Friday, May 29, 2009

MLPs for tax-deferred accounts

Master Limited Partnerships are very good investment vehicles for individuals looking for high current dividend income. There are some tax issues with reporting MLP income in a taxable account, which led me to explore investing in MLPs through an IRA or ROTH IRA account.
In a taxable account, most of the distributions are considered a return of capital, and thus you do not pay taxes on that portion. This tax deferral does decrease your cost basis however, which could mean higher capital gains or ordinary income taxes if you sell. Because of the supposedly complicated tax returns from MLPs, some investors are shunning MLPs as a class althogether. Others are considering simply purchasing those MLPs in a tax advantaged account, and forget about them.


For non-taxable accounts however, there is a gray area from a tax perspective whether or not one could hold MLPs there. The distributions that an individual that holds a master limited partnership in an individual retirement account receives could be considered unrelated business taxable income subject to taxation. As long as the UBTI from all MLPs in an IRA does not exceed $1000 in a given year, your partnership distributions won’t be taxed.

If the UBTI does exceed $1000 however, the custodian that holds your IRA would have to file a form 990T to the IRS. The tax is paid out of the IRA on the net income from your MLP distributions, which are taxed at the corporate rate.

The UBTI has generally been a non-issue for most MLPs over the past few years, but this isn’t guaranteed. Some like Kinder Morgan (KMP) have even had a negative UBTI in some years, which could be offset against any positive UBTI amounts from other MLPs. Kinder Morgan is one of my Best High Yielding Stocks for 2009.

I do believe however that paying a small tax out of your MLP distributions in an IRA shouldn’t be a big hassle, since distributions are rich and taxed at the corporate rate. One should check with their IRA custodian however in order to asses the amount of fees that the IRA has to pay if the UBTI threshold is exceeded.

If you do not feel comfortable putting ordinary master limited partnerships in a tax-deferred account but feel that you might be missing out, there are still workarounds for this situation. There is an easy way to invest in two MLPs without worrying about taxes too much – Kinder Morgan (KMP) and Enbridge Energy Partners (EEP). They pay their distributions directly as additional shares, which is similar to automatic dividend reinvestment. If you choose to invest in KMP or EEP in an IRA, consider investing in KMR and EEQ.

KMR and EEQ are great vehicles for taxable accounts as well since their distributions are not taxable when received, and thus shareholders are not issued an annual 1099 tax form. You would pay taxes only when you sell your units.

The taxation characteristics of your investments are just one part of the investment puzzle. Always make sure to investigate the company’s fundamentals and do your homework before investing in stocks.

Several publicly traded closed end funds such as Tortoise Energy Infrastructure Corporation (TYG), Tortoise Energy Capital (TYY), Tortoise North American Energy Corp. (TYN), and Kayne Anderson MLP Investment Company (KYN) provide a proper diversification within the MLP sector. They are suitable for IRAs since they send out Form 1099-DIV instead of K-1, which also makes it easier for investors with taxable accounts to file their annual tax returns. In most cases the dividends received are treated as a return of capital, which reduces your cost basis. In such cases the distributions are not treated as taxable income. Investors would only have a tax liability when they sell their closed end fund.

These closed end funds also do not generate any unrelated business taxable income (UBTI). The main disadvantage of these closed end funds are their steep annual management fees.

Tortoise Energy Infrastructure Corporation (TYG) has an annual management fee of 0.95% plus a 0.19% charge for other expenses for a total annual expense ratio of 1.14%.Tortoise Energy Capital (TYY) has an annual management fee of 0.95% plus a 0.25% charge for other expenses for a total annual expense ratio of 1.20%.Tortoise North American Energy Corp. (TYN) has an annual management fee of 1.00% plus a 0.71% charge for other expenses for a total annual expense ratio of 1.71%.

Kayne Anderson MLP Investment company (KYN) spots an annual management fee of 2.50% in addition to other fees of 3.40% for a total expense of 5.90%.

Because of high expense ratios, I would think twice before investing in those closed end funds. One thing that is certain in the investment world is that higher fees are not necessarily indicative of superior investment performance. If you cut your costs to the bone, you are much more likely to at least track your index benchmark.

Full Disclosure: Long KMR

Get an updated Trend analysis for KMP and EEP.

Relevant Articles:

- Master Limited Partnerships (MLPs) – an island of stabiliity for dividend investors
- Kinder Morgan Energy Partners (KMP) Dividend Analysis
- Best High Yield Dividend Stocks for 2009
- General vs Limited Partners in MLP's

Wednesday, May 27, 2009

Diversifying into small and mid cap dividend stocks

As a dividend growth investor, my goal is to generate a rising stream of dividend income. Thus I would have to be selective not only about picking individual stocks, but also about selecting companies from a variety of industries, countries and size, in order to avoid a widespread implosion in overall dividend income.

An investor who diversified their holdings across several sectors, shouldn’t have gotten as many dividend cuts in 2008 and 2009, in comparison to an investor whose portfolio was concentrated in certain high-yielding sectors such as financials, Canadian income trusts or business development corporations. In that case diversification mattered.
One troubling fact however is that most of the successful dividend growth stocks that I tend to focus on such as Coca Cola (KO), Johnson & Johnson (JNJ) and Abbott Labs (ABT) are large cap stocks. This could be both good and bad for my portfolio. Most dividend growth stocks have solid competitive advantages as well as large economies of scale, against which few competitors could compete. In addition to that the entry in those markets might be too costly for a smaller producer to challenge the “big guys”. However if I added small or mid cap stocks to my portfolio, my dividend income could be diversified even further.

According to Investopedia, Large Cap stocks are those whose market capitalization is above $10 billions dollars; Mid Cap stocks are those whose market capitalization is between $2 billion and $10 billion dollars while companies whose market capitalization is between $200 million and $2 billion typically represent Small Cap Stocks.
Most large cap companies are the ones, which are mature and stable cash flow generators, which throw off enough cash to expand, reward shareholders and maintain liquidity. It would be difficult for a company with $100 billion in sales to expand at the rate that a company with $1 billion in sales could. Because of this fact stable dividend growth stocks tend to enjoy a lower price earnings multiple. In comparison, most small and mid cap stocks could spend most of their earnings to reinvest back into the business, thus paying little or no dividends to shareholders in the process.
A potential negative for holding the large cap market leader in any industry however is that if the activity in the whole sector declines significantly, chances are that the leader would feel the pinch as well. Despite the fact that the market leader could likely gain market share if competitors go bankrupt or by acquiring weaker rivals, a broad slowdown could hurt it badly.

