I was watching CNBC over the weekend and I saw a paid advertisement about investing in foreclosed properties, where investors have supposedly bought houses for less than $1000. It did grab my attention, until I turned off the TV and thought that this is too good to be true.
I did some searching on the web and found an interesting article on people who are supposedly cashing in on foreclosures on CNN’s website. What was particularly interesting to me though, was a calculation about a couple who bought a house in 1998 for just $10. Currently the house was appraised at $250,000. This sounds like a big return on investment, doesn’t it?
Actually there’s always a catch with such “extraordinary deals”. When Mary Krawiec and Mark Peabody scooped up a nine-unit Victorian in Troy, N.Y, they had to do 9 renovations. At the time of the publication they had renovated 4 of the unit and had 5 more to go. They had to pay $2000 for a water bill including previous owner’s debts, replace the cracked rubber roof for $3,500, install new carpets, patch and paint wll and ceilings. They also had to renovate bathrooms; kitchens put new boilers and install special order thermal pane windows. The total expenses to data plus all the projected expenses totaled slightly over $71,000. CNN calculated the profit (rents minus taxes, insurance, utilities) at $52,000, which represented an annualized 27% return on investment, which definitely beats the stock market over the same period.
Forecloses have been on the rise across USA for over a year now. One might be able to scoop up properties at what might seem as bargain prices, but there’s always a catch – there is a very high possibility that the previous inhabitants of the house are behind on utilities, property taxes. In addition they might not leave the house in a perfect condition but in a very bad one because of their desperation. As usual, my advice is always to do your own due diligence before investing any money in anything.
Wednesday, March 5, 2008
Tuesday, March 4, 2008
Analysis of General Electric
General Electric Company (GE) operates as a technology, media, and financial services company worldwide.
It is a dividend aristocrat as well as a major component in Dow Jones Industrials and S&P 500 indexes. Over the past 10 years this dividend growth stock has delivered an average total return of 6.50% annually to its shareholders. The stock price has yet to recover from its 2000 highs though. The company has managed to deliver an impressive 10.24% average annual increase in its EPS.
The ROE has been in a decline over our study period, falling from a high of 24% to a low of 15% in 2006 before recovering below 20% in 2007.
Annual dividend payments have increased over the past 10 years by an average of 12.38% annually, which is slightly above the growth in EPS. A 12% growth in dividends translates into the dividend payment doubling every 6 years. If we look at historical data, going as far back as 1976, GE has actually managed to double its dividend payments every six years.
If we invested $100,000 in GE on December 31, 1997 we would have bought 4089 shares. Your first quarterly check would have yielded $408.90 in dividend income in March 1998. If you kept reinvesting the dividends though instead of spending them, your quarterly dividend income would have risen to $1561.47 by December 2007 and you would be expecting to collect $1574.49 in dividend income in February 2008. For a period of 10 years, your quarterly dividend income has increased by 210 %. If you reinvested it though, your quarterly dividend income would have increased by 281.87%.
Although the payout has been over 50% for the past several years, I like the company’s low P/E ratio at 15 and the above average dividend yield of 3.60%.
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It is a dividend aristocrat as well as a major component in Dow Jones Industrials and S&P 500 indexes. Over the past 10 years this dividend growth stock has delivered an average total return of 6.50% annually to its shareholders. The stock price has yet to recover from its 2000 highs though. The company has managed to deliver an impressive 10.24% average annual increase in its EPS.
The ROE has been in a decline over our study period, falling from a high of 24% to a low of 15% in 2006 before recovering below 20% in 2007.
Annual dividend payments have increased over the past 10 years by an average of 12.38% annually, which is slightly above the growth in EPS. A 12% growth in dividends translates into the dividend payment doubling every 6 years. If we look at historical data, going as far back as 1976, GE has actually managed to double its dividend payments every six years.
If we invested $100,000 in GE on December 31, 1997 we would have bought 4089 shares. Your first quarterly check would have yielded $408.90 in dividend income in March 1998. If you kept reinvesting the dividends though instead of spending them, your quarterly dividend income would have risen to $1561.47 by December 2007 and you would be expecting to collect $1574.49 in dividend income in February 2008. For a period of 10 years, your quarterly dividend income has increased by 210 %. If you reinvested it though, your quarterly dividend income would have increased by 281.87%.
Although the payout has been over 50% for the past several years, I like the company’s low P/E ratio at 15 and the above average dividend yield of 3.60%.
