Thursday, July 31, 2008

Gannett (GCI) leaves dividend unchanged at $0.40/quarter

Gannett Co (GCI) has declared a dividend of 40 cents per share. The quarterly dividend is payable on October 1, 2008, to shareholders of record as of the close of business on September 12, 2008.

The $0.40 dividend is the same as last quarter. The ex-dividend date is September 10th and the dividend yield is 9%.

This is the 161st consecutive dividend paid by the company since 1967. “With a substantial current dividend yield of 9 percent, and in view of the challenging business and economic environment, we have decided not to increase our dividend at this time,” said Craig A. Dubow, chairman, president and chief executive officer of Gannett.

I started dollar cost averaging into GCI since May 2008. I expected that GCI will raise its dividend this month. That being said I would stop contributing new money to this position and just let the dividends reinvest. The payment is adequately covered for now, so this "freeze" should not be a reason for dividend investors to sell.

Relevant Articles:

- Selected Dividend Increases in June
- Gannett Co (GCI) Dividend Analysis
- Some Cheap Stocks to Consider
- My Dividend Growth Plan - Stock Selection

Wednesday, July 30, 2008

My Dividend Growth Plan - Stock Selection

In my previous article I started discussing my dividend growth plan in more detail, by focusing on my strategy. Today I will be focusing on my stock selection criteria.

The type of investments I am focusing on involve dividend paying companies, which have a history of uninterrupted dividend growth. There are several publicly available lists out there including the dividend aristocrats, high-yield dividend aristocrats, dividend champions and the dividend achievers. The first three lists consist of stocks which have increased their dividend payments to shareholders for more than twenty-five consecutive years. The broad dividend achievers list focuses on companies which have increased their payments for at least ten consecutive years. The companies that have been able to do that are believed to have a solid business model and smart management. In addition to that these companies have a proven track record which shows that their business model is able to consistently support an increase in dividend payments to shareholders. This also shows that management is committed to enriching the shareholders and not enriching themselves. In a period of time where total CEO compensation runs in the millions of dollars regardless of company performance, it pays to know that the executive team is committed to sharing the company’s wealth with its owners - the investors.

The above mentioned lists are only a starting point for the dedicated dividend investor. I do not want to blindly purchase all stocks without understanding their business and without checking several financial characteristics of the companies. In my analysis of dividend stocks I check several parameters:

EPS- The earnings per share indicator is calculated by dividing the total amount of net income for one year to the total number of shares outstanding. I am normally looking for an increase in EPS over the past ten years. A company that cannot increase its EPS over time, will not be able to sustain the growth in its dividend payments to shareholders.

ROE – The Return on Equity is calculated by dividing the total amount of net income for a given year over the amount of owner’s equity on the balance sheet at the end of the previous period. I do not look for specific numbers in this indicator, but focus exclusively on its trend. Most stocks will have a flat ROE over time, which is fine with me. A red flag for me is a decreasing ROE over time.

DPR- I calculate the dividend payout ratio by dividing the DPS over the EPS. I am generally looking for a DPR that is below 50% in most companies. However, if a corporation has been able to maintain a higher DPR over time due to the nature of its business or the nature of its legal structure, I would consider buying a stock with a much higher DPR. A rising DPR is generally a red flag for me. This shows me that there is not much room for future dividend growth. In addition, stocks which have a highly unusual for them DPR indicate a higher risk for dividend cuts.

DPS – I generally look for an uninterrupted growth in dividends every year for more than ten years, preferably twenty-five. A company which hasn’t been able to at least pay a stable dividend without cutting it in difficult times is automatically off of my radar. General Motors is one stock which I won’t touch, since it has exhibited a lot of fluctuations in its dividend payments over the years.

Valuation- After checking the trends of earnings, roe, dpr and dps I assume that these would continue to be doing ok or not ok for the foreseeable future. I then look for stocks with a price earnings ratio of less than 20, dividend yield which equals at least the yield on the S&P 500 and a dividend payment ratio which does not exceed 50%. After buying a stock, I would “forget” about it and let the dividends reinvest automatically into more shares. Even if a company becomes overvalued in terms of super high P/E ratio, I won’t consider selling. I would consider holding forever in most situations.

For a sample dividend analysis of a stock, check out Analisys of Johnson & Johnson (JNJ).

Next Week I will be discussing the diversification part of my dividend growth plan.

Relevant Articles:

- Long term returns of S&P high-yield aristocrats
- Why do I like Dividend Aristocrats?
- Why do I like Dividend Achievers
- Dividend Champions Watchlist

Monday, July 28, 2008

Bank of America (BAC) Dividend Analysis

Bank of America Corporation, a financial holding company, provides a range of banking and nonbanking financial services and products in the United States and internationally.


BAC is a dividend aristocrat as well as a major component of the S&P 500 and Dow Jones Industrials indexes. The company has been increasing its dividends for the past 30 consecutive years. From 1998 up until July 2008 this dividend growth stock has delivered an annual average total return of 3.60 % to its shareholders. Despite the 60% recent jump in the share price, the stock is down almost 26% since the start of the year.















At the same time company has managed to deliver a 9.60% average annual increase in its EPS since 1998. So far this year BAC has reported EPS of $0.95 for the first half of 2008. The expectations are that the company will deliver EPS of $0.72 per quarter for the remaining two quarters of 2008.
















The ROE has declined steadily from the highs in 2004 at 29%.
















Annual dividend payments have increased by an average of 12.70% annually over the past 10 years, which is higher than the growth in EPS. A 12% growth in dividends translates into the dividend payment doubling almost every 6 years. If we look at historical data, going as far back as 1990, BAC has indeed managed to double its dividend payment almost every six years on average.