At the same time a smaller competitor could be flexible enough to gain market share by utilizing some sort of a competitive advantage and actually achieve superior earnings growth and reward dividend investors with higher distributions as its sales skyrocket. Smaller dividend growth companies could have a higher price earnings multiple as the market prices in solid future growth. On the other hand, if earnings growth slows down, the price earnings multiple could shrink, leaving investors with large unrealized losses.
Even if you pick a promising small or mid cap dividend growth stock, chances are it could get acquired by one of the leaders in the industry. Thus, investors won’t be able to fully realize the full growth potential of the small dividend stock. Although shareholders could generate a large capital gain in the process, they would have to find a new promising candidate for their money instead of patiently reinvesting their dividends.

According to Mergent’s, 80% of the constituents of the Broad US Dividend Achievers index are large cap companies, while 14.10% and 5.90% are mid cap and small cap stocks respectively. The Dividend Achievers are corporations, which have increased annual dividends for at least the past 10 consecutive years.
The Dividend Aristocrats, which are S&P 500 constituent stocks with history of increased dividends of more than 25 consecutive years, must have a minimum capitalization of $3 billion dollars before they are eligible to join the elite dividend index. Of the 43 companies presently in the index (after omitting the dividend cutters year-to-date and Rohm & Haas, acquired by Dow Chemical), 21 or almost half have market capitalizations of less than $10 billion dollars.
You could find a list of mid cap Dividend Aristocrats below:

Link to the table
Just remember that not all of the stocks presented below are investment recommendations. At this moment only Stanley works (SWK),Cincinnati Financial (CINF), Dover (DOV), VF Corp(VFC), Sherwin Williams (SHW), Clorox (CLX), Consolidated Edison (ED) and McGraw Hill (MHP) fit my entry criteria to initiate positions or re-invest dividends.

For a full list of the current dividend aristocrats ranked by market capitalization (minus any acquired companies and minus any dividend cutters in 2009), check the chart below:
Link to the table


Full Disclosure: Long CINF, FDO, MTB, GWW, SHW, CLX, ED, MHP, APD, AFL, ADM, ADP, KMB, EMR, MMM, MCD, PEP, KO, JNJ, PG, WMT

Get an updated Trend analysis for your stocks.

This post was featured on The 208th Carnival of Personal Finance: Lobster Roll Edition

Relevant Articles:

- My Dividend Growth Plan - Diversification
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Tuesday, May 26, 2009

The Sweet Spot of Dividend Investing

The following is a guest post from Dave Van Knapp, the author of The Top 40 Dividend Stocks for 2009. Make sure to check his site from this link.

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

Two important areas of risk to a long-term dividend strategy are the initial yield and expected growth rate of the dividend itself.
If you start out with too low a yield, it will take many years for the dividend to grow to where it provides a worthwhile return on your original investment. On the other hand, if you start out with too high a yield, it may well be that the dividend is unsustainable and in peril.
If the company typically increases its dividend at too slow a rate, again the dividend will take too long to grow into a desirable return. On the other hand, if you anticipate too fast a growth rate, the company may not achieve it.Plotting these two characteristics against each other--initial yield and anticipated dividend growth rate--gives us a diagram of the "sweet spot" in dividend investing.

On this diagram, the left (vertical) axis represents the dividend’s likely growth rate. It ranges from very slow (say less than 3 percent per year) to very high (say 20 percent per year or more). The bottom (horizontal axis) represents the initial dividend yield, from very low (less than one percent) to very high (greater than 10 percent).

The red area represents four places you don’t normally want to be. Here’s why:

The left edge of the chart is where the stock’s yield is simply too low to be attractive. I seek initial yields of 3 percent or more. Fortunately, because of the long bear market, a lot of quality stocks that formerly would not have cleared this hurdle now offer yields over 3%.
The lower edge is where dividend growth is too slow. Generally seek a growth rate of at least 4 to 5 percent per year. Even in this slow economy, many quality dividend companies have increased their dividends in 2009 by attractive amounts. Examples would be Abbott Labs (ABT, 11%); Coca-Cola (KO, 8%); Chubb (CB, 6%), Procter & Gamble (PG, 10%), Colgate-Palmolive (CL, 10%), and PepsiCo (PEP, 6%).
The top edge is labeled “Growth Traps.” This is where the dividend’s growth rate is probably unsustainable because it is too high. It’s a “trap,” because a high dividend growth rate is usually an attractive quality in a dividend stock. But when the growth rate is too fast, it usually cannot be continued. The very high growth rate may be a red flag that the company is over-extended in its dividend policy and will need to pull back. The risk in stocks with a high dividend growth history is that continuation of a very high rate of dividend growth is unlikely. Many value investors (including Warren Buffett) consider annual earnings growth of 15 percent to be about the maximum sustainable for long time periods.
The right edge is labeled “Yield Traps.” Again, a high yield is a good thing, up to a point. But extremely high yields often point to a problem. The reason the yield is very high is probably because the stock’s price cratered. While that could simply be the byproduct of the bear market of 2007-2009, it could also be a reflection that the company is in serious difficulty and will need to cut its dividend soon. In 2008 and early 2009, we have seen this time and again, especially among financial firms. It should go without saying that the very finest dividend stocks suitable for a long-term dividend strategy are not in danger of cutting their dividends.

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

Relevant Articles:

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

Monday, May 25, 2009

Nine Dividend Stocks confident in raising dividends

Several notable companies raised their dividends last week. Dividend raises are not only getting more frequent, but they also seem to be spreading globally as well. A dividend raise in this tough environment indicates confidence in the business and the ability to generate free chas flow. A strong cash flow also enables companies to fund future growth internally, rather than relying exclusively on the capital markets for growth. The companies which decided to share their continued growth with shareholders by rewarding them with a dividend raise include:

Vodafone (VOD), a mobile telecommunications company with operations in Europe, the Middle East, Africa, the Asia Pacific, and the United States., raised its final dividend by 3.5% to 0.052 GBP per share. ADR holders are expected to receive a dividend payment of $0.80 for the second half of 2009 based off current forex rates. Vodafone is an international dividend achiever, which has rewarded its shareholders with an uninterrupted streak of increased dividends for over ten consecutive years. The stock currently yields 4.30%.

ACE Limited (ACE), which provides insurance and reinsurance services to commercial and individual customers worldwide, increased its regular cash dividend by 7% to 31 cents per share. ACE Limited is an international dividend achiever, which has increased its quarterly dividend in each of the last fifteen years, which it has more than doubled since 2001. The stock currently yields 2.80%.

Raven Industries, Inc. (RAVN), which manufactures various products for industrial, agricultural, construction, and military/aerospace markets in North America, increased its quarterly dividend by 8% to 14 cents per share. Raven Industries, Inc. is a dividend achiever, which has increased its quarterly dividend in each of the past thirteen years, which it has more than doubled since 2004. The stock currently yields 1.90%.

AAON, INC. (AAON), which engages in the manufacture and sale of air-conditioning and heating equipment, increased its semi-annual cash dividend by 13% to 18 cents per share. AAON, INC. has rewarded its shareholders with an uninterrupted streak of increased dividends since 2006. The stock currently yields 1.70%.

