MarketWatch has an interview with Wendell Perkins, a value fund manager who is finding some good buys in financial services. He talks about a couple of Business Development Companies ACAS and MCGC. I have owned ACAS for a few years and was doing some research into MCGC although I have not purchased any yet.

BOSTON (MarketWatch) -- Wendell Perkins, portfolio manager for the Optique Large-Cap Value, Small-Cap Value and International Value funds, says that "the market has handed investors so many opportunities," most notably in the form of stocks that will recover from recent downturns steadily over the next few years while providing solid dividends.

In a radio interview with Chuck Jaffe, MarketWatch senior columnist, Perkins noted that many current bargains are not going to be overnight home runs, but rather consistent growers that will recapture value washed out over the last few months.

"There are more opportunities from a value perspective than we have seen in years," said Perkins, whose funds (OPLCX) , (OPSCX) , (OPIEX) were known as the Johnson Family funds until a recent change in ownership of the firm. "This is an interesting time to be a value buyer."

One area of particular interest to value investors is the financial-services sector, where Perkins said that American Capital Strategies (ACAS) , MCG Capital (MCGC) and BB&T Corp. (BBT) are all worth buying now, noting that while the trouble in the sector may not be over the strong dividend yields on each will tide investors over on the way to a price recovery.

Perkins also described Amgen (AMGN) as a buy, noting that "most bad news has neen priced out of the stock." But he put a sell on Tenet Healthcare (THC) , suggesting there is more bad news to come for that stock.

Three other stocks -- NewMarket (NEU) , AGCO (AG) and Matsushita Electric (MC) -- fell into the realm of "good company, bad stock," where Perkins felt that valuations should have investors headed for the exits at this point. Perkins said that he would sell Matsushita, in favor of Sony Corp. (SNE) , which he classified as a buy.

The Div Guy owns shares of ACAS at the time of this post.

BusinessWeek has a S&P stock screen of international stocks that is a great place to start your research. Dividends: A World of Smart Yield Plays

As U.S. investors increasingly look overseas, S&P's latest screen finds 20 attractive foreign companies with market-beating yields

In the ongoing search for income investments, many U.S. investors are seeking yield instruments overseas. That's because foreign companies are increasingly initiating or boosting dividend payments.

As of Feb. 13, the dividend yield on the S&P Euro 350 index was 3.2%, vs. a 2.1% yield for the S&P 500. And it's not just Europe. Stocks in Asia and emerging markets are also increasingly paying dividends.

What are some attractive U.S. names investors should know about? S&P Equity Research screened for foreign companies within S&P Equity Research's coverage universe that trade as American Depositary Receipts or American Depositary Shares on a U.S. exchange. The shares had to have a dividend yield higher than that of the S&P 500-stock index.

To ensure their appeal, we made them pass though one final filter. The shares had to carry an S&P investment rank of 4 STARS (buy) or 5 STARS (strong buy), meaning S&P analysts expect them to outperform the S&P 500 on a total return basis over the coming 12 months, with the shares rising in price on an absolute basis.

Twenty names made the cut. Please see the associated slide show for more details on the companies on the list.

Company Ticker
Allied Irish Banks AIB
AstraZeneca AZN
AXA AXA
Banco Bilbao Viscaya Argentaria BBV
Banco Santander STD
Barclays BCS
Chunghwa Telecom CHT
Diageo DEO
Enel ENSTY
France Telecom FTE
Genesis Lease GLS
ING Groep ING
Lloyds LYG
Nissan Motor NSANY
Royal Dutch Shell RDSA
Sanofi-Aventis SNY
Taiwan Semiconductor TSM
Telecom Italia TI
Telefonica TEF
Total TOT

The Div Guy owns shares of STD and BCS at the time of this post.

I have just started using Cake Financial to track my dividend stock portfolio. Cake Financial is a free online service that tracks your portfolio directly from your brokerage account. You can share your portfolio and trades with others in the Cake community. The trade information is automatically downloaded from a secure link to your brokerage account with no manual intervention so there is no way you can fake your results. I have downloaded the past 6 years of stock trades from my Scottrade and Zecco brokerage accounts.

