After hitting a low at $126.07 on March 17, SPY has bounced off strongly off those lows. Coincidentally the March lows for the ETF were pretty close to the January 22nd lows at $126. This created a chart formation which most technical analysts out there refer to as a double bottom, which is bullish for stocks.
The second catalyst that made me a big believer that the bottom is in was an article, published in the WSJ, called "Stocks Tarnished By 'Lost Decade'".
Initially, after reading the title, I decided that US stocks have been a terrible performer over the past 10 years. I wished I had bought emerging market funds or commodities ten years ago. But then I remembered that such major headlines always come at major market bottoms. Typically when headlines scream bull or bear a good contrarian strategy is to run in the opposite way.
For example, in August 1979 a famous headline “The Death of Equities” marked a bottom in the US stock market. The S&P 500 rallied over 40% until 1983, when another headline “Rebirth of equities” appeared.
Thus, as long as the SPY does not close below $126, I would be bullish on the stock market. In addition to that, I believe that US stocks would outperform most if not all of the asset classes which it has been outperformed by over the past decade. This includes international stocks, emerging markets and even commodities.
For the past 137 years, US stocks’ annual returns have been negative only 37 times. If history is any guide, I would expect stocks to keep rising 73% of the time. In addition, the average annual gain after a losing year was 11.73% versus a 9.98% return after a winning year.
Related Articles
- SPY at a crossroads
- Diversification Matters
- Dividend Stocks Watchlist
- Dollar Cost Averaging
Saturday, March 29, 2008
Friday, March 28, 2008
Clorox (CLX) Dividend Analysis
The Clorox Company manufactures and markets a range of consumer products.
It is a dividend aristocrat as well as a component of the S&P 500 index. Over the past 10 years this dividend growth stock has delivered an annual average total return of 7.20 % to its shareholders. At the same time company has managed to deliver an impressive 13.40% average annual increase in its EPS.
It is a dividend aristocrat as well as a component of the S&P 500 index. Over the past 10 years this dividend growth stock has delivered an annual average total return of 7.20 % to its shareholders. At the same time company has managed to deliver an impressive 13.40% average annual increase in its EPS.
Annual dividend payments have increased over the past 10 years by an average of 9% annually, which is less than the growth in EPS. A 9% growth in dividends translates into the dividend payment doubling almost every 8 years. If we look at historical data, going as far back as 1987, CLX has actually managed to double its dividend payments every seven years. This is because the company had a faster dividend growth rate in the 1980’s and early 1990’s.
If we invested $100,000 in CLX on December 31, 1997 we would have bought 6991 shares (Adjusted for 2:1 stock split in August 1999). Your first dividend payment would have been $403.20 in January 1998. If you kept reinvesting the dividends though instead of spending them, your quarterly dividend payment would have risen to $1219.60 by October 2007. For a period of 10 years, your quarterly dividend income has increased by 150 %. If you reinvested it though, your quarterly dividend income would have increased by 199%.
The dividend payout has remained below 50% since 2003. 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 CLX is attractively valued with its low price/earnings multiple of 17 and above-average yield at 2.80%. (which is higher than the 2.03% yield on the SPY)
Disclosure: I own shares of CLX
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Thursday, March 27, 2008
Diversification Matters
Last week Bear Stearns was bought by JP Morgan Chase for about $10/share. The stock has traded as high as 170 last year. Investors lost a ton of money in this stock. Employees were hard hit as well, as they own a combines % of the company through ESOP.
A review from over two million investors portfolios in a major US online brokerage, found that nearly one-third held more than 20% of their assets in just one stock. Imagine if they are invested in the next WorldCom or Enron?
There are four types of portfolio diversification in order to decrease overall risk, without sacrificing the potential rewards.
The first one is to diversify across asset classes. Each individual needs to find the appropriate asset mix of stocks, bonds, cash, real-estate and other asset classes in order to achieve the best rewards for the risk taken. During the 2000-2002 bear market, investors in the S&P 500 index fund lost 9% in 2000, in 12% 2001 and 22% in 2002. Adding a simple 20% allocation of bonds to the portfolio would have decreased the losses to 3.3%, 8.75% and 14.40% respectively.
The second strategy is to diversify within asset classes. For example stocks are broken down into:
Large Cap Growth
Large Cap Value
Mid-Cap Growth
Mid-Cap Value
Small-Cap Growth
Small-Cap Value
International Emerging Markets
International Developed Markets
There are several types of bond investments as well. These include:
Corporate Bonds
Municipal Bonds
International Bonds
Mortgage-Backed Securities
Zero-Coupon Bonds
High-Yield Bonds
T-Bonds
Short-Term Bonds
An investor who had all of their assets in Nasdaq Stocks at the top of the dot-com bubble would have been much better off if they had invested in other asset classes. An easy way to diversify within asset classes is by buying low-cost Mutual Funds or Exchange-Traded-Funds.
