I recently received the following question from one of my regular readers:
"I'm having difficulty understanding how I can compare the performance of two mutual funds, for example lets consider XSB (ishares bond index) and XIC (ishares S&P/TSX index).Traditionally the way I'd evaluate the historical performance of these funds is to look at the change in share price over a period of time (say five years). Lets say the share price in one went up 22% in that period and the other went up 44%.But now I realize that, both of these funds pay dividends. Lets say the first one averages 4%/year while the other pays 2%. This complicates the equation immensely, in terms of determining the actual return on investment.Ideally the sort of analysis I'd like would be something like: - what if I put one million dollars in both funds 5 years ago - and then re-invested any dividends - and then sold the funds at market value today, and payed any taxes out of the proceedsThis to me seems like a good way of modeling the real return of those funds over the investment period.So my question is...are there any tools or common methods for performing this kind of analysis? Mutual fund price charts are a dime a dozen, but I can't find any kind of online tool that will even roughly model this kind of analysis. Am I missing something or misunderstanding the concept of return on investments in funds?"
This is a very good question, as it delves directly into theidea that looking at charts alone might not be enough in order tocompare total returns. The last statement of course depends on thedata provider.
What I would consider doing is :
1. Going to ca.finance.yahoo.com, which is one of my favorite sitesfor stock market and dividend data.
2. Type in the symbol which you are interested in ( XSB).
3. Look over to your left, under the text " More on XSB.TO", you willfind a link to Historical Prices. We would be using the alreadycalculated historical prices from Yahoo.
4. After that you should be able to see an online table with daterange and open/high/low/close and volume daily information. You wantto focus on the "Adj Close" column at the end of the spreadsheet. It'suseful for me to look at the data in a monthly view since we will beresearching 5 years worth of returns.
5. You could see how dividends are being placed every 3 or so monthsfor XSB, and they are automatically adjusted at the "Adj Close"column. You could then download the data for the specific period youare interested for into excel.
In order to get the same information for XIC, just follow steps 1-5. Ijust went ahead and charted the total returns of XSB versus XIC from04/2003 to 04/2008.
I am sure that there are other ways to accomplish this, so I would be interested in my readers input on this one. Any comments are welcome!
Friday, May 30, 2008
I recently received the following question from one of my regular readers:
Posted by D at 5:50 AM
Thursday, May 29, 2008
Consolidated Edison, Inc., through its subsidiaries, provides electric, gas, and steam utility services in the United States.
The company is a dividend aristocrat as well as a component in the S&P 500 index. Over the past 10 years Consolidated Edison has delivered an average total return of 7.30% annually to its loyal shareholders. Dividends have accounted for the majority of this return. Historically, the best time to buy ED was on dips and dividend yield of over 6%.
The company has managed to deliver an unimpressive 1.50% average annual increase in its EPS since 1998.
The ROE has been decreasing from over 12% 1999 to a little over 7% 2004, before recovering slightly to 10% in 2007.
Annual dividend payments have increased over the past 10 years by an average of 1% annually, which is slightly below the growth in EPS. A 1% growth in dividends translates into the dividend payment doubling every 72 years. If we look at historical data, going as far back as 1979, ED has actually managed to double its dividend payments on average every fourteen years.
If we invested $100,000 in ED on December 31, 1997 we would have bought 2421 shares. Your first quarterly check would have amounted to $1283 in early 1998. If you kept reinvesting the dividends though instead of spending them, your quarterly dividend income would have risen to $2356 by November 2007. For a period of 10 years, your quarterly dividend has increased by 9.40 %. If you reinvested it though, your quarterly dividend would have increased by 83.60%.
The dividend payout has fluctuated greatly, along with the EPS and ROE. The current ratio of 67% does look a little high. When put into the perspective of the past 10 year’s average of 77.50 % though, it looks pretty normal for the company. Overall, a lower payout is always a plus, since it leaves room for consistent dividend growth minimizing the impact of short-term fluctuations in earnings.
ED is a slow growing utilities company, which does offer a generous yield. The best time to purchase the stock over the past 10 years has been on dips and higher than average yields.
I do like the fact that the company is trading at a low multiple and has been able to consistently raise its dividends for over 34 consecutive years. I would require a yield of at least 6% however in order to initiate a position in the stock. If you are retiring in less than 10 years, you could buy a half position at current prices and then buy a second half below $39. I would be a buyer on dips below $39.
