equity portion that was greater than the company's available levels, the company would issue new stock.
Stability
The fluctuation of dividends created by the residual policy significantly contrasts with the certainty of the dividend stability policy. With the stability policy, companies may choose a cyclical policy that sets dividends at a fixed fraction of quarterly earnings, or it may choose a stable policy whereby quarterly dividends are set at a fraction of yearly earnings. In either case, the aim of the dividend stability policy is to reduce uncertainty for investors and to provide them with income.
Suppose our imaginary company, CBC, earned the $1,000 for the year (with quarterly earnings of $300, $200, $100, $400). If CBC decided on a stable policy of 10% of yearly earnings ($1,000 x 10%), it would pay $25 ($100/4) to shareholders every quarter. Alternatively, if CBC decided on a cyclical policy, the dividend payments would adjust every quarter to be $30, $20, $10 and $40 respectively. In either instance, companies following this policy are always attempting to share earnings with shareholders rather than searching for projects in which to invest excess cash.
Hybrid
The final approach is a combination between the residual and stable dividend policy. Using this approach, companies tend to view the debt/equity ratio as a long-term rather than a short-term goal. In today's markets, this approach is commonly used by companies that pay dividends. As these companies will generally experience business cycle fluctuations, they will generally have one set dividend, which is set as a relatively small portion of yearly income and can be easily maintained. On top of this set dividend, these companies will offer another extra dividend paid only when income exceeds general levels.
Conclusion
If a company decides to pay dividends, it will choose one of three approaches: residual, stability or hybrid policies. Which a company chooses can determine how profitable its dividend payments will be for investors - and how stable the income.To read more on this subject, see Dividend Facts You May Not Know.
by Investopedia Staff, (Contact Author Biography)
Investopedia.com believes that individuals can excel at managing their financial affairs. As such, we strive to provide free educational content and tools to empower individual investors, including thousands of original and objective articles and tutorials on a wide variety of financial topics.
http://investopedia.com/articles/03/011703.asp?partner=basics4bb
by Investopedia Staff, (Investopedia.com) (Contact Author Biography)
Look anywhere on the web and you're bound to find information on how dividends affect stockholders: the information ranges from a consideration of steady flows of income, to the proverbial "widows and orphans", and to the many different tax benefits that dividend-paying companies provide. An important part missing in many of these discussions is the purpose of dividends and why they are used by some companies and not by others. Before we begin describing the various policies that companies use to determine how much to pay their investors, let's look at different arguments for and against dividends policies. (Read more about widows and orphans in Widow And Orphan Stocks: Do They Still Exist?)
Arguments Against Dividends
First, some financial analysts feel that the consideration of a dividend policy is irrelevant because investors have the ability to create "homemade" dividends. These analysts claim that this income is achieved by individuals adjusting their personal portfolios to reflect their own preferences. For example, investors looking for a steady stream of income are more likely to invest in bonds (in which interest payments don't change), rather than a dividend-paying stock (in which value can fluctuate). Because their interest payments won't change, those who own bonds don't care about a particular company's dividend policy.
The second argument claims that little to no dividend payout is more favorable for investors. Supporters of this policy point out that taxation on a dividend is higher than on a capital gain. The argument against dividends is based on the belief that a firm that reinvests funds (rather than paying them out as dividends) will increase the value of the firm as a whole and consequently increase the market value of the stock.
According to the proponents of the no dividend policy, a company's alternatives to paying out excess cash as dividends are the following: undertaking more projects, repurchasing the company's own shares, acquiring new companies and profitable assets, and reinvesting in financial assets. (Keep reading about capital gains in Tax Effects On Capital Gains.)
Arguments For Dividends
In opposition to these two arguments is the idea that a high dividend payout is important for investors because dividends provide certainty about the company's financial well-being; dividends are also attractive for investors looking to secure current income. In addition, there are many examples of how the decrease and increase of a dividend distribution can affect the price of a security.
Companies that have a long-standing history of stable dividend payouts would be negatively affected by lowering or omitting dividend distributions; these companies would be positively affected by increasing dividend payouts or making additional payouts of the same dividends.
Furthermore, companies without a dividend history are generally viewed favorably when they declare new dividends. (For more, see Dividends Still Look Good After All These Years.)
Dividend-Paying Methods
Now, should the company decide to follow either the high or low dividend method, it would use one of three main approaches: residual, stability, or a hybrid compromise between the two.
Residual
Companies using the residual dividend policy choose to rely on internally generated equity to finance any new projects. As a result, dividend payments can come out of the residual or leftover equity only after all project capital requirements are met. These companies usually attempt to maintain balance in their debt/equity ratios before making any dividend distributions, which demonstrates that they decide on dividends only if there is enough money left over after all operating and expansion expenses are met.
For example, let's suppose that a company named CBC has recently earned $1,000 and has a strict policy to maintain a debt/equity ratio of 0.5 (one part debt to every two parts of equity).
Now, suppose this company has a project with a capital requirement of $900. In order to maintain the debt/equity ratio of 0.5, CBC would have to pay for one-third of this project by using debt ($300) and two-thirds ($600) by using equity. In other words, the company would have to borrow $300 and use $600 of its equity to maintain the 0.5 ratio, leaving a residual amount of $400 ($1,000 - $600) for dividends. On the other hand, if the project had a capital requirement of $1,500, the debt requirement would be $500 and the equity requirement would be $1,000, leaving zero ($1,000 - $1,000) for dividends. If any project required an equity portion that was greater than the company's available levels, the company would issue new stock.
Stability
The fluctuation of dividends created by the residual policy significantly contrasts with the certainty of the dividend stability policy. With the stability policy, companies may choose a cyclical policy that sets dividends at a fixed fraction of quarterly earnings, or it may choose a stable policy whereby quarterly dividends are set at a fraction of yearly earnings. In either case, the aim of the dividend stability policy is to reduce uncertainty for investors and to provide them with income.
