Hedge fund and mutual fund managers have finished submitting their fourth quarter filings, and GuruFocus has compiled which dividend stocks the most gurus are finding attractive. The top five stocks the most gurus own are: Pfizer Inc. (PFE), Vodafone Group Plc (VOD), Merck & Co. Inc. (MRK), AT&T (T) and Altria Group (MO).
Pfizer Inc. (PFE)
Twelve gurus currently own Pfizer stock. Four bought shares in the fourth quarter, and five sold shares.
Pfizer Inc. is a research-based, global pharmaceutical company that discovers and develops innovative, value-added products. It has a market cap of $162.89 billion; it trades at $21.345 with a P/E ratio of 9.1 and P/S ratio of 2.4.
Pfizer will pay its 293rd consecutive quarterly dividend in the first quarter of 2012. Its dividend yield is 4.2%.
Although Pfizer has consistently paid and increased dividends, it had to cut back during the financial crisis. In 2008, the company paid a dividend of $1.28 per share, which it reduced to $0.80 per share in 2009. The amount it paid total in dividends in 2009 was $5.6 billion, a 35 percent reduction from $8.5 billion it paid in 2008. It also did not buy back shares in 2009, compared to $500 million of purchases in 2008.
In 2010, Pfizer reached earnings per share of $2.23, exceeding its guidance, and reduced costs by $2 billion of the $4 billion in cost reductions it has set as a multiyear goal. It also paid $6.1 billion in dividends, a 10 percent increase over 2009, though still not as high as its 2010 level of $8.5 billion.
Pfizer increased its dividend again in the first quarter of 2012 to $.22 per share, compared to $.20 the previous quarter.
Pfizer funds its dividend payments with operating cash flows, its financial asset portfolio and short-term commercial paper borrowings. Over the last 10 years its free cash flow per share has increased at an annual rate of 6.3 percent.
Vodafone Group Plc (VOD)
Nine gurus currently own Vodafone stock. Three bought shares in the fourth quarter, and three sold shares.
Vodafone Group Plc is the world’s largest international mobile communications firm by market cap and has a 45 percent stake in Verizon Wireless. It has a market cap of $141.32 billion; its shares were traded at around $27.41 with and P/S ratio of 2.
The dividend yield of Vodafone is 5.1%. The company pays dividends twice a year but the amounts are somewhat erratic since payments began in 1999. For instance, from 2004 to 2005 it doubled its dividend, and from 2010 to 2011, it increased it 7.1 percent.
Vodafone does have an emphatic commitment to reward shareholders. In 2010, its board agreed to aim to grow total dividends per share by at least 7 percent over the following three years. It has also committed 6.8 billion to repurchase shares. In total, it returned £15.7 billion, or 17 percent of its market cap, in the year ending March 31, 2011.
The company’s cash holdings help ensure the safety of its dividend. The cash on its balance sheet has more than tripled from $3.4 billion in 2008 to $10.8 billion in 2011. Long-term liabilities and debt are high though at $66.9 billion.
Merck & Co. Inc. (MRK)
Seven gurus own Merck stock. Three added shares in the fourth quarter, and three sold shares.
Merck & Co. Inc. is a global research-driven pharmaceutical company with a market cap of $117.53 billion. Its shares are trading at around $38.22 with a P/E ratio of 10.2 and P/S ratio of 2.5.
The dividend yield of Merck stocks is 4.4%. It has paid dividends since 1969. Merck has paid the same dividend of $1.52 from 2005 to 2010. In November 2010 and February 2011, it increased it to $.38 quarterly, for a total amount of $1.56 that year. It then increased the dividend again 11 percent to $.42 per share in the fourth quarter of 2011.
Cash provided by operating activities is the company’s primary source for paying dividends. Cash from operating activities increased to $10.8 billion in 2010, compared to $3.4 billion in 2009 and $6.6 billion in 2008. The increase was due primarily to the full-year revenue contributions from its merger with Schering-Plough.
The merger had a significant impact on Merck’s operating results overall. Revenue increased from $27.4 billion in 2008 to $46 billion in 2010, and cash flow increased from $2 billion in 2009 to $9 billion in 2010.
AT&T (T)
Seven gurus currently own AT&T stock. Three bought shares in the fourth quarter, and two sold shares.
AT&T Inc. is a premier communications holding company with a market cap of $177.84 billion. Its shares trade near $30.28 with a P/E ratio of 13.6 and P/S ratio of 1.4.
The dividend yield of AT&T Inc. stocks is 5.9%. The company has consistently increased its dividend over the last 28 consecutive years, including through the financial crisis. It most recently raised it from $1.68 in 2010 to $1.72 in 2011.
AT&T has strong financials. Its revenue has increased from $43 billion in 2002 to $126.7 billion in 2011, and cash flow was $14.5 billion in 2011 and $15.5 billion in 2010. It currently has $3.2 billion in cash with long-term liabilities and debt of $133.7 billion.
Altria Group (MO)
Seven gurus own Altria Group. Two gurus added shares in the fourth quarter, and two sold shares.
Altria Group is the parent company of tobacco company Philip Morris USA. It has market cap of $60.97 billion; its shares trade near $29.65 with a P/E ratio of 14.6 and P/S ratio of 2.6.
The dividend yield of Altria Group stocks is 5.5%, and it has been paying a dividend since 1989. It increased its dividend 10 percent to $1.46 in 2010, from $1.32 in 2009. Its total shareholder returns for 2010 were 32.9 percent, compared to 18.8 percent for the S&P Food, Beverage & Tobacco Index and 14.8 percent for the S&P. Altria’s payout ratio is approximately 80 percent of its adjusted earnings per share.
Altria spun-off Philip Morris in 2008. Its revenue increased from $23.6 billion in 2009 to $24.4 billion in 2010, and earnings per share increased 8.6 percent to $1.90 per share. Its cash holdings have grown each year since the spin-off to $3.3 billion, and it has long-term liabilities and debt of $15.6 billion.
Disclosure: The Div Guy owns shares of PFE at the time of this post.
Tuesday, February 28, 2012
Friday, February 24, 2012
Follow the Boomers and buy health care stocks
By John Waggoner, USA TODAY
If you're a Baby Boomer, you may have noticed that your contemporaries aren't as spry as they used to be. Your favorite classic rock band's tour is being sponsored by Geritol. And everyone you knew from the Weather Underground is, well, underground.
The aging of the 77 million Boomers is one reason that the health care sector has fared so well recently. The Standard & Poor's health care index has gained 12.9% the past 12 months, vs. 2.7% for the S&P 500 with dividends reinvested. But there are other reasons to be bullish on health care, too, ranging from dividend payouts to mergers and acquisitions to the Affordable Care Act.
Let's start with the large pharmaceutical companies. For a long time, investors shunned big pharma because they faced an avalanche of patent expirations. When a patent expires, companies can no longer demand huge prices for a drug because of competition from generics, resulting in lower earnings.
No longer. "The patent expiration issue is a thing of the past," says Sam Isaly, manager of Eaton Vance Worldwide Health Sciences fund. "We have run through the bulk of the big ones, and now we're focused on what companies look like roaring out of the gate."
One of Isaly's holdings is Bristol-Meyers Squibb (BMY), which lists some 40 new drugs in exploratory development. BMY has other charms common to big drug companies: a high dividend yield and low price.
For example, BMY has an annual dividend yield of 4.3%, which looks spectacular when compared with the 10-year Treasury note, currently yielding 1.99%. The company increased its dividend modestly in December.
But decent dividends are a hallmark of large pharmaceutical companies. Abbott Labs (ABT) has a 3.5% yield, while Merck (MRK) yields 4.4%. The Boomer tie-in: Dividend-paying stocks are a big hit with retirees, and the first Boomers hit the traditional retirement age of 65 last year. (The Boomers were born from 1946 to 1964.)
And many big drug companies have low stock prices, relative to earnings, says Mark Oelschlager, manager of Live Oak Health Sciences. "You'd think they'd be drawing more interest," he says. For example, Pfizer (PFE) sells for 9.1 times its expected 2012 earnings, says Morningstar, the Chicago investment trackers. Lilly has a forward P-E of 10.6.
(Price to earnings, or P-E, measures a company's price relative to expected earnings. Lower is cheaper. The S&P 500 has a forward P-E of 12.8.)
One fertile area for new drugs is the biotechnology industry, which sometimes serves as a research and development area for the big drug companies. If a biotech company seems likely to get a promising drug through the Food and Drug Administration approval process, one of the larger companies will often buy it.
There's more to health care than drugs. Medical devices, for example, are another promising arena, says Eddie Yoon, manager of Fidelity Select Health Care fund. "Back in 1990, it cost $3 billion to sequence the human genome," Yoon says. New equipment has made it much cheaper. "Now it's more like $3,000," he says. Easier genome sequencing could lead to drugs better tailored to their users.
And the Affordable Care Act has created opportunities as well. Kris Jenner, manager of T. Rowe Price Health Sciences fund (PRHSX), says managed care companies, such as UnitedHealth Group (UNH), will benefit from the search for lowering medical costs. "No matter what the landscape, managed care companies will be part of the solution," he says.
Medical devices could also have a big role in reducing health care costs. Eventually, for example, you might be able to carry your medical history on your iPhone. In other words, someday, there might be an app for you.
For index fans, there are plenty of health care index funds. For the big drug stocks, consider iShares Dow Jones U.S. Pharmaceuticals (IHE) or SPDR S&P Pharmaceuticals (XPH). A good low-cost diversified health care index fund is Vanguard Health Care ETF (VHT). Biotech fans might consider SPDR S&P Biotech (XBI). The top-performing actively managed funds are in the chart.
Your fund may have a big slug of health care stocks already; the S&P 500 has about 11.7% in health care. If you're looking for places to invest, however, check out the next Woodstock reunion. Then put some money in health care.
Disclosure: The Div Guy owns shares of ABT and PFE at the time of this post.
If you're a Baby Boomer, you may have noticed that your contemporaries aren't as spry as they used to be. Your favorite classic rock band's tour is being sponsored by Geritol. And everyone you knew from the Weather Underground is, well, underground.
The aging of the 77 million Boomers is one reason that the health care sector has fared so well recently. The Standard & Poor's health care index has gained 12.9% the past 12 months, vs. 2.7% for the S&P 500 with dividends reinvested. But there are other reasons to be bullish on health care, too, ranging from dividend payouts to mergers and acquisitions to the Affordable Care Act.
Let's start with the large pharmaceutical companies. For a long time, investors shunned big pharma because they faced an avalanche of patent expirations. When a patent expires, companies can no longer demand huge prices for a drug because of competition from generics, resulting in lower earnings.
No longer. "The patent expiration issue is a thing of the past," says Sam Isaly, manager of Eaton Vance Worldwide Health Sciences fund. "We have run through the bulk of the big ones, and now we're focused on what companies look like roaring out of the gate."
One of Isaly's holdings is Bristol-Meyers Squibb (BMY), which lists some 40 new drugs in exploratory development. BMY has other charms common to big drug companies: a high dividend yield and low price.
For example, BMY has an annual dividend yield of 4.3%, which looks spectacular when compared with the 10-year Treasury note, currently yielding 1.99%. The company increased its dividend modestly in December.
But decent dividends are a hallmark of large pharmaceutical companies. Abbott Labs (ABT) has a 3.5% yield, while Merck (MRK) yields 4.4%. The Boomer tie-in: Dividend-paying stocks are a big hit with retirees, and the first Boomers hit the traditional retirement age of 65 last year. (The Boomers were born from 1946 to 1964.)
And many big drug companies have low stock prices, relative to earnings, says Mark Oelschlager, manager of Live Oak Health Sciences. "You'd think they'd be drawing more interest," he says. For example, Pfizer (PFE) sells for 9.1 times its expected 2012 earnings, says Morningstar, the Chicago investment trackers. Lilly has a forward P-E of 10.6.
