Gannett Co (GCI) has declared a dividend of 40 cents per share. The quarterly dividend is payable on October 1, 2008, to shareholders of record as of the close of business on September 12, 2008.
The $0.40 dividend is the same as last quarter. The ex-dividend date is September 10th and the dividend yield is 9%.
This is the 161st consecutive dividend paid by the company since 1967. “With a substantial current dividend yield of 9 percent, and in view of the challenging business and economic environment, we have decided not to increase our dividend at this time,” said Craig A. Dubow, chairman, president and chief executive officer of Gannett.
I started dollar cost averaging into GCI since May 2008. I expected that GCI will raise its dividend this month. That being said I would stop contributing new money to this position and just let the dividends reinvest. The payment is adequately covered for now, so this "freeze" should not be a reason for dividend investors to sell.
Relevant Articles:
- Selected Dividend Increases in June
- Gannett Co (GCI) Dividend Analysis
- Some Cheap Stocks to Consider
- My Dividend Growth Plan - Stock Selection
Thursday, July 31, 2008
Wednesday, July 30, 2008
My Dividend Growth Plan - Stock Selection
In my previous article I started discussing my dividend growth plan in more detail, by focusing on my strategy. Today I will be focusing on my stock selection criteria.
The type of investments I am focusing on involve dividend paying companies, which have a history of uninterrupted dividend growth. There are several publicly available lists out there including the dividend aristocrats, high-yield dividend aristocrats, dividend champions and the dividend achievers. The first three lists consist of stocks which have increased their dividend payments to shareholders for more than twenty-five consecutive years. The broad dividend achievers list focuses on companies which have increased their payments for at least ten consecutive years. The companies that have been able to do that are believed to have a solid business model and smart management. In addition to that these companies have a proven track record which shows that their business model is able to consistently support an increase in dividend payments to shareholders. This also shows that management is committed to enriching the shareholders and not enriching themselves. In a period of time where total CEO compensation runs in the millions of dollars regardless of company performance, it pays to know that the executive team is committed to sharing the company’s wealth with its owners - the investors.
The above mentioned lists are only a starting point for the dedicated dividend investor. I do not want to blindly purchase all stocks without understanding their business and without checking several financial characteristics of the companies. In my analysis of dividend stocks I check several parameters:
EPS- The earnings per share indicator is calculated by dividing the total amount of net income for one year to the total number of shares outstanding. I am normally looking for an increase in EPS over the past ten years. A company that cannot increase its EPS over time, will not be able to sustain the growth in its dividend payments to shareholders.
ROE – The Return on Equity is calculated by dividing the total amount of net income for a given year over the amount of owner’s equity on the balance sheet at the end of the previous period. I do not look for specific numbers in this indicator, but focus exclusively on its trend. Most stocks will have a flat ROE over time, which is fine with me. A red flag for me is a decreasing ROE over time.
DPR- I calculate the dividend payout ratio by dividing the DPS over the EPS. I am generally looking for a DPR that is below 50% in most companies. However, if a corporation has been able to maintain a higher DPR over time due to the nature of its business or the nature of its legal structure, I would consider buying a stock with a much higher DPR. A rising DPR is generally a red flag for me. This shows me that there is not much room for future dividend growth. In addition, stocks which have a highly unusual for them DPR indicate a higher risk for dividend cuts.
DPS – I generally look for an uninterrupted growth in dividends every year for more than ten years, preferably twenty-five. A company which hasn’t been able to at least pay a stable dividend without cutting it in difficult times is automatically off of my radar. General Motors is one stock which I won’t touch, since it has exhibited a lot of fluctuations in its dividend payments over the years.
Valuation- After checking the trends of earnings, roe, dpr and dps I assume that these would continue to be doing ok or not ok for the foreseeable future. I then look for stocks with a price earnings ratio of less than 20, dividend yield which equals at least the yield on the S&P 500 and a dividend payment ratio which does not exceed 50%. After buying a stock, I would “forget” about it and let the dividends reinvest automatically into more shares. Even if a company becomes overvalued in terms of super high P/E ratio, I won’t consider selling. I would consider holding forever in most situations.
