Sunday, August 31, 2008

Carnivals, Festivals and Blogs- Labor Day Edition

This is my weekly overview of the carnivals and festivals that included my articles over the preceding seven days. In addition to that I also feature links which I found interesting.

Carnivals and Festivals

Carnival of Personal Finance #167 hosted by Broke Grad Student selected my post Is $1,000,000 enough to retire on? Is $2,000,000 enough to retire on?

Festival of Stocks#103 hosted by The StockMasters selected my post State Street Corporation (STT) Dividend Analysis

The Div-Net network

The Div Guy presented New High Yield Dividend Stock: DCP Midstream Partners LP (DPM)

Old School Value presented The Natural Contrarian's Way to Get Poor Quick

Disciplined Approach to Investing presented Dividend Aristocrats Outperform S&P 500 Index Year To Date

Dividends4Life presented Stock Analysis: Avery Dennison (AVY)

The Dividend Guy presented The Four Most Important Metrics When Evaluating Dividend Stocks

the moneygardener presented My Brief Dividend Growth History

The Stock Market Prognosticator presented The Mother Lode - Part Two

Blogs

Contrarian Value Investing presented Bye Bye Mr. Buffett

Dividend Money presented Using Historical Averages Can Make You Money In Stocks

Stableboyselections presented The “Missing” Berkshire Hathaway Letters (1969-1976)

Saj Karsan presented Wrestling Pays

David Hunkar presented 11 Top Canadian Dividend Stocks Available as ADRs

Larry MacDonald presented Dividends Show Differences Between Financials

Collegeanalysts presented Is Buffett Buying American Express (AXP)?

Friday, August 29, 2008

Diageo (DEO) Dividend analysis

Diageo plc engages in producing, distilling, brewing, bottling, packaging, distributing, developing, and marketing spirits, beer, and wine worldwide.
Diageo is an international dividend achiever. The company has been increasing its stock dividends for the past 10 consecutive years. From the end of 1997 up until August 2008 this dividend growth stock has delivered an annual average total return of 10.90 % to its shareholders. Diageo is the first international dividend company that I have analyzed in my pursuit of international exposure for my stock portfolio.

At the same time company has managed to deliver a 7.20% average annual increase in its EPS since 1998.

The ROE has increased from 29% in 1998 to 36% in 2007.

Annual dividend payments have increased over the past 10 years by an average of 8.10% each year, which is higher than the growth in EPS. An 8% growth in dividends translates into the dividend payment doubling almost every 9 years. DEO has indeed managed to double its annual dividend payment of $1.395 in 1999 last year (2007).

If we invested $100,000 in DEO on December 31, 1997 we would have bought 2892 shares. In April 1998 your semi-annual dividend income would have been $2406. If you kept reinvesting the dividends though instead of spending them, your semi-annual dividend income would have risen to $6582 in September 2007 and $4272 by June 2008. For a period of 10 years, your annual dividend income would have increased by 67%. If you reinvested it though, your annual dividend income would have increased by 129.60%.


The dividend payout has remained above 50% for the majority of our study period with the exception of 2006. 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 DEO is attractively valued with its low price/earnings multiple of 16 and above average yield at 3.60%. Even though the dividend payout is higher than the 50% I like the fact that it is has been steadily decreasing over the past decade.



I will keep looking for growing internationally based corporations which have increased their dividends and earnings consistently for at least five to ten years.

Disclosure: I do not own shares of DEO

Relevant Articles:

- State Street Corporation (STT) Dividend Analysis

- National Retail Properties (NNN) Dividend Analysis

- Realty Income (O) Dividend Analisys

- Bank of America (BAC) Dividend Analysis

Wednesday, August 27, 2008

International Dividend Achievers for diversification

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. I have also tried investigating the Broad Dividend Achievers as well, which are stocks that have increased their dividends for at least ten consecutive years.

That wasn't enough for me, however. In my quest for creating a diversified portfolio I have been searching for international dividend growers. There are several lists out there that focus on international dividend growth stocks – Mergents International Dividend Achievers index, S&P/TSX Canadian Dividend Aristocrats, S&P Europe 350 Dividend Aristocrats (EUR).
The list that caught my attention was the International Dividend Achievers list, prepared by Mergent Inc. It is broader than the S&P Europe and Canadian dividend aristocrat’s lists. To quote from the company's website:


The International Dividend Achievers™ Index is designed to track the performance of dividend paying American Depositary Receipts and foreign common stocks trading on major US exchanges. To become eligible for inclusion in the International Dividend Achievers Index a stock must be incorporated outside the United States, trade on the NYSE, NASDAQ or AMEX, and have increased its annual regular dividend payments for the last five or more consecutive years. In addition, requires that a stock's average daily cash volume exceed $500,000 per day in Nov. and Dec. prior to reconstitution.

The international dividend achievers index has closely tracked its benchmark over the past 10 years. It performed better than the benchmark in only 3 of the past 10 years however.













According to Mergents Inc, a $10,000 investment in the International Dividend Achievers Index ten years ago would be worth about $19,279 by the end of July 2008.


