Wednesday, March 22, 2017

Why Holding 100% of Equity Investments in Taxable Accounts is a Mistake

One of the best vehicles for accumulating a nest egg for ordinary investors is the 401 (k). For most employees of large companies, they get the ability to contribute as much as $18,000/year, and get a tax break in the process. The money is then invested in those 401 (k) plans, and grows tax-free for decades, until it has to be withdrawn at retirement. At that point, the withdrawals are taxed as ordinary income for pre-tax plans, and not taxed for after-tax ones. This is the best way to invest for someone who holds a demanding day job, and spends a lot of time on family affairs, and is not able or willing to dedicate even 10 hours/week on their goal of retirement or financial freedom. This is the best way for probably 80% of employees out there. Those include most investors that probably have no clue about investing, economics, business, the difference between preferred stock and livestock, and are not going to spend the time or effort to learn about it. A very close relative of mine invests entirely in index funds in their 401 (k) and Roth IRA every month, and have ok over the past decade.

I have been thinking about it, and think that this is also a very good way to invest for the average self-directed investor. Basically, what I am trying to say is that the ability to defer taxes in a 401 (k) today, enjoy tax-deferred compounding for decades, and earn an employee match on contributions is a more advantageous place for your money than a taxable portfolio. This is because by investing in a taxable portfolio, you are essentially able to place much less money to work for you. In addition, in a taxable account your capital gains and dividends are taxed during your accumulation phase, when your total income is usually at its the highest. Thus, even a portfolio of the best dividend paying stocks has to perform at least a couple percentage points better per year, in order to keep up with the tax-advantaged performance of investments in a 401 (k). In my case, I am getting a 25% effective discount from my purchase price by investing through a tax-deferred account.

Monday, March 20, 2017

Two REITs Delivering High Growing Income for Retirees

As you know, I review the list of dividend increases every single week as part of my monitoring process. I usually focus my attention on the ones that have raised distributions every single year for at least a decade. Over the past week, there were two real estate investment trusts, which raised dividends for their shareholders. These are well known, and widely held Real Estate Investment Trusts (REITs). REITs are a great way to obtain exposure to real estate for DYI investors. The companies include:

Realty Income Corporation (O) is a publicly traded real estate investment trust. It invests in the real estate markets of the United States. The firm makes investments in commercial real estate. Realty Income raised its monthly dividend to 21.10 cents/share. This REIT is a dependable dividend achiever which has rewarded shareholders with a raise for 23 years in a row. Realty Income calls itself “The Monthly Dividend Company”. This is a very well run REIT, whose sole purpose is to shower shareholders with monthly dividend checks. I really like the stability of the long-term triple-net type leases that Realty Income uses to rent out its properties. The long-term track record of dividend increases is very impressive.



Friday, March 17, 2017

Target: An Attractively Valued Dividend Champion on Sale

Target Corporation (NYSE:TGT) operates general merchandise stores in the United States and Canada. Target is a dividend champion, which has paid dividends since 1965 and raised them every year for 49 years in a row.

The most recent dividend increase was in June 2016, when the Board of Directors approved a 7.10% increase in the quarterly dividend to 60 cents/share.

The company's largest competitors include Wal-Mart (NYSE:WMT), Costco (NASDAQ:COST) and Amazon (NASDAQ:AMZN).

Over the past decade this dividend growth stock has delivered an annualized total return of 1.60% to its shareholders. Future returns will be dependent on growth in earnings and dividend yields obtained by shareholders. More recently, the stock price has been hammered by a decline in earnings expectations. This is why I wanted to take another look at Target.

The company has managed to deliver a 3.60% average increase in annual EPS over the past decade. Target is expected to earn $4.01 per share in 2018 and $5.80 per share in 2019. In comparison, the company earned $4.09/share for fiscal year 2017.

Wednesday, March 15, 2017

Canadian Banks for Long Term Dividend Growth Investors

I have owned shares of the largest Canadian Banks as a long-term investment for over four years now. I initiated a position in those five banks in early 2013, and then added some more in late 2013.  I also added a little more a couple of years later. If prices make sense, and I have money to invest, I will likely make another investment. The banks include:

Bank of Montreal (BMO) provides various retail banking, wealth management, and investment banking products and services in North America and internationally. It has operations in the US, in the form of BMO Harris Bank. Bank of Montreal has paid dividends since 1829. Over the past decade, Bank of Montreal has increased quarterly dividends per share by 3.10%/year. And that’s despite the fact that the dividends were as left unchanged in 2009, 2010 and 2011. Earnings per share have increased by 3%/year over the same time period. The bank sells for 14.90 times earnings and yields 3.40%.

Monday, March 13, 2017

Colgate-Palmolive (CL) Dividend Stock Analysis for 2017

Colgate-Palmolive Company, together with its subsidiaries, manufactures and markets consumer products worldwide. The company operates in two segments: Oral, Personal and Home Care; and Pet Nutrition. This dividend king has paid dividends since 1895 and has increased them for 54 years in a row.

The company’s latest dividend increase was announced in March 2017 when the Board of Directors approved a 2.60% increase in the quarterly annual dividend to 40 cents /share. This was the slowest rate of dividend increases since 1980. It indicates that the company's management is cautious about Colgate-Palmolive's near term business outlook.