Northrop Grumman Corporation (NOC), which provides products, services, and solutions in information and services, aerospace, electronics, and shipbuilding in the United States, increased its regular cash dividend from 40 cents to 43 cents per share. Northrop Grumman Corporation has rewarded its shareholders with an uninterrupted streak of increased dividends for 5 consecutive years. The stock currently yields 3.60%.

Xcel Energy Inc. (XEL), which engages in the generation, purchase, transmission, distribution, and sale of electricity to residential, commercial, industrial, and public authorities in the United States, boosted its dividend by 3.2% to 24.50 cents per share. Xcel Energy Inc has rewarded shareholders with an uninterrupted streak of increased dividends since 2004. The stock currently yields 5.80%.

Airgas, Inc. (ARG), which is one of the largest U.S. distributor of industrial, medical, and specialty gases, and hardgoods, such as welding equipment and supplies, increased its regular cash dividend by 12.50% from 16 cents to 18 cents per share. Airgas, Inc. has rewarded its shareholders with an uninterrupted streak of increased dividends since 2004. The stock currently yields 1.70%.

Unum Group (UNM), which provides group and individual disability insurance products in the United States and the United Kingdom, raised its quarterly dividend by 10% to 8.25 cents per share. Unum Group lost its dividend achiever status in 2000 and has been unable to consistently increase dividends since then. The stock currently yields 1.80%.

AmerisourceBergen Corporation (NC), a pharmaceutical services company, which offers drug distribution and related services to healthcare providers and pharmaceutical manufacturers, announced its plans to raise quarterly dividends by 20% to $0.06/share after a 2:1 stock split. AmerisourceBergen Corporation has increased dividends for 4 consecutive years. The stock currently yields 1.10%.

I also expect several dividend aristocrats such as Clorox (CLX) and Lowe’s (LOW) to raise their distributions by the end of May, marking it one of the busiest month for dividend increases.

Lowe’s (LOW) has raised its dividend every May since 2004. This dividend growth stock has been raising dividends for 46 consecutive years and has a 5-year dividend growth rate of 46.70%.

Clorox (CLX) has raised its dividend every May over the past 2 years. Before that the board of directors of Clorox tended to announce dividend increases in November for the preceding three years. This dividend growth stock has been raising dividends for 31 consecutive years and has a 5-year dividend growth rate of 11.20%. (analysis)
Full Disclosure: Long CLX

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- Clorox (CLX) Dividend Analysis

Friday, May 22, 2009

Dividend Investing vs Trading

Some investors lack the patience to buy a stock, hold it for one year and then receive a 3%- 5% dividend by the end of the year. They believe that in the stock market one could easily make 3%-5% every day by trading volatile stocks such as US Bancorp (USB), Citigroup (C ), Bank of America (BAC) instead.

Such comments assume that investors have a strategy where they could consistently buy low and sell high for a large profit. Based off numerous studies of individual investors, mutual funds and active managers in general, it seems that over 85% of active traders not only under perform the S&P 500, but also lose a significant amount of money in the process. Substituting investing in the stock market for gambling at Las Vegas is often a get poor quick strategy. This could lead to complete denial of stock market investing as a whole, and failing to reach one’s financial goals.
If you bought a diversified portfolio of at least 30 income-producing stocks from different sectors, chances are your returns would be somewhat closer to the market. Chances are that you won’t have picked all 30 of the next WorldCom, Enron or AIG. Thus in order for you to lose all of your principal and dividend income with a buy and hold strategy would be pretty impossible to do. If you however try to buy and sell stocks every day in order to capture huge potential profits, the probability of you compounding your losses faster and faster until you run out of money is very large.

If you thought forecasting day-to-day fluctuations in the stock market are hard to predict, then try predicting the annual changes in the stock market averages. We are all being told that on average the stock market goes up by 10% every year. It is true that over the past century the S&P 500 and the Dow Industrials have achieved a total return of somewhat close to 10% on average per year over large periods of time.

Annual total returns are the sum of annual price appreciation and the yearly dividend yield. When stock markets are booming, investors tend to forget that stocks represent right to ownership of real companies, and instead treat them like lottery tickets. During bull markets all investors care about is finding a greater fool to bid their stocks higher, while completely ignoring fundamentals. During bear markets however investors get timely reassurance from their stocks in the form of dividends, which lower investment losses. While capital gains could quickly evaporate and turn into losses, dividends are real cash that is deposited to your brokerage account. Investors could then decide how they plan to allocate it best for their individual needs.
While it is difficult to predict stock prices due to their volatility, until recently dividends have been much less volatile, and thus easier to rely on in both good and bad times. This makes dividends particularly beneficial for individuals who are planning to retire and live off their dividends. Reinvested dividends magnify total returns and deliver even faster compounding of dividend income. Reinvested dividends are believed to have accounted for 97% of S&P 500 total returns since 1871.

Another important characteristic of dividends is that they could grow over time. Dividend Growth has exceeded inflation by 2% annually over the past 85 years. While the quarterly dividend per share in the S&P 500 was $1.05 in early 1977, it has risen to over $7 by 2008.

Despite the bad press that dividends have received lately, there are many companies, which stay loyal to their shareholders by raising their dividends. Examples of companies, which have increased their dividends for more than 25 consecutive years and have kept growing payments even during the current credit crisis include:

Coca Cola (KO), which manufactures, distributes, and markets nonalcoholic beverage concentrates and syrups worldwide has rewarded its shareholders with regular dividend increases for 47 consecutive years. Dividends have increased by an average of 9.00% annually since 1999. The stock currently yields 3.60%. Check Brad's analysis of Coca Cola (KO).


Wal-Mart Stores (WMT), which operates the largest chain of retail stores in various formats worldwide, has boosted dividends for 35 consecutive years. Dividend payments have increased by an average of 16.50% annually over the past ten years. The company currently yields 2.30%. Check my analysis of Wal-Mart Stores (WMT).

Exxon Mobil Corporation (XOM), which engages in the exploration, production, transportation, and sale of crude oil and natural gas, has rewarded shareholders with a dividend raise for 27 consecutive years. Dividends have increased by an average of 7% annually since 1999. This oil company currently yields 2.40% . Check my recent analysis of Exxon Mobil (XOM).

Abbott Laboratories (ABT), which manufactures and sells health care products worldwide, has raised dividends for 37 consecutive years. Annual dividends have increased by an average of 8.80% annually over the past decade. The stock currently yields 3.70%. Check my analysis of Abbott Laboratories (ABT).

AT&T (T), which provides communication services in the USA and internationally, has increased its dividends for 25 consecutive years. Annual dividend payments have increased by an average of 5.70% annually since 1999. The stock currently yields 6.60%.
Check my analysis of AT&T (T).