Suppose our imaginary company, CBC, earned the $1,000 for the year (with quarterly earnings of $300, $200, $100, $400). If CBC decided on a stable policy of 10% of yearly earnings ($1,000 x 10%), it would pay $25 ($100/4) to shareholders every quarter. Alternatively, if CBC decided on a cyclical policy, the dividend payments would adjust every quarter to be $30, $20, $10 and $40 respectively. In either instance, companies following this policy are always attempting to share earnings with shareholders rather than searching for projects in which to invest excess cash.
Hybrid
The final approach is a combination between the residual and stable dividend policy. Using this approach, companies tend to view the debt/equity ratio as a long-term rather than a short-term goal. In today's markets, this approach is commonly used by companies that pay dividends. As these companies will generally experience business cycle fluctuations, they will generally have one set dividend, which is set as a relatively small portion of yearly income and can be easily maintained. On top of this set dividend, these companies will offer another extra dividend paid only when income exceeds general levels.
Conclusion
If a company decides to pay dividends, it will choose one of three approaches: residual, stability or hybrid policies. Which a company chooses can determine how profitable its dividend payments will be for investors - and how stable the income.To read more on this subject, see Dividend Facts You May Not Know.
by Investopedia Staff, (Contact Author Biography)
Investopedia.com believes that individuals can excel at managing their financial affairs. As such, we strive to provide free educational content and tools to empower individual investors, including thousands of original and objective articles and tutorials on a wide variety of financial topics.
http://investopedia.com/articles/03/011703.asp?partner=basics4bb
Friday 6 February 2009
Investing for income: Dividend yield and Dividend cover ratio
Investing for income: Where savers can escape zero interest rates
As deposit accounts pay next to nothing, dividends on shares seem attractive. But you'll need to choose carefully.
By Richard Evans Last Updated: 3:06PM GMT 06 Feb 2009
The Bank of England's decision to cut interest rates to 1pc means that many savers will now receive virtually no return from their money. As a result, many will be looking for alternative homes for their nest eggs. Among the options are dividend-paying shares.
"Cash-rich individuals will be scouring the stock market in search of a decent income from their savings," according to DigitalLook.com, the private investors' website.
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 or more, DigitalLook said.
When comparing a dividend yield with the interest rate on a savings account, however, certain warnings should be borne in mind.
As deposit accounts pay next to nothing, dividends on shares seem attractive. But you'll need to choose carefully.
By Richard Evans Last Updated: 3:06PM GMT 06 Feb 2009
The Bank of England's decision to cut interest rates to 1pc means that many savers will now receive virtually no return from their money. As a result, many will be looking for alternative homes for their nest eggs. Among the options are dividend-paying shares.
"Cash-rich individuals will be scouring the stock market in search of a decent income from their savings," according to DigitalLook.com, the private investors' website.
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 or more, DigitalLook said.
When comparing a dividend yield with the interest rate on a savings account, however, certain warnings should be borne in mind.
- The first point is that your capital is not guaranteed; share prices can and do fall.
- 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," said Andy Yates of DigitalLook.
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.
A high yield alone is not synonymous with a decent dividend.
Shares in Land Securities yield 9.5pc, for instance, but this reflects investors' concerns about the property market.
There are companies that analysts expect to have a good chance of sustaining their dividends. These include AstraZeneca, the drug maker, International Power and Sage Group, the software firm, according to DigitalLook.
Mr Yates pointed out that an increasing number of companies, including Xstrata, the miner, and JD Wetherspoon, the pubs group, have announced over the past few weeks that they are going to skip their dividends.
But careful research should enable investors to sidestep enough potential problems to build up a well diversified high-income investment portfolio, he added.
"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."
The table below is a selection of FTSE100 companies with a forecast dividend yield of at least 4pc and a dividend cover of two or more.
Source: DigitalLook.com. Based on averaged forecasts from analysts at over 20 investment banks and stockbroking firms as of Feb 5 – forecasts on dividends excludes all UK listed banks
Data as on 05/02/09 at 12.30
Forecast
Forecast
Name
Forecast Dividend Yield...Forecast Dividend Cover
Prudential
5.80% ...4.1
WPP Group
4.20% ...3.4
Next
4.70%...2.8
FirstGroup
7.40% ... 2.6
InterContinental Hotels Group
5.00% ... 2.6
International Power
4.80% ... 2.6
Thomas Cook Group
6.30% ... 2.4
AstraZeneca
5.60% ... 2.4
Rolls-Royce Group
4.60% ... 2.4
Whitbread
4.70% ... 2.3
Smiths Group
4.00% ... 2.2
Aviva
10.60% ...2.1
Reed Elsevier
4.20% ... 2.1
Sage Group
4.10% ... 2.1
TUI Travel
5.30% ... 2
Imperial Tobacco Group
4.20% ... 2
http://www.telegraph.co.uk/finance/personalfinance/investing/shares/4537565/Investing-for-income-Where-savers-can-escape-zero-interest-rates.html
Saturday 6 December 2008
Dividend stocks for low excitement, high returns
The Basics
Dividend stocks for low excitement, high returns
Boring? Maybe. But here's a screen for finding dividend stocks that will have you yawning all the way to the bank.
By Harry Domash (Author of "Fire Your Stock Analyst")
It's time to make the case for "boring" dividend stocks.
From a tax perspective, they're hard to beat: Thanks to recent tax-law changes, most dividends are taxed at only 15%. Previously, dividends were hit at full income-tax rates.
And these stocks have been anything but boring when it comes to returns. According to Standard & Poor's, dividend-paying companies returned 18.4% last year, compared with 13.7% for those that didn't pay dividends and 8.6% for the Nasdaq, home to so many of the tech stocks investors find so exciting.
I've devised a screen for finding promising -- and, yes, boring, but only in the sense that they won't keep you up at night -- dividend-paying candidates. The screen pinpoints well-established companies that have solid earnings and dividend growth track records.