Diversifying across Time is a third strategy to minimize investment risk. Although Dollar-Cost Averaging does reduce investment returns in a given short-term period (DCA) ,it reduces the risk of investing all of your funds in an underperforming asset class at the top. This increases the probability that investors would actually stick to their asset class allocation even in uncertain markets.
Diversifying across strategies is fourth way to reduce risk
Although most investors would be better off with a proper stock/bond index fund allocation adding an active strategy could reduce risk in tough times. An example of that could be investing in dividend stocks like the dividend aristocrats for example. Other types of strategies include ( but are not limited to ) selling covered calls, investing in Dogs of the Dow.
Related Articles
- Dividend Stocks Watchlist
- Dollar Cost Averaging
- Long-Term returns of the S&P High Yield Dividend Aristocrats
- The pros and cons of selling covered calls on dividend paying stocks
A review from over two million investors portfolios in a major US online brokerage, found that nearly one-third held more than 20% of their assets in just one stock. Imagine if they are invested in the next WorldCom or Enron?
There are four types of portfolio diversification in order to decrease overall risk, without sacrificing the potential rewards.
The first one is to diversify across asset classes. Each individual needs to find the appropriate asset mix of stocks, bonds, cash, real-estate and other asset classes in order to achieve the best rewards for the risk taken. During the 2000-2002 bear market, investors in the S&P 500 index fund lost 9% in 2000, in 12% 2001 and 22% in 2002. Adding a simple 20% allocation of bonds to the portfolio would have decreased the losses to 3.3%, 8.75% and 14.40% respectively.
The second strategy is to diversify within asset classes. For example stocks are broken down into:
Large Cap Growth
Large Cap Value
Mid-Cap Growth
Mid-Cap Value
Small-Cap Growth
Small-Cap Value
International Emerging Markets
International Developed Markets
There are several types of bond investments as well. These include:
Corporate Bonds
Municipal Bonds
International Bonds
Mortgage-Backed Securities
Zero-Coupon Bonds
High-Yield Bonds
T-Bonds
Short-Term Bonds
An investor who had all of their assets in Nasdaq Stocks at the top of the dot-com bubble would have been much better off if they had invested in other asset classes. An easy way to diversify within asset classes is by buying low-cost Mutual Funds or Exchange-Traded-Funds.
Diversifying across Time is a third strategy to minimize investment risk. Although Dollar-Cost Averaging does reduce investment returns in a given short-term period (DCA) ,it reduces the risk of investing all of your funds in an underperforming asset class at the top. This increases the probability that investors would actually stick to their asset class allocation even in uncertain markets.
Diversifying across strategies is fourth way to reduce risk
Although most investors would be better off with a proper stock/bond index fund allocation adding an active strategy could reduce risk in tough times. An example of that could be investing in dividend stocks like the dividend aristocrats for example. Other types of strategies include ( but are not limited to ) selling covered calls, investing in Dogs of the Dow.
Related Articles
- Dividend Stocks Watchlist
- Dollar Cost Averaging
- Long-Term returns of the S&P High Yield Dividend Aristocrats
- The pros and cons of selling covered calls on dividend paying stocks
Wednesday, March 26, 2008
FDO Dividend Analysis
Family Dollar Stores, Inc. operates a chain of neighborhood retail discount stores in the United States. It offers general merchandise in four categories: consumables, home products, apparel and accessories, and seasonal and electronics.
Family Dollar Stores is a dividend aristocrat as well as a component of the S&P 500 index. Over the past 10 years this dividend growth stock has delivered an annual average total return of 4.50 % to its shareholders. After peaking at 44 in late 2003 though, the stock has gone nowhere for four years.
Family Dollar Stores is a dividend aristocrat as well as a component of the S&P 500 index. Over the past 10 years this dividend growth stock has delivered an annual average total return of 4.50 % to its shareholders. After peaking at 44 in late 2003 though, the stock has gone nowhere for four years.
At the same time company has managed to deliver an impressive 12.66% average annual increase in its EPS over the past nine years.
The ROE has been hovering in the 15% - 21 % range over the past 10 years.
Annual dividend payments have increased over the past 10 years by an average of 11.20% annually, which matches 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, FDO has indeed managed to double its dividend payments every six years.
If we invested $100,000 in FDO on December 31, 1997 we would have bought 6991 shares (Adjusted for 2:1 stock split in April 1998). Your first dividend payment would have been $314.60 in March 1998. If you kept reinvesting the dividends though instead of spending them, your quarterly dividend payment would have risen to $980.50 by December 2007. For a period of 10 years, your quarterly dividend income has increased by 155 %. If you reinvested it though, your quarterly dividend income would have increased by 212%.