By creating a diversified income portfolio through dollar cost averaging and by reinvesting dividends, investors are more likely than not to achieve long-term sustainable success in the market.

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Wednesday, May 20, 2009

General vs Limited Partners in MLP's

There are two types of partners in a Master Limited Partnership structure, a general partner and limited partners.
The general partner manages the master limited partnership and typically holds a 2% economic interest in it. The general partner also receives a percentage of the profits off the top, before the limited partners get their cut. These so called Incentive Distribution Rights allow the general partners to take a higher proportion of incremental amounts over a certain threshold levels. This provides the general partner with a strong motivation to raise distributions to unitholders, which is appealing to them.
The last tier is typically 50/50, which means that general partners receive 50% of any incremental cash flows above a certain threshold level. This could however increase the cost of equity for the MLP and dilute ownership claim of limited partners.

Limited partners are not involved in the day-to-day management of the MLP, and have limited liability. Once the MLPs reach the highest IRD threshold the distribution growth for Limited Partners slows down, while it increases for general partners.
Some MLP's such as Kinder Morgan (KMP), energy Transfer Partners (ETP) and Oneok Partners (OKS) have already reached the top 50% IDR level. Other MLPs such as Entrerprise Products Partners (EPD) have capped their incentive distribution rights threshold to a maximum of 25%. Check my analysis of Kinder Morgan Partners (KMP).
One way to capture the higher distribution growth potential is to purchase the General Partner Units traded on US exchanges. Not a lot of GPs are traded however. One general partner that has reached the 50% incentive distribution rights threshold is Energy Transfer Equity (ETE), which is the GP for Energy Transfer Partners (ETP).

Another major General Partner, whose units could be bought by ordinary investors is Enterprise GP Holdings (EPE). It owns the general partner and limited partner interests in Enterprise Products Partners L.P. (EPE), TEPPCO Partners, L.P (TPP) and Energy Transfer Equity, L.P (ETE). Check my analysis of Teppco Partners L.P..

Full Disclosure: Long Kinder Morgan Partners

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- Kinder Morgan Energy Partners (KMP) Dividend Analysis
- TEPPCO Partners (TPP) Dividend Analysis

Tuesday, May 19, 2009

More Dividend Stocks to Avoid

The number of dividend cuts in the S&P Dividend Aristocrats index increased to seven, as two more financial stocks cut their dividends in May. Because of the timing of the index rebalancing, these stocks would continue to be on the elite dividend index until the end of December 2009. Historically dividend cutters have underperformed the stock market while dividend growers and initiators have outperformed the stock market averages. As a dividend growth investor I buy stocks that keep growing their dividends and sell stocks that cut or eliminate their dividends.

The two stocks, which recently slashed dividends in 2009, will most likely be taken off of the elite dividend index in December are Legg Mason (LM) and BB&T Bank (BBT)

Legg Mason (LM) cut its dividends in May after reporting losses for the last quarter of 2008. The company had just been added to the S&P Dividend Aristocrats index in December 2008. This must have been the shortest a company stays on average in the ranks of the elite dividend index.

BB&T Corporation (BBT) is the latest dividend aristocrat to cut dividends, in an effort to repay the TARP loan from the Treasury. This action would save the company $725 million on an annual basis. In addition to that the Winston-salem based North Carolina bank also sold 75 million shares for 1.5 billion dollars in order to repay the government sooner. BBT had been raising dividends for 37 consecutive years. Check my analysis of BB&T Corporation.

The Dividend Aristocrats index is hardly an exception to the rule however. The dividend achievers and the international dividend achievers are two other indexes, which still include dividend cutters in them. Pfizer (PFE) and Nokia (NOK) are two such examples.

Pfizer (PFE) cut its dividend payment in half in when it decided to acquire Wyeth (WYE) in an effort to extend the life of its portfolio of drugs. This made it easier for the company to fund the deal, which was financed by debt, equity and cash. Check my analysis of Pfizer.

In January Nokia (NOK) cut its dividend in an effort to reflect lower earnings, preserve cash and position itself for slide in mobile phone sales. This was the first dividend cut for the Finland based company since 2002. Chech my analysis of Nokia.

It is a curious phenomenon to see plenty of dividend cutters and eliminators still being part of dividend indexes, which is trickling down to dividend etfs and mutual funds. While these stocks are polluting the income indexes, it seems that certain investment strategies based on dividend growth investing are not being tracked correctly. Another reason why I would not consider investing in dividend ETFs is exactly the fact that certain stocks could be held in the fund, even though their place should not be there.

Relevant Articles:

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Monday, May 18, 2009

Eight Dividend Increases in the News

The past several months have been characterized by tremendous volatility and a lot of negative news regarding the state of the economy as a whole. Given the uncertainties in the global economy, investors are wondering whether they should cash out their portfolios and simply wait for the storm to end.

I think that this would not be a good move, especially for the dividend investor who already has a diversified portfolio of income producing stocks. Such an investor will be more focused on the dividend raises that his or her stocks deliver.

Investors focusing on every tick of the market might miss some rare investment opportunities when there is a disconnect between fundamentals and price. Don’t forget that even during a crisis people will continue to eat, shave, take showers, purchase beverages, smoke and eat out. Thus it always pays to not lose track of the big picture, even during the most challenging times for your portfolio.

Several stocks had some major dividend increases over the past week. Others didn’t deliver such exciting news but reaffirmed their payments to shareholders.

NACCO Industries, Inc. (NC), which engages in lift trucks, housewares, and mining businesses, increased its regular cash dividend from 51.5 cents to 51.75 cents per share. NACCO Industries, Inc. is a dividend achiever, which has rewarded its shareholders with an uninterrupted streak of increased dividends for 25 consecutive years. The stock currently yields 6.40%.

National Grid (NGG), which engages in the ownership and operation of regulated electricity and gas infrastructure networks, raised its final dividend to 0.23 GBP per share. ADR holders are expected to receive a dividend payment of $1.74 for the second half of 2009. National Grid is an international dividend achiever, which has rewarded its shareholders with an uninterrupted streak of increased dividends for 12 consecutive years. The stock currently yields 6.10%.

Assurant, Inc. (AIZ), which provides specialized insurance products and related services in North America and internationally, raised its quarterly dividend by 7% to $0.15 per share. Assurant, Inc has rewarded its shareholders with an uninterrupted streak of increased dividends since 2004.

Molson Coors Brewing Company (TAP), which brews, markets, sells, and distributes beer and other beverages, raised its quarterly dividend by 20% to $0.24 per share. This is the second consecutive dividend increase for Molson Coors Brewing Company since 2008. The stock currently yields 2.30%. The CEO of the company showed his confidence in the company’s ability to generate strong cashflows with this statement: "We are in a strong position to increase cash returns to shareholders, while preserving the financial flexibility to explore growth opportunities that meet our strict return criteria."