Future dividend increases will be harder to make given the current situation of the US financial system. Management recently affirmed that it would continue with its quarterly payment of 64 cents/share. This leaves them 4 more quarters where they could keep the dividend growth unchanged before BAC loses its dividend aristocrat status. There are rumors however that the company will have to cut the dividend in order to maintain its current liquidity and conserve capital.

If we invested $100,000 in BAC on December 31, 1997 we would have bought 3289 shares (Adjusted for a 2:1 stock split in 2004). In March 1998 your quarterly dividend income would have been $625. If you kept reinvesting the dividends though instead of spending them, your quarterly dividend income would have risen to $3143 by June 2008. For a period of ten and a half years, your quarterly dividend income has increased by 237%. If you reinvested it though, your quarterly dividend income would have increased by 403%.















The dividend payout has remained stable until the deterioration in earnings in after 2007. I estimate that the payout will be at 108% if the projected earnings per share of $2.38 materialize and the quarterly dividend payment stays flat at 64 cents/share. A lower payout is always a plus, since it leaves room for consistent dividend growth minimizing the impact of short-term fluctuations in earnings.
















BAC offers an above average yield, coupled with a low P/E ratio. The dividend payout is unsustainably large at this moment for me however in order to initiate a position. In addition to that, the whole uncertainty over the financial sector definitely makes it wiser to simply wait on the sidelines before jumping in.

Disclosure: I do not own shares of BAC
Relevant Articles:

Saturday, July 26, 2008

Carnivals, Festivals and Blogs- July 26, 2008

Carnivals and Festivals

Stock Market Prognosticator hosted Investing Carnival # 4: The Dead Cat Bounce Edition and selected my post Some Cheap Stocks to Consider. You can submit your blog article to the next edition of Investing Carnival using our carnival submission form.

Emily Starbuck Gerson hosted The 162nd Carnival of Personal Finance: Baseball edition and selected my review of the book "Stop Working" by Derek Foster.


Tony hosted Money Hacks Carnival #21 and selected my post Average Durations of Previous Bear Markets.

The Div-Net
Farmers & Merchants Bank of Long Beach (FMBL)

Where Do You Get Ideas From?

The Demise of SemGroup and SemGroup Energy Partners (SGLP)

How much money do you really need to achieve financial independence?

Brands Grow Dividends

The Top 10 Highest Yields of the S&P 500

Stock Analysis: Consolidated Edison, Inc. (ED)

Are Stocks A Good Hedge Against Inflation?

Blogs and Websites

Dividends4Life posted Your Greatest Wealth Building Asset.

The dividend Guy Did Some Buying in The Dividend Guy Portfolio.

The div guy is happy because Kinder Morgan Energy Partners (KMP) Increases Dividend 16%.

David Templeton asks if Unloved Stocks Outperform?

Check out this article from BusinessWeek - Stocks: The Dividend Defense.

Mattisse Capital Management presented Dividend Growers: The Insurance Sector.

Magic Dilligence is using their maginc formula with a dividend strategy.

Humble Student of the Markets presented The secret of Warren Buffett’s success

The Aleph Blog is Thinking About Dividends.

Relevant Articles:

- Carnivals, Festivals and Blogs- July 20, 2008
- Carnivals, Festivals and Blogs- July 12, 2008
- Carnivals, Festivals and Blogs- July 05, 2008
- Carnivals, Festivals and Blogs- June 29, 2008

Friday, July 25, 2008

The ultimate passive investment strategy

This article originally appeared on The DIV-Net July 18, 2008.

I recently read a paper from Jeremy Siegel and Jeremy Schwartz titled “The Long-term Returns on the Original S&P 500 Firms”.

In this paper the authors calculate the total returns of a buy and hold of the original 500 companies in 1957. They found that on average 20 stocks annually have been added and deleted from the index (without considering that a merger of two S&P 500 companies is an addition to the index) since 1957. The authors also used three methods of calculating the returns:

Survivors’ Portfolio (SP). The survivor portfolio consists only of shares of the original S&P 500 firms. Shares of other firms received through mergers are immediately sold and the proceeds invested in the remaining survivor firms in proportion to their market value. For example, when Mobil Oil was merged into Exxon in 1999, shareholders of Mobil are assumed to sell the shares they received from Exxon-Mobil and invest the proceeds in the remaining survivor firms. All spinoffs are immediately sold and the proceeds reinvested in the parent firm. Funds received from privatizations are sold and the proceeds re-invested in the original surviving firms in proportion to their market value.

Direct Descendants’ Portfolio (DDP), which consists of the shares of firms in the survivors’ portfolio plus the shares issued by firms acquiring an original S&P 500 firm. In the case of the Mobil-Exxon merger discussed above, we assume that shareholders of Mobil Oil hold the shares of Exxon that were issued in the merger. If an original firm was taken private, we assume that the cash distributed from the privatization was invested in an indexed portfolio whose returns matched the standard S&P 500 Index.12 If a firm that was taken private is subsequently reissued to the public again, we assume the portfolio repurchases shares in the reissued company with the funds that had been invested in the index at the time the firm went private. As before, spinoffs are immediately sold and the proceeds reinvested in the parent.

Total Descendants’ Portfolio (TDP) and includes all firms in the DDP plus all the spinoffs and other stock distributions issued by the firms in the Direct Descendants’ Portfolio. The only difference between the TDP and the DDP is that the TDP holds all the spinoffs rather than sell them and reinvest in the proceeds in the parent firm. The TDP is identical to the portfolio of a totally passive investor who holds all the spinoffs and shares issued from mergers and never sells any stock.

My favorite portfolio is the Total Descendants portfolio, since it basically represents a very passive investment strategy – buying stock in 500 companies and then forgetting about them for 50 years.

The authors looked into the return of equal weighted and value weighted returns for the three calculation types.

At the end of the paper they determined that by not updating your portfolio of the original 500 companies, with the annual changes in the S&P 500, you’d have outperformed the average pretty handsomely.

