Last week was characterized by massive sell offs by investors, which fear that the worst is definitely going to happen. Despite the fact that the bailout plan was approved by congress, that didn’t improve investors’ sentiments. The US stock markets had the worst week ever. The 50% dividend cut from Bank of America (BAC) on Monday, which fellow blogger David Templeton reported on didn’t help either. There were rumors floating around that GE might have to cut its dividends as well, which the company strongly denied. So far in 2008 the stock market has erased nearly all the bull market gains from 2003-2007 as many indices around the world fell to levels not seen since the dot com crisis. Asides from dividend cuts in financials however, dividend investors did pretty well as many companies outside of the financial sector continued raising their distributions to shareholders.
Last week there were several companies which announced increases in their annual dividend payments to shareholders:
United Technologies Corp. (UTX) announced a 20.3 percent quarterly dividend increase to 38.5 cents per common share. CEO Louis Chenevert said, "In today's tough economic environment, UTC's balanced portfolio, global footprint, and seasoned executive team continue to deliver solid results. This dividend increase, consistent with our pattern over many years, reflects our confidence in sustained earnings growth. UTC's liquidity and free cash flow remain strong."
UTX has been increasing its dividends for the past 14 consecutive years. Annual dividend payments have increased over the past 10 years by an average of 14.20% annually, which is the same as the growth in EPS. This dividend achiever currently yields 3.20% based off its new dividend rate. I think that this company is a steal at this moment. I will be looking to add to my position there.
TEPPCO Partners, L.P. (TPP) declared a third quarter cash distribution of $0.725 per unit. I analyzed this partnership several months ago and liked what I saw. The stock has lost a little less than 50% since then. Annual dividend distributions have increased over the past 10 years by an average of 5.90% annually, which is slightly above the growth in EPS. The partnership managed to increase its distributions to unit holders for a second time in 2008. This dividend achiever currently yields 13.60%.
Kinder Morgan Energy Partners, L.P. (KMP) announced it expects to increase its quarterly cash distribution per common unit next week to $1.02 ($4.08 annualized) from $0.99 ($3.96 annualized). This will represent an increase of 16 percent over the third quarter 2007 quarterly distribution of $0.88 ($3.52 annualized). KMP is another partnership that I like. You could purchase either KMP or KMR, which is the management company that owns and operates KMP. KMR distributes additional shares to unit holders as opposed to dividends. Both KMR and KMP currently yield between 9.00% and 9.80%.
RPM International Inc. (RPM) declared a regular quarterly cash dividend of $0.20 per share. This payment represents a 5.3% increase over the $0.19 quarterly cash dividend paid at this time last year. This high-yield aristocrat currently yields 5.70%. I would have added to RPM but unfortunately the current dividend exceeds the company’s average 10 year earnings per share. In addition to that the P/E ratio is about 36 right now.
Teekay Corporation (TK) has approved a 15% increase in the Company's quarterly cash dividend from $0.275 to $0.31625 per common share, This international dividend achiever has almost tripled its quarterly payment to shareholders since 2003. In addition to that the company’s Board of Directors authorized the repurchase of $200 million of its common stock. This amount represents approximately 14 percent of the Company's total market capitalization as of October 6, 2008. This dividend stock currently yields 6.2%.
Acme United Corporation (ACU) declared a cash dividend of 5 cents per share on its outstanding common stock which represents an increase of 25%. The company follows an interesting pattern of increasing its dividends every 6 quarters, which it has followed since 2004. This stock currently yields 2.10%.
Apogee Enterprises, Inc. (APOG) announced that its Board has approved a 10% increase in its quarterly dividend from $0.074 to $0.0815 per common share. This designer and developer of glass products, services, and systems has increased its dividends for over 20 years by an average of 7.2% per annum. This company yields 2.90% at the moment.
Triangle Capital Corporation (TCAP) declared a cash dividend of $0.38 per share. The new payment represents a 40.7% increase over the dividend paid this time last year. This is the Company's seventh consecutive quarterly dividend since its initial public offering in February, 2007. Triangle Capital Corporation is a public investment firm specializing in buyouts, change of control transactions, acquisitions, growth financing, and recapitalizations in lower middle market companies. This stock currently yields 14.80%.