You won't get-rich-quick with these stocks. But most are expected to grow earnings between 10% and 15% annually over the next five years. So, over time, you can expect their share prices to move up at about the same rate. Combine that expected -- though by no means guaranteed -- price appreciation with 2% to 5% dividend yields, and you can expect annual returns in the 12% to 20% range, or roughly 16% per year.
To put that in perspective, at a 16% compounded annual return, $1,000 turns into $2,100 in 5 years. The S&P 500 ($INX) managed less than an 11% average annual return, and the Nasdaq Composite ($COMPX) returned around 4% over the past 10 years.
I've intentionally excluded higher-yielding stocks such as mortgage REITs (real-estate investment trusts that invest in mortgages) and royalty trusts (trusts, frequently based in Canada, that invest in oil and natural-gas resources) that often pay dividends equating to double-digit yields. These may be worthwhile investments, but require special analysis that I don't have room to cover here.
Here's how the screen works. You can use it as is, or as a starting point which you can revise to suit your needs.
Dividend yield: Set upper limits, too
If you're rusty on your stock-market math, dividend yield is a company's next 12 months' dividends divided by its current share price. For example, your yield would be 10% if you paid $10 per share for a stock expected to pay out $1 per share over the next year ($1/$10). However, another investor's yield would only be 9.1% if he bought the same stock a week later for $11 per share ($1/$11).
I arbitrarily set my minimum yield at 2.25%, which was the prevailing return on low-risk money market funds when I researched this column. Obviously, the lower the minimum yield, the more stocks you'll get. For example, 1,688 U.S.-listed stocks currently pay at least 2.25%. But reducing the minimum to 1.5% increases the field to more than 2,200 stocks.
Screening Parameter: Current Dividend Yield >= 2.25
For dividend yield, higher is not always better. High-yielding stocks get that way because many investors see them as risky.
Think about it.
Say a stock is expected to pay $1 per share in dividends over the next year and is changing hands at $10 per share, equating to a 10% yield. Given current money market rates, buyers would flock to buy a stock yielding 10% if they thought the dividend was rock-solid. The buying pressure would push the share price up until the yield dropped closer to market rates. In my experience, stocks with dividends seen as safe don't trade at yields much above the 4% to 4.5% range.
So I set my maximum acceptable dividend yield at 5%. Increase the maximum to 8% if you want to see riskier stocks. Sometimes cigarette makers such as Altria Group (MO, news, msgs) pay yields in the 7% range.
Screening Parameter: Current Dividend Yield <= 5
Look for dividend growth
You win two ways if one of your stocks ups its dividend. The higher payouts increase your yield and the dividend hike usually drives the share price higher.
History is truly the best teacher when it comes to evaluating dividend growth prospects. Companies with a record of strong historical dividend growth usually are committed to continuing that policy. Conversely, companies that haven't consistently increased dividends probably prefer to use their extra cash for other purposes.
I require at least 5% average annual dividend growth over the past five years. Ideally, you'd like to see even higher growth, but the recent recession prevented many firms from increasing their payouts. Increase the requirement to 7% or 8% if your screen turns up too many candidates.
Screening Parameter: 5-Year Dividend Growth >= 5
Profits power dividends
Since dividends come from earnings, you should draw your dividend candidates from the ranks of profitable companies. Return on equity (ROE), which is net income divided by shareholders equity (book value), is a widely used profitability gauge. But profitability standards vary between industries. So instead of setting an arbitrary minimum, I require that passing candidates must at least equal their industry average ROE.
Screening Parameter: Return on Equity >= Industry Average ROE
Stick to the strongest banks
Banks have been good dividend-payers in recent years, so my first try using this screen turned up several bank stocks. However, many small or regional banks enjoyed exceptionally strong profits from making and servicing home mortgages. Rising interest rates are squeezing their mortgage profit margins and reducing the demand for new mortgages. So this phase of the economic cycle is not the time to bet heavily on banks.
The leverage ratio measures debt by dividing total assets by shareholder's equity, and it's useful here. A company with no debt would have a 1.0 leverage ratio. The higher the debt, the higher the ratio. Banks are often highly leveraged, many with ratios in the 10-to-15 range, which is understandable, considering that cash is a bank's inventory.
I set my maximum allowable leverage at 10, in order to find only those banks with relatively strong balance sheets. Adjust that limit up if you want your screen to turn up more banks, and down for fewer banks.
Screening Parameter: Leverage Ratio <=- 10
Avoid future losers
A company like General Motors (GM, news, msgs) may have great dividend history, but a dismal outlook. In fact, many analysts expect GM to cut its dividend in the not-too-distant future.
You don't need to spend your time evaluating each candidate's future prospects because stock analysts do that all day long. So I piggyback on their efforts and rely on analysts' long-term earnings forecasts and buy/sell recommendations to rule out stocks likely to cut future dividends.
First, since dividends come from earnings, I look for consensus forecasts calling for at least 10% minimum average annual earnings growth over the next five years. Even if the forecasts are wrong, the likes of GM and Eastman Kodak (EK, news, msgs) are unlikely to pass this test.
Screening Parameter: EPS Growth Next 5Yr >= 10
As a backup check, I also look at analyst's consensus buy/sell recommendations.
Something's fishy if analysts are forecasting strong long-term earnings growth, but advising investors to sell the stock. Dividend investing is about avoiding unnecessary risk. It doesn't make sense to consider stocks that analysts say you should sell.
Screening Parameter: Mean Recommendation >= Hold
Follow the pros
Institutional buyers such as mutual funds and pension plans more tuned-in to what's happening in the market than you and I will ever be. If the big boys won't own a stock, we shouldn't either.
Institutional ownership is measured as a percentage of outstanding shares and can range from zero to 95%. There's no cast-in-concrete number that says a stock has enough institutional ownership. As a rule of thumb, I set a 40% minimum. Reduce the minimum to as low as 30% if you don't get enough candidates.