Portland General Electric Company (POR), which engages in the generation, purchase, transmission, distribution, and retail sale of electricity in the state of Oregon, declared a 4% increase in its quarterly dividend to $0.255 per share. This represents the third consecutive dividend increase for Portland General Electric Company since the company went public in 2006. The stock currently yields 5.90%.

Communications Systems, Inc. (JCS), which manufactures and sells modular connecting and wiring devices, and media and rate conversion products, announced that its Board has approved a 16.6% increase in its quarterly dividend from $0.12 to $0.14 per. Communications Systems, Inc. has rewarded its shareholders with an uninterrupted streak of increased dividends since 2003. The stock currently yields 6.20%.

AmTrust Financial Services, Inc. (AFSI), which operates as a specialty property and casualty insurance company, raised its quarterly dividend by 20% to $0.06 per share. This represents the fourth consecutive dividend increase for AmTrust Financial Services, Inc since the company went public in 2006 The stock currently yields 2.10%.

FactSet Research Systems Inc (FDS), which provides financial and economic information, including fundamental financial data on various companies to the investment community worldwide, boosted its quarterly dividend by 11% to $0.20per share. FactSet Research Systems Inc has rewarded its shareholders with an uninterrupted streak of increased dividends since 1999. The stock currently yields 1.40%.

As a dividend investor, it pays to scan the wires for news of dividend increases even in the current credit crisis. This exercise could uncover strong dividend players for further analysis and inclusion in ones portfolio.

Full Disclosure: None

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Saturday, May 16, 2009

Warren Buffett’s Berkshire Hathaway Portfolio Changes for Q1 2009

The long awaited disclosure from Berkshire Hathaway about its holdings is online. This time however many are doubting Buffett’s wisdom after his stock lost over 32% of its value in 2008 versus S&P 500's 36.7% loss. He also made some derivative bets on indexes which are misunderstood by most market participants. Year to date Berkshire Hathaway stock is down 7.75%, and is trailing the S&P500’s year to date gain of 2.43% by a wide margin. Over the past 30 years however, Berkshire Hathaway has significantly outperformed the S&P 500.

There were changes in ten positions owned by Berkshire Hathaway.


The companies where Berkshire added to positions included Burlington Northern Santa Fe (BNI), Wells Fargo (WFC), US Bancorp (USB), Nalco (NLC), Johnson & Johnson (JNJ) and Union Pacific Corp (UNP).

His addition to positions in Wells Fargo and US Bancorp seem to have been made at particularly challenging conditions near the 52-week lows for both stocks. Once again Buffett seems to have followed his strategy of being greedy when others are being fearful, by loading up on the above stocks.

Another interesting trend is that Buffett keeps adding to his positions in railway stocks, especially Burlington Northern. The purchase of additional Johnson & Johnson is a bullish sign as well. Berkshire sold over 33 million JNJ shares back in the fourth quarter of 2008 in order to generate enough cash to participate in the preferred stock offerings of several companies including General Electric (GE) and Goldman Sachs (GS).

The companies where Berkshire trimmed positions include Carmax (KMX), Constellation Energy Group (CEG), ConocoPhilips (COP) and United Health Group (UNH).

The most interesting trade here is his selling of a large chunk of ConocoPhillips shares. Berkshire initiated a position in COP back in 2008 when oil and gas prices were at their peak. Now it appears that he is selling the stock just before oil prices have resumed their upward trend. The Oracle from Omaha’s words on his investment in Conoco are an interesting glimpse in his decision making process:

“We sold 13.7 million shares of ConocoPhillips during the first quarter and additional shares were sold subsequent to the end of the quarter. Although we expect the market price of ConocoPhillips to increase over time to levels that exceed our original cost, we are likely to sell some additional shares prior to that time and generate additional capital losses that we can carry back to prior tax years when we generated net capital gains. In 2006, we paid about $690 million in federal tax on capital gains and that payment can only be fully recovered if capital losses of at least $1.98 billion are taken in 2009.”

The number of Conoco shares that Berkshire owns is most probably lower than what the filing shows. The same is true for Berkshire’s position in Constellation Energy (CEG) as well.
Does is pay to follow Buffett’s moves? The answer is yes it does. According to this paper a portfolio that mimicked Buffet’s stock investments would have outperformed S&P 500 by 14.6% annually between 1976 and 2006.
Here's a list of Berkshire Hathaway holdings as of March 31, 2009.




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Friday, May 15, 2009

The Top 40 Dividend Stocks for 2009 book review

As a blogger I often receive offers for different investing services and tools for review. I was recently offered to review Dave Van Knapp’s book “ The Top 40 Dividend Stocks for 2009” by the books creator. The book is updated every year with the most current information on dividend investing and with the best dividend picks according to the writer as well. You could check my review of last years book as well.
Last year’s picks from Dave Van Knapp’s book outperformed the S&P 500 by 11%. The list did lose about 27% in 2008 however. There were 34 dividend increases and only 6 dividend cuts or freezes.
The book is easy to read and could appeal both to novice and experienced dividend investors. It is well organized and provides a pretty complete guide to long-term wealth and income accumulation from dividend stocks.
It starts with an overview of the recent market action, which included many dividend cuts in 2008 and 2009 in the financial sector. The author then provides several reasons why investors who seek superior long-term returns should invest in dividend growth stocks.
The characteristics of the best dividend stocks are also being summarized in the next pages. If you had questions on how to create and manage your income portfolio the book would certainly try to answer those concerns.
One thing that separates this book from other books on Dividend Investing is that the author provides a list of 40 stocks as attractively valued investment ideas. Dave Van Knapp describes the methodology he uses to select the best dividend stocks for his readers. Not only does the book provide a list of stocks, but also includes brief stock analyses on each and every company in the catalog.
In general I found the book interesting and informative. I enjoyed not only the whole investing process that the author describes for creating and managing a successful dividend portfolios but also his overview of special high yielding dividend structures such as Real Estate Investment Trusts, Canadian Income Trusts, Master Limited Partnerships and Business Development Companies. Overall I believe that it is a must own book for every serious dividend investor. It is easy to read, well organized and provides a wealth of information not only for the novice investor but also for the seasoned pro!

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Wednesday, May 13, 2009

Highest paid CEO’s in 2008 didn’t perform that well as a group

In the corporate world executives receive high amounts of compensation including salary, stock options, restricted stock, perks and many others, which in some cases could amount to millions of dollars. It is often argued that executives of large Fortune 500 corporations get a large paycheck as an incentive to perform well in order to reward shareholders with increased wealth. When times are good and stock prices are soaring to new all time highs, most investors are happy enough to have increase in their net worth. When times are tough however and companies are cutting back staff, dividends and capital expenditures in order to maintain an adequate liquidity, excessive CEO pay does stick out as an outlier.
I recently read an article from the NY times which provided a “List of Highest-Paid CEOs for 2008”.