Full Disclosure: I am long RPM, KMR, TPP, UTX
Relevant Articles:
- Kinder Morgan Energy Partners (KMP) Dividend Analysis.
- TEPPCO Partners (TPP) Dividend Analysis
- RPM Dividend Analysis
- Why do I like Dividend Achievers
Monday, October 13, 2008
Friday, October 10, 2008
Should you re-invest your dividends?
This article originally appeared on The DIV-Net October 3, 2008.
One of the components of every stock analysis I have done at my blog has always been to show the effects of dividend reinvestment over a ten year period of time. The results are truly amazing as the dividend income with reinvestment almost always outpaces the dividend income without reinvestment.
The main pro of re-investing your dividends is that you get the power of compounding in your favor. You are essentially getting “free shares” by investing the total dividend income into more stock. If you have also picked a solid stock that tends to increase the payments to stockholders every year you are essentially turbo charging your portfolio for the long run and should expect to receive even faster annual dividend raises.
Another reason for re-investing dividends is that one could dollar cost average their dividend income into more stock by spreading their purchases over a period of time, which also decreases risk.
The past decade was definitely a good time to be re-investing your dividends in Realty Income (O).
One of the components of every stock analysis I have done at my blog has always been to show the effects of dividend reinvestment over a ten year period of time. The results are truly amazing as the dividend income with reinvestment almost always outpaces the dividend income without reinvestment.
The main pro of re-investing your dividends is that you get the power of compounding in your favor. You are essentially getting “free shares” by investing the total dividend income into more stock. If you have also picked a solid stock that tends to increase the payments to stockholders every year you are essentially turbo charging your portfolio for the long run and should expect to receive even faster annual dividend raises.
Another reason for re-investing dividends is that one could dollar cost average their dividend income into more stock by spreading their purchases over a period of time, which also decreases risk.
The past decade was definitely a good time to be re-investing your dividends in Realty Income (O).
One con for dividend reinvestment is that you still get taxed on the income that you receive. Another thing that the investor holding stocks in a taxable account should do is keep a very through bookkeeping of their activities in order to efficiently file their tax returns for the year.
One of the major reasons why people are hesitant to do dividend reinvestment however could be that instead of purchasing new assets or enjoying their dividends, they are adding onto a single investment which could go bankrupt. Chances are your company might fail leaving you with a lot of shares which are trading at or close to zero, even after years of diligent reinvesting of dividends. Check out FRE, FNM and LEH for reference. With hindsight, investors in those former financial behemoths would have been better off putting their money in US long bonds.
Even if the company doesn’t fail, it could still eliminate its payments to shareholders, which leaves the investor without the dividend income that they were relying onto. GM, which has always been touted as a great barometer for the overall US economy is a recent example of this scenario (remember the saying “As goes GM so does the nation”).
So what should investors do about dividend reinvestment?
I believe that as long as the dividend investor holds a diversified portfolio of income producing instruments, they should be able to weather any industry specific related storms successfully and without losing all of their dividend income in the worst case scenario. The best strategy for this type of person would be to take maximum advantage of the power of compounding and re-invest their dividends.
On the other hand however, if you plan on living off your investments, you might want to hold off dividend re-investment and enjoy your money working for you.
I believe that the question of whether to re-invest your dividends or not is mostly a question of how diversified your portfolio is and when do you plan to use the dividend income that is generated by it.
Relevant Articles:
Wednesday, October 8, 2008
Repsol YPF (REP) Dividend Stock Analysis
Repsol YPF, S.A., together with its subsidiaries, operates as an integrated oil and gas company. It engages in the exploration, development, and production of crude oil and natural gas; transportation of petroleum products, liquid petroleum gas (LPG), and natural gas; petroleum refining; petrochemical production; and marketing of petroleum products, petroleum derivatives, petrochemicals, LPG, and natural gas. The company also involves in the electricity generation business. It sells gasoline under Repsol, Campsa, and Petronor brand names.
REP is an international dividend achiever. It has been increasing its dividends for the past five consecutive years. From the end of 1999 up until September 2008 this dividend stock has delivered an annual average total return of 7.70 % to its shareholders. The stock has lost about 16% of its value so far in 2008.
