Showing posts with label resources. Show all posts
Showing posts with label resources. Show all posts

Tuesday, January 21, 2014

The Dividend Kings List for 2014

The dividend kings list includes companies which have managed to raise dividends for at least 50 years in a row. This is a huge accomplishment, since it shows a business model that has endured the destructive forces of several recessions, oil shocks, wars, market crashes and changes in technology. I would strongly encourage every dividend investor to study the success of each of those companies, in an effort to learn about the characteristics that made each company able to afford rewarding shareholders with a raise for over half a century.

There were two companies, which became dividend kings in 2013 – Colgate Palmolive (CL) and Nordson Corp (NDSN). This brings the total number of components to 17, which I believe is a record. There were no deletions in 2013, as no components cut distributions. The two new additions include:

Colgate-Palmolive Company (CL), together with its subsidiaries, manufactures and markets consumer products worldwide. The company operates in two segments: Oral, Personal and Home Care; and Pet
Nutrition. Over the past decade, the company has managed to raise dividends by 11.40%/year. Currently, shares are overvalued at 26.70 times earnings and yield 2.10%. Check my analysis of Colgate-Palmolive for more information on the company.

Nordson Corporation (NDSN) engineers, manufactures, and markets products and systems for dispensing and processing adhesives, coatings, polymers, sealants, biomaterials, fluid management, testing and inspection, surface treatment, and curing. Over the past decade, the company has managed to raise dividends by 8.10%/year. Currently, shares are overvalued at 21 times earnings and yield 1%.

Given the fact that the next companies that are close to the 50 year mark have only raised distributions for 48 years in a row, it looks like there won’t be any additions until sometime in 2016. If there is a change in the list prior to that, it would only be because a component cuts or freezes distributions.

The other components of the index include:

Name Symbol Dividend Streak Yrs 10 year Div Growth 10 year EPS Growth P/E Yield
American States Water AWR 59 5.6% 7.7% 17.35 2.9%
Cincinnati Financial CINF 53 6.4% 6.9% 14.2 3.3%
Colgate-Palmolive Co. CL 50 11.4% 8.9% 26.9 2.1%
Diebold Inc. DBD 60 5.4% -3.5% - 3.4%
Dover Corp. DOV 58 9.8% 15.9% 16.85 1.6%
Emerson Electric EMR 57 7.7% 7.8% 24.66 2.5%
Genuine Parts Co. GPC 57 6.2% 7.0% 18.3 2.6%
Johnson & Johnson JNJ 51 10.8% 6.0% 21.07 2.8%
Coca-Cola Company KO 51 9.8% 9.4% 20.49 2.8%
Lancaster Colony Corp. LANC 51 6.9% 2.5% 21.77 2.0%
Lowe's Companies LOW 51 29.2% 10.0% 23.28 1.4%
3M Company MMM 56 6.8% 9.8% 20.69 2.5%
Nordson Corp. NDSN 50 8.1% 20.1% 20.72 1.0%
Northwest Natural Gas NWN 58 3.7% 3.2% 18.57 4.4%
Procter & Gamble Co. PG 57 10.6% 9.6% 20.33 3.0%
Parker-Hannifin Corp. PH 57 13.4% 23.6% 19.94 1.4%
Vectren Corp. VVC 54 2.5% 1.4% 22.61 4.0%

Again, this list is not a recommendation to buy these shares. Businesses do change over time, as models are subjects to competitive pressures and constant changes in the business environment.

Relevant Articles:

The Dividend Kings List Keeps Expanding
Colgate-Palmolive (CL) Dividend Stock Analysis 2012
Eleven Dividend Kings, Raising dividends for 50+ years
A long streak of dividend growth is an indication of a business with exceptional fundamentals
Complete List of Articles on Dividend Growth Investor

Saturday, November 30, 2013

These Books Shaped My Investing Strategy

My journey to becoming a dividend growth investor was a very long and arduous one. I have been following the stock market for years, but didn’t really gain an understanding of it, until a few years ago. The following books helped me to learn about investing from people who are practicing it and are successful at it. I then used the lessons from these books to craft my own dividend growth strategy, that is unique to my investment goals and objectives of living off dividends in retirement. The books that shaped me as an investor include ( in no particular order):

Stocks for the Long Run : The Definitive Guide to Financial Market Returns and Long-Term Investment Strategies, by Prof Jeremy Siegel

The Ultimate Dividend Playbook: Income, Insight and Independence for Today's Investor, by Josh Peters

The Dividend Rich Investor: Building Wealth With High-Quality, Dividend-Paying Stocks, by Joseph Tigue

The Single Best Investment: Creating Wealth with Dividend Growth by Lowell Miller