Here is my performance as tracked by Cake as of 2/25/08.

Today +1.24%
MTD +6.18%
YTD +4.18%
AAR +19.02% (Average Annual Return for the past 6 years)

MTD is Month To-Date, the time period starting on the 1st of the current month and ending today.
YTD means Year To-Date, the time period starting on January 1st of the current year and ending today.
AAR stands for Average Annual Return, your average performance each year you have been investing and for which we have your portfolio information.

I am very pleased with the AAR of 19.02% for the 6 years I have had my brokerage accounts.

I am including a badge that will show the performance of my dividend stock portfolio as well as the holding and trades. I still have a couple of stocks that do not show up on Cake because they are DRIP plans.

I read The Little Book of Value Investing by Christopher H. Browne and one of his recommendations is to look at what other respected value fund managers are investing in to get additional investment ideas. Let's take a look at a fund from Mr Browne's firm Tweedy Browne which is a value investing firm which traces it's roots to value guru Benjamin Graham.

Mr. Browne's firm managers a new fund called the Tweedy Browne Worldwide High Dividend Yield Value Fund. This fund matches very well with my investment style, so here is look at the top 20 stock holdings by percentage of the fund along with the country of the stock as of 1/31/08.

1. General Electric (GE) 3.47% USA
2. Independent News & Media 3.24% Ireland
3. Kimberly Clark De Mexico 3.22% Mexico
4. Pearson PLC (PSO) 3.10% UK
5. Genuine Parts Co (GPC) 3.08% USA
6. Glaxosmithkline PLC (GSK) 3.05% UK
7. Muenchener Rueckver 3.02% Germany
8. Mediaset SPA 3.02% Italy
9. Korea Exchange Bank 2.94% South Korea
10. US Bancorp (USB) 2.94% USA
11. IGM Financial Inc 2.90% Canada
12. Eni SPA (E) 2.88% Italy
13. Reynolds America (RAI) 2.63% USA
14. Unilever NV (UN) 2.62% Netherlands
15. BP PLC (BP) 2.48% UK
16. Total SA (TOT) 2.45% France
17. ING Groep NV (ING) 2.42% Netherlands
18. Embotelladoras Arca 2.19% Mexico
19. Azko Nobel 2.14% Netherlands
20. Masco Corp (MAS) 2.05% USA

The Div Guy owns shares of GE, GSK and USB at the time of this post.

CNNMoney has a nice write up on 5 conservative dividend stocks to consider. Stocks we love: 5 big dividends

Sometimes it just feels good to get a little something back. Consider these five consistent dividend-paying stocks for your portfolio.

How we chose the stocks

Bond yields are relatively low right now. So if you're looking for something that pays you a steady income stream, you might be better off with a stock that offers a high dividend.

We sifted through thousands of stocks to bring you five that will pay a healthy dividend over the long haul and should also post steady, if not spectacular, earnings growth.

Each company has the potential to stand up reasonably well in this rocky market. Plus, all five companies have consistently increased their dividends over the past five years. What's more, they all have strong balance sheets...so they are likely to keep boosting their dividends in the years to come.

PepsiCo
Pepsi is your classic safe haven stock for a weak economy.

With brands such as its flagship Pepsi soft drinks as well as Gatorade and Quaker under its wing, the company is a leader in the North American food and beverage market. But it is also well-positioned to expand internationally.

"Long-term international opportunities coupled with its dominant market positions in North America strengthen the company's already best-in-class position," wrote analyst Jonathan Feeney of Wachovia in a report.

Pepsi pays a dividend that yields an attractive 2.1%. That's a tad lower than Coke's 2.3% yield, but Pepsi's dividend payout has increased 20% a year, on average, over the past five years, compared to annual dividend growth of 11% for Coke.

Abbott Laboratories
Abbott currently trades at about 17 times 2008 estimates and offers a dividend yield of 2.6%. And Abbott's dividend has increased 7% annually, on average, over the past five years. To put that in perspective, rivals such as Merck, Wyeth have boosted their payouts to investors by just 1% and 4% on average over the past few years.