The dividend payout has remained below 35% over the past 10 years. 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 FDO is attractively valued with its low price/earnings multiple of 13 and slightly above-average yield at 2.30%.
Disclosure: I own shares of FDO
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Monday, March 24, 2008
Wal-Mart Dividend Analysis
Wal-Mart Stores, Inc. operates retail stores in various formats worldwide. It operates through three segments: Wal-Mart Stores, Sam's Club, and International.
The company is a dividend aristocrat as well as a major component of the S&P 500 and Dow Jones Industrials indexes. Over the past 10 years this dividend growth stock has delivered an annual average total return of 10.50 % to its shareholders. The majority of the gains came in the late 1990’s. After peaking at 70.25 in late 1999 though, the stock has gone nowhere for 8 years.
At the same time company has managed to deliver an impressive 16% average annual increase in its EPS.
Disclosure: I own shares of WMT
The company is a dividend aristocrat as well as a major component of the S&P 500 and Dow Jones Industrials indexes. Over the past 10 years this dividend growth stock has delivered an annual average total return of 10.50 % to its shareholders. The majority of the gains came in the late 1990’s. After peaking at 70.25 in late 1999 though, the stock has gone nowhere for 8 years.
At the same time company has managed to deliver an impressive 16% average annual increase in its EPS.
The ROE has been hovering in the 18% - 20 % range over the past 10 years.
Annual dividend payments have increased over the past 10 years by an average of 21% annually, which exceeds the growth in EPS. A 21% growth in dividends translates into the dividend payment doubling almost every 3.5 years. If we look at historical data, going as far back as 1993, WMT has indeed managed to double its dividend payments every three and a half years.
If we invested $100,000 in WMT on December 31, 1997 we would have bought 5071 shares (Adjusted for 2:1 stock split in April 1999). Your first dividend payment would have been $197.77 in March 1998. If you kept reinvesting the dividends though instead of spending them, your quarterly dividend payment would have risen to $1211 by December 2007. For a period of 10 years, your quarterly dividend income has increased by 464 %. If you reinvested it though, your quarterly dividend income would have increased by 612%.
The dividend payout has increased from 20% to 30% over the past 10 years. 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 WMT is attractively valued with its low price/earnings multiple of 17 and yield at 1.90%.
Disclosure: I own shares of WMT
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Friday, March 21, 2008
Dividend Growth Stocks Watchlist
The two lists that I am concentrating right now are the S&P 500 Dividend Aristocrats and the S&P High Yield Dividend Aristocrats Index.
I created custom watch lists in Yahoo! Finance in order to summarize the two groups of dividend achievers by a variety of criteria such as Symbol, Yield, P/E , Div/Shr, Last Price,EPS (ttm) ,PEG Ratio ,Dividend Payout, 5 year dividend growth rate.
What I did was first exclude any stocks which had a dividend payout ratio of more than 50%. That gives me some reasonable assurance that the company is less likely to cut its dividends. I also look at P/E ratios, since I do not want to overpay for a company. Anything with a P/E of over 20 is out of my watchlist.
I also look for the PEG ratio but just to find stocks which might be expensive in terms of their growth prospects.
A third thing that I look for is a dividend yield of at least 2%, which is a little bit over than the current yield of 2.00% that SPY is rewarding its shareholders.
The last but not least criteria that I screen for is the 5 dividend growth ratio. I am looking for an average annual dividend growth of at least 5% over the past 5 years. The reason why I selected dividend growth in the end is because I want to decrease to a minimum the rush to buy a stock that simply increased its dividend for whatever reason, whose fundamentals cannot support any significant further increases in the dividend payments.
Based off of this screen, here is my stock lists that I follow :
I would continue screening for potential stocks to add to my buy watchlist on a monthly basis. I might add or remove stocks from my watchlist depending on how undervalued/overvalued I perceive them to be. If I stock in which I have a position drops off my buy watchlist, I would keep holding it, but I won’t be adding to that position until the technical’s and the fundamentals match my criteria.
I created custom watch lists in Yahoo! Finance in order to summarize the two groups of dividend achievers by a variety of criteria such as Symbol, Yield, P/E , Div/Shr, Last Price,EPS (ttm) ,PEG Ratio ,Dividend Payout, 5 year dividend growth rate.
What I did was first exclude any stocks which had a dividend payout ratio of more than 50%. That gives me some reasonable assurance that the company is less likely to cut its dividends. I also look at P/E ratios, since I do not want to overpay for a company. Anything with a P/E of over 20 is out of my watchlist.
I also look for the PEG ratio but just to find stocks which might be expensive in terms of their growth prospects.
A third thing that I look for is a dividend yield of at least 2%, which is a little bit over than the current yield of 2.00% that SPY is rewarding its shareholders.
