Gannett Co (GCI) has declared a dividend of 40 cents per share. The quarterly dividend is payable on October 1, 2008, to shareholders of record as of the close of business on September 12, 2008.
The $0.40 dividend is the same as last quarter. The ex-dividend date is September 10th and the dividend yield is 9%.
This is the 161st consecutive dividend paid by the company since 1967. “With a substantial current dividend yield of 9 percent, and in view of the challenging business and economic environment, we have decided not to increase our dividend at this time,” said Craig A. Dubow, chairman, president and chief executive officer of Gannett.
I started dollar cost averaging into GCI since May 2008. I expected that GCI will raise its dividend this month. That being said I would stop contributing new money to this position and just let the dividends reinvest. The payment is adequately covered for now, so this "freeze" should not be a reason for dividend investors to sell.
Relevant Articles:
- Selected Dividend Increases in June
- Gannett Co (GCI) Dividend Analysis
- Some Cheap Stocks to Consider
- My Dividend Growth Plan - Stock Selection
Thursday, July 31, 2008
Wednesday, July 30, 2008
My Dividend Growth Plan - Stock Selection
In my previous article I started discussing my dividend growth plan in more detail, by focusing on my strategy. Today I will be focusing on my stock selection criteria.
The type of investments I am focusing on involve dividend paying companies, which have a history of uninterrupted dividend growth. There are several publicly available lists out there including the dividend aristocrats, high-yield dividend aristocrats, dividend champions and the dividend achievers. The first three lists consist of stocks which have increased their dividend payments to shareholders for more than twenty-five consecutive years. The broad dividend achievers list focuses on companies which have increased their payments for at least ten consecutive years. The companies that have been able to do that are believed to have a solid business model and smart management. In addition to that these companies have a proven track record which shows that their business model is able to consistently support an increase in dividend payments to shareholders. This also shows that management is committed to enriching the shareholders and not enriching themselves. In a period of time where total CEO compensation runs in the millions of dollars regardless of company performance, it pays to know that the executive team is committed to sharing the company’s wealth with its owners - the investors.
The above mentioned lists are only a starting point for the dedicated dividend investor. I do not want to blindly purchase all stocks without understanding their business and without checking several financial characteristics of the companies. In my analysis of dividend stocks I check several parameters:
EPS- The earnings per share indicator is calculated by dividing the total amount of net income for one year to the total number of shares outstanding. I am normally looking for an increase in EPS over the past ten years. A company that cannot increase its EPS over time, will not be able to sustain the growth in its dividend payments to shareholders.
ROE – The Return on Equity is calculated by dividing the total amount of net income for a given year over the amount of owner’s equity on the balance sheet at the end of the previous period. I do not look for specific numbers in this indicator, but focus exclusively on its trend. Most stocks will have a flat ROE over time, which is fine with me. A red flag for me is a decreasing ROE over time.
DPR- I calculate the dividend payout ratio by dividing the DPS over the EPS. I am generally looking for a DPR that is below 50% in most companies. However, if a corporation has been able to maintain a higher DPR over time due to the nature of its business or the nature of its legal structure, I would consider buying a stock with a much higher DPR. A rising DPR is generally a red flag for me. This shows me that there is not much room for future dividend growth. In addition, stocks which have a highly unusual for them DPR indicate a higher risk for dividend cuts.
DPS – I generally look for an uninterrupted growth in dividends every year for more than ten years, preferably twenty-five. A company which hasn’t been able to at least pay a stable dividend without cutting it in difficult times is automatically off of my radar. General Motors is one stock which I won’t touch, since it has exhibited a lot of fluctuations in its dividend payments over the years.
Valuation- After checking the trends of earnings, roe, dpr and dps I assume that these would continue to be doing ok or not ok for the foreseeable future. I then look for stocks with a price earnings ratio of less than 20, dividend yield which equals at least the yield on the S&P 500 and a dividend payment ratio which does not exceed 50%. After buying a stock, I would “forget” about it and let the dividends reinvest automatically into more shares. Even if a company becomes overvalued in terms of super high P/E ratio, I won’t consider selling. I would consider holding forever in most situations.
For a sample dividend analysis of a stock, check out Analisys of Johnson & Johnson (JNJ).
Next Week I will be discussing the diversification part of my dividend growth plan.
Relevant Articles:
- Long term returns of S&P high-yield aristocrats
- Why do I like Dividend Aristocrats?
- Why do I like Dividend Achievers
- Dividend Champions Watchlist
The type of investments I am focusing on involve dividend paying companies, which have a history of uninterrupted dividend growth. There are several publicly available lists out there including the dividend aristocrats, high-yield dividend aristocrats, dividend champions and the dividend achievers. The first three lists consist of stocks which have increased their dividend payments to shareholders for more than twenty-five consecutive years. The broad dividend achievers list focuses on companies which have increased their payments for at least ten consecutive years. The companies that have been able to do that are believed to have a solid business model and smart management. In addition to that these companies have a proven track record which shows that their business model is able to consistently support an increase in dividend payments to shareholders. This also shows that management is committed to enriching the shareholders and not enriching themselves. In a period of time where total CEO compensation runs in the millions of dollars regardless of company performance, it pays to know that the executive team is committed to sharing the company’s wealth with its owners - the investors.
The above mentioned lists are only a starting point for the dedicated dividend investor. I do not want to blindly purchase all stocks without understanding their business and without checking several financial characteristics of the companies. In my analysis of dividend stocks I check several parameters:
EPS- The earnings per share indicator is calculated by dividing the total amount of net income for one year to the total number of shares outstanding. I am normally looking for an increase in EPS over the past ten years. A company that cannot increase its EPS over time, will not be able to sustain the growth in its dividend payments to shareholders.
ROE – The Return on Equity is calculated by dividing the total amount of net income for a given year over the amount of owner’s equity on the balance sheet at the end of the previous period. I do not look for specific numbers in this indicator, but focus exclusively on its trend. Most stocks will have a flat ROE over time, which is fine with me. A red flag for me is a decreasing ROE over time.
DPR- I calculate the dividend payout ratio by dividing the DPS over the EPS. I am generally looking for a DPR that is below 50% in most companies. However, if a corporation has been able to maintain a higher DPR over time due to the nature of its business or the nature of its legal structure, I would consider buying a stock with a much higher DPR. A rising DPR is generally a red flag for me. This shows me that there is not much room for future dividend growth. In addition, stocks which have a highly unusual for them DPR indicate a higher risk for dividend cuts.
DPS – I generally look for an uninterrupted growth in dividends every year for more than ten years, preferably twenty-five. A company which hasn’t been able to at least pay a stable dividend without cutting it in difficult times is automatically off of my radar. General Motors is one stock which I won’t touch, since it has exhibited a lot of fluctuations in its dividend payments over the years.
