Dividends Value » tools

D4L-PreScreen.xls Model – August 2009 Update *

D4L — Sat, 29 Aug 2009 10:30:36 +0000

The D4L-PreScreen.xls model continues to be the most downloaded and used model in my toolbox. I have just completed an update on it. This update includes some minor tweaks and updates on interest rates used in the model. The changes are described below:

August 2009 Updates

Added an input field (Cell J12) to enter “Years of consecutive dividend increases”
Modified Cell B48 to point to the Annual NPV of MMA Differential, which is a more correct value than the cumulative that was previously used.
Updated the default MMA Yield to 3.90%
The NPV of MMA Differential target in cell C48 now calculates based on “Years of consecutive dividend increases” input in cell J12.

The 3.90% rate is an average of the last two years highest ending MMA rate that I held. The rate will fluctuate +/- 0.5% as MMA rates change. In addition, I will continue to compare the rate to The 20-Year Treasury Yield. On August 1st, this rate was 4.40%; however, it has continued to drop since then. I will monitor the rate and adjust accordingly in the future.

New Methodology

Years of consecutive dividend increases: Enter here the number of consecutive years the company has increased its dividend. This input will calculated the target NPV of MMA Differential below.

NPV of MMA Differential: This is the net present value of the MMA Differential calculated in the projected information section above for each of the scenarios. The minimum acceptable level (target) for the annual scenario in column C is calculated based on the Years of consecutive dividend increases entered above. This calculation now uses the Annual NPV of MMA Differential, which is a more correct value than the cumulative amount that was previously used.

The examples in Pre-Screening Dividend Stocks – Part II have been updated. The model is free for your personal use. As always, if you run across any bugs or glitches, please be sure to let me know.

Disclaimer
This model is for illustrative and educational purposes only. The author and Dividends4Life makes no claims or assertions as to the model’s accuracy, completeness, appropriateness of use, or any other claim or assertion. You are responsible for determining if the models calculations are correct and appropriate for whatever you choose to use the model for.

Updated D4L-PreScreen.xls Model *

D4L — Sat, 27 Dec 2008 11:30:00 +0000

By far, my most used and most downloaded model is the D4L-PreScreen.xls model. I have just completed an update on it. This update includes the normal year-end changes, plus some rework on the Projected Information section. The changes are described below:

Normal Year-End Updates

Changed year from 2008 to 2009
Updated the default MMA Yield to 3.54%

The 3.54% rate is an average of the last two years highest ending MMA rate that I held. The rate will fluctuate +/- 0.5% as MMA rates change. In addition, I will continue to compare the rate to The 20-Year Treasury Yield. On December 1st, this rate was 3.51%; however, it has continued to drop since then. I will monitor the rate and adjust accordingly in the future.

Projected Information Section
This section was significantly reworked and expanded. Recently, I noticed a logic flaw in the NPV of MMA Differential calculation. The NPV was being calculated on a series of differences between the cumulative values of the stock and MMA. I added an annual calculation (row 23), below the errant calculation (row 22), which I left and continue to calculate a NPV of. The errant calculation generally followed the correct annual calculation and when calculating a NPV allowed for a wider range. The new correct NPV is found in cell B50. In an effort to calibrate the correct calculation, I will watch both during 2009.

Previous models only included the No Price Appreciation calculation. In his version, I added two other alternatives: Price Appreciation = Dividend Growth and Dividends/Interest Not Reinvested. Each are described below:

No Price Appreciation
This model assumes that the share price remains constant, thus the dividend yield grows each year based on the dividend growth rate. It also assumes all dividends and interest are reinvested.

Price Appreciation = Dividend Growth
This model assumes that the share price grows at the dividend growth rate, thus the dividend yield remains constant. It also assumes all dividends and interest are reinvested.

Dividends/Interest Not Reinvested
This model is identical to the No Price Appreciation model, except the dividends and interest are not reinvested.

The NPV of MMA Differential and the Sum of MMA Differential for each of the above calculations is found on rows 50 and 51.

Of the various models, I think that the Price Appreciation = Dividend Growth model provides the most realist results, but I generally do not use it because it includes capital growth, which is not accessible unless you sell the security. This runs counter to a income-based buy-and-hold philosophy.

If you run across any bugs or glitches, please be sure to let me know.

Disclaimer
This model is for illustrative and educational purposes only. The author and Dividends4Life makes no claims or assertions as to the model’s accuracy, completeness, appropriateness of use, or any other claim or assertion. You should not rely on this model or base any financial decisions on it.