For a sample dividend analysis of a stock, check out Analisys of Johnson & Johnson (JNJ).
Next Week I will be discussing the diversification part of my dividend growth plan.
Relevant Articles:
- Long term returns of S&P high-yield aristocrats
- Why do I like Dividend Aristocrats?
- Why do I like Dividend Achievers
- Dividend Champions Watchlist
The type of investments I am focusing on involve dividend paying companies, which have a history of uninterrupted dividend growth. There are several publicly available lists out there including the dividend aristocrats, high-yield dividend aristocrats, dividend champions and the dividend achievers. The first three lists consist of stocks which have increased their dividend payments to shareholders for more than twenty-five consecutive years. The broad dividend achievers list focuses on companies which have increased their payments for at least ten consecutive years. The companies that have been able to do that are believed to have a solid business model and smart management. In addition to that these companies have a proven track record which shows that their business model is able to consistently support an increase in dividend payments to shareholders. This also shows that management is committed to enriching the shareholders and not enriching themselves. In a period of time where total CEO compensation runs in the millions of dollars regardless of company performance, it pays to know that the executive team is committed to sharing the company’s wealth with its owners - the investors.
The above mentioned lists are only a starting point for the dedicated dividend investor. I do not want to blindly purchase all stocks without understanding their business and without checking several financial characteristics of the companies. In my analysis of dividend stocks I check several parameters:
EPS- The earnings per share indicator is calculated by dividing the total amount of net income for one year to the total number of shares outstanding. I am normally looking for an increase in EPS over the past ten years. A company that cannot increase its EPS over time, will not be able to sustain the growth in its dividend payments to shareholders.
ROE – The Return on Equity is calculated by dividing the total amount of net income for a given year over the amount of owner’s equity on the balance sheet at the end of the previous period. I do not look for specific numbers in this indicator, but focus exclusively on its trend. Most stocks will have a flat ROE over time, which is fine with me. A red flag for me is a decreasing ROE over time.
DPR- I calculate the dividend payout ratio by dividing the DPS over the EPS. I am generally looking for a DPR that is below 50% in most companies. However, if a corporation has been able to maintain a higher DPR over time due to the nature of its business or the nature of its legal structure, I would consider buying a stock with a much higher DPR. A rising DPR is generally a red flag for me. This shows me that there is not much room for future dividend growth. In addition, stocks which have a highly unusual for them DPR indicate a higher risk for dividend cuts.
DPS – I generally look for an uninterrupted growth in dividends every year for more than ten years, preferably twenty-five. A company which hasn’t been able to at least pay a stable dividend without cutting it in difficult times is automatically off of my radar. General Motors is one stock which I won’t touch, since it has exhibited a lot of fluctuations in its dividend payments over the years.
Valuation- After checking the trends of earnings, roe, dpr and dps I assume that these would continue to be doing ok or not ok for the foreseeable future. I then look for stocks with a price earnings ratio of less than 20, dividend yield which equals at least the yield on the S&P 500 and a dividend payment ratio which does not exceed 50%. After buying a stock, I would “forget” about it and let the dividends reinvest automatically into more shares. Even if a company becomes overvalued in terms of super high P/E ratio, I won’t consider selling. I would consider holding forever in most situations.
For a sample dividend analysis of a stock, check out Analisys of Johnson & Johnson (JNJ).
Next Week I will be discussing the diversification part of my dividend growth plan.
Relevant Articles:
- Long term returns of S&P high-yield aristocrats
- Why do I like Dividend Aristocrats?
- Why do I like Dividend Achievers
- Dividend Champions Watchlist
Monday, July 28, 2008
Bank of America (BAC) Dividend Analysis
Bank of America Corporation, a financial holding company, provides a range of banking and nonbanking financial services and products in the United States and internationally.
BAC is a dividend aristocrat as well as a major component of the S&P 500 and Dow Jones Industrials indexes. The company has been increasing its dividends for the past 30 consecutive years. From 1998 up until July 2008 this dividend growth stock has delivered an annual average total return of 3.60 % to its shareholders. Despite the 60% recent jump in the share price, the stock is down almost 26% since the start of the year.
