Dividends Value » ABT

Why Dividend Stocks Are Evil *

D4L — Wed, 30 Mar 2011 07:30:15 +0000

I can’t carry on anymore. The secret has become too much of a burden and it must be shared with the masses. This will shock some and enrage others, but it must be said, and I should be the one to say it. Dividend stocks are evil and they will eventually lead to the collapse of western civilization as we know it. There, I said it and here is why I believe it…

Dividend Stocks Empowers People

By starting early in life and building a portfolio of dividend growth stocks, people are empowering themselves and taking charge of their future. At first blush, this may not sound like a bad thing but consider the consequences. Lord Acton saw the problem more than a century ago when he stated “All power tends to corrupt; absolute power corrupts absolutely.” Power is meant for the government, not people. The government has a much more experience with corruption than individuals.

Dividend Stocks Weakens The Need For Government

Power is like mass, it can not be created or destroyed. Any gains in power in one area must be offset by a loss in another. When people make wise financial decisions and are empowered with a secure and independent future, this power must come from somewhere, and in this case it is to the detriment of our beloved government. The foundation of our modern government is a needy society beholden to its benevolent hand. If the masses aren’t relying on the government to sustain their meager existence in retirement, how can we continue to justify our current behemoth governmental infrastructure and expenditures. And even worse, a shift of power to the people could go to their heads and eventually lead to them demanding accountability from their elected officials. This is sacrilege!

Dividend Stocks Will Destroy The World Economy

If individuals start making wise financial decisions and investing in dividend stocks instead of buying “stuff” produced around the world. The world economy could collapse. Imagine what would happen if we stopped buying plastic stuff made in China – their government would not be able to fund all their military endeavors. This would leave them open to another student up rising in Tiananmen Square, and this time the government may not be able to silence the people.

7 Dividend Stocks To Bring Down Financial System

The financial system does not like radical change. Responsible behavior and fewer imports could lead to lead to smaller government and less debt. Less debt would keep interest rates low as buyers bid up the price of the remaining debt. Perpetually low interest rates would stimulate the economy and cause stress on the financial institutions as they tried in vain to keep up with a robust economy.

You’ve been warned. You will set in motion a cataclysmic chain of events if act responsibly and buy good dividend stocks such as these:

Abbott Laboratories (ABT) | Yield: 4.0%
Abbott Laboratories is a diversified life science company and is a leading maker of drugs, nutritional products, diabetes monitoring devices, and diagnostics.

Cincinnati Financial Corp. (CINF) | Yield: 4.9%
Cincinnati Financial Corp. markets primarily property and casualty coverage. It also conducts life insurance and asset management operations.

Colgate-Palmolive Co. (CL) | Yield: 3.0%
Colgate-Palmolive Company (Colgate) is a major consumer products company that markets oral, personal and household care, and pet nutrition products in more than 200 countries and territories.

ConocoPhillips (COP) | Yield: 3.5%
ConocoPhillips Co. is the fourth largest integrated oil company in the world, and the second largest in the U.S.

Kimberly-Clark Corporation (KMB) | Yield: 4.3%
Kimberly Clark Corp. is a global consumer products company that produces tissue, personal care and health care. Its brands include Huggies, Pull-Ups, Kotex, Depend, Kleenex, Scott and Kimberly-Clark.

Pepsico, Inc. (PEP) | Yield: 3.0%
PepsiCo, Inc. is a major international producer of branded beverage and snack food products.

AT&T, Inc. (T) | Yield: 6.1%
AT&T Inc. provides telephone and broadband service and holds full ownership of AT&T Mobility (formerly Cingular Wireless). AT&T Corp. was acquired in late 2005 and BellSouth in late 2006.

Now that the secret is out, what are you going to do? Will you continue to buy these evil stocks and build an independently secure future and allow our government and world economy to fail? As for me, I plan on spending the next couple of days digging my tongue out of my cheek and preparing for Friday’s holiday!

Full Disclosure: Long ABT, CINF, CL, COP, KMB, PEP, T. See a list of all my income holdings here.

(Photo Credit)

February 2011 Pocket Change Portfolio Performance Update *

D4L — Tue, 22 Mar 2011 11:30:23 +0000

The Pocket Change Portfolio (PCP) was first introduced on September 13, 2008 as a real money dividend income portfolio funded by the “pocket change” earned from my various online endeavors. Each month I report on the portfolio’s progress and update its holdings.