(Price to earnings, or P-E, measures a company's price relative to expected earnings. Lower is cheaper. The S&P 500 has a forward P-E of 12.8.)
One fertile area for new drugs is the biotechnology industry, which sometimes serves as a research and development area for the big drug companies. If a biotech company seems likely to get a promising drug through the Food and Drug Administration approval process, one of the larger companies will often buy it.
There's more to health care than drugs. Medical devices, for example, are another promising arena, says Eddie Yoon, manager of Fidelity Select Health Care fund. "Back in 1990, it cost $3 billion to sequence the human genome," Yoon says. New equipment has made it much cheaper. "Now it's more like $3,000," he says. Easier genome sequencing could lead to drugs better tailored to their users.
And the Affordable Care Act has created opportunities as well. Kris Jenner, manager of T. Rowe Price Health Sciences fund (PRHSX), says managed care companies, such as UnitedHealth Group (UNH), will benefit from the search for lowering medical costs. "No matter what the landscape, managed care companies will be part of the solution," he says.
Medical devices could also have a big role in reducing health care costs. Eventually, for example, you might be able to carry your medical history on your iPhone. In other words, someday, there might be an app for you.
For index fans, there are plenty of health care index funds. For the big drug stocks, consider iShares Dow Jones U.S. Pharmaceuticals (IHE) or SPDR S&P Pharmaceuticals (XPH). A good low-cost diversified health care index fund is Vanguard Health Care ETF (VHT). Biotech fans might consider SPDR S&P Biotech (XBI). The top-performing actively managed funds are in the chart.
Your fund may have a big slug of health care stocks already; the S&P 500 has about 11.7% in health care. If you're looking for places to invest, however, check out the next Woodstock reunion. Then put some money in health care.
Disclosure: The Div Guy owns shares of ABT and PFE at the time of this post.
Thursday, February 23, 2012
6 Tech Stocks for Dividends
By Jennifer Schonberger, Staff Writer, Kiplinger's Personal Finance
If you're hunting for dividends, you're probably searching for the usual suspects: electric utilities, phone companies and maybe a big energy firm. But you may be surprised to learn that the technology sector is also peppered with companies that pay healthy dividends, including such luminaries as Intel and Microsoft.
Certain tech companies have become big dividend payers because as they've matured, they've changed from high growth firms that had to reinvest their profits to companies that generate more cash than they need. Consider CA -- an old-line software company, formerly called Computer Associates, that quintupled its dividend in January and now sports an impressive 3.7% dividend yield.
2011. This is in part because the sector recovered well from the 2007-09 global recession, as companies worldwide boosted spending on technology to improve productivity. Analysts predict that the tech sector will hold up well despite Europe's woes and weak consumer spending. Plus, tech stocks are cheap, selling, on average, at about 13 times projected 2012 earnings. By contrast, utility stocks sell at 14 times estimated earnings, and stocks of consumer-staples firms trade at 15 times earnings.
Here's more on CA and five other tech stocks to consider buying for their dividends and for potential capital gains (share prices and related data are as of February 15).
CA's stock price has run in place for more than seven years, and the dividend hike is likely management's attempt to placate restless shareholders.
The Islandia, N.Y., company is a steady generator of cash, thanks to sales of its IT management software for mainframe computers used by large corporations and governments. That business, which accounts for 60% of sales, is steady but not fast-growing. Moreover, sales of new products declined in the quarter that ended December 31. Also, although CA believes it can boost sales growth for IT management software with the advent of the cloud computing craze, it must compete for a piece of that pie against several big players, including Oracle, IBM and Hewlett Packard. The stock, selling for 11 times estimated earings of $2.50 per share for the fiscal year that ends in March 2013, seems reasonably valued. Analysts see earnings climbing 11% in the March 2013 year.
Disclosure: The Div Guy owns shares of INTC at the time of this post.
EarthLink is in the midst of reinventing itself from selling Internet access to consumers to selling business services. The Atlanta company has been on a shopping spree, buying communication firms and broadening its offerings to Web hosting, voice services over the Internet, data storage, and virtual private networks for cloud computing.
Rolla Huff, who became CEO in 2007 and has been the force behind the expansion, has also streamlined EarthLink's operations, slashing the workforce by 70% and exiting the Wi-Fi business. All this upheaval led to some volatility in earnings from 2008 to 2010, but the company is now positioned to see better results. While you wait for other investors to catch on to EarthLink's transformation, you can bank on the stock's dividend yield. The shares trade at 34 times 2012 estimated earnings of $0.24 per share. Although the price-earnings ratio is high, some analysts see EarthLink as a play on cloud computing. Compared with other companies in the cloud, its stock looks like a bargain.
With 80% of the $30 billion-a-year market for microprocessors, which serve as the brains of personal computers, Intel is a cash-generating machine. The Santa Clara, Cal., company has a solid balance sheet and generates strong free cash flow (the cash profits left over after the capital expenditures needed to maintain a business). Intel is dedicated to sharing much of that cash with investors. It has paid a dividend since 1992, and over the past ten years the payout has increased at an annualized rate of 27%.
Intel will likely continue to dominate the microprocessor market, although there are concerns that the popularity of tablet computers could hurt PC sales and cause Intel's profits to slow. However, the company is making a big push into the market for chips for mobile devices, a fast-growing business. The stock trades at 11 times estimated 2012 earnings of $2.41 per share.
IBM has transformed itself from a maker of low-profitability large computers to a high-profit provider of software and services, businesses that accounted for 80% of IBM's 2011 revenues of $107 billion. Big Blue now focuses on providing a range of services -- from analyzing data to help cities manage traffic better to making power grids work better.
IBM is one of the more seasoned dividend payers in tech land: The Armonk, N.Y., company has paid a dividend since 1913. And that's likely to continue. IBM's balance sheet, with $12 billion in cash and short-term investments, is rock solid. Moreover, IBM sees profits rising to $20 per share by 2015, up from analysts' estimated earnings for 2012 of $14.92 per share. IBM trades at 13 times this year's profit forecast.
I can hear you groan at the mention of Microsoft. True, the stock has been a stinker for most of the past decade, even though the company has generated decent profit growth and has consistently topped earnings forecasts. But that could soon change. The company finally looks poised to cash in on the fast-growing mobile-devices industry. After past attempts to sell Windows phones failed, the Redmond, Wash., company is launching a smart phone that analysts think will be a worthy competitor to the iPhone and assorted Android-based phones. Rumors have the sleek Windows-powered Nokia phone, the Lumia 900, debuting in AT&T stores March 18 and will be priced at $100 -- half the price of the latest entry-level iPhone. In addition, Microsoft is expected to roll out a new version of its Windows operating system later this year.
Microsoft, which finished 2011 with $52 billion in cash, has raised its dividend every year since it started making distributions in 2003. The stock trades at 11 times estimated earnings of $2.68 per share for the fiscal year that ends this June.
Apple (AAPL)
Stock price: $497.67
Dividend yield: 0% Our last pick doesn't pay a dividend -- yet. With nearly $100 billion in cash and marketable securities, Apple certainly has plenty of wealth to share, and many analysts think the Cupertino, Cal., giant will start paying dividends soon. The buzz is that the company could announce a dividend as soon as February 23, the day of the company's annual meeting. "This would cause a new group of investors seeking dividends to invest in Apple and drive shares higher," says analyst Michael Walkley, of Canaccord Genuity, a Canadian investment bank.
Stock price: $497.67
Dividend yield: 0% Our last pick doesn't pay a dividend -- yet. With nearly $100 billion in cash and marketable securities, Apple certainly has plenty of wealth to share, and many analysts think the Cupertino, Cal., giant will start paying dividends soon. The buzz is that the company could announce a dividend as soon as February 23, the day of the company's annual meeting. "This would cause a new group of investors seeking dividends to invest in Apple and drive shares higher," says analyst Michael Walkley, of Canaccord Genuity, a Canadian investment bank.
Apple's dividend yield could turn out to be surprisingly juicy. Assuming that Apple paid out 45% of its free cash flow annually, analyst Kulbinder Garcha of Credit Suisse figures that the company could distribute $23.5 billion per year over the next five years and still wind up with a cash pile of $265 billion. If Apple were to pay out that much in dividends, the yield, based on the current share price, would be nearly 5%.
Disclosure: The Div Guy owns shares of INTC at the time of this post.
Wednesday, February 22, 2012
5 Great Dividend-Paying Stocks to Buy
Europe is teetering on the brink of a financial meltdown, and many fear that U.S. banks could be ensnarled in a European "Lehman event" should one of the continent's major banking institutions collapse. That, in turn, could jeopardize America's economic recovery.
Why would anyone want to buy stocks against that kind of backdrop? Because the market has been marking down stocks to fire-sale prices. You can now buy many of America’s most durable companies at price-earnings ratios in the high single digits and low double digits, their lowest multiples in at least a decade. Plus, many of these stocks yield as much, if not more, than Treasury bonds.
Below are five excellent companies that have raised their dividends at least ten years in a row and are likely to keep raising them. If you prefer to buy a fund, consider Vanguard Dividend Growth (symbol VDIGX), which owns all of these stocks and about which I’ll say more later.
Abbott Laboratories (ABT) is splitting in two -- one piece will contain Abbott’s drug-making business, the other will be made up of its diagnostics, nutritionals, medical-device and generic-drug units. Abbott’s blockbuster drugs include Humira, for Crohn’s disease and psoriasis; HIV drug Kaletra; and cardiovascular medications. And the firm has many potential winners in its pipeline.
Yet at a share price of $53.05, Abbott yields 3.6% and trades at just 11 times analysts’ estimated earnings for the coming 12 months (all prices and related data are as of November 29). That’s Abbott’s lowest P/E in at least a decade. When pharmaceuticals were still glamour stocks in 2001, Abbott sold for 57 times earnings.
Automatic Data Processing (ADP) is the largest provider of payroll and related services in the U.S. and has 550,000 clients worldwide. Its immensity gives it a competitive advantage, as does the high cost of switching payroll-service providers.
At $48.76, ADP stock yields 3.2% and trades at P/E of 16. The only time in the past decade that its P/E was that low was in 2009, during the bear market that coincided with the financial meltdown and the recession.
Johnson & Johnson (JNJ) is the world’s leading health care company, with a diverse portfolio of businesses in over-the-counter medicines, medical devices and pharmaceuticals. The company has suffered from a string of recalls. But it has several blockbusters on the market, and a number of potential winners in trials.
At $62.78, Johnson & Johnson trades at 12 times earnings, a lower P/E than at any time in the past decade. It yields 3.6%.
PepsiCo (PEP) grew based on Pepsi-Cola, the long-time number-two soft drink behind Coca-Cola. But the company today has a broad product line, with brands such as Dorito’s, Quaker, Lay’s, Gatorade and Tropicana.
Pepsi, which trades at $63.66, yields 3.2% and sells at a P/E of 14. Like J&J, Pepsi’s P/E is the lowest it’s been in at least a decade.
ExxonMobil Corp. (XOM) is the world’s largest publicly traded company by market capitalization (a designation it seems to share alternately with Apple, depending on each stock’s daily price moves). What sets the energy giant apart from its competitors is its relentless pursuit of efficiency. Consequently, it boasts its industry’s highest return on capital, a measure of profitability.
At $76.93, ExxonMobil yields 2.4% and trades at 9 times earnings. Again, that’s its lowest P/E in at least a decade.
Vanguard Dividend Growth provides a sensible way to buy these stocks -- and about 43 more blue chips -- at an annual expense ratio of just 0.34%. Manager Don Kilbride doesn’t make big bets -- most of his individual holdings account for just 2% or so of the fund’s assets. Turnover is just 17% annually, suggesting that the fund holds a stock for an average of six years.
