Warren Buffett – The Ultimate Dividend Investor

Warren Buffett is the greatest investor in America. The famous value investor topped Forbes richest individuals list in 2008, overthrowing his pal Bill Gates from Microsoft from his twelve year period of holding this title. Investors have long followed Buffett’s advice on stock selection, economic issues and his pure genius common sense and business acumen. In a previous post I highlighted the individual holdings in Buffett’s Berkshire Hathaway portfolio as of June 30, 2008. This was a timely post, as Buffett recently made some major headlines when he announced that he was buying American stocks. Before investors follow Buffett's advice, they should understand the nature of the stocks that are in the Berkshire's portfolio. 

It seems to me that out of 38 holdings in BRK-A’s portfolio 12 companies are dividend aristocrats, one is a dividend champion and three are dividend achievers. Only 5 of his holdings do not play any dividends at all. One of its holdings’ business purpose (CDCO.ob) is limited to the orderly runoff or sale of its remaining assets. Based off current dividend payments for the stocks in his portfolio, Berkshire Hathaway makes $1.65 billion in dividend income per year. You could open the spreadsheet from this link as well. 

I am not at all surprised that the Oracle of Omaha has almost half of his portfolio in good quality dividend growers. Most companies that have managed to increase their dividends for long periods of time are ones that have wide moats as well as excellent competitive advantages in the marketplace. Having these qualities leads to rising earnings which tend to support a steady pace of increase in dividends. 

On a cautious note however, I would do my own homework before investing in any stocks that Berkshire Hathaway owns. Some of his holdings like Bank of America (BAC) recently cut their payments by 50% which prompted a massive drop in the stock. 

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Nucor Corporation (NUE) Dividend Stock Analysis

Nucor Corporation and its subsidiaries engage in the manufacture and sale of steel and steel products in North America. It operates in two segments, Steel Mills and Steel Products.
Nucor Corporation is a dividend aristocrat as well as a component of the S&P 500 index. It has been increasing its dividends for the past 34 consecutive years. From the end of 1998 up until October 2008 this dividend growth stock has delivered an annual average total return of 14.70 % to its shareholders. This year however the stock is down about 40% as the commodity boom seems to have dried up the demand for materials, including steel, across the globe.

At the same time company has managed to deliver an 24.20% average annual increase in its EPS since 1998.

The ROE has increased from 13% range in 1998 to 30% by 2007.

Annual dividend payments have increased by an average of 39.70% annually over the past 10 years, which is much higher than the growth in EPS. Nucor’s last quarterly payment of $0.52/share consisted of $0.32 of regular dividend and $0.20/share in supplemental dividends.
A 40% growth in dividends translates into the dividend payment doubling almost every 2 years. If we look at historical data, going as far back as 1973, NUE has actually managed to double its dividend payment every four years on average. The last major dividend raise was between 2005 and 2006 when dividends increased by a whooping 475% in one year, helped by increased demand for metals worldwide. After this major move total dividends paid have actually decreased by 15% mainly because of a decrease in the supplemental dividends.

If we invested $100,000 in NUE on December 31, 1998 we would have bought 9249 shares (Adjusted for two 2:1 stock splits in 2004 and 2006). In March 1999 your quarterly dividend income would have been $300. If you kept reinvesting the dividends though instead of spending them, your quarterly dividend income would have risen to $5806 by September 2008. For a period of 10 years, your quarterly dividend income would have increased sixteen times. If you reinvested it however, your quarterly dividend income would have increased over nineteen times!
Investors should proceed with caution in the future as such dividend growth rates are definitely unsustainable given the recent collapse in commodities prices and talk about deflation and depression.

The dividend payout has slowly increased from upper twenties to high forties over our study period. A lower payout is always a plus, since it leaves room for consistent dividend growth minimizing the impact of short-term fluctuations in earnings.

I think that NUE is attractively valued with its low price/earnings multiple of 5, a not too high DPR, as well as an above average dividend yield at 5.90% (3.80% if you only count the base dividend). The current dividend yield is way above average for this stock which could compensate for the lower expected growth in company’s fundamentals or even be a warning sign that Nucor’s dividend is in danger.