Screening Parameter: % Institutional Ownership >= 40
My screen turned up 19 stocks in a variety of industries. The list included one savings and loan and three regional banks. However, MBNA (KRB, news, msgs), which is listed as a regional bank, is primarily a credit card issuer. As always, the results of this or any screen should be considered research candidates, not a buy list.
Dividend Winners
Company----Price*----Industry
Abbott Laboratories (ABT, news, msgs)
47.2
Drug manufacturers - major
Allstate (ALL, news, msgs)
54.63
Property & casualty insurance
Autoliv (ALV, news, msgs)
46.9
Autoparts
Avery Dennison (AVY, news, msgs)
61.21
Paper & paper products
Bemis (BMS, news, msgs)
31
Packaging & containers
Eaton Vance (EV, news, msgs)
23.08
Asset management
Fidelity National Financial (FNF, news, msgs)
32.45
Surety & title insurance
General Electric (GE, news, msgs)
35.5
Conglomerates
Harbor Florida Bancshares (HARB, news, msgs)
33.59
Savings & loans
Kinder Morgan (KMI, news, msgs)
76.24
Gas utilities
Limited Brands (LTD, news, msgs)
24.65
Apparel stores
Lincoln Electric Holdings (LECO, news, msgs)
29.56
Machine tools & accessories
Masco (MAS, news, msgs)
34.65
Industrial equipment & components
MBNA (KRB, news, msgs)
24.9
Regional - mid-Atlantic banks
PartnerRe (PRE, news, msgs)
64.27
Property & casualty insurance
Spartech (SEH, news, msgs)
19.32
Rubber & plastics
Synovus Financial (SNV, news, msgs)
27.78
Regional - mid-Atlantic banks
U.S. Bancorp (USB, news, msgs)
28.57
Regional - Midwest banks
Worthington Industries (WOR, news, msgs)
19.2
Steel & iron
*Price of position at the time of original publish date.
Even though these stocks look good now, circumstances change over time. Check your stocks every six months or so, and sell any that analysts are advising selling or that no longer have strong long-term earnings-growth forecasts.
At the time of publication, Harry Domash did not own or control positions in any of the stocks mentioned in this article. Domash publishes the Winning Investing stock and mutual fund advisory newsletter and writes the online investing column for the San Francisco Chronicle. Harry has two investing books out, the most recent being "Fire Your Stock Analyst," published by Financial Times Prentice Hall.
http://articles.moneycentral.msn.com/Investing/InvestingForIncome/DividendStocksForLowExcitementHighReturns.aspx
Dividend stocks for low excitement, high returns
Boring? Maybe. But here's a screen for finding dividend stocks that will have you yawning all the way to the bank.
By Harry Domash (Author of "Fire Your Stock Analyst")
It's time to make the case for "boring" dividend stocks.
From a tax perspective, they're hard to beat: Thanks to recent tax-law changes, most dividends are taxed at only 15%. Previously, dividends were hit at full income-tax rates.
And these stocks have been anything but boring when it comes to returns. According to Standard & Poor's, dividend-paying companies returned 18.4% last year, compared with 13.7% for those that didn't pay dividends and 8.6% for the Nasdaq, home to so many of the tech stocks investors find so exciting.
I've devised a screen for finding promising -- and, yes, boring, but only in the sense that they won't keep you up at night -- dividend-paying candidates. The screen pinpoints well-established companies that have solid earnings and dividend growth track records.
You won't get-rich-quick with these stocks. But most are expected to grow earnings between 10% and 15% annually over the next five years. So, over time, you can expect their share prices to move up at about the same rate. Combine that expected -- though by no means guaranteed -- price appreciation with 2% to 5% dividend yields, and you can expect annual returns in the 12% to 20% range, or roughly 16% per year.
To put that in perspective, at a 16% compounded annual return, $1,000 turns into $2,100 in 5 years. The S&P 500 ($INX) managed less than an 11% average annual return, and the Nasdaq Composite ($COMPX) returned around 4% over the past 10 years.
I've intentionally excluded higher-yielding stocks such as mortgage REITs (real-estate investment trusts that invest in mortgages) and royalty trusts (trusts, frequently based in Canada, that invest in oil and natural-gas resources) that often pay dividends equating to double-digit yields. These may be worthwhile investments, but require special analysis that I don't have room to cover here.
Here's how the screen works. You can use it as is, or as a starting point which you can revise to suit your needs.
Dividend yield: Set upper limits, too
If you're rusty on your stock-market math, dividend yield is a company's next 12 months' dividends divided by its current share price. For example, your yield would be 10% if you paid $10 per share for a stock expected to pay out $1 per share over the next year ($1/$10). However, another investor's yield would only be 9.1% if he bought the same stock a week later for $11 per share ($1/$11).
I arbitrarily set my minimum yield at 2.25%, which was the prevailing return on low-risk money market funds when I researched this column. Obviously, the lower the minimum yield, the more stocks you'll get. For example, 1,688 U.S.-listed stocks currently pay at least 2.25%. But reducing the minimum to 1.5% increases the field to more than 2,200 stocks.
Screening Parameter: Current Dividend Yield >= 2.25
For dividend yield, higher is not always better. High-yielding stocks get that way because many investors see them as risky.
Think about it.
Say a stock is expected to pay $1 per share in dividends over the next year and is changing hands at $10 per share, equating to a 10% yield. Given current money market rates, buyers would flock to buy a stock yielding 10% if they thought the dividend was rock-solid. The buying pressure would push the share price up until the yield dropped closer to market rates. In my experience, stocks with dividends seen as safe don't trade at yields much above the 4% to 4.5% range.
So I set my maximum acceptable dividend yield at 5%. Increase the maximum to 8% if you want to see riskier stocks. Sometimes cigarette makers such as Altria Group (MO, news, msgs) pay yields in the 7% range.