Valuation- After checking the trends of earnings, roe, dpr and dps I assume that these would continue to be doing ok or not ok for the foreseeable future. I then look for stocks with a price earnings ratio of less than 20, dividend yield which equals at least the yield on the S&P 500 and a dividend payment ratio which does not exceed 50%. After buying a stock, I would “forget” about it and let the dividends reinvest automatically into more shares. Even if a company becomes overvalued in terms of super high P/E ratio, I won’t consider selling. I would consider holding forever in most situations.
For a sample dividend analysis of a stock, check out Analisys of Johnson & Johnson (JNJ).
Next Week I will be discussing the diversification part of my dividend growth plan.
Relevant Articles:
- Long term returns of S&P high-yield aristocrats
- Why do I like Dividend Aristocrats?
- Why do I like Dividend Achievers
- Dividend Champions Watchlist
Monday, July 28, 2008
Bank of America (BAC) Dividend Analysis
Bank of America Corporation, a financial holding company, provides a range of banking and nonbanking financial services and products in the United States and internationally.
BAC is a dividend aristocrat as well as a major component of the S&P 500 and Dow Jones Industrials indexes. The company has been increasing its dividends for the past 30 consecutive years. From 1998 up until July 2008 this dividend growth stock has delivered an annual average total return of 3.60 % to its shareholders. Despite the 60% recent jump in the share price, the stock is down almost 26% since the start of the year.
At the same time company has managed to deliver a 9.60% average annual increase in its EPS since 1998. So far this year BAC has reported EPS of $0.95 for the first half of 2008. The expectations are that the company will deliver EPS of $0.72 per quarter for the remaining two quarters of 2008.
The ROE has declined steadily from the highs in 2004 at 29%.
Annual dividend payments have increased by an average of 12.70% annually over the past 10 years, which is higher than the growth in EPS. A 12% growth in dividends translates into the dividend payment doubling almost every 6 years. If we look at historical data, going as far back as 1990, BAC has indeed managed to double its dividend payment almost every six years on average.
Future dividend increases will be harder to make given the current situation of the US financial system. Management recently affirmed that it would continue with its quarterly payment of 64 cents/share. This leaves them 4 more quarters where they could keep the dividend growth unchanged before BAC loses its dividend aristocrat status. There are rumors however that the company will have to cut the dividend in order to maintain its current liquidity and conserve capital.
If we invested $100,000 in BAC on December 31, 1997 we would have bought 3289 shares (Adjusted for a 2:1 stock split in 2004). In March 1998 your quarterly dividend income would have been $625. If you kept reinvesting the dividends though instead of spending them, your quarterly dividend income would have risen to $3143 by June 2008. For a period of ten and a half years, your quarterly dividend income has increased by 237%. If you reinvested it though, your quarterly dividend income would have increased by 403%.
The dividend payout has remained stable until the deterioration in earnings in after 2007. I estimate that the payout will be at 108% if the projected earnings per share of $2.38 materialize and the quarterly dividend payment stays flat at 64 cents/share. A lower payout is always a plus, since it leaves room for consistent dividend growth minimizing the impact of short-term fluctuations in earnings.
BAC offers an above average yield, coupled with a low P/E ratio. The dividend payout is unsustainably large at this moment for me however in order to initiate a position. In addition to that, the whole uncertainty over the financial sector definitely makes it wiser to simply wait on the sidelines before jumping in.
Disclosure: I do not own shares of BAC
BAC is a dividend aristocrat as well as a major component of the S&P 500 and Dow Jones Industrials indexes. The company has been increasing its dividends for the past 30 consecutive years. From 1998 up until July 2008 this dividend growth stock has delivered an annual average total return of 3.60 % to its shareholders. Despite the 60% recent jump in the share price, the stock is down almost 26% since the start of the year.
At the same time company has managed to deliver a 9.60% average annual increase in its EPS since 1998. So far this year BAC has reported EPS of $0.95 for the first half of 2008. The expectations are that the company will deliver EPS of $0.72 per quarter for the remaining two quarters of 2008.
The ROE has declined steadily from the highs in 2004 at 29%.
Annual dividend payments have increased by an average of 12.70% annually over the past 10 years, which is higher than the growth in EPS. A 12% growth in dividends translates into the dividend payment doubling almost every 6 years. If we look at historical data, going as far back as 1990, BAC has indeed managed to double its dividend payment almost every six years on average.
Future dividend increases will be harder to make given the current situation of the US financial system. Management recently affirmed that it would continue with its quarterly payment of 64 cents/share. This leaves them 4 more quarters where they could keep the dividend growth unchanged before BAC loses its dividend aristocrat status. There are rumors however that the company will have to cut the dividend in order to maintain its current liquidity and conserve capital.
If we invested $100,000 in BAC on December 31, 1997 we would have bought 3289 shares (Adjusted for a 2:1 stock split in 2004). In March 1998 your quarterly dividend income would have been $625. If you kept reinvesting the dividends though instead of spending them, your quarterly dividend income would have risen to $3143 by June 2008. For a period of ten and a half years, your quarterly dividend income has increased by 237%. If you reinvested it though, your quarterly dividend income would have increased by 403%.
The dividend payout has remained stable until the deterioration in earnings in after 2007. I estimate that the payout will be at 108% if the projected earnings per share of $2.38 materialize and the quarterly dividend payment stays flat at 64 cents/share. A lower payout is always a plus, since it leaves room for consistent dividend growth minimizing the impact of short-term fluctuations in earnings.
BAC offers an above average yield, coupled with a low P/E ratio. The dividend payout is unsustainably large at this moment for me however in order to initiate a position. In addition to that, the whole uncertainty over the financial sector definitely makes it wiser to simply wait on the sidelines before jumping in.
Disclosure: I do not own shares of BAC
Relevant Articles:
Friday, July 25, 2008
The ultimate passive investment strategy
I recently read a paper from Jeremy Siegel and Jeremy Schwartz titled “The Long-term Returns on the Original S&P 500 Firms”.
In this paper the authors calculate the total returns of a buy and hold of the original 500 companies in 1957. They found that on average 20 stocks annually have been added and deleted from the index (without considering that a merger of two S&P 500 companies is an addition to the index) since 1957. The authors also used three methods of calculating the returns:
Survivors’ Portfolio (SP). The survivor portfolio consists only of shares of the original S&P 500 firms. Shares of other firms received through mergers are immediately sold and the proceeds invested in the remaining survivor firms in proportion to their market value. For example, when Mobil Oil was merged into Exxon in 1999, shareholders of Mobil are assumed to sell the shares they received from Exxon-Mobil and invest the proceeds in the remaining survivor firms. All spinoffs are immediately sold and the proceeds reinvested in the parent firm. Funds received from privatizations are sold and the proceeds re-invested in the original surviving firms in proportion to their market value.