Federated Investors
Federated currently offers a dividend yield of 2%, and the dividend has increased at an average rate of 27% over the past five years. So like its money market funds, Federated's stock also offers some nice stability in a volatile market.

Emerson Electric
Sales grew 9% overseas in the last quarter compared to 5% in North America. Revenues were up 16% in Asia alone. Citigroup's Jeffrey Sprague predicts that high-growth emerging markets could account for 30% of total sales this year, helping to offset any domestic sales declines.

Emerson currently offers a dividend yield of 2.3% and the dividend has increased at an average rate of 8% over the past five years.

Wm. Wrigley Jr.
The company may be losing market share domestically, but the Middle East, Europe, and Asia (especially China) is where the growth is. Domestic sales were flat in the last quarter, but sales to Europe and the Middle East grew 26% in 2007, while Asian sales grew 20%. International markets accounted for 68% of Wrigley's total sales.

As such, Wrigley's dividend yield of 2.3% is as refreshing as a stick of Doublemint. Plus, the dividend has grown by an average of about 13% over the past five years. Now that's some juicy fruit for investors.

The Div Guy owns shares of PepsiCo and Wm. Wrigley Jr. at the time of this post.

CNN Money has an article on Americans not being ready for the cost of retirement. Most Americans unprepared for retirement

A majority of American workers will not be able to maintain their current standard of living after they retire, according to a report released Tuesday.

The Center for Retirement Research (CRR) estimates 61% of households are "at risk" of being unable to live the way they would like and pay for their health care when they get old.

CRR considers consumers to be "at risk" if their savings, Social Security and pension benefits combined will fall at least 10% short of the income needed in retirement to support the same standard of living they enjoyed while working.

CRR's study assumes that people want to spend the same amount on goods in retirement that they do now and that they consider health insurance and the added health care costs associated with growing old to be an additional expense.

"People take the notion of health care for granted," said Andrew D. Eschtruth, associate director for external relations at CRR. "The basic assumption of this report is that retirees think they will eat the same kind of foods, travel the same - or more - and buy the same clothes."

Additionally, out-of-pocket health care costs for most consumers rise significantly upon retirement. The report assumes that people recognize the burden of health care costs once they retire; however, those retirees to whom the added expense comes as a surprise will have to reduce their spending on consumer goods and spend much more on health care.

Why are people so inadequately prepared? With the shift from traditional pension plans to 401(k)s, the burden of preparing for retirement has shifted from employers to the employee.

Some workers aren't saving enough to prepare themselves for their golden years. Also, 30% of employees simply fail to sign up for 401(k) plans, according to insurance company Nationwide.

"Good physical health matters a great deal," said Paul Ballew, senior vice president of consumer insight and analytics at Nationwide. "Physical and financial health are connected, as being healthy lessens your chance of having high, unexpected medical expenses."

"Save early and often, and take advantage of what's available to you," said Ballew. "But also speak to a professional who can help you achieve an adequate investment strategy for your golden years."

Standard & Poor's "Investability Quotient" measure, which ranks stocks according to their potential for return The IQ List: Smart Stocks with Potential

Specifically, the IQ is a proprietary Standard & Poor's measure of investment desirability. The IQ serves as an indicator of potential medium- to long-term return and as a caution against downside risk.

Think of it as a metric of metrics. S&P's IQ combines models using proprietary analytical tools, technical measures, liquidity and volatility indicators, and quantitative analysis to come up with a total score. Under the IQ system, companies are scored on a scale of 1 to 250—similar to the standard measure of human intelligence—with higher numbers signaling stronger potential.

The IQ model combines four submodels:

• An S&P proprietary model based on STARS ranking, quality of earnings and dividend growth, and an outfit's credit rating;

• A proprietary, multifactor statistical model that includes valuation, profitability, risk, and momentum factors;

• A liquidity and volatility model that measures liquidity and downside risk; and

• A technical model that looks at six-month relative strength.