Dividend Investing vs. S&P Index Fund *

D4L — Tue, 09 Dec 2008 11:30:00 +0000

Part of my kids’ college fund is invested in Vanguard’s S&P 500 Index Fund (VFINX). When I opened the October statement, I was mildly surprised to see the net asset value had fell below the September 1997 level when the account was first opened. Over the year I have become somewhat disenchanted with mutual funds, ETFs and CEFs due to their recent poor performance relative to my dividend investments.

So what would have happened if I had invested my kids’ college fund following a dividend investing strategy? It is difficult to say exactly, but I can make some assumptions and see where it takes me.

Ground Rules
For simplicity, I will select five dividend stocks and purchase $1,000 in each and put $5,000 in VFINX using the closing price on September 30, 1997. Dividends will be held and reinvested on the last day of the year at the closing price. I will ignore commissions and taxes. Final valuation date is as of the end of November 2008, except for BAC (see below). Information was pulled from Yahoo Finance.

Stock Selection
This obviously is the most difficult portion and requires the most self-honesty. I will try to reason what stocks I would have purchased in 1997 without looking at their performance. Since it was for my kids’ education, I intentionally avoided the more risky stocks, including REITs. Here are the five stocks I selected and my thoughts as to why:

Johnson & Johnson (JNJ): For me the selection of JNJ and PG were no brainers. JNJ and PG are two stocks that have been cornerstones in virtually every dividend portfolio for decades.
Procter & Gamble Co. (PG): See above.
The Coca-Cola Company (KO): This was a little more difficult form an honesty stand-point. Without looking I suspect that Pepsi (PEP) out-performed KO during this period, but I owned KO in the past and would have likely chosen it over PEP.
Bank of America (BAC): Knowing that BAC cut its dividend, it was another difficult selection from an honesty perspective. Knowing what I know now, I would have selected BB&T (BBT), but BAC was the first bank I purchased, so I will go with it. BAC’s ending valuation date will be October 7th when I actually sold it.
Consolidated Edison, Inc. (ED): Having exhausted the no-brainers and likely choices, this was by far the most difficult selection. Since it was for my kids’ education, I targeted a safe stock. As such, I went with the first utility that I bought.

One other stock I considered was General Electric (GE). However, in the late 90′s I viewed it more as a growth stock. Let’s build the spreadsheet and crunch some numbers.

Results
First let me say that there is nothing definitive you can draw from this analysis – the scope is much too narrow. However, there are some interesting items to consider that could lead to a deeper analysis. With that said, I was somewhat surprised at the results. It was not a good decade for any of the investments that I looked at. The ones I thought would perform well, did not. Here is a summary of the S&P and the five dividend stocks:

S&P 500 (VFINX)
Appreciation as a % of Invested Basis: -10.44%
Total Shareholder Return: 0.90%
Total Dividends Reinvested: $1,168.53

Dividend Stocks In Total
Appreciation as a % of Invested Basis: -13.10%
Total Shareholder Return: 1.25%
Total Dividends Reinvested: $1,609.95

The dividend stocks earned more dividends than the S&P, but also lost more on invested capital. Overall, the return for the dividend stocks was a little over a quarter percentage point higher than the S&P 500. That somewhat surprised me; I expected it to be more. Looking at the individual stocks was quite interesting and not entirely what I expected:

Johnson & Johnson (JNJ)
Appreciation as a % of Invested Basis: -0.12%
Total Shareholder Return: 1.47%
Total Dividends Reinvested: $177.96

Procter & Gamble Co. (PG)
Appreciation as a % of Invested Basis: -7.41%
Total Shareholder Return: 0.46%
Total Dividends Reinvested: $136.52

The Coca-Cola Company (KO)
Appreciation as a % of Invested Basis: -20.77%
Total Shareholder Return: -0.73%
Total Dividends Reinvested: $163.21

Bank of America (BAC)
Appreciation as a % of Invested Basis: -52.09%
Total Shareholder Return: -4.35%
Total Dividends Reinvested: $270.61

Consolidated Edison, Inc. (ED)
Appreciation as a % of Invested Basis: 6.61%
Total Shareholder Return: 6.33%
Total Dividends Reinvested: $861.66

To be honest, I was surprised at how weak JNJ’s and PG’s performance were over the period. The entire performance of the group was carried by ED. With a -4.35% TSR, BAC actually held up better than I thought it would.