Dividends Received

Total dividends received during the month were $350.13, consisting of:

$96.32 AT&T, Inc. (T)
$42.40 Cincinnati Financial Corp. (CINF)
$ 9.43 Nucor Corporation (NUE)
$54.56 Abbott Laboratories (ABT)
$33.92 Colgate-Palmolive Co. (CL)
$36.65 Procter & Gamble Co. (PG)
$76.85 CenturyLink, Inc. (CTL)

Securities Purchased

The following securities were purchased during the month:

32 Shares Cincinnati Financial Corp. (CINF) providing $51.20 in annual dividend income
106 Shares CenturyLink, Inc. (CTL) providing $307.40 in annual dividend income

Annualized Dividend Income

Including the above purchases, my annual PCP dividend income is now $3,714.41 at the current dividend rates. This is up $367.82 from last month’s $3,346.59 amount. The PCP has never experienced a monthly decline in annualized dividend income.

Portfolio Returns

Month: 1.53%
Year-to-date: 0.83%
Life-to-date: 14.85% (annualized)

My PCP holdings are always available by selecting the Holdings option from the menu in the header. The next PCP update will be mid-April.

Full Disclosure: Long all the aforementioned securities. See a list of all my income holdings here.

(Photo: Arcelia Vanasse)

List of 195 Dividend Stocks Every Income Investor Should Know About *

D4L — Wed, 09 Mar 2011 07:30:16 +0000

In 2009, I introduced the Stock Ideas list and it has proven to be immensely popular. The list consists of Dividend Aristocrats, US Broad Dividend Achievers and U.S. Dividend Champions. Duplications in the above lists are eliminated and stocks are crossed out when I learn that they have either cut their dividend or fail to raise it. Here is some information on each of the constituent lists and some highlights on this year’s changes:

Dividend Aristocrats: Companies in the S&P 500 that have followed a policy of consistently increasing dividends every year for at least 25 consecutive years. As the name denotes, these are the best of the best – the blue blood stocks, including names like:

US Broad Dividend Achievers: Is comprised of companies incorporated in the United States or its territories, trade on the NYSE, NASDAQ or AMEX, and have increased their annual regular dividend payments for the last ten or more consecutive years. Notable names on this list include:

The U.S. Dividend Champions: Is maintained by Dave Fish of MoneyPaper. The list is updated monthly and located at the The Drip Investing Resource Center. Like the Dividend Aristocrats above the Dividend Champions list looks for companies that have increased their dividend for at least 25 consecutive years. However, since S&P 500 membership is not a requirement, the list is larger than the Dividend Aristocrats list and also includes small-cap companies.

- Bowl America (BWL.A) | Yield: 5.0%
- Conn. Water Service (CTWS) | Yield: 3.8%
- Weyco Group Inc. (WEYS) | Yield: 2.6%

Membership in the Stock Ideas list declined in this edition, but it was significantly less than what was experience in the prior year. Overall the number of constituents fell to 198 in the 2011 Stock Ideas list from 218 stocks in the 2010 list. There were 319 stocks in 2009. There were 28 companies that fell off the list, including these prominent stocks:

- Eli Lilly & Co. (LLY)
- Paychex Inc. (PAYX)
- Progress Energy Inc. (PGN)
- SUPERVALU Inc. (SVU)
- Integrys Energy Group, Inc. (TEG)

The news wasn’t all bad. Partially offsetting the 28 companies that fell off the list were 5 new companies joining the Dividend Stock Ideas List. Some of these aren’t household names, not yet at least, but here are some names we will likely be seeing in the future:

You can see the entire Dividend Stock Idea List here. Remember, not every stock listed here is a great dividend investment, but virtually all great dividend investments are on this list.

Full Disclosure: Long ABT, KO, JNJ, MCD, MMM, PG, WMT, CVX, NUE, LLY, TEG. See a list of all my income holdings here.

(Photo Credit)

23 Stocks With A Vision Of Higher Dividends *

D4L — Fri, 25 Feb 2011 07:30:59 +0000

To succeed as a dividend growth investor you must identify and purchase stocks with sustainable dividend growth. Inertia is powerful force. Once a company has established a track record of growing its dividend over the decades and developed a shareholder base that expects higher dividends each year, it becomes increasing difficult for management to cut or fail to raise their dividend. No CEO of this type of company wants a dividend cut to occur on his or her watch.

Here are a few select companies that have recently followed through on their vision of providing increased cash dividends to their shareholders:

Gap Inc. (GPS) operates as a specialty retailing company. February 24th the company increased its quarterly dividend 13% to $0.1125/share. The dividend is payable on or after April 27, 2011 to shareholders of record at the close of business on April 6, 2011. The yield based on the new payout is 2.0%.

Chubb Corporation (CB) provides property and casualty insurance to businesses and individuals. February 24th the company increased its quarterly dividend 5.4% to $0.39/share. The dividend is payable April 5, 2011 to shareholders of record on March 18, 2011. The yield based on the new payout is 2.6%.

BlackRock, Inc. (BLK) is a leader in investment management, risk management and advisory services for institutional and retail clients worldwide. February 24th the company increased its quarterly dividend 37.5% to $1.375/share. The dividend is payable March 23, 2011 to shareholders of record at the close of business on March 7, 2011. The yield based on the new payout is 2.7%.