I do believe that NUE is an attractive buy candidate on dips below $32, since it adds some further diversification exposure to a dividend growth portfolio. Since Nucors main business, steel is a highly cyclical business I would proceed in purchasing NUE stock cautiously. Over the next few years I wouldn’t be surprised if this stock retraces all of its gains during the 2003- 2007 bull market and ends up below $20/share.

This post appeared on 114th Edition of the Festival of Stocks

Full Disclosure: None

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Dividend Yields are rising

The falling stock prices have pushed dividend yields on major US indices like S&P 500 and Dow Jones to levels not seen since the early 1990’s. The current trailing 12 month dividend rate for the Dow Diamonds ETF (DIA) that tracks Dow Industrials average is $ 3.02, which makes for a dividend yield of 3.64%.

The current trailing 12 month dividend rate for the SPDRs ETF (SPY) which tracks the S&P 500 is $2.78 which makes up for a current yield of 3.20%.

Given the uncertainty of corporate earnings amidst the current recession, the market is probably pricing in the fact that the dividend cuts which have largely been concentrated to the financial sector, would spread over to other industries as well.

S&P didn’t help either as it lowered its dividend growth forecast for the S&P 500 dividends to a little over 1% from the 2007 dividend rate of $27.73. Furthermore S&P maintained a cautious outlook for dividend growth in general in 2009, since some of the recent dividend cuts by financials won’t be felt until next year.

The current crisis will most probably result in a halt to the strong dividend growth experienced by S&P 500 companies over the past 30 years. It would be interesting to see whether the dividend growth would plateau like it did during the 2000-2002 bear market or it would reverse as many companies across all industries are affected by the slowdown.

As the current yields on stock market indexes are going up north, I would update my screening model to reflect the current marke conditions and to only select issues which have current yields of at least 3.00% up from 2%.

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Constellation Energy (CEG) Merger Arbitrage Opportunity

One of the four techniques implemented by Benjamin Graham was merger arbitrage. There’s been some good evidence that this strategy has worked for several decades for some value investors such as Graham and Buffett, producing double digit returns.

Buffett had a nice discussion on his arbitrage experience with Arcata Corp in the 1980’s in his 1988 letter to shareholders.

To evaluate arbitrage situations you must answer four questions:
(1) How likely is it that the promised event will indeed occur?
(2) How long will your money be tied up?
(3) What chance is there that something still better will transpire - a competing takeover bid, for example?
(4) What will happen if the event does not take place because of anti-trust action, financing glitches, etc.?

This leads us to the potential acquisition of Constellation Energy by Berkshire’s MidAmerican Holdings. George from Fat Pitch Financials was the first to alert his readers on this opportunity. The merger has already been announced in September at a price of $26.50/share in cash. In addition, MidAmerican provided an immediate $1 billion cash infusion to Constellation Energy through the purchase of preferred equity. The definitive agreement has been approved by both companies’ boards of directors and is subject to, among other things, shareholder and customary federal and state regulatory approvals.

The transaction is expected to close within nine months from September 19th announcement date. The agreement expires nine months after its execution but may be extended by either company for up to three months.

If the deal does not materialize for some reason or another the stock could easily drop precipitously, as the company might face a drop in its debt ratings and loss of confidence from its trading partners. I do believe however that if the deal with Midamerican were to be canceled, EDF might still step in and make a competing offer, but the terms might not be as good for CEG’s shareholders. EDF did offer $35/share previously, but Constellation’s board rejected the offer and chose Berkshire’s MidAmerican Holdings offer instead. Given the ample liquidity that Berkshire Hathaway has at the moment I do believe that the merger has a higher chance of occurring.

I would be considering purchasing CEG on dips below $23.50. One definitely has to be nimble with this position however; therefore I would look into exiting some or all of my positions in CEG on spikes above $25.50. This is highly speculative position, which is geared towards absolute performance. CEG currently pays a quarterly dividend of $0.4775/share, which makes up for an annual yield of 8.20%.

For updates on Constellation and MidAmerican check out this website. In addition to that check the PRELIMINARY PROXY STATEMENT AMENDMENT filed with the SEC from this link.