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Monday, March 3, 2008
Dividend Growth Investor Hosts the 78th Festival of Stocks
I am honored to host my first edition of Festival of Stocks. Special thanks to George at Fat Pitch Financials for giving me this opportunity. Here are this week’s submissions that I selected for this edition. Take a look and enjoy!
Once you are done reading through don’t forget to Subscribe to my Feed .
George presents Consistent Cash Creators, Part 2: Linear vs. Exponential Growth posted at Fat Pitch Financials.
The Dividend Guy presents Dividend Stock Wednesday: Automatic Data Processing (ADP-NYSE) posted at The Dividend Guy Blog.
Dividends4Life presents My Dirty Little Secret posted at Dividends4Life. Having his house referred to as "his single largest asset" always grated him. It usually was because the people that made that statement usually were trying to sell him something he really didn't want.
Nate Tobik presents Do software companies have moats? posted at Stock Value Finder.
American Dividend Investor presents his analysis of Citigroup posted at American Dividend Investor.
Alex G presents Is Monsanto worth more than Home Depot? posted at Contrarian Value Investing.
John Crenshaw presents Pay Off Mortgage Tips posted at Truthful Lending Mortgage, Refinance Advice. There's been quite a bit of debate lately over whether or not you should pay off your mortgage or invest any extra money. This article explores the different mortgage payoff methods and will help you decide which, if any, are right for you.
Tyler presents How Not To Make Money In Stocks Guaranteed! posted at Dividend Money.
Steve Alexander presents Cherokee Inc - Store Brands To Go posted at MagicDiligence - Optimizing Joel Greenblatts Value Stock Investing Strategy, saying that Cherokee is an incredibly profitable small cap paying a 9% dividend yield.
Jose DeJesus MD presents Improve Investment and Financial Results - Simplify and Conquer posted at Physician Entrepreneur.
Dorian Wales presents Inflation Rearing Its Ugly Head posted at The Personal Financier.
FIRE Finance presents Tax FREE Money Market Mutual Funds! posted at FIRE Finance.
Thomas Ott presents EMCOR Group Inc. (EME) posted at Neural Market Trends .
Rocko presents Stock Market Downside Bets posted at Days Of A Neophyte Mathematician.
debbie presents Gold: A Bad Investment » American Consumer News posted at American Consumer News.
Vlada Kynsky presents StockWeb: Tech stocks technically posted at StockWeb.
Raymond presents The Best Online Discount Investment Brokers posted at Money Blue Book.
Super Saver presents 2/25/08 Stock Purchase Update - Trimming The Portfolio posted at My Wealth Builder.
Michael Bass presents The Economics of Gold Investments posted at Debt Prison, saying that the real question is whether a discretionary paper currency managed by Central Bankers perform can perform as well a gold standard.
Silicon Valley Blogger presents Beat The Average Investor's Returns With The Simplest Investment Portfolio posted at The Digerati Life.
KcLau presents Credit Cards: From Foes to Friends posted at KCLau's Money Tips. His article is discussing what a credit card is all about and how one can avoid credit card debts. It also touches on how one can actually make money from his credit cards.
That concludes this edition. Submit your blog article to the next edition of festival of stocks using our carnival submission form. Past posts and future hosts can be found on our Festival of Stocks Index Page.
Once you are done reading through don’t forget to Subscribe to my Feed .
George presents Consistent Cash Creators, Part 2: Linear vs. Exponential Growth posted at Fat Pitch Financials.
The Dividend Guy presents Dividend Stock Wednesday: Automatic Data Processing (ADP-NYSE) posted at The Dividend Guy Blog.
Dividends4Life presents My Dirty Little Secret posted at Dividends4Life. Having his house referred to as "his single largest asset" always grated him. It usually was because the people that made that statement usually were trying to sell him something he really didn't want.
Nate Tobik presents Do software companies have moats? posted at Stock Value Finder.
American Dividend Investor presents his analysis of Citigroup posted at American Dividend Investor.
Alex G presents Is Monsanto worth more than Home Depot? posted at Contrarian Value Investing.
John Crenshaw presents Pay Off Mortgage Tips posted at Truthful Lending Mortgage, Refinance Advice. There's been quite a bit of debate lately over whether or not you should pay off your mortgage or invest any extra money. This article explores the different mortgage payoff methods and will help you decide which, if any, are right for you.
Tyler presents How Not To Make Money In Stocks Guaranteed! posted at Dividend Money.