There's an ETF that tracks the index. The Ticker is PID.
Relevant Articles:

Tuesday, August 26, 2008

Introduction to Currency ETF’s

There are many currency ETF’s out there covering not only major pairs such as the Euro, British Pound, Japanese Yen and Swiss Frank but other exotic currencies such as the Chinese Yuan and the Brazilian Real. Currency ETF’s provide investors with instruments that trade like stocks and could be bought, sold and sold short at any time that the stock market is open. Several companies offer ETF’s on currencies and those include Barclays Bank, Deutsche Bank, Morgan Stanley, Wisdom Tree and Rydex.


In the process these companies have raised almost 4.6 billion dollars for exchange traded funds or notes which simply hold underlying currencies. I didn’t include other ETF’s that used strategies such as doubling the exposure to a specific currency, using a yield harvesting approach or ETF’s tracking the US Dollar Index.

Before you rush into currency ETF’s however there are the annual fees of .35% to 0.45 % for you to consider.


In addition to that, because currency ETF’s trade just like individual stocks you have to pay a commission to enter and exit the fund.

Thus on a $1000 investment in a currency ETF, you underperform the underlying by the amount of management fee, 0.4% plus a commission to buy the etf, which will vary from $4 at Sharebuilder to $7 at Scottrade.

If you must buy and hold or simply trade a currency then why don’t you simply open a forex account at a well known broker such as Oanda, and then don’t pay any management or stock trading fees. In addition to that Oanda will add the interest to your account on a daily basis, which allow for a faster compounding of the principal.

The only reason why one would hold currency etfs as opposed to opening an account with a forex broker is if their 401K plan only offers a currency etf and the investor must have some foreign currency exposure in a non taxable account.

To summarize whenever you think about buying a new investment product stop for a second and think how you could save money. Always check for alternatives whenever there are fees that you can avoid. If investors listen to this message, then they will save approximately 19 million dollar annually just from avoiding annual management fees. How much could be saved from avoiding trading commissions could probably end up in millions of dollars as well.
This article was selected to appear on"Money Hacks Carnival - The Print Media Edition"

Monday, August 25, 2008

PPG Industries (PPG) Dividend Stock Analysis

PPG is a leading manufacturer of coatings and resins, flat and fiber glass, and Industrial and specialty chemicals.
PPG Industries is a dividend aristocrat as well as a component of the S&P 500 index. It has been increasing its dividends for the past 36 consecutive years. From the end of 1997 up until August 2008 this dividend growth stock has delivered an annual average total return of 4.40 % to its shareholders.

At the same time company has managed to deliver an 1.20% average annual increase in its EPS since 1998.

The ROE has ranged between 16% and 27% with the exception of a brief spike down in 2001 and 2002.

Annual dividend payments have increased over the past 10 years by an average of 4.00% annually, which is much higher than the growth in EPS. A 4% growth in dividends translates into the dividend payment doubling almost every 18 years. If we look at historical data, going as far back as 1987, PPG has actually managed to double its dividend payment every ten years on average.

If we invested $100,000 in PPG on December 31, 1997 we would have bought 1850 shares. In February 1998 your quarterly dividend income would have been $629. If you kept reinvesting the dividends though instead of spending them, your quarterly dividend income would have risen to $1318.20 by August 2008. For a period of 10 years, your quarterly dividend income would have increased by 53%. If you reinvested it though, your quarterly dividend income would have increased by 110%.


The dividend payout has largely remained under 60% over our study period, with the exception of the brief spike to 70% in 2001. 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 PPG is attractively valued with its low price/earnings multiple of 16 and low DPR as well as an attractive yield.







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

Sunday, August 24, 2008

Carnivals, Festivals and Blogs- August 24, 2008

This is my weekly overview of the carnivals and festivals that included my articles over the preceding seven days.

Carnivals and Festivals

Everyday Finance hosted Carnival of Personal Finance #166 and selected my article Dow 370,000 as his editor's pick! That's the first time any of my articles have been chosen as an editor's pick at this important Carnival!

Money Hacks Carnival No. 26: Old Money Edition hosted by Penelope Pince selected my article Year-to-Date changes in Dividend Aristocrats’ annual payments to shareholders.

I hosted Investing Carnival #8 where I had over 20 interesting articles to post. Next week Dividends4Life will be hosting Investing Carnival #9.

Stock Pursuit hosted 102 th edition of Festival of Stocks and selected my post I got a 10% raise from CSL (Carlisle Companies).

The Div-Net network

Old School Value presented Jazz Technologies Merger Arbitrage

Disciplined Approach to Investing presented Media And The Market Often Disconnected

Dividends4Life presented Stock Analysis: Walgreen Co (WAG)

The Dividend Guy presented What a Couple of Days Away From the Stock Market Can Teach You

The Moneygardener presented No Dividend, No Way

Triaging My Way To Financial Success presented Value Stimulus - PFBC:

The Stock Market Prognosticator presented The Mother Lode

Blogs

Barel Karsan posted Potentially Undervalued: Amisco .

David Van Knapp posted Qualities of the Best Dividend Stocks.