My take on this research is that by purchasing the current 500 stocks in the S&P 500, and allocating all stock equally, an investor will be better off in the long run than simply purchasing an ETF. The reason is that ETF’s tend to charge fees of 0.1% annually, which could really add up over time.

Relevant Articles:

- When to sell your dividend stocks?
- Why do I like Dividend Achievers
- The next bubble in the making.
- Dollar Cost Averaging

Wednesday, July 23, 2008

My Dividend Growth Plan - Strategy

Inspired by the dividend growth plans of The Money Gardener and The Dividend Guy, which they posted on The Div-Net last week, I decided to summarize my own plan.

I believe that having a good solid plan is essential in achieving one’s goals. And my goal is to create an increasing stream of dividend income, which would allow me to live off of my investments.

There are several points that have to be covered: Strategy, Stock Selection, Diversification and Money Management.

Today I will be focusing on strategy. My strategy involves buying quality dividend stocks at bargain prices. Dividends have been largely ignored by investors during the 1990’s when internet stocks were increasing across the board. Dividends however are an important part of the total return of stocks as they have contributed almost 40% of the annual total returns in the S&P 500 over the past eight decades. In addition to that, I believe that a stock which pays a dividend gives at least some certainty that the investor will generate a return on their investment. Although it could be argued that there is always the possibility that the dividend may be cut, companies tend to cut the dividends as a last resort of action. Thus I believe that the dividend component provides some stability in income for investors who want to live off of their holdings. Stock price increases on the other hand are more difficult to predict.
And last but not least, a company that has committed to paying a dividend shows its confidence that it will be able to generate a sufficient amount of profits to be distributed to shareholders.

We all learned from Enron and WorldCom that earnings could be manipulated easily. Manipulating the cash situation in a company is more difficult to achieve, because it cannot be created out of thin air. If a corporation does not have a very solid financial position, it won’t be able to commit to a dividend payment. An example of a company that hasn’t committed to paying dividends is PLA. Over the past 20 years, its shareholders have had a wild ride with the stock rising until 1999 and then declining. In comparison to PLA, GM shareholders had a much better total return over the same period.

As a general rule I would consider selling stocks which either cut their dividends or eliminate their dividend altogether.

I am generally looking for a blend of high growth lower yield stocks in addition to higher yield lower growth ones. I won’t be simply chasing yield, which represents a fixed dividend or worse a decreasing dividend.

An important part of my strategy is minimizing expenses. By opening a low cost brokerage account like Zecco or Sharebuilder I would be able to do that. In addition, if I can keep my expenses less than 0.5% per year, that would provide me with better long-term returns.

Next week, I will post more information about my stock selection process.

Relevant Articles:

- The case for dividend investing in retirement
- A comparison of investing in high-yield, low dividend growth stock versus investing in a low-yield, high dividend growth stock without capital gains
- Alternative Streams of Income
- Why dividends?

Monday, July 21, 2008

Is Pfizer (PFE) a value trap for investors?

Pfizer, Inc. engages in the discovery, development, manufacture, and marketing of prescription medicines for humans and animals worldwide.


The company is a dividend aristocrat as well as a component of the S&P 500 and Dow Jones Industrials indexes. It has been increasing its dividends for the past 41 consecutive years. From 1998 up until 2007 this dividend growth stock has delivered an annual average total return of 1.1 % to its shareholders. The stock has lost more than 63% from its all-time-high of $50 in 1999 however.


At the same time company has managed to deliver a 3.60% average annual increase in its EPS since 1998. Pfizer faces many problems, including the fact that almost fifty percent of its US drug revenues will face patent expiration after 2011. The drug Lipitor for example, which accounted for more than a quarter of PFE’s sales in 2007 loses its patent in 2011. Although management spent $ 8.3 billion on R&D in 2007, there haven’t been any blockbuster drugs which will easily replace the ones that face generic competition after 2011-2013.















The ROE has decreased over the past ten years from a little over 49 % in 2002 to a little over 11% by 2007.
















Annual dividend payments have increased over the past 10 years by an average of 17.70% annually, which is significantly above the growth in EPS. An 18 % growth in dividends translates into the dividend payment doubling almost every four years. If we look at historical data, going as far back as 1982, PFE has actually managed to double its dividend payment every five years on average.
Future dividend increases in dividends in the rate of 17% annually will be harder to obtain however, unless the company finds new drugs that it could use to generate more revenues.
















If we invested $100,000 in PFE on December 31, 1997 we would have bought 4024 shares (Adjusted for a 3:1 stock split in July 1999). In February 1998 your quarterly dividend income would have been $ 255. If you kept reinvesting the dividends though instead of spending them, your quarterly dividend income would have risen to $1412 by November 2007. For a period of 10 years, your quarterly dividend income has increased by 358 %. If you reinvested it though, your quarterly dividend income would have increased by 454 %.














The dividend payout has fluctuated greatly between 20% and 110% over the past ten years. At the end of 2007 the payout stood at 99%, which is very high. Even if EPS for 2008 reaches $2.00 the DPR will still be high at 64%. A lower payout is always a plus, since it leaves room for consistent dividend growth minimizing the impact of short-term fluctuations in earnings.















PFE currently spots a P/E of 16.70, a high dividend payout ratio and a very high yield of over 7%. On the surface, PFE does appear cheap, but in my opinion it could be a value trap for investors. Until management starts producing new drugs either through acquisitions of competitors or by creating the drugs, PFE will continue to be a losing proposition. Even though management has tried to cut costs by closing several production facilities, the major problem that PFE faces is uncertainty about the source of future revenue streams for the company. Given the stagnant EPS and the expected major revenue decreases after 2011, I doubt the sustainability of PFE’s future dividend increases.

The company should continue as a going concern in the future however, given the fact that 50% of its sales come from abroad and its ability to cut costs.