Disclosure: I do not own shares of REP
REP is an international dividend achiever. It has been increasing its dividends for the past five consecutive years. From the end of 1999 up until September 2008 this dividend stock has delivered an annual average total return of 7.70 % to its shareholders. The stock has lost about 16% of its value so far in 2008.
At the same time company has managed to deliver a 14.30% average annual increase in its earnings per share since 1999.
The return on equity has generally increased from 14% in 1998 to 20% in 2007.
Annual dividend payments have increased over the past 10 years by an average of 8.20% annually, which is much lower than the growth in earnings per share. An 8% growth in dividends translates into the dividend payment doubling almost every nine years.
If we invested $100,000 in REP on December 31, 1998 we would have been able to purchase 5671 shares (Adjusted for a 3:1 Stock Split in April 1999). In January 1999 your semi-annual dividend income would have been $1270. If you kept reinvesting the dividends though instead of spending them, your semi-annual dividend income would have risen to $5613 by July 2008. For a period of 10 years, your semi-annual dividend income would have increased by 252%. If you reinvested it though, your semi-annual dividend income would have increased by 342%.
The dividend payout has fluctuated between 10% and 45% over out study period. I consider a lower payout as a plus, since it leaves room for consistent dividend growth minimizing the impact of short-term fluctuations in earnings.
REP does look attractively valued with its low price/earnings multiple of 7, low dividend payout ratio, as well as attractive yield at 3.80%. The main issue that I have with this stock as a dividend growth investor is that the dividend payments tend to fluctuate a lot. In addition to that I already have exposure to this sector so I will give it a pass.
Disclosure: I do not own shares of REP
Relevant Articles:
Tuesday, October 7, 2008
Top 20 one day percent decreases in Dow Jones
Last Monday the Dow Industrials fell by 777 points after the US Senate didn’t pass the 700 billion bailout package. Most news reporters informed the public that Mondays drop in the oldest US stock index was the largest one day point drop ever. They were correct in this one. The issue is that this was not the largest drop in percentage terms. In other words even though last Mondays drop was higher than the one on Black Monday in 1987, it was much lower in percentage terms. Armed historical with data from yahoo finance going back to 1928 I isolated the 20 largest one day percentage drops in the Dow Industrials. It seems like the largest point drop ever turned out be the 18th largest percentage drop. You could check out the original spreadsheet from this link.
The average performance one year after a large one day percentage drop was 6.46% (without accounting for dividends).
Relevant Articles:
- Average Durations of Previous Bear Markets
- Dow 370,000
- The ultimate passive investment strategy
- "Determining Withdrawal Rates Using Historical Data"
The average performance one year after a large one day percentage drop was 6.46% (without accounting for dividends).
Relevant Articles:
- Average Durations of Previous Bear Markets
- Dow 370,000
- The ultimate passive investment strategy
- "Determining Withdrawal Rates Using Historical Data"
Monday, October 6, 2008
Dividend Stocks in the news
The markets ended September with a big decline in the major indexes. Last week the volatility of the past month continued as stocks traded like a yo-yo – falling 777 points after congress failed to approve the 700 billion dollar bailout, and then rising 500 points before hitting new 52 week lows by the end of the week after the bailout was approved.
There was some negative dividend news from S&P that there were 138 dividend cuts or suspensions in the third quarter while 346 issues increased their payments to shareholders. Most of the dividend cuts were in the financial sector. Standard and poors reported the following:
“It was the worst September for dividends since we started keeping dividend records in 1956,” says Howard Silverblatt, Senior Index Analyst at Standard & Poor’s. “During the second quarter, companies were nervous and cautious. The third quarter, however, saw many companies deciding to take action, and that action took $22.5 billion out of the pockets of investors.”
There were some bright spots however as the number of dividend increases were almost three times the number of dividend cuts or omissions.
Last week there were several companies which declared increases in their dividend payments to shareholders.
CLARCOR Inc. (CLC) Board of Directors declared an increase in the regular quarterly dividend from $0.08 per share to $0.09 per share. This increase raises the annual rate from $0.32 per share to $0.36 per share, a 12.5% increase and the 25th consecutive annual increase. The stock currently yields about 1%.
DENTSPLY International Inc. (XRAY) declared a quarterly cash dividend of $0.05 per share of common stock, an indicated annual rate of $0.20 per share. This represents approximately an eleven percent (11%) increase in the existing dividend. This dividend achiever currently yields about 0.50%.