That's quite a challenging course for any stock, and we decided to add one final hurdle for this week's screen. We looked for stocks with S&P's highest investment ranking—those with 4 STARS (buy) or 5 STARS (strong buy) rankings—that also feature an IQ higher than 200.
When the screen was finished, 13 stocks were tapped to join this equity-investing version of Mensa:


Company Ticker S&P STARS Rank S&P IQ Score
Abbott Laboratories ABT 5 201
Aflac AFL 5 201
Altria Group MO 5 213
Coca-Cola KO 5 220
Colgate-Palmolive CL 5 223
Estee Lauder EL 5 222
Hartford Financial Services Group HIG 5 207
International Business Machines IBM 5 205
Johnson & Johnson JNJ 4 207
McDonald's MCD 5 216
Procter & Gamble PG 5 218
Simon Property Group SPG 5 208
Tiffany & Co. TIF 5 212

The Div Guy owns shares of JNJ and PG at the time of this post.

American Capital (ACAS) has once again increased it's dividend. American Capital's Board of Directors declared a first quarter 2008 regular dividend of $1.01 per share to record holders as of March 7, 2008, payable on April 1, 2008. This is a 13% increase over the first quarter 2007 dividend of $0.89 per share. American Capital has paid a total of $2.1 billion in dividends and paid or declared dividends of $27.17 per share since its August 1997 IPO at $15.00 per share.

The company has also reiterated its 2008 dividend forecast of $4.19 per share, a 13% growth over total 2007 dividends of $3.72 per share. The remaining 2008 dividends per share are forecast to be in the following quarterly amounts.

$1.03 for Q2 2008, 13% increase over Q2 2007; $1.05 for Q3 2008, 14% increase over Q3 2007; and $1.10 for Q4 2008, 10% increase over Q4 2007.

The preceding dividend forecast and other forecasts above assume that for 2008 there will be a recession in the U.S., no new capital will be raised at American Capital and American Capital will produce significant internally generated liquidity available for new investments.

The Div Guy owns shares of ACAS at the time of this post.

I just read an interesting article that talks about beaten up stocks that should do well in a low interest rate environment. The article is by Jeffrey R. Kosnett on Kiplinger.com. Relief for Beaten-Down Investments

The Federal Reserve's surprise rate cut breathed life back into REITS and business development companies. Regional banks should benefit, too.

Usually this drastic action would add to the fear that all income investments other than government debt are perilous. Instead, the Fed's surprise rate cut has rescued some slumping high-income investments.

Start with real estate investment trusts, which rallied dramatically since the Fed's January 22 rate cut.

The four largest REITs as measured by total stock market value -- Simon (SPG), ProLogis (PLD), Vornado (VNO) and Public Storage (PSA) -- are all in different REIT segments, yet each stock is up more than 10% since the Fed's intervention. This isn't a random catch-up. Even health-care oriented REITs, the best REIT group during last year's sweeping real-estate stock downturn, have enjoyed strong gains since the news of the Fed's easing.

Lower interest rates are helping the most-leveraged REITS improve their cash flow and prospects for delivering stable or growing dividends.

Business development companies, which I've often written about because of their diversified investment holdings and history of high dividends, are another beaten-down stock group that stands to get relief from credit easing. Shares of BDCs, which include American Capital Strategies (ACAS), Allied Capital (ALD), MCG Capital (MCGC) and TICC Capital (TICC), all tumbled in 2007 and fell some more at the start of 2008 until the aforementioned Fed meeting.

Since then, all are up more than 10% yet are still priced to yield from 11% to 15% on their current dividend rates. (BDCs, like REITs, are required to distribute almost all of their net income as dividends).

Allied, American Capital and MCG Capital each have revolving credit lines tied to LIBOR or to the federal funds rate (the actual rate the Federal Reserve controls and is cutting), so they should save substantial interest bills. When the economy expanded between 2003 and 2007, BDCs benefited from a wide spread between their own borrowing costs and the rates on their loans. This spread tends to get wider when short-term rates fall outside of a recession.