What If..
One case I looked at was substituting BBT for BAC. BBT’s performance was better than BAC’s but not dramatically. Here are the combined results with BBT in place of BAC:

Dividend Stocks In Total – BBT instead of BAC
Appreciation as a % of Invested Basis: -10.05 vs. -13.10%
Total Shareholder Return: 1.56% vs. 1.25%
Total Dividends Reinvested: $1,610.91 vs. $1,609.95

Conclusion
Contrary to my earlier statement, one valid conclusion can be drawn from this exercise. You should always analytically test your beliefs, because they may not holdup under the microscope.

If you want to see the spreadsheet I used to derive the above data, it is available on my Tools page as Div-Investing-vs-SandP.xls.

Full Disclosure: Long VFINX, PG, JNJ, KO, PEP, BBT and ED

This Sword Has Two Edges! *

D4L — Wed, 28 May 2008 10:30:00 +0000

Last Saturday in my article “You Can’t Beat the Herd by Following the Herd“, I promised to share a MSN Stock Screen that helped me identify some exceptional stocks, and got me into some trouble.

The D4L High Yield Stocks is a screen that I have used in the past to find some real jewels Note: You will likely not be able to view this screen unless you are using Internet Explorer. Here are the criteria used in this screen:

Dividend Yield >= 5.2 (no magic to 5.2%, I usually set it to 2-3 points above the MMA rate)
Dividend Yield: 5-Year Avg. >= 3.5 (~couple points below the current yield – looking for a deal)
5-Year Dividend Growth >= 0.1 (the company should be growing its dividend)
EPS Growth the Next 5 Years >= 0 (make sure the company isn’t dieing)
Rating >= 6 (on a 10 point scale this is slightly better than average)
Return Expectation >= Average (expected return better than average)
Risk Expectation <= Average (expected risk below average)
Mean Recommendation >= Hold (make sure analysts don’t know something we don’t)
Avg. Daily Vol. Last Qtr. >= 50,000 (should be liquid enough to handle my volumes)
12-Month EPS: Total Ops. >= 0 (looking for positive earnings)
Price/Cash Flow Ratio >= 0 (looking for positive cash flow)

As you can see this screen is geared toward finding stocks with a yield higher than its historical yield. In other words, a distressed stock. It is then our job dig deeper and understand why the stock is distressed and try to answer the tough questions.

Is this a temporary situation? Is the stock being unfairly penalized? Is the dividend at risk of being cut? If you can get to the right and desirable answers to these questions, then you have found a jewel in the rough. Some past jewels I have found with this screen include American Capital Strategies, Ltd. (ACAS), Commercial Net Lease Realty, Inc. (NNN) and Health Care Property Investors Inc. (HCP).

As indicated in the title to this article, this sword has two edges and can just as easily cut you if extreme caution is not exercised. It is easy to convince yourself that you are smarter than you actually are when things are going right. If you get sloppy or just make a bad decision stocks from this screen can go south very fast. Some of my past failures from this screen include Newcastle Investment Corp. (NCT), NovaStar Financial Inc. (NFI), and American Mortgage Acceptance Company (AMC).

Though the above failed purchases are long-gone, I look them each time I open my portfolio. As described in “How To Increase Your Portfolio’s Return“, keeping the sales/losses in my portfolio is a reality check for me and is really the only correct way of calculating a portfolios total return. You should have definite limits on the amount of risky stock in your portfolio. Greed and a downturn can hit you quickly. I learned my lesson the hard way, hopefully you won’t have to.

It is important to note: This screen is NOT a buy list. It provides a list of stocks to evaluate further. It is not unusual for most, if not all, stocks on from this screen to be rejected for one reason or another.

At the time of this writing, I owned the following stocks ACAS, NNN and HCP.

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You Can’t Beat the Herd by Following the Herd *

D4L — Sat, 24 May 2008 10:30:00 +0000

“You can’t beat the herd by following the herd.” If you have read this blog for any period of time you have likely seen me use the above statement.

As noted in “Fishing in the Bathtub“, the S&P 500 Dividend Aristocrats and Mergent’s Broad Dividend Achievers are two places I frequent when looking for potential dividend investments, as do most all dividend investors. But for my more risky higher-return dividend investments, I have to look elsewhere. One of these places is the MSN Stock Screener.