Full Disclosure: I am long CEG

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5 dividend stocks increasing their payments in this tough market

Last week we saw further market volatility as major indexes continued extending their losses for October, which could turn out to be the worst month for the markets since 1938. There was an announcement from S&P which decreased the expected dividend growth for 2008 to 1.20% and also provided a cautionary outlook for dividends and earnings in 2009.

Despite all the doom and gloom there were several notable dividend increases over the past week.

Microchip Technology (MCHP), a leading provider of microcontroller and analog semiconductors, announced an increase in the dividend to 33.9 cents per share. Microchip initiated quarterly cash dividend payments in the third quarter of fiscal year 2003 and has increased the cash dividend by 9.4% from the dividend level one year ago. The stock currently yields a whooping 6.30%. I doubt that future dividend raises could increase at the same rate, given the high payout ratio, unless of course earnings could triple by the end of the next decade.

Aflac's (AFL) announced that its Board has approved a 16.70% increase in its quarterly dividend from $0.24 to $0.28 per common share effective first quarter of 2009. Aflac is a dividend aristocrat which has increased its dividends for 26 consecutive years. The stock currently yields 2.60%.

Eaton Vance Corp. (EV) announced that its Board has approved a 3% increase in its quarterly dividend from $0.15 to $0.155 per common share. The company is a member of the dividend achievers index having increased its dividends for over 2 decades. The stock currently yields 3.40%.

Goodrich Corporation (GR)announced that its Board approved an 11% increase in its quarterly dividend from $0.225 to $0.25 per common share. Despite this raise and last years double digit dividend increase, the company only has two years of back to back dividend increases over the past decade. The stock currently yields 2.90%.

Airgas, Inc (ARG) announced that its Board approved an 33% increase in its quarterly dividend from $0.12 to $0.16 per common share. The company has paid dividends since 2003 and the new rate is over five times the quarterly dividend payments in 2003. The stock currently yields 1.60%.

As always, the dividend increases list led me to put AFL and EV on my list for further research.

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Buffett's Berkshire Hathaway Stock Portfolio Holdings

Warren Buffett, the student of the now famous father or value investing Ben Graham, is the greatest stock investor of our times. He has built his flagship company, Berkshire Hathaway from a small mill to a diversified conglomerate with a total market cap of 175 billion dollars. His company holds a wide portfolio of over 30 individual stocks traded on US exchanges in addition to many private companies like Nebraska Furniture Mart and Geico. Despite the fact that it is generally not recommended to follow guru’s advice blindly without doing your homework, researchers have proven the fact that mimicking Berkshire Hathaway’s stock portfolio would have yielded tremendous gains over the past 30 years.

Below you could find Berkshire Hathaway’s stock holdings as of 6/30/2008. You could open the spreadsheet from this link as well.

This article originally appeared on The DIV-Net one week ago. It also appeared on 37th Carnival of Money Hacks: Wonders of the World.

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Dividend Aristocrats are outperforming the markets in 2008

The Standard&Poors maintains several dividend indexes containing some quality large cap stocks for aspiring dividend investors.

The indexes are:

- The S&P Dividend Aristocrats Index which measures the performance of S&P 500 index constituents that have followed a policy of consistently increasing dividends every year for at least 25 consecutive years. You could view the current list of components of the Dividend Aristocrats index from this page. This index is reviewed every December, thus I expect several companies which cut their payments to shareholders in 2008 to be booted out of the index in two months.

- The S&P High Yield Dividend Aristocrats Index is tracking the performance of the 50 highest yielding Dividend Aristocrats in the S&P 500 index. You could view the current components of this index on this page. This index is the only dividend aristocrats’ index that can actually be bought and sold through an ETF. The ticker of the High-Yield Dividend Aristocrats ETF is SDY.

- The S&P Europe 350 Dividend Aristocrats index tracks the performance of the stocks in the S&P Europe 350 Index which have increased their dividend payments for over 10 consecutive years. The current list of constituents could be found here.