One Up On Wall Street : How To Use What You Already Know To Make Money In The Market
Beating the Street, by Peter Lynch

Beating the Street, by Peter Lynch

Stop Working : Here's How You Can!: Using the Strategy of Canada's Youngest Retiree, by Derek Foster (Check my review of the book)

The Snowball: Warren Buffett and the Business of Life, by Alice Schroeder

Common Stocks and Uncommon Profits (Revised Edition), by Philip Fisher

The Intelligent Investor: A Book of Practical Counsel by Graham, Benjamin

Damn Right! Behind the Scenes with Berkshire Hathaway Billionaire Charlie Munger, by Janet Lowe

In the future, I plan on posting my reviews of these books to my site. Please check the post as it would likely expand over time, and would also include links to my book reviews.

Personal Finance Focused Books

Cashing in on the American Dream: How to Retire at 35, by Paul Terhorst

Rich Dad Poor Dad, by Robert Kiyosaki

Your Money or Your Life: Transforming Your Relationship with Money and Achieving Financial Independence, by Joe Dominguez

How To Retire Early And Live Well With Less Than A Million Dollars, by Gillete Edmunds

In addition, I would also encourage you to check the Warren Buffett investing resource page, which includes links to his shareholder and partner letters, plus notes from Berkshire’s shareholder meetings.

Friday, May 24, 2013

Best Brokerage Accounts for Dividend Investors

When I first started dividend investing, I was looking for the lowest commission possible. I ignored any other features of a stock brokerage, since I viewed the brokerage industry as one that provides a commoditized service. Back in 2008 – 2010 I was a big fan of Zecco, mostly for their free trades. Since then I have branched out to other brokers. Before I was a dividend investor, my investing was concentrated on buying mutual funds in a 401 (k).

The chart above summarizes brokers I have personally invested through since I started my site to document my dividend investing journey.  In addition, the information above is not intended to be complete in any means. I have rated the brokers above based on my experience with them, with Schwab being the best, while Sogotrade having room for improvement. Sogotrade charges $5 for trades, but $3/trade if you prepay. The chart shows the commissions for each broker for stock trades, and assumes an individual investor does less than 10 trades/month. It also lists the minimum amounts an investor needs to deposit, in order to open a cash account. The next column shows whether the broker offers dividend reinvestment of partial shares. Tradeking does allow dividend reinvestment per my experience, but not for partial shares. The next to last column shows the length of time that trade history and trade statements are available to the customer. In some cases, the trade history is limited to my own experience with the broker. In other cases, this is based on information available on the broker website. The last column shows that none of the brokers had any inactivity fees at the time I wrote this article.

The story below discusses my experiences with brokers, which could be different than your experience.

I believe that brokers should offer a commission that provides value to customers and also a decent rate of return to the brokerage company itself. A low commission is typically associated with rudimentary platforms which could be very confusing to the investor. Of course, if you are an experienced investor who knows what they need and doesn’t need much hand holding, then you should do fine with simply the lowest cost broker. However, when something goes wrong, and it usually will, you will start regretting your decision.

My experience with Zecco was positive for a few years, while they were offering 10 free trades for accounts whose balance exceeded $2,500. Initially, back in 2006, Zecco offered 40 commission free trades to all customers. In 2009 Zecco changed its rules once again and only provided ten free trades to customers with account balances that exceed $25,000. In 2010, Zecco eliminated commission free trades for everyone except traders who made 25 trades/month. In the meantime, I had a few other brokerage accounts, but was considering Zecco to be my primary individual brokerage account. Then Zecco started going through platform upgrades and changed their clearing firm. In addition, Zecco never offered automatic dividend reinvestment that allowed your investments to compound. This was never an issue for me, since I like to accumulate my dividends and new funds, before I buy a security. The only problems that I had were with companies that were paying 5% stock dividends or companies like Kinder Morgan LLC (KMR) which paid distributions in fractional shares. Zecco used to provide these distributions in cash, thus creating a taxable event and negating any long-term compounding of my investments.

In the meantime, a lot of Zecco investors were unhappy with their platform, because it often crashed during periods of extreme market volatility. Back in late 2008, there were several times when I was unable to log into my Zecco account to place a trade. I was also unable to log into my Zecco account during the May 6, 2010 flash crash. I was able to log into my Schwab account however on both occasions. When Zecco upgraded platforms and changed clearing firms, this created some issues for me. Actually, this created a lot of headaches for me, because some of the shares I owned like Royal Dutch Shell (RDS/B), Brown-Forman (BF/B) and Nestle (NSRGY) were either not showing in my account, or had an incorrect symbol and the position amount was zero. It is a scary feeling to wake up and see that your equity holdings are not correct or simply not there.

