Thursday, July 31, 2008
Canada is my largest audience after the US with about 25% of viewers. So I will start with my favorite Canadian stock: Penn West Energy Trust (PWE)
PWE is the largest conventional oil and natural gas producing income trust in North America. Based in Calgary, Alberta, Penn West operates throughout the Western Canadian Sedimentary Basin. Penn West’s estimated production for 2008 is in the range of 195-205 thousands of barrels of oil equivalent per day, of which just under half was natural gas.
Penn West is an actively managed trust with a large and diversified asset portfolio, experienced and specialized technical teams, and an extensive inventory of internal opportunities.
Penn West has considerable interests in large light/medium oil pools, an extensive oil sands project under early stages of development, and a large inventory of enhanced oil recovery opportunities. The Trust conducts a substantial capital program funded by retaining a proportion of cash flow. Additionally, Penn West’s extensive undeveloped land inventory of approximately 4.1 million net acres creates a source of additional value through land monetization, farm-outs and exploration joint ventures.
Three reason's why I like PWE:
1. 13% Dividend yield.
2. Hedge against rising oil and gas prices
3. Hedge against a weak US Dollar for US investors.
I plan to keep PWE as a long term investment as long as oil stays above $90 a barrel and natural gas above $8 per million BTU.
What is your favorite Canadian dividend stock?
Disclosure: The Div Guy is long PWE at the time of this post.
Monday, July 28, 2008
With my first post on The DIV-Net, I wanted to cover the different styles of dividend and value investing I use in my stock portfolio. Investing is as much an art as a science so I use the different approaches to to cover my different personal styles. I like consistent slow growing companies and I like stocks that pay an above average dividend yield and I also like to purchase stocks that are out of favor which sell at a discount. My three styles of investing each make up a portion on my stock dividend account which I plan to grow dividend income to cover most of my basic expenses in retirement. I will also have my retirement plans to draw from and with any luck I may get some money from social security. I am not counting on Social Security for my retirement plan but it will be a bonus if I receive any.
1. Solid Slow Growth Stocks
The first style of dividend investing I started using about 10 years ago is selecting consistently growing companies that have a history of regularly increasing their dividends. These are your Blue Chip Stocks that also fall into the S&P 500 Dividend Aristocrats list of companies. I like to look for stocks in this group with a dividend yield over 2% but this is not a requirement and I will purchase a very good company that is paying less than 2%. These are stocks I do not plan to sell unless there are some major changes in the company. Some examples of the stocks I own that fall in this category include Procter & Gamble (PG), Wrigley (WWY) and General Electric (GE).
2. High Yield Dividend Stocks
The second style of investing I use is selecting companies that pay a higher that average dividend or distribution. I again look for companies with a solid financial background but I don't need to see the company increase it's dividend each year. One of my favorite investment books that chronicles this style of investing is The Single Best Investment by Lowell Miller. I look for dividend yields of over 4% for this group. These stocks are meant to be long term holding of at least 5 to 10 years. Some examples of these stocks in my portfolio include Kinder Morgan Energy Partners (KMP), Duke Energy (DUK) and American Capital Strategies (ACAS).
3. Value Stocks
The third group of stocks I invest in are stocks that are selling at a step discount to their book value or normal stock price. This is a category that is very difficult to measure and quantify. I started using this method in the ealy 90's by purchasing then Bank of New York that was selling in the single digits and it reminds me of today's financial stocks. Some of the other stocks that I purchased using this method include ING and AllianceCapital which is now AllianceBerstein during the mutual fund scandals of late 2003. I sold these stocks for nice gains and used the money to purchase some of my High Yield Dividend Stocks. Some people also will call this method of investing Vulture Investing meaning most investors have given these stock up for dead. I have no dividend yield requirements for this group but I prefer a stock that is paying a dividend or may pay a dividend in the future. The holding time is not certain for this group but can be less than a year to over a couple of years. Some current examples of this are some of my bank holding such as Bank of American (BAC) and Royal Bank of Scotland (RBS) and others such as Cooper Tire & Rubber (CTB) and Calpine Corporation (CPN).
I use these three investing styles to build a portfolio of invests that will help me reach my dividend income needs for retirement. One of my favorite expressions about investing is that retirement investing is an experiment that we each will take on and we will only know the final results when we reach retirement. So let's hope our dividend investment experiments work out well.
I hope you enjoy The DIV-Net site and follow us along on our experiment as we discuss dividend investing styles and stocks.