Kilbride, 47, is with Wellington Management and has run the fund since 2006; Wellington has managed the fund since its inception, in 1992. Kilbride’s goal is to beat Mergent’s Dividend Achievers Select index, which tracks blue chips with a strong record of hiking dividends (so far he has been successful).
Over the past five years, the fund returned an annualized 2.9%, putting it in the top 3% of funds that focus on large-company stocks with both growth and value attributes. During that period, the fund beat Standard & Poor’s 500-stock index by an average of 3.8 percentage points per year.
Dividend Growth, which is about 21% less volatile than the S&P 500, really shows its strengths in weak markets. In the 2007-09 bear market, when the S&P plunged 55.3%, the Vanguard fund lost 42.3%.
Why would anyone want to buy stocks against that kind of backdrop? Because the market has been marking down stocks to fire-sale prices. You can now buy many of America’s most durable companies at price-earnings ratios in the high single digits and low double digits, their lowest multiples in at least a decade. Plus, many of these stocks yield as much, if not more, than Treasury bonds.
Below are five excellent companies that have raised their dividends at least ten years in a row and are likely to keep raising them. If you prefer to buy a fund, consider Vanguard Dividend Growth (symbol VDIGX), which owns all of these stocks and about which I’ll say more later.
Abbott Laboratories (ABT) is splitting in two -- one piece will contain Abbott’s drug-making business, the other will be made up of its diagnostics, nutritionals, medical-device and generic-drug units. Abbott’s blockbuster drugs include Humira, for Crohn’s disease and psoriasis; HIV drug Kaletra; and cardiovascular medications. And the firm has many potential winners in its pipeline.
Yet at a share price of $53.05, Abbott yields 3.6% and trades at just 11 times analysts’ estimated earnings for the coming 12 months (all prices and related data are as of November 29). That’s Abbott’s lowest P/E in at least a decade. When pharmaceuticals were still glamour stocks in 2001, Abbott sold for 57 times earnings.
Automatic Data Processing (ADP) is the largest provider of payroll and related services in the U.S. and has 550,000 clients worldwide. Its immensity gives it a competitive advantage, as does the high cost of switching payroll-service providers.
At $48.76, ADP stock yields 3.2% and trades at P/E of 16. The only time in the past decade that its P/E was that low was in 2009, during the bear market that coincided with the financial meltdown and the recession.
Johnson & Johnson (JNJ) is the world’s leading health care company, with a diverse portfolio of businesses in over-the-counter medicines, medical devices and pharmaceuticals. The company has suffered from a string of recalls. But it has several blockbusters on the market, and a number of potential winners in trials.
At $62.78, Johnson & Johnson trades at 12 times earnings, a lower P/E than at any time in the past decade. It yields 3.6%.
PepsiCo (PEP) grew based on Pepsi-Cola, the long-time number-two soft drink behind Coca-Cola. But the company today has a broad product line, with brands such as Dorito’s, Quaker, Lay’s, Gatorade and Tropicana.
Pepsi, which trades at $63.66, yields 3.2% and sells at a P/E of 14. Like J&J, Pepsi’s P/E is the lowest it’s been in at least a decade.
ExxonMobil Corp. (XOM) is the world’s largest publicly traded company by market capitalization (a designation it seems to share alternately with Apple, depending on each stock’s daily price moves). What sets the energy giant apart from its competitors is its relentless pursuit of efficiency. Consequently, it boasts its industry’s highest return on capital, a measure of profitability.
At $76.93, ExxonMobil yields 2.4% and trades at 9 times earnings. Again, that’s its lowest P/E in at least a decade.
Vanguard Dividend Growth provides a sensible way to buy these stocks -- and about 43 more blue chips -- at an annual expense ratio of just 0.34%. Manager Don Kilbride doesn’t make big bets -- most of his individual holdings account for just 2% or so of the fund’s assets. Turnover is just 17% annually, suggesting that the fund holds a stock for an average of six years.
Kilbride, 47, is with Wellington Management and has run the fund since 2006; Wellington has managed the fund since its inception, in 1992. Kilbride’s goal is to beat Mergent’s Dividend Achievers Select index, which tracks blue chips with a strong record of hiking dividends (so far he has been successful).
Over the past five years, the fund returned an annualized 2.9%, putting it in the top 3% of funds that focus on large-company stocks with both growth and value attributes. During that period, the fund beat Standard & Poor’s 500-stock index by an average of 3.8 percentage points per year.
Dividend Growth, which is about 21% less volatile than the S&P 500, really shows its strengths in weak markets. In the 2007-09 bear market, when the S&P plunged 55.3%, the Vanguard fund lost 42.3%.
Disclosure: The Div Guy own shares of ABT, JNJ, PEP and XOM at the time of this post.
Tuesday, February 21, 2012
Six Myths About Investing in Dividend Stocks
Rebecca L. McClay had the following dividend story at MarketWatch. Don't dismiss dividend-paying stocks
Lawrence Carrel, author of "Dividend Stocks for Dummies," advocates for dividend-heavy portfolios, saying volatile markets are a ripe time to pick paying stocks. With stock values unpredictable, investors find comfort in knowing that they will at least be paid the dividend even if they lose out on stock value, he said.
"More people want the income from dividend stocks now... they've had an awakening," Carrel said. "They are not gung-ho about growth anymore."
In his book, Carrel outlines several myths that investors harbor about dividend-paying stocks.
Myth 1: Avoid dividend-paying stocks in volatile markets
On the contrary, Carrel sees rocky times as the right time to invest in stocks where you can recoup profits without selling the shares.
"In general, it's a little less risky," Carrel said. "There's the idea that if I'm going to be in an environment and I can't be sure where the stock price is going to be, at least I will be able to walk away with profits from dividends."
Basil Herzstein, a financial planner with Gallers Financial in Rockville, Md., agrees. Dividend stocks have a built in base so that investors have cushion against market drops, he said.
He points to companies that have weathered the recession well, like GE (GE) , with a yield of 2.5%, The Blackstone Group (BX) , with a yield of about 4%, Microsoft (MSFT) , with a yield of 2%, and Annaly Capital Management (NLY), with a yield of 15.2%.
"In the crappy market that we are in, these stocks have held their value and they're giving me a yield on my money," Herzstein said.
Myth 2: Dividend-paying stocks will give your wallet a quick boost
While paying stocks can add wealth in the long-run, don't expect them to offer fast returns. Instead, dividend-paying stocks are a good idea if you are buying for the long-term. Herzstein says he is looking eight to 10 years out when he selects stocks.
"Anybody who believes they can just double their money in a few months -- it's not going to happen," Herzstein said.
Myth 3: Companies that pay dividends will limit their growth
Traditionally, companies that pay dividends are well past their growth phase, but just because a company is issuing dividends doesn't mean it's not growing. Jon Ten Haagen of Ten Haagen Financial Group in Huntington, N.Y., advises investors to look for companies that are not paying out too much in dividends so that they can continue to grow.
"Be careful, because some are paying out 90% of their earnings as dividends, which doesn't give them much to invest back into the company," Ten Haagen said.
Myth 4: You should always invest in high-yield stocks
High yields are a plus, but investors should first consider the company's basic financial standing when selecting dividend stocks, Ten Haagen said. Yields shouldn't be the first priority. Instead, find the sector of the market that you like and then search for companies that seem undervalued. Be very selective about the quality of the company and consider the dividend as a bonus, not a deciding factor.
"I think of dividends as the icing on the cake," Ten Haagen said.
Myth 5: Dividend increases will not keep up with inflation
Dividends have historically kept up with inflation rates and then some, proving to be a big component of investors' overall return, said Gil Armour of SagePoint Financial in San Diego. While aggressive growth-oriented stocks often are the first to fare well during an economic recovery, Armour said that more stable dividend-paying value companies will be soon to follow. Armour predicts that established, dividend-paying stocks will be "the cream that rises to the top" in the next few years.
Myth 6: Dividend investing is for retirees
Dividend stocks tend to attract older investors, but they can benefit people of any age, as long as you don't expect fast returns. Dividend stocks create wealth over the long-run, not through a few payments. Armour said everyone should have exposure to both growth stocks like technology companies and value companies with dividends.
"It makes sense -- they tend to go in and out of favor," Armour said. However, older investors who need regular income might, indeed, want to weight investments in dividend-paying stocks.
Carrel, who says investors of all ages should maintain dividends for at least 50% of their portfolios, argues that younger people can use the power of compounding to significantly grow their portfolios in the long-run by reinvesting the dividends.
"If you follow a dividend strategy, especially if you're young, the power of boosting your portfolio in the long-run is very strong," Carrel said. "Over time, it grows exponentially."
Disclosure: The Div Guy owns share of GE at the time of this post.
Lawrence Carrel, author of "Dividend Stocks for Dummies," advocates for dividend-heavy portfolios, saying volatile markets are a ripe time to pick paying stocks. With stock values unpredictable, investors find comfort in knowing that they will at least be paid the dividend even if they lose out on stock value, he said.
"More people want the income from dividend stocks now... they've had an awakening," Carrel said. "They are not gung-ho about growth anymore."
In his book, Carrel outlines several myths that investors harbor about dividend-paying stocks.
Myth 1: Avoid dividend-paying stocks in volatile markets
On the contrary, Carrel sees rocky times as the right time to invest in stocks where you can recoup profits without selling the shares.
"In general, it's a little less risky," Carrel said. "There's the idea that if I'm going to be in an environment and I can't be sure where the stock price is going to be, at least I will be able to walk away with profits from dividends."
Basil Herzstein, a financial planner with Gallers Financial in Rockville, Md., agrees. Dividend stocks have a built in base so that investors have cushion against market drops, he said.
He points to companies that have weathered the recession well, like GE (GE) , with a yield of 2.5%, The Blackstone Group (BX) , with a yield of about 4%, Microsoft (MSFT) , with a yield of 2%, and Annaly Capital Management (NLY), with a yield of 15.2%.
"In the crappy market that we are in, these stocks have held their value and they're giving me a yield on my money," Herzstein said.
Myth 2: Dividend-paying stocks will give your wallet a quick boost
While paying stocks can add wealth in the long-run, don't expect them to offer fast returns. Instead, dividend-paying stocks are a good idea if you are buying for the long-term. Herzstein says he is looking eight to 10 years out when he selects stocks.
"Anybody who believes they can just double their money in a few months -- it's not going to happen," Herzstein said.
Myth 3: Companies that pay dividends will limit their growth
Traditionally, companies that pay dividends are well past their growth phase, but just because a company is issuing dividends doesn't mean it's not growing. Jon Ten Haagen of Ten Haagen Financial Group in Huntington, N.Y., advises investors to look for companies that are not paying out too much in dividends so that they can continue to grow.
"Be careful, because some are paying out 90% of their earnings as dividends, which doesn't give them much to invest back into the company," Ten Haagen said.
Myth 4: You should always invest in high-yield stocks
High yields are a plus, but investors should first consider the company's basic financial standing when selecting dividend stocks, Ten Haagen said. Yields shouldn't be the first priority. Instead, find the sector of the market that you like and then search for companies that seem undervalued. Be very selective about the quality of the company and consider the dividend as a bonus, not a deciding factor.
"I think of dividends as the icing on the cake," Ten Haagen said.
Myth 5: Dividend increases will not keep up with inflation
Dividends have historically kept up with inflation rates and then some, proving to be a big component of investors' overall return, said Gil Armour of SagePoint Financial in San Diego. While aggressive growth-oriented stocks often are the first to fare well during an economic recovery, Armour said that more stable dividend-paying value companies will be soon to follow. Armour predicts that established, dividend-paying stocks will be "the cream that rises to the top" in the next few years.
Myth 6: Dividend investing is for retirees
Dividend stocks tend to attract older investors, but they can benefit people of any age, as long as you don't expect fast returns. Dividend stocks create wealth over the long-run, not through a few payments. Armour said everyone should have exposure to both growth stocks like technology companies and value companies with dividends.