A few months ago, Zecco merged with Tradeking. I was afraid that I would still have issues, but luckily this never materialized. The main issue with the merger was that I lost the ability to pull from the broker website all my historical account statements and all historical activity going back to when I first opened the account. Luckily, I keep good records, and have all of this information at my fingertips. However, it is important for long-term investors to choose a brokerage that provides you with all your account activity detail going as far back as possible. Otherwise, when you sell a stock that you have held for 20 or 30 years, figuring out your tax basis would be a nightmare. Tradeking does offer dividend reinvestment, but as I mentioned earlier, I typically reinvest dividends selectively.

As a result, I started adding all new funds to SogoTrade. I kept adding funds, until they made another change in their platform when they were purchased by Wang Investments in 2011. This change did not allow me to log in to my account for a day or two. After that, I was unable to withdraw funds easily. The process is still very cumbersome and one has to enter their account number twice, after they have logged on to the platform, in order to request an ACH transfer. In addition, changing your address is a very difficult thing to accomplish with Sogotrade. It requires you to download a form, fill it out, and then fax or email it to them. If you fax it to them, you run the risk of Sogotrade losing it, which is why it is best to email it. At $3/trade however up until early 2013, you could hardly beat them. Sogotrade does not offer fractional dividend reinvestment, but keeps all monthly statements going as far back as possible. A few weeks ago however, they raised their prices to $5/trade, although investors who pre-pay for trades could still end up paying as little as $3/trade.

For a new investor, I would consider Sharebuilder. They offer $4 trades if it is scheduled on a Tuesday. Sharebuilder provides free dividend reinvestment, fractional shares and offers historical records. Real-time trades used to cost $9.99, although this amount has decreased recently to $6.95/trade. My main problem with Sharebuilder was the fact that commissions were too high for real-time trades, and I didn’t want to be restricted to only trading on Tuesdays in order to get the low commission. Sharebuilder is ideal for someone who is just starting out dividend investing however.

Since my falling out with Zecco and Sogotrade, I have been adding new funds to Schwab. I still kept the old investments in the old brokerage accounts, but since I have new money coming it, that needs to be invested every month, I had to find a reputable broker. I like Schwab because they offer everything an investor can want, including research, a wealth of information, account records, dividend reinvestment and their customer service is very good. However, you do pay a high commission for this privilege. I do like the fact that Schwab is a publicly traded company, and that I can analyze its financials and monitor it closely. With Tradeking, Zecco and Sogotrade, I have no idea whether the companies are on the verge of bankruptcy. I also have an E*TRADE account, which provides a similar level of service as Schwab, but at slightly higher commission prices. I have mitigated the high commissions at Schwab by increasing my purchase or lot size per investment. If I bought shares in $1000 increments at Tradeking or Sogotrade, I now buy stocks in $2000 increments at Schwab.

As I discussed in an earlier article, I try not to invest more than $100,000 per brokerage, in order to add an extra layer of diversification to protect me against broker failures. While brokerage accounts are insured by SIPC up to $500,000, and most brokers also carry additional umbrella insurance, I find having multiple accounts helpful in case assets are frozen due to broker collapsing. Even if your money is SIPC insured, it could still take months before the money is recovered or available. If all of your funds are concentrated in one broker, you might be in a situation where you have a sufficient dividend income to pay your expenses, but you are unable to tap it because your broker failed.

Having many brokerage accounts is not too cumbersome. As a buy and hold dividend investor, I simply add up the total dividend income at tax time. I also try to keep certain securities such as MLPs and REITs in one specific account, in order to make it easier at tax time.

To summarize, while low commissions are important, they should not be the only factor in determining which brokerage to choose. Important factors include providing sufficient data support that would be beneficial during tax time, historical records, as well as a platform that is intuitive and easy to use. Automatic dividend reinvestment is an important feature as well, as is the ability to monitor your broker financial performance. As a result, I believe that Sharebuilder and Schwab are be the best brokers for dividend investors.

Full Disclosure: Long KMR

Relevant Articles:

Stress Testing Your Dividend Portfolio
Zecco Online Discount Stock Brokerage Review
- Reinvest Dividends Selectively
- Unlimited Free Trades at Zecco in October!

Monday, December 24, 2012

Top Ten Dividend Articles for 2012

As the year 2012 is coming close to its end, I am reviewing the statistics behind the site. I sorted through, and identified the ten most popular articles on dividend investing, as chosen by the readers. The articles are listed below, in no particular order:

I wanted to thank everyone for reading the site over the past five years. I hope I get to share my dividend investing experiences with you for at least five more years.