In addition, because of PFE’s current strong cash flow position I believe that the company does have the ability to buy new drugs by acquiring other companies and grow its revenues. The fact that twelve out of eighteen analysts rate PFE as “hold”, which is Wall Street’s jargon for having a sell recommendation on the shares, could be a potential contrarian sentiment indicator.

In the end I would consider initiating a PFE long myself when the payout is less than 50%. Until then, this big pharma stock will only have place on my watch list.

Disclosure: I do not own shares of PFE

Relevant Articles:

Sunday, July 20, 2008

Carnivals, Festivals and Blogs- July 20, 2008

Carnivals and Festivals

My dividend analysis of MCD was featured on Investing Carnival #3: The Bear Market Edition, hosted by Disciplined Approach to Investing. You can submit your article for Investing Carnival # 4 using this submission form.

My dividend analysis of AT&T was selected to appear on the Carnival of Personal Finance #161: The "Feeling Renewed" Edition.

Festival of Stocks #97 selected my post titled Dow Chemical (DOW) To Acquire Rohm and Haas (ROH) for $78/Share.

The Div-Net Articles

There were several very good articles written by the authors on The Div-Net, the premier dividend and value investing network on the internet.

Solid Dividend Stock: Kinder Morgan Energy Partners (KMP)

The ultimate passive investment strategy

National Western Life Insurance (NWLIA)

GE Presents Dividend Opportunity

Lower Risk = Higher Investment Profits

Stock Analysis: Abbott Laboratories (ABT)

Unloved Stocks Outperform?

Blogs

Disciplined Approach to Investing posted Risk Tolerance And The Estate Plan.

Living Off Dividends posted Monthly Passive Income Finally Breaks $3,000 Barrier!.

Dividends4Life told us Which International Income ETF to Buy? .

The Div Guy is Finding Strong Stocks in a Sickly Market.

Dividend Money posted Timing The Market:Headlines and Heresy.

Million Dollar Journey posted A Simple Low Cost Diversified ETF Portfolio.

Quest For Four Pillars posted Guide To The Sleeping Pill Portfolio.

Relevant Articles:

- Carnivals, Festivals and Blogs- July 12, 2008
- Carnivals, Festivals and Blogs- July 05, 2008
- Carnivals, Festivals and Blogs- June 29, 2008
- Carnivals, Festivals and Blogs- June 22, 2008

Friday, July 18, 2008

Book Review: Stop Working

After finding the book “Stop Working : Here's How You Can!: Using the Strategy of Canada's Youngest Retiree” from Derek Foster on Amazon, I feverishly read it from cover to cover in about 3 - 4 hours. To those of you who haven’t heard anything about the book before, it’s written by Derek Foster, who is touted to be Canada’s youngest retiree.


Apparently the author of this book was able to “punch out” of the workforce at the tender age of 34. He was able to do this by investing a fixed amount of money every month for a period of about 12 years. Initially he bought only mutual funds, and later focused exclusively on dividend paying stocks.

Personally I thought that the book was very inspirational, because it shows the reader that they might not need as much as their financial advisors tell them to save for retirement. It also tells in a way the story of a dividend investor, gives a couple of dividend stock picks, and explains how dividend income is a better source of income compared to earnings from one’s job. The book strongly focuses on cash flow, in particular cash flow from stable dividend companies with long history of dividend increases. I also how he compared taxable income from wages to taxable income from dividends. If you check out his “sample portfolio”, you will notice that it was yielding about 6% in 2004/5, which is not unachievable. He did mention however, that you need to buy the stocks when they are trading at bargain prices. He also mentioned that had you bought the stocks in his sample portfolio at their bargain prices you would have paid about $100,000 for them, rather than $300,000 in 2004/5. And thus your yield on cost would have been 18%, rather than 6%.

The misleading part about this book is the fact that the author mentions how he saved $200/month plus his tax refunds in the stock market for 12 years. At the time of his retirement however, Derek Foster had a portfolio worth about $300,000 - $400,000, a fully paid house as well as a rental property. The numbers simply don’t add up for me. I have read in other sources that he made large leveraged directional bets in Altria in early 2000, which paid off well. Without this “gamble” I do not know whether he would have made it or not. One cautionary thing to add is that he wrote the book right after he retired at 34. I would want to see how he has adapted to changing market conditions (elimination of the income trust structure in Canada in several years) in 2015, 2025, 2035. I hope he will still be able to be retired even when he is in his 60’s. Another cautionary thing to add is that this strategy worked in Canada, where healthcare is practically free. If you lived in the US, however, you would need to save more simply for the rising healthcare costs.

Overall I considered the book to be very inspirational dividend book. If you keep saving a fixed amount of funds from your paycheck every month and you invest your money in quality companies which have a strong history of increasing dividends, you will be able to retire earlier that you thought possible.

What is your opinion on this book?

You could purchase Stop Working : Here's How You Can!: Using the Strategy of Canada's Youngest Retiree from Amazon.com.

This article originally appeared on The Div-Net one week ago.

Wednesday, July 16, 2008

United Technologies (UTX) Dividend Analysis

United Technologies Corporation provides technology products and services to the building systems and aerospace industries worldwide. The company's segments include Otis, Carrier, UTC Fire and Security, Pratt and Whitney, Hamilton Sundstrand and Sikorsky.

UTX is a dividend achiever as well as a component of the S&P 500 and Dow Jones Industrials indexes. It has been increasing its dividends for the past 14 consecutive years. From 1998 up until 2007 this dividend growth stock has delivered an annual average total return of 17.20 % to its shareholders.


At the same time company has managed to deliver a 14.50% average annual increase in its EPS since 1998.















The ROE has decreased over the past ten years from a little over 28% to a little over 19%.
















Annual dividend payments have increased over the past 10 years by an average of 14.20% annually, which is the same as the growth in EPS. A 14 % growth in dividends translates into the dividend payment doubling almost every five years. If we look at historical data, going as far back as 1977, UTX has actually managed to double its dividend payment every seven and a half years on average.
