This allows me to define the minimum parameters that I am looking for and let the stock screener search the entire universe of available stocks for a match. I have found MSN Tools to be the most robust and capable on the Internet. Here are some of the items you can consider when running a MSN Stock Screen:

Company Basics: Includes Industry Name, Market Capitalization, Total Shares Outstanding, Number of Employees, Dow Jones Membership, S&P Index Membership, Exchange and State

Investment Return: Includes Return on Equity, Industry Average Return on Equity, Return on Invested Capital, Return on Assets, ROE: 5-Year Avg., ROI: 5-Year Avg. and ROA: 5-Year Avg.

Price Ratios: Includes Price/Book Value, Industry Average Price/Book Value, Revenue/Share, Book Value/Share, P/E Ratio: Current, +12 others

Mgmt. Efficiency: Includes Revenue Per Employee, Income Per Employee, Receivable Turnover, Inventory Turnover, +3 more

Financial Condition: Includes Debt To Equity Ratio, Current Ratio, Quick Ratio, Interest Coverage, +4 More

Dividends: Includes Latest Dividend Rate, Current Dividend Yield, Div. Yield: 5-Year Avg., +3 more

Trading & Volume: Includes Last Volume, Net Insider Transactions, 3-Month Relative Strength, +14 more

Growth Rates: Includes Annual EPS Growth Rate, 5-Year Dividend Growth, EPS Growth Year vs Year, +7 more

Stock Price History: Includes Previous Day’s Closing Price, Last Price, % Change Today, +12 more

Profit Margins: Includes Net Profit Margin, Gross Margin, Pre-Tax Margin, +7 more

Current Financials: Includes 12-Month Revenue, 12-Month Income: Cont. Ops., Latest Fiscal EPS, +3 more

Analysts Projections: Includes Current QTR Earnings Est, Current Yr Earnings Est, Mean Recommendation, +7 more

Advisor FYI: Includes 59 events in which an Advisor is issued such as a Stock Split, Receivables Up, Inventory Turn Increased, etc.

StockScouter Rating: Includes Rating, Size, Sector, Rick Expectation, Return Expectation, +8 more

As you can see this is a powerful tool. Next week I will share with you a stock screen that helped me identify some exceptional stocks, and got me into some trouble.

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Tools To Calculate Investment Returns *

D4L — Thu, 20 Mar 2008 10:49:00 +0000

The ability to track and calculate a total rate of return for your your portfolio, and subsets of it, is an important management tool. To calculate an annual and life-to-date rate of return for an individual stock, I will refer you to my article “The Winning Score – Part 2 of 2″. This same technique could be used for calculating a return on an entire portfolio, or subsets of it; however, it would be extremely cumbersome and time consuming. Besides, there are much better tools to do it such as the one I use, MSN’s Deluxe Portfolio at MoneyCentral (MSNDP).

If you have not yet selected a portfolio manager, I would recommend you take MSNDP for a test drive. It is by far the best online portfolio manager that I have found. MSNDP is fully customizable by the user. By my count, there are 83 unique items that can be tracked per security ranging from the usual symbol, price, volume, change, high, low, to the unusual % cash, % debt, % equity (for funds), bond type, coupon, yield to maturity (for bonds), low target price, beta, industry, risk, shares outstanding, (for equities), grant date, exercises, expirations (for employee stock options).

In addition, you can combine assets into accounts and track them as a group. I have set up the following asset groups in MSNDP:

Company Stock & Peers: Performance Shares issued to me by my employer and shares of peer companies that I have purchased
Company LTI: Share-based long-term incentives, such as company stock options and unvested restricted stock
Core: My core mutual fund holdings
Income Stocks: My dividend income stocks
Income ETFs: Income focused Exchange-Traded-Funds
Asset Allocation: Asset allocation focused ETFs
Roth IRA: My Roth Individual Retirement Account

Core, Income Stocks, Income ETFs and Asset Allocation noted above are more fully described in my “Process Overview and Asset Allocation” article.

With MSNDP year-to-date and life-to-date annualized returns can be calculated for the portfolio as a whole, the groups above, an individual holdings and a combination of the groups above. I often will look at Income Stocks and Income ETFs as a combined group. You view combined groups by hiding all groups except the ones you want to combine.

As discussed in yesterday’s post “How To Increase Your Portfolio’s Return“, I never remove sold securities. However, MSNDP will allow me to temporarily hide them and view the returns as if I had never bought and sold them (if only life had this option).