Full Disclosure: I do not own shares of ED
- Wal-Mart Dividend Analysis
- 3M Dividend Analysis
- Procter & Gamble Dividend Analysis
- Sherwin Williams Dividend Analysis
Tuesday, May 27, 2008
Automatic Data Processing, Inc., together with its subsidiaries, provides technology-based outsourcing solutions to employers, vehicle retailers, and manufacturers. It operates in three segments: Employer Services, Professional Employer Organization (PEO) Services, and Dealer Services.
Automatic Data Processing is a dividend aristocrat as well as a component in the S&P 500 index. It has been increasing its dividends for the past 33 consecutive years. Over the past 10 years the company has delivered an average total return of 6.20 % annually to its shareholders. The majority of the gains occurred from 1998 to 2000. The stock has not recovered from its November 2000 highs yet.
Monday, May 26, 2008
Even though it is Memorial Day Weekend and the US markets are closed, markets around the world are open for business. There’s some news on CNN, where Bufett is quoted as saying that the US is in a recession.
"I believe that we are already in a recession," Buffet was quoted as saying. "Perhaps not in the sense as defined by economists. ... But people are already feeling the effects of a recession."
"It will be deeper and longer than what many think," he added.
My belief is that Buffet, who knows that markets listen to his every word, is trying to create a self-fulfilling prophecy. His gain would be buying some good quality companies stock at a bargain.
There are rumors floating around that InBev will be buying Anheuser- Busch (BUD) at $65/share. The stock is currently trading at about 36.35 euro/share in Germany, which at 1.5771 US Dollars per Euro equals to about $57.33, or about a 2% increase over last Fridays close.
It’s very intriguing that BUD is the second dividend aristocrat that might be taken over this year, after WWY agreed to be bought by a consortium of Mars Inc and Warren Buffet. Both companies are every value investors dream come true- strong, easily recognizable brand, stable business model as well as long history of paying increasing dividends. The issue with dividend aristocrats is that there are many great value companies within this list. Thus, they could potentially attract competitors, which will buy them at a record price, which will actually turn out to be a bargain in the long term. The dividend investor would have to look for new opportunities for his or her money as a result of the abovementioned happenings.
And last but not least,this Memorial Day I wanted to thank everyone who has fought, or is fighting for the right of american people to live in a free democratic country.
Posted by D at 7:51 AM
Friday, May 23, 2008
Kimberly-Clark Corporation engages in the manufacture and marketing of health and hygiene products worldwide. It operates in four segments: Personal Care, Consumer Tissue, K-C Professional & Other, and Health Care.
Kimberly-Clark is a dividend aristocrat as well as a component in S&P 500 index. It has been increasing its dividends for the past 36 consecutive years. KMB has delivered an average total return of 6.60 % annually to its loyal shareholders. over the past 10 years.
Thursday, May 22, 2008
TEPPCO Partners, L.P., through its subsidiaries, operates common carrier pipelines of refined products and liquefied petroleum gases in the United States. The company operates in four segments: Downstream, Upstream, Midstream, and Marine Transportation.
Full Disclosure: I own TPP
Wednesday, May 21, 2008
Carnivals and Festivals
Carnival of Personal Finance #153: the Q & A edition, hosted by Money and Values, selected my article Dividend Conspiracies.
Festival Of Stocks: 89th Edition hosted by Stock Pursuit, selected my article American Capital Strategies (ACAS) Dividend Analysis
Money Hacks Carnival #13 — Money Saving Hacks Edition, selected my article on Dividend Champions Watchlist.
One of DivGuy's stocks, Diana Shipping (DSX) Increased its Dividend by 41%. This is one of the few dividend blogs which are updated regularly.
If you are still unsure about dividend investing, Dividends4Life presented Seven Important Reasons for Dividend Investing that would turn you into a dividend junkie.
The Dividend Guy asks his readers which one is more important, Dividend Yield or Dividend Growth?.
Living Off Dividends asked his readers How Passive Is Your Passive Income?. He even quoted my analysis of ACAS there.
Rising Dividend Investing presented WW Grainger: Old Fashion is in Style. He believes that GWW is 15-20% undervalued. You could read my analysis of GWW. I personally think that GWW is a buy on dips below 80.