"It makes sense -- they tend to go in and out of favor," Armour said. However, older investors who need regular income might, indeed, want to weight investments in dividend-paying stocks.
Carrel, who says investors of all ages should maintain dividends for at least 50% of their portfolios, argues that younger people can use the power of compounding to significantly grow their portfolios in the long-run by reinvesting the dividends.
"If you follow a dividend strategy, especially if you're young, the power of boosting your portfolio in the long-run is very strong," Carrel said. "Over time, it grows exponentially."
Disclosure: The Div Guy owns share of GE at the time of this post.
Monday, February 20, 2012
5 Calm Stocks for Any Market
A strategy of finding so-called calm stocks paid off during the market's manic 2011. Investing in the S&P 500 stocks with the lowest volatility relative to the broad market in 2010 returned nearly 10% in 2011, while the most volatile fell, on average, 19%, according to Bespoke Investment Group. The results are even better over the long run. From 1968 to 2008, $1 invested in low-volatility large-company stocks grew to $53.81, while $1 invested in the higher-volatility bunch grew to just $7.35, according to a 2011 paper in Financial Analysts Journal cowritten by Harvard finance professor Malcolm Baker.
The strategy is hardly sexy. Companies with less-volatile stocks are typically mature, slow-growing businesses, as opposed to those with dramatic increases in sales or profits each quarter. (In other words, you're not likely to find a Google or Coach among them.) But not all fit the bill. The key, say experts, is to find firms that are generating cash as well. "If you are essentially going to close your ears to the risk on-risk off nature of the market and hold on for the long run, these can work," says Jay Kaplan, comanager of the Royce Total Return fund.
Channing Smith, who comanages the Capitol Advisors Growth fund, says he hunts for low-drama names by looking at measures such as beta, which gauges a stock's sensitivity to the market. A stock with a beta of 1.0, for instance, moves in the same direction as the broad market, and with the same magnitude. The lower the beta, the less likely it is that their moves are tied together. Smith, who says he's "pretty bearish" on equities these days, has been searching for low-beta stocks, such as health-care stalwart Johnson & Johnson, which currently has a beta of 0.6. (The company's stock has traded within a narrow $12 range over the past 24 months.)
Of course, some steady performers are not cheap. Utilities, for example, trade at a 15% premium to the market, a big change from the slight discount they had at the beginning of 2011. But paying a higher price is a trade-off many pros are willing to make. "If we have good news in the economy, or Europe solves its issues, you will still make money," says Kent Croft, comanager of the $312 million Croft Value fund. And if the worst happens? Well, he says, those stocks "will hold up better."
Johnson & Johnson (JNJ)
With a credit rating better than the U.S. government's and a 49-year track record for boosting its dividend, Johnson & Johnson is a perennial favorite among fund managers. The Band-Aid maker's stock has a beta of just 0.6 and should remain steady for some time, says Kent Croft, comanager of the Croft Value fund.
Stericycle (SRCL)
This medical waste-management firm (with a beta of 0.8) has been largely unaffected by swings in the economy. And since much of Stericycle's business is regulated, says Charles Severson, senior portfolio manager of the Baird Mid-Cap fund, its earnings tend to be relatively predictable. Analysts say the stock might lag if the economy picks up significantly.
Ross Stores (ROST)
With economists forecasting a recession one day and a recovery the next, a retail chain may seem an unlikely place for a low-volatility play. But discounter Ross Stores (beta: 0.8) has consistently beaten analysts' earnings expectations as shoppers continue to bargain hunt, says Don Easley, manager at T. Rowe Price Diversified Mid-Cap Growth fund.
Procter & Gamble (PG)
Since few people will go without toothpaste or toilet paper even in a recession, investors often flock to the stock of the world's largest consumer-goods maker. The firm's growing business overseas makes it that much more attractive, analysts say. The statistics look good too. P&G has a beta of just 0.6.
PT Telekomunikasi Indonesia (TLK)
It might not be surprising that this Indonesian telecom firm, with 120 million subscribers, doesn't move in lockstep with the U.S. market (its beta is 0.6). David Ruff, comanager of the Forward International Dividend fund, also likes that it generates "impressive" free cash flow, has a 4.6 percent dividend yield and is a way to play an emerging-market favorite: Indonesia.
Disclosure: The Div Guy owns shares of JNJ and PG at the time of this post.
The strategy is hardly sexy. Companies with less-volatile stocks are typically mature, slow-growing businesses, as opposed to those with dramatic increases in sales or profits each quarter. (In other words, you're not likely to find a Google or Coach among them.) But not all fit the bill. The key, say experts, is to find firms that are generating cash as well. "If you are essentially going to close your ears to the risk on-risk off nature of the market and hold on for the long run, these can work," says Jay Kaplan, comanager of the Royce Total Return fund.
Channing Smith, who comanages the Capitol Advisors Growth fund, says he hunts for low-drama names by looking at measures such as beta, which gauges a stock's sensitivity to the market. A stock with a beta of 1.0, for instance, moves in the same direction as the broad market, and with the same magnitude. The lower the beta, the less likely it is that their moves are tied together. Smith, who says he's "pretty bearish" on equities these days, has been searching for low-beta stocks, such as health-care stalwart Johnson & Johnson, which currently has a beta of 0.6. (The company's stock has traded within a narrow $12 range over the past 24 months.)
Of course, some steady performers are not cheap. Utilities, for example, trade at a 15% premium to the market, a big change from the slight discount they had at the beginning of 2011. But paying a higher price is a trade-off many pros are willing to make. "If we have good news in the economy, or Europe solves its issues, you will still make money," says Kent Croft, comanager of the $312 million Croft Value fund. And if the worst happens? Well, he says, those stocks "will hold up better."
Johnson & Johnson (JNJ)
With a credit rating better than the U.S. government's and a 49-year track record for boosting its dividend, Johnson & Johnson is a perennial favorite among fund managers. The Band-Aid maker's stock has a beta of just 0.6 and should remain steady for some time, says Kent Croft, comanager of the Croft Value fund.
Stericycle (SRCL)
This medical waste-management firm (with a beta of 0.8) has been largely unaffected by swings in the economy. And since much of Stericycle's business is regulated, says Charles Severson, senior portfolio manager of the Baird Mid-Cap fund, its earnings tend to be relatively predictable. Analysts say the stock might lag if the economy picks up significantly.
Ross Stores (ROST)
With economists forecasting a recession one day and a recovery the next, a retail chain may seem an unlikely place for a low-volatility play. But discounter Ross Stores (beta: 0.8) has consistently beaten analysts' earnings expectations as shoppers continue to bargain hunt, says Don Easley, manager at T. Rowe Price Diversified Mid-Cap Growth fund.
Procter & Gamble (PG)
Since few people will go without toothpaste or toilet paper even in a recession, investors often flock to the stock of the world's largest consumer-goods maker. The firm's growing business overseas makes it that much more attractive, analysts say. The statistics look good too. P&G has a beta of just 0.6.
PT Telekomunikasi Indonesia (TLK)
It might not be surprising that this Indonesian telecom firm, with 120 million subscribers, doesn't move in lockstep with the U.S. market (its beta is 0.6). David Ruff, comanager of the Forward International Dividend fund, also likes that it generates "impressive" free cash flow, has a 4.6 percent dividend yield and is a way to play an emerging-market favorite: Indonesia.
Disclosure: The Div Guy owns shares of JNJ and PG at the time of this post.
Friday, February 17, 2012
10 Cheap Stocks With Dependable Earnings
Cheap stocks are suddenly abundant. The S&P Composite 1500 index of large, midsize and small U.S. companies has lost 12% in three months. More than 300 of its members now have price-to-earnings ratios in single digits, suggesting a discount of more than one-quarter to historical levels.
That alone doesn't make these stocks bargains. If earnings in coming quarters prove much lower than expected, today's P/E ratios will have misled. The task for investors is to figure out which companies are both modestly priced relative to forecasts and likely to meet or exceed those forecasts.
One tool professional investors use to predict that is past earnings volatility. Companies with relatively smooth earnings histories -- a low standard deviation of quarterly earnings, in statistical parlance -- are more likely than others to deliver the same in coming quarters.
But this tool is of limited use now, because the past five years have produced chaotic results for much of the market, and traditionally stable industries now face challenges. Food makers must deal with crop inflation, soap and toothpaste firms are battling a shift in shopper preference to discount brands and even some utilities are seeing a drop in electricity usage. Some companies in these industries will report stable earnings over the next year, but perhaps not all of them.
So here are two ways to tell which firms are reliable. The first is to look for a recent dividend increase. That puts more cash in shareholder pockets, but just as important, it signals that managers are confident about future results. After all, no company wants to raise its dividend only to find the new payments unaffordable in the coming year.
The second is another statistical clue: a tight clustering of the earnings estimates issued by different analysts. Three decades of research, including recent studies by Anna Scherbina, now at U. C. Davis, show two important things about estimate dispersion. First, tightly grouped estimates are more likely than scattered ones to precede an upside earnings surprise. Second, stocks with clustered earnings estimates tend to outperform those without.
One theory on why this is so has to do with the earnings guidance that companies provide to analysts. Firms with good news to report tend to be more forthcoming with details than firms that are struggling, the thinking goes.
The 10 stocks below have modest P-E ratios and healthy dividend yields. They've also raised payments over the past year and have earnings estimates that show relatively close agreement among analysts.
Company Ticker
Abbott Labs ABT
Altria Group MO
Analog Devices ADI
Campbell Soup CPB
Darden Rests DRI
General Dyn GD
J & J JNJ
Mattel MAT
Microsoft MSFT
Raytheon RTN
That alone doesn't make these stocks bargains. If earnings in coming quarters prove much lower than expected, today's P/E ratios will have misled. The task for investors is to figure out which companies are both modestly priced relative to forecasts and likely to meet or exceed those forecasts.
One tool professional investors use to predict that is past earnings volatility. Companies with relatively smooth earnings histories -- a low standard deviation of quarterly earnings, in statistical parlance -- are more likely than others to deliver the same in coming quarters.
But this tool is of limited use now, because the past five years have produced chaotic results for much of the market, and traditionally stable industries now face challenges. Food makers must deal with crop inflation, soap and toothpaste firms are battling a shift in shopper preference to discount brands and even some utilities are seeing a drop in electricity usage. Some companies in these industries will report stable earnings over the next year, but perhaps not all of them.
So here are two ways to tell which firms are reliable. The first is to look for a recent dividend increase. That puts more cash in shareholder pockets, but just as important, it signals that managers are confident about future results. After all, no company wants to raise its dividend only to find the new payments unaffordable in the coming year.
The second is another statistical clue: a tight clustering of the earnings estimates issued by different analysts. Three decades of research, including recent studies by Anna Scherbina, now at U. C. Davis, show two important things about estimate dispersion. First, tightly grouped estimates are more likely than scattered ones to precede an upside earnings surprise. Second, stocks with clustered earnings estimates tend to outperform those without.
One theory on why this is so has to do with the earnings guidance that companies provide to analysts. Firms with good news to report tend to be more forthcoming with details than firms that are struggling, the thinking goes.
The 10 stocks below have modest P-E ratios and healthy dividend yields. They've also raised payments over the past year and have earnings estimates that show relatively close agreement among analysts.
Company Ticker
Abbott Labs ABT
Altria Group MO
Analog Devices ADI
Campbell Soup CPB
Darden Rests DRI
General Dyn GD
J & J JNJ
Mattel MAT
Microsoft MSFT
Raytheon RTN
Thursday, February 16, 2012
How to become a millionare
As our net worth gets closer to the million dollar mark, I think back to how we got here. We don't make that much money but we are able to save a large portion of our earnings and we seldom use debt to purchase items. Our house is paid for as well as our cars. We did just recently take out a new mortgage but this is on an investment property in California that was owned by a bank after being foreclosed.