Donaldson Capital Management presented lllinois Tool Works: Works

Frugal Dad presented How to Become a Millionaire in 10 Years

Harvesting Dollars presented Asset LOCATION Is Key To Building Wealth, Part 1

Quest For Four Pillars presented Dividend Dates

Friday, August 22, 2008

Dividend Growth and Earnings Per Share versus Total Return

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

Ever since I started analyzing stocks on my blog, I have been gathering information about several stocks in my data folders. I wanted to check what was the relationship between the ten year dividend growth rate and the ten year total return of the stocks that I previously covered on my blog. This is not a comprehensive list and the sample is biased as it mostly contains dividend aristocrats that I believed were priced attractively at the time (although most recently I have been writing about stocks that weren’t priced attractively). The average annual total return, eps and dividend growth for the 1998-2007 period were 8.8%, 9.9% and 10.5% respectively.

From that list I managed to select only the stocks which delivered at least a ten percent average annual EPS and dividend increases. A 10% increase in dividends double your annual dividend income after seven years. There were fifteen stocks that fit this list. The average total return was 10.46% for this group, with average dividend growth at 14% versus the 13.4% average EPS growth over the 1998-2007 period.

How did slower dividend growers perform over the past decade? I then screened for stocks which had EPS and dividend growth at less than ten percent. This screen produced thirteen candidates. The average total return was 8.35% for this group, with average dividend growth at 5.75% versus the 4.80% average EPS growth over the 1998-2007 period.

It’s interesting to note that stocks in the 46 company sample that merely raised their dividends by 10% on average over the past ten years achieved an average annual total return of 8.60%, which was slightly lower when compared to the 9.10% total return of stocks which had an annual dividend growth rate of less than 10% per annum.

The stocks that delivered at least a ten percent eps growth outperformed the rest of the group by over 2.4%. Companies that delivered an EPS growth which was higher than 10% per annum produced a total return of 10.2% versus 7.70% for the companies that produced EPS growth which was less than ten percent.

To summarize in order to be successful at dividend investing, the astute investor should not just check the dividend growth rate in isolation, but check the overall fundamental picture of the company in order to ensure that the dividend growth rate is covered by the growth in earnings per share.

Relevant Articles:

- My Dividend Growth Plan - Strategy
- My Dividend Growth Plan - Stock Selection
- My Dividend Growth Plan - Diversification
- How much money do you really need to achieve financial independence?

Wednesday, August 20, 2008

Is $1,000,000 enough to retire on? Is $2,000,000 enough money to retire on?

In my free time I regularly read Yahoo finance or the CNN Money articles related to personal finance and retirement. People are told that they need to save as much as possible for retirement, because they will be spending somewhat close to 75% of their pre-retirement incomes per year. In addition to that most so called financial guru’s claim that Social Security and Medicare will be either bankrupt or providing only enough coverage for the elderly that would allow them to enjoy cat food and insufficient health care in retirement. In order for people to be able to retire comfortably in those gloomy future years, they have to save as much as possible and invest it all in the stock market, in order to generate one or two million at the time of their retirement, which would then allow them to withdraw fund during their non-working years.

I generally disagree with these articles, since they are way too general. They are written with the intend to target as many people as possible. But they are far away from the truth.

In my opinion, it is important to have paid in full your primary residence at the time of your retirement. Once this is done, the income requirements are much lower than during your working years. Most financial experts recommend that the annual mortgage payment for a primary residence should not exceed 35%-40% of the family’s income. If you are currently spending 30% on your income in order to be able to pay off your house by the time you retire, then you will be able to live on 30% less income during retirement.

In addition to that, if dividend and capital gains income continues to get a preferential tax treatment, you will need less investment income for each dollar of job income that the investment income is replacing. The best thing of investment income is that you don’t have to pay Social Security and Medicare on it.

Finally, in order to determine your income needs in retirement, you should subtract the amount of money which you normally contribute to your salary every pay period. I wouldn’t expect that you will need to save for retirement, in retirement. If you contribute 10% of your salary to a 401K plan for example, then you need to subtract that percentage from your income needs.

A potential wild card that could possibly derail one’s retirement is the rising costs of healthcare. We are constantly reminded how healthcare costs are rising exponentially and how they would become even more expensive in the future. I do think however that in the future health costs increases will not rise more than the rate of inflation, after stricter insurance reimbursement policies require health management organizations to be more selective in their billing to patients and the procedures that are recommended.

After one’s retirement needs have been estimated, it is a good idea to create an investment plan, which would help you in your quest to reach your goals. A solid mix of dividend stocks and some bonds would be a good place to start. Don’t have time to play a stock picker- then select a mix of index funds. Then set it up on autopilot by investing a fixed amount from your paycheck every pay period.

Relevant Articles:

- Determining Withdrawal Rates Using Historical Data
- Back test Results of one Rule of Thumb
- The case for dividend investing in retirement
- Ten Things to Know About Dividends:

Tuesday, August 19, 2008

Investing Carnival #8

Welcome to the August 19, 2008 edition of Investing Carnival supported by the members of The Dividend and Value Investing Network The Div-Net.

Stock Analyses

Dividends4Life presents Stock Analysis: Family Dollar Stores Inc. (FDO) posted at Dividends 4 Life, saying, "Family Dollar Stores Inc. operates a chain of more than 6,500 retail discount stores in 44 states across the U.S. Linked here is a detailed stock analysis and commentary."

Old School Value presents A Company That Sounds Like A Transformer: K-Tron, posted at Old School Value.

Value Investing

Steve Alexander presents Book Review: The Tao of Warren Buffett posted at MagicDiligence - Optimizing Joel Greenblatts Value Stock Strategy, saying, "The Tao of Warren Buffett is a thought provoking collection of quotes and aphorisms from the world's greatest investor."