Happy Holidays!

Sunday, June 19, 2011

Weekend Reading Links - June 19, 2011

For your weekend reading pleasure, the articles listed below contain some of the best dividend and value investing insights found on the web. They were written by various members of the Dividend Investing and Value Network over the past week:

Articles From DIV-Net Members
There are some really good articles here, please take time and read a few of them.

Sunday, June 5, 2011

Weekend Reading Links - June 5, 2011

For your weekend reading pleasure, the articles listed below contain some of the best dividend and value investing insights found on the web. They were written by various members of the Dividend Investing and Value Network over the past week:

Articles From DIV-Net Members
There are some really good articles here, please take time and read a few of them.

Sunday, May 22, 2011

Weekend Reading Links - May 22, 2011

For your weekend reading pleasure, the articles listed below contain some of the best dividend and value investing insights found on the web. They were written by various members of the Dividend Investing and Value Network over the past week:

Articles From DIV-Net Members
There are some really good articles here, please take time and read a few of them.

Sunday, May 15, 2011

Weekend Reading Links - May 15, 2011

For your weekend reading pleasure, the articles listed below contain some of the best dividend and value investing insights found on the web. They were written by various members of the Dividend Investing and Value Network over the past week:

Articles From DIV-Net Members
Another interesting website which has featured several articles of mine includes The Daily Crux. The site has a section that specifically covers Income Investing, featuring the best article from the web.

There are some really good articles here, please take time and read a few of them.

Sunday, May 8, 2011

Weekend Reading Links - May 8, 2011

For your weekend reading pleasure, the articles listed below contain some of the best dividend and value investing insights found on the web. They were written by various members of the Dividend Investing and Value Network over the past week:

Articles From DIV-Net Members
There are some really good articles here, please take time and read a few of them.

Sunday, May 1, 2011

Weekend Reading Links - May 1, 2011

For your weekend reading pleasure, the articles listed below contain some of the best dividend and value investing insights found on the web. They were written by various members of the Dividend Investing and Value Network over the past week:

Articles From DIV-Net Members
I also wanted to highlight one blog which I have read religiously over the past year. It is written by James Altucher, who is an investor, entrepreneur, author and financial columnist. It covers topics such as business, investing, personal finance, entrepreneurship through the unique lense of the author. The blog is called The Altucher Confidential.

There are some really good articles here, please take time and read a few of them.

Sunday, April 24, 2011

Weekend Reading Links - April 24, 2011

For your weekend reading pleasure, the articles listed below contain some of the best dividend and value investing insights found on the web. They were written by various members of the Dividend Investing and Value Network over the past week:

Articles From DIV-Net Members
There are some really good articles here, please take time and read a few of them.

Sunday, April 10, 2011

Weekend Reading Links - April 10, 2011

For your weekend reading pleasure, the articles listed below contain some of the best dividend and value investing insights found on the web. They were written by various members of the Dividend Investing and Value Network over the past week:

Articles From DIV-Net Members
There are some really good articles here, please take time and read a few of them.

Saturday, January 16, 2010

Interesting Dividend and Investing Sites to Consider

I read dividend investing stories every single day. A very good compilation of articles on many aspects of incoem investing could typically be found on Seeking Alpha, which is one of the largest blog aggregators on the web.

Another useful website for daily investment ideas is James Altucher's column on Daily Finance. From his bio page "James Altucher is a columnist for DailyFinance. He writes for The Wall Street Journal, was the founder of StockPickr, and formerly wrote and appeared in videos at He is the author of numerous investment books, including Trade Like A Hedge Fund and Trade Like Warren Buffett."

The two best dividend blogs ( besides Dividend Growth Investor of course) that I check almost daily include Dividends Value and The Dividend Guy blog. These bloggers are also real investors, which let you observe their decision making process, which has helped them generate several thousand in annual dividend incomes.

For news items, I typically check TickerSpy, which has categorized press releases and other items neatly by ticker symbol.

One of the best value investing blog aggregators is Gurufocus. Besides blog posts related to value investing, the site also includes information about the recent moves of famous vaule investors such as Warren Buffett or Mohnish Pabrai.

Tuesday, October 27, 2009

Five Dividend Stocks for long-term dividend growth

In Six Dividend Stocks for current income I provided a list of higher yielding dividend stocks, which investors could use for current income. With a high current yield, the stock list could provide a decent stream of dividend income for retired individuals. There lies another problem however.