Disclosure: The Div Guy owns all the stocks in this article at the time of this post.
Saturday, July 26, 2008
Disclosure: The Div Guy owns shares of BAC at the time of this post.
The predicted demise of bank dividends has been greatly exaggerated.
Two big banks, Wachovia (WB) and Regions Financial (RF), cut their quarterly payouts Tuesday in a bid to conserve cash. The banks join finance-industry titans such as Citi (C), Fannie Mae (FNM) and Freddie Mac (FRE), all of which have cut back on dividends over the past year in a bid to conserve capital against rising loan losses.
But with most of the biggest U.S. banks having reported their second-quarter earnings over the past week, what's striking is how many lenders chose to maintain their quarterly payouts - even as shares in the sector remain battered and worries intensify about a second-half slowdown.
On Tuesday, CEO James Wells of Atlanta-based SunTrust (STI) said his bank doesn't have any plans to cut its dividend or sell common stock, saying a recent sale of Coca-Cola stock gives the bank sufficient capital against future losses. Bank of America (BAC) chief Ken Lewis went even further Monday, saying BofA will maintain its 64-cent quarterly payout because it's confident of weathering the credit storm.
Thursday, July 24, 2008
I started purchasing shares of CTB in late June and I now own shares at an average price of $7.99 per share. One reason I purchased the stock was I believed that oil costs would go down later this year and this stock should preform well. The stock has performed very well since the price of oil has started to decline. I have a paper gain of 28.69% in less than a month holding the stock and a yield on original investment of 5.25%. I will look to sell this stock if it hits the high teens over the next 6 to 12 months.
To read my full write up on CTB, see Short Term Dividend Stock Purchase: Cooper Tire (CTB). This looks like a case of history repeating itself.
Disclosure: The Div Guy owns shares of CTB at the time of this post.
Wednesday, July 23, 2008
Patience can pay in dividends
When it comes to dividends, some are wondering if things have become too good to be true. Of the companies in the Standard & Poor's 500, 46 are paying relatively fat annual dividend yields of 5% or more. Some of these cash payouts are real head-turners, including the 18.9% yield of investment firm American Capital (ACAS).
Most of the mega dividends are coming from financial companies such as Bank of America (BAC) at 7.9% and Citigroup (C) at 6.1%, but some non-financials, such as drug maker Pfizer (PFE)at 7.0%, are paying, too.
Such yields are especially alluring to investors tired of getting low 3% returns even from high-yield savings accounts. And if the market has bottomed, and individual stocks have stabilized, the big dividends could be a great payment for patient investors, says John Snyder, portfolio manager for Sovereign Asset Management. "If investors have a time horizon of beyond three months, some of these stocks will work out," he says. "You're getting paid while waiting."
But there's a danger the fat dividends are only setting investors up for torment when the companies cut or eliminate them, says Don Taylor of Franklin Rising Dividends fund. Often, a dividend yield is high because Wall Street suspects the payout will be cut. Tuesday, two of the formerly highest-yielding stocks in the S&P 500, Regions Financial and Wachovia, slashed their dividends 74% and 87%, respectively. And a stock can always decline in value more than its dividend payout, wiping out any benefit.
Investors can reduce risks by:
•Sticking with those best able to maintain their dividends. Bank of America is considered one of the relatively strong banks, says Tom Cameron, portfolio manager at Dividend Growth Advisors, which owns the stock. The company has raised dividends every year for 30 years and will soon reveal its plans for 2008. "Bank of America is the pretty pig in the beauty contest," he says.
Snyder owns SunTrust (STI), which yields 7.8%. While the bank is exposed to some troubled loans, it has been able to preserve its dividend in part by selling Coca-Cola (KO) shares it has owned for decades.
•Finding dividend payers with the biggest chances of increases. Investors should usually avoid the highest-dividend payers, says Richard Platte of Ave Maria Rising Dividend fund. Instead, he's buying companies with modest dividend yields, such as paint maker Sherwin-Williams (SHW) at 2.7%, that are likely to raise them.
But dividends are not money in the bank, especially after 23 S&P 500 companies have cut their dividends this year, nearly double those that did in all of 2007. "This is not without risk," Snyder says.
Disclosure: The Div Guy owns shares of ACAS, BAC and PFE at the time of this post
Tuesday, July 22, 2008
See my full write up on KMP at The DIV-Net. Visit www.thediv-net.com for other dividend and value stock stories.
