Dividend Aristocrats: A Comprehensive View

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

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

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














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

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

More Gems from Buffett

Screen as many stocks as possible.  You will find a good investment among these many stocks.

The moment you find value in a good stock, buy and don't wait hoping to find a better one.

Cash is the worst form of investment.  You need to keep some cash so that your future is not determined by others.

Imagine being a farmer with your own farm.  The farm is productive but every 10 years, there are 2 severe drought years.  Do you sell your farm during those years?  No.  Similarly, in investing, be prepared for these bad years.


[My comment: In stock market investing, one can expect on average a bad year (a bear market) in every 5 years.]

The Principles of Dividend Investing

The point is that dividend growth followed earnings growth.















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

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

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

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


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

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

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

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

The Sweet Spot of Dividend Investing

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

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


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


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


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

Read more here:  The Sweet Spot of Dividend Investing

Relevant Articles:

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


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



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

The DJIA Dividend Yield Points the Way

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

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

Stocks that pay dividends have done better historically

Dividend Yield Investing

The dividend growth of this company is not fantastic.

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

Stock Market vs. Dividend Yield

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

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

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

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

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

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


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

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

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

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

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

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



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

Dividends for Top Bursa Malaysia Companies

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

The results of reinvesting dividends

http://www.dividend.com/dividend-stock-library/dividend_reinvestment_plans.php

S&P 500 Dividend Yield versus 10 Year Treasury Yield

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

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

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

An Increasing Dividend, but Lower Dividend Yield?

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


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

Ex-dividend and cum-dividend explained

The four dates to consider are:

1. Declaration date: The date on which the board of directors announces to shareholders and the market as a whole that the company will pay a dividend.
2. Date of record: The date on which the company looks at its records to see who the shareholders of the company are. An investor must be listed as a shareholder to receive the dividend.
3. Date of payment: The date the company mails out the dividends.
4. Ex-dividend date: An investor must own the stock before the ex-dividend date to be eligible for the dividend payout.

The single best strategy for investors – investing in dividend paying stocks.

The single best strategy for investors – investing in dividend paying stocks.

Doing this will:
1. Help you avoid making big mistakes in the stock market;
2. Increase your chances of beating the market; and
3. Be less volatile than the rest of the market.

Just look at the chart below,





http://www.investmentu.com/2007/November/dividend-paying-stocks.html

According to the most recent studies, dividend-paying stocks outperform non-dividend paying stocks by a wide margin.

Over the past 35 years, non-dividend paying stocks have gained an average annual return of 2.5%. That’s less than T-bills. But dividend-paying stocks have averaged an annual return of between 8.9% and 10.9%. That’s a huge difference.

Where can one consistently find value in quality companies that are likely to succeed? The answer is simple: Buy a portfolio of stocks that pay rising dividends, or that start paying dividends. There’s plenty to choose from…

1. High-dividend U.S. stocks, funds and ETFs

2. High-yielding foreign stocks and funds

3. Rising dividend stocks and funds

4. High-yielding Dow stocks

5. Business development companies (BDCs)

6. Real estate investment trusts (REITs)

7. Energy and commodity stocks

Avoid “The Growth Trap”


Brokers usually tantalize their clients with hot tips about new and bold technology breakthrough stories, and investors bite. Big mistake.

The fact is, most technology “growth” stocks fail to deliver. Jeremy Siegel, the Wizard of Wharton, calls it the “growth trap” in his book, The Future for Investors…

“The most innovative companies are rarely the best place for investors,” he boldly declares.
Why? Because investors invariably overpay for tech stocks.

And Peter Lynch, the legendary money manager of the Magellan Fund, confesses, “I note with no particular surprise that my most consistent losers were the technology stocks.” Well, it’s a surprise to me.

Investors interested in earning dividends should steer clear of companies with high fluctuations in profits.

http://stocksguidance.blogspot.com/2009/05/high-dividend-stocks-2009.html

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

The Ultimate Dividend Investment




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

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

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

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

Trend analysis of Company's Business Fundamentals

Trend Analysis

Here I am looking at trends for past 10 years of corporation’s revenue and profitability. These parameters should show consistently growth trends. The trend charts and data summary are shown in images below.

Revenue: In general, slowly growing trend, but not consistent (down years in 2001 and 2002). The average revenue growth for last 10 years is 15.3% (with 12% standard deviation).
Cash Flows: Increasing trend for operating cash flow (except a dip in year 2008). The free cash flow very close to the net income. There is little flexibility in allocating cash for dividends.
EPS from continuing operation: In general, this follows revenue trends. Slowly growing trend (with dips in 2001 and 2002)
Dividends per share: Consistently growing dividends.


Quality of Dividends

This section measures the dividend growth rate, duration of growth, consistency over a period of past five years.