If we invested $100,000 in UTX on December 31, 1997 we would have bought 5494 shares (Adjusted for two 2:1 stock splits). In February 1998 your quarterly dividend income would have been $ 425.79. If you kept reinvesting the dividends though instead of spending them, your quarterly dividend income would have risen to $2032 by November 2007. For a period of 10 years, your quarterly dividend income has increased by 313 %. If you reinvested it though, your quarterly dividend income would have increased by 377 %.















The dividend payout has remained at or below 30% over 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.







I think that UTX is attractively valued with its low price/earnings multiple of 14, low DPR and a market average dividend yield of 2.10%.

Disclosure: I do not own shares of UTX
Relevant Articles:

Tuesday, July 15, 2008

Some Attractively Valued Dividend Stocks to Consider

Ever since the broad market indexes entered into bear market territory, I have been checking the dividend champions list for bargains. I came up with the following dividend stocks list, using my screen criteria:

1) Company has consistently increased dividends for more than 25 consecutive years
2) The P/E ratio is less than 20
3) The Dividend Payout Ratio does not exceed 50%
4) The dividend yield is equal to or higher than the dividend yield on the S&P 500

Using the criteria above I came out with the following list:


As usual this list is just a starting point. Before you leap into buying these stocks always check out at least the ten year financials trends in order to determine how your potential investment has performed over time. I would like to finish this post with two quotes from the legendary investor Warren Buffett:( Source Wikiquote)

“What doesn’t work is when you start doing things that you don't understand or because they worked last week for somebody else. “

"There are all kinds of businesses that Charlie and I don't understand, but that doesn't cause us to stay up at night. It just means we go on to the next one, and that's what the individual investor should do."

Related Articles:

- Warren Buffet - The richest investor in the World
- My Current Watchlist
- Dividend Conspiracies
- Dividend Champions Watchlist

Monday, July 14, 2008

Average Durations of Previous Bear Markets

On July 7, 2008 S&P 500 went into bear market territory after sliding 20% from its October 9th 2007 all-time highs at 1565.15. The current bear market correction has been going on for more than nine months. So how long do bear markets last on average?

From the table below one could see that the average duration of bear markets has been about 18 months since the great depression. Since 1956 however the average duration of bear markets has been about fourteen months. The average decline since 1929 has been 38.2% versus 31.8% since 1956.




















It has taken S&P 500 about 5.2 years on average to recover from to above its bear market highs since 1929. If we check the same parameter starting in 1956 the average recovery time from a bear market comes out to 2.8 years on average.

If history could be of any guidance, S&P 500 could continues falling for five to nine more months by fourteen to twenty-two percent from current levels. This means that S&P 500 could fall to as low as 967 to 1068 until the end of 2008. Past performance seldom guarantees future results however. One thing will stay true though – investors who are greedy when others are fearful will reap huge benefits over the next few years as they scoop up good quality dividend companies at bargain prices. If you don’t agree with me, please check out Buffet’s recent involvement in WWY and ROH acquisitions.

Relevant Articles:

- Warren Buffet - The richest investor in the World

- Dow Chemical (DOW) To Acquire Rohm and Haas (ROH) for $78/share

- ROH Dividend Analysis

- The Bottom is in

Sunday, July 13, 2008

Anheuser-Busch (BUD) Deal Finalized

Reuters and WSJ today reported that BUD agreed to be acquired by Belgium Based Interbrew for a little under 50 billion dollars. The $70/share bid would create the largest brewing company in the world.

BUD shares rose $5.29 to close at $66.50 on Friday, after reports from WSJ that InBev has increased its offer to shareholders by $5/share to $70.

I would consider selling half of my stock on Monday morning at the open, as I expect a gap up which would be close to the offering price. I would keep the other half and tender it later. You could read my dividend analysis of Anheuser-Busch (BUD) here.

This acquisition, just like the recent acquisitions of ROH and WWY strongly reiterates my point that solid dividend growers are a great long-term investment in general. The only issue with acquisitions is finding new opportunities from the shrinking supply of quality dividend opportunities out there.

Saturday, July 12, 2008

Carnivals, Festivals and Blogs- July 12, 2008

Carnivals and Festivals

The Carnival of Personal Finance: American Flag Edition included my analysis of McDonald’s.

The 96th Edition of the Festival of Stocks selected my post Carlisle Companies (CSL) Dividend Analysis.

Also do not forget to check out this weeks TheDiv-Net Posts. There are several original articles on value and dividend investing there.

Blogs

Stock Market Prognosticator posted Utah Takes the Plunge.

The Dividend Guy Blog posted Investing Boils Down to 4 Principles Like Hockey Boils Down to the Fundamentals of the Game .

Dividends4Life posted Stock Analysis: Exxon Mobil Corp (XOM) .

The Money Gardener asked what's your net freedom?

Div Guy presented his June Net Worth Update - Ugly .

Disciplined Approach to Investing presented Dividend Focused ETFs' Performance Depends On Financial Sector .

Million Dollar Journey posted The Longterm Cost of Higher Management Expense Ratios (MER’s)

Gannon On Investing gave several reasons why bloggers stop blogging.

Four Pillars presented some interesting ideas in Real Estate Arbitrage.

Passive Family Income posted Adding Bank of Amercia (BAC) to the portfolio.

Stock Market Books posted The Art of War, which is one of my favorite books.

Friday, July 11, 2008

"Determining Withdrawal Rates Using Historical Data" - My Opinion

I recently stumbled upon this article from William P. Bengen DETERMINING WITHDRAWAL RATES USING HISTORICAL DATA”. The basic idea behind this research is that year over year fluctuations in annual returns could drastically change the standard of living of retired individuals, who rely on their investments for income. That’s why “safe” withdrawal rates need to be determined and a proper asset allocation needs to be applied. William Bengen does look into a very basic allocation of stocks and bonds, and then adjusts those target allocations annually.