Monday, July 21, 2008
Undervalued stocks with a superior history of dividend and earnings growth? Sounds like a winning combination. We set out to find stocks that fit both categories in this week's screen.Disclosure: The Div Guy does not own any of the companies in this article at the time of this post.
First, a word about the tools we used. Fair Value, S&P's proprietary quantitative model, seeks to outperform the market by buying undervalued stocks and selling them when they reach maximum price appreciation. The model calculates a stock's weekly fair value, the price at which it determines an issue should trade at current market levels, based on fundamental data such as earnings growth potential, price-to-book value, return on equity, and dividend yield relative to that of the S&P 500 index.
Within the Fair Value system, stocks are ranked in five tiers. Tier 5 is the highest and contains stocks considered the most undervalued. These are issues with a Fair Value considerably greater than their current price, implying superior price appreciation potential.
Our second filter, S&P's Quality Ranking system, is not intended to be forward-looking at all. Rather, it looks back over 10 years of earnings and dividends to determine consistency and growth. A ranking of A+ is the highest possible score, and indicates the stock is a dividend payer with a very high consistency of earnings and dividend growth over the past decade.
We looked for stocks with the highest ranking in both proprietary systems. Seven names emerged:
Cardinal Health CAH
Cathay General Bancorp CATY
UnitedHealth Group UNH
Wednesday, July 16, 2008
Disclosure: The Div Guy owns shares of XOM and JNJ at the time of this post.
BusinessWeek asked investing experts for tips on how to avoid stocks with weak finances, and how to choose strong companies at a time when strength seems especially valuable.
1. Look for lots of cash and low levels of debt.
Look at how much cash the firm has. Compare cash and debt levels to rivals in the same industry. Another key measure many investors use is free cash flow, a determination of, when all is added up, whether more money is flowing into the firm than out in a given quarter.
"When they hit hard times, they have cash to tide them over," says Scott Armiger of Christiana Bank & Trust. He points to USG (USG), a building materials company hurt by the housing slowdown (BusinessWeek.com, 6/18/08) but still modernizing its factories.
A healthy balance sheet also allows firms to make acquisitions when market valuations are low. "Strenuous times [are] when they go shopping, because they see businesses on sale," Armiger says.
Companies can be crippled by high debt burdens. Rob Lutts of Cabot Money Management points to the debt-laden auto and airline industries. "If they didn't have the debt, they could adjust their business operations and succeed," he says. Exxon Mobil (XOM), however, manages to operate in a capital-intensive business with almost no debt, Lutts says.
2. Other financial measures.
Cash and debt levels are at the top of most lists, but investors also include other criteria.
Lutts looks for "very high" aftertax profit margins, often of 25% to 30%. "It brings more strength to a company on a daily basis," Lutts says, citing Google (GOOG) and the Chinese firm New Oriental Education (EDU) as examples.
Mustafa Sagun, chief investment officer of Principal Global Investors' equities group, emphasizes not just good fundamentals, but improvements in those measures, such as increasing revenue, widening profit margins, and rising profits.
If a stock has a dividend, look at its history, Hemauer says. "It's not so much the [size of the dividend] as the consistency," he says. A dividend that is steady or rising is a great sign of financial strength, he says.
3. Sustainable advantages.
Michael Yoshikami, president and chief investment strategist at YCMNET Advisors, looks for "companies that have staying power." He puts Walt Disney Co. (DIS) on his list of "industry-leading companies with sustainable competitive advantages."
Another measure of sustainability is the ability to survive economic downturns, either through diversification or because of a business area insulated from trouble. Yoshikami cites Johnson & Johnson (JNJ), which reported better-than-expected earnings July 15 despite the tough economic times.
4. Check out the management team.
Ron Sweet, vice-president of equity investments at USAA, suggests looking to see if, when management articulates a strategy, they stick with it. Also, when the business was doing well because of a good economy, did executives congratulate themselves? Or did they talk about preparing for the next downturn? The latter is an example of "a high-quality company," Sweet says.
5. Customer activity.
Many businesses are only as strong as their customer base.
A company dependent on a small handful of customers is vulnerable if just one of them takes business elsewhere, Speiss says. A company that sells to the federal government might seem like a paragon of strength, but "what happens if the U.S. government cuts its budget?" he asks.
Another measure of customer strength is backlog. Lutts cites First Solar (FSLR), a solar-power firm with a backlog of orders that is 6.5 times this year's sales.
The goal is to find stocks that are not only strong enough to survive the current downturn, but to take advantage of the next recovery whenever it finally arrives.
