Capital Allocation by the Managers: Study their track record and their decision-making processes.

So you have bought a good company at a decent price.  You have completed the essential part of choosing your favourite stocks.

By definition, this company generates a lot of earnings and the managers have significant flexibility in terms of how they allocate this money, with a wide range off options available to them.  

It is important that the capacity to generate value through competitive advantages is also matched by an appropriate allocation of earned profit

Appropriate allocation of earned profit by the managers include:

1.  Shares buyback and cancellation of shares. #
2.  Dividends
3.  Investments in assets for growth.
4.  Acquisition of other companies to increase the company's competitive advantage.

The board should decide between these options based on the highest executed return and consequent value creation for the shareholder.

The only way you can get a fix on capital allocation is by studying the managers track record and the company's decision-making processes.  It comes down to both a quantitative and a qualitative analysis based on criteria, with experience being assigned a very high weight.

The greater the extent to which managers have shareholding interests, the more likely it is that their interest will be aligned with minority shareholders, but this step shouldn't be overlooked in any case.


# (The shareholders should ask of the management board that they give consideration to repurchasing and cancelling shares.  When you invested into the shares, you obviously believe the shares to be undervalued and this means that a cancellation would create value.  The management need not have to do it but this should be on their list.)

The Case for Dividends

Dividends and dividend growth provide a solid basis for a stock's intrinsic value. 

In the end, a stock will only be worth the value of the dividends it pays.

Numerous academic studies have established the importance of dividends and dividend reinvestment in investor returns.

In some studies, dividends accounted for more than half of long-term total returns.



Dividends are making a comeback.

The yield on the S&P 500 is still below historic norms at just under 2%, but real dividend growth (adjusted for inflation) is running at its best pace in decades.

Dividend is a simple and versatile analytic tool.

Less than half of U.S. stocks pay a dividend.



Stay with consistent growth, mature, moat-protected stocks.

It is not particularly well suited to deeply cyclical firms, whose earnings power and even dividend rates will vary widely from year to year.

It is also not suited for emerging-growth stories.

But for the ranks of relatively consistent, mature, moat-protected stocks - of which there are hundreds, if not thousands, to pick from - we can use the dividend as a critical selection too.



The advantages conferred by dividends

Compared with retained earnings or buybacks, a solid dividend:

• establishes a firm intrinsic value for the stock, 
• helps reduce the stock's volatility, and 
• acts as a check on management's capital-allocation practices.

You can use the dividend to identify high-quality stocks with good total return prospects.

Which is Better: Dollars in the Hand or "in the Bush"?

Professional investment managers strongly favour corporations which can plow back a high percentage of earnings into growing their business.

Does this always pay?

Or should the investor prefer his dividends?

For every example of a company that has compounded its growth by wise investment of its cash there are several that would have done better to pass their surplus on to their stockholders.

Very rarely, one finds a management that can do both.

• For example:  Company XYZ paid out almost 70% of its earnings in dividends.  It has invested its cash flow internally to maximum advantage.  Its shareholders have had their cake and eaten it too.

Expected Profits

The normal way for management to look upon proposed investments is to estimate the expected amount of profit.

This varies from industry to industry.

In any case,it would be unreasonable to invest company funds unless the expected return was substantial.

One finds far too much reinvestment that fails to pay off.

It is difficult for management to understand that in some cases stockholders are paid off better with their company dead than alive.




Examine the past record.

Correct judgement of management policy can only come from a full understanding of the problems involved.

It will pay the investor well to look beyond the superficialities of figures showing totals put back into business by management.  

Consideration should be given to the past record.

How have plow-back expenditures actually turned out?




There is no hard-and-fast rule.

Some stockholders profited enormously by management spending.

Other stockholders suffered through management hoarding.

Many unwise investments were made by corporate management at the wrong time.

Some very wise one were made at the right time.

This is an often overlooked factor which you should include in your analysis of stocks to buy.