On average the stocks of the companies led by the highest paid CEOs fell by 51.33% in 2009. This was much worse than the 37% negative return experienced by S&P 500 in 2008.

The average yield of the stocks in the list is about 1.67%. Only two companies raised their dividends in 2008 – Phillip Morris International (PM) and Chesapeake Energy (CHK). On the other hand Citigroup (C) cut its dividends by 70%, while Motorola (MOT) eventually decided to suspend its dividend most recently.
The case for Motorola is particularly intriguing, as the total pay for its CEO in 2008 would have covered almost all of the dividend payments for one quarter. The elimination of the dividend is a pretty good example of an alarming trend in modern corporations where top management seems to get rewarded, while shareholders end up paying for all mistakes with their hard earned cash.
While I agree that maintaining liquidity is important for most companies whose business is cyclical in nature, as a shareholder I disagree that company executives should be receiving enormous compensation during tough periods for business.

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Tuesday, May 12, 2009

LCA Vision - A profitable Value Idea

The following post was written by Saj Karsan. Saj regularly writes for Barel Karsan, a site dedicated to finding and discussing value investments, and applying logic to investment decisions (as opposed to falling prey to psychological biases).

LCA Vision (LCAV) is a provider of laser vision corrective surgeries. Demand for these non-essential, expensive surgeries is strongly correlated to levels of consumer confidence. As one can imagine, this correlation has resulted in the number of surgeries performed this year to be slashed in half as compared to last year. Combined with the fact that the company's cost structure is fairly rigid (medical/laser equipment, service locations and staff still have to be present even if not used to capacity!), and the prospects for this company look grim.
This business model would make most investors head for the exits at economic times like these. For investors who look to buy businesses rather than stocks, however, this company still hassome value. And it is precisely because most investors headed for the exits that value investors were able to buy into this company for far less than it is worth.

When we last looked at LCAV, it traded with a market cap of $64 million, despite the fact that it had $56 million in cash alone! When looked at from the point of view of a buyer of an entire business (as value investors like to do), one was essentially paying $8 million to purchase a business that had earned an average of $15 million in net income the last four years. Yes, it had lost $7 million in the last quarter, but management was closing unprofitable locations, reducing capital expenditures, and believed to have cut expenses such that the company's cash flow would break even in 2009.

Since the stock's low just two months ago, the stock is up some 250%! Investors who avoided the herd mentality, and instead focused on buying businesses selling for below their worth were handsomely rewarded.

At Barel Karsan , we try to find and discuss businesses that are undervalued. If this topic interests you, consider subscribing to the Barel Karsan feed .

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Monday, May 11, 2009

Eleven companies bucking the dividend cuts trend

BB&T (BBT) and Legg Mason(LM) are the latest financial stock to drastically cut dividends . This didn’t shock anyone, as the financial sector has received a pretty bad reputation for its enormous losses and massive dividend cuts. The careful income investor who is looking for ways to generate some income from their investments should definitely look past dividend yield and instead focus on the sustainability of the payout, the dividend policy of the company and management’s desire to keep raising dividends. Some companies, whose sales are somewhat recession resistant keep generating enough cash flow to justify sharing their wealth with shareowners while also financing their operations efficiently. The bullish momentum after last weeks dividend increases from Exxon Mobil (XOM) and IBM is holding up quite well. Some solid companies such as PepsiCo and Alcon rewarded shareholders with increases in dividend income.

PepsiCo (PEP), which manufactures, markets, and sells various snacks, carbonated and non-carbonated beverages, and foods worldwide, raised its quarterly dividend by 6% to $0.45 per share. PepsiCo is a dividend aristocrat, which has rewarded its shareholders with an uninterrupted streak of increased dividends for 37 consecutive years. The stock currently yields 3.60%. Check my analysis of PepsiCo.

PepsiCo’s chairman and CEO commented on the dividend increase, which was a major confident boost for shareholders: "We are pleased to announce our thirty-seventh annual dividend increase, reflecting the strength of our cash flow and balance sheet. Even in this difficult economy, we are committed to return cash to our shareholders while continuing to invest in the long-term growth of our business."

Alcon (ACL), which engages in the development, manufacture, and marketing of pharmaceuticals, surgical equipment and devices and consumer eye care products, raised its annual dividend by 50% to $3.49 per share. Alcon is an international dividend achiever which has rewarded its shareholders with an uninterrupted streak of increased dividends for 7 consecutive years. The stock currently yields 3.60%.

Spectra Energy Partners, LP (SEP), a master limited partnership which engages in the transportation of natural gas through interstate pipeline systems as wells as the storage of natural gas in underground facilities in the United States, raised its quarterly distributions from $0.36 to $0.37 per unit. Spectra Energy Partners, LP has rewarded unitholders with increased distributions for 7 consecutive quarters. The partnership currently yields 6.50%.

Tower Group Inc. (TWGP), which provides a range of specialized property and casualty insurance products and services to small to mid-sized businesses and individuals, raised its quarterly dividend by 40% to $0.07 per share. This has been the third time that Tower Group Inc. has increased dividends since 2007. The stock currently yields only 1.00%.

Avista Corp. (AVA), which engages in the generation, transmission, and distribution of energy and energy-related businesses in the United States and Canada, raised its quarterly dividend by 5% to $0.42 per share. Avista Corp has rewarded its shareholders with an uninterrupted streak of increased dividends since 2003. The stock currently yields 5.30%.

RLI Corp. (RLI), which underwrites property and casualty insurance primarily in the United States, raised its quarterly dividend by 3.80% to $0.27 per share. RLI Corp. is a dividend champion, which has rewarded its shareholders with an uninterrupted streak of increased dividends for 34 consecutive years. The stock currently yields only 2.20%.

Expeditors International of Washington, Inc. (EXPD), which engages in the exploration, production, transportation, and sale of crude oil and natural gas, boosted its semi-annual dividend by 19% to $0.19 per share. Expeditors International of Washington, Inc. is a dividend achiever which has rewarded its shareholders with an uninterrupted streak of increased dividends for 16 consecutive years. The stock currently yields only 1.10%.

Bunge Limited (BG), which engages in the agriculture and food business worldwide, raised its annual dividend by 10.50% to $0.21 per share. Bunge Limited has rewarded its shareholders with an uninterrupted streak of increased dividends since 2002. The stock currently yields only 1.50%.

Chesapeake Utilities Corporation (CPK), which engages in the distribution, transmission, and marketing of natural gas, raised its annual dividend from $0.305 to $0.315 per share. Chesapeake Utilities Corporation has rewarded its shareholders with an uninterrupted streak of dividends raises since 2004. The stock currently yields 4.00%.

