Philips Electronics (PHG) Stock Dividend Analysis

Koninklijke Philips Electronics N.V. operates as an electronics company with activities in healthcare, lighting, and consumer lifestyle markets worldwide. The company’s products include imaging systems, ultrasound and monitoring solutions, and healthcare informatics.

PHG is an international dividend achiever. It has been increasing its dividends for the past six consecutive years. From the end of 1999 up until early September 2008 this dividend stock has delivered an annual average total return of 8.20 % to its shareholders. The stock has lost about 56% of its value so far in 2008.

At the same time company has managed to deliver a no annual increase in its earnings per share since 1999.

The return on equity fluctuated between 0% and 60% over the past decade.

Annual dividend payments have increased over the past 10 years by an average of 14.20% annually, which is much higher than the growth in earnings per share. A 14% growth in dividends translates into the dividend payment doubling almost every five years.

If we invested $100,000 in PHG on December 31, 1998 we would have been able to purchase 5671 shares (Adjusted for a 4:1 Stock Split in April 2000). In March 1999 your annual dividend income would have been $1619. If you kept reinvesting the dividends though instead of spending them, your annual dividend income would have risen to $6927 by March 2008. For a period of 10 years, your annual dividend income would have increased by 273%. If you reinvested it though, your annual dividend income would have increased by 328%.

The dividend payout remained under 50% for the majority of our study period. Currently the dividend payout ratio is at 15%. 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.

PHG does look attractively valued with its low price/earnings multiple of 5.30, low dividend payout ratio at 15%, as well as attractive yield at 5.10%. The main issue that I have with this stock as a dividend growth investor is that the dividend payments tend to fluctuate a lot. The flat earnings over the past decade are another red flag to consider. The main positive is that the payout ratio is so low that even if earnings were to remain flat for the next decade PHG could still achieve double digit dividend growth.

Disclosure: I do not own shares of PHG

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When should you consider investing in dividend stocks?

Three readers asked me three separate questions on dividend investing. The first one was whether now it was a good time to stick to a dividend investment strategy. The second question was about the amount of money necessary to start dividend investing. The third one was wondering whether it wouldn’t be a bad idea to actually maintain an asset allocation that includes bonds whenever investors begin accumulating their dividend portfolio. I personally believe that investors need to take maximum advantage of their early years of savings and put as much as possible in the stock market. Only after they have 15 years or less to retirement would they start contributing to fixed income investments in order to achieve a minimum 25% allocation to bonds at retirement. I believe that answering these three questions together at the same time is the best way to understand my dividend growth strategy.

I seldom discuss personal finance matters on this blog. I do believe however that one needs to have an emergency fund covering at least nine to twelve months worth of living expenses before they become an aspiring dividend investor. This emergency fund is most likely to be invested in fixed income instruments such as Certificates of Deposits, savings accounts or even money market or bond funds. I believe that asset allocation should be viewed in the context of an individual’s total net worth, as opposed to only focusing on the brokerage/retirement accounts that one owns. Thus I believe that investors who have more than 15 years before retirement and have an emergency fund covering nine to twelve months would have an above average fixed income allocation if they also held fixed income instruments in their portfolios.

Once you have your emergency fund set up, the next step in your personal finance journey is to take full advantage of any “free money” opportunities available to you including purchasing company stock at a discount or contributing to your company retirement account at least to get the maximum company match to your contributions.

Only after that would I consider investing in dividend stocks. A good amount to start dividend investing is $10,000. If you start with less than $10,000 your expenses would eat up a large portion of your profits. Expenses could range from stock commissions, extra expenses for tax filing since your situation would become a little more complicated. Tracking your cost and dividend income for tax purposes would be a huge burden and not cost effective at all if you have a small amount of funds to invest. Another expense could be an annual expense that some brokers like Zecco or Sharebuilder charge you if you open an individual stock retirement account.

If you plan on contributing several hundred per month however, you could definitely start investing with a smaller amount of initial capital as long as you stick to your schedule. One positive for this type of strategy is that you get to dollar cost average into your favorite dividend stocks which should decrease your risk somewhat.

And to answer the last question, yes I still believe it is a great time to start or keep investing in dividend stocks. Chances are that every dollar that you put in stocks today would generate one dollar in dividend income in three to four decades if you reinvest your dividends. In addition to that I also believe that bear markets are an ideal way to start accumulating assets in many good quality dividend names at bargain prices.