Northwest Natural Gas Company (NWN) has increased the quarterly dividend on the company's common stock by 5.3% to 39.5 cents per share. This marked the 53rd consecutive year of dividend increases. NWN is a dividend champion that yields about 3% right now and trades at less than 20 times earnings. I plan on researching this stock further.
Speedway Motorsports (TRK) has increased the annual dividend on the company's common stock by a little over 1% to 34 cents per share. This is the seventh consecutive year that Speedway Motorsports has increased cash dividends to its stockholders. The stock currently yields 1.80%.
MFA Mortgage Investments, Inc. (MFA) announced a 10% increase in its quarterly dividend to $0.22 per share for the third quarter of 2008. Despite the fact that this stock has paid dividends for over ten years, the quarterly payments are pretty volatile from month to month. MFA's primary focus is high quality, higher coupon hybrid and adjustable-rate MBS assets. At June 30, 2008, approximately 99% of MFA's assets consisted of MBS issued or guaranteed by an agency of the U.S. government or a federally chartered corporation, other MBS rated "AAA" by Standard & Poor's Corporation, MBS-related receivables and cash. The stock currently yields over 15%.
I have found that screening the dividend news could provide you with some gems for further research. One such gem could be NWN. Furthermore with so many negative news concerning the stock market and dividend cuts in the financial sector it pays to know that there actually are companies which are confident enough in their ability to generate stable revenues and earnings which would support dividend increases.
Full Disclosures: None
There was some negative dividend news from S&P that there were 138 dividend cuts or suspensions in the third quarter while 346 issues increased their payments to shareholders. Most of the dividend cuts were in the financial sector. Standard and poors reported the following:
“It was the worst September for dividends since we started keeping dividend records in 1956,” says Howard Silverblatt, Senior Index Analyst at Standard & Poor’s. “During the second quarter, companies were nervous and cautious. The third quarter, however, saw many companies deciding to take action, and that action took $22.5 billion out of the pockets of investors.”
There were some bright spots however as the number of dividend increases were almost three times the number of dividend cuts or omissions.
Last week there were several companies which declared increases in their dividend payments to shareholders.
CLARCOR Inc. (CLC) Board of Directors declared an increase in the regular quarterly dividend from $0.08 per share to $0.09 per share. This increase raises the annual rate from $0.32 per share to $0.36 per share, a 12.5% increase and the 25th consecutive annual increase. The stock currently yields about 1%.
DENTSPLY International Inc. (XRAY) declared a quarterly cash dividend of $0.05 per share of common stock, an indicated annual rate of $0.20 per share. This represents approximately an eleven percent (11%) increase in the existing dividend. This dividend achiever currently yields about 0.50%.
Northwest Natural Gas Company (NWN) has increased the quarterly dividend on the company's common stock by 5.3% to 39.5 cents per share. This marked the 53rd consecutive year of dividend increases. NWN is a dividend champion that yields about 3% right now and trades at less than 20 times earnings. I plan on researching this stock further.
Speedway Motorsports (TRK) has increased the annual dividend on the company's common stock by a little over 1% to 34 cents per share. This is the seventh consecutive year that Speedway Motorsports has increased cash dividends to its stockholders. The stock currently yields 1.80%.
MFA Mortgage Investments, Inc. (MFA) announced a 10% increase in its quarterly dividend to $0.22 per share for the third quarter of 2008. Despite the fact that this stock has paid dividends for over ten years, the quarterly payments are pretty volatile from month to month. MFA's primary focus is high quality, higher coupon hybrid and adjustable-rate MBS assets. At June 30, 2008, approximately 99% of MFA's assets consisted of MBS issued or guaranteed by an agency of the U.S. government or a federally chartered corporation, other MBS rated "AAA" by Standard & Poor's Corporation, MBS-related receivables and cash. The stock currently yields over 15%.
I have found that screening the dividend news could provide you with some gems for further research. One such gem could be NWN. Furthermore with so many negative news concerning the stock market and dividend cuts in the financial sector it pays to know that there actually are companies which are confident enough in their ability to generate stable revenues and earnings which would support dividend increases.
Full Disclosures: None
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