Direct Descendants’ Portfolio (DDP), which consists of the shares of firms in the survivors’ portfolio plus the shares issued by firms acquiring an original S&P 500 firm. In the case of the Mobil-Exxon merger discussed above, we assume that shareholders of Mobil Oil hold the shares of Exxon that were issued in the merger. If an original firm was taken private, we assume that the cash distributed from the privatization was invested in an indexed portfolio whose returns matched the standard S&P 500 Index.12 If a firm that was taken private is subsequently reissued to the public again, we assume the portfolio repurchases shares in the reissued company with the funds that had been invested in the index at the time the firm went private. As before, spinoffs are immediately sold and the proceeds reinvested in the parent.
Total Descendants’ Portfolio (TDP) and includes all firms in the DDP plus all the spinoffs and other stock distributions issued by the firms in the Direct Descendants’ Portfolio. The only difference between the TDP and the DDP is that the TDP holds all the spinoffs rather than sell them and reinvest in the proceeds in the parent firm. The TDP is identical to the portfolio of a totally passive investor who holds all the spinoffs and shares issued from mergers and never sells any stock.
My favorite portfolio is the Total Descendants portfolio, since it basically represents a very passive investment strategy – buying stock in 500 companies and then forgetting about them for 50 years.
The authors looked into the return of equal weighted and value weighted returns for the three calculation types.
At the end of the paper they determined that by not updating your portfolio of the original 500 companies, with the annual changes in the S&P 500, you’d have outperformed the average pretty handsomely.
My take on this research is that by purchasing the current 500 stocks in the S&P 500, and allocating all stock equally, an investor will be better off in the long run than simply purchasing an ETF. The reason is that ETF’s tend to charge fees of 0.1% annually, which could really add up over time.
Relevant Articles:
- When to sell your dividend stocks?
- Why do I like Dividend Achievers
- The next bubble in the making.
- Dollar Cost Averaging
Wednesday, July 23, 2008
My Dividend Growth Plan - Strategy
Inspired by the dividend growth plans of The Money Gardener and The Dividend Guy, which they posted on The Div-Net last week, I decided to summarize my own plan.
I believe that having a good solid plan is essential in achieving one’s goals. And my goal is to create an increasing stream of dividend income, which would allow me to live off of my investments.
There are several points that have to be covered: Strategy, Stock Selection, Diversification and Money Management.
Today I will be focusing on strategy. My strategy involves buying quality dividend stocks at bargain prices. Dividends have been largely ignored by investors during the 1990’s when internet stocks were increasing across the board. Dividends however are an important part of the total return of stocks as they have contributed almost 40% of the annual total returns in the S&P 500 over the past eight decades. In addition to that, I believe that a stock which pays a dividend gives at least some certainty that the investor will generate a return on their investment. Although it could be argued that there is always the possibility that the dividend may be cut, companies tend to cut the dividends as a last resort of action. Thus I believe that the dividend component provides some stability in income for investors who want to live off of their holdings. Stock price increases on the other hand are more difficult to predict.
And last but not least, a company that has committed to paying a dividend shows its confidence that it will be able to generate a sufficient amount of profits to be distributed to shareholders.
We all learned from Enron and WorldCom that earnings could be manipulated easily. Manipulating the cash situation in a company is more difficult to achieve, because it cannot be created out of thin air. If a corporation does not have a very solid financial position, it won’t be able to commit to a dividend payment. An example of a company that hasn’t committed to paying dividends is PLA. Over the past 20 years, its shareholders have had a wild ride with the stock rising until 1999 and then declining. In comparison to PLA, GM shareholders had a much better total return over the same period.
As a general rule I would consider selling stocks which either cut their dividends or eliminate their dividend altogether.
I am generally looking for a blend of high growth lower yield stocks in addition to higher yield lower growth ones. I won’t be simply chasing yield, which represents a fixed dividend or worse a decreasing dividend.
An important part of my strategy is minimizing expenses. By opening a low cost brokerage account like Zecco or Sharebuilder I would be able to do that. In addition, if I can keep my expenses less than 0.5% per year, that would provide me with better long-term returns.
Next week, I will post more information about my stock selection process.
Relevant Articles:
- The case for dividend investing in retirement
- A comparison of investing in high-yield, low dividend growth stock versus investing in a low-yield, high dividend growth stock without capital gains
- Alternative Streams of Income
- Why dividends?
I believe that having a good solid plan is essential in achieving one’s goals. And my goal is to create an increasing stream of dividend income, which would allow me to live off of my investments.
There are several points that have to be covered: Strategy, Stock Selection, Diversification and Money Management.
Today I will be focusing on strategy. My strategy involves buying quality dividend stocks at bargain prices. Dividends have been largely ignored by investors during the 1990’s when internet stocks were increasing across the board. Dividends however are an important part of the total return of stocks as they have contributed almost 40% of the annual total returns in the S&P 500 over the past eight decades. In addition to that, I believe that a stock which pays a dividend gives at least some certainty that the investor will generate a return on their investment. Although it could be argued that there is always the possibility that the dividend may be cut, companies tend to cut the dividends as a last resort of action. Thus I believe that the dividend component provides some stability in income for investors who want to live off of their holdings. Stock price increases on the other hand are more difficult to predict.
And last but not least, a company that has committed to paying a dividend shows its confidence that it will be able to generate a sufficient amount of profits to be distributed to shareholders.
We all learned from Enron and WorldCom that earnings could be manipulated easily. Manipulating the cash situation in a company is more difficult to achieve, because it cannot be created out of thin air. If a corporation does not have a very solid financial position, it won’t be able to commit to a dividend payment. An example of a company that hasn’t committed to paying dividends is PLA. Over the past 20 years, its shareholders have had a wild ride with the stock rising until 1999 and then declining. In comparison to PLA, GM shareholders had a much better total return over the same period.
As a general rule I would consider selling stocks which either cut their dividends or eliminate their dividend altogether.
I am generally looking for a blend of high growth lower yield stocks in addition to higher yield lower growth ones. I won’t be simply chasing yield, which represents a fixed dividend or worse a decreasing dividend.
An important part of my strategy is minimizing expenses. By opening a low cost brokerage account like Zecco or Sharebuilder I would be able to do that. In addition, if I can keep my expenses less than 0.5% per year, that would provide me with better long-term returns.
Next week, I will post more information about my stock selection process.
Relevant Articles:
- The case for dividend investing in retirement
- A comparison of investing in high-yield, low dividend growth stock versus investing in a low-yield, high dividend growth stock without capital gains
- Alternative Streams of Income
- Why dividends?
Monday, July 21, 2008
Is Pfizer (PFE) a value trap for investors?
Pfizer, Inc. engages in the discovery, development, manufacture, and marketing of prescription medicines for humans and animals worldwide.