Dividend - An Easy Pill to Swallow

On the first trading day of 2016, the stock of a company XYZ, sold for $33.66 per share, just 1.6% higher than its price exactly 1 year earlier ($33.16).

Though it might seem that 2016 was a poor year for company XYZ's shareholders, the stock paid dividends during the year totalling $1.52 and those dividends raised the total return on company XYZ in 2016 to 6.2%.

Tell tale signs of good cash generation: Dividends, Share Buybacks and Accumulation of Cash on the Balance Sheet

Economies of scale refers to a company's ability to leverage its fixed cost infrastructure across more and more clients.

The result of scale economies should be operating leverage, whereby profits are able to grow faster than sales.

The combination of operating leverage and low ongoing capital requirements suggest that the firms should have plenty of free cash to throw around.

Tell tale signs of good cash generation are dividends, share buybacks, and an accumulation of cash on the balance sheet.

Another characteristic to look for when evaluating investments is predictable sales and profits. That makes financial results more stable and predictable.

Should there be high barriers to entry into this business, the firms in this business tend to have wide, defensible moats.

When they are trading at cheap prices, they are usually worth a good look.

Financial Efficiency - Is the stockholders' money (capital) working in forms most suitable to their interest.

Concept of Financial Efficiency

A company's management may run the business well and yet not give the outside stockholders the right results for them, because its efficiency is confined to operations and does not extend to the best use of the capital.

The objective of efficient operation is to produce at low cost and to find the most profitable articles to sell.

Efficient finance requires that the stockholders' money be working in forms most suitable to their interest.  

This is a question in which management, as such, has little interest.


$$$$$


Actually, it almost always wants as much capital from the owners as it can possibly get, in order to minimize its own financial problems.

Thus the typical management will operate with more capital than is necessary, if the stockholders permit it - which they often do.

It is not to be expected that public owners of a large business will strive as hard to get the maximum use and profit from their capital as will a young and energetic entrepreneur.

We are not offering any counsels of perfection or suggesting that stockholders should make exacting demands upon their superintendents.

We do suggest, however, that failure of the existing capital to earn enough to support its full value in the marketplace is sufficient justification for a critical spirit on the part of the stockholders.

Their inquiry should then extend to the question of whether the amount of capital used is suited to the results and to the reasonable needs of the business.


$$$$$


For the controlling stockholders, the retention of excessive capital is not a detriment, especially since they have the power to draw it out when they wish.

As pointed out above, this is one of the major factors that give insiders important and unwarranted benefits over outsiders.

If the ordinary public stockholders hold a majority of the stock, they have the power - buy use of their votes - to enforce appropriate standards of capital efficiency in their own interest.

To bring this about they will need more knowledge and gumption than they now exhibit.

Where the insiders have sufficient stock to constitute effective voting control, the outside stockholders have no power even if they do have the urge to protect themselves.

To meet this fairly frequent situations there is need, we believe, for a further development of the existing body of law defining the trusteeship responsibilities of those in control of a business toward those owners who are without an effective voice in its affairs.


Benjamin Graham
The Intelligent Investor

Why Buffett decides not to pay out dividends in 45 years in Berkshire Hathaway?

He has been able to reinvest Berkshire's profits at rates considerably higher than Berkshire's investors could have earned y reinvesting them in the market. 

When the company can no longer meet the test of reinvesting $1.00 of EPS to create $1 of additional value, then, says Buffett, Berkshire will pay dividends, and let his owner-partners reinvest the cash.

How do I calculate the adjusted closing price for a stock?

When trading is done for the day on a recognized exchange, all stocks are priced at close. The price that is quoted at the end of the trading day is the price of the last lot of stock that was traded for the day. This is called a stock's closing price. The final stock price that is quoted can be used by investors to compare a stock's performance over a period of time. This period is usually from one trading day to another.

During the course of a trading day, many things can happen to affect a stock's price. Along with good and bad news relating to the operations of a company, any sort of distribution that is made to investors will also affect stock price. These distributions can include cash dividends, stock dividends and stock splits.