Wealth Accumulation

Raymond presents How To Open A Roth IRA Account And Which Broker To Use posted at Money Blue Book.

Investing

Contrarian Profits presents How to Profit From OPEC Nations’ 2008 Windfall posted at Contrarian Profits, saying, "We’ve said it here before, but it’s worth repeating: People still have to eat, even in downturn. Adam Lass in Taipan Daily says one stock worth a look right now is Buffalo Wild Wings (NASDAQ:BWLD). He has examined its chart and says this stock could gain as much as 35% over the next few weeks. That’s because America’s wealthy “are dummying up, pulling in their horns and battening down the hatches.” And this is good news for restaurants such Buffalo Wild Wings, whose customer base is swelling as the rich go downmarket. More from Adam…"

David presents Investment Opportunities in Energy Independence posted at Physician Entrepreneur, saying, "Most likely, oil prices will not be going below $60/barrel, and this will encourage continued attention and investment in making America more energy independent."

FIRE Getters presents How To Measure The Performance of A Mutual Fund? posted at FIRE Finance.

Qovax presents More Important Than Margin of Safety? posted at Value Investing and Entrepreneurship by Qovax, a Software Startup, saying, "As I mentioned in my earlier post As I mentioned in my earlier post The Best Kept Secret to Successful Investing, the most important rule to remember in investing is never lose money. However, there is one assumption that could throw all your assumptions off course, even with a wide margin of safety."

Livingalmostlarge presents To Roth or Not? posted at LivingAlmostLarge.

The Investor presents How a boring broker will make you richer posted at Monevator.com, saying, "You’re going to laugh. You’ll think I’m mad. But I think you want to look for an online broker with a dealing screen that’s… boring. Dull. Colorless. This article explains why."

Sandy Naidu presents Behavioral Finance - Investor Psychology - Behavioral Finance Stock Market Investment FutureNestEgg posted at Future Nest Egg.

Sandy Naidu presents Emergency Fund Savings - Emergency Fund Tips FutureNestEgg posted at Future Nest Egg.

David presents Goldman End 10 Year Bearish Postion On The Dollar posted at HF Markets - Online TRading.

LIVING OFF DIVIDENDS presents Rogers Still Bullish On Commodities posted at LIVING OFF DIVIDENDS & PASSIVE INCOME, saying, "Jim Rogers explains why he's still bullish on commodities"

Dorian Wales presents How to Invest Wisely In a Bear Market? posted at The Personal Financier, saying, "Bear markets present a challenge for any investor with the end never in sight. How do we invest wisely in a bear market?"

Raag Vamdatt presents When “at-par” is not so good: New Fund Offer (NFO) versus existing MF schemes :: RaagVamdatt.com :: Financial Planning demystified posted at RaagVamdatt.com.


Silicon Valley Blogger presents A First Look At Asset Allocation posted at The Digerati Life, saying, "Thank you!"

The Financial Blogger presents Beta and Alpha posted at The Financial Blogger, saying, "So what are beta and alpha? They are two measures made on historical returns of a specific fund"

Real-Estate

Bob Schwartz presents San Diego real estate blog » San Diego Real Estate … The Coming Next Wave of Foreclosures posted at San Diego real estate.

Alternative Investments

The Shark Investor presents How To Trade Domain Names And Websites posted at The Shark Investor, saying, "A guide to investing in web sites"

KCLau presents Frugal living doesn’t mean cheap posted at KCLau's Money Tips, saying, "List of benefits of being frugal and what frugality is about"

Online Dividends presents Why Blogging? posted at Track Monthly Passive Income, saying, "The few methods that you can use to generate passive income are dividends, interest income and blogging."

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.

Monday, August 18, 2008

State Street Corporation (STT) Dividend Stock Analysis

State Street Corporation, through its subsidiaries, provides a range of products and services for the institutional investors worldwide. It operates in two divisions, Investment Servicing and Investment Management. These divisions provide a range of products and services, which include mutual funds and other collective investment funds, corporate and public retirement plans, insurance companies, foundations, endowments and other investment pools, and investment managers.

State Street is a dividend aristocrat as well as a component of the S&P 500 index. It has been increasing its dividends for the past 27 consecutive years. From the end of 1997 up until August 2008 this dividend growth stock has delivered an annual average total return of 9.40 % to its shareholders.

At the same time company has managed to deliver an 11.20% average annual increase in its EPS since 1998.

The ROE has decreased from the 19%-27% range to 14%-17% range over the past 10 years.

Annual dividend payments have increased over the past 10 years by an average of 14.90% annually, which is higher than the growth in EPS. A 15% growth in dividends translates into the dividend payment doubling almost every 5 years. If we look at historical data, going as far back as 1987, STT has indeed managed to double its dividend payment every five years on average. State Street is the only Dividend Aristocrat that has consistently managed to increase its quarterly dividends twice per year.

If we invested $100,000 in STT on December 31, 1997 we would have bought 3492 shares (Adjusted for a 2:1 stock split in May 2001). In March 1998 your quarterly dividend income would have been $209.52. If you kept reinvesting the dividends though instead of spending them, your quarterly dividend income would have risen to $937.20 by June 2008. For a period of 10 years, your quarterly dividend income would have increased by 300%. If you reinvested it though, your quarterly dividend income would have increased by 347%.