At the same time company has managed to deliver a 3.60% average annual increase in its EPS since 1998. Pfizer faces many problems, including the fact that almost fifty percent of its US drug revenues will face patent expiration after 2011. The drug Lipitor for example, which accounted for more than a quarter of PFE’s sales in 2007 loses its patent in 2011. Although management spent $ 8.3 billion on R&D in 2007, there haven’t been any blockbuster drugs which will easily replace the ones that face generic competition after 2011-2013.
The ROE has decreased over the past ten years from a little over 49 % in 2002 to a little over 11% by 2007.
If we invested $100,000 in PFE on December 31, 1997 we would have bought 4024 shares (Adjusted for a 3:1 stock split in July 1999). In February 1998 your quarterly dividend income would have been $ 255. If you kept reinvesting the dividends though instead of spending them, your quarterly dividend income would have risen to $1412 by November 2007. For a period of 10 years, your quarterly dividend income has increased by 358 %. If you reinvested it though, your quarterly dividend income would have increased by 454 %.
The dividend payout has fluctuated greatly between 20% and 110% over the past ten years. At the end of 2007 the payout stood at 99%, which is very high. Even if EPS for 2008 reaches $2.00 the DPR will still be high at 64%. A lower payout is always a plus, since it leaves room for consistent dividend growth minimizing the impact of short-term fluctuations in earnings.
PFE currently spots a P/E of 16.70, a high dividend payout ratio and a very high yield of over 7%. On the surface, PFE does appear cheap, but in my opinion it could be a value trap for investors. Until management starts producing new drugs either through acquisitions of competitors or by creating the drugs, PFE will continue to be a losing proposition. Even though management has tried to cut costs by closing several production facilities, the major problem that PFE faces is uncertainty about the source of future revenue streams for the company. Given the stagnant EPS and the expected major revenue decreases after 2011, I doubt the sustainability of PFE’s future dividend increases.
The company should continue as a going concern in the future however, given the fact that 50% of its sales come from abroad and its ability to cut costs.
In addition, because of PFE’s current strong cash flow position I believe that the company does have the ability to buy new drugs by acquiring other companies and grow its revenues. The fact that twelve out of eighteen analysts rate PFE as “hold”, which is Wall Street’s jargon for having a sell recommendation on the shares, could be a potential contrarian sentiment indicator.
In the end I would consider initiating a PFE long myself when the payout is less than 50%. Until then, this big pharma stock will only have place on my watch list.
Disclosure: I do not own shares of PFE
The company is a dividend aristocrat as well as a component of the S&P 500 and Dow Jones Industrials indexes. It has been increasing its dividends for the past 41 consecutive years. From 1998 up until 2007 this dividend growth stock has delivered an annual average total return of 1.1 % to its shareholders. The stock has lost more than 63% from its all-time-high of $50 in 1999 however.
At the same time company has managed to deliver a 3.60% average annual increase in its EPS since 1998. Pfizer faces many problems, including the fact that almost fifty percent of its US drug revenues will face patent expiration after 2011. The drug Lipitor for example, which accounted for more than a quarter of PFE’s sales in 2007 loses its patent in 2011. Although management spent $ 8.3 billion on R&D in 2007, there haven’t been any blockbuster drugs which will easily replace the ones that face generic competition after 2011-2013.
The ROE has decreased over the past ten years from a little over 49 % in 2002 to a little over 11% by 2007.
Annual dividend payments have increased over the past 10 years by an average of 17.70% annually, which is significantly above the growth in EPS. An 18 % growth in dividends translates into the dividend payment doubling almost every four years. If we look at historical data, going as far back as 1982, PFE has actually managed to double its dividend payment every five years on average.
Future dividend increases in dividends in the rate of 17% annually will be harder to obtain however, unless the company finds new drugs that it could use to generate more revenues.
Future dividend increases in dividends in the rate of 17% annually will be harder to obtain however, unless the company finds new drugs that it could use to generate more revenues.
If we invested $100,000 in PFE on December 31, 1997 we would have bought 4024 shares (Adjusted for a 3:1 stock split in July 1999). In February 1998 your quarterly dividend income would have been $ 255. If you kept reinvesting the dividends though instead of spending them, your quarterly dividend income would have risen to $1412 by November 2007. For a period of 10 years, your quarterly dividend income has increased by 358 %. If you reinvested it though, your quarterly dividend income would have increased by 454 %.
The dividend payout has fluctuated greatly between 20% and 110% over the past ten years. At the end of 2007 the payout stood at 99%, which is very high. Even if EPS for 2008 reaches $2.00 the DPR will still be high at 64%. A lower payout is always a plus, since it leaves room for consistent dividend growth minimizing the impact of short-term fluctuations in earnings.
PFE currently spots a P/E of 16.70, a high dividend payout ratio and a very high yield of over 7%. On the surface, PFE does appear cheap, but in my opinion it could be a value trap for investors. Until management starts producing new drugs either through acquisitions of competitors or by creating the drugs, PFE will continue to be a losing proposition. Even though management has tried to cut costs by closing several production facilities, the major problem that PFE faces is uncertainty about the source of future revenue streams for the company. Given the stagnant EPS and the expected major revenue decreases after 2011, I doubt the sustainability of PFE’s future dividend increases.
The company should continue as a going concern in the future however, given the fact that 50% of its sales come from abroad and its ability to cut costs.
In addition, because of PFE’s current strong cash flow position I believe that the company does have the ability to buy new drugs by acquiring other companies and grow its revenues. The fact that twelve out of eighteen analysts rate PFE as “hold”, which is Wall Street’s jargon for having a sell recommendation on the shares, could be a potential contrarian sentiment indicator.
In the end I would consider initiating a PFE long myself when the payout is less than 50%. Until then, this big pharma stock will only have place on my watch list.
Disclosure: I do not own shares of PFE
Relevant Articles:
Friday, July 18, 2008
Book Review: Stop Working
After finding the book “Stop Working : Here's How You Can!: Using the Strategy of Canada's Youngest Retiree” from Derek Foster on Amazon, I feverishly read it from cover to cover in about 3 - 4 hours. To those of you who haven’t heard anything about the book before, it’s written by Derek Foster, who is touted to be Canada’s youngest retiree.
Apparently the author of this book was able to “punch out” of the workforce at the tender age of 34. He was able to do this by investing a fixed amount of money every month for a period of about 12 years. Initially he bought only mutual funds, and later focused exclusively on dividend paying stocks.
Personally I thought that the book was very inspirational, because it shows the reader that they might not need as much as their financial advisors tell them to save for retirement. It also tells in a way the story of a dividend investor, gives a couple of dividend stock picks, and explains how dividend income is a better source of income compared to earnings from one’s job. The book strongly focuses on cash flow, in particular cash flow from stable dividend companies with long history of dividend increases. I also how he compared taxable income from wages to taxable income from dividends. If you check out his “sample portfolio”, you will notice that it was yielding about 6% in 2004/5, which is not unachievable. He did mention however, that you need to buy the stocks when they are trading at bargain prices. He also mentioned that had you bought the stocks in his sample portfolio at their bargain prices you would have paid about $100,000 for them, rather than $300,000 in 2004/5. And thus your yield on cost would have been 18%, rather than 6%.