Screening Parameter: Current Dividend Yield <= 5
Look for dividend growth
You win two ways if one of your stocks ups its dividend. The higher payouts increase your yield and the dividend hike usually drives the share price higher.
History is truly the best teacher when it comes to evaluating dividend growth prospects. Companies with a record of strong historical dividend growth usually are committed to continuing that policy. Conversely, companies that haven't consistently increased dividends probably prefer to use their extra cash for other purposes.
I require at least 5% average annual dividend growth over the past five years. Ideally, you'd like to see even higher growth, but the recent recession prevented many firms from increasing their payouts. Increase the requirement to 7% or 8% if your screen turns up too many candidates.
Screening Parameter: 5-Year Dividend Growth >= 5
Profits power dividends
Since dividends come from earnings, you should draw your dividend candidates from the ranks of profitable companies. Return on equity (ROE), which is net income divided by shareholders equity (book value), is a widely used profitability gauge. But profitability standards vary between industries. So instead of setting an arbitrary minimum, I require that passing candidates must at least equal their industry average ROE.
Screening Parameter: Return on Equity >= Industry Average ROE
Stick to the strongest banks
Banks have been good dividend-payers in recent years, so my first try using this screen turned up several bank stocks. However, many small or regional banks enjoyed exceptionally strong profits from making and servicing home mortgages. Rising interest rates are squeezing their mortgage profit margins and reducing the demand for new mortgages. So this phase of the economic cycle is not the time to bet heavily on banks.
The leverage ratio measures debt by dividing total assets by shareholder's equity, and it's useful here. A company with no debt would have a 1.0 leverage ratio. The higher the debt, the higher the ratio. Banks are often highly leveraged, many with ratios in the 10-to-15 range, which is understandable, considering that cash is a bank's inventory.
I set my maximum allowable leverage at 10, in order to find only those banks with relatively strong balance sheets. Adjust that limit up if you want your screen to turn up more banks, and down for fewer banks.
Screening Parameter: Leverage Ratio <=- 10
Avoid future losers
A company like General Motors (GM, news, msgs) may have great dividend history, but a dismal outlook. In fact, many analysts expect GM to cut its dividend in the not-too-distant future.
You don't need to spend your time evaluating each candidate's future prospects because stock analysts do that all day long. So I piggyback on their efforts and rely on analysts' long-term earnings forecasts and buy/sell recommendations to rule out stocks likely to cut future dividends.
First, since dividends come from earnings, I look for consensus forecasts calling for at least 10% minimum average annual earnings growth over the next five years. Even if the forecasts are wrong, the likes of GM and Eastman Kodak (EK, news, msgs) are unlikely to pass this test.
Screening Parameter: EPS Growth Next 5Yr >= 10
As a backup check, I also look at analyst's consensus buy/sell recommendations.
Something's fishy if analysts are forecasting strong long-term earnings growth, but advising investors to sell the stock. Dividend investing is about avoiding unnecessary risk. It doesn't make sense to consider stocks that analysts say you should sell.
Screening Parameter: Mean Recommendation >= Hold
Follow the pros
Institutional buyers such as mutual funds and pension plans more tuned-in to what's happening in the market than you and I will ever be. If the big boys won't own a stock, we shouldn't either.
Institutional ownership is measured as a percentage of outstanding shares and can range from zero to 95%. There's no cast-in-concrete number that says a stock has enough institutional ownership. As a rule of thumb, I set a 40% minimum. Reduce the minimum to as low as 30% if you don't get enough candidates.
Screening Parameter: % Institutional Ownership >= 40
My screen turned up 19 stocks in a variety of industries. The list included one savings and loan and three regional banks. However, MBNA (KRB, news, msgs), which is listed as a regional bank, is primarily a credit card issuer. As always, the results of this or any screen should be considered research candidates, not a buy list.
Dividend Winners
Company----Price*----Industry
Abbott Laboratories (ABT, news, msgs)
47.2
Drug manufacturers - major
Allstate (ALL, news, msgs)
54.63
Property & casualty insurance
Autoliv (ALV, news, msgs)
46.9
Autoparts
Avery Dennison (AVY, news, msgs)
61.21
Paper & paper products
Bemis (BMS, news, msgs)
31
Packaging & containers
Eaton Vance (EV, news, msgs)
23.08
Asset management
Fidelity National Financial (FNF, news, msgs)
32.45
Surety & title insurance
General Electric (GE, news, msgs)
35.5
Conglomerates
Harbor Florida Bancshares (HARB, news, msgs)
33.59
Savings & loans
Kinder Morgan (KMI, news, msgs)
76.24
Gas utilities
Limited Brands (LTD, news, msgs)
24.65
Apparel stores
Lincoln Electric Holdings (LECO, news, msgs)
29.56
Machine tools & accessories
Masco (MAS, news, msgs)
34.65
Industrial equipment & components
MBNA (KRB, news, msgs)
24.9
Regional - mid-Atlantic banks
PartnerRe (PRE, news, msgs)
64.27
Property & casualty insurance
Spartech (SEH, news, msgs)
19.32
Rubber & plastics
Synovus Financial (SNV, news, msgs)
27.78
Regional - mid-Atlantic banks
U.S. Bancorp (USB, news, msgs)
28.57
Regional - Midwest banks
Worthington Industries (WOR, news, msgs)
19.2
Steel & iron
*Price of position at the time of original publish date.
Even though these stocks look good now, circumstances change over time. Check your stocks every six months or so, and sell any that analysts are advising selling or that no longer have strong long-term earnings-growth forecasts.