Monday, July 14, 2008
The value stocks favored by Tweedy, Browne haven't done very well lately. But if you are a true believer in value, that's all the more reason to be buying those stocks now.
In the 12 months ended May 31 Global Value lost 11% in value, compared with an average drop of 7% in the same period for a universe of 27 similar no-load value funds. As for long-term results, Tweedy shines. In the 14 years that Global Value has been around, it has averaged an 11.9% annual return, versus 9% for the benchmark based on the MSCI EAFE and S&P 500 indexes (in dollar terms). Tweedy eats its own cooking. Its current and retired employees own $92 million of this fund.
Typical Tweedy stock: Signet Group (SIG), the world's largest jewelry retailer, headquartered in London. Shoppers who once splurged on new bling at its Jared or Kay Jewelers stores are spending their money on food and gas instead. Signet surprised investors with a profit warning, followed by a grim earnings report in April. Most analysts recommend selling the shares.
Thomas H. Shrager, one of the five directors who manage $12.5 billion for Tweedy, Browne's clients, says that Signet is cheap at nine times trailing earnings and with a dividend yield of 7%.
Shrager works with John Spears, Robert Wyckoff Jr. and the Browne brothers: Christopher and William, sons of one of the original partners. Tweedy, Browne's strategy hasn't changed since it was founded in 1920: buy stocks of companies that are very cheap in relation to their assets, earning power or dividends. These companies may be suffering misfortunes or mismanagement, but value will out sooner or later. "We see a lot more companies that fit these criteria than we have in years," says Spears. "A lot of them are outside the U.S."
Canon (CAJ), whose revenues of $39 billion come mostly from cameras and printers, was trading at eight times earnings when Tweedy started picking up shares earlier this year. They've gained 27% since, so they're not as cheap as some of Tweedy's other holdings. Canon makes more single-lens-reflex digital cameras than anyone else, it's the second-largest producer of printers and it has more cash than debt, says Shrager.
He also likes Honda Motor (HMC), for its history of increasing sales every year since 1997 and for having a balance sheet with more cash on hand than debt owed in its auto business.
Disclosure: The Div Guy does not own any of the stocks recommended in the story at the time of this post.
Thursday, July 10, 2008
I will give you $25 for opening a Zecco Trading account and you will get a free book and 10 free trades a month courtesy of Zecco. Zecco offers 10 free stock trades per month with a minimum $2500 in equity and/or cash. You only pay $4.50 per trade after your 10 free trades that month.
Zecco Trading is a great way to start trading stocks. With the $25 you could purchase a share of company like Duke Energy (DUK) or 5 shares of Royal Bank of Scotland (RBS).
Make sure you do your own research.
If you already have a brokerage account, try out Zecco Trading and get $25 and the book "China Shakes the World".
Send an email to me at thedivguy at gmail.com and I will send you a referral link. Then once you fund your account with $2,500 send me another email and then I will personally send you $25 to your Paypal account.
How do I do this? Zecco will pay me a $50 bonus for each referral that opens up a new account and I will split that with you.
Disclosure: The Div Guy owns shares of DUK and RBS at the time of this post.
Wednesday, July 9, 2008
Just click on The DIV-Net box on the upper right corner. Take a look at the July 8th post by The Dividend Guy where he talks about his investment process and the moneygardener post from July 2nd about his dividend growth plan.
Bookmark the site www.thediv-net.com.
Tuesday, July 8, 2008
My Annualized Dividend Income increased to $9,395 from $8,941 for the month of June. I am closing in on my updated 2008 goal of $9,600 in yearly dividend income. I have made more stock purchases this month and the updated amount includes dividend increases paid in June from Pepsi (PEP), Exxon Mobil (XOM) and Diana Shipping (DSX). I plan to make fewer stock purchases the second half of this year.
The dividends from my stocks are reinvested but I am keeping track of the amount of income I could receive.
Let's hope for no dividend cuts over the next few months!
Monday, July 7, 2008
The breakout is as follows:
Retirement Accounts $366,344
Taxable Accounts $111,312
Personal Property $3,000
Kids 529 Accounts $23,781
Here is the summary for the month:
Our Net worth decreased in June by one of the largest percentages I can remember. I once again made additional purchases of bank and financial stocks this month. Our dividend stocks and retirement accounts both decreased by over 9% for the month. You can click on my Net Worth graph on the right to see the changes in each category from the previous month. I continued funding our Roth IRA's this month. 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.
I will post my Dividend Income Update tomorrow.
Friday, July 4, 2008
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