Why is it so hard for the average American to save money? Case in point, after the kids soccer game on Saturday we were walking back to the parking lot. One of the families on the team had just purchased a new Range Rover. The family makes more money than us but they definitely spend much more than we do. Do you think that Range Rover will go up in value after they drove it off the dealers lot?
Jennifer Waters from MarketWatch has an interesting article on what it takes to become a millionaire.
Wealth is what you save, not what you spend
Want to be a millionaire? Don’t overspend and use debt wisely
We all may not be millionaires but there are plenty of financial and life-planning secrets we can learn from the well-heeled.
Most people know that wealth in the U.S. is in the hands of a small percentage of the total population. And, today, most of those folks with a net worth of $1 million or more have earned it themselves.
They’re mostly entrepreneurs who create everything from high-speed networks to garbage haulers. They dig ditches and build houses and grow corn and make jewelry. They deal stamps or coins or artwork and control pests and cut lawns. They also cure people and give them new teeth. Others will defend their neighbors or even feed them.
And they’re not big spenders. In fact, most of those with big bucks live well under their means — think about Warren Buffet still living in that modest Omaha home — and they put their money instead toward investments that help them stockpile more wealth.
“Wealth is what you accumulate, not what you spend,” according to Thomas Stanley and William Danko, the authors of the seminal tome on America’s wealthy “The Millionaire Next Door,” first published in 1996.
“It is seldom luck or inheritance or advanced degrees or even intelligence that enables people to amass fortunes,” the authors wrote. “Wealth is more often the result of a lifestyle of hard work, perseverance, planning, and, most of all, self discipline.”
Wealth is defined in many ways, though it’s generally determined as the value of everything you own minus debts. But there’s a difference between marketable assets — things you own that could be liquidated rather quickly, like stocks, bonds, real estate — and possessions like cars, clothing and household items that you use regularly and aren’t likely to sell.
Income alone does not make one rich. It helps, of course, to build wealth, but the financially independent look to their salaries as a means to an end, which is that pile of cash.
“The wealthy don’t spend their wealth on discretionary purchases,” said Pam Danziger, founder of Unity Marketing, a consumer market-research firm specializing in luxury goods and experiences. “They get rich by maximizing the value of their investments.”
That doesn’t mean they don’t pay big bucks for pretty shoes or outfits, but that most choose those items carefully and shop for value and quality. “They truly evaluate the purchase as an investment, not an expense,” Danziger said.
What they do though is diversify those investments, which gives them more flexibility to ride out difficult times. “The wealthiest clients have very, very diversified portfolios that go way beyond just stocks and bonds into hedge funds, currencies, commodities and emerging markets,” said Leslie Lassiter, managing director of the JPMorgan Private Wealth Management.
“There are many, many mutual funds out there that will allow you to get exposure to those types of asset classes,” Lassiter said.
Among the biggest differences between those flush with cash and those wishing they were is in how they pay for things. Millionaires tend to use cash for most of their purchases, including cars, homes and boats.
For the average wage earner, of course, that’s not always an option but it still holds this lesson: Don’t look to debt to fund your lifestyle.
Most wealthy people use debt for investment purposes and are careful not to over-leverage themselves. “A prudent use of debt is an appropriate thing for anyone,” Lassiter said.
They also plan very well and spend a lot of time at it. Many are compulsive savers and investors who often say the journey to riches was far more fun than the reaching the goal.
And they’re patient, willing to invest in the long term and wait it out. “They stick with their investments and are more likely to have a financial plan,” said Sanjiv Mirchandani, president of National Financial, a subsidiary of Fidelity Investments.
Many take the long-term approach to investing because they’re working at being financial independent. When they retire, for example, many will know exactly how much they need to live on, to give away and to leave as a legacy.
“The best ones really understand how much liquidity they need to cover their expenses and make sure they have that much cash on hand,” Lassiter said. “That’s something the average person should do as well.”
At the same time, she said most are very careful about leveraging debt. “The wealthy tend to balance between the two,” she said.
Recommendations for accumulating wealth:
Live below your means: People with high incomes who spend all that money are not rich; they’re just stupid.
Plan: That means plan for today, tomorrow and 30 years after retirement. Take time doing it too and spend time monitoring it every day. Use budgets and stick to them.
Diversify: As Lassiter said, look for mutual funds that allow you exposure to asset classes that aren’t related to each other.
Reduce use of credit and turn to cash: It’s easier, of course, for a prosperous person to pay for a house in cash than it might be for most folks, but credit-card debt for luxury purchases or extravagant vacations will never pave a road to riches.
Have access to cash: While the rich keep much of their wealth invested, they can get cash when they need it. “Have some kind of line of credit available, like a HELOC (home-equity line of credit) that you never use,” Lassiter said. “It’s a safety valve.” She suggests a year’s worth of cash to cover expenses; Danziger thinks three years worth is a better bet.
Spread cash around: When the wealthy pulled money out of the equities markets two and three years ago, they opened a bevy of bank accounts, all guaranteed up to $250,000 of deposits by the Federal Deposit Insurance Corp.
Bring your children into the mix, and remember the importance of estate planning: The affluent can go to great lengths to teach their children about money and how to manage it — something every family should do. Though talking about money with children consistently ranks as one of the most dreaded conversations, it’s important that your heirs know where all the bank accounts and safe-deposit boxes are — even that their names are on them, too — who the attorney is, where the will and trusts are filed.
Wednesday, February 15, 2012
How much money will you need to retire comfortably?
Most of us are saving for retirement, but how big of a nest egg will you need at retirement? Many people save and invest in 401(k) plans and IRA accounts but have you calculated how much money you will need in retirement to live comfortably?
How do you calculate how much you will need? What factors do you include in your retirement calculations such as rate of return, retirement age and how long you expect to live in retirement. How important is retirement saving versus maintaining your current lifestyle?
Here is a link to my favorite Retirement Planning Calculator from Bloomberg. It's an easy to use tool and it's great for calculating your magic number. You just need to provide a few inputs such as your current age, your expected retirement age, your expected annual rate of return, your current retirement balance and your annual retirement contributions.
I like to run the calculator with an 8% annual return on investment. Click on “Calculate” to figure out how much you will have at retirement. Next divide the balance by a prudent withdrawal rate such as 4% to see how much income to expect in retirement. Adjust your annual contributions to get the retirement balance you will need to produce your desired retirement income.
I have calculated how much we will need at retirement and come up with around $2M as the amount of our nest egg to retire comfortably. Depending on how much we save currently and how well our investments perform I should be able to retire somewhere between 63 and 65 years old.
Right now we are well on our way to our goal of $2M and here is how I got started on my goal toward retirement.
I started a 401(k) plan at my first job out of college. I was able to contribute 10% of my salary and my employer added 15% as a profit sharing arrangement. This 25% contribution went a long way towards getting my nest egg build up during my nine years of work at that company.
I currently work for a non profit that offers a 403(b) that has matching contributions with variable annuities as the investment options. I contribute to this plan up to the match along with a Roth IRA which I invest in the Vanguard LifeStrategy Growth Fund.
I also contribute money to about 30 dividend stocks. I plan on growing the dividend stocks to produce anywhere from a third to half of what I will need in retirement. Currently I am earning more than $6,300 in yearly dividends from my stock portfolio.
So make sure you calculate how much you will need in retirement and come up with a plan that works for you. Spend some time planning your retirement NOW so you will be in good shape ten, twenty to thirty years down the road.
How do you calculate how much you will need? What factors do you include in your retirement calculations such as rate of return, retirement age and how long you expect to live in retirement. How important is retirement saving versus maintaining your current lifestyle?
Here is a link to my favorite Retirement Planning Calculator from Bloomberg. It's an easy to use tool and it's great for calculating your magic number. You just need to provide a few inputs such as your current age, your expected retirement age, your expected annual rate of return, your current retirement balance and your annual retirement contributions.
I like to run the calculator with an 8% annual return on investment. Click on “Calculate” to figure out how much you will have at retirement. Next divide the balance by a prudent withdrawal rate such as 4% to see how much income to expect in retirement. Adjust your annual contributions to get the retirement balance you will need to produce your desired retirement income.
I have calculated how much we will need at retirement and come up with around $2M as the amount of our nest egg to retire comfortably. Depending on how much we save currently and how well our investments perform I should be able to retire somewhere between 63 and 65 years old.
Right now we are well on our way to our goal of $2M and here is how I got started on my goal toward retirement.
I started a 401(k) plan at my first job out of college. I was able to contribute 10% of my salary and my employer added 15% as a profit sharing arrangement. This 25% contribution went a long way towards getting my nest egg build up during my nine years of work at that company.
I currently work for a non profit that offers a 403(b) that has matching contributions with variable annuities as the investment options. I contribute to this plan up to the match along with a Roth IRA which I invest in the Vanguard LifeStrategy Growth Fund.
I also contribute money to about 30 dividend stocks. I plan on growing the dividend stocks to produce anywhere from a third to half of what I will need in retirement. Currently I am earning more than $6,300 in yearly dividends from my stock portfolio.
So make sure you calculate how much you will need in retirement and come up with a plan that works for you. Spend some time planning your retirement NOW so you will be in good shape ten, twenty to thirty years down the road.
Tuesday, February 14, 2012
Best ETF Sites
Two Websites ace the data you need to compare exchange-traded funds: XTF and ETFdb have the sharpest tools in the drawer—including illustrated tools that let you search by geographic reach. Barron's by Mike Hogan
As easy as they are to trade, and as cheap as they are to own, it's often hard to see an exchange-traded fund for its metrics.
Think about how hard it is to penetrate any single security's forest of data, times 25 to 700 fund holdings. Then multiple that by three or more funds that qualify as comparable investments.
Whenever I have to build an ETF short list, the two sites I invariably turn to are XTF (xtf.com) and ETF Database, or ETFdb (http://etfdb.com).
They slice and dice the 1,400-ETF universe in numerous different ways—but, between them, I can always find the right tool for the job. And both are revamping their fund sifters right now.
XTF has just finished revamping its ETF Comparison and ETF Explorer tools.
The first helps subscribers assemble up to six similar funds to compare by a keyword, security's name or a fund's ticker symbol, while the second lets the user whittle down funds by investment objective. The popularity of these two most-often-used tools has led XTF to integrate some of their features into other parts of the site as well, reports president and CEO Mel Herman.
A search on any ETF ticker also fetches links to up to six similar funds. Clicking on the new Compare ETFs button atop the fund-profile pages instantly launches a spreadsheet-like display of all metrics for those funds. The user can easily add or remove funds to the list.
For example, a search on the very popular iShares MSCI Emerging Markets Index (ticker: EEM) brings up five like tickers. But some, such as the Rydex MSCI Emerging Markets Equal Weight ETF (EWEM), garner a low overall investibility score—based on XTF'S many-factored ranking algorithm—compared to XTF's 8.3 rating for EEM, on a scale of 10.
Both XTF and ETFdb have tools that let the user quickly find ETFs by exposure to a particular security. Both have exhaustive Boolean screeners, but they're executed differently. ETFdb's is subtractive, narrowing down the 1,400-strong ETF universe as the user clicks parameters for the 17 most common fund descriptors.
The data are organized under several topic-appropriate tabs; again, ETF data being so voluminous no single page can hold it all.
Like XTF, ETFdb also breaks down major fund characteristics graphically for quicker comprehension; and, later this month, it will start assigning A-to-F letter grades. Users will be able to see how a fund stacks up against its peers in fund expenses, performance, liquidity, volatility, dividends and concentration risk.
The power of XTF and ETFdb ultimately depends on their laborious updates of vast pools of information. Just as important are the clever ways both Websites let you grab onto just the piece of the ETF universe you want—and save yourself from drowning in a sea of incoherent data.