At the time of publication, Harry Domash did not own or control positions in any of the stocks mentioned in this article. Domash publishes the Winning Investing stock and mutual fund advisory newsletter and writes the online investing column for the San Francisco Chronicle. Harry has two investing books out, the most recent being "Fire Your Stock Analyst," published by Financial Times Prentice Hall.
http://articles.moneycentral.msn.com/Investing/InvestingForIncome/DividendStocksForLowExcitementHighReturns.aspx
Monday 1 December 2008
In This Market, Dividends Look Great
OCTOBER 19, 2008
In This Market, Dividends Look Great
By GREGORY ZUCKERMAN
The brutal drops in stock prices in recent weeks have devastated investors' portfolios. That's the bad news.
The good news: The stock-market plunge has also made a number of quality companies paying hefty dividends much cheaper -- boosting their "dividend yield," or the annualized dividend as a percentage of the stock price. That has some analysts recommending these shares to investors eager for some ballast in a rough market.
Indeed, stocks such as Coca-Cola, Altria Group and Merck sport dividend yields ranging from 3.4% to 6.6% and are considered relatively safe picks even in a painful global recession.
But some high-dividend stocks can be dangerous, especially as corporate profits fall, cash flows shrink and companies find it more difficult to make these payments to shareholders. Dividends generally are the second expenditure that companies trim to conserve cash in a downturn, after stock buybacks. Some investors piled into Bank of America in the past few months, attracted by a dividend yield that topped 7%. But earlier this month, the bank slashed its dividend in half, sending its shares lower.
Look Beyond Yields
In selecting stocks, "a pure dividend view misses the risk of earnings adjustments that could force future dividend cuts," says Tobias Levkovich, Citigroup's chief U.S. equity strategist. "There is lots of risk for industrial, energy and materials firms that likely will suffer margin deterioration as the global economy slows and internal cash needs grow.
"Conversely," he adds, "financial and health-care companies may be in a far better position, as many diversified financial stocks already have gone through dividend reductions, while health-care entities are generally less cyclical."
Last week, stocks went on a roller-coaster, soaring on Monday, tumbling later in the week, and finishing the week with the Dow Jones Industrial Average up 4.8%.
The turbulence makes companies that pay a reliable, hefty dividend much more attractive. Coca-Cola, for example, has a 3.4% yield and has been on a roll, despite the weakening global economy. Coke posted better-than-expected third-quarter profit growth of 14%, as strong growth from international markets helped offset weakening U.S. beverage sales. About 81% of Coke's profit came from foreign markets last year, and the company has expanded in emerging markets. Coke's revenues from Latin America, a relative bright spot in the globe, jumped 24% in the third quarter.
Drug companies like Merck have had more challenges, amid a paucity of blockbuster new drugs and a weakening dollar. But Merck now trades for less than nine times its 2009 expected earnings, and its dividend -- producing a yield of 5.3% -- is viewed as relatively safe.
Consider Utilities
Although utilities' shares have fallen sharply, some investors and analysts see their dividends as stable, and argue that the shares could be strong because they will outperform in a downturn. Goldman Sachs recommends American Electric Power, Consolidated Edison and Entergy. These stocks have dividend yields between 3.7% and 6%.
Whitney Tilson, who helps run hedge fund T2Partners, is a fan of tobacco maker Altria, which has a 6.6% dividend yield and may not see much of a sales slump in a downturn.
He also likes Crosstex Energy LP, a master limited partnership that operates natural-gas pipelines and processing and treatment plants. The stock has tumbled 57% in the past year, but the dividend has risen to an annualized $2.52, for a yield of 17.3%. Mr. Tilson says he expects the payout won't be cut.
Freeport-McMoRan Copper & Gold has a 6.1% dividend yield and trades for less than five times its expected 2009 earnings. The catch? It has suffered as commodity prices have plunged. Shares have been dumped by hedge funds -- former fans of the stock that have found themselves under heavy pressure lately and eager to raise cash. Any stabilization of commodity prices likely would leave the company in a strong position, analysts say.
But investors should be careful about high-dividend payers. Some analysts say investors should be wary before buying shares of CIT Group, a lender that sports an 8.5% dividend yield, because the company could see rougher times in the months ahead. The company cut its annualized dividend from $1 to 40 cents earlier this year.
A CIT spokesman says "the dividend is paid at the Board's discretion and serves as an indication of their confidence in CIT's long-term earnings potential."
'Unsustainable' Dividend
Another stock to be wary of: McClatchy, a newspaper company with a dividend yield of 10.2%, even after recently halving its payout. "Their dividend is unsustainable and will likely be cut" again, says Jack Ablin, chief investment officer at Harris Private Bank in Chicago. "It's a tough business, in this environment especially."
Richard Tullo, an independent analyst, also is concerned about whether New York Times and Eastman Kodak can continue to pay dividends producing yields of 7.4% and 4.1%, respectively. The Times's "rich dividend may be sacrificed, as earnings will remain weak and as the company will have to move to strengthen its balance sheet," Mr. Tullo says, adding that Kodak's dividend could be cut as the company diversifies into new businesses.
Representatives of McClatchy, New York Times and Kodak declined to comment.
Mr. Tilson urges continued caution regarding many financial shares. "We would stay away from almost all high-yielding financials," he says. A high dividend yield for a bank or other firm under pressure "indicates the skepticism investors have that the company will stay alive…. Also, the government could force them to eliminate the dividend" to conserve needed cash.
Write to Gregory Zuckerman at gregory.zuckerman@wsj.com
http://online.wsj.com/article/SB122438121647847893.html
In This Market, Dividends Look Great
By GREGORY ZUCKERMAN
The brutal drops in stock prices in recent weeks have devastated investors' portfolios. That's the bad news.
The good news: The stock-market plunge has also made a number of quality companies paying hefty dividends much cheaper -- boosting their "dividend yield," or the annualized dividend as a percentage of the stock price. That has some analysts recommending these shares to investors eager for some ballast in a rough market.
Indeed, stocks such as Coca-Cola, Altria Group and Merck sport dividend yields ranging from 3.4% to 6.6% and are considered relatively safe picks even in a painful global recession.