The last but not least criteria that I screen for is the 5 dividend growth ratio. I am looking for an average annual dividend growth of at least 5% over the past 5 years. The reason why I selected dividend growth in the end is because I want to decrease to a minimum the rush to buy a stock that simply increased its dividend for whatever reason, whose fundamentals cannot support any significant further increases in the dividend payments.
Based off of this screen, here is my stock lists that I follow :
I would continue screening for potential stocks to add to my buy watchlist on a monthly basis. I might add or remove stocks from my watchlist depending on how undervalued/overvalued I perceive them to be. If I stock in which I have a position drops off my buy watchlist, I would keep holding it, but I won’t be adding to that position until the technical’s and the fundamentals match my criteria.
Thursday, March 20, 2008
3M dividend analysis
3M Company, together with its subsidiaries, operates as a diversified technology company worldwide. It operates in six segments: Industrial and Transportation; Health Care; Display and Graphics; Consumer and Office; Safety, Security, and Protection Services; and Electro and Communications.
It is a dividend aristocrat as well as a major component of the S&P 500 and Dow Jones Industrials indexes. Over the past 10 years this dividend growth stock has delivered an annual average total return of 11.20% to its shareholders. The company has managed to deliver an impressive 17.90% average annual increase in its EPS through organic growth and share buybacks. Management has consistently bought back 1.2% of outstanding shares each year for the past 10 years, spending a little over $9.9 billion in the process.
It is a dividend aristocrat as well as a major component of the S&P 500 and Dow Jones Industrials indexes. Over the past 10 years this dividend growth stock has delivered an annual average total return of 11.20% to its shareholders. The company has managed to deliver an impressive 17.90% average annual increase in its EPS through organic growth and share buybacks. Management has consistently bought back 1.2% of outstanding shares each year for the past 10 years, spending a little over $9.9 billion in the process.
The ROE has been increasing steadily over our study period, rising from a low of 20% in 1998 to 35% by 2007.
Annual dividend payments have increased over the past 10 years by an average of 6.20% annually, which is significantly below the growth in EPS. The company is moving aggressively into growth markets and has been fairly active on the acquisition front, which explains the relatively low dividend growth rate. A 6 % growth in dividends translates into the dividend payment doubling every 12 years. If we look at historical data, going as far back as 1970, MMM has actually managed to double its dividend payments on average every eight and a half years.
If we invested $100,000 in MMM on December 31, 1997 we would have bought 2437 shares (Adjusted for 2:1 stock split in September 2003). Your first quarterly dividend check would have been $670.17 in February 1998. If you kept reinvesting the dividends though instead of spending them, your quarterly dividend payment would have risen to $1455.84 by November 2007. For a period of 10 years, your quarterly dividend payment has increased by 75 %. If you reinvested it though, your quarterly dividend income would have increased by 128%.
The dividend payout has been in a downtrend over the past 10 years, falling from 76% in 1998 to 34% in 2007. Normally this is always a plus, since it leaves room for consistent dividend growth minimizing the impact of short-term fluctuations in earnings. In 3M’s case cash is being invested in new business ventures which could provide nice payoffs for shareholders if executed properly. 3M is the ultimate dividend aristocrat but also growth stock.
I think that MMM is attractively valued with its low price/earnings multiple of 14 and above-average yield at 2.50%.
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Wednesday, March 19, 2008
The case for dividend investing in retirement
At the start of the new millennium, about 12% of the U.S. population was over 65 years old. According to the U.S. Census Bureau, the baby boom segment of the population is expected to rise over the next two decades and approach 42% by 2030.
Investors who are approaching retirement are typically sold a wide array of fixed income investments like bonds, bond funds, annuities and many other fixed income instruments. Those solutions do provide dependable income but with one significant drawback though– they don’t account for the eroding value of inflation. Even a modest 3% annual inflation rate corresponds to a 24% decline in purchasing power after 9 years.
As the first wave of baby boomers reaches the age of retirement in 2006, they are likely to shift their investment focus to unearned, investment income. While this will not happen overnight, the demographic trends are notable and could drive a major demand shift towards dividend-paying stocks – and consequently, the potential for price appreciation. Dividends have historically accounted to 40% of the total stock returns over the past 80 years.
Stocks that pay dividends provide a nice inflation hedge since their revenues and net income would be affected by an increase in overall prices paid by consumers. Dividends soften losses during bear markets, and they provide the only sources for investment gains in troublesome times. In addition, dividend income takes away the need to sell large chunks of your portfolio in a declining market. Retirement income could be solely derived from dividends and their growth would compensate the dividend investor for the erosion in the purchasing power of the dollar.
If a retiree holds a diversified portfolio of stocks which have the ability to grow their dividend payments over time, they would be well prepared for retirement. They should be focusing on stocks with high yields and ability to grow dividends; stocks with average yields but with above average dividend growth and some domestic and foreign index funds for diversification.