The dividend payout has slowly increased from upper teens to mid twenties 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 STT is attractively valued with its low price/earnings multiple of 16 and low DPR even though the yield is below my 2% threshold. The historical dividend yield has not even gone close to 2% over the past ten years however. The strong dividend and earnings growth justify the lower current yield.


I believe that STT is a buy and could be accumulated on dips below $69 based off P/E and especially below $48 based off yield as it provides some dividend growth diversification potential for any income portfolio.

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

Sunday, August 17, 2008

Carnivals, Festivals and Blogs- August 17, 2008

This is my weekly overview of the carnivals and festivals that included my articles over the preceding seven days.

Carnivals and Festivals

Investing Carnival #6 published I got a 10% raise from CSL (Carlisle Companies)

Festival of Stocks published Bank of America (BAC) Dividend Analysis.

Carnival of Personal Finance published How much money do you really need to achieve financial independence .

The Div-Net network

The Div Guy presented The Easy Way: Dividend ETFs

Dividend Growth Investor presented Dividend Growth and Earnings Per Share versus Total Return

The Stock Market Prognosticator presented National Western Life Insurance (NWLIA) - An Update

The Moneygardener presented The Future of Canadian Dividend Growth II

The Dividend Guy presented Mutual Fund Returns Versus Individual Investor Returns

Dividends4Life presented Stock Analysis: Air Products and Chemicals Inc. (APD)

Disciplined Approach to Investing. presented The Dollar, Oil and Equity Prices

Blogs

Thornton Wealth Management presented Taste The Rainbow… Globally

George, published Fat Pitch Financials Turned 4

The Digerati Life published The Stock Market Bear Has Claimed Our Investment Portfolio

Middle Class Millionaire published Great West Life – GWO

my Value Idea published Value Idea: NorthStar Realty

Contrarian Value Investing Blog published Why shorting is no good

Relevant Articles:

- Carnivals, Festivals and Blogs- August 09, 2008
- Carnivals, Festivals and Blogs- August 02, 2008
- Carnivals, Festivals and Blogs- July 26, 2008
- Carnivals, Festivals and Blogs- July 20, 2008

Friday, August 15, 2008

Dow 370,000

In my previous article last week I tried to illustrate the point that one should start investing as soon as possible. This time I will try to prove that long-term investing and dividend reinvestment are important tools that would enable the shrewd dividend investor through good and bad times.

I recently stumbled upon a long-term chart of the Dow Jones industrial’s average which covers the period from 1920 to 2005. I have seen the long term chart of this stock market index multiple times before. The index rose from 107.23, which was the closing price for 1919 to over 11,000 by early August 2008. In a previous article I cited a research paper that showed that if dividend reinvestment was taken into consideration into the DJ index, its price would not stand at 11,000 but it would be several times over that.

Using just the value line annual dividends data for the 1920-2005 periods, as well as the final closing values for each year for the same period from DJ indexes I was able to perform the simple test of dividend reinvestment assuming a $107.23 initial investment on 12/31/1919 into a hypothetical index fund that tracks Dow Jones Industrials Average.
In reality this period exceeds the usual person’s investing timeframe by two to three times, but nevertheless the results are truly amazing.

If your great grandfather bought the hypothetical Dow Jones index fund in 1919 for $107.23 and reinvested the dividends into more index fund shares, he would have seen his dividend income rise from $5.80 in 1920 to $8,715.12 by 2005.

Furthermore, the initial investment of $107.23 would have grown to a staggering $371,028.01. You could check the data from this spreadsheet below.

The results of this passive approach show that it pays to ignore the media and all their gloomy forecasts about “the end of the world” and just stick with your investment while methodically reinvesting your dividends.

Most people are told that it took twenty five years for the Dow Jones Industrials Average index to surpass its 1929 high after The Great Depression and the Second World War. This is not true – accounting for dividend reinvestment Dow Jones Industrials index was actually able to surpass its 1929 high about fifteen years later.

Another gloomy period for stocks was 1965 to 1982, when Dow was stuck in a range between 600 and 1050 points, while producing a mere 8% total return for a 17 year period. At the same time the annual dividends that Dow paid increased form $28.60 in 1965 to $54.10 in 1982. In addition to that, accounting for dividends, a $1000 investment in Dow would have been worth about $2334 by the end of 1982.

To summarize I believe that the best strategy is to ignore all the naysayer’s, talk about recession, depression and political instability and go long stocks for the long run.

Note: The table above has been updated to include data from 2006 - 2008. The original article included data from 1920 - 2005.

Relevant Articles:

- Why dividends matter?

- My Dividend Growth Plan - Strategy

- The ultimate passive investment strategy

- My Dividend Growth Plan - Stock Selection

Wednesday, August 13, 2008

My Dividend Growth Plan - Money Management

In my previous article I discussed my dividend growth plan in more detail, by focusing on my diversification criteria. Today I will be focusing on the money management part of my plan.