The Money Gardener presented Canadian investment styles diverge. Basically canadian dividend stocks are underperforming the broad market average. Does short term market fluctuations concern MG? Not at all. He believes that when most investors are ignoring these dividend paying firms, is usually the best time to get involved.
Contrarian Value Investing presented Warren Buffett added to Unitedhealth Group. For all of you Buffet Watchers this might be a good tip to invest in. After all, if you had followed Buffet's investments over the past 3 decades, you would have outperformed the S&P 500.
Tyler from Dividend Money posted Why I Like Capstone Mining - CS.TO.
MoneyNing is having a Honeymoon Giveaway of More Than $1000. On June 1st, 2008, he will divide his highest RSS subscriber count (currently at 1,095) by 10 and give away 10 equal prizes for the following 10 days.
Posted by D at 7:10 AM
Tuesday, May 20, 2008
Kinder Morgan Energy Partners, L.P. owns and manages energy transportation and storage assets in North America. It operates in five segments: Products Pipelines, Natural Gas Pipelines, CO2, Terminals, and Trans Mountain.
At the same time the company has managed to deliver an impressive 21.30 % average annual increase in its net income from 1998 to 2007.
The ROE increased from a low of 7% in 1998 to a high of 24 % in 2006, before decreasing to 13 % in 2007.
If we invested $100,000 in KMP on December 31, 1997 we would have bought 5903 shares (adjusted for a 2:1 split in August 2001). Your first quarterly check would have been $1658.75 in January 1998. If you kept reinvesting the dividends though instead of spending them, your quarterly payment would have risen to $9920.24 by October 2007. For a period of 10 years, your quarterly dividend has increased by 213 %. If you reinvested it though, your quarterly dividend would have increased by 498%.
The dividend payout has remained above 100% for the majority of our study period. When put into the perspective of the past 10 year’s average though, it looks pretty normal for the company. A lower payout is always a plus, since it leaves room for consistent dividend growth minimizing the impact of short-term fluctuations in earnings.
Monday, May 19, 2008
So far I have concentrated my attention primarily on the Dividend Aristocrats and the High-Yield Dividend aristocrats, both published by the S&P. Those lists include companies which are members of the S&P 1500 and which have raised their dividends for more than 25 consecutive years.
U.S. publicly traded of dividend paying companies that meet the "Dividend Achievers" requirements. To become eligible for inclusion in the Index, a company must be incorporated
in the United States or its territories, trade on the NYSE, NASDAQ or AMEX, and have increased its annual regular dividend payments for the last ten or more consecutive years. In addition, Mergent requires that a stock's average daily cash volume exceed $500,000 per day in Nov. and Dec. prior to reconsitution."
- Dividend Champions Watchlist
Friday, May 16, 2008
American Capital Strategies, Ltd. is a principal investment firm specializing in management and employee private equity buyouts, acquisitions, recapitalizations, mergers and acquisition, add-on acquisitions, securitizations, special situations, growth capital investments in middle market companies, early stage in mature private and public companies, corporate divestitures, acquisitions of portfolio companies of private equity firms, acquisitions of family-owned or closely held businesses, change of control, or the exit of minority shareholders, going private transactions, and ownership transitions.
American Capital Strategies is not a dividend aristocrat but is a component in S&P 500 index. It has been increasing its dividends for the past 10 consecutive years however, while delivering an impressive average total return of 19.50 % annually to its loyal shareholders.
The trend in ROE has followed the trend in EPS closely over the past decade, rising as high as 31% in 1999 and falling as low as a negative 1% in 2000. The average return on equity has remained at 11.30%. Annual dividend payments have increased over the past 10 years by an average of 9.80% annually, which is slightly below the growth in EPS. A 10% growth in dividends translates into the dividend payment doubling every 7 years. If we look at historical data, going as far back as 1998, ACAS has indeed managed to double its quarterly dividend payments every four and a half years on average. If we invested $100,000 in ACAS on December 31, 1997 we would have bought 6906 shares. Your first quarterly check would have been $1,726.50 in March 1998. If you kept reinvesting the dividends though instead of spending them, your quarterly dividend payment would have risen to $17,095 by December 2007. For a period of 10 years, the quarterly dividend has increased by 300 %. If you reinvested it though, your quarterly dividend income would have increased by 890%.