The misleading part about this book is the fact that the author mentions how he saved $200/month plus his tax refunds in the stock market for 12 years. At the time of his retirement however, Derek Foster had a portfolio worth about $300,000 - $400,000, a fully paid house as well as a rental property. The numbers simply don’t add up for me. I have read in other sources that he made large leveraged directional bets in Altria in early 2000, which paid off well. Without this “gamble” I do not know whether he would have made it or not. One cautionary thing to add is that he wrote the book right after he retired at 34. I would want to see how he has adapted to changing market conditions (elimination of the income trust structure in Canada in several years) in 2015, 2025, 2035. I hope he will still be able to be retired even when he is in his 60’s. Another cautionary thing to add is that this strategy worked in Canada, where healthcare is practically free. If you lived in the US, however, you would need to save more simply for the rising healthcare costs.
Overall I considered the book to be very inspirational dividend book. If you keep saving a fixed amount of funds from your paycheck every month and you invest your money in quality companies which have a strong history of increasing dividends, you will be able to retire earlier that you thought possible.
What is your opinion on this book?
You could purchase Stop Working : Here's How You Can!: Using the Strategy of Canada's Youngest Retiree from Amazon.com.
Apparently the author of this book was able to “punch out” of the workforce at the tender age of 34. He was able to do this by investing a fixed amount of money every month for a period of about 12 years. Initially he bought only mutual funds, and later focused exclusively on dividend paying stocks.
Personally I thought that the book was very inspirational, because it shows the reader that they might not need as much as their financial advisors tell them to save for retirement. It also tells in a way the story of a dividend investor, gives a couple of dividend stock picks, and explains how dividend income is a better source of income compared to earnings from one’s job. The book strongly focuses on cash flow, in particular cash flow from stable dividend companies with long history of dividend increases. I also how he compared taxable income from wages to taxable income from dividends. If you check out his “sample portfolio”, you will notice that it was yielding about 6% in 2004/5, which is not unachievable. He did mention however, that you need to buy the stocks when they are trading at bargain prices. He also mentioned that had you bought the stocks in his sample portfolio at their bargain prices you would have paid about $100,000 for them, rather than $300,000 in 2004/5. And thus your yield on cost would have been 18%, rather than 6%.
The misleading part about this book is the fact that the author mentions how he saved $200/month plus his tax refunds in the stock market for 12 years. At the time of his retirement however, Derek Foster had a portfolio worth about $300,000 - $400,000, a fully paid house as well as a rental property. The numbers simply don’t add up for me. I have read in other sources that he made large leveraged directional bets in Altria in early 2000, which paid off well. Without this “gamble” I do not know whether he would have made it or not. One cautionary thing to add is that he wrote the book right after he retired at 34. I would want to see how he has adapted to changing market conditions (elimination of the income trust structure in Canada in several years) in 2015, 2025, 2035. I hope he will still be able to be retired even when he is in his 60’s. Another cautionary thing to add is that this strategy worked in Canada, where healthcare is practically free. If you lived in the US, however, you would need to save more simply for the rising healthcare costs.
Overall I considered the book to be very inspirational dividend book. If you keep saving a fixed amount of funds from your paycheck every month and you invest your money in quality companies which have a strong history of increasing dividends, you will be able to retire earlier that you thought possible.
What is your opinion on this book?
You could purchase Stop Working : Here's How You Can!: Using the Strategy of Canada's Youngest Retiree from Amazon.com.
Wednesday, July 16, 2008
United Technologies (UTX) Dividend Analysis
United Technologies Corporation provides technology products and services to the building systems and aerospace industries worldwide. The company's segments include Otis, Carrier, UTC Fire and Security, Pratt and Whitney, Hamilton Sundstrand and Sikorsky.
Disclosure: I do not own shares of UTX
UTX is a dividend achiever as well as a component of the S&P 500 and Dow Jones Industrials indexes. It has been increasing its dividends for the past 14 consecutive years. From 1998 up until 2007 this dividend growth stock has delivered an annual average total return of 17.20 % to its shareholders.
At the same time company has managed to deliver a 14.50% average annual increase in its EPS since 1998.
The ROE has decreased over the past ten years from a little over 28% to a little over 19%.
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. A 14 % growth in dividends translates into the dividend payment doubling almost every five years. If we look at historical data, going as far back as 1977, UTX has actually managed to double its dividend payment every seven and a half years on average.
If we invested $100,000 in UTX on December 31, 1997 we would have bought 5494 shares (Adjusted for two 2:1 stock splits). In February 1998 your quarterly dividend income would have been $ 425.79. If you kept reinvesting the dividends though instead of spending them, your quarterly dividend income would have risen to $2032 by November 2007. For a period of 10 years, your quarterly dividend income has increased by 313 %. If you reinvested it though, your quarterly dividend income would have increased by 377 %.
The dividend payout has remained at or below 30% 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 UTX is attractively valued with its low price/earnings multiple of 14, low DPR and a market average dividend yield of 2.10%.
Disclosure: I do not own shares of UTX
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Tuesday, July 15, 2008
Some Attractively Valued Dividend Stocks to Consider
Ever since the broad market indexes entered into bear market territory, I have been checking the dividend champions list for bargains. I came up with the following dividend stocks list, using my screen criteria:
1) Company has consistently increased dividends for more than 25 consecutive years
2) The P/E ratio is less than 20
3) The Dividend Payout Ratio does not exceed 50%
4) The dividend yield is equal to or higher than the dividend yield on the S&P 500
Using the criteria above I came out with the following list:
As usual this list is just a starting point. Before you leap into buying these stocks always check out at least the ten year financials trends in order to determine how your potential investment has performed over time. I would like to finish this post with two quotes from the legendary investor Warren Buffett:( Source Wikiquote)
“What doesn’t work is when you start doing things that you don't understand or because they worked last week for somebody else. “
"There are all kinds of businesses that Charlie and I don't understand, but that doesn't cause us to stay up at night. It just means we go on to the next one, and that's what the individual investor should do."
Related Articles:
- Warren Buffet - The richest investor in the World
- My Current Watchlist
- Dividend Conspiracies
- Dividend Champions Watchlist
1) Company has consistently increased dividends for more than 25 consecutive years
2) The P/E ratio is less than 20
3) The Dividend Payout Ratio does not exceed 50%
4) The dividend yield is equal to or higher than the dividend yield on the S&P 500
Using the criteria above I came out with the following list:
As usual this list is just a starting point. Before you leap into buying these stocks always check out at least the ten year financials trends in order to determine how your potential investment has performed over time. I would like to finish this post with two quotes from the legendary investor Warren Buffett:( Source Wikiquote)
“What doesn’t work is when you start doing things that you don't understand or because they worked last week for somebody else. “
"There are all kinds of businesses that Charlie and I don't understand, but that doesn't cause us to stay up at night. It just means we go on to the next one, and that's what the individual investor should do."