As easy as they are to trade, and as cheap as they are to own, it's often hard to see an exchange-traded fund for its metrics.
Think about how hard it is to penetrate any single security's forest of data, times 25 to 700 fund holdings. Then multiple that by three or more funds that qualify as comparable investments.
Whenever I have to build an ETF short list, the two sites I invariably turn to are XTF (xtf.com) and ETF Database, or ETFdb (http://etfdb.com).
They slice and dice the 1,400-ETF universe in numerous different ways—but, between them, I can always find the right tool for the job. And both are revamping their fund sifters right now.
XTF has just finished revamping its ETF Comparison and ETF Explorer tools.
The first helps subscribers assemble up to six similar funds to compare by a keyword, security's name or a fund's ticker symbol, while the second lets the user whittle down funds by investment objective. The popularity of these two most-often-used tools has led XTF to integrate some of their features into other parts of the site as well, reports president and CEO Mel Herman.
A search on any ETF ticker also fetches links to up to six similar funds. Clicking on the new Compare ETFs button atop the fund-profile pages instantly launches a spreadsheet-like display of all metrics for those funds. The user can easily add or remove funds to the list.
For example, a search on the very popular iShares MSCI Emerging Markets Index (ticker: EEM) brings up five like tickers. But some, such as the Rydex MSCI Emerging Markets Equal Weight ETF (EWEM), garner a low overall investibility score—based on XTF'S many-factored ranking algorithm—compared to XTF's 8.3 rating for EEM, on a scale of 10.
Both XTF and ETFdb have tools that let the user quickly find ETFs by exposure to a particular security. Both have exhaustive Boolean screeners, but they're executed differently. ETFdb's is subtractive, narrowing down the 1,400-strong ETF universe as the user clicks parameters for the 17 most common fund descriptors.
The data are organized under several topic-appropriate tabs; again, ETF data being so voluminous no single page can hold it all.
Like XTF, ETFdb also breaks down major fund characteristics graphically for quicker comprehension; and, later this month, it will start assigning A-to-F letter grades. Users will be able to see how a fund stacks up against its peers in fund expenses, performance, liquidity, volatility, dividends and concentration risk.
The power of XTF and ETFdb ultimately depends on their laborious updates of vast pools of information. Just as important are the clever ways both Websites let you grab onto just the piece of the ETF universe you want—and save yourself from drowning in a sea of incoherent data.
Monday, February 13, 2012
8 Dividend-Growth Stock Picks
8 Dividend-Growth Stock Picks
By Jeffrey R. Kosnett, Senior Editor, Kiplinger's Personal Finance
Thanks to two catastrophic bear markets over the past dozen years, the strategy of buying stocks and holding them forever has fallen into disfavor. But that doesn't mean a buy-and-hold investing strategy is all bad; it just needs some tweaking. So in that spirit, allow us to introduce a variation that we think makes a lot of sense. Call it buy and hold and collect and grow, or BHCG for short.
The strategy is simple: You buy stocks that regularly boost their dividends and hold for the long haul. By doing so, you hitch a ride with cash-rich businesses that generate higher revenues, profits and cash flow year after year. The best of these companies are committed to boosting their dividends by double-digit percentages in all economic and market cycles.
BHCG stocks don't necessarily pay superhigh dividends, as does AT&T (symbol T), with its lavish 5.9% yield. But current income isn't the point. Rather, the idea is to target companies whose share prices rise steadily along with their dividend streams. If the strategy works as you expect, you earn a handsome yield based on the price of your initial purchase.
Some experienced investors believe BHCG offers the best mixture of safety and opportunity. One of them is Tom Cameron, who entered the investment business in 1953. Now head of Dividend Growth Advisors, in Ridgeland, S.C., and co-manager of Dividend Growth Trust Rising Dividend Growth Fund (ICRDX), Cameron requires any stock he buys to have annualized dividend growth of at least 10% over the previous ten years. When he talks with company bosses, Cameron says, he makes sure big dividend increases are "part of the culture." He immediately boots out any company that cuts its dividend. In 2008, Cameron, 84, dumped all of his shares of Bank of America after the company halved its quarterly payout. BofA shares traded at $28 at the time. They now fetch less than $6
If there's one risk to a BHCG strategy, it's that the universe of suitable companies is relatively small. Fund manager Cameron, for example, says he watches no more than 125 companies. Fortunately, nearly all the candidates are large and have a lot of cash and significant foreign exposure -- exactly the kind of stocks Kiplinger's believes are timely for the year ahead. You can find potential winners at U.S. Dividend Champions and Contenders, a free database. You'll see the current and year-by-year dividends for scores of quality stocks and their compound dividend growth rates.
Our Dividend-Growth Stock Picks
The list includes McDonald's, which needs no further description. Below are seven other dividend champs we like.
Automatic Data Processing (ADP)
Dividend Yield: 3.1%
10-year Dividend Growth Rate: 12.8%
Years of Consecutive Dividend Increases: 37
ADP, the payroll-service king, needs little capital to grow, so it swims in cash and invests it cautiously. Its balance sheet is impeccable: ADP is one of only four U.S. nonfinancial companies with a triple-A bond rating, and the stock has had only one losing year since 2002.
Church & Dwight's (CHD)
Dividend Yield: 1.5%
10-year Dividend Growth Rate: 7.8%
Years of Consecutive Dividend Increases: 4
A chart of Church & Dwight's long-term stock price slopes gently upward and is as straight as they come, reflecting the steadiness of the firm's main business, the production and sale of sodium bicarbonate. Church & Dwight's flagship brand is Arm & Hammer, but its product lineup also includes Brillo, Trojan condoms and First Response pregnancy test kits. Church & Dwight has paid out dividends for years, but only recently has it gotten the dividend-growth religion. The rate has quadrupled since 2008.
Colgate-Palmolive (CL)
Dividend Yield: 2.6%
10-year Dividend Growth Rate: 12.4%
Years of Consecutive Dividend Increases: 48
Owner of some of the world's most famous consumer brands, Colgate-Palmolive is another steady Eddie with a large and growing presence internationally. Overall, three-fourths of its sales are generated overseas. Colgate has lifted its dividend every year since 1964.
Fastenal (FAST)
Dividend Yield: 1.3%
10-year Dividend Growth Rate: 30.2%
Years of Consecutive Dividend Increases: 9
Fastenal sells fasteners -- more than 400,000 different kinds -- and nearly 600,000 other items, including tools, blades, pipes and chains. Fastenal started paying a dividend -- at a rate of 1 cent a share -- in 1999. The rate is now 56 cents a share.
IBM (IBM)
Dividend Yield: 1.6%
10-year Dividend Growth Rate: 18.3%
Years of Consecutive Dividend Increases: 16
IBM still makes big mainframe computers, but what drives Big Blue's growth nowadays are sales of software and services. IBM's dividends used to be measly -- 25 cents a share as recently as 1995. The payout rate is now $3 a share, and the company is clearly capable of paying more -- the annual dividend tab of $3.5 billion is less than one-fourth of IBM's free cash flow. Warren Buffett, who has always avoided investing in technology, disclosed recently that his Berkshire Hathaway had a big stake in IBM.
Norfolk Southern (NSC)
Dividend Yield: 2.3%
10-year Dividend Growth Rate: 21.8%
Years of Consecutive Dividend Increases: 10
Speaking of Buffett, his purchase of Burlington Northern in 2010 suggests that the master thinks railroading is a pretty good business. Indeed, Norfolk Southern is booming, thanks to enormous coal exports and strong demand for other commodities. Norfolk Southern, which slashed its dividend in 2001, has since been making amends and now pledges to distribute one-third of its earnings to shareholders.
Novo Nordisk (NVO)
Dividend Yield: 1.2%
10-year Dividend Growth Rate: 22.3%
Years of Consecutive Dividend Increases: 15
Denmark's Novo Nordisk is the world's leader in diabetes-care products, including insulin. Novo has a unique niche, generates an enormous amount of cash and carries virtually no debt. Note that Novo pays dividends only once a year, usually in the first quarter, and that those payouts are subject to a 28% Danish tax. Uncle Sam will reimburse you if you file for a foreign-tax credit.
If you prefer to invest through a mutual fund, the best bet is Vanguard Dividend Growth (VDIGX), a member of the Kiplinger 25. Dividend Growth Trust Rising Dividend Growth Fund and Franklin Rising Dividend (FRDPX) also have good records, but both funds levy sales charges. They're good choices if you work with an adviser who can buy them for you without the loads. Fans of exchange-traded funds and a passive approach to stock selection should appreciate Vanguard Dividend Appreciation ETF (VIG). The fund charges just 0.18% a year.
By Jeffrey R. Kosnett, Senior Editor, Kiplinger's Personal Finance
Thanks to two catastrophic bear markets over the past dozen years, the strategy of buying stocks and holding them forever has fallen into disfavor. But that doesn't mean a buy-and-hold investing strategy is all bad; it just needs some tweaking. So in that spirit, allow us to introduce a variation that we think makes a lot of sense. Call it buy and hold and collect and grow, or BHCG for short.
The strategy is simple: You buy stocks that regularly boost their dividends and hold for the long haul. By doing so, you hitch a ride with cash-rich businesses that generate higher revenues, profits and cash flow year after year. The best of these companies are committed to boosting their dividends by double-digit percentages in all economic and market cycles.
BHCG stocks don't necessarily pay superhigh dividends, as does AT&T (symbol T), with its lavish 5.9% yield. But current income isn't the point. Rather, the idea is to target companies whose share prices rise steadily along with their dividend streams. If the strategy works as you expect, you earn a handsome yield based on the price of your initial purchase.
Some experienced investors believe BHCG offers the best mixture of safety and opportunity. One of them is Tom Cameron, who entered the investment business in 1953. Now head of Dividend Growth Advisors, in Ridgeland, S.C., and co-manager of Dividend Growth Trust Rising Dividend Growth Fund (ICRDX), Cameron requires any stock he buys to have annualized dividend growth of at least 10% over the previous ten years. When he talks with company bosses, Cameron says, he makes sure big dividend increases are "part of the culture." He immediately boots out any company that cuts its dividend. In 2008, Cameron, 84, dumped all of his shares of Bank of America after the company halved its quarterly payout. BofA shares traded at $28 at the time. They now fetch less than $6
If there's one risk to a BHCG strategy, it's that the universe of suitable companies is relatively small. Fund manager Cameron, for example, says he watches no more than 125 companies. Fortunately, nearly all the candidates are large and have a lot of cash and significant foreign exposure -- exactly the kind of stocks Kiplinger's believes are timely for the year ahead. You can find potential winners at U.S. Dividend Champions and Contenders, a free database. You'll see the current and year-by-year dividends for scores of quality stocks and their compound dividend growth rates.
Our Dividend-Growth Stock Picks
The list includes McDonald's, which needs no further description. Below are seven other dividend champs we like.
Automatic Data Processing (ADP)
Dividend Yield: 3.1%
10-year Dividend Growth Rate: 12.8%
Years of Consecutive Dividend Increases: 37
ADP, the payroll-service king, needs little capital to grow, so it swims in cash and invests it cautiously. Its balance sheet is impeccable: ADP is one of only four U.S. nonfinancial companies with a triple-A bond rating, and the stock has had only one losing year since 2002.
Church & Dwight's (CHD)
Dividend Yield: 1.5%
10-year Dividend Growth Rate: 7.8%
Years of Consecutive Dividend Increases: 4
A chart of Church & Dwight's long-term stock price slopes gently upward and is as straight as they come, reflecting the steadiness of the firm's main business, the production and sale of sodium bicarbonate. Church & Dwight's flagship brand is Arm & Hammer, but its product lineup also includes Brillo, Trojan condoms and First Response pregnancy test kits. Church & Dwight has paid out dividends for years, but only recently has it gotten the dividend-growth religion. The rate has quadrupled since 2008.