Steve Alexander presents Cherokee Inc - Store Brands To Go posted at MagicDiligence - Optimizing Joel Greenblatts Value Stock Investing Strategy, saying that Cherokee is an incredibly profitable small cap paying a 9% dividend yield.
Jose DeJesus MD presents Improve Investment and Financial Results - Simplify and Conquer posted at Physician Entrepreneur.
Dorian Wales presents Inflation Rearing Its Ugly Head posted at The Personal Financier.
FIRE Finance presents Tax FREE Money Market Mutual Funds! posted at FIRE Finance.
Thomas Ott presents EMCOR Group Inc. (EME) posted at Neural Market Trends .
Rocko presents Stock Market Downside Bets posted at Days Of A Neophyte Mathematician.
debbie presents Gold: A Bad Investment » American Consumer News posted at American Consumer News.
Vlada Kynsky presents StockWeb: Tech stocks technically posted at StockWeb.
Raymond presents The Best Online Discount Investment Brokers posted at Money Blue Book.
Super Saver presents 2/25/08 Stock Purchase Update - Trimming The Portfolio posted at My Wealth Builder.
Michael Bass presents The Economics of Gold Investments posted at Debt Prison, saying that the real question is whether a discretionary paper currency managed by Central Bankers perform can perform as well a gold standard.
Silicon Valley Blogger presents Beat The Average Investor's Returns With The Simplest Investment Portfolio posted at The Digerati Life.
KcLau presents Credit Cards: From Foes to Friends posted at KCLau's Money Tips. His article is discussing what a credit card is all about and how one can avoid credit card debts. It also touches on how one can actually make money from his credit cards.
That concludes this edition. Submit your blog article to the next edition of festival of stocks using our carnival submission form. Past posts and future hosts can be found on our Festival of Stocks Index Page.
Thursday, February 28, 2008
Warren Buffett - The richest investor in the World
Warren Buffet is one of the best investors of our time. He has been investing other people’s money through partnerships and Berkshire Hathaway since the late 1950’s. His results have been truly phenomenal. I highly recommend reading his annual letters to Berkshire’s shareholders.
I recently stumbled upon the letters to his investors in the Buffet Partnership here . His average annual returns of 29.5% for the period from 1957 to 1969 significantly outperformed the 7.4% return that Dow achieved.
He recently made news headlines with his investments in Kraft Foods and Glaxo-Smith Kline. I was wondering myself if following the Wizard of Omaha is a good investment strategy or a recipe for disaster. I found the following research paper “Imitation is the Sincerest Form of Flattery: Warren Buffett and Berkshire Hathaway” on the internet. It was written by Gerald S Martin and John Puthenpurackal and studied Buffet’s stock picking for a 31 year period from 1976 to 2006. Based off their research, a portfolio that mimicked Buffet’s stock investments would have outperformed S&P 500 by 14.6% annually. The stock market average returned 10.32% versus 24.97% for Buffet’s portfolio of stocks. In addition to that the research paper found that investors would have performed much better had they simply invested in Berkshire Hathaway’s stock would have returned 30% on average.
He recently made news headlines with his investments in Kraft Foods and Glaxo-Smith Kline. I was wondering myself if following the Wizard of Omaha is a good investment strategy or a recipe for disaster. I found the following research paper “Imitation is the Sincerest Form of Flattery: Warren Buffett and Berkshire Hathaway” on the internet. It was written by Gerald S Martin and John Puthenpurackal and studied Buffet’s stock picking for a 31 year period from 1976 to 2006. Based off their research, a portfolio that mimicked Buffet’s stock investments would have outperformed S&P 500 by 14.6% annually. The stock market average returned 10.32% versus 24.97% for Buffet’s portfolio of stocks. In addition to that the research paper found that investors would have performed much better had they simply invested in Berkshire Hathaway’s stock would have returned 30% on average.
Even though Buffet is 77 years old and even if he decides to no longer be the CEO of Berkshire Hathaway, I still think that the company is a good Long-Term holding. The reason is because Buffet invests in businesses that he thinks have good prospects for the long term. So even if he’s no longer in charge at BRK.A, the worst annual average that his stockholders will have would be at par with the S&P 500.
Tuesday, February 26, 2008
The next bubble in the making.
Over the past 10 years the US economy has experienced the bursting of two major bubbles – the dot com bubble and the real-estate bubble. The Federal Reserve has been blamed for both failures – the first one happened supposedly because the US central bank hesitated to increase its interest rates too much until tech stocks started jumping like kangaroos in the Australian deserts in late 1999. The second bubble was formed just as the dot com bubble imploded and the FED tried stimulating the economy with lowering interest rates to multi-decade lows. Rates on fixed income instruments had fallen to multi-decade lows, and stocks were in a major bear market. Investors had nowhere to go for income. This situation stimulated speculation in the housing market and helped the US economy regain its power and achieve six years of prosperity.