Dividend growth rate: The average dividend growth of 25.2% (stdev. 8.34%) is more than average EPS growth rate of 17.8% (stdev. 22%). The two years where EPS were negative, has effect this calculation. If we remove the two negative years, the dividends seem to be well covered. The low payout factors allow for this flexibility and help cover for dividends.
Duration of dividend growth: In recent times, dividends have grown only since last 10 years.
4 year rolling dividend growth rate for past ten years: More than 10%.
Payout factor: In the past 10 years, it has been consistently less than 50%. In 2008 it increased to 53%. This is an indicator to keeping watch for dividends reduction.
Dividend cash flow vs. income from MMA: Here, I analyze how the dividend cash flow stacks up against the income from FDIC insured money market account. The baseline assumption is (a) stock is yielding 2.6%; and (b) MMA yield is 3.4%. Considering the last 10 year average dividend growth rate of 25.2%, the stocks dividend cash flow at the end of 10 years is 4.27 times MMA income. However, with my projected dividend growth of 15.3%, the dividend cash flow is equal to 2.04 times MMA income.

http://seekingalpha.com/instablog/347787-dividend-tree/6165-trow-potential-dividend-growth-investment

The Importance of Dividends

Although many investors consider the current 2% yield offered by the S&P 500 to be trivial, it would be a huge mistake to dismiss dividends. In fact, a look back at statistical data over the past 75 years shows that nearly half of the market's total returns have come in the form of dividends. Between 1926 and 2004, dividends represented approximately 42% of the total return delivered by the S&P 500. Over that same span, it's been calculated that $1,000 invested in the S&P would have grown to $2.3 million if reinvested dividends are included, but only $90,000 without the dividends.

If history is any guide, then dividend-paying stocks should also perform better than their non-paying counterparts over the long haul. Contrary to conventional wisdom, studies have shown that dividend payers handily outperformed non-payers from 1970 to 2000. At the same time, those same dividend-paying stocks experienced far less volatility. They could also be counted on to deliver stronger relative returns in difficult market environments. What's more, according to the latest data from Standard & Poor's, dividend-payers are still outpacing non-payers in today’s volatile marketplace.




An example of looking at dividend (above graph)
Dividend growth has been steady but not spectacular.

http://web.streetauthority.com/cmnts/pt/2006/02-15.asp

BYD's breakthrough growth got Buffett's attention

Li Lu on BYD

Courtesy of Street Capitalist:

Question via Columbia University:

So I did some research on lithium ion batteries, and I saw that BYD has a manufacturing advantage with consumer batteries. But I saw that automobile batteries are much more complex. I did not think that the idea of a good consumer battery manufacturer + an automobile maker made much sense.

So when Buffett looked at the stock maybe it was a better deal but today it is this dream of vehicles that is really priced in.

It does not feel like a good value investor stock. So why would you own it today?



Li Lu:

Well that is interesting. One of the most fascinating things about being an investor is that surprises are part of the game. When you get into situations like BYD, you see lots of good surprises.

Chuanfu and his team have this fabulous culture, everything people thought they knew turned out to be a few years late. He got into battery manufacturing in that particular way because he really had no other option. He had no money, he only had $300,000 in venture capital funding before IPO and that was it. He raised money in an IPO and Buffett gave him $200M, now they have 160,000 employees. $6-7B in revenues, $500M in net profit. It is amazing.

[Reflections comment: BYD had approximately $4B in revenues at the time of Berkshire Hathaway's investment, and was priced at about 12x trailing earnings. Berkshire Hathaway bought a 10% stake for $230 million, implying a cost basis that is roughly 4x recent earnings -- with an interesting set of tire-tracks.]

So he has this ability to adapt in a competitive environment. He has demonstrated that ability again again and again. The way he does automation is far cheaper than anyone else and more reliable. He continues to surprise me with his ingenuity, to figure out ways to do something better than everyone else. What he is currently doing is very different than what everyone else has done. At the end of the day, you might look at what he has done.


So how do you look at it as an investor with imperfect information? Well I suggest you look at what he has accomplished. 8 years ago I had no idea they would go into the automobile or laptop or cellphone battery business. So that demonstrates how he is. This investment is not easy to understand because it is changing so fast, at such a large scale. An almost unheard of speed. Their manufacturing capabilities will double soon. This year they will hire 10,000 college graduates, 8 or 9 thousand engineers. The scale is almost unparalleled.

So this is why the study of history, of all the great corporations will give you a good insight in seeing what will happen with BYD. I suggested that we start with GM and analyze its performance every 5 years for 100 years to understand at least one aspect of BYD’s business.

http://valueinvestingresource.blogspot.com/2010/06/li-lu-on-byd.html

Dividend Growth Investing

The Most Powerful Force in the Universe

How to Invest: Growth vs. Value

When it comes to investing in stocks for capital gains, there are two different approaches that can be taken in order to ensure that your stocks increase their worth: growth investing and value investing.  (There are other rationales for investing, such as investing for dividends, but for now let’s stick with growth and value investing.)  These two methods represent two different ways of viewing stocks and trying to profit from them.  So, what sort of considerations do you have to make when considering which method to use when choosing your investments?