- The S&P/TSX Canadian Dividend Aristocrats list tracks the performance of the S&P/Citigroup Broad Market Index of Canadian equities which have increased their dividends for at least seven consecutive years. You could access the constituents list from here.

The power of the dividend aristocrats has been evident in a turbulent year like 2008 so far. Below you could find the year to date performance of three out of the four indexes mentioned above: (Source S&P)

S&P Dividend Aristocrats Index -20.69%
S&P High Yield Dividend Aristocrats Index -21.92%
S&P Europe 350 Dividend Aristocrats index -34.93%

In comparison the S&P 500 index has lost 34.84% of its value since the beginning of the year as of October 17, while the S&P Europe 350 Index has lost 38.49%.

This goes to prove that the dividend aristocrat indexes have shown once again that dividend investors get the best of both worlds – rising dividend income as well as better price returns over time as compared to broad market indexes. This of course is not a one year phenomenon - the S&P Dividend Aristocrats Index has outperformed the S&P 500 over 50% of the time since its launch in 1989.

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Berkshire Hathaway Historical Total Return Performance

The markets have been pretty terrible this year with the S&P 500 and Dow Jones industrials falling 36% and 33% respectively from the end of the year. Major indexes still remain about 39% off their all time highs set just one year ago. Many asset classes have declined in value including real estate investment trusts, international stocks, mid cap and small cap equities,foreign currencies as well as commodities. In these trying times for investors, people are turning to the richest stock investor on planet earth, Warren Buffett, for advice. Historically a portfolio of stocks mimicking his flagship company Berkshire Hathaway’s portfolio holdings would have outperformed the markets. In addition to that Berkshire Hathaway A shares have delivered an annualized total return of 25% since 1976. This year the stock is down 15%. If history is any guide however, Berkshire will bounce back and reward patient investors handsomely. Check out Berkshire Hathaway's list of stock holdings from this link.

Check the table below for historical performance of BRK-A share values at year end since 1976.


If Buffett is truly buying american stocks, then the logical step of following his advice is let him do all the work by purchasing Berkshire Hathaway A or B shares.

Full Disclosure: None

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Three Notable Dividend Increases over the past week

Ever since Cramer went on the Today Show and advised investors with shorter term goals to sell stocks if they planned to hold for less than five years, he’s been mostly been ostracized in the news. I do believe however that this was a useful piece of advice for anyone that needs the money in less than half a decade from now. Jim Cramer gave another good piece of advice last week when he advised investors who are scared from the enormous volatility in the stock markets to simply purchase dividend paying stocks. The reasoning behind that is that no matter what the daily range of the S&P 500 is, dividend stocks should still be viewed as a business governed by fundamentals and not some sort of fancy lottery tickets. No matter how volatile your stocks are, as long as they are fundamentally sound and have a business model that supports increasing their dividend payments over time, just like my favorites in the dividend aristocrats and achievers lists, you have nothing to worry about.

Despite all the record volatility and record price whipsaws up and down, there were several stocks that showed enough confidence in their future earnings ability to declare modest dividend increases.

PPG Industries (PPG) declared a regular quarterly dividend of 53 cents a share, an almost 2% increase over PPG’s prior quarterly dividend of 52 cents a share. PPG Industries is a dividend aristocrat as well as a component of the S&P 500 index. It has been increasing its dividends for the past 36 consecutive years. PPG currently yields 4.70 %

VF Corporation (VFC) Board of Directors declared a quarterly cash dividend of $.59 per share, an increase of $.01. It is a dividend aristocrat as well as a component of the S&P 500 index. It has been increasing its dividends for the past 34 consecutive years. VFC currently yields 4.20%.


Kinder Morgan Energy Partners, L.P. (KMP) increased its quarterly cash distribution per common unit from $0.99 to $1.02. Kinder Morgan Energy Partners, L.P. owns and manages energy transportation and storage assets in North America. The partnership currently yields 8.70%.

Of these three stocks, only KMP looks promising in terms of dividend growth. Check out my analysis of the stock for your reference.

Full Disclosure: Long KMR

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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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8 Dividend Stocks raising their payments in this tough market

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

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 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.

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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.

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

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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).

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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