The company’s peer group includes Procter & Gamble (PG), Clorox (CLX), and Kimberly Clark (KMB).

Over the past decade this dividend growth stock has delivered an annualized total return of 11.50% to its shareholders.

Friday, March 10, 2017

Honeywell Beats GE On The Following Four Points

This guest post has been wrote by Mike McNeil, passionate investor, founder of Dividend Stocks Rock and author of The Dividend Guy Blog.

The current bull market hides many companies flaws. In fact, since 2009, almost all stocks have gone up one way or another. My 11-year-old boy could probably do as well as most investors on the street. This situation makes it even more difficult for investors to differentiate the good picks from the bad seeds. For example, when you look at the Honeywell (HON) and General Electric (GE) stock price graph for the past 5 years, both seem to be a good investment:



Source: YCharts

While Honeywell (HON) clearly outperformed General Electric during this period, most GE shareholders won’t complain about its performance. I know that General Electric is a very popular stock among investors. The company has been around for over 100 years, and has performed quite well for decades. However, I believe the current bull market is hiding many flaw, and Honeywell is a better option for those who look at adding an industrial stock to their portfolio. Ironically, Honeywell  failed to merge with General Electric back in 2001.

As a dividend growth investor, my focus when analyzing companies is payouts and potential increase. In order to do so, I have studied 3 components leading to sustainable payment increase as per the 7 dividend growth investing principles:

Wednesday, March 8, 2017

Five Myths About Index Investing

Index investing has become extremely popular in recent years. A lot of new investors have embraced the strategy in recent years. Unfortunately, many investors are embracing the strategy by believing certain myths that are simply not true. I am going to examine several of their problematic thought points, and discuss why they are myths that could hurt those investors in the future. In reality, there is nothing magical about index investing.

I will refute the five myths below:


1) Indexing is passive investing.

Indexing is not passive, because there is a requirement for the investor to exercise judgment as to which index funds to select.  It then also imposes forced market timing through buying and selling of assets at certain time periods. In addition, the indexes themselves comprise portfolios of individual stocks or bonds which constantly add or remove components for a variety of reasons. One recent example includes this advisor, who decided to add to international stocks in early 2015, rather than stick to their original allocation. This is market timing, dressed up in indexing clothes.

Index investors fail to understand the fact that an index is merely a collection of investments, that is actively selected by a group or a committee, using some sort of a quantitative or arbitrary reason. For example, the index committees on S&P 500 or Dow Jones Industrial Average make active component changes for various reasons. As you can see, an index investor actively chooses their funds, and then the funds themselves actively choose the components using some criteria.

Monday, March 6, 2017

Eight Dividend Growth Stocks Raising The Bar

As part of my monitoring process, I evaluate the list of dividend increases every week. This exercise helps me observe the rate of dividend growth for companies I own. It also helps me to familiarize myself with other dividend growth companies. I also believe that running through the list, and narrowing it down to a more manageable level using my screening criteria is helpful to readers for educational purposes. I find it helpful to run through the exercise of narrowing the list of companies that raised dividends in a given week, by focusing on those that have raised dividends for at least ten years in a row. I also find it helpful to then evaluate each company quickly, using my well-publicized entry criteria, and then zooming in further on the fundamental performance and valuation criteria in order to determine whether a stock is worth a further look today. This is the type of decision making that goes in my head while I review different companies.

Over the past week, there were several dividend companies with a track record that raised distributions. The companies include:

Thursday, March 2, 2017

How Warren Buffett earns $1,140 in dividend income per minute

On April 3rd, 2017, Buffett’s Berkshire Hathaway (BRK.B) will receive $148 million dollars in dividend income from their 400 million shares of Coca-Cola (KO). This comes out to roughly $1.644 million in dividend income per day, $68,500 dollars in dividend income per hour, $1142 dollars in dividend income for Berkshire Hathaway every minute, or almost $19.03 every single second. Those shares have a cost basis of $1.29 billion dollars, and were acquired between 1988 – 1994. This comes out to $3.25/share. The annual dividend payment produces an yield on cost of over 45.60%. This doesn’t assume dividend reinvestment and is 4 – 5 times higher than what investors in 30 year US Treasuries would be earning today. This is why I believe that Warren Buffett is a closet dividend investor.

This is a testament to the power of long-term dividend investing, where time in market is the investors best ally, not timing the market. If you can select a business which is run by able and honest management, which has solid competitive advantages, and which is available at a good price today, one needs to only sit and let the power of compounding do the heavy lifting for them. As Buffett likes to say, time is a great ally for the good business. In the case of Coca-Cola, the past 29 years have been a great time to buy and hold the stock. The company has been able to tap emerging markets in Eastern Europe, Asia, Africa and Latin America like never before. As a result, it has been able to receive a higher share of the worldwide drinks market, which has also been expanding as well. If you add in strategic acquisitions, new product development, cost containment initiatives and streamlining of operations, you have a very powerful force for delivering solid shareholder returns. With dividend investing your are rewarded for smart decisions you have made years before.

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