Most younger investors tend to ignore dividend stocks, which typically are mature, slower growing companies with dependable cashflows a portion of which are distributed back to investors. Younger investors view these dependable income stocks as boring and too slow moving, which don’t have anything better to do with their cashflows but send them back to owners in the form of dividends. Instead these investors prefer investing in growth stocks with high price earnings ratios and high expectations for growth. While most companies that distribute a portion of their profits in the form of dividends realize that double-digit growth cannot last forever, most growth stocks sell at rich valuations, supported by analysts who have perfected the art of predicting high growth rates for decades to come. As soon as the music stops, these growths stocks stumble, dragging investors fortunes with them.

On the other hand the dividend stocks would have kept growing, albeit at a slower pace, and would have kept sending a higher stream of dividend income to shareholders, to be used at their own discretion. Many investors do not realize that unlike capital gains, dividends are real cash that bolsters your return. Dividends have also accounted for 40% of the annual average total returns of the S&P 500 over the past century. A company, which grows its dividend year after year, could end up paying a double-digit yield on cost to long-term investors over time.

Companies that regularly pay dividends impose a discipline on managers to treat cash very carefully and thus make better decisions by adopting projects, which would generally improve the bottom line, without sacrificing return on equity.
Thus dividend stocks, which consistently grow their payments, should be in every investor’s portfolio, irrespective of their age. A stock that regularly grows its distributions provides an inflation proof source of income, which is much more reliable than the Consumer Price Index, on which TIPs (TIP) rely on.

A stock could afford to consistently raise distributions by selling products, which have a strong brand image, and thus are not easily substituted by others. Examples of such companies include Procter & Gamble (PG), Clorox (CLX), Pepsi Co (PEP), Wal-Mart (WMT) and Emerson Electric (EMR).

The Clorox Company (CLX) manufactures and markets a range of consumer products such as bleaches; cleaning products; water-filtration systems and filters; auto-care products; plastic bags, wraps, and containers; Over the past decade the company has managed to boost earnings per share at a rate of 13.60% annually. Clorox has paid uninterrupted dividends increased payments to common shareholders every year for 31 years. Dividends have increased at an average rate of 8.60% annually since 1999. Check my analysis of the The Clorox Company (CLX).

Emerson Electric Co. (EMR), a diversified global technology company, engages in designing and supplying product technology and delivering engineering services to various industrial and commercial, and consumer markets worldwide. The company operates through five segments: Process Management, Industrial Automation, Network Power, Climate Technologies, and Appliance and Tools. The company has been able to increase earnings at an average rate of 8.40% annually over the past decade. Emerson Electric Co. has increased payments to stockholders for 52 consecutive years. The ten-year dividend growth rate is 7% per annum over the past decade. Check my analysis of Emerson Electric Co. (EMR).

PepsiCo, Inc. (PEP) manufactures, markets, and sells various snacks, carbonated and non-carbonated beverages, and foods worldwide. The company manufactures, sells, and distributes Pepsi-cola beverages and is enhancing its distribution channels through its acquisition of key bottlers. The company has been able to increase earnings at an average rate of 9.90% annually over the past decade. PepsiCo has been consistently increasing its dividends for 36 consecutive years. Dividend payments have increased by an average rate of 13.50% annually since 1999. Check my analysis of PepsiCo, Inc. (PEP).

The Procter & Gamble Company (P&G), together with its subsidiaries, provides branded consumer goods products worldwide. The company operates in three global business units (GBU): Beauty, Health and Well-Being, and Household Care. The company has been able to increase earnings at an average rate of 12.20% annually over the past decade. Procter & Gamble has been increasing its dividends for the past 53 consecutive years. Dividend payments have increased by an average of 10.90% annually over the past 10 years. Check my analysis of Procter & Gamble (PG).

Wal-Mart Stores, Inc. (WMT) operates retail stores in various formats worldwide. It operates through three segments: Wal-Mart Stores, Sam's Club, and International. The company has managed to deliver an impressive 11.60% average annual increase in its EPS. Wal-Mart Stores has consistently increased dividends every year for 35 years. Dividends have increased at an average rate of 18.90 % annually since 1999. Check my analysis of Wal-Mart Stores, Inc. (WMT).

While these companies are poised to deliver strong long-term dividend growth, don’t throw caution away. These stocks should be a part of a diversified dividend portfolio with at least 30 components in it.

Full Disclosure: Long CLX, EMR, PEP, PG and WMT

Relevant Articles:

- The Dividend Edge
- The case for dividend investing in retirement
- Clorox (CLX) Dividend Stock Analysis
- Reinvest Dividends Selectively

Wednesday, October 21, 2009

Six Dividend Stocks for current income

Most novice dividend investors typically are under the impression that successful dividend investing entails finding and purchasing the highest yielding stocks. This strategy is flawed, because it does not take into account the sustainability of the dividend. A company, which yields 20%, might generate a much lower yield on cost over time.