Currently the US and Foreign stock and property markets are weak, ever since the subprime problems started making huge headlines in July 2007. Interest rates are declining again, which leads very few options for investors to invest and grow their savings right now. Somewhere down the road real-estate would pick up again, but it is still too early for that to happen in my opinion. One of the reasons for today’s real-estate bubble is that properties were sold to people who cannot afford them at all. If you are making $20,000 per year and you purchased a property for $500,000, which you were able to afford only with an ARM, with the intent of flipping it out for a huge profit, even if you refinanced your loan to a 0% interest per year, you would still be unable to keep up with the monthly payments. Most of those investors are holding such properties which they cannot afford, but which would lead to huge losses if they sold them right now. Those investors are trying to rent their properties in order to decrease their losses. This creates a very competitive market for landlords right now. Pundits are claiming that now is the time to buy into real estate. I believe that the next one or two years will also be considered “the time” to buy real estate. When no one believes in the real estate market, that’s when it will bottom out and start going up.
One of the few alternatives for investments is stocks that pay a relatively stable dividend, and which have maintained or increased their dividends over the years. There are several dividend based ETF’s out there some of which launched recently. This shows to me that the investment community is anticipating a demand for stable income producing securities in this unstable time. There are several major stock lists out there which contain dividend achievers, dividend aristocrats and high-yielding aristocrats and achievers. With very few reliable sources of dependable income from stocks, investors have few other choices but to invest in the dividend stocks of our times. I think that the dividend aristocrats would be the next bubble that will be formed from the current low interest rates. Investors, burned from the rest of the market, would flock into one-decision large cap stocks with good liquidity, which could be bought and held forever regardless of price. Something similar happened in the late 1960’s until the 1974 bear market with the so-called “Nifty Fifty” stocks.
I am already seeing big increase in interest in dividend paying stocks especially the above mentioned lists. If a bubble in dividend aristocrats/achievers does occur, that would enable me to reach my goals of $200,000 in net worth earlier than expected. If it doesn’t happen, then I would probably expect normal average rates of return of around 10%-11% annually. Very Boring.
Currently the US and Foreign stock and property markets are weak, ever since the subprime problems started making huge headlines in July 2007. Interest rates are declining again, which leads very few options for investors to invest and grow their savings right now. Somewhere down the road real-estate would pick up again, but it is still too early for that to happen in my opinion. One of the reasons for today’s real-estate bubble is that properties were sold to people who cannot afford them at all. If you are making $20,000 per year and you purchased a property for $500,000, which you were able to afford only with an ARM, with the intent of flipping it out for a huge profit, even if you refinanced your loan to a 0% interest per year, you would still be unable to keep up with the monthly payments. Most of those investors are holding such properties which they cannot afford, but which would lead to huge losses if they sold them right now. Those investors are trying to rent their properties in order to decrease their losses. This creates a very competitive market for landlords right now. Pundits are claiming that now is the time to buy into real estate. I believe that the next one or two years will also be considered “the time” to buy real estate. When no one believes in the real estate market, that’s when it will bottom out and start going up.
One of the few alternatives for investments is stocks that pay a relatively stable dividend, and which have maintained or increased their dividends over the years. There are several dividend based ETF’s out there some of which launched recently. This shows to me that the investment community is anticipating a demand for stable income producing securities in this unstable time. There are several major stock lists out there which contain dividend achievers, dividend aristocrats and high-yielding aristocrats and achievers. With very few reliable sources of dependable income from stocks, investors have few other choices but to invest in the dividend stocks of our times. I think that the dividend aristocrats would be the next bubble that will be formed from the current low interest rates. Investors, burned from the rest of the market, would flock into one-decision large cap stocks with good liquidity, which could be bought and held forever regardless of price. Something similar happened in the late 1960’s until the 1974 bear market with the so-called “Nifty Fifty” stocks.
I am already seeing big increase in interest in dividend paying stocks especially the above mentioned lists. If a bubble in dividend aristocrats/achievers does occur, that would enable me to reach my goals of $200,000 in net worth earlier than expected. If it doesn’t happen, then I would probably expect normal average rates of return of around 10%-11% annually. Very Boring.
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