I believe that managing my money is an equally important part of my strategy, in addition to the stock selection and diversification. My money management plan involves owning equal dollar amounts in the 30-100 stocks that I own. However, I won’t be rebalancing by selling shares in companies which take a large amount of my portfolio, but I will be adding to positions that still fit my entry criteria and which are having a lower weight in my portfolio for one reason or another. Since I am still in the accumulation phase with my dividend portfolio, I will be forced to dollar cost average in my positions. This should minimize some of my risk, but it will most probably also decrease my returns at least in the first several years.

A very important money management issue is taxation. Most working Americans who work and invest in the stock market do so through and employee 401K plan or through an IRA plan, which are tax advantages accounts. These accounts have some limitation on the age at which you can start withdrawing money. Since I plan on retiring on my dividend portfolio earlier than most other people, I wouldn’t exclusively use these tax advantages accounts. I do believe however that they are important in terms of overall wealth building.

The price of not owning my dividend growth portfolio in a tax sheltered account that I will pay is that I will be taxed on my dividend income every year. If you plan on withdrawing your funds after the age of 59, you should definitely consider a 401K or an IRA account.

This concludes my series which cover my dividend growth plan.

Relevant Articles:

- My Dividend Growth Plan - Diversification
- My Dividend Growth Plan - Stock Selection
- My Dividend Growth Plan - Strategy
- Some Cheap Stocks to Consider

Tuesday, August 12, 2008

Year-to-Date changes in Dividend Aristocrats’ annual payments to shareholders

It’s been more than a year since the financial market crisis began. Over those twelve horrendous months financial stocks have been the worst sector to be invested in. Record losses, coupled with more expectations of write-offs coupled with dividend cuts that made headlines surprised many investors who logically went straight for the exits.

On Friday FNM reported more than 2.3 billion in losses for 2Q 2008. At the same time the struggling housing lender cut their dividends, following the dividend cuts of Freddie Mac. Based off these news some gurus will tell you that dividend investing was a fad to begin with and that the best stocks to own are AAPL and RIMM.

That’s very far from the truth. Out of the 60 dividend aristocrats, which are companies that have increased their dividend payments to shareholders for more than 25 consecutive years, more than 40 have announced changes in their annual dividend rates. And guess what; only three out of 40 have actually cut their dividends – KEY, FITB and RF. Two other companies, GCI and BAC have so far frozen their dividend payments.

You could view the announced changes in annual dividends so far this year, courtesy of Standard & Poors.

Based off the above mentioned list, I would say that dividend investors haven’t been affected that badly by the financial turmoil that’s been capturing the markets in recent months as the dividend income has increased by over 7% in over year if an investor held a single share in each of the above mentioned dividend aristocrats.
What’s better than having the ability to buy more shares at depressed prices while you get an increasing stream of dividend income? You get to reinvest your dividends at deflated prices and you could also dollar cost average by taking full advantage of the fear on Wall Street,

Full Disclosure: The author is long US stocks.

Relevant Articles:

- Selected Dividend Increases in July
- My Dividend Growth Plan - Diversification
- I got a 10% raise from CSL (Carlisle Companies)
- Realty Income (O) Dividend Analisys

Monday, August 11, 2008

National Retail Properties (NNN) Dividend Stock Analysis

National Retail Properties, Inc. is a publicly owned equity real estate investment trust. The firm acquires, owns, manages, and develops retail properties in the United States. It provides complete turn-key and built-to-suit development services including market analysis, site selection and acquisition, entitlements, permitting, and construction management. The firm also focuses on purchasing and financing net-leased retail properties.

The company is a dividend achiever as well as a component of the S&P 1500 index. It has been increasing its dividends for the past 18 consecutive years. From 1998 up until June 30 2008 this dividend growth stock has delivered an annual average total return of 9.60 % to its shareholders.











At the same time company has managed to deliver a 2.90% average annual increase in its FFO since 1998. FFO is a common measurement for a REIT. It is an alternative non-GAAP measure that is considered to be a good indicator of a company’s ability to pay dividends.














The ROE has been increasing from its 1998-2004 range of 7% -10% rising to almost 15% in 2007.














Annual dividend payments have increased over the past 10 years by an average of 1.6% annually, which is lower than the growth in FFO. At 1.6% growth in dividends it would take you decades to double your dividend income.














If we invested $100,000 in NNN on December 31, 1997 we would have bought 5596 shares. In January 1998 your monthly dividend check would have been for $1679. If you kept reinvesting the dividends though instead of spending them, your monthly dividend income would have risen to $4873 by August 2008. For a period of 10 years, your monthly dividend payment would have increased by 25 %. If you reinvested it though and took advantage of the monthly compounding effect, your quarterly dividend income would have increased by 190%.

The payout from funds from operations has remained at the 75% - 92% range for the majority of our study period. One of the reasons why I wasn’t enthusiastic about the stock was because of this high payout. Do not repeat the same mistake as me however – In order to maintain their tax status as a REIT for federal income tax purposes, they generally are required to distribute dividends to our stockholders aggregating annually at least 90% of our REIT taxable income (determined without regard to the dividends paid deduction and by excluding net capital gains), and are subject to income tax to the extent we distribute less than 100% of the REIT taxable income (including net capital gains). In addition to that, the fact that the company has managed to keep increasing its profits and dividends while keeping the payout form operations stable is a positive sign.



Overall I think NNN is attractively valued at current prices. It is nice to have another asset class in your portfolio in order to achieve diversification.