I purchased American Capital (ACAS) in 2008 when this business development company was trading at $30 and was yielding 13%. Just a few months later the company suspended its dividend payment, and I sold it immediately. The thing to learn from this example is that investors have to check the sustainability of distributions in light of cash flows generated by the business, the amounts of debt relative to total assets and the amounts of interest expenses. If you find a high yielding stock, which generates enough cash flow growth and has limited amounts of debt, then it could be a buy on the next dip.

While companies are not contractually obligated to share profits with shareholders, it is nice to see when boards increase dividends and declare stock buybacks, This typically sends positive signals about management’s confidence in projected cashflows, generated by the business.
In my portfolios I like to hold stocks with different yield/dividend growth characteristics. I do tend to focus mostly on the sweet spot of dividend investing, where yields are somewhere between 3% and 5% and dividend growth is in the upper single digits or in the double digits.
I do realize however that some investors are interested mostly in current income generation, and not so much about future dividend growth. Thus recommending Wal-Mart with its 2% dividend yield to an investor who wants to generate as much income as possible now might sound ridiculous. Just because one wants to generate as much income as possible however, doesn’t mean that they should throw caution away with the wind. Sustainability of the dividend should be evaluated, in addition to sustainability of the dividend growth. A stock with a sustainable but unchanged dividend, which yields 9% on cost, would produce a lower inflation adjusted income level over time.

In addition to that, most studies of portfolio durability show that one should not spend more than 4% of their portfolio value each year. If you have a dividend portfolio valued at $1 million dollars, which generates $40,000/year in dividend income, and whose dividend growth closely matches the inflation rate, you are ok as long as you don’t spend more than 40,000/year. If you spend more than that, you could end up eating your principal.

Thus, even if you found the highest dividend stock, you should not be spending more than 4% of the starting value of your portfolio each year, adjusted for inflation. If you owned a 10% yielder on a $1 million portfolio, and you spend all your dividend income, you would be in trouble when one of two things happen:

1) The company cuts dividends
2) The company fails to increase dividends to compensate for the eroding value of inflation

I do have several ideas on stocks with sustainable dividends that could also afford to grow them over time.

Realty Income Corporation (O) engages in the acquisition and ownership of commercial retail real estate properties in the United States. The company has increased dividends for 15 consecutive years. Check my analysis of this REIT.

Kinder Morgan Energy Partners, L.P. (KMP) owns and manages energy transportation and storage assets in North America. This dividend achiever has rewarded unitholders with regular distribution increases for 13 years in a row. Check my analysis of this MLP.

Consolidated Edison, Inc., (ED) through its subsidiaries, provides electric, gas, and steam utility services in the United States. This Dividend Aristocrat has raised dividends for 35 years in a row. Check my analysis of Con Ed.

Altria Group, Inc., (MO) through its subsidiaries, engages in the manufacture and sale of cigarettes and other tobacco products in the United States. Philip Morris International Inc (PM) on the other hand manufactures and sells cigarettes and other tobacco products in markets outside of the United States of America. Before spinning off Kraft (KFT) and Philip Morris International (PM), Altria had an uninterrupted streak of 41 consecutive annual dividend increases. The spun out companies are also likely to return increasing amounts of profits back to shareholders in the form of share buybacks and dividend increases. I like both MO and PM for global exposure to tobacco. Check my analysis of both stocks.

BP p.l.c. (BP) provides fuel for transportation, energy for heat and light, retail services, and petrochemicals products. This international dividend achiever has rewarded shareholders with dividend raises for 16 consecutive years. Check my analysis of BP.

In order to increase portfolio longevity, I would also consider at least a 25% allocation to fixed income, which would provide some buffer during bear markets and deflationary environments. In addition to that, having an allocation to lower yielding stocks with higher dividend growth characteristics could also provide a buffer for dividend increases if you are lucky enough to spend more time in retirement. After all, the worlds oldest person on record was Jeanne Calment of France (1875–1997), who died at age 122 years. For a person retiring at the age of 60 or 70, this could mean planning for a 50 to 60 year retirement. Your goal should always be for your money to outlive you, no matter what.

Full Disclosure: Long PM, MO, ED, KMP, O, BP

- High yield stocks for current income
- Best High Yield Dividend Stocks for 2009
- Yield on Cost Matters
- The Sweet Spot of Dividend Investing

Friday, October 2, 2009

The return of the financial dividends

The financial crisis lead to dividend cuts amongst several prominent dividend payers such as Bank of America (BAC), US Bancorp (USB) and BB&T Corp. (BBT). Over the past few weeks however, several financial companies announced that they might reconsider their current dividend policies and start raising distributions in the near future.