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BB&T Corporation (BBT) Stock Dividend Analysis

BB&T Corporation operates as the holding company for Branch Banking and Trust Company that provides banking and trust services for small and mid-size businesses, public agencies, local governments, and individuals in the United States.

BBT is a dividend aristocrat as well as a component of the S&P 500 index. It has been increasing its dividends for the past 37 consecutive years. From the end of 1999 up until September 2008 this dividend stock has delivered an annual average total return of 3.60 % to its shareholders. The stock has gained about 12% so far in 2008.

At the same time company has managed to deliver a 7.00% average annual increase in its EPS since 1999.

The ROE has decreased from its highs in the lower 20% to the mid teens.

Annual dividend payments have increased over the past 10 years by an average of 11.80% annually, which is much higher than the growth in EPS. A 12% growth in dividends translates into the dividend payment doubling almost every six years. If we look at historical data, going as far back as 1990, BBT has indeed managed to double its dividend payment every six years on average.

If we invested $100,000 in BBT on December 31, 1998 we would have been able to purchase 2787 shares. In January 1999 your quarterly dividend income would have been $488. If you kept reinvesting the dividends though instead of spending them, your quarterly dividend income would have risen to $1810 by July 2008. For a period of 10 years, your quarterly dividend income would have increased by 169%. If you reinvested it though, your quarterly dividend income would have increased by 271%.

The dividend payout has fluctuated above and below 50% during out study period. Currently this indicator is above my 50% threshold. 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.

BBT does look attractively valued with its low price/earnings multiple of 11, as well as attractive yield at 5.50%. One warning sign is the payout ratio – I would consider entering a position there only at lower levels. In addition to that I would also wait to see what damages has the current financial crisis created for this company. The recent 4% dividend hike was also much lower than prior year’s hikes.

Disclosure: I do not own shares of BBT

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- Free Magazines

Free Magazines

You might have noticed the Free Magazines link on the top right on this blog. They basically provide free publications and white papers on various topics ranging from finance and banking to internet and IT. Check out the Free Financial Magazines link.

While most all of them are free of charge, they will normally ask you a few questions before approving you for your selections, so be ready to answer a short couple of questions about yourself. Browse through the list of free magazines, white papers, downloads and podcasts to find the titles and editions that best match your skills and interests; topics include accounting, education, automotive, electronics, construction, internet, medicine, banking, financial planning, multi-media and trading. You just have to fill in the application form completely and submit it in order to be approved for them.

Most of these magazines are ad-supported, so they do need you to sign up to increase readership. I do get a commission if you do sign up however. I hope you’ll find that useful - let me know if you have any questions about the service!

Attractive Dividend Stocks in the buy zone

Most investors were scared from the severe drops in global stock markets last week, caused by the freezing of the debt markets and the global recession fears which the tightening of the credit markets might cause. Most stocks have suffered double digit percentage losses since the start of the year, even after yesterdays record rally. It’s no place to panic however. Historically the average duration of bear markets has been about 18 months since the great depression. Since 1956 however the average duration of bear markets has been about fourteen months.
It has taken S&P 500 about 5.2 years on average to recover from to above its bear market highs since 1929. If we check the same parameter starting in 1956 the average recovery time from a bear market comes out to 2.8 years on average.

I think that now is a perfect time to start looking for bargains and then dollar cost average in them. I would then consider ignoring most pundits out there who claim that this time it is different and that the world is coming to an end and instead focus on companies which have survived many recessions and bear markets while increasing their earnings and dividends to shareholders for many years. One great list to start with is the dividend aristocrats maintained by Standard and Poors.

I selected the following dividend aristocrat stocks which fit these criteria:

1. P/E ratio is under 20
2. Dividend Payout Ratio is under 50%
3. Dividend yield is at least 2%
4. 5 year dividend growth rate is at least 6%

I came out with the following list. You could also open the list from this link.



It is in times when gurus claim that fundamentals don’t matter any more when the astute investor will find great value stocks with decent moats at fire sale prices. Sometimes the market brings you fat pitches and it’s up to you to swing or not. As a dividend value investor however I am perfectly ok if the stock market unchanged or lower for several months or even years as I am certain that most dividend aristocrats will keep paying dividends and even better- increase them. Thus I will continue getting a return on my investment no matter what.

Full Disclosure: Long JNJ, PG, ADM, ADP, EMR, FDO, GWW, JNJ, MHP, MMM, MTB , PEP, PG, SHW, STT, XOM

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