But some high-dividend stocks can be dangerous, especially as corporate profits fall, cash flows shrink and companies find it more difficult to make these payments to shareholders. Dividends generally are the second expenditure that companies trim to conserve cash in a downturn, after stock buybacks. Some investors piled into Bank of America in the past few months, attracted by a dividend yield that topped 7%. But earlier this month, the bank slashed its dividend in half, sending its shares lower.
Look Beyond Yields
In selecting stocks, "a pure dividend view misses the risk of earnings adjustments that could force future dividend cuts," says Tobias Levkovich, Citigroup's chief U.S. equity strategist. "There is lots of risk for industrial, energy and materials firms that likely will suffer margin deterioration as the global economy slows and internal cash needs grow.
"Conversely," he adds, "financial and health-care companies may be in a far better position, as many diversified financial stocks already have gone through dividend reductions, while health-care entities are generally less cyclical."
Last week, stocks went on a roller-coaster, soaring on Monday, tumbling later in the week, and finishing the week with the Dow Jones Industrial Average up 4.8%.
The turbulence makes companies that pay a reliable, hefty dividend much more attractive. Coca-Cola, for example, has a 3.4% yield and has been on a roll, despite the weakening global economy. Coke posted better-than-expected third-quarter profit growth of 14%, as strong growth from international markets helped offset weakening U.S. beverage sales. About 81% of Coke's profit came from foreign markets last year, and the company has expanded in emerging markets. Coke's revenues from Latin America, a relative bright spot in the globe, jumped 24% in the third quarter.
Drug companies like Merck have had more challenges, amid a paucity of blockbuster new drugs and a weakening dollar. But Merck now trades for less than nine times its 2009 expected earnings, and its dividend -- producing a yield of 5.3% -- is viewed as relatively safe.
Consider Utilities
Although utilities' shares have fallen sharply, some investors and analysts see their dividends as stable, and argue that the shares could be strong because they will outperform in a downturn. Goldman Sachs recommends American Electric Power, Consolidated Edison and Entergy. These stocks have dividend yields between 3.7% and 6%.
Whitney Tilson, who helps run hedge fund T2Partners, is a fan of tobacco maker Altria, which has a 6.6% dividend yield and may not see much of a sales slump in a downturn.
He also likes Crosstex Energy LP, a master limited partnership that operates natural-gas pipelines and processing and treatment plants. The stock has tumbled 57% in the past year, but the dividend has risen to an annualized $2.52, for a yield of 17.3%. Mr. Tilson says he expects the payout won't be cut.
Freeport-McMoRan Copper & Gold has a 6.1% dividend yield and trades for less than five times its expected 2009 earnings. The catch? It has suffered as commodity prices have plunged. Shares have been dumped by hedge funds -- former fans of the stock that have found themselves under heavy pressure lately and eager to raise cash. Any stabilization of commodity prices likely would leave the company in a strong position, analysts say.
But investors should be careful about high-dividend payers. Some analysts say investors should be wary before buying shares of CIT Group, a lender that sports an 8.5% dividend yield, because the company could see rougher times in the months ahead. The company cut its annualized dividend from $1 to 40 cents earlier this year.
A CIT spokesman says "the dividend is paid at the Board's discretion and serves as an indication of their confidence in CIT's long-term earnings potential."
'Unsustainable' Dividend
Another stock to be wary of: McClatchy, a newspaper company with a dividend yield of 10.2%, even after recently halving its payout. "Their dividend is unsustainable and will likely be cut" again, says Jack Ablin, chief investment officer at Harris Private Bank in Chicago. "It's a tough business, in this environment especially."
Richard Tullo, an independent analyst, also is concerned about whether New York Times and Eastman Kodak can continue to pay dividends producing yields of 7.4% and 4.1%, respectively. The Times's "rich dividend may be sacrificed, as earnings will remain weak and as the company will have to move to strengthen its balance sheet," Mr. Tullo says, adding that Kodak's dividend could be cut as the company diversifies into new businesses.
Representatives of McClatchy, New York Times and Kodak declined to comment.
Mr. Tilson urges continued caution regarding many financial shares. "We would stay away from almost all high-yielding financials," he says. A high dividend yield for a bank or other firm under pressure "indicates the skepticism investors have that the company will stay alive…. Also, the government could force them to eliminate the dividend" to conserve needed cash.
Write to Gregory Zuckerman at gregory.zuckerman@wsj.com
http://online.wsj.com/article/SB122438121647847893.html
Friday 21 November 2008
Four Investment Objectives Define Strategy
Four Investment Objectives Define Strategy
By Ken Little, About.com
In broad terms, four main investment objectives cover how you accomplish most financial goals.
These investment objectives are important because certain products and strategies work for one objective, but may produce poor results for another objective.
It is quite likely you will use several of these investment objectives simultaneously to accomplish different objectives without any conflict.
Let’s examine these objectives and see how they differ.
Capital Appreciation
Capital appreciation is concerned with long-term growth. This strategy is most familiar in retirement plans where investments work for many years inside a qualified plan.
However, investing for capital appreciation is not limited to qualified retirement accounts. If this is your objective, you are planning to hold the stocks for many years.
You are content to let them grow within your portfolio, reinvesting dividends to purchase more shares. A typical strategy employs making regular purchases.
You are not very concerned with day-to-day fluctuations, but keep a close eye on the fundamentals of the company for changes that could affect long-term growth.
Current Income
If your objective is current income, you are most likely interested in stocks that pay a consistent and high dividend. You may also include some top-quality real estate investment trusts (REITs) and highly-rated bonds.
All of these products produce current income on a regular basis.
Many people who pursue a strategy of current income are retired and use the income for living expenses. Other people take advantage of a lump sum of capital to create an income stream that never touches the principal, yet provides cash for certain current needs (college, for example).
Capital Preservation
Capital preservation is a strategy you often associate with elderly people who want to make sure they don’t outlive their money.