US Bancorp’s (USB) CEO is reviewing the company’s dividend payout, after it paid off $6.6 billion in TARP money back to the US Treasury."You will see us take action in the near-term that will be favorable," to the dividend, the company’s CEO said. The company cut dividends in March by 88% and is currently paying a quarterly dividend of 5 cents/share.

BB&T’s (BBT) President and CEO Kelly King informed shareholders the bank will "revist dividend level as soon as appropriate". The company cut its dividend by 68% in May 2009 in order to be able to repay the US Treasury. In addition to that the Winston-Salem, North Calorila based banking institution sold $1.5 billion in stock.

JP Morgan’s (JPM) CFO was a little less optimistic about the future dividend prospects of his company, citing that the company’s goal is to restore dividend only if economy doesn't "double dip". Despite the fact that he is still cautious on restoring the dividend, the CFO said the bank could raise its dividend to $0.75-$1.00/share. The company cut its dividend by 87% to 5 cents/share in February 2009.

Analysts are also expecting Pfizer (PFE) to increase dividends as well in the near future. Deutsche Bank analysts expect Pfizer Inc to increase its dividend in December. Deutsche Bank sees an increase of 15 percent to 25 percent. Pfizer cut its dividend by 50% in January in an effort to conserve cash in order to pay for its acquisition of Wyeth (WYE).

While I am generally very skeptical about companies which cut distributions, I view companies that begin raising distributions within a year of the cut very positively. It is too early to get excited about the companies listed above however. As long as they fail to actually increase distributions by sending bigger checks to shareholders, then the prospect of them raising dividends is a pure speculation.

Full disclosure: None

- BB&T Corporation (BBT) Stock Dividend Analysis
- Should you sell after a dividend cut?
- Is Pfizer (PFE) a value trap for investors?
- US Bancorp (USB) cuts its dividend by 88%

Wednesday, August 26, 2009

Financial Stocks for Dividend Investors

Financial stocks, which used to be great dividend investments, have had their share of troubles over the past two years. The sector has rebounded sharply since hitting its lows in March. Since the major dividend growth stories of the past such as Bank of America (BAC) and US Bancorp (USB) have cut dividends, most dividend growth investors seem to have a very low allocation to the sector. As a result dividend investors could suffer inferior risk adjusted returns in the future since they won't own any financial stocks.

There are several alternatives for investors who are underweight the financial sector right now. One of them involves purchasing shares in some of US insurance companies such as Aflac (AFL) or Chubb (CB), which offer decent yields and have a long history of dependable dividend growth.

Another alternative is buying shares in the five major Canadian banks, which seem to have escaped the financial meltdown. While none of them have increased their dividends in over one year, they have not cut them either. In addition to that major Canadian banks spot very decent yields as well. It is important to check individual payout ratios in order to gauge the sustainability of the dividend payments. The major Canadian banks include
Toronto-Dominion Bank (TD) , Bank of Montreal (BMO), Royal Bank of Canada (RY), Canadian Imperial Bank of Commerce (CIBC) and Bank of Nova Scotia (BNS).

Buying Preferred stocks could also be a decent bet on the long recovery of US financial institutions. Preferred shares have a higher ranking than ordinary shares in the event of a bankruptcy, but a lower priority relative to bonds. Preferred stocks do not have voting rights but have a fixed dividend payment, just like a bond. Preferred stockholders are also first in line to receive dividend payments, which are typically fixed. They don’t typically get to share in the prosperity of the enterprise however as preferred stock dividends do not increase. In tough economic conditions however, preferred stock dividends are much less likely to be cut or suspended; as long as the company continues operating as a going concern preferred stock dividends continue getting paid. In addition to that if you buy a cumulative preferred stock, the company is obligated to pay distributions to you even if it skips a few payments. That is of course as long as the company is not bankrupt. These two ETFs PFF and PGF are good vehicles to gain exposure to preferred stocks. Most of the issues they hold are in the financial sector.

Some investors also believe that the major US financial institutions would one day return to their former glory. This could mean that companies like Bank of America (BAC), Citigroup (C) and US Bancorp (USB) could yield very decent returns if they were to increase distributions to their 2007 levels. This option of getting exposure to financials is the riskiest of all, since most of the TARPed financial institutions are already paying billions in dividends to the Treasury every year. In addition to that the Treasury and other strategic investors might elect to convert their preferred stock into common, which would dilute existing shareholders. Last but not least it is very difficult to forecast how the US banking industry would look like a few years from now. Just because a bank survives the meltdown, does not mean it would be a solid long-term investment.
The strong gains off the March lows have definitely pushed financial stocks in overbought territory. Thus, if you believe that owning US banks provides you with the best exposure to the US financial sector, you might consider waiting to buy them on pullbacks.