There are several dividend ETF’s out there. The ones, geared towards dividend income growth include the PFM PHJ PEY and SDY. With yields of around 3% - 4% and the potential for dividend growth and capital appreciation, retirees could stop worrying about finances and start worrying on the lifestyle changes that retirement brings to them.
Here’s a list of potential ETF’s to consider ( and yields)
PEY 5.4%
PHJ 2.19%
PFM 2.11%
SDY 3.77%
XLU 2.91%
IYR 4.58%
Investors who are approaching retirement are typically sold a wide array of fixed income investments like bonds, bond funds, annuities and many other fixed income instruments. Those solutions do provide dependable income but with one significant drawback though– they don’t account for the eroding value of inflation. Even a modest 3% annual inflation rate corresponds to a 24% decline in purchasing power after 9 years.
As the first wave of baby boomers reaches the age of retirement in 2006, they are likely to shift their investment focus to unearned, investment income. While this will not happen overnight, the demographic trends are notable and could drive a major demand shift towards dividend-paying stocks – and consequently, the potential for price appreciation. Dividends have historically accounted to 40% of the total stock returns over the past 80 years.
Stocks that pay dividends provide a nice inflation hedge since their revenues and net income would be affected by an increase in overall prices paid by consumers. Dividends soften losses during bear markets, and they provide the only sources for investment gains in troublesome times. In addition, dividend income takes away the need to sell large chunks of your portfolio in a declining market. Retirement income could be solely derived from dividends and their growth would compensate the dividend investor for the erosion in the purchasing power of the dollar.
If a retiree holds a diversified portfolio of stocks which have the ability to grow their dividend payments over time, they would be well prepared for retirement. They should be focusing on stocks with high yields and ability to grow dividends; stocks with average yields but with above average dividend growth and some domestic and foreign index funds for diversification.
There are several dividend ETF’s out there. The ones, geared towards dividend income growth include the PFM PHJ PEY and SDY. With yields of around 3% - 4% and the potential for dividend growth and capital appreciation, retirees could stop worrying about finances and start worrying on the lifestyle changes that retirement brings to them.
Here’s a list of potential ETF’s to consider ( and yields)
PEY 5.4%
PHJ 2.19%
PFM 2.11%
SDY 3.77%
XLU 2.91%
IYR 4.58%
Tuesday, March 18, 2008
Five Year Dividend Growth Rates for the High-Yield Dividend Aristocrats
I wanted to check how the dividend growth stocks in the S&P High Yield Dividend Aristocrats List compared to one another in terms of their five year dividend growth rates. The data is taken from Yahoo finance, except for the dividend growth rates, which were taken from dividendinvestor.com website.
Monday, March 17, 2008
Procter & Gamble Dividend Analysis
The Procter & Gamble Company (P&G), together with its subsidiaries, provides branded consumer goods products. The company operates through three global business units (GBU): Beauty, Health and Well-Being, and Household Care.
It is a dividend aristocrat as well as a major component of the S&P 500 and Dow Jones Industrials indexes. Over the past 10 years this dividend growth stock has delivered an annual average total return of 9.30 % to its shareholders. The company has managed to deliver an impressive 11.50% average annual increase in its EPS.
Disclosure: I own shares of PG
It is a dividend aristocrat as well as a major component of the S&P 500 and Dow Jones Industrials indexes. Over the past 10 years this dividend growth stock has delivered an annual average total return of 9.30 % to its shareholders. The company has managed to deliver an impressive 11.50% average annual increase in its EPS.
The ROE had been increasing steadily from 30% to 41% until the acquisition of Gillette in 2005. Currently it is hovering around 15%.
Annual dividend payments have increased over the past 10 years by an average of 11% annually, which matches the growth in EPS. An 11% growth in dividends translates into the dividend payment doubling almost every 7 years. If we look at historical data, going as far back as 1970, PG has indeed managed to double its dividend payments every seven years.
If we invested $100,000 in PG on December 31, 1997 we would have bought 2506 shares (Adjusted for 2:1 stock split in June 2004). Your first dividend payment would have been $315.76 in January 1998. If you kept reinvesting the dividends though instead of spending them, your quarterly dividend payment would have risen to $1048.25 by October 2007. For a period of 10 years, your quarterly dividend income has increased by 178 %. If you reinvested it though, your quarterly dividend income would have increased by 232%.
The dividend payout has remained below 50% for the majority of the time over the past 10 years. This is always a plus, since it leaves room for consistent dividend growth minimizing the impact of short-term fluctuations in earnings.
I think that PG is attractively valued with its low price/earnings multiple of 20 and above-average yield at 2.10%.
Disclosure: I own shares of PG
Saturday, March 15, 2008
Ten Things to Know About Dividends:
1. In general, a company can choose to initiate, suspend, raise, or lower its dividend at any time. Dividends are not guaranteed.