At the same time company has managed to deliver a 9.60% average annual increase in its EPS since 1998. So far this year BAC has reported EPS of $0.95 for the first half of 2008. The expectations are that the company will deliver EPS of $0.72 per quarter for the remaining two quarters of 2008.
The ROE has declined steadily from the highs in 2004 at 29%.
Annual dividend payments have increased by an average of 12.70% annually over the past 10 years, which is higher than the growth in EPS. A 12% growth in dividends translates into the dividend payment doubling almost every 6 years. If we look at historical data, going as far back as 1990, BAC has indeed managed to double its dividend payment almost every six years on average.
Future dividend increases will be harder to make given the current situation of the US financial system. Management recently affirmed that it would continue with its quarterly payment of 64 cents/share. This leaves them 4 more quarters where they could keep the dividend growth unchanged before BAC loses its dividend aristocrat status. There are rumors however that the company will have to cut the dividend in order to maintain its current liquidity and conserve capital.
If we invested $100,000 in BAC on December 31, 1997 we would have bought 3289 shares (Adjusted for a 2:1 stock split in 2004). In March 1998 your quarterly dividend income would have been $625. If you kept reinvesting the dividends though instead of spending them, your quarterly dividend income would have risen to $3143 by June 2008. For a period of ten and a half years, your quarterly dividend income has increased by 237%. If you reinvested it though, your quarterly dividend income would have increased by 403%.
The dividend payout has remained stable until the deterioration in earnings in after 2007. I estimate that the payout will be at 108% if the projected earnings per share of $2.38 materialize and the quarterly dividend payment stays flat at 64 cents/share. A lower payout is always a plus, since it leaves room for consistent dividend growth minimizing the impact of short-term fluctuations in earnings.
BAC offers an above average yield, coupled with a low P/E ratio. The dividend payout is unsustainably large at this moment for me however in order to initiate a position. In addition to that, the whole uncertainty over the financial sector definitely makes it wiser to simply wait on the sidelines before jumping in.
Disclosure: I do not own shares of BAC
BAC is a dividend aristocrat as well as a major component of the S&P 500 and Dow Jones Industrials indexes. The company has been increasing its dividends for the past 30 consecutive years. From 1998 up until July 2008 this dividend growth stock has delivered an annual average total return of 3.60 % to its shareholders. Despite the 60% recent jump in the share price, the stock is down almost 26% since the start of the year.
At the same time company has managed to deliver a 9.60% average annual increase in its EPS since 1998. So far this year BAC has reported EPS of $0.95 for the first half of 2008. The expectations are that the company will deliver EPS of $0.72 per quarter for the remaining two quarters of 2008.
The ROE has declined steadily from the highs in 2004 at 29%.
Annual dividend payments have increased by an average of 12.70% annually over the past 10 years, which is higher than the growth in EPS. A 12% growth in dividends translates into the dividend payment doubling almost every 6 years. If we look at historical data, going as far back as 1990, BAC has indeed managed to double its dividend payment almost every six years on average.
Future dividend increases will be harder to make given the current situation of the US financial system. Management recently affirmed that it would continue with its quarterly payment of 64 cents/share. This leaves them 4 more quarters where they could keep the dividend growth unchanged before BAC loses its dividend aristocrat status. There are rumors however that the company will have to cut the dividend in order to maintain its current liquidity and conserve capital.
If we invested $100,000 in BAC on December 31, 1997 we would have bought 3289 shares (Adjusted for a 2:1 stock split in 2004). In March 1998 your quarterly dividend income would have been $625. If you kept reinvesting the dividends though instead of spending them, your quarterly dividend income would have risen to $3143 by June 2008. For a period of ten and a half years, your quarterly dividend income has increased by 237%. If you reinvested it though, your quarterly dividend income would have increased by 403%.
The dividend payout has remained stable until the deterioration in earnings in after 2007. I estimate that the payout will be at 108% if the projected earnings per share of $2.38 materialize and the quarterly dividend payment stays flat at 64 cents/share. A lower payout is always a plus, since it leaves room for consistent dividend growth minimizing the impact of short-term fluctuations in earnings.