When distributions are made, the adjusted closing price calculations are quite simple. For cash dividends, the value of the dividend is deducted from the last closing sale price of the stock. For example, let's assume that the closing price for one share of XYZ Corp. is $20 on Thursday. After close on Thursday, XYZ Corp. announces a dividend distribution of $1.50 per share. The adjusted closing price for the stock would then be $18.50 ($20-$1.50).

If XYZ Corp. announces a 2:1 stock dividend instead of a cash dividend, the adjusted closing price calculation will change. A 2:1 stock dividend means that for every share an investor owns, he or she will receive two more shares. In this case, the adjusted closing price calculation will be $20*(1/(2+1)). This will give you a price of $6.67, rounded to the nearest penny.

If XYZ Corp. announces a 2:1 stock split, investors will receive an extra share for every share they already own. This time the calculation will be $20*(1/(1x2)), resulting in an adjusted closing price of $10.

We have examined the simplest and most common corporate actions that can affect a stock's closing price. However, if a more complicated action, such as a rights offering, is announced, the adjusted closing price calculation can become quite confusing. Historical price services provided by financial sites such as Yahoo! Finance eliminate the confusion by calculating adjusted closing prices for investors.


Read more: http://www.investopedia.com/ask/answers/06/adjustedclosingprice.asp#ixzz26D2HFoLa

Definition of 'Adjusted Closing Price'

A stock's closing price on any given day of trading that has been amended to include any distributions and corporate actions that occurred at any time prior to the next day's open. The adjusted closing price is often used when examining historical returns or performing a detailed analysis on historical returns.

Investopedia explains 'Adjusted Closing Price'

The adjusted closing price is a useful tool when examining historical returns because it gives analysts an accurate representation of the firm's equity value beyond the simple market price. It accounts for all corporate actions such as stock splits, dividends/distributions and rights offerings.

Read more: http://www.investopedia.com/terms/a/adjusted_closing_price.asp#ixzz26D39i2sh

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.

Divine Dividends

Dividends represent nothing more than the investor's share of earnings that will be received immediately (rather than through reinvestment and future growth of the stock).

Dividends are one of the quickest and healthiest ways that earnings can make their way into shareholders' pockets.

Graham argued that intelligent investors would rather have dividends in their pockets (even if investors use them to buy more of the same stock) than risk waiting for possible future growth.  Furthermore, he insisted, it is management's responsibility to pay dividends.

For long-term investors who follow a "buy and hold" strategy, dividends are the only way to collect on investment gains.

In addition to representing money in the bank, dividends are, to many investors, a reliable indicator of future growth.  

Values are determined roughly by earnings available for dividends.  This relation among earnings, dividends and values survives.

A long history of dividend payments and regular dividend increases also indicates a substantial company with limited risk.  

Additionally, a rise in the dividend is tangible confirmation of the confidence of management in good times ahead.  A cut in the dividend is a red flag indicating trouble on the track.

Not all corporate income need be paid in dividends.  Depending on the industry and how much capital is required to keep the business growing, the appropriate payout may be as much as 80% or as little as 50% of net earnings.  

When studying the dividend payout of a company, calculate both average earnings and average dividends over a 10-year period.  From those two averages you can determine the average payout.  

Earnings fluctuate, but dividends tend to remain stable or,  in the best companies, to rise gradually.


One way of determining if a stock is overvalued or undervalued is to compare its dividend yield with that of similar companies.

• Safety, growth, and other factors being equal, the stock with the highest dividend and the lowest share price is the best bargain.
• As a further check of value, investors should compare the stock's dividend yield with that of the whole stock market dividend yield.

Rationale for Withholding Dividends

If a company isn't paying dividends it should, like Berkshire Hathaway, be doing something profitable with its earnings.  

It is acceptable to withhold dividends for the following reasons:

• To strengthen the company's working capital
• To increase productive capacity
• To reduce debt.