These options could either be used on a standalone basis or in a combination. As a dividend growth investor I currently own mostly insurers and have a position in one of the Canadian banks. I might add to my Canadian exposure, which also provides international diversification for my portfolio.

Full Disclosure: Long AFL, CB and TD

This article was included in the Carnival of Personal Finance 221- Labour Day Edition

Relevant Articles:

- Best Dividends Stocks for the Long Run
- 12 Dividend Stocks to own in this market
- Wells Fargo (WFC) – show me the money
- The Dividend Edge
- Which Bank will be next? Follow the dividend cuts

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.

Relevant Articles:

- Should you re-invest your dividends?
- The case for dividend investing in retirement
- My Dividend Growth Plan - Diversification
- Yield on Cost Matters

Saturday, March 21, 2009

Ten Links for March 21, 2009

As a new feature on the blog, I am adding the ten articles from around the blogosphere that I enjoyed. Check out the links below:

Barron's Electronic Investor has a nice overview of dividend investing resources available to investors in Where to Find High, Safe Stock Yields. Yours truly was also featured in there.

Canadian Capitalist analyzed the Toronto Star article on Derek Foster, the self proclaimed "Canadian Youngest Retiree" and also gave us several reasons why Selling puts isn’t “money for nothing”.

Four-Pillars also analyzed the Derek Foster story in Is Dividend Investing Dead? The Derek Foster Story. He also hosted Edition #197 of Carnival of Personal Finance and included my post on master limited partnerships.

DividendsValue wrote about something that has been on my mind for months now -Should You Sell A Dividend Stock After A Dividend Freeze?. While I disagree with him on selling after a dividend freeze, since historic data does not support this decision, the article is showing how one could have cut their losses significantly.

Jason Kelly reviewed the most recent ebook from Dave Van Knapp of titled "The Top 40 Dividend Stocks For 2009". Check out the book description from this page.

This article provides an opposing view to mine on dividend cuts and suspensions. Not Paying a Dividend is Now a Sign of Prudence.

Cliff Wachtel wrote a post in 5 parts titled "The High Dividend Stock Investor's Collapsing Dollar Survival Guide".

StockerBlog made a list of Monthly Dividend Stocks. Dividend Growth Investor readers know however that one could create a portfolio for monthly income,even if dividends are paid out every quarter.

TJ Smith from Bullish Bankers provided a list with "Five Dividends to Count On".

Disciplined Approach to Investing gave us an overview of Oracle Corp: New Dividend and Currency Impact. Cash Rich tech companies are starting to pay out dividends to shareholders.

Sunday, March 8, 2009

10 Links to Enjoy This Weekend

I will start another regular blog post on weekends in addition to my columns on dividend raisers for the week, stock analysis and education that I write. It will be featuring the best ten investing articles on the net that I have found and truly enjoyed. If you found an article that you enjoyed and learned a lot from, please do not hesitate to send it my way.My e-mail is dividendgrowthinvestor at gmail dot com.

Here is the list of the ten articles I enjoyed this week:

Canadian Capitalist posted about another way for dividend growth investors to compound their dividends in “DRIP discounts from BMO and RY”.

Saving to Invest informed us that the real unemployment rate will rapidly move from a recession to a depression in Week in Review: 15% - America's Real Unemployment Rate

Four Pillars informed us that GE’s dividend cut was first since 1938. It is interesting to note that GE stock is down almost 20% from the dividend cut announcement last Friday.

Dividendsvalue provided an interesting insight about financial companies and TARP in TARP Trips: You Can’t Stop At Just One.

Triaging My Way To Financial Success blog posted about General Motors in The Ultimate Value Trap – Bankruptcy Needed. It is pretty sad for shareholders that GM stock is trading at levels since 1933.

Buffetts Letter to Shareholders was big hit and was analysed by bloggers. Check out Fat Pitch Financials analysis of the event in Warren Buffett’s 2008 Letter to Shareholders.

Stocks are getting cheaper these days. Some are even trading below cash. Shadow Stock blog gives us a list of Four Net Cash Bargains.

The Dividend Guy Blog expects lower Future Stock Market Returns than the 10% average we have all learned to expect.

Dividend Cuts and Suspensions are a Natural Characteristics of Economic Cycle according to Dividend Tree.

MyMoneyBlog gives an interesting overview of a strategy called The Permanent Portfolio Asset Allocation.

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