Disclosure: I do not own shares of NNN
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Sunday, August 10, 2008

Carnivals, Festivals and Blogs- August 09, 2008

Carnivals and Festivals

The Div Guy hosted Investing Carnival #6 and included my post My Dividend Growth Plan - Strategy.

Fat Pitch Financials hosted 100th Edition of the Festival of Stocks and included my post Is Pfizer (PFE) a value trap for investors?.

Squawkfox hosted Carnival of Personal Finance #164 and included my post My Dividend Growth Plan - Strategy.

NewsFlashr added my feed to their awesome website. Check it out at NewsFlashr.com

TheDiv-Net

The Stock Market Prognosticator checks on BBSI in Barrett Business Services (BBSI) – A Follow Up .

The Moneygardener is thinking about The Future of Canadian Dividend Growth I

shared with his readers My Best Investing Mistake.

Dividends4Life analyzed Stanley Works (SWK)

Disciplined Approach to Investing. proved that Dividend Focused Equity Portfolio Maintains Real Purchasing Power In Retirement

The Div Guy, who got a new web address told us how to get paid regularly with dividends.

Blogs

Deep Value Dividends posted Dow Jones Select Dividend Index Fund ETF (DVY) Analysis

Middle Class Millionaire is happy that Great West Life – GWO gave him a raise in dividends.

DividendInc posted an analysis of SVU.

Contrarian Value Investing presented http://www.contrarianvalueinvesting.com/2008/08/06/10-years-of-financials-now-available-gurufocuscom/

Canadian Capitalist is weighing the pros and cons of investing in REITs in To REIT, or not to REIT


Relevant Articles:

- Carnivals, Festivals and Blogs- August 02, 2008

- Carnivals, Festivals and Blogs- July 26, 2008

- Carnivals, Festivals and Blogs- July 20, 2008

- Carnivals, Festivals and Blogs- July 12, 2008






Friday, August 8, 2008

The importance of investing for retirement as early as possible

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

At the beginning of the 21st century most young people are told that social security won’t be there for them when they retire from the work force. Thus, in order to be able to completely retire from the workforce, a person has to invest as early as possible in order to take full advantage of the power of compounding.

Let’s follow the story of Erica and John. They both grew up on the same street in the same city. Their mothers gave birth to them at almost the same time. Erica and John went to the same high-school, after which their paths separated. They lost contact with each other for the next 40 years, at which point they found each other on Facebook, and met to reminiscence their childhood and talk about grandkids.

They quickly started talking about their retirement and the amount of money they had each had at the time of their retirement.

John, who always saved the extra money he earned from jobs at college and his first job after college, started investing $2000/year in dividend stocks starting at the age of 18 and kept saving and investing the same amount until he was 28. At that point he had so many expenses in order to pay for the needs of his growing family that he couldn’t save anymore. Despite the fact that John couldn’t contribute any more to fund his retirement, he was very good at picking solid dividend growth stocks, and was able to generate annual returns of 10% for the next four decades.

Erica on the other hand had decided that she didn’t want to work in college since she wanted to concentrate on her studies while also enjoying the whole college experience. She then decided to go ahead and get a masters degree after which she was able to get a very good job with one of the largest companies in the USA. She did accumulate a large amount of student debt in the process, which she diligently paid off in a record time after she got her first job. After learning about the importance of saving for your own retirement, she started investing $2000/year in dividend stocks, and was able to also generate 10% in annual returns.

John's net worth 1,192,257.81 versus the $728,086.87 worth of quality dividend stocks which Erica owned. Despite the fact that John had invested only $20,000 in total, versus $76,000 that Erica had invested, he was able to achieve a higher amount of wealth because he had taken a full advantage of the power of compounding by investing his hard earned money as early as his freshman year in college. Even though Erica contributed money for over 37 years her nest egg was $400,000 lower than John’s, because she had ten years less to utilize the power of compounding. You could also access the spreadsheet from here.

The most important point from this exercise is: start investing for your retirement as early as possible! Ask your kids to invest their first paychecks from high school jobs. And most importantly, let the money compound uninterruptedly for as long as possible. And if you want to take full advantage of compounding, Turbo Charge Your Portfolio With Reinvested Dividends.

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

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- The case for dividend investing in retirement

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Thursday, August 7, 2008

Selected Dividend Increases in July

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








Expected dividend increases in August

Based off historical information from this spreadsheet, I would expect that only DOV will increase its dividend in August.
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.

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- Selected Dividend Increases in June
- Selected Dividend Increases in May
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Wednesday, August 6, 2008

My Dividend Growth Plan - Diversification

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

Diversification is important, because it generally insures investors up to a certain point that they won’t lose all of their money at the same time. In general it is not a good idea to put all of your eggs in one basket. In terms of diversification, I am trying to own anywhere from 30 to 100 dividend paying stocks, which generate an ever increasing dividend income stream for me. The stocks should fit the criteria which I mentioned in the previous articles that I wrote. I will be trying to get a representative sample of as many sectors as possible; I will however try to own dividend stocks which are representative for the ten sectors that comprise the S&P 500 index. These sectors include Consumer Discretionary, Consumer Staples, Energy, Financials, Health Care, Industrials, Information Technology, Materials, Telecom and Utilities. Financials, Telecom and Utilities are stocks which traditionally have paid solid dividends. I will try to not be overly concentrated on specific sectors and instead try to be as equally weighted sector wise as possible.
Another important sector to look into is real-estate. Luckily there are plenty of REIT’s out there to satisfy the dividend investor’s appetite. I am also looking into getting some timber exposure, by purchasing shares in timber REIT’s like PCL, RYN, and POPE.