Colgate-Palmolive (CL)
Dividend Yield: 2.6%
10-year Dividend Growth Rate: 12.4%
Years of Consecutive Dividend Increases: 48
Owner of some of the world's most famous consumer brands, Colgate-Palmolive is another steady Eddie with a large and growing presence internationally. Overall, three-fourths of its sales are generated overseas. Colgate has lifted its dividend every year since 1964.
Fastenal (FAST)
Dividend Yield: 1.3%
10-year Dividend Growth Rate: 30.2%
Years of Consecutive Dividend Increases: 9
Fastenal sells fasteners -- more than 400,000 different kinds -- and nearly 600,000 other items, including tools, blades, pipes and chains. Fastenal started paying a dividend -- at a rate of 1 cent a share -- in 1999. The rate is now 56 cents a share.
IBM (IBM)
Dividend Yield: 1.6%
10-year Dividend Growth Rate: 18.3%
Years of Consecutive Dividend Increases: 16
IBM still makes big mainframe computers, but what drives Big Blue's growth nowadays are sales of software and services. IBM's dividends used to be measly -- 25 cents a share as recently as 1995. The payout rate is now $3 a share, and the company is clearly capable of paying more -- the annual dividend tab of $3.5 billion is less than one-fourth of IBM's free cash flow. Warren Buffett, who has always avoided investing in technology, disclosed recently that his Berkshire Hathaway had a big stake in IBM.
Norfolk Southern (NSC)
Dividend Yield: 2.3%
10-year Dividend Growth Rate: 21.8%
Years of Consecutive Dividend Increases: 10
Speaking of Buffett, his purchase of Burlington Northern in 2010 suggests that the master thinks railroading is a pretty good business. Indeed, Norfolk Southern is booming, thanks to enormous coal exports and strong demand for other commodities. Norfolk Southern, which slashed its dividend in 2001, has since been making amends and now pledges to distribute one-third of its earnings to shareholders.
Novo Nordisk (NVO)
Dividend Yield: 1.2%
10-year Dividend Growth Rate: 22.3%
Years of Consecutive Dividend Increases: 15
Denmark's Novo Nordisk is the world's leader in diabetes-care products, including insulin. Novo has a unique niche, generates an enormous amount of cash and carries virtually no debt. Note that Novo pays dividends only once a year, usually in the first quarter, and that those payouts are subject to a 28% Danish tax. Uncle Sam will reimburse you if you file for a foreign-tax credit.
If you prefer to invest through a mutual fund, the best bet is Vanguard Dividend Growth (VDIGX), a member of the Kiplinger 25. Dividend Growth Trust Rising Dividend Growth Fund and Franklin Rising Dividend (FRDPX) also have good records, but both funds levy sales charges. They're good choices if you work with an adviser who can buy them for you without the loads. Fans of exchange-traded funds and a passive approach to stock selection should appreciate Vanguard Dividend Appreciation ETF (VIG). The fund charges just 0.18% a year.
Friday, February 10, 2012
What energy pipeline stocks pay very large dividends?
Investors are squeezing just about any investment they can get their hands on looking for yield.
It's easy to see why. With interest rates on savings accounts and certificates of deposit scraping along at just 1%, people who need income from their investments to live on are struggling.
Meanwhile, yields on government securities are stubbornly low, stealing away what's been a popular form of income for retirees for decades.
Along with preferred stock, municipal bonds and mortgages, shares of energy pipeline stocks are high on the shopping lists of investors looking for income. These companies tend to pay very large dividends relative to the Standard & Poor's 500.
These companies have large networks of pipelines used to transfer energy. They collect stable cash flows from their customers. Since demand for energy is relatively predictable and recession resistant, they tend to keep paying fat dividends and can often afford to raise these dividends.
The list of such energy pipeline companies, and related energy companies with relatively high dividend yields, is a pretty long one. Below are some of the key players and their current dividend yield.
Keep in mind that not all the stocks on the list are pure energy pipeline companies. Some are involved in other areas of transporting or storing energy. All have substantial dividend yields in common.
• Kinder Morgan Energy (KMP): 5.3%
• AmeriGas (APU): 7.0%
• Atlas Pipeline (APL): 5.8%
• Boardwalk Pipeline (BWP): 7.7%
• BreitBurn Energy (BBEP): 8.9%
• Buckeye Partners (BPL): 6.6%
• Chesapeake Midstream (CHKM): 5.0%
• Copano Energy (CPNO): 6.6%
• Crestwood Midstream (CMLP): 6.5%
• Crosstex Energy (XTXI): 3.3%
• DCP Midstream (DPM): 5.4%
• El Paso Pipeline (EPB): 5.6%
• Enbridge Energy (EEP): 6.4%
• Energy Transfer Partners (ETP): 7.4%
• Enterprise Products (EPD): 5.1%
• Ferrellgas (FGP): 11.5%
• Genesis Energy (GEL): 6.1%
• Global Partners (GLP): 8.9%
• Holly Energy (HEP): 6.4%
• Magellan Midstream (MMP): 4.8%
• MarkWest (MWE): 5.1%
• Martin Midstream (MMLP): 8.4%
• Regency Energy (RGP): 7.2%
• Suburban Propane (SPH): 7.3%
• TC PipeLines (TCP): 6.5%
• Transmontaigne TransMontaigne (TLP): 7.2%
• Western Gas Partners (WES): 4.3%
• Williams Partners (WPZ): 4.6%
It's easy to see why. With interest rates on savings accounts and certificates of deposit scraping along at just 1%, people who need income from their investments to live on are struggling.
Meanwhile, yields on government securities are stubbornly low, stealing away what's been a popular form of income for retirees for decades.
Along with preferred stock, municipal bonds and mortgages, shares of energy pipeline stocks are high on the shopping lists of investors looking for income. These companies tend to pay very large dividends relative to the Standard & Poor's 500.
These companies have large networks of pipelines used to transfer energy. They collect stable cash flows from their customers. Since demand for energy is relatively predictable and recession resistant, they tend to keep paying fat dividends and can often afford to raise these dividends.
The list of such energy pipeline companies, and related energy companies with relatively high dividend yields, is a pretty long one. Below are some of the key players and their current dividend yield.
Keep in mind that not all the stocks on the list are pure energy pipeline companies. Some are involved in other areas of transporting or storing energy. All have substantial dividend yields in common.
• Kinder Morgan Energy (KMP): 5.3%
• AmeriGas (APU): 7.0%
• Atlas Pipeline (APL): 5.8%
• Boardwalk Pipeline (BWP): 7.7%
• BreitBurn Energy (BBEP): 8.9%
• Buckeye Partners (BPL): 6.6%
• Chesapeake Midstream (CHKM): 5.0%
• Copano Energy (CPNO): 6.6%
• Crestwood Midstream (CMLP): 6.5%
• Crosstex Energy (XTXI): 3.3%
• DCP Midstream (DPM): 5.4%
• El Paso Pipeline (EPB): 5.6%
• Enbridge Energy (EEP): 6.4%
• Energy Transfer Partners (ETP): 7.4%
• Enterprise Products (EPD): 5.1%
• Ferrellgas (FGP): 11.5%
• Genesis Energy (GEL): 6.1%
• Global Partners (GLP): 8.9%
• Holly Energy (HEP): 6.4%
• Magellan Midstream (MMP): 4.8%
• MarkWest (MWE): 5.1%
• Martin Midstream (MMLP): 8.4%
• Regency Energy (RGP): 7.2%
• Suburban Propane (SPH): 7.3%
• TC PipeLines (TCP): 6.5%
• Transmontaigne TransMontaigne (TLP): 7.2%
• Western Gas Partners (WES): 4.3%
• Williams Partners (WPZ): 4.6%
Thursday, February 9, 2012
10 income-paying stocks that beat the crowd
10 Income-Paying Stocks That Beat The Crowd
These high-quality names slip under yield-hunters’ radar
Stock investors no longer have doubts about dividends, and that’s reason for some doubt.
Shares of high-quality, cash-rich, large-cap companies that yield more than the Standard & Poor’s 500 stock index are the new favorites in many portfolios. But many of these success stories have been discovered, boosting share prices and trimming yields.
At this point, investors might do better scouring the S&P 500 for companies that wouldn’t show up on a screen for above-average yielders, but which still enjoy dominant, “wide moat” positions in their business.
“It’s kind of a crowded trade,” said Paul Nolte, managing director at investment firm Dearborn Partners, about the popularity of the high-quality dividend strategy. “Valuations on high-dividend payers are at the upper-end of their historical ranges.”
Better to focus on dividend-paying companies in robust financial health, and then consider how that quarterly payment could grow. The dividend might not be terrific now, but a well-run operation with a high return on investment is often the kind of company given to dividend hikes. And dividend investing is a long-term strategy; the goal is to “clip coupons” year after year.
“Think in terms of what the yield could be, rather than what it is,” said Don Taylor, manager of Franklin Rising Dividends Fund.
Here are 10 wide-moat companies, culled from the two screens, that are debt-free and have a history of dividend increases:
1. Texas Instruments Inc. TXN shows up on Trainer’s screen. The computer and mobile telephone chip-maker sports a a 2.1% yield — slightly more generous than the S&P 500. Its shares trade at a discount to Morningstar’s fair value estimate of $38.
2. Stryker Corp. SYK makes both Morningstar’s and Trainer’s list. The orthopedic and medical equipment company recently yielded about 1.5%, with a low payout ratio of about 23%. The shares trade below Morningstar’s estimate of $63.
Trainer’s screen also gives top marks to Stryker for profitability and valuation.
3. Qualcomm Inc. QCOM shows up on Morningstar’s screen for many of the same criteria as Stryker. The communications-technology leader yields about 1.5%, with a payout ratio of around 27%. Plus, the shares are discounted to Morningstar’s fair value of $62. Said Nolte: “Qualcomm is a cash machine.”
4. AmerisourceBergen Corp. ABC makes Trainer’s screen for earnings strength and a cheap valuation. The pharmaceutical distributor’s shares yield about 1.3%, the dividend is growing, and the stock price is below Morningstar’s $45 fair value.
5. Cisco Systems CSCO recently began paying a dividend, and the shares yield about 1.2%. The technology bellwether’s payout ratio is a low 15%, leaving plenty of room for potential dividend growth, and the stock trades at a healthy discount to Morningstar’s fair value of $26 a share.
6. Expeditors International of Washington Inc. EXPD comes up on Morningstar’s screen. Recently the shares yielded 1.1%, with a payout ratio of 27%. Morningstar’s fair value on the shipping company’s stock is $61.
7. Franklin Resources Inc. BEN yields 1%, but the company’s 12% payout ratio and pristine balance sheet means there’s plenty of room to grow the dividend, or to continue special cash dividends that line shareholders’ pockets.
Morningstar’s screen gives high marks to Franklin Resources on valuation, and the shares are priced far below Morningstar’s $137 estimate. The company is also one of the S&P 500’s Dividend Aristocrats.
8. Oracle Corp. ORCL is another relatively new dividend payer. The shares yields 0.9%, while the company’s payout ratio is around 11%. The business software leader has a high return on invested capital, according to Trainer’s screen. Free-cash-flow yield and price-to-economic-book value are also attractive.
Oracle also appears on the Morningstar screen based on valuation and profitability. Its shares trade at a steep discount to the researcher’s $41 fair value price.
Going forward, Oracle could increase its dividend at a “better-than-normal clip,” Nolte said. “You’re getting 1% on your money, big deal, but if you’re compounding that at 10%, that starts to add up over years.”
9. Visa Inc. V has a 15% payout ratio, according to Morningstar’s screen, even after a substantial dividend hike last year. The credit- and debit-card payment processor’s shares yield 0.9%, and trade slightly below Morningstar’s $105 fair value estimate.