2. However, as cash payments, dividends are non-refundable. Unrealized capital gains can disappear if a stock falls, but the minute a dividend is deposited into your brokerage account, it’s yours to keep.
3. Dividends are the only way you can make money from stocks without losing ownership.
4. Dividends are usually paid in quarterly installments.
5. Some companies also issue “special” one-time dividends. For example, if a company sells off a portion of its business, it might choose to distribute the proceeds to investors.
6. A stock’s indicated dividend (also known as the “current dividend”) is the amount an investor should receive over the next year. For example, if a stock currently pays a quarterly dividend of $0.25 a share, its indicated dividend is $1 a share. Special dividends are not included in the indicated dividend.
7. Investors will often talk about a stock’s yield. The concept is similar to bond yields – i.e. yield is equal to the annual regular dividend payment divided by the stock’s current price. A yield is always expressed as a percentage. For example, a $10 stock that pays an annual dividend of $1 a share has a 10% yield.
8. Unlike earnings or sales, a dividend is not an abstract accounting construct. A company only has two choices: pay the dividend or don’t. This is an important fact: If a company doesn’t have the money, it cannot cover its dividend.
9. Historically, stocks that pay dividends are less volatile and have weathered bad markets better than their peers that don’t pay dividends. For example, in 2002 – the worst year for stocks in decades – the S&P 500 fell 23%. Dividend payers in the S&P 500 only lost 11% while nonpayers fell 30%!
10. As part of the Jobs and Growth Tax Relief Reconciliation Act of 2003, the tax rate on most stock dividend payments was lowered. For most people, the tax rate on qualified dividends is now 15%. An extension, signed in May 2006, guarantees this rate through 2010.
2. However, as cash payments, dividends are non-refundable. Unrealized capital gains can disappear if a stock falls, but the minute a dividend is deposited into your brokerage account, it’s yours to keep.
3. Dividends are the only way you can make money from stocks without losing ownership.
4. Dividends are usually paid in quarterly installments.
5. Some companies also issue “special” one-time dividends. For example, if a company sells off a portion of its business, it might choose to distribute the proceeds to investors.
6. A stock’s indicated dividend (also known as the “current dividend”) is the amount an investor should receive over the next year. For example, if a stock currently pays a quarterly dividend of $0.25 a share, its indicated dividend is $1 a share. Special dividends are not included in the indicated dividend.
7. Investors will often talk about a stock’s yield. The concept is similar to bond yields – i.e. yield is equal to the annual regular dividend payment divided by the stock’s current price. A yield is always expressed as a percentage. For example, a $10 stock that pays an annual dividend of $1 a share has a 10% yield.
8. Unlike earnings or sales, a dividend is not an abstract accounting construct. A company only has two choices: pay the dividend or don’t. This is an important fact: If a company doesn’t have the money, it cannot cover its dividend.
9. Historically, stocks that pay dividends are less volatile and have weathered bad markets better than their peers that don’t pay dividends. For example, in 2002 – the worst year for stocks in decades – the S&P 500 fell 23%. Dividend payers in the S&P 500 only lost 11% while nonpayers fell 30%!
10. As part of the Jobs and Growth Tax Relief Reconciliation Act of 2003, the tax rate on most stock dividend payments was lowered. For most people, the tax rate on qualified dividends is now 15%. An extension, signed in May 2006, guarantees this rate through 2010.
Friday, March 14, 2008
Sherwin-Williams Company Dividend Analysis
The Sherwin-Williams Company engages in the manufacture, distribution, and sale of paints, coatings, and related products to professional, industrial, commercial, and retail customers primarily in North and South America. It operates in three segments: Paint Stores, Consumer, and Global.
It is a dividend aristocrat as well as a major component of the S&P 500 index. Over the past 10 years this dividend growth stock has delivered an annual average total return of 12.10 % to its shareholders. The company has managed to deliver an impressive 12% average annual increase in its EPS through organic growth and share buybacks. Management has consistently bought back 4.90% of outstanding shares each year for the past 10 years.
Without the buybacks the growth in EPS would have been 6.90% annually.
The ROE has been increasing steadily over our study period, rising from 17% in 1998 to 30% in 2007.
Annual dividend payments have increased over the past 10 years by an average of 12.4% annually, which matches the growth in EPS. A 12% growth in dividends translates into the dividend payment doubling every 6 years. If we look at historical data, going as far back as 1985, SHW has actually managed to double its dividends every six years.
If we invested $100,000 in SHW on December 31, 1997 we would have bought 3757 shares. Your quarterly dividend income would have been $420.78 in February 1998. If you kept reinvesting the dividends though instead of spending them, your quarterly dividend payment would have risen to $1438.92 by November 2007 and $1606.85 in February 2008. For a period of 10 years, your quarterly dividend income has increased by 212 %.