Related Articles:
- Warren Buffet - The richest investor in the World
- My Current Watchlist
- Dividend Conspiracies
- Dividend Champions Watchlist
Monday, July 14, 2008
Average Durations of Previous Bear Markets
I originally wrote this article in July 2008. At the time, S&P 500 had just gone into bear market territory from its highs just 9 months prior. On July 7, 2008 S&P 500 went into bear market territory after sliding 20% from its October 9th 2007 all-time highs at 1565.15. The bear market correction had been going on for more than nine months. Little did I know that this would go on for 8 additional months. I updated the charts, and wanted to add some comments reflecting today's action.
A bear market is defined by a 20% decline from a previous all-time-high. This means that a 19% decline, like the ones we had in 2011 and 2018 do not qualify for a bear market. This is all very subjective of a definition, but at least it is consistent.
This week, the S&P 500 entered a bear market, ending the 11 year bull run off the lows in 2009. The highs were set in February 2020. We are already in a bear market, after 1 month, which is one of the fastest bear markets from a new high in history. Perhaps the recovery would be just as quick? Or perhaps it would take a long time to rebuild the economy and the supply shocks from the Covid-19 (coronavirus). Some economists argue we are already in a recession. Of course, economists have also predicted nine out of the last five recessions too.
So how long do bear markets last on average?
From the table below one could see that 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. The average decline since 1929 has been 39.3% versus 34.10% since 1956.
It has taken S&P 500 about 5 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.
A bear market is defined by a 20% decline from a previous all-time-high. This means that a 19% decline, like the ones we had in 2011 and 2018 do not qualify for a bear market. This is all very subjective of a definition, but at least it is consistent.
This week, the S&P 500 entered a bear market, ending the 11 year bull run off the lows in 2009. The highs were set in February 2020. We are already in a bear market, after 1 month, which is one of the fastest bear markets from a new high in history. Perhaps the recovery would be just as quick? Or perhaps it would take a long time to rebuild the economy and the supply shocks from the Covid-19 (coronavirus). Some economists argue we are already in a recession. Of course, economists have also predicted nine out of the last five recessions too.
So how long do bear markets last on average?
From the table below one could see that 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. The average decline since 1929 has been 39.3% versus 34.10% since 1956.
It has taken S&P 500 about 5 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.
Note that this table only takes into consideration stock prices not adjusted for dividends. In other words, it doesn't show total returns. If it did, the time to recovery would shrink, and the severity of the recovery would shrink too.
For example, it took stock prices about 25 years to exceed their 1929 highs, when measured by S&P 500. If you account for reinvested dividends however, the investor broke even by 1936, which is just 7 short years after the worst economic depression for the US of the 20th century.
The recovery to breakeven was short-lived however, as the US entered into another recession and bear market, and then the country entered World War II after Pearl Harbor. Adjusted for dividends (including total returns in other words), US stocks exceeded their 1929 highs and the 1936 highs again by 1944, and never looked back.
At the time of writing this article in 2008, I wrote the following: "If history could be of any guidance, S&P 500 could continues falling for five to nine more months by fourteen to twenty-two percent from current levels. This means that S&P 500 could fall to as low as 967 to 1068 until the end of 2008. Past performance seldom guarantees future results however. One thing will stay true though – investors who are greedy when others are fearful will reap huge benefits over the next few years as they scoop up good quality dividend companies at bargain prices."
When I updated the article in 2020, I wrote the following: "Since we reached our highs in February 2020, it may seem that the bear market could easily continue for 17 more months, just to keep up with the average. The stock market could also easily fall further from here. A 31% average decline from the highs of 3393 points reached just a month ago would take S&P 500 to 2070 points by the time this is over."
The conclusion is the same as in 2008. Investors in the accumulation phase should stay the course, and stick to their investment plan. They should be taking advantage of the sale, and buying future retirement income when it is on sale.
Investors in the retirement phase should continue living off their dividend income, and ignoring the noise.
Relevant Articles:
- Warren Buffet - The richest investor in the World
- Dow Chemical (DOW) To Acquire Rohm and Haas (ROH) for $78/share
- ROH Dividend Analysis
- The Bottom is in
At the time of writing this article in 2008, I wrote the following: "If history could be of any guidance, S&P 500 could continues falling for five to nine more months by fourteen to twenty-two percent from current levels. This means that S&P 500 could fall to as low as 967 to 1068 until the end of 2008. Past performance seldom guarantees future results however. One thing will stay true though – investors who are greedy when others are fearful will reap huge benefits over the next few years as they scoop up good quality dividend companies at bargain prices."
When I updated the article in 2020, I wrote the following: "Since we reached our highs in February 2020, it may seem that the bear market could easily continue for 17 more months, just to keep up with the average. The stock market could also easily fall further from here. A 31% average decline from the highs of 3393 points reached just a month ago would take S&P 500 to 2070 points by the time this is over."
Ultimately, S&P 500 fell by 34.50% between February 2020 and March 2020. In point terms, S&P 500 dropped from 3,393.52 to 2,191.86. It then rebounded sharply and made an all-time-high by August 2020. This was a short but violent bear market, which lasted about six months.
S&P 500's all time high was reached at 4818.62 on the first trading day of 2022. Once we close below 3854, we would be in a bear market. That's a good time to be acquiring good companies at good prices.
The conclusion is the same as in 2008. Investors in the accumulation phase should stay the course, and stick to their investment plan. They should be taking advantage of the sale, and buying future retirement income when it is on sale.
Investors in the retirement phase should continue living off their dividend income, and ignoring the noise.
Relevant Articles:
- Warren Buffet - The richest investor in the World
- Dow Chemical (DOW) To Acquire Rohm and Haas (ROH) for $78/share
- ROH Dividend Analysis
- The Bottom is in
Sunday, July 13, 2008
Anheuser-Busch (BUD) Deal Finalized
Reuters and WSJ today reported that BUD agreed to be acquired by Belgium Based Interbrew for a little under 50 billion dollars. The $70/share bid would create the largest brewing company in the world.
BUD shares rose $5.29 to close at $66.50 on Friday, after reports from WSJ that InBev has increased its offer to shareholders by $5/share to $70.
I would consider selling half of my stock on Monday morning at the open, as I expect a gap up which would be close to the offering price. I would keep the other half and tender it later. You could read my dividend analysis of Anheuser-Busch (BUD) here.