Other investments benefit from falling short-term rates. Most banks' profits are driven by the spread between the rates they pay on savings, CDs and other deposits (which go down as short-term rates do) and the rates they charge on loans, which depend not only on the Federal Reserve but also on how many borrowers fall behind. That, in turn, varies with the economy.

Banks should do poorly when the economy is ailing. But when the worst is over -- you'll be able to sense this by checking indicators like the percentage of loans that are in arrears (this is reported every quarter) -- it's generally time to buy the local and regional banks that are unscathed by the subprime mortgage mess.

You don't have to buy these stocks right as the Fed eases rates. BB&T (BBT) did gain 19% in the five days after the three-quarter-point cut and U.S. Bancorp (USB) rose 11%. But you'll get even more growth from these banks to go with their reliably high dividends if the economy avoids a recession.

REITs, business lenders and regional banks aren't exciting, but eight or nine years out of ten, you'll want to own their shares. We just had one of the exceptions in 2007. I think you catch my drift.

The Div Guy owns shares of ACAS and USB at the time of this post.

Someone asked me to describe my style of stock investment.

First I have to say most of my assets are invested in index mutual funds within my retirement account. My taxable account is where I invest in dividend stocks.

My investment style for my dividend stocks is a mix of a couple of different styles. First I invest in some S&P 500 Dividend Aristocrats stocks, these are stocks that have consistently increased dividends every year for at least 25 consecutive years. I own companies such as Bank of America, General Electric, Johnson & Johnson and Wrigley's.

Then I also look for quality stocks that have a high dividend yield such as Kinder Morgan Energy Partners and American Capital Strategies, these are companies that I think will be become dividend aristocrats down the road.

My third type of stock I like to purchase are stocks that I think the markets have unfairly punished or have gone down too much because of psychological reasons instead of fundamental reasons. Some of these stocks I have been adding to at this time, such as Barclays and Deutsche Bank.

To summarize my stock style, I would say I am a value or contrarian investor that likes to get paid a good dividend. I am not that worried if I don't beat the market every year. My goal is create a stock portfolio that will pay me 8-10% in dividends a year. The investment book with the most similar investment style as my own would be "The Single Best Investment/ Creating Wealth with Dividend Growth" by Lowell Miller.

Currently I own 27 Individual stocks in my current portfolio and this provides some good diversification as I look to increase this portfolio over the next few years. Stock selection is a very personal decision and different styles work better for other investors.

I have been using my Zecco brokerage account to build my portfolio along with a couple of DRIP's I own. I lhave been very with my Zecco account and would recommend it to someone looking to save money on a brokerage account.

Some investors may not want to select their own stocks but want the benefits of investing in dividend stocks. Along comes the Dividend Exchange Traded Funds (ETF's).

First a definition of ETF's. An ETF is a group of stocks similar to a mutual fund except ETF's are traded on the stock exchange like other company stock. Most ETF's are based on a stock index such as the S&P 500.

The number of Dividend ETF's has been exploding with more coming to market each month. One of the oldest is iShares Dow Jones Select Dividend Index (DVY) from Barclays. DVY was started in 2003 and most Dividend ETF's can thank the Jobs and Growth Tax Relief Reconciliation Act of 2003 for their popularity. This tax act was signed into law in May of 2003 and lower the tax rate on stock dividends to 15%. REIT's and foreign company dividends were excluded from the lower tax rate of this law.

You can purchase ETF's from a discount broker such as Zecco or through ING's ShareBuilder. Real time trades with Zecco cost $4.5 unless you have over $2,500 in assets and then Zecco gives you 10 free trades a month. ShareBuilder offers automatic purchases for $4 and real time trades of $9.95. These are both great ways for new investors to get started investing in the stock market outside of your 401(k) or 403(b) plans. So if you are already investing in your company retirement plan, why not look at ETF's for taxable and IRA accounts?