National HealthCare Corporation (NHC), which operates and manages long-term health care centers and associated assisted living centers, retirement centers, home health care programs in the United States, raised its annual dividend by 8.30% to $0.26 per share. National HealthCare Corporation has rewarded its shareholders with an uninterrupted streak of dividends raises since 2004. The stock currently yields 4.00%.

Medical Products maker Steris Corp. (STE) raised its annual dividend by 38% to $0.11 per share. Steris Corp. has rewarded its shareholders with an uninterrupted streak of dividends raises since 2006. The stock currently yields 1.70%.

In this market it is essential for dividend investors to select only best dividend stocks whose business model could deliver a sustainable increase in earnings, which could unleash the dividend growth potential of corporations.

Full Disclosure: Long PEP

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Friday, May 8, 2009

Exxon Mobil (XOM) Dividend Stock Analysis

Exxon Mobil Corporation engages in the exploration, production, transportation, and sale of crude oil and natural gas. The company is a component of the S&P 500, Dow Jones Industrials and the Dividend Aristocrats indexes. Exxon Mobil has been consistently increasing its dividends for 27 consecutive years. From the end of 1998 up until December 2008 this dividend growth stock has delivered an annual average total return of 10.50% to its shareholders.

At the same time company has managed to deliver an impressive 25.40% average annual increase in its EPS since 1999. The forecasts for the foreseeable future are for a 40% -50% contraction in the EPS in 2009 followed by an increase in EPS to a $6 to $6.50 range in 2010. The sheer scale of the company gives it economies of scale. Its productivity is further boosted by the efficiency of developing new projects in Quatar, Norway and US. Exxon Mobil does business on over 200 countries and derives only 30% of its revenues from the US.

The ROE has consistently increased from less than 13% in 1999 to over 38% in 2008.

Annual dividends have increased by an average of 7% annually since 1999, which is much lower than the growth in EPS. Currently, the number of shares is lower than the number of shares at the time of the merger between Exxon and Mobil. The tremendous increase in commodities prices over the past decade has greatly contributed to the strength in earnings per share. A 7 % growth in dividends translates into the dividend payment doubling almost every ten years. If we look at historical data, going as far back as 1963, XOM has actually managed to double its dividend payment every eleven years on average. Just a few days ago Exxon boosted its dividend by 5% for the 27th year in a row. The dividend is very well covered at the moment.

The dividend payout has declined from a high of 74% in 1999 to a low of 18% by 2008. A lower payout is always a plus, since it leaves room for consistent dividend growth minimizing the impact of short-term fluctuations in earnings. The company has returned money to shareholders exclusively through share buybacks, which are typically not as consistent as increases in dividends.

Despite the low dividend payout ratio and low P/E ratio, I would need a dividend yield of at least 3% to initiate a position in XOM. I would appreciate it greatly if the company increases its payout of dividends over time at the expense of reducing its massive share buybacks. XOM has the potential to achieve an above average dividend growth over the next decade if oil prices increase over the next few year.

In comparison Chevron Corporation (CVX) trades at a P/E multiple of 5.60 and yields 4.00%, while British Petroleum (BP) trades at a P/E multiple 5 while yielding 8.40%.
I would consider initiating a position in Exxon Mobil on dips below $56.

Full Disclosure: None

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Wednesday, May 6, 2009

The New Dividend Aristocrats

The dividend aristocrats universe is shrinking according to analysts as some companies freeze dividends while others cut their payments. S&P might even consider lowering the standards for the elite dividend index. One of the criteria that could be lowered is the requirement for annual dividend increases to 20 years or fewer. This is in response to the fact that the number of aristocrats has decreased from 64 in 2001 to potentially less than 40 by year-end.

The stocks that come to mind as solid candidates for the Dividend Aristocrats index is AT&T (T) and Brown Forman (BF-B). AT&T has increased its dividends for 25 consecutive years and is a member of the S&P 500. AT&T last raised its quarterly dividends in December 2008 by 2.5% to $0.41/share. The stock currently yields 6.40%. Check my analysis of AT&T.

Brown Forman (BF-B) has increased its dividends for 25 consecutive years as well. The company engages in the manufacture, bottling, import, export, and marketing of alcoholic beverage brands. Some of its well-known brands include Jack Daniel's, Finlandia, and Southern Comfort. The stock currently yields 2.60%.

If the criteria were lowered to including stocks, which have raised dividends for 20 years, this could bring in these S&P 500 stocks to the index:

Cintas Corp (CTAS), which provides corporate identity uniforms and related business services in the United States and Canada, has increased its dividends for over 22 consecutive years. The Cincinnati, Ohio based company currently yields 1.80%.

Health Care Property Investors Inc (HCP), operates as a real estate investment trust in the United States. HCP has an uninterrupted record of increasing distribution for 23 consecutive years. The REIT currently yields 9.30%.

McCormick & Company (MKC), which engages in the manufacture, marketing, and distribution of flavor products and other specialty food products to the food industry worldwide, has rewarded shareholders with consistent dividend increases for 22 consecutive years. The stock currently yields 3.30%.

Northern Trust (NTRS) has increased dividends for 22 consecutive years. The provider of banking and financial services to large and mid-sized corporations and financial institutions currently yields 2.10%.

T. Rowe Price Group, Inc. (TROW) which provides investment management services to corporations, corporate, public, and Taft-Hartley retirement plans, foundations, and endowments has increased payouts for 22 consecutive years. This financial company currently yields 2.70%.

Chevron Corp (CVX) has consistently increased dividends for 21 years. This integrated energy company worldwide currently yields 4.10%. Check my analysis of Chevron Corp.

The Travelers Companies (TRV), which is a provider of various commercial and personal property and casualty insurance products and services to businesses, government units, associations, currently yields 3%. The stock has raised dividends for 21 consecutive years.

Progress energy (PGN), which engages in the generation, transmission, distribution, and sale of electricity in North Carolina, South Carolina and Florida has a record of 21 consecutive annual dividend increases. This utility currently yields 7.30%.

At the end of the day I agree with the Bloomberg article that “In the end it isn't the number of stocks you own, but owning the right stocks.” If the S&P lowered its criteria for inclusion in the elite dividend index, then this would distort the basket.

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Monday, May 4, 2009

Busiest week for dividends increases in 2009

Last week marked the busiest week for dividend increases in 2009 as several blue chip companies such as IBM, Costco and Exxon Mobil raised their payouts. It is always bullish to see companies which have always rewarded shareholders with raised payouts continue operating in a shareholder friendly pattern of behavior.

ExxonMobil (XOM), which engages in the exploration, production, transportation, and sale of crude oil and natural gas, raised its quarterly dividend by 5% to $0.42 per share. Exxon Mobil is a dividend aristocrat, which has rewarded its shareholders with an uninterrupted streak of increased dividends for 27 consecutive years. The stock of the largest energy company in the world currently yields only 2.40%. Check out my analysis of XOM.