He builds on the idea that market cataclysms like the 1929-1932 and 1972-1974 bear markets could have long-term effects on ones portfolio which can overwhelm the average returns for stocks and bonds, that have been commonly advertised. William Bengen then tries to calculate the longevity of portfolios using a variety of target allocations between stocks and bonds, assuming that he had clients retiring each year from 1926 to 1976. He uses several initial withdrawal percentages in order to determine the safe withdrawal rate.

In the end his research showed that having 25%-50% allocation to bonds actually increases portfolio longevity at safe withdrawal rates of 3%-4% annually, adjusted for inflation. An investor, who was 100%, invested in stocks, who planned on withdrawing 4% from the initial balance and then adjusts for inflation, and who retired in 1929 would have been able to enjoy his retirement for only 24 years.

One thing that I would like to see from William Bengen is a possible dividend strategy where retirees will be withdrawing only dividend income. Even if our investor used only dividends as a source of income, the Great Depression would have presented them with a major challenge, when the dividend payments on the S&P 500 fell by 55% from 1929 to 1932. (This back tested data for the index, which could be accessed from here). Deflation was the only “positive” thing at the time. Price decreased by 25% on average during the great depression, which decreased the actual purchasing power income of our dividend retiree by only 30%.

This paper got me thinking that having an allocation in bonds in retirement will actually smooth fluctuations in annual returns and decrease overall risk, while enhancing portfolio longevity. What I am basically thinking about is that I would keep 100% invested in stocks while I am still working, in order to take full advantage of the stock price and dividends appreciation. When my actual retirement date is 10 years and less away I would start contributing bond investments to my portfolio.

This article originally appeared on The Div-Net one week ago.

What is your opinion on this article?

- The next bubble in the making.
- Dividend Champions Watchlist
- The 20 Highest Yielding Dividend Aristocrats
- The case for dividend investing in retirement

Thursday, July 10, 2008

Dow Chemical (DOW) To Acquire Rohm and Haas (ROH) for $78/Share

Rohm and Haas Company (NYSE: ROH) entered into an agreement with The Dow Chemical Company (NYSE: DOW), under which Dow will acquire all of the outstanding shares of Rohm and Haas common stock for $78.00 per share in cash. Shares of ROH closed at $44.83 yesterday. The agreement provides that Rohm and Haas Company will retain its Philadelphia Headquarters location, and continue to do business under the Rohm and Haas name. Additionally, Dow will contribute a number of specialty chemicals business segments to the Rohm and Haas portfolio which have greater synergy with the Philadelphia Company’s established strengths. Source: StreetInsider

My dividend growth stocks are getting bought out by competitors as they present stable corporations with a nice moat. The first one that is in talks to be bought out is BUD. Now ROH is going to be bought out by a consortium of a Kuwait Sovereign Wealth Fund, Buffet and Dow Chemical. I was only able to accumulate a half position in ROH, but nevertheless now I have to re-allocate the funds accross the rest of my portfolio. You could check my analysis of ROH here.

At the time of this weriting ROH is up over 65% from yesterday's close. I would consider selling half of my position shortly in order to lock in a gain. The market price is about 5% lower than the offer price at $78. The companies have said they hope to complete the deal by early 2009. I would keep my other half of the position to tender it by that time.

Wednesday, July 9, 2008

Teleflex Incorporated (TFX) Dividend Analysis

Teleflex Incorporated engages in the design, manufacture, and distribution of specialty-engineered products for medical, aerospace, and commercial markets in North America, Europe, Middle East, Africa, Latin America, and Asia. It operates in three segments: Medical, Aerospace, and Commercial.

TFX is not a dividend aristocrat, but a member of the dividend champions. It has been increasing its dividends for the past 30 consecutive years. From 1998 up until 2007 this dividend growth stock has delivered an annual average total return of 6.90 % to its shareholders.

At the same time company has managed to deliver a 6.30% average annual increase in its EPS since 1998.














The ROE has declined slightly from 16% in the late 1990’s to about 11% in 2007.















Annual dividend payments have increased over the past 10 years by an average of 12.40% annually, which is twice as high as the growth in EPS. A 12% growth in dividends translates into the dividend payment doubling almost every 6 years. If we look at historical data, going as far back as 1990, TFX has indeed managed to double its dividend payments almost every six years on average.















If we invested $100,000 in TFX on December 31, 1997 we would have bought 2649 shares. In February 1998 your quarterly dividend income would have been $264.90. If you kept reinvesting the dividends though instead of spending them, your quarterly dividend income would have risen to $986.88 by November 2007. For a period of 10 years, your quarterly dividend income has increased by 220 %. If you reinvested it though, your quarterly dividend income would have increased by 273%.















The dividend payout has remained at or below 50 % for the majority of our study period with the exception of a brief spike in 2004. 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 TFX is attractively valued with its low price/earnings multiple of 17.50 and low DPR. TFX also boasts a yield of 2.40%, which is higher than the market yield.

Disclosure: I do not own shares of TFX
Relevant Articles:

Monday, July 7, 2008

AT&T (T) Dividend Analysis

AT&T, Inc. provides telecommunications services to consumers and businesses in the United States and internationally. It provides wireless services, including local wireless communications, long-distance, and roaming services with various postpaid and prepaid service plans.

AT&T is not a dividend aristocrat yet, but a dividend achiever as well as a major component of the S&P 500 index. It has been increasing its dividends for the past 24 consecutive years. From 1998 up until 2007 this dividend growth stock has delivered an annual average total return of 5.00 % to its shareholders.














At the same time company has had a 0.50% average annual decrease in its EPS since 1998. In fact the diluted earnings per share of $1.94 in 2007 were nine cents lower than the diluted earnings per share in 1998.