Retired on nearly retired people often use this strategy to hold on the detention has.
For this investor, safety is extremely important – even to the extent of giving up return for security.
The logic for this safety is clear. If they lose their money through foolish investment and are retired, it is unlike they will get a chance to replace it.
Investors who use capital preservation tend to invest in bank CDs, U.S. Treasury issues, savings accounts.
Speculation
The speculator is not a true investor, but a trader who enjoys jumping into and out of stocks as if they were bad shoes.
Speculators or traders are interested in quick profits and used advanced trading techniques like shorting stocks, trading on the margin, options and other special equipment.
They have no love for the companies they trade and, in fact may not know much about them at all other than the stock is volatile and ripe for a quick profit.
Speculators keep their eyes open for a quick profit situation and hope to trade in and out without much thought about the underlying companies.
Many people try speculating in the stock market with the misguided goal of getting rich. It doesn’t work that way.
If you want to try your hand, make sure you are using money you can afford to lose. It’s easy to get addicted, so make sure you understand the real possibilities of losing your investment.
Conclusion
Your investment style should match you financial objectives. If it doesn’t, you should see professional help in dealing with investment choices that match you financial objectives.
http://stocks.about.com/od/investingstrategies/a/021906technque.htm
By Ken Little, About.com
In broad terms, four main investment objectives cover how you accomplish most financial goals.
These investment objectives are important because certain products and strategies work for one objective, but may produce poor results for another objective.
It is quite likely you will use several of these investment objectives simultaneously to accomplish different objectives without any conflict.
Let’s examine these objectives and see how they differ.
Capital Appreciation
Capital appreciation is concerned with long-term growth. This strategy is most familiar in retirement plans where investments work for many years inside a qualified plan.
However, investing for capital appreciation is not limited to qualified retirement accounts. If this is your objective, you are planning to hold the stocks for many years.
You are content to let them grow within your portfolio, reinvesting dividends to purchase more shares. A typical strategy employs making regular purchases.
You are not very concerned with day-to-day fluctuations, but keep a close eye on the fundamentals of the company for changes that could affect long-term growth.
Current Income
If your objective is current income, you are most likely interested in stocks that pay a consistent and high dividend. You may also include some top-quality real estate investment trusts (REITs) and highly-rated bonds.
All of these products produce current income on a regular basis.
Many people who pursue a strategy of current income are retired and use the income for living expenses. Other people take advantage of a lump sum of capital to create an income stream that never touches the principal, yet provides cash for certain current needs (college, for example).
Capital Preservation
Capital preservation is a strategy you often associate with elderly people who want to make sure they don’t outlive their money.
Retired on nearly retired people often use this strategy to hold on the detention has.
For this investor, safety is extremely important – even to the extent of giving up return for security.
The logic for this safety is clear. If they lose their money through foolish investment and are retired, it is unlike they will get a chance to replace it.
Investors who use capital preservation tend to invest in bank CDs, U.S. Treasury issues, savings accounts.
Speculation
The speculator is not a true investor, but a trader who enjoys jumping into and out of stocks as if they were bad shoes.
Speculators or traders are interested in quick profits and used advanced trading techniques like shorting stocks, trading on the margin, options and other special equipment.
They have no love for the companies they trade and, in fact may not know much about them at all other than the stock is volatile and ripe for a quick profit.
Speculators keep their eyes open for a quick profit situation and hope to trade in and out without much thought about the underlying companies.
Many people try speculating in the stock market with the misguided goal of getting rich. It doesn’t work that way.
If you want to try your hand, make sure you are using money you can afford to lose. It’s easy to get addicted, so make sure you understand the real possibilities of losing your investment.
Conclusion
Your investment style should match you financial objectives. If it doesn’t, you should see professional help in dealing with investment choices that match you financial objectives.
http://stocks.about.com/od/investingstrategies/a/021906technque.htm
Wednesday 6 August 2008
Who said it is impossible to make $$$$$ in bear market?
________________________________
Dear 陈全兴,
there r 2 choices for one to invest in bear mkt,
1) Buy high dividend yield blue chip stock esp those traded with PE < 10.
2)even if they r not high dividend payer, buy if blue chip selling to u @ around 7+-, it is still worth 4 consideration.
try to avoid property ,GLC n construction stocks, if u doubt , let see what happen to their shares price by end of this year or begining of next year ^V^
Oil n gas srctor also not a bad choice but u r advice to bottom fish them @ PE < 10 also for safe play.
http://www.samgang.blogspot.com/
http://samgang.blogspot.com/2008/07/v-who-said-it-is-impossible-to-make-in.html
_________________________________
I enjoy visiting the above blog. There are very good advice given on investing by Sam of this blog. I copy and paste here one of his posting above. The advice given are excellent and definitely safe. One can be grateful for such advice given expertly, freely and genuinely.
Dear 陈全兴,
there r 2 choices for one to invest in bear mkt,
1) Buy high dividend yield blue chip stock esp those traded with PE < 10.
2)even if they r not high dividend payer, buy if blue chip selling to u @ around 7+-, it is still worth 4 consideration.
try to avoid property ,GLC n construction stocks, if u doubt , let see what happen to their shares price by end of this year or begining of next year ^V^
Oil n gas srctor also not a bad choice but u r advice to bottom fish them @ PE < 10 also for safe play.
http://www.samgang.blogspot.com/
http://samgang.blogspot.com/2008/07/v-who-said-it-is-impossible-to-make-in.html
_________________________________
I enjoy visiting the above blog. There are very good advice given on investing by Sam of this blog. I copy and paste here one of his posting above. The advice given are excellent and definitely safe. One can be grateful for such advice given expertly, freely and genuinely.
The case for Dividend Growth Investing
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://dividendgrowth.blogspot.com/2008/03/case-for-dividend-investing-in.html
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://dividendgrowth.blogspot.com/2008/03/case-for-dividend-investing-in.html
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