Graham contended that when corporate management is stingy with dividends or withholds them altogether, it is sometimes for self-serving reasons.  It is easier to keep the cash on hand to bail management out of bad times or bad decisions.  Sometimes the dividend policy is simply a reflection of the tax status of management and large investors - they don't want the addition to their current taxable income.  Consequently, other investors get no income.

Dividends in Jeopardy

Dividends may be put in jeopardy in two ways:

• When a company's earnings per share is less than its dividend per share
• When debt is excessive.

A company's average earnings (over several years) should be sufficient to cover its average dividend.  Though earnings per share can fall below dividend per share from time to time with reserves making up the difference, the condition can persist for only so long.  

A company with substantial earnings rarely becomes insolvent because of bank loans.  But when a company is under pressure, lenders may require a suspension of dividends as a form of financial discipline.

Companies amassing huge cash reserves should use these intelligently

Companies with large cash reserves can use these for the direct benefit of their shareholders by giving dividends or can deploy these to grow their businesses in the future.

Benjamin Graham was critical of amassing huge cash reserves within a business unless the company had a genuine future use for the funds.  

A certain calculable amount of reserves are necessary to:

• finance growth, 
• guard against bad luck or down cycles, 
• cover the settlement of a lawsuit, or 
• eventually replace some important asset. 

Graham argued, there is a limit to that need.  

The purpose of business is to earn profits for its owners.  Owners are entitled to access to profits.  

If earnings are retained, Graham persisted in his argument, they had better be used intelligently.

Graham contended that when corporate management is stingy with dividends or withholds them altogether, it is sometimes for self-serving reasons.  It is easier to keep the cash on hand to bail management out of bad times or bad decisions.  Sometimes the dividend policy is simply a reflection of the tax status of management and large investors - they don't want the addition to their current taxable income.  Consequently, other investors get no income.

Probably the greatest retainer of earnings of all time is Berkshire Hathaway, which keeps and reinvests all its earnings.  Berkshire's 23% return on shareholder equity is almost double that of American industry, and Buffett says he will continue to hoard earnings so as long as a dollar of retained earnings translates to no less than a dollar of increased shareholder value.  In his case, investors are inclined to let him have his way.


Comment:
It is not uncommon to encounter a company with huge cash reserves in their businesses earning only  fixed deposit interest rates for many years.  Shareholders should play their active role as business owners through raising the relevant questions to the management in the annual general meeting, to use these cash reserves intelligently.

In recent years, strong cash reserves have provoked takeover bids from corporate raiders.  Are they liberators of cash for shareholders or are they destroyers of business, interested only in their own personal enrichment?  These raiders often planned to use cash reserves to help finance their purchase, a tactic that often sucks the strength from a company.  The management may defend the cash reserve was needed for various reasons, for example, the company needed the cash to cover the next down cycle of the manufacturing business.  Corporate raiders love to find and are attracted to a company with huge cash reserves.

An investor in a company has 3 sources of potential returns: Value versus Growth Investing

An investor in a company has 3 sources of potential returns:
1. dividends,
2. exploiting the disparity between stock price and intrinsic value, and
3. long-term growth in intrinsic value.

Benjamin Graham said that the stock market is a voting machine in the short run and a weighing machine in the long run.

Implicit in this statement is the idea that the price of the stock and the intrinsic value of the company will tend to coincide over the long term.


Value Investing


An investor in a value (no growth) company has 2 sources of potential returns:
1. dividends,
2. exploiting the disparity between stock price and intrinsic value.

However, it is possible that the stock price may remain well below the intrinsic value for a long period.

If a major component of the expected return from a stock is the narrowing of the disparity between the stock price and the intrinsic value, a lengthy delay in closing that disparity would diminish the return from that stock.



Growth Investing

An investor in a growth company has 3 sources of potential returns:
1. dividends,
2. exploiting the disparity between stock price and intrinsic value, and
3. long-term growth in intrinsic value.

Far too often, growth companies choose not to pay a current dividend. This practice reflects management's opinion that retained earnings are better invested in growing the business.