The ROE has remained in a steady decline falling to about 10% in 2007 which is significantly lower than the 30% mark for this indicator in 1998.

Annual dividend payments have increased over the past 10 years by an average of 4.80% annually, which might be unsustainable due to the lack of growth in profits over the past decade. A five percent growth in dividends translates into the dividend payment doubling almost every fourteen to fifteen years. If we look at historical data the quarterly payment of $0.355 from 2007 was double what AT&T paid in 1991 as a quarterly dividend.















If we invested $100,000 in T on December 31, 1997 we would have bought 2730 shares (Adjusted for a 2:1 stock split in 1998). In January 1998 your quarterly dividend income would have been $611.52. If you kept reinvesting the dividends though instead of spending them, your quarterly dividend income would have risen to $1368.17 by October 2007 and over $1570 most recently. For a period of 10 years, your quarterly dividend income has increased by 59 %. If you reinvested it though, your quarterly dividend income would have increased by 124%.














The dividend payout has increased steadily during our study period and broken above 70%. A lower payout is always a plus, since it leaves room for consistent dividend growth minimizing the impact of short-term fluctuations in earnings.















Although T has a low price/earnings multiple of 16 and above average dividend yield I would think twice before entering a position there. The decline in ROE and EPS is warning sign for me, as is the steady increase in the DPR. Without any future growth in EPS, the company would be unable to maintain its current dividend policy of rewarding shareholder with future dividend increases. The only appealing thing right now is the high dividend yield of 5%.

Disclosure: I do not own shares of T

Relevant Articles:

Saturday, July 5, 2008

Carnivals, Festivals and Blogs- July 05, 2008

Carnivals and Festivals

This week I hosted the first Investing Carnival, which is supported by The Div-Net blogging group. The next Investing Carnival will be hosted by fellow blogger Dividends4Life. To participate in the carnival, submit your articles here.

My review of the Canadian royalty trusts was selected on the Money Hacks Carnival #19: The Independence Edition, hosted by Sound Money Matters.

My article on When to Sell Your Dividend Stocks, Part 2, was selected on Carnival of Personal Finance, #159: The First Zero-Emissions City , hosted by Greener Pastures.

My article Illinois Tool Works (ITW) Dividend Analysis was selected on Festival of Stocks #95, hosted by Contrarian Value Investing.

The Div-Net Network

Dividends4Life posted Who is David Dodd and Why Should We Listen to Him on his blog.

the moneygardener posted blogging net worth on his blog.

Disciplined Approach to Investing posted Dividend Payers vs. Non Payers: At Least June Is Over on his blog.

The Dividend Guy Blog posted Dividend Stock Wednesday: United Parcel Service, Inc (UPS-N) on his blog.

Stock Market Prognosticator posted Barrett Business Services Inc. (BBSI) on The Div-Net site. Check out his site here for more info on this blogger: http://marketprognosticator.blogspot.com/

Div Guy posted Don't Let Retirement Be a Surprise, Have a Plan at his blog.

Blogs

Cash Money Life posted Defining Financial Freedom » at his blog.

Money Ning posted Our Thinking of Money Matters is Way Too Complicated on his blog.

Stock Market Books posted a free online version of the stock market classic Reminiscences of a Stock Operator. Whether you are a season investor or a trader, check it out, you won't regret it.

Online Dividends continued tracking his online income this month in Passive Income As of 06/30/2008.

Passive Family Income is Adding Bank of Amercia (BAC) to his portfolio.

Relevant Articles:

- Carnivals, Festivals and Blogs- June 29, 2008
- Carnivals, Festivals and Blogs- June 22, 2008
- Carnivals, Festivals and Blogs- June 14, 2008
- Carnivals, Festivals and Blogs- June 7, 2008

Thursday, July 3, 2008

Carlisle Companies (CSL) Dividend Analysis

Carlisle Companies Incorporated engages in the manufacture and sale of construction materials in the United States and internationally. It operates in five segments: Construction Materials, Industrial Components, Transportation Products, Specialty Products, and General Industry.

The company is not a dividend aristocrat but a dividend champion. In fact, this stock never crossed my radar, untill I found about the dividend champions list. It has been increasing its dividends for the past 31 consecutive years. From 1998 up until 2007 this dividend growth stock has delivered an annual average total return of 7.70 % to its shareholders.


At the same time company has managed to deliver a 10.50% average annual increase in its EPS since 1998.















The ROE has remained in the 5% - 20% range over the past 10 years. It has regained ground from its 2001 lows.















Annual dividend payments have increased over the past 10 years by an average of 7.90% annually, which is lower than the growth in EPS. An 8% growth in dividends translates into the dividend payment doubling almost every nine years. If we look at historical data, going as far back as 1987, CSL has actually managed to double its dividend payment every ten years on average. If history could be any guide, in 2017 the quarterly dividend payment would equal $0.29/share.














If we invested $100,000 in CSL on December 31, 1997 we would have bought 4847 shares (Adjusted for a 2:1 stock split in 2007). In February 1998 your quarterly dividend income would have been $339.29. If you kept reinvesting the dividends though instead of spending them, your quarterly dividend income would have risen to $828.10 by November 2007. For a period of 10 years, your quarterly dividend income has increased by 107 %. If you reinvested it though, your quarterly dividend income would have increased by 144%.














With the exception of 2001 and 2002 the dividend payout has remained below 40% over 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.















I think that CSL is attractively valued with its low price/earnings multiple of 15 and low DPR. The yield is at my 2% threshold. The stock is currently trading way off of its highs from 2007, which presents a nice opportunity for an entry on the dip.

Disclosure: I do not own shares of CSL

Wednesday, July 2, 2008

Selected Dividend Increases in June

Several Dividend Aristocrats have increased or decreased their dividends in June. The companies are listed below.