My portfolio will not be diversified without adding some foreign stock exposure. At this time this has been my weak point. It is difficult to find foreign companies which have increased their dividends consistently for more than 10 years. In addition, not all foreign dividend achievers are readily available to buy in the US. There are other taxation issues, which could potentially turn foreign stock investment into a complicated matter.

Another matter to look into is that most dividend paying stocks are established large cap corporations. Thus further diversifying into small and mid caps will be a tougher challenge.

Last but not least, a 20-25% exposure to fixed income could smooth the equity curve of my portfolio and reduce volatility. I wouldn’t start contributing to fixed income until I have ten years to retirement however. Even a modest exposure to bonds would have been helpful if you were invested in US stocks at the onset of the Great Depression or in Japanese stocks at the end of the 1980’s.

Next Week, I will discuss the last part of my dividend growth plan - Money Management.

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- Determining Withdrawal Rates Using Historical Data
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Tuesday, August 5, 2008

I got a 10% raise from CSL (Carlisle Companies)

I was checking my stocks when Street Insider reported this news yesterday:

Carlisle Companies Inc. (NYSE: CSL) today announced that its Board has approved a 10% increase in its quarterly dividend from $0.14 to $0.155 per common share, payable on September 1 to shareholders of record on August 15.

This marks the 32nd consecutive year of dividend increases for Carlisle shareholders.Carlisle Companies Incorporated engages in the manufacture and sale of construction materials in the United States and internationally.

That's a pretty nice raise to get - 10% just for identifying a solid company with a sound business model. You could check my analysis of CSL here.

Using the dividend tool that Dividend Investing Blog has on his blog, I was able to easily get the annual dividend payments for CSL.


A 7.60% average dividend growth over the past decade is not bad at all. In fact if CSL achieves a similar dividend growth over the next decade, the annual dividend payment per share will double.

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Monday, August 4, 2008

Realty Income (O) Dividend Analisys

Realty Income Corporation engages in the acquisition and ownership of commercial retail real estate properties in the United States. The company leases its retail properties primarily to regional and national retail chain store operators. As of December 31, 2007, it owned 2270 retail properties located in 49 states, covering approximately 18.5 million square feet of leasable space.

The company is a dividend achiever as well as a component of the S&P 1500 index. It has been increasing its dividends for the past 14 consecutive years. From 1998 up until June 30 2008 this dividend growth stock has delivered an annual average total return of 14.90 % to its shareholders.














At the same time company has managed to deliver a 5.50% average annual increase in its FFO since 1998. FFO is a common measurement for a REIT. It is an alternative non-GAAP measure that is considered to be a good indicator of a company’s ability to pay dividends.















The ROE has been decreasing from its 2001 highs around 13% to about 9% in 2007.















Annual dividend payments have increased over the past 10 years by an average of 5.1% annually, which is slightly lower than the growth in FFO. A 5% growth in dividends translates into the dividend payment doubling almost every 14 years. If we look at historical data, going as far back as 1994, O will have managed to double its 1994 monthly dividend payment of $0.0775/share by 2009.
















Realty Income is one of the few companies which make monthly dividend payments to shareholders. The company is so proud of its ability to raise dividends several times per year, that it calls itself the Monthly Dividend Company.

If we invested $100,000 in O on December 31, 1997 we would have bought 9465 shares (adjusted for a 2:1 split in 2005). In January 1998 your monthly dividend check would have been for $757. If you kept reinvesting the dividends though instead of spending them, your monthly dividend income would have risen to $2774 by June 2008. For a period of 10 years, your monthly dividend payment would have increased by 72 %. If you reinvested it though and took advantage of the monthly compounding effect, your quarterly dividend income would have increased by 266%.















The payout from funds from operations has remained at the 80%-87% range for the majority of our study period. One of the reasons why I wasn’t enthusiastic about the stock in february was because of this high payout. Do not repeat the same mistake as me however – In order to maintain their tax status as a REIT for federal income tax purposes, they generally are required to distribute dividends to our stockholders aggregating annually at least 90% of our REIT taxable income (determined without regard to the dividends paid deduction and by excluding net capital gains), and are subject to income tax to the extent we distribute less than 100% of the REIT taxable income (including net capital gains). In addition to that, the fact that the company has managed to keep increasing its profits and dividends while keeping the payout form operations stable is a positive sign.















One potential risk for the company is if it is unable to meet its financing needs from debt markets. I believe that we have seen most of the bad news in the financial markets. Since O managed to do just fine during the financial crisis that started last summer, I believe that it should do well in the future as well.

Another potential risk could be that the softening economy could have an adverse effect on some retailers and restaurants, which occupy O’s buildings. The vacancy ratio is about 96.8% as of July 28 2008, versus 98.6% as of June 30, 2007.

Overall I think that Realty Income (O) is another dividend stock that should be in every long term dividend investor’s portfolio. It is nice to have another asset class in your portfolio in order to achieve diversification.

Disclosure: I own shares of O

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