Here are links to some popular Dividend ETF's
DTN WisdomTree Dividend Top 100
FDL First Trust Morningstar Dividend Leaders
VIG Vanguard Dividend Appreciation
VYM Vanguard High Dividend Yield
PEY Powershares High Yield Dividend Achievers
AGD Alpine Total Dynamic Dividend Fund
SDY S&P High Yield Dividend Aristocrats Index

Here are links to some of the major providers of ETF's.
Barclays iShares
Vanguard
Powershares
WisdomTree

Back on Monday January 7th I wrote about my favorite conservative dividend stock Kinder Morgan Energy Partners (KMP). A couple of people posted questions on the taxation of KMP which is a Master Limitied Partnership (MLP). Yesterday I read an interesting article in Forbes by Joseph Tatusko talking about the stability, tax benifits and strong performance in a low interest rate environment of MLP's.

Income Pipelines
In times of heightened uncertainty and higher volatility, it's important to be reminded that not all markets or sectors misbehave or perform similarly when the going gets tough. Master limited partnerships (MLPs) have been an exception to the malaise in equities the first several weeks of 2008 and as a group appear very well positioned to benefit from lower interest rates.

MLPs don't always perform in the same manner as other traded equities because they differ in several key aspects. MLPs do not pay corporate income tax, and they return most of their free cash flow, often referred to as distributable cash flow, to investors in the form of quarterly cash distributions. The average distribution yield now stands at 7.5%, which can be especially appealing to income-oriented investors, particularly in light of today's bond yields of 5% and less.

MLPs also possess a unique tax advantage in that 80% to 90% of distributions typically are tax-deferred for federal income tax purposes. The distributions are subject to tax only when the units are sold, and if the units are held for more than a year, they are taxed as long-term capital gains (currently 15%) rather than ordinary income (marginal rates as high as 35%), as is the case for corporate bonds.

MLP price performance in January illustrates several important characteristics that MLPs historically have demonstrated over longer periods of time--namely low correlation to other equities (prices don't move together) and lower price volatility (prices don't move as greatly). The Westport Resources MLP Index was unchanged over this turbulent past month, while the S&P 500 was down 6%, indicating that low
correlation between MLPs and other equities has continued through January (0.37 correlation between MLP Index and the S&P 500 over the past year).

So far, 2008 is shaping up to be a good year, as most MLPs appear poised to feast on the Fed's rate-cut diet. MLP prices in the past have been negatively correlated to interest rates--low rates good, high rates not so good. This shouldn't be too surprising, since a low interest rate environment means lower debt expense for the MLPs and increased interest from investors seeking more attractive yield plays.

Important considerations when evaluating MLPs include distribution growth potential and coverage, cash flow stability, leverage, underlying commodity risk, growth opportunities and capital expenditure plans.

Below are six MLPs that investors might consider purchasing after performing their own due diligence.

MLP Yield Brief Description
Amerigas Partners (APU) 7.26% Residential and commercial propane distribution
Buckeye Partners (BPL) 6.72% Pipelines--refined products
Enterprise Products (EPD) 6.26% Pipelines--natural gas & crude oil
Kinder Morgan Energy Partners (KMP) 6.37% Pipelines--natural gas, CO2, crude
Oneok Partners (OKS) 6.50% Natural gas gathering & transportation
Sunoco Logistics Partners (SXL) 6.58% Pipelines & storage--refined products & crude oil

The Div Guy owns shares of KMP and OKE(OKE owns part of OKS) at the time of this post.

I have always been interested in saving as a young kid. After I graduated from college, I moved to Boston, MA and started working in the mutual fund industry. I remember my first mutual fund purchase was the Scudder Global Fund in the late eighties. I later ended up working for Scudder funds and started to form my early investment plans which was to put to save as much for retirement in my 401(k) as I could afford.

I got married in 1994 with a couple of thousands dollars in cash and about $26K in my 401(k) plan. This is how we started out and we worked together to set some goals for our investing. We started tracking our net worth for the fist time in June 1999 and we had a net worth of $264,751. I then started tracking our net worth twice a year at the end of June and December using an Excel spreadsheet. I now have a more formal plan to determine how much we will need at retirement which I update at the end of each year.