Expected dividend increases in July

Based off historical information from this spreadsheet, I would expect that the following companies increase their dividend in July: BUD, BAC, GCI, MTB, PPG, SWK, WAG. I would really watch out for BAC and GCI this month.

These dividend aristocrats have increased their dividends during every month of February over the past 4 years. Upon a closer examination of the dividend growth stock behavior of the 60 dividend aristocrats, it seems that every month there is at least one company that raises its dividend. It’s nice to get a pay raise every month. The only company that has increased its dividend twice in one year is STT- State Street.

Relevant Articles:

- Selected Dividend Increases in May
- Selected Dividend Increases in April
- Dividend Increases in March
- Dividend Increases in February

Tuesday, July 1, 2008

Investing Carnival #1

Welcome to the July 1, 2008 edition of Investing carnival #1. Please help us bring traffic to the carnival by stumbling it and linking to it. More traffic to the carnival equals more traffic for your submissions.

The Weekly Investing Carnival is supported by the members of The Div-Net network. We welcome articles related to Value Investing, Dividend Investing and Long Term Investing. Your Investing content does not have to cover only the stock market, but could also cover real estate, commodities and other alternative investments. Please submit your content here no later than 5:00 PM ET each Sunday. The Carnival will post every Tuesday. If you are interested in hosting, please e-mail me at dividendgrowthinvestor AT gmail dot com.

Dividend Investing

Raag Vamdatt presents Dividend Yield - A better alternative to FDs :: RaagVamdatt.com :: Financial Planning demystified posted at RaagVamdatt.com.

Slackerwealth presents A Look at WisdomTree's New Currency Income ETFs posted at A Slacker's Quest for His First Million, saying, "I take a look at WisdomTree's new currency income ETFs. They might sound promising for those who want to take advantage of the falling dollar and higher interest rates abroad, but I think we should wait to see if they work like they're supposed to first."

passive family income presents Creating a new Income Stream - General Electric posted at Passive Family Income.

Dividend Growth Investor presents When to sell your dividend stocks? posted at Create Rising Passive Income From Dividend Paying Stocks.

passive family income presents High dividend yields Passive Family Income posted at Passive Family Income.


Stock Analyses

LIVING OFF DIVIDENDS presents Time To Buy Online Retailers? posted at LIVING OFF DIVIDENDS & PASSIVE INCOME.

Dividends4Life presents Stock Analysis: Procter & Gamble Co. (PG) posted at Dividends 4 Life, saying, "Stock Analysis of Procter & Gamble Co. (PG)"

Value Investing

Steve Faber presents - Different Ways of Investing Money – What is the Best Choice for You? posted at DebtBlog.

Dorian Wales presents Inflation and the Stock Market – Which Stocks Offer Greater Protection against Inflation? posted at The Personal Financier, saying, "A small yet enlightening research on the relationship between inflation and the stock market and a discussion of the stocks that will offer more protection against inflation"

Brice Hogan presents Top 20 IBD Stocks posted at Financialzip.com, saying, "Some great stocks to look at and get into."

Leon Gettler presents Here comes the Fed posted at Sox First, saying, "It had to happen. When markets are troubled, big government steps in. US Treasury Secretary Henry Paulson will be pushing to give the Federal Reserve more power over markets."

Livingalmostlarge presents 2008 Roth IRA changes LivingAlmostLarge posted at LivingAlmostLarge, saying, "Changes for 2008 Roth IRA."

Michael Miles presents Four rules for effortless investing posted at Effortless Wealth and Abundance.

Wealth Accumulation

Steve Faber presents - Top 10 Retirement Financial Planning Mistakes That Will Make Sure You Don't Retire Wealthy posted at DebtBlog.

Raymond presents Do Credit Cards and Stocks Make Up Your Emergency Fund Savings? posted at Money Blue Book.

Aussie Investor presents Investing In The Stock Market To Grow Your Wealth posted at Money Management Personal Finance Blog, saying, "One of the best ways to build your personal wealth is by investing in the stock market (just look at Warren Buffett). This post contains some tips on how to get started with your stock investing endeavors."

Alternative Investments

Elias Tsepouridis presents Lehman Covered Call Trade FinancePuzzle posted at Finance Puzzle, saying, "Please include my posting in the next carnival"

Lane Wright presents Three Forex Trading Strategies posted at Awesome Forex Alerts.
Commodities

Jeffrey Kramer presents The Airline Industry (Part 1) posted at Economic Outlook, saying, "This is the first in a multi-part series discussing the airline industry. This entry focuses on the history of commercial aviation and explains how legacy carriers' responses to deregulation set the groundwork for today's problems. The discussion also emphasizes the effects of oil prices on airlines' profitability."

KCLau presents Ride on the Oil Palm Industry Boom posted at KCLau's Money Tips, saying, "LEading to oil palm investment, an insight into what Country Heights Grower Scheme is all about"

Real-Estate

Joe Manausa presents Property Flipping Re-Energized? posted at Tallahassee Real Estate Blog, saying, "The White House has frozen the "no flipping rule." I believe this is good news for a real estate market in need of good news. This will allow for an easier consumption process for distressed homes in the Tallahassee real estate market and will enable a quicker recovery of the market."

Sam presents NEW !! How to Sell My House and Get the Most Money. Buyers, Selling, Real Estate Agents, Making the Sale. ! Surfer Sam posted at Surfer Sam and Friends.

Joe Manausa presents Interest Rates Are Creeping Up posted at Tallahassee Real Estate Blog, saying, "Rising interest rates are making homeowners and buyers make a decision. Even if home prices are dropping, buyers are forced to consider if a cheaper house would be more or less affordable with higher interest rates."

imarketing4s presents Foreclosures: Tips and Warnings LoanHunt.com posted at LoanHunt.com.


That concludes this edition. Submit your blog article to the next edition of investing carnival using our carnival submission form. Past posts and future hosts can be found on our blog carnival index page.

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