If you reinvested it though, your quarterly dividend income would have increased by 282%.
The dividend payout has consistently remained under 35% over the past 10 years. This is always a plus, since it leaves room for consistent dividend growth minimizing the impact of short-term fluctuations in earnings.
I believe that SHW is attractively priced at the moment with its low price/earnings multiple of 11.10 and above-average yield at 2.70%.
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Wednesday, March 12, 2008
Dividend Increases in February
Several Dividend Aristocrats have increased their dividends in February. The companies are:
From this list, the only company that fits my fundamental criteria is SHW, which has a one year dividend growth rate of 11.11%.
Expected dividend increases in March
Based off historical information from this spreadsheet, I would expect that the following companies increase their dividend in March: APD, CB, SNV, and WMT. These dividend aristocrats have last increased their dividend payments in March 2007. Upon a closer examination of the dividend growth stock behavior of the 60 dividend aristocrats, it seems that every month there is at least one company that raises its dividend. It’s nice to get a pay raise every month. The only dividend growth stock that has consistently increased its dividend twice in one year since 2003 is STT- State Street.
From this list, the only company that fits my fundamental criteria is SHW, which has a one year dividend growth rate of 11.11%.
Expected dividend increases in March
Based off historical information from this spreadsheet, I would expect that the following companies increase their dividend in March: APD, CB, SNV, and WMT. These dividend aristocrats have last increased their dividend payments in March 2007. Upon a closer examination of the dividend growth stock behavior of the 60 dividend aristocrats, it seems that every month there is at least one company that raises its dividend. It’s nice to get a pay raise every month. The only dividend growth stock that has consistently increased its dividend twice in one year since 2003 is STT- State Street.
Tuesday, March 11, 2008
Anheuser-Busch Dividend Analysis
Anheuser-Busch Companies, Inc., through its subsidiaries, engages in the production and distribution of beer. The company operates in four segments: Domestic Beer, International Beer, Packaging, and Entertainment.
It is a dividend aristocrat as well as a major component of the S&P 500 index. Over the past 10 years this dividend growth stock has delivered an annual average total return of 12.40% to its shareholders.
It is a dividend aristocrat as well as a major component of the S&P 500 index. Over the past 10 years this dividend growth stock has delivered an annual average total return of 12.40% to its shareholders.
The company has managed to deliver an impressive 9.60% average annual increase in its EPS through organic growth and share buybacks. Management has consistently bought back 3% of outstanding shares each year for the past 10 years, spending a little over $12.5 billion in the process. Without the buybacks the growth in EPS would have been 6.60%
annually.
The ROE has been increasing steadily over our study period, rising from a 27% in 1998 to 67% by 2007.
Annual dividend payments have increased over the past 10 years by an average of 9.6% annually, which matches the growth in EPS. A 10% growth in dividends translates into the dividend payment doubling every 7 years. If we look at historical data, going as far back as 1983, BUD has actually managed to double its dividend payments every six years.
If we invested $100,000 in BUD on December 31, 1997 we would have bought 4545 shares (Adjusted for 2:1 stock split in September 2000). Your first quarterly check would have provided you with $590.85 in dividend income in February 1998. If you kept reinvesting the dividends though instead of spending them, your quarterly dividend income would have risen to $1799.16 by November 2007. For a period of 10 years, your quarterly dividend payment has increased by 154 %. If you reinvested it though, your quarterly dividend income would have increased by 204%.
The dividend payout has remained below 50% over the past 10 years. This is always a plus, since it leaves room for consistent dividend growth minimizing the impact of short-term fluctuations in earnings.
I think that BUD is attractively valued with its low price/earnings multiple of 16 and above-average yield at 2.86%.
Disclosure: I do own shares in BUD. This is my analysis of the stock and is not investment advice. Please consult with a licenced investment professional before investing.
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Monday, March 10, 2008
SPY at a crossroads
The stock market has been in a downtrend ever since we hit an all-time-high of $157.52 back on October 11, 2007. This downtrend is characterized by consecutive lower highs and lower lows in the stock market index. Once SPY broke down below their December lows of $139.92, the price has been unable to exceed that level for the majority of the past two months. The rally off January lows for the SPY was capped right at the December lows. Currently the ETF is rapidly approaching its January lows at $126. A break below that level will bring more downside action for SPY and will signal an official bear market. A break below January lows could easily cause a drop to at least $116 - $118 in the SPY. If we do not experience a closing price of below $126 though, it is likely that we would have a double bottom formation from which the market can start building the next bull market.So what should an investor do if we break below $126? A winning strategy since July 2007 has been to stay in cash rather than be invested in equities. Investors could spread their purchases rather than invest all at once using dollar cost averaging. This strategy is most effective during markets like the one we are in nowadays. Investors could also temporarily increase their fixed income allocation in order to be fully prepared for the decline in prices. Once we get a capitulation from the bulls, most stocks will be selling at super attractive bargain prices and yields. Furthermore, once prices start forming higher highs and higher lows this will be a good time to be fully invested in US equities again. If you do not have time to watch the market every day though, there are many other ways for you to react to event in the current market.