This acquisition, just like the recent acquisitions of ROH and WWY strongly reiterates my point that solid dividend growers are a great long-term investment in general. The only issue with acquisitions is finding new opportunities from the shrinking supply of quality dividend opportunities out there.
BUD shares rose $5.29 to close at $66.50 on Friday, after reports from WSJ that InBev has increased its offer to shareholders by $5/share to $70.
I would consider selling half of my stock on Monday morning at the open, as I expect a gap up which would be close to the offering price. I would keep the other half and tender it later. You could read my dividend analysis of Anheuser-Busch (BUD) here.
This acquisition, just like the recent acquisitions of ROH and WWY strongly reiterates my point that solid dividend growers are a great long-term investment in general. The only issue with acquisitions is finding new opportunities from the shrinking supply of quality dividend opportunities out there.
Friday, July 11, 2008
"Determining Withdrawal Rates Using Historical Data" - My Opinion
I recently stumbled upon this article from William P. Bengen “Determining Withdrawal Rates Using Historical Data". The basic idea behind this research is that year over year fluctuations in annual returns could drastically change the standard of living of retired individuals, who rely on their investments for income. That’s why “safe” withdrawal rates need to be determined and a proper asset allocation needs to be applied. William Bengen does look into a very basic allocation of stocks and bonds, and then adjusts those target allocations annually.
He builds on the idea that market cataclysms like the 1929-1932 and 1972-1974 bear markets could have long-term effects on ones portfolio which can overwhelm the average returns for stocks and bonds, that have been commonly advertised. William Bengen then tries to calculate the longevity of portfolios using a variety of target allocations between stocks and bonds, assuming that he had clients retiring each year from 1926 to 1976. He uses several initial withdrawal percentages in order to determine the safe withdrawal rate.
In the end his research showed that having 25%-50% allocation to bonds actually increases portfolio longevity at safe withdrawal rates of 3%-4% annually, adjusted for inflation. An investor, who was 100%, invested in stocks, who planned on withdrawing 4% from the initial balance and then adjusts for inflation, and who retired in 1929 would have been able to enjoy his retirement for only 24 years.
One thing that I would like to see from William Bengen is a possible dividend strategy where retirees will be withdrawing only dividend income. Even if our investor used only dividends as a source of income, the Great Depression would have presented them with a major challenge, when the dividend payments on the S&P 500 fell by 55% from 1929 to 1932. (This back tested data for the index, which could be accessed from here). Deflation was the only “positive” thing at the time. Price decreased by 25% on average during the great depression, which decreased the actual purchasing power income of our dividend retiree by only 30%.
This paper got me thinking that having an allocation in bonds in retirement will actually smooth fluctuations in annual returns and decrease overall risk, while enhancing portfolio longevity. What I am basically thinking about is that I would keep 100% invested in stocks while I am still working, in order to take full advantage of the stock price and dividends appreciation. When my actual retirement date is 10 years and less away I would start contributing bond investments to my portfolio.
What is your opinion on this article?
- The next bubble in the making.
- Dividend Champions Watchlist
- The 20 Highest Yielding Dividend Aristocrats
- The case for dividend investing in retirement
He builds on the idea that market cataclysms like the 1929-1932 and 1972-1974 bear markets could have long-term effects on ones portfolio which can overwhelm the average returns for stocks and bonds, that have been commonly advertised. William Bengen then tries to calculate the longevity of portfolios using a variety of target allocations between stocks and bonds, assuming that he had clients retiring each year from 1926 to 1976. He uses several initial withdrawal percentages in order to determine the safe withdrawal rate.
In the end his research showed that having 25%-50% allocation to bonds actually increases portfolio longevity at safe withdrawal rates of 3%-4% annually, adjusted for inflation. An investor, who was 100%, invested in stocks, who planned on withdrawing 4% from the initial balance and then adjusts for inflation, and who retired in 1929 would have been able to enjoy his retirement for only 24 years.
One thing that I would like to see from William Bengen is a possible dividend strategy where retirees will be withdrawing only dividend income. Even if our investor used only dividends as a source of income, the Great Depression would have presented them with a major challenge, when the dividend payments on the S&P 500 fell by 55% from 1929 to 1932. (This back tested data for the index, which could be accessed from here). Deflation was the only “positive” thing at the time. Price decreased by 25% on average during the great depression, which decreased the actual purchasing power income of our dividend retiree by only 30%.
This paper got me thinking that having an allocation in bonds in retirement will actually smooth fluctuations in annual returns and decrease overall risk, while enhancing portfolio longevity. What I am basically thinking about is that I would keep 100% invested in stocks while I am still working, in order to take full advantage of the stock price and dividends appreciation. When my actual retirement date is 10 years and less away I would start contributing bond investments to my portfolio.
What is your opinion on this article?
- The next bubble in the making.
- Dividend Champions Watchlist
- The 20 Highest Yielding Dividend Aristocrats
- The case for dividend investing in retirement
Thursday, July 10, 2008
Dow Chemical (DOW) To Acquire Rohm and Haas (ROH) for $78/Share
Rohm and Haas Company (NYSE: ROH) entered into an agreement with The Dow Chemical Company (NYSE: DOW), under which Dow will acquire all of the outstanding shares of Rohm and Haas common stock for $78.00 per share in cash. Shares of ROH closed at $44.83 yesterday. The agreement provides that Rohm and Haas Company will retain its Philadelphia Headquarters location, and continue to do business under the Rohm and Haas name. Additionally, Dow will contribute a number of specialty chemicals business segments to the Rohm and Haas portfolio which have greater synergy with the Philadelphia Company’s established strengths. Source: StreetInsider
My dividend growth stocks are getting bought out by competitors as they present stable corporations with a nice moat. The first one that is in talks to be bought out is BUD. Now ROH is going to be bought out by a consortium of a Kuwait Sovereign Wealth Fund, Buffet and Dow Chemical. I was only able to accumulate a half position in ROH, but nevertheless now I have to re-allocate the funds accross the rest of my portfolio. You could check my analysis of ROH here.
At the time of this weriting ROH is up over 65% from yesterday's close. I would consider selling half of my position shortly in order to lock in a gain. The market price is about 5% lower than the offer price at $78. The companies have said they hope to complete the deal by early 2009. I would keep my other half of the position to tender it by that time.
My dividend growth stocks are getting bought out by competitors as they present stable corporations with a nice moat. The first one that is in talks to be bought out is BUD. Now ROH is going to be bought out by a consortium of a Kuwait Sovereign Wealth Fund, Buffet and Dow Chemical. I was only able to accumulate a half position in ROH, but nevertheless now I have to re-allocate the funds accross the rest of my portfolio. You could check my analysis of ROH here.
At the time of this weriting ROH is up over 65% from yesterday's close. I would consider selling half of my position shortly in order to lock in a gain. The market price is about 5% lower than the offer price at $78. The companies have said they hope to complete the deal by early 2009. I would keep my other half of the position to tender it by that time.