BAC offers an above average yield, coupled with a low P/E ratio. The dividend payout is unsustainably large at this moment for me however in order to initiate a position. In addition to that, the whole uncertainty over the financial sector definitely makes it wiser to simply wait on the sidelines before jumping in.
Disclosure: I do not own shares of BAC
Relevant Articles:
Friday, July 25, 2008
The ultimate passive investment strategy
I recently read a paper from Jeremy Siegel and Jeremy Schwartz titled “The Long-term Returns on the Original S&P 500 Firms”.
In this paper the authors calculate the total returns of a buy and hold of the original 500 companies in 1957. They found that on average 20 stocks annually have been added and deleted from the index (without considering that a merger of two S&P 500 companies is an addition to the index) since 1957. The authors also used three methods of calculating the returns:
Survivors’ Portfolio (SP). The survivor portfolio consists only of shares of the original S&P 500 firms. Shares of other firms received through mergers are immediately sold and the proceeds invested in the remaining survivor firms in proportion to their market value. For example, when Mobil Oil was merged into Exxon in 1999, shareholders of Mobil are assumed to sell the shares they received from Exxon-Mobil and invest the proceeds in the remaining survivor firms. All spinoffs are immediately sold and the proceeds reinvested in the parent firm. Funds received from privatizations are sold and the proceeds re-invested in the original surviving firms in proportion to their market value.
Direct Descendants’ Portfolio (DDP), which consists of the shares of firms in the survivors’ portfolio plus the shares issued by firms acquiring an original S&P 500 firm. In the case of the Mobil-Exxon merger discussed above, we assume that shareholders of Mobil Oil hold the shares of Exxon that were issued in the merger. If an original firm was taken private, we assume that the cash distributed from the privatization was invested in an indexed portfolio whose returns matched the standard S&P 500 Index.12 If a firm that was taken private is subsequently reissued to the public again, we assume the portfolio repurchases shares in the reissued company with the funds that had been invested in the index at the time the firm went private. As before, spinoffs are immediately sold and the proceeds reinvested in the parent.
Total Descendants’ Portfolio (TDP) and includes all firms in the DDP plus all the spinoffs and other stock distributions issued by the firms in the Direct Descendants’ Portfolio. The only difference between the TDP and the DDP is that the TDP holds all the spinoffs rather than sell them and reinvest in the proceeds in the parent firm. The TDP is identical to the portfolio of a totally passive investor who holds all the spinoffs and shares issued from mergers and never sells any stock.
My favorite portfolio is the Total Descendants portfolio, since it basically represents a very passive investment strategy – buying stock in 500 companies and then forgetting about them for 50 years.
The authors looked into the return of equal weighted and value weighted returns for the three calculation types.
At the end of the paper they determined that by not updating your portfolio of the original 500 companies, with the annual changes in the S&P 500, you’d have outperformed the average pretty handsomely.
My take on this research is that by purchasing the current 500 stocks in the S&P 500, and allocating all stock equally, an investor will be better off in the long run than simply purchasing an ETF. The reason is that ETF’s tend to charge fees of 0.1% annually, which could really add up over time.
Relevant Articles:
- When to sell your dividend stocks?
- Why do I like Dividend Achievers
- The next bubble in the making.
- Dollar Cost Averaging
Wednesday, July 23, 2008
My Dividend Growth Plan - Strategy
Inspired by the dividend growth plans of The Money Gardener and The Dividend Guy, which they posted on The Div-Net last week, I decided to summarize my own plan.
I believe that having a good solid plan is essential in achieving one’s goals. And my goal is to create an increasing stream of dividend income, which would allow me to live off of my investments.
There are several points that have to be covered: Strategy, Stock Selection, Diversification and Money Management.