A different strategy could be to simply ignore all the short-term market fluctuations and focus on the big picture. By spreading your risk among many industries and not investing all your money at once, you will be better off than the average Joe investor in 2008. Furthermore by investing in dividend growth stocks you will be paid to actually own the shares- and your dividend income will likely increase at the same time. When prices fluctuate wildly the only stable thing for investors is their monthly/quarterly dividend check. Buying stocks when nobody likes equities is one of the best contrarian strategies out there. So go out there, do your homework and stay invested. Good things will happen to you.
Friday, March 7, 2008
Five Year Dividend Growth Rates for Dividend Aristocrats
I wanted to check how the dividend growth stocks in the S&P Dividend Aristocrats List compared to one another in terms of their five year dividend growth rates. The data is taken from Yahoo finance, except for the dividend growth rates, which were taken from dividendinvestor.
You can access the spreadsheet from here.
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Thursday, March 6, 2008
Dividend Analysis of M&T Bank Corporation (MTB)
M&T Bank Corporation operates as the holding company for M&T Bank and M&T Bank, National Association, which provide commercial and retail banking services to individuals, corporations and other businesses, and institutions.
It is a dividend aristocrat as well as a component of the S&P 500 index. Over the past 10 years this dividend growth stock has delivered an average total return of 10.10% annually to its shareholders. The stock price has fallen in 2007 along with other financial issues. If the fundamental financial position does not deteriorate significantly, the company should be able to weather the crisis.
The company has managed to deliver an impressive 10.56% average annual increase in its EPS.
The ROE has been in a 10%-15% range for our study period, which is also an impressive number.
Annual dividend payments have increased over the past 10 years by an average of 24.21% annually, which is above the growth in EPS. A 24% growth in dividends translates into the dividend payment doubling every three years. If we look at historical data, going as far back as 1991, MTB has actually managed to double its dividend payments every four years on average .
If we invested $100,000 in MTB on December 31, 1997 we would have bought 2151 shares. Your quarterly dividend income would have been $172.08 in February 1998. If you kept reinvesting the dividends though instead of spending them, your quarterly dividend income would have risen to $1732.50 by December 2007 and you would be expecting to collect $1747.20 in dividend income in February 2008. For a period of 10 years, your quarterly dividend income has increased by an impressive 775 %. If you reinvested it though, your quarterly dividend income would have increased by an even more impressive 915%.
The dividend payout has been in a steady uptrend over the past 10 years, rising from less than 15% in 1998 to over 43% in 2007. Based off this, I believe that future dividend growth might be lower than the 24% achieved in prior years as the payout crosses 50% and that it would be limited to the ability of the company to increase its EPS.
I believe that the company is a bargain at current levels with its low P/E at 13, attractive dividend yield of 3.50% and payout of less than 50%.
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It is a dividend aristocrat as well as a component of the S&P 500 index. Over the past 10 years this dividend growth stock has delivered an average total return of 10.10% annually to its shareholders. The stock price has fallen in 2007 along with other financial issues. If the fundamental financial position does not deteriorate significantly, the company should be able to weather the crisis.
The company has managed to deliver an impressive 10.56% average annual increase in its EPS.
The ROE has been in a 10%-15% range for our study period, which is also an impressive number.
Annual dividend payments have increased over the past 10 years by an average of 24.21% annually, which is above the growth in EPS. A 24% growth in dividends translates into the dividend payment doubling every three years. If we look at historical data, going as far back as 1991, MTB has actually managed to double its dividend payments every four years on average .
If we invested $100,000 in MTB on December 31, 1997 we would have bought 2151 shares. Your quarterly dividend income would have been $172.08 in February 1998. If you kept reinvesting the dividends though instead of spending them, your quarterly dividend income would have risen to $1732.50 by December 2007 and you would be expecting to collect $1747.20 in dividend income in February 2008. For a period of 10 years, your quarterly dividend income has increased by an impressive 775 %. If you reinvested it though, your quarterly dividend income would have increased by an even more impressive 915%.
The dividend payout has been in a steady uptrend over the past 10 years, rising from less than 15% in 1998 to over 43% in 2007. Based off this, I believe that future dividend growth might be lower than the 24% achieved in prior years as the payout crosses 50% and that it would be limited to the ability of the company to increase its EPS.
I believe that the company is a bargain at current levels with its low P/E at 13, attractive dividend yield of 3.50% and payout of less than 50%.
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