Wednesday, July 9, 2008
Teleflex Incorporated (TFX) Dividend Analysis
Teleflex Incorporated engages in the design, manufacture, and distribution of specialty-engineered products for medical, aerospace, and commercial markets in North America, Europe, Middle East, Africa, Latin America, and Asia. It operates in three segments: Medical, Aerospace, and Commercial.
TFX is not a dividend aristocrat, but a member of the dividend champions. It has been increasing its dividends for the past 30 consecutive years. From 1998 up until 2007 this dividend growth stock has delivered an annual average total return of 6.90 % to its shareholders.
TFX is not a dividend aristocrat, but a member of the dividend champions. It has been increasing its dividends for the past 30 consecutive years. From 1998 up until 2007 this dividend growth stock has delivered an annual average total return of 6.90 % to its shareholders.
At the same time company has managed to deliver a 6.30% average annual increase in its EPS since 1998.
The ROE has declined slightly from 16% in the late 1990’s to about 11% in 2007.
Annual dividend payments have increased over the past 10 years by an average of 12.40% annually, which is twice as high as 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, TFX has indeed managed to double its dividend payments almost every six years on average.
If we invested $100,000 in TFX on December 31, 1997 we would have bought 2649 shares. In February 1998 your quarterly dividend income would have been $264.90. If you kept reinvesting the dividends though instead of spending them, your quarterly dividend income would have risen to $986.88 by November 2007. For a period of 10 years, your quarterly dividend income has increased by 220 %. If you reinvested it though, your quarterly dividend income would have increased by 273%.
The dividend payout has remained at or below 50 % for the majority of our study period with the exception of a brief spike in 2004. 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 TFX is attractively valued with its low price/earnings multiple of 17.50 and low DPR. TFX also boasts a yield of 2.40%, which is higher than the market yield.
Disclosure: I do not own shares of TFX
Disclosure: I do not own shares of TFX
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Monday, July 7, 2008
AT&T (T) Dividend Analysis
AT&T, Inc. provides telecommunications services to consumers and businesses in the United States and internationally. It provides wireless services, including local wireless communications, long-distance, and roaming services with various postpaid and prepaid service plans.
AT&T is not a dividend aristocrat yet, but a dividend achiever as well as a major component of the S&P 500 index. It has been increasing its dividends for the past 24 consecutive years. From 1998 up until 2007 this dividend growth stock has delivered an annual average total return of 5.00 % to its shareholders.
At the same time company has had a 0.50% average annual decrease in its EPS since 1998. In fact the diluted earnings per share of $1.94 in 2007 were nine cents lower than the diluted earnings per share in 1998.
The ROE has remained in a steady decline falling to about 10% in 2007 which is significantly lower than the 30% mark for this indicator in 1998.
Annual dividend payments have increased over the past 10 years by an average of 4.80% annually, which might be unsustainable due to the lack of growth in profits over the past decade. A five percent growth in dividends translates into the dividend payment doubling almost every fourteen to fifteen years. If we look at historical data the quarterly payment of $0.355 from 2007 was double what AT&T paid in 1991 as a quarterly dividend.
If we invested $100,000 in T on December 31, 1997 we would have bought 2730 shares (Adjusted for a 2:1 stock split in 1998). In January 1998 your quarterly dividend income would have been $611.52. If you kept reinvesting the dividends though instead of spending them, your quarterly dividend income would have risen to $1368.17 by October 2007 and over $1570 most recently. For a period of 10 years, your quarterly dividend income has increased by 59 %. If you reinvested it though, your quarterly dividend income would have increased by 124%.
The dividend payout has increased steadily during our study period and broken above 70%. A lower payout is always a plus, since it leaves room for consistent dividend growth minimizing the impact of short-term fluctuations in earnings.
Although T has a low price/earnings multiple of 16 and above average dividend yield I would think twice before entering a position there. The decline in ROE and EPS is warning sign for me, as is the steady increase in the DPR. Without any future growth in EPS, the company would be unable to maintain its current dividend policy of rewarding shareholder with future dividend increases. The only appealing thing right now is the high dividend yield of 5%.
Disclosure: I do not own shares of T
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Thursday, July 3, 2008
Carlisle Companies (CSL) Dividend Analysis
Carlisle Companies Incorporated engages in the manufacture and sale of construction materials in the United States and internationally. It operates in five segments: Construction Materials, Industrial Components, Transportation Products, Specialty Products, and General Industry.
Disclosure: I do not own shares of CSL
The company is not a dividend aristocrat but a dividend champion. In fact, this stock never crossed my radar, untill I found about the dividend champions list. It has been increasing its dividends for the past 31 consecutive years. From 1998 up until 2007 this dividend growth stock has delivered an annual average total return of 7.70 % to its shareholders.
At the same time company has managed to deliver a 10.50% average annual increase in its EPS since 1998.
The ROE has remained in the 5% - 20% range over the past 10 years. It has regained ground from its 2001 lows.
Annual dividend payments have increased over the past 10 years by an average of 7.90% annually, which is lower than the growth in EPS. An 8% growth in dividends translates into the dividend payment doubling almost every nine years. If we look at historical data, going as far back as 1987, CSL has actually managed to double its dividend payment every ten years on average. If history could be any guide, in 2017 the quarterly dividend payment would equal $0.29/share.
If we invested $100,000 in CSL on December 31, 1997 we would have bought 4847 shares (Adjusted for a 2:1 stock split in 2007). In February 1998 your quarterly dividend income would have been $339.29. If you kept reinvesting the dividends though instead of spending them, your quarterly dividend income would have risen to $828.10 by November 2007. For a period of 10 years, your quarterly dividend income has increased by 107 %. If you reinvested it though, your quarterly dividend income would have increased by 144%.
With the exception of 2001 and 2002 the dividend payout has remained below 40% 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 CSL is attractively valued with its low price/earnings multiple of 15 and low DPR. The yield is at my 2% threshold. The stock is currently trading way off of its highs from 2007, which presents a nice opportunity for an entry on the dip.
Disclosure: I do not own shares of CSL
Wednesday, July 2, 2008
Selected Dividend Increases in June
Several Dividend Aristocrats have increased or decreased their dividends in June. The companies are listed below.
- Selected Dividend Increases in April
- Dividend Increases in March
- Dividend Increases in February
Expected dividend increases in July
Based off historical information from this spreadsheet, I would expect that the following companies increase their dividend in July: BUD, BAC, GCI, MTB, PPG, SWK, WAG. I would really watch out for BAC and GCI this month.
These dividend aristocrats have increased their dividends during every month of February over the past 4 years. 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 company that has increased its dividend twice in one year is STT- State Street.
Relevant Articles:
- Selected Dividend Increases in May- Selected Dividend Increases in April
- Dividend Increases in March
- Dividend Increases in February