10. National Oilwell Varco Inc. NOV also is a new dividend payer that doesn’t provide much yield, recently 0.6%, but the drilling-rig equipment supplier has already increased its payout. The company still has plenty of available cash — the payout ratio is just 10% — and the shares are discounted to Morningstar’s fair value of $97.
These types of top-drawer stocks combine value characteristics with growth potential. Said Nolte: “You have, from a total return perspective, the ability to grow principal in addition to growing income. And because you’re below the radar, you’re not in that crowded trade and have the opportunity to pick them up at better valuations.”
These high-quality names slip under yield-hunters’ radar
Stock investors no longer have doubts about dividends, and that’s reason for some doubt.
Shares of high-quality, cash-rich, large-cap companies that yield more than the Standard & Poor’s 500 stock index are the new favorites in many portfolios. But many of these success stories have been discovered, boosting share prices and trimming yields.
At this point, investors might do better scouring the S&P 500 for companies that wouldn’t show up on a screen for above-average yielders, but which still enjoy dominant, “wide moat” positions in their business.
“It’s kind of a crowded trade,” said Paul Nolte, managing director at investment firm Dearborn Partners, about the popularity of the high-quality dividend strategy. “Valuations on high-dividend payers are at the upper-end of their historical ranges.”
Better to focus on dividend-paying companies in robust financial health, and then consider how that quarterly payment could grow. The dividend might not be terrific now, but a well-run operation with a high return on investment is often the kind of company given to dividend hikes. And dividend investing is a long-term strategy; the goal is to “clip coupons” year after year.
“Think in terms of what the yield could be, rather than what it is,” said Don Taylor, manager of Franklin Rising Dividends Fund.
Here are 10 wide-moat companies, culled from the two screens, that are debt-free and have a history of dividend increases:
1. Texas Instruments Inc. TXN shows up on Trainer’s screen. The computer and mobile telephone chip-maker sports a a 2.1% yield — slightly more generous than the S&P 500. Its shares trade at a discount to Morningstar’s fair value estimate of $38.
2. Stryker Corp. SYK makes both Morningstar’s and Trainer’s list. The orthopedic and medical equipment company recently yielded about 1.5%, with a low payout ratio of about 23%. The shares trade below Morningstar’s estimate of $63.
Trainer’s screen also gives top marks to Stryker for profitability and valuation.
3. Qualcomm Inc. QCOM shows up on Morningstar’s screen for many of the same criteria as Stryker. The communications-technology leader yields about 1.5%, with a payout ratio of around 27%. Plus, the shares are discounted to Morningstar’s fair value of $62. Said Nolte: “Qualcomm is a cash machine.”
4. AmerisourceBergen Corp. ABC makes Trainer’s screen for earnings strength and a cheap valuation. The pharmaceutical distributor’s shares yield about 1.3%, the dividend is growing, and the stock price is below Morningstar’s $45 fair value.
5. Cisco Systems CSCO recently began paying a dividend, and the shares yield about 1.2%. The technology bellwether’s payout ratio is a low 15%, leaving plenty of room for potential dividend growth, and the stock trades at a healthy discount to Morningstar’s fair value of $26 a share.
6. Expeditors International of Washington Inc. EXPD comes up on Morningstar’s screen. Recently the shares yielded 1.1%, with a payout ratio of 27%. Morningstar’s fair value on the shipping company’s stock is $61.
7. Franklin Resources Inc. BEN yields 1%, but the company’s 12% payout ratio and pristine balance sheet means there’s plenty of room to grow the dividend, or to continue special cash dividends that line shareholders’ pockets.
Morningstar’s screen gives high marks to Franklin Resources on valuation, and the shares are priced far below Morningstar’s $137 estimate. The company is also one of the S&P 500’s Dividend Aristocrats.
8. Oracle Corp. ORCL is another relatively new dividend payer. The shares yields 0.9%, while the company’s payout ratio is around 11%. The business software leader has a high return on invested capital, according to Trainer’s screen. Free-cash-flow yield and price-to-economic-book value are also attractive.
Oracle also appears on the Morningstar screen based on valuation and profitability. Its shares trade at a steep discount to the researcher’s $41 fair value price.
Going forward, Oracle could increase its dividend at a “better-than-normal clip,” Nolte said. “You’re getting 1% on your money, big deal, but if you’re compounding that at 10%, that starts to add up over years.”
9. Visa Inc. V has a 15% payout ratio, according to Morningstar’s screen, even after a substantial dividend hike last year. The credit- and debit-card payment processor’s shares yield 0.9%, and trade slightly below Morningstar’s $105 fair value estimate.
10. National Oilwell Varco Inc. NOV also is a new dividend payer that doesn’t provide much yield, recently 0.6%, but the drilling-rig equipment supplier has already increased its payout. The company still has plenty of available cash — the payout ratio is just 10% — and the shares are discounted to Morningstar’s fair value of $97.
These types of top-drawer stocks combine value characteristics with growth potential. Said Nolte: “You have, from a total return perspective, the ability to grow principal in addition to growing income. And because you’re below the radar, you’re not in that crowded trade and have the opportunity to pick them up at better valuations.”
Wednesday, February 8, 2012
Top 20 Stock Holdings
Here are the top 20 stocks in my Dividend Portfolio as of 1/31/12 ranked by size of holdings.
1. Kinder Morgan Energy (KMP) USA
2. DCP Midstream Partners (DPM) USA
3. ONEOK, Inc. (OKE) USA
4. Abbott Labs (ABT) USA
5. Johnson & Johnson (JNJ) USA
6. Procter & Gamble (PG) USA
7. General Electric Company (GE) USA
8. PepsiCo (PEP) USA
9. Barclays PLC (BCS) UK
10. Exxon Mobil (XOM) USA
11. Aircastle Limited (AYR) USA
12. Becton, Dickinson and Co (BDX) USA
13. GlaxoSmithKline (GSK) UK
14. Unilever NV (UN) Netherlands
15. Newell Rubbermaid (NWL) USA
16. CommonWealth REIT (CWH) USA
17. Intel (INTC) USA
18. Pfizer (PFE) USA
19. Banco Santander (STD) Spain
20. Duke Energy (DUK) USA
Here are the top 20 holdings of the Tweedy, Browne Worldwide High Dividend Yield Value Fund as of 1/31/12:
1. Total SA (TOT)
2. Novartis AG (NVS)
3. Royal Dutch Shell (ADS)
4. United Overseas Bank (UOVEY)
5. Vodafone Group PLC (VOD)
6. Roche Holding (RHHBY)
7. Zurich Financial Services (ZFXVY)
8. Unilever NV (UN)
9. Imperial Tobacco Group PLC (ITYBY)
10. Nestle SA (NSRGY)
11. Kimberly Clark (KMB)
12. Exelon (EXC)
13. G4S PLC (GFSZY)
14. Diageo PLC (DEO)
15. Johnson & Johnson (JNJ)
16. Muenchener Rueckver (MURGY
17. ConocoPhillips (COP)
18. Metcash Limited (MHTLY)
19. British American Tabacco PLC (BTI)
20. Akzo Nobel NV (AKZOY)
1. Kinder Morgan Energy (KMP) USA
2. DCP Midstream Partners (DPM) USA
3. ONEOK, Inc. (OKE) USA
4. Abbott Labs (ABT) USA
5. Johnson & Johnson (JNJ) USA
6. Procter & Gamble (PG) USA
7. General Electric Company (GE) USA
8. PepsiCo (PEP) USA
9. Barclays PLC (BCS) UK
10. Exxon Mobil (XOM) USA
11. Aircastle Limited (AYR) USA
12. Becton, Dickinson and Co (BDX) USA
13. GlaxoSmithKline (GSK) UK
14. Unilever NV (UN) Netherlands
15. Newell Rubbermaid (NWL) USA
16. CommonWealth REIT (CWH) USA
17. Intel (INTC) USA
18. Pfizer (PFE) USA
19. Banco Santander (STD) Spain
20. Duke Energy (DUK) USA
Here are the top 20 holdings of the Tweedy, Browne Worldwide High Dividend Yield Value Fund as of 1/31/12:
1. Total SA (TOT)
2. Novartis AG (NVS)
3. Royal Dutch Shell (ADS)
4. United Overseas Bank (UOVEY)
5. Vodafone Group PLC (VOD)
6. Roche Holding (RHHBY)
7. Zurich Financial Services (ZFXVY)
8. Unilever NV (UN)
9. Imperial Tobacco Group PLC (ITYBY)
10. Nestle SA (NSRGY)
11. Kimberly Clark (KMB)
12. Exelon (EXC)
13. G4S PLC (GFSZY)
14. Diageo PLC (DEO)
15. Johnson & Johnson (JNJ)
16. Muenchener Rueckver (MURGY
17. ConocoPhillips (COP)
18. Metcash Limited (MHTLY)
19. British American Tabacco PLC (BTI)
20. Akzo Nobel NV (AKZOY)
Tuesday, February 7, 2012
January Dividend Income Update
I have been building a stock portfolio of dividend stocks outside of my retirement accounts that I will use to help produce income in retirement. This portfolio was valued at $146,356 as of the end of January.
My Annualized Dividend Income as of the end of January increased to $6,356 from $6,341 over the past month. This means my dividend stocks will pay $6,356 in dividends over the next 12 months. This portfolio of stocks has a current yield of 4.34%.
My Annualized Dividend Income as of the end of January increased to $6,356 from $6,341 over the past month. This means my dividend stocks will pay $6,356 in dividends over the next 12 months. This portfolio of stocks has a current yield of 4.34%.
All my dividend distributions from the month went toward paying down debt. The stock market was up for the month and we continue to see companies increasing their dividends this year.
Most of my stocks are held in my Vanguard Brokerage account and the rest are DRIPs. I am keeping track of the amount of income I could receive once I retire or choose to receive the dividends in cash.
I will post my Top 20 Stock Holdings on Wednesday.
Monday, February 6, 2012
January Net Worth
As of the end of January our Net Worth increased to $977,373 from $938,892 for the month which is a 4.10% increase. The increase in net worth is tied to the increase for the stock market in January. The S&P 500 was up 4.36% for the month of January.
The breakout is as follows:
ASSETS
Retirement Accounts $510,331
Taxable Accounts $146,356
Cash $30,786
Home $205,000
Other Real Estate $140,000
Cars $18,400
Personal Property $3,000
Kids 529 Accounts $44,460
DEBT
We use our other credit cards for rewards but pay off the balances each month. All dividends received this month went toward paying down debt.
The breakout is as follows:
ASSETS
Retirement Accounts $510,331
Taxable Accounts $146,356
Cash $30,786
Home $205,000
Other Real Estate $140,000
Cars $18,400
Personal Property $3,000
Kids 529 Accounts $44,460
DEBT
Other Mortgage $110,607
Car Loan $10,353
NET WORTH
$977,373
Here is the summary for this month:
The stock market was up for the month of January. The S&P 500 was up 4.36% for the month and that accounted for most of our increase in value.
Here is the summary for this month:
The stock market was up for the month of January. The S&P 500 was up 4.36% for the month and that accounted for most of our increase in value.
We use our other credit cards for rewards but pay off the balances each month. All dividends received this month went toward paying down debt.
We also have a car loan of $10,353 since we purchased a new car in October.
We will be paying down debt and trying to building up our cash over the next few months to increase our cash reserves. You can click on my Net Worth graph on the right to see the changes in each category from the previous month. We continue to fund our Roth IRA's each month.
I will post my Dividend Income Update on Tuesday.
We will be paying down debt and trying to building up our cash over the next few months to increase our cash reserves. You can click on my Net Worth graph on the right to see the changes in each category from the previous month. We continue to fund our Roth IRA's each month.
I will post my Dividend Income Update on Tuesday.
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