The dividend payout has fluctuated greatly, along with the EPS and ROE. The current ratio of 94% does look a little high. When put into the perspective of the past 5 year’s average of 88% though, it looks pretty normal for the company. A lower payout is always a plus, since it leaves room for consistent dividend growth minimizing the impact of short-term fluctuations in earnings. I think that ACAS is attractively valued with its low price/earnings multiple and above average dividend yield. ACAS is every dividend investors dream stock with its above average dividend yield and dividend growth rate. It should be part of every dividend investor’s portfolio.
Posted by D at 5:55 AM
Thursday, May 15, 2008
In my previous post Dividend Conspiracies I posted a larger list of companies that have increased their dividends for more than 25 years, which for some reason or another, was more thorough than the S&P dividend aristocrats lists.
I used the same screening criteria for identifying stocks worthy of my watchlist as described in this post.
- Dividend Conspiracies
- Historical changes of the S&P Dividend Aristocrats
- Current Aging of the Dividend Aristocrats
- Diversification Matters
Wednesday, May 14, 2008
I have recently stumbled upon some intriguing dividend information that broadened my investment horizon. Some fellow dividend bloggers mentioned HSY and CL in their dividend analyses. Being too focused on the dividend aristocrats and the high-yield aristocrats I ignored those picks as ones that are “not good for me”.
After reading through both companies financial statements though, it seems to me that both have increased their dividend payments for over 25 years. In fact Colgate Palmolive has increased its annual dividend payments for over 45 years, while Hershey’s has increased its dividends only for 33 years. I had a brief conversation under my posting on “Historical changes of the S&P Dividend Aristocrats”, where yielder posted some S&P data, showing that both companies have cut their dividends. Yet, according to my trusted data source (Yahoo Finance) and both companies’ annual reports, these stocks should be included in the dividend aristocrats lists. I think that the S&P sometimes eliminates stocks from the lists due to factors such as spin-offs ( Altria, Hillenbrand Industries), or special dividends (CL). In addition, the dividend aristocrat lists exclude all companies which are not part of the S&P 1500 universe. What about a company with a market cap of less than 2 billion dollars, which trades 200,000 shares a day and has increased its dividends for 40 years? It appears that one of my local banks, Commerce Bancshares is indeed a company worth investigating.
I found a more thorough list of US companies that have continuously increased their dividend payments to shareholders for over 25 years on http://www.dripinvesting.org/ website. There are more than 130 companies in the US that fit this criterion. The person who prepared the list is Dave Fish, Exec. Editor of The Moneypaper, Direct Investing, The Moneypaper Guide to Direct Investment Plans as well as a Co-manager of The MP 63 Fund (DRIPX).
For future references I would call this list Dividend Champions. You could find the complete list here.
Tomorrow, I would present to you the results of my screen on the US Dividend Champions.
- Historical changes of the S&P Dividend Aristocrats
- Current Aging of the Dividend Aristocrats
- Diversification Matters
- Dividend Achievers Watchlist
Posted by D at 6:07 AM
Tuesday, May 13, 2008
The $25 sign-up bonus for Revolution Money Exchange will be expiring on Thursday, May 15. If you don't have an account with RME, consider doing so - it only takes 2 minutes of your time. The company is a new competitor to PayPal and is trying to get as many members as possible. There is a reputable institution behind the service -First Bank & Trust, Brookings, SD.
If you don't have an account with Prosper, the leader in Peer-2-Peer lending, consider applying here. To qualify for the $25 account opening bonus, you have to fund your account with at least $50 and bid successfully on a loan. A $25 bonus on $50 invested equals a pretty decent 50% return on investment.
These are the carnivals that featured my articles as well as the blog posts which i found interesting.
My analysis of DOV was selected on Festival of Stocks #88 - May 12, 2008, hosted by the Market Prognosticator.
My analysis of VAL was selected on Carnival of Personal Finance #152, hosted by MoneyUnder30.
My post Leveraged Investments was selected to appear on Carnival of Money, Growth and Happiness #44, hosted by Credit Card Lowdown.
Dividends4Life shared his Progress Update - Apr. 2008.
The Money Gardener presented his post hedge yourself™ - gasoline costs.
George, from Fat Pitch Financials presented Weekend Reading - Post Berkshire Edition.
Financial Jungle presented Real Professionals Have Skin In The Game, And They Beat The Market Too.
Tyler from Dividend Money presented Why You Need Dividend Growth To Beat Inflation.