Today I will be focusing on strategy. My strategy involves buying quality dividend stocks at bargain prices. Dividends have been largely ignored by investors during the 1990’s when internet stocks were increasing across the board. Dividends however are an important part of the total return of stocks as they have contributed almost 40% of the annual total returns in the S&P 500 over the past eight decades. In addition to that, I believe that a stock which pays a dividend gives at least some certainty that the investor will generate a return on their investment. Although it could be argued that there is always the possibility that the dividend may be cut, companies tend to cut the dividends as a last resort of action. Thus I believe that the dividend component provides some stability in income for investors who want to live off of their holdings. Stock price increases on the other hand are more difficult to predict.
And last but not least, a company that has committed to paying a dividend shows its confidence that it will be able to generate a sufficient amount of profits to be distributed to shareholders.
We all learned from Enron and WorldCom that earnings could be manipulated easily. Manipulating the cash situation in a company is more difficult to achieve, because it cannot be created out of thin air. If a corporation does not have a very solid financial position, it won’t be able to commit to a dividend payment. An example of a company that hasn’t committed to paying dividends is PLA. Over the past 20 years, its shareholders have had a wild ride with the stock rising until 1999 and then declining. In comparison to PLA, GM shareholders had a much better total return over the same period.
As a general rule I would consider selling stocks which either cut their dividends or eliminate their dividend altogether.
I am generally looking for a blend of high growth lower yield stocks in addition to higher yield lower growth ones. I won’t be simply chasing yield, which represents a fixed dividend or worse a decreasing dividend.
An important part of my strategy is minimizing expenses. By opening a low cost brokerage account like Zecco or Sharebuilder I would be able to do that. In addition, if I can keep my expenses less than 0.5% per year, that would provide me with better long-term returns.
Next week, I will post more information about my stock selection process.
Relevant Articles:
- The case for dividend investing in retirement
- A comparison of investing in high-yield, low dividend growth stock versus investing in a low-yield, high dividend growth stock without capital gains
- Alternative Streams of Income
- Why dividends?
I believe that having a good solid plan is essential in achieving one’s goals. And my goal is to create an increasing stream of dividend income, which would allow me to live off of my investments.
There are several points that have to be covered: Strategy, Stock Selection, Diversification and Money Management.
Today I will be focusing on strategy. My strategy involves buying quality dividend stocks at bargain prices. Dividends have been largely ignored by investors during the 1990’s when internet stocks were increasing across the board. Dividends however are an important part of the total return of stocks as they have contributed almost 40% of the annual total returns in the S&P 500 over the past eight decades. In addition to that, I believe that a stock which pays a dividend gives at least some certainty that the investor will generate a return on their investment. Although it could be argued that there is always the possibility that the dividend may be cut, companies tend to cut the dividends as a last resort of action. Thus I believe that the dividend component provides some stability in income for investors who want to live off of their holdings. Stock price increases on the other hand are more difficult to predict.
And last but not least, a company that has committed to paying a dividend shows its confidence that it will be able to generate a sufficient amount of profits to be distributed to shareholders.
We all learned from Enron and WorldCom that earnings could be manipulated easily. Manipulating the cash situation in a company is more difficult to achieve, because it cannot be created out of thin air. If a corporation does not have a very solid financial position, it won’t be able to commit to a dividend payment. An example of a company that hasn’t committed to paying dividends is PLA. Over the past 20 years, its shareholders have had a wild ride with the stock rising until 1999 and then declining. In comparison to PLA, GM shareholders had a much better total return over the same period.
As a general rule I would consider selling stocks which either cut their dividends or eliminate their dividend altogether.
I am generally looking for a blend of high growth lower yield stocks in addition to higher yield lower growth ones. I won’t be simply chasing yield, which represents a fixed dividend or worse a decreasing dividend.
An important part of my strategy is minimizing expenses. By opening a low cost brokerage account like Zecco or Sharebuilder I would be able to do that. In addition, if I can keep my expenses less than 0.5% per year, that would provide me with better long-term returns.
Next week, I will post more information about my stock selection process.
Relevant Articles:
- The case for dividend investing in retirement
- A comparison of investing in high-yield, low dividend growth stock versus investing in a low-yield, high dividend growth stock without capital gains
- Alternative Streams of Income
- Why dividends?
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