Investing Rationales

Growth Rationale – The growth investor is looking for companies that growing their business (which you probably guessed).  These could be small, upstart companies that have a great deal of potential, or large companies that continue to expand into new areas and increase their business at a much faster rate than their rivals.  If stock investing were horse racing (a reasonably apt metaphor), growth stocks would be those that are the reigning champions or the quickly rising upstarts.  The growth investing model essentially involves trying to find some of the fastest expanding companies, and tethering your fortunes to their growth.

Horse Racing - An Ideal Stock Metaphor

Value Rationale – Value investing, on the other hand, focuses on finding stocks that have been knocked below the true value of their respective companies, then buying and waiting for the broader market to recognize their worth.  As with growth investing, these companies can be either large or small, and the reasons they are currently undervalued can be diverse: bad news that took the stock prize below a reasonable level, a run of bad luck that decreased the company’s perceived value, or even a broader economic storm that dragged everything down at once (like we’ve just experienced).  To go back to our horse racing metaphor, value stocks would be akin to the strong finisher who’s failed to win the past several races and wound up as the long shot.

Why Does This Matter?

The difference between growth and value might seem academic, and in a way, it is.  There are those people who have argued that assigning stocks to the ‘growth’ or ‘value’ columns have nothing to do with the actual value of the companies, but instead such dividers display their own ignorance.  (’Those people’ in this case include Warren Buffet, as you can see at the bottom of this linked page, so perhaps they have a point.)  On the other hand, when looking at the performance of broad segments of the US economy, it appears that the value investing style has beat out the growth style in the past.

The results, if you are a mutual fund investor (particularly a passive indexer like me),  is that your portfolio should attempt to lean more towards value and less towards growth in terms of your funds’ orientation.  This does not mean that every value stock will outperform every growth stock; on the contrary, because the faster increase in value of growth stocks is sometimes deserved, the top performers in the growth category can and will outperform the best of the value classification.  Rather, it means that taken as a whole, stocks that are categorized as value will outperform those in the growth column over time.  Unless you fancy being a stock picker (and make a good job of it, as well), sticking to a portfolio that leans toward value stocks will lead to a much richer future for you and yours.

I hope you enjoyed this rather brief introduction to value and growth stocks, as well as the difference between the two.  Good luck with your investing, whichever option you decide to choose.

http://www.theamateurfinancier.com/blog/how-to-invest-growth-vs-value/

Value Investor versus Speculative Investing

http://www.theintelligentinvestor.net/

While you contemplate a major investment decision, you need to ask yourself if you will be making a value investment or a speculative investment. You can use Benjamin Graham’s extensive writing about the difference between value and speculative investments to categorize potential investments you are considering.

Speculative investors buy a stock with a hunch that the price will go up or down quickly. 

Value investors buy a stock after determining the long-term value of the business.

Although value investors outperform speculative investors in the long-run, value investors do not expect to outperform the market. Value investors accept the reality that no one can predict market behavior; instead, value investors work to control their own investment behavior.

Do you find that you are more of a value investor or a speculative investor?

So before I make a trade I ask myself how easily I will be able to sleep at night, or as Benjamin Graham puts it, I ask myself if the trade promises “safety of principle and a satisfactory return.”

The Determinants of Market Price (Intelligent Investor)

Market Sentiment Curve

5-Year Closing Price. Can this be predicted?

Be rational in facing market uncertainties.

Many good quality growth stocks have a price pattern quite similar to the above chart.  Many have even rebounded to reach their old highs or new highs.

Three possible futures for the economy in this recession and the consequences for investors.

Three futures…
This article sees three possible futures for the economy in this recession, and discusses the consequences for investors….

Three futures

Posted on March 12, 2009 by Richard Beddard
Filed Under Investing, Markets |


Two out of three ‘aint bad

From the desk of James Montier:

In a research note earlier this month, Mr Montier postulates three futures:

1. The optimistic path, in which government stimuli create inflation,
2. A Japanese style protracted work out with low growth and low inflation, and a…
3. Great Depression modelled on the 1930’s.

He concludes:

In the first two outcomes, value should do well. In the third, holding any equity is likely to be a poor decision. Since I don’t know which of these paths is more likely, I continue to believe that a slow steady deployment of capital into deep value opportunities in the face of market weakness is the most sensible option.

How value investing, buying shares in companies on low price to book (net asset value) ratios, would have worked in Japan:

Investors who bought and held would have earned a 3% annual return versus a market return of -4%. Investors who sold the most expensive stocks short, would have earned a return of 12%.

But in the Great Depression, cheap stops and expensive stocks both lost badly and buying shares was, quite simply, a bad idea.

The difference was the severity of the economic crises. In Japan, growth has been flat. In the 1930’s in the US, industrial production declined by 50% peak to trough.

His strategy, to buy value stocks gradually:

…Represents a regret minimisation approach - I end up with some exposure, and I’m dollar cost averaging down if this turns out to be the Great Depression 2. Alternatively, if the stimulus works, or the US follows the Japanese example, then as Jeremy Grantham says, “If stocks look attractive and you don’t buy them and they run away, you don’t just look like an idiot, you are an idiot.”

Category: Investing, Markets

http://blog.iii.co.uk/three-futures/