International Business Machines (IBM), which develops and manufactures information technology products and services worldwide, announced a 10% boost to its quarterly dividend to $0.55 per share. IBM is a dividend achiever, which has rewarded its shareholders with an uninterrupted streak of increased dividends for 14 consecutive years. The stock currently yields only 2.00%. Check out my analysis of IBM.

W.W. Grainger, Inc. (GWW), which distributes facilities maintenance and other related products in North America., announced a 10% boost to its quarterly dividend to $0.55 per share. W.W. Grainger, Inc. is a dividend aristocrat, which has rewarded its shareholders with an uninterrupted streak of increased dividends for 38 consecutive years. The stock currently yields only 2.00%. Check out my analysis of GWW.

Costco (COST), which operates membership warehouses that offer a selection of branded and private label products in a range of merchandise categories in no-frills, self-service warehouse facilities, announced an increase to its quarterly dividend from $0.16 to $0.18 per share. Costco has rewarded its shareholders with an uninterrupted streak of increased dividends since 2004. The stock currently yields only 1.30%.

Occidental Petroleum Corporation (OXY), which operates as an oil and gas exploration and production company, announced an increase to its quarterly dividend from $0.32 to $0.33 per share. Occidental Petroleum Corporation has rewarded its shareholders with an uninterrupted streak of increased dividends since 2003. The stock currently yields only 2.20%.

Safeway Inc. (SWY), which operates as a food and drug retailer in North America, announced a 21% boost to its quarterly dividend to $0.10 per share. Safeway Inc. has rewarded its shareholders with an uninterrupted streak of increased dividends since 2005. The stock currently yields only 1.60%.

Energy Transfer Equity, L.P. (ETE), a master limited partnership which through its general partnership interest in Energy Transfer Partners, L.P., engages in the natural gas midstream, transportation, and storage in the United States, announced an increase to its quarterly distributions from $0.51 to $0.525 per unit. Energy Transfer Equity, L.P. has rewarded its unitholders with an uninterrupted streak of increased dividends since 2006. The partnership currently yields 8.10%

Valmont Industries, Inc. (VMI), which produces fabricated metal products; metal and concrete pole, and tower structures; and mechanized irrigation systems in the United States and internationally, announced a 15% increase in its quarterly distributions to $0.15 per share. Valmont Industries, Inc. has rewarded its shareholders with an uninterrupted streak of increased dividends since 2002. The stock currently yields only 0.90%

BOK Financial Corp. (BOKF), which provides various financial products and services to commercial and industrial customers, and other financial institutions and consumers in the United States, announced an increase in its quarterly dividends from $0.225 to $0.24 per share. BOK Financial Corp. has rewarded its shareholders with an uninterrupted streak of increased dividends since 2005. The stock currently yields only 2.40%

AmeriGas Partners, L.P. (APU), a master limited partnership operates as a retail propane distributor in the United States, boosted its quarterly distributions by 5% to $0.67 per unit. AmeriGas Propane, Inc., has rewarded its unitholders with an uninterrupted streak of increased dividends since 2005. The partnership currently yields 8.30%

UGI Corporation (UGI), engages in the distribution and marketing of energy products and related services in the United States and internationally, boosted its quarterly dividend payment by 4% to $0.20 per share. UGI Corporation is a dividend achiever, which has rewarded its shareholders with an uninterrupted streak of increased dividends for 22 years. The stock currently yields 3.40%

Boardwalk Pipeline Partners, LP (BWP), a master limited partnership which engages in the interstate transportation and storage of natural gas in the United States, boosted its quarterly distributions from $0.38 to $0.385 per unit. Boardwalk Pipeline Partners, LP has rewarded its unitholders with an uninterrupted streak of increased dividends since 2006. The partnership currently yields 9.30%

Alliance Resource Partners, L.P. (ARLP), a master limited partnership which engages in the production and marketing of coal for utilities and industrial users in the United States., announced an increase to its quarterly distributions from $0.715 to $0.73 per unit. Alliance Resource Partners, L.P. has rewarded its unitholders with an uninterrupted streak of increased dividends since 2000. The partnership currently yields 8.60%

It is certainly bullish to see companies such as Exxon Mobil continuing to reward stockholders with raised payouts. The company has paid out dividends every quarter since 1911. I would end this weeks dividend growth review with a quote from the founder of Exxon John D. Rockefeller:” Do you know the only thing that gives me pleasure? It's to see my dividends coming in.”

Full Disclosure: Long GWW

This post was featured on Carnival of Personal Finance #204

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Friday, May 1, 2009

Chevron Corporation (CVX) Dividend Stock Analysis

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

Chevron Corporation operates as an integrated energy company worldwide. Chevron Corporation is a component of the S&P 500 and Dow Jones Industrials Indexes. The company is also a dividend achiever, which has been consistently increasing its dividends for 21 consecutive years. From the end of 1998 up until December 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 impressive 25% average annual increase in its EPS since 1999. The increase in prices of crude oil and natural gas definitely helped with earnings. The rapid fall of energy prices in late 2008 and early 2009 and weak global demand could lead to lower earnings per share in 2009 to $4.70/share according to some analysts. After that expectations are for a recovery in earnings to at least $7/share.
Any analysis of earnings trends for an oil and gas producer such as Chevron would definitely depend of the future prices of energy commodities over the next few years. Nevertheless the dividend is sustainable at current levels and there definitely is some room for dividend growth in 2009 and 2010.

The ROE has consistently remained above 20% since 2003 after earlier volatility in this indicator in the early 2000s.

Annual dividends have increased by an average of 8.30% annually since 1999, which is lower than the growth in EPS. On the other hand however Chevron has been rewarding stockholders with share buybacks as well.
An 8 % growth in dividends translates into the dividend payment doubling almost every nine years. Since 1988 Chevron Corporation has actually managed to double its dividend payment almost every ten years on average.

The dividend payout has largely remained above 50% after 2003. Before that it did shoot up above 50% in 1999, 2000 and 2002. A lower payout is always a plus, since it leaves room for consistent dividend growth minimizing the impact of short-term fluctuations in earnings.

Chevron Corporation is trading at a P/E of 5.60, yields 4.00% and has an adequately covered dividend payment. The forward P/E for 2009 earnings is close to 14. In comparison Exxon Mobil (XOM) trades at a P/E multiple of 8 and yields 2.40%, while British Petroleum (BP) trades at a P/E multiple 5 while yielding 8.40%.
I find Chevron attractively valued at current levels given its stable dividend growth history. If you are looking to add exposure to the energy sector for your dividend portfolio then CVX could just be the right stock for you.

Full Disclosure: Long CVX and XOM

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