My blog crossed an important milestone this week when the number of my feedburner subscribers rose above 100 on May 1. If you like my blog posts, feel free to sign up to receive them in your mailbox.
- Carnivals, Festivals and Blogs - May 06, 2008
- Carnivals, Festivals and Blogs - April 29, 2008
- Blogs and Free Money - April 18,2008
- Carnivals, Festivals Blogs and Free Money - April 14
Sunday, May 11, 2008
In a previous analysis of PEP Cola Wars - Coke versus Pepsi, i concluded that PEP is a buy on dips below $68.
"Overall Pepsi has shown a much bigger progress than Coke over the past 10 years. In addition, it’s trading at a bargain multiple relative to its biggest competitor. And last but not least, its dividend growth is much higher than Coke. I would consider adding to Pepsi on dips below $68. I might also consider adding to Coca-Cola below $51."
Over the past several weeks the company has traded below 68 on a couple of occasions. I am considering buying some PEP this week, as long as the price is below $68.
In addition to that PEP recently announced an increase in its annual dividend from $1.50 to $1.70, which is a healthy 13.33% raise. The quarterly dividend of $0.425 is payable June 30, 2008, to shareholders of record on June 6, 2008.The ex-dividend date is June 4.
Disclosure: I do not own PEP or KO at the moment. This analysis is not a recommendation to buy or sell securities. Always consult a financial professional before investing.
Posted by D at 8:14 AM
Friday, May 9, 2008
Gannett Co., Inc. operates as a news and information company in the United States and the United Kingdom. It operates in two segments, Newspaper Publishing and Broadcasting.
Gannett Co is a dividend aristocrat as well as a component in S&P 500 index. Gannett has been increasing its dividends for the past 39 consecutive years. The next increase will be in July, based on the past several years.
The ROE has been in a steep downtrend from its 1998 highs at 25% to less than 11% in 2007. The decline in the newspaper business is the main driver behind the deterioration in fundamentals.
The dividend payout has remained below 35% during our study period. A lower payout is always a plus, since it leaves room for consistent dividend growth minimizing the impact of short-term fluctuations in earnings. Even with the small growth in earnings, it could take several years of positive dividend growth and flat earnings for this ratio to cross 50%. I think that GCI is attractively valued with its low price/earnings multiple of 6.50 and low DPR. The company also boasts an above average dividend yield at 5.50%.
Full Disclosure: I do not own GCI
Thursday, May 8, 2008
I usually spend several hours per week researching dividend investing. I go through hundreds of stocks and stock strategies in order to learn something new and get an edge over other investors in the marketplace. Over time I have started to notice that most companies from the state of Ohio look promising as dividend stocks and seem to be shareholder friendly. Thus, I conducted a short research in order to check which states were the friendliest for dividend aristocrats investors. By doing that, I could then isolate some specific trait for those states which might have escaped my attention, had I not focused on it.
I simply took the 59 aristocrats in the index and checked to see where they are headquartered. And the winner was Illinois, with 7 dividend companies located there. The number two spot is held by three competing states – North Carolina, New York and Ohio. New Jersey holds the third spot for most dividend aristocrats located there.
- My Goals
In the past week, share prices started going down for the first time in a few months. As a buyer of quality businesses, this is always somet...
There are millions of Baby-Boomers in the US. Every day, thousands of them retire from the workforce. Most will rely on a mix of social se...
A few weeks ago , I mentioned that I am done purchasing dividend paying stocks for my portfolio until sometime in September. Well, I looked ...
After purchasing shares in 14 companies in the previous week , I didn't expect to put any more money to work until sometime in September...
The Kinder Morgan group of companies issued a press release today, which discussed some interesting new developments. Basically, the genera...
Warren Buffett is the most successful stock investor in the world. He made his first $20 million dollars by running a hedge-fund like inves...
The Procter & Gamble Company, together with its subsidiaries, manufactures and sells branded consumer packaged goods. The company operat...
Warren Buffett is the second richest person in the world, a self-made billionaire investor that has a very large following. He is well know...
As I touched upon earlier last week, Kinder Morgan is trying to combine all companies under a C-Corp corporate umbrella of Kinder Morgan In...
Imagine that you are the CEO of a major corporation, which is sitting on a lot of cash . You are desperate to find some use for this cash, i...