For those fortunate growth companies that can concurrently grow and generate free cash flow, a dividend can be an important source of return for investors.

Eventually, all growth companies become mature. If the management has developed the business properly so that the company has a significant and sustainable free cash flow, a substantial dividend payout can, in come cases, exceed the original purchase price of the stock.

A careful investor in growth companies should always seek to exploit any disparities between stock price and intrinsic value, especially at the time of purchase. 




Growth Investing versus Value Investing


"Its better to buy a wonderful company at fair price than a fair company at wonderful price."

While a value company investor must pay below intrinsic value in order to achieve a reasonable return, a growth company investor must seek to purchase the stock at a price of fair value or less.

If you buy stock in a growth company with an intrinsic value of $10 a share and the intrinsic value grows by 15% per year, in 5 years the stock will be worth $20; in 10 years, it will be worth $40; and in 15 years, it will be worth $80 in intrinsic value.

Even at a 10 percent annual growth rate, after 7 years, the company's intrinsic value would have grown from $10 per share to $20. After 14 years, it would have grown to $40; and after 21 years, it would have grown to $80.

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

Portfolios awash with red ink

Portfolios awash with red ink
John Collett
December 14, 2011

Ups and downs … the share price of many blue chips have fallen in the past decade.

More than 1 million Australians became the owners of shares - many for the first time - in the 1990s when the government off-loaded institutions such as the Commonwealth Bank and Qantas, and mutuals such as the NRMA and AMP were privatised. The shares were often free or heavily discounted.

These new, accidental shareholders have held on to their shares in the belief that blue chips will outperform the market over the long term.

But analysis by Lincoln Indicators of the performance of some of the most widely held shares shows the price of many is well down on 10 years ago.

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Tough decade for popular stocks

Tough decade for popular stocks.

• 

The chief executive of Lincoln Indicators, Elio D'Amato, says inertia can be costly.

''At the end of the day, it [investing in shares] is about picking good companies rather than thinking that every demutualisation is going to be a winner,'' he says.

As the table shows, AMP, Qantas and Telstra have lost varying amounts of their share value. The best performers include biopharmaceutical company CSL and the Commonwealth Bank.

While the table shows only share-price changes, many of the companies have paid good dividends over the years. The total return (share price appreciation plus dividends) can be much higher than the change in share prices alone suggest.

CBA

The Commonwealth Bank is by far the best performer. The first tranche of shares was listed in 1991 at $5.40. CBA shares are now trading at about $50 and, on that price, have a cash yield of 6.4 per cent, fully franked. D'Amato says the bank's shares are in the ''buy'' zone. ''CBA is definitely the preferred bank for us at the moment,'' he says.

TELSTRA

Telstra, with its 1.4 million shareholders, is likely to have the largest number of small shareholders of any listed Australian company. The first tranche of Telstra shares was floated in 1997 at $3.30, which is close to today's share price. But when its dividends are taken into account, shareholders will be ahead.

The same cannot be said of those who bought Telstra in subsequent floats. Those who bought shares in ''T2'' in 1999 paid $7.40, while ''T3'' shares in 2006 cost $3.60.

Still, many analysts think that with a dividend yield of about 8.7 per cent, fully franked, the telco is still worth holding and perhaps even adding to.

CSL

Apart from CBA, the other good performer has been CSL. D'Amato says CSL is a ''great company'' with a ''global brand that is growing''. The dividends are relatively small, with a yield on current prices of 2.5 per cent and franking levels of just 4 per cent. But shareholders won't be too fussed about that, given that the CSL share price has doubled from $16 to $32 over the past decade.

AMP

AMP has been one of the real under-performers among big, widely held, stocks. It has a share price of about $4, compared with about $12 a decade ago. However, many analysts are positive on the stock, saying the company will improve its market share and make cost savings with its recent acquisition of AXA Asia Pacific.

But AMP is not on the list of stocks that Austock Securities' senior client adviser and strategist Michael Heffernan believes long-term investors should hold.