These days I enter our net worth each month on NetworthIQ. This is a great site to see how you compare to your peers and you can tell as little or a much about yourself as you like. You can compare your net worth to others by income, age, state and many others factors. Tracking ones net worth each month might be a little too much but it is fun to see how it has changed from the previous month. It only takes a few minutes to get started with NetworthIQ. I now have linked my site to the NetworthIQ site that shows a graph of my net worth.

Take a look at NetworthIQ. Remember you can't find your way if you don't have a good road map.

I just read an article for investors who want to move beyond mutual funds. The article discusses how to make investments in stocks and ETFs. I keep the majority of my retirment assets in index mutual funds but I also like to invest in stocks as well. I enjoy researching and selecting stocks to add to my dividend stock portfolio.

Here are some highlights of the article by Janet Paskin from Smart Money. Beyond Mutual Funds

WITH A SON TO raise and a career to build, Jim Turner wanted investments he could ignore. So when his broker recommended mutual funds, he and his wife, Ann, found that a largely forgettable portfolio suited them just fine.

All that's changed now. Turner is still no day trader, but with a little more time — he's since retired, kid's a grownup — he wants to have a more active hand in his future. So he sold a chunk of his funds and set up an account at an online brokerage, building a portfolio of about 25 stocks. He also opened two separately managed accounts. "Mutual funds are fine, but they're passive," he says, noting that he still has a big portion of his retirement money in funds. "I'm interested, I enjoy it, and it's easy."

"Mutual funds are dinosaurs," says Ric Edelman, a financial planner in Fairfax, Va., with $4 billion under management, who's given up funds entirely. "You can have a horse and buggy and travel the old way, or you can use today's technology. It's not a hard choice."

Of course, it's nowhere near that simple. With their mass appeal and enormous clout, mutual funds will — and should — be an important part of most people's portfolios for the foreseeable future. And going beyond mutual funds requires a greater dedication to your financial education. Building a portfolio of stocks requires developing a stricter investing philosophy — and sticking to it. Buying individual bonds could require taking a bit more interest in economic indicators. Virtually all alternatives require a level of involvement that mutual funds don't. Even so, the sophisticated investor can find plenty of tools and strategies to create and manage a portfolio. We looked at five of the most popular alternatives to mutual funds — and those most likely to enhance returns over the long term.

STOCKS
A remarkable number of mutual fund managers fail to beat the market. How remarkable? Try 75% over the past five years, according to Standard & Poor's. That's not all due to bad stock picking; it's often a result of fund fees, higher taxes, cash flows, and a host of other issues and restrictions that individual investors wouldn't face when picking stocks on their own. Most online brokers don't charge more than a few bucks a trade, amounting to far less than the 1.44% the average mutual fund charges in management fees. Choosing your own stocks also means you can avoid paying short-term capital gains tax altogether by restricting your portfolio to stocks you're willing to hold for the long haul. But all that is peanuts compared to the market-beating gains a well-researched and carefully crafted stock portfolio can achieve.

Stewart Welch, a money manager in Birmingham, Ala., recommends no fewer than 20 stocks, spread across at least five of nine industries. He looks for ideas among the 1,000 biggest companies, focusing on ones that have strong balance sheets, positive cash flow from year to year and a 10-year track record of consistent, rising dividends. The point, he says, is to generate growth and income. "If the dividend continues to rise, the stock price almost has to go up," he says. He invests equal amounts in each of his favorite stocks; among them are Abbott Labs (ABT), General Electric (GE), Exelon (EXC) and Colgate-Palmolive (CL). Those four have returned an average of 15% a year over the past five years — beating the stock market by two percentage points a year.

EXCHANGE-TRADED FUNDS
If you haven't heard about exchange-traded funds, you must not watch a lot of television. Or read many magazines. Or...well, you get the picture. Financial firms of all sizes are hawking these products nearly everywhere you look. New ETFs are introduced almost weekly. Like a mutual fund, each ETF holds a basket of stocks — some hold hundreds of companies in an effort to represent the entire stock market, while others are made up solely of tiny biotech firms. Unlike mutual funds, which are priced once at the end of the day, ETFs trade throughout the day on an exchange, like stocks. Nonetheless, ETFs are cheaper and more tax-efficient than most mutual funds, and in many categories they've performed better. "ETFs are a technological wonder," says Robert Ellis, a retail investing analyst at financial services research firm Celent. And, he notes, "it's hard to imagine a better mutual fund killer."