For me the most useful feature of MSNDP is the ability to export all the financial information to Excel. This information drives my two massive financial spreadsheets. MSNDP has so many more features that time won’t allow me to go into. One caveat though, being part of the Microsoft family, MSNDP does not work with Firefox. I use both IE and Firefox, so this is not a big deal for me.

What do you use to track and manage your portfolio?

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Updating the MMA Rate *

D4L — Sat, 16 Feb 2008 11:57:00 +0000

You may have noticed the Money Market Account (MMA) rate that I am using in my stock analyses has been dropping. It ended the year at 5.11% and is currently 4.61%. As noted in my Dividend Income vs. MMA post, I have historically used the highest rate of the MMAs that I personally own (realistic opportunity cost).

Ideally, the correct rate would be the effective rate over the next 20 years. I think using the current rate as a proxy for the next 20 years is fraught with errors. In periods of high rates, certain investments would be precluded due to the above average rate; while in periods of low rates, undeserving companies would potentially qualify as a buy.

Long-term I suspect the rate will average around 5%, but I currently have no empirical evidence to support this. The available historical rates are “national averages”, which are substantially lower than the actual rates I have personally experienced.

Given all the above, I have opted to build my own average going forward. Since 2007 ended with a rate of 5.11%, which is close to estimated long-term rate, I will use it as my first data point in building a long-term average. To minimize variability in the early years, I will limit swings in the rate to 0.5% (50 basis points) from the prior year’s calculated average. Thus, applying this methodology will define a 2008 range of 4.61% to 5.61%.

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New Tool For The Toolbox *

D4L — Thu, 10 Jan 2008 11:57:00 +0000

Jake at The Dividend Investing Blog has coded a New Dividend Tool. Jake described it as such:

Currently the Dividend Tool retrieves dividend data from Yahoo! Finance and shows you the history along with the percentage of dividend growth each year. It took me longer than I anticipated because I wanted to make the page dynamic so it doesn’t refresh the whole page each time you submit a stock symbol.

I have added it to my Dividends4Life Toolbox, you might want to add it to yours.

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Dividends4Life Toolbox *

D4L — Thu, 27 Dec 2007 12:23:00 +0000

Presented here are some models and tools you might find useful:

Excel Models:
D4L-Portfolio.xls (alt.1) is a subset of my Portfolio tab contained within one of my two financial spreadsheets. It illustrates several basic concepts as noted in these articles:

IRR as an investment metric, presented in The Winning Score – Part 2 of 2
Yield On Cost as an investment metric, presented in Tracking Yield On Cost

D4L-PreScreen.xls (alt.1, alt.2) from my article Pre-Screening Dividend Stocks – Part II. When done correctly, a thorough quantitative and qualitative evaluation takes a significant amount of time to complete. This model helps to determine which stocks are worthy of that level of evaluation.

JackJill.xls (alt.1) from my articles Passing the Torch – Part 1 of 2 and Passing the Torch – Part 2 of 2. This model will allow you to enter the value of your equity investments next to your age, your expected rate of return, along with future contributions and it will then estimate your equity balance at retirement.

10-Year-Inv-Calc.xls (alt.1) from my article Reaching Your 10-Year Investing Goal. A useful model to help you calculate and set a 10 year goal. The model is flexible and allows you to vary and experiment with most of the inputs.

D4L-Asset-Allocaton.xls (alt.1) from my article Asset Allocation Model. This model can be used as a starting point to measure your asset allocation over all your investment holdings using three different measures (origin, capitalization and sector).

20-Year-DCF.xls (alt.1) from my article Discounted Cash Flow Model (DCF). This model can be used to calculate a stocks fair-value based on estimated future cash flow, considering both dividends and ultimate sale after 20 years.

Div-Investing-vs-SandP.xls (alt.1) from my article Dividend Investing vs. S&P Index Fund. This spreadsheet will help you compare the historical returns of the S&P 500 vs. one or more individual dividend stocks.

Tools:
Quarterly Historic Dividend Payments: This link to Yahoo finance allows you to view the periodic dividend payments for a selected company.

Annual Historic Dividend Payments: This link to The Dividend Investing Blog allows you to view the annual dividend payments for a selected company.

MSN’s Deluxe Portfolio at MoneyCentral as discussed in the article Tools To Calculate Investment Returns.

D4L High Yield Stocks stock screen as discussed in This Sword Has Two Edges! (Note: This stock screen will likely only work with Internet Explorer.)