His preferred picks include Telstra, CBA, BHP Billiton, Woolworths and Wesfarmers. ''In my book, they are all good companies, with a good spread of industry sectors,'' he says.

BALANCE

For those with only a handful of shares, the obvious industry sector most likely missing from their portfolios is resources. Those looking to diversify their portfolio could add BHP Billiton, D'Amato says.

''If you believe most growth in the world is going to come from Asia in the next three decades, BHP is a must have,'' he says.

How to sell shares you no longer want

The easiest and cheapest way to dispose of small parcels of shares is through company buybacks. These are usually ''off market'', with the price paid being the average share price during a fixed period. Usually, no brokerage is charged.

However, small shareholders tend to miss out on buybacks, either because they don't pay attention to company information or don't act on the offers. Elio D'Amato says some companies have frequent small-parcel buybacks and shareholders should contact companies directly to find out about them.

''If you have got a holding of under $500, it really does not end up being that economical holding a small parcel and having to account for it, and the time that should be spent monitoring it,'' he says.

The cheapest way to sell shares ''on market'' is through an online broker. Online trades start about $15 for casual users; it's a little less for those who trade regularly. Selling shares through a broker over the phone costs a bit more and full-service brokers typically charge $60 a trade.

The worst option is to take up the deals of dubious operators who offer to buy the shares for far less than their market value. D'Amato says many holders of small parcels of shares are vulnerable to such offers because they don't know how the market works or where the shares can be sold. ''It only takes a little bit of research to check what the shares are really worth,'' he says.

The share price can be checked at the ASX website (asx.com.au) by entering the company name or three-letter ticker code, or by phoning the company directly. ''When it comes to direct offers to buy shares, the only ones you can really trust are those that come from the companies themselves,'' D'Amato says.

Read more: http://www.theage.com.au/money/investing/portfolios-awash-with-red-ink-20111213-1orwu.html#ixzz1geRSnfLi

3 Reasons You Must Invest In Dividend Stocks (Dividend growth investing)

3 Reasons You Must Invest In Dividend Stocks

Written by Tyler 

As a dividend growth investor, I am frequently asked why I don’t invest in high growth stocks and, more importantly, why I believe investing for dividends is a more appropriate strategy.

In bear markets there are great buying opportunities for dividend growth stocks that are offering yields above their historical averages.  Opportunities to buy great dividend growth stocks at above average yields is a great way to finance your retirement and increase the compounding effect of your future income from these stocks.

Here are the 3 most essential reasons that I prefer dividend investing: 

1.) Dividends offer investors fantastic flexibility.

Dividends give you tremendous financial flexibility throughout your investing life. While you’ve got an income from working, you can reinvest those payments to speed the process of compounding your wealth. Once you’ve decided to retire, the cash thrown off by dividends spends just as well as any other source of money!

What is even better, a rising dividend payment can help you fight inflation by providing you more cash every single year.

2.) You can’t fake money in your pocket. 

Dividends also have the added bonus of being exceptionally difficult for companies to fake. After all, it’s difficult to convince lenders to loan money to a company if that company is going to turn around and hand it over to its shareholders.

As a result, to sustainably make and increase those dividends, the business needs to generate serious cash on both a regular and repeatable basis.

3.) Dividends are paid from the company’s cash flow. 

Perhaps most important, a company’s dividend payment comes from its operational success and not from the panic, hype, or analyst interpretations that influence its stock price. Throughout these rocky market periods, dividend payments allow us to make money even when the stock price moves lower.

Why Invest In Dividend Paying Stocks?

• Quicker compounding.
• Increased financial flexibility.
• Cash in your pocket without selling.
• A hedge against inflation.
• An check on the company’s accounting.
• Cash Flow in a down market.

With all of the benefits of dividends, it’s obvious why they can be an integral component of one’s portfolio.

Did I miss any benefits of dividends?  If so, let me know in the comments! 

http://dividendmoney.com/three-essential-reasons-to-invest-for-dividends/