The Div Guy owns shares of GE at the time of this post.

Barron's has a good article By JOHANNA BENNETT that screens dividend stocks that have increased their dividends over the last 10 years and have good prospects for future dividend increases.

Stock Dividend Yields That Beat Bonds

IF YOU'RE LOOKING FOR YIELDS, forget about the bond market.

Certainly, Treasuries have traditionally been a haven from an ugly stock market. But after falling dramatically over the last year, yields look fashion-model thin, though nowhere near as attractive.

At about 3.5%, the benchmark 10-year Treasury note has come within a half point of a five-year low.

But General Electric, Pfizer and other dividend-paying stocks with high yields and rising profits could provide a softer cushion, and better returns.

"Outside of the financial sectors, there is strength in these stocks," says Howard Silverblatt, senior index analyst for Standard & Poor's.

Unlike bonds, stocks with steady and growing payouts have the potential for growing income that can keep pace with inflation. And at least through 2010, dividends are taxed at a top rate of just 15% instead of ordinary income rates for bonds.

Also, companies that grow or initiate dividends tend to outperform nondividend-paying stocks, creating a "very sound investment concept," says Judith Saryan, vice president and portfolio manager for Eaton
Vance.

Smart investors, however, look for more than high yields. A company needs the financial muscle to hold up those annual payments.

So experts interviewed by Barron's Online suggest picking names with growing businesses, growing profits and growing dividends.

Standard & Poor's identified 352 companies that boosted their cash dividend payments over each of the last 10 years.

With Silverblatt's help, Barron's Online whittled the list down to a more manageable 17 stocks by looking for: market values of at least $1 billion; stock prices that have fallen less than 20%; and dividend yields of at least 3.5%.

We also looked for names boasting a historic dividend-growth rate that's about twice the current rate of inflation (2%, based on the Federal Reserve's favored measure) and are expected to increase profits in 2008 at 6% or better.

Here's the list compiled by Barron's Online:

COMPANY TICKER DIVIDEND YIELD

Buckeye Partners BPL 7.10%

Enterprise Products EPD 6.60%

Kinder Morgan Energy KMP 6.60%

Pfizer PFE 5.80%

Integrys Energy Group TEG 5.50%

Bank of Montreal BMO 4.90%

Nstar NST 4.40%

UST UST 4.30%

Royal Bank of Canada RY 4.10%

Bank of Nova Scotia BNS 4.30%

Huaneng Power (ADR) HNP 4.10%

Paychex PAYX 3.70%

Genuine Parts GPC 3.60%

Taubman Centers TCO 3.60%

Toronto-Dominion Bank TD 3.60%

General Electric GE 3.60%

Eli Lilly LLY 3.60%

The Div Guy owns shares of KMP, PFE and GE at the time of this post.

As of the end of January our Net Worth decreased to $800,029 from $820,314 for the month which is a decrease of 2.47%.

The breakout is as follows:

Retirement Accounts $381,350
Taxable Accounts $113,715
Cash $58,401
Home $205,000
Cars $16,000
Personal Property $3,500
Kids 529 Accounts $22,063

Here is the summary for the month:

Net worth declined in January for the third month in a row. I made additional purchases of bank, financial and REIT stocks this month which recovered towards the end of the month. The retirement accounts accounted for the biggest drop in value this month. I started funding our Roth IRA's this month. We also had a $1,000 auto repair bill that was not expected. I am keeping a high level of cash that I will use to fully fund our Roth IRAs for 2008 and 2009. I also have a savings account to fund the replacement of my wife's car in four years. Again, we have no debt at this time.

Not all the news was bad, as our Dividend Income increased to $7,974 from $7,495 for the month. The increase was from additional stock purchases as well as dividend increases on some of our stocks. I have been making additional purchases of financial and REIT stocks at low prices and great dividend rates. The dividends are reinvested but I am keeping track of the amount of income I could receive.