Monday, November 5, 2012

Dividend Stocks Deliver Returns Whether Market is Open or Not

As a dividend investor I purchase quality dividend stocks with the intention to hold them for the long run. Some of the most successful dividend investors have managed to accumulate sizeable fortunes simply by sitting and reinvesting dividends into more income producing assets. Warren Buffett is one of the most successful income investors that I outlined in an earlier article, who has managed to reinvest his money for long periods of time while achieving market beating returns.

One of my favorite quote from Warren Buffett deals with investing for the long –term:
"I never attempt to make money on the stock market. I buy on assumption they could close the market the next day and not re-open it for five years."

Last week, the US market was closed for two whole days due to Hurricane Sandy. Dividend Investors however, kept receiving their dividend checks. In fact, most income investors could care less if the market is open or not, since they are investing for the long run. For these individuals, the consistent stream of rising dividend income provides them with the positive reinforcement to stick to their investments for the long run.

Over the past week, the following consistent dividend increases boosted their distributions:

Cardinal Health, Inc. (CAH), a healthcare services company, provides pharmaceutical and medical products and services in the United States and internationally. The company raised its quarterly dividend by 15.80% to 27.50 cents/share. This was the second dividend increase for Cardinal Health over the past year. This dividend achiever has raised distributions for 16 years in a row. Yield: 2.70% (analysis)

The company has managed to boost annual dividends by 28.90%/year over the past decade. In addition, the company trades at 13 times earnings and has an adequately covered distribution. While this is impressive, the company has been unable to increase earnings per share over the past decade. As a result, the rapid growth in dividends was possible due to the expansion in the dividend payout ratio. Analysts are expecting an increase in EPs by 10%/year over the next two years however. I would take another look at the company before committing any money however.

Alliance Resource Partners, L.P. (ARLP) engages in the production and marketing of coal primarily to utilities and industrial users in the United States. This master limited partnership (MLP) raised its quarterly distributions to $1.085/unit. This dividend achiever has raised distributions for ten years in a row. Yield: 6.70%

The partnership has managed to boost annual dividends by 13.80%/year over the past decade. Alliance Resource Partners has managed to boost profitability over the past decade, as well. I would consider this MLP on my list for further research.

Arrow Financial Corporation (AROW) provides various commercial and consumer banking, and financial products in the United States. The company raised its quarterly dividend by 2% to 25 cents/share. This marked the 19th consecutive annual dividend increase for this dividend achiever. Yield: 4.10%

The company has managed to boost annual dividends by 6.50%/year over the past decade. At the same time earnings per share have increased by 20% in total since 2002. Because of the slow earnings growth, future dividend increases will be limited. I would view the stock as a hold.

Mercury General Corporation (MCY), together with its subsidiaries, engages in writing personal automobile insurance products. The company raised its quarterly dividend by 0.50% to 61.25 cents/share. This dividend champion has raised distributions for 26 years in a row. Yield: 6%

While over the past decade, Mercury General has managed to boost dividends by 8.70%/year, the rate of increases has fallen dramatically since 2008. Given the high dividend payout ratio and the decline in earnings per share over the past three years, it is no surprise that the dividend growth has been anemic. I would rate the stock as a hold at best.

Full Disclosure: None

Relevant Articles:

Cardinal Health (CAH) Dividend Stock Analysis
The Most Successful Dividend Investors of all time
- Master Limited Partnerships (MLPs) 
A Record Week for Dividend Increases

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