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.