Colgate-Palmolive Company (CL) is a leading global consumer products company, tightly focused on Oral Care, Personal Care, Home Care and Pet Nutrition. February 24th the company increased its quarterly dividend 9% to $0.58/share. The Company has paid uninterrupted dividends on its common stock since 1895. The yield based on the new payout is 3.0%.

TECO Energy, Inc. (TE) is an energy-related holding company and its principal subsidiary, Tampa Electric Company, is a regulated utility in Florida with both electric and gas divisions. February 24th the company increased its quarterly dividend 3.7% to $0.215/share. The yield based on the new payout is 4.9%.

Southwest Gas Corporation (SWX) provides natural gas service to approximately 1.8 million customers in Arizona, Nevada, and California. February 24th the company increased its quarterly dividend to $0.265/share. The Company has paid quarterly dividends continuously since going public in 1956, and has raised its dividend in each of the past five years. The yield based on the new payout is 2.8%.

WesBanco, Inc. (WSBC) is a multi-state bank holding company of $5.4 billion in total assets providing banking services through 112 locations and 132 ATMs in West Virginia, Ohio and Pennsylvania. February 24th the company increased its quarterly dividend 7.1% to $0.15 per common share from the previous quarterly dividend rate of $0.14/share. The increased dividend will be payable on April 1, 2011 to shareholders of record on March 11, 2011. The yield based on the new payout is 4.6%.

Old Republic International Corporation (ORI) provides risk management services for a wide variety of coverages, principally in the property and liability, mortgage guaranty and title insurance fields. February 24th the company increased its quarterly dividend to $0.1750/share. The dividend is payable March 15, 2011, to shareholders of record on March 4, 2011. This latest dividend increase marks the 30th consecutive year that Old Republic has boosted its cash dividend rate, and 2011 becomes the 30th year of uninterrupted cash dividend payments. The yield based on the new payout is 5.7%.

First PacTrust Bancorp, Inc. (FPTB) provides various financial services primarily in San Diego and Riverside Counties, California. February 24th the company increased its quarterly dividend 5% to $0.105/share. The dividend will be payable on April 1, 2011 to shareholders of record as of March 11, 2011. The yield based on the new payout is 2.8%.

Essex Property Trust, Inc. (ESS) a real estate investment trust (REIT) with apartment communities located in targeted West Coast markets. February 23rd the company increased its quarterly dividend to $1.04/share. The dividend distribution is payable on April 15, 2011 to shareholders of record as of March 31, 2011 The yield based on the new payout is 3.5%

The Westar Energy, Inc. (WR) is the largest electric utility in Kansas, providing electric service to about 687,000 customers in the state. February 23rd the company increased its quarterly dividend 3% to $0.32/share. The dividend is payable April 1, 2011 on the company’s common stock. The yield based on the new payout is 4.9%

Nordstrom, Inc. (JWN) is one of the nation’s leading fashion specialty retailers, with 204 stores located in 28 states. February 23rd the company increased its quarterly dividend 15% to $0.23/share. The dividend is payable on March 15, 2011, to shareholders of record on March 4, 2011. The yield based on the new payout is 2.1%

Packaging Corporation of America (PKG) is the fifth largest producer of containerboard and corrugated packaging products in the United States. February 22st the company increased its quarterly dividend 33% to $0.20/share. The dividendis payable on April 15, 2011 to shareholders of record as of March 15, 2011. The yield based on the new payout is 2.8%

B&G Foods, Inc. (BGS) and its subsidiaries manufacture, sell and distribute a diversified portfolio of high-quality, shelf-table foods across the United States, Canada and Puerto Rico. February 22st the company increased its quarterly dividend 24% to $0.21/stock. The dividend is payable on May 2, 2011 to shareholders of record as of March 31, 2011. This is the twenty-sixth consecutive quarterly dividend declared by the Board of Directors since B&G Foods’ initial public offering in October 2004. The yield based on the new payout is 6.0%.

The Allstate Corp. (ALL) is the nation’s largest publicly held personal lines insurer. February 22st the company increased its quarterly dividend to $0.21/share. The dividend is payable in on April 1, 2011 to stockholders of record at the close of business on March 11, 2011. The yield based on the new payout is 2.7%.

Sempra Energy (SRE) is a Fortune 500 energy services holding company with 2009 revenues of more than $8 billion. February 22st the company increased its quarterly dividend 23% to $0.48/share. The dividend is payable April 15, 2011, to shareholders of record on March 18, 2011. The yield based on the new payout is 3.6%.

The Home Depot (HD) is the world’s largest home improvement retailer. February 22st the company increased its quarterly dividend 6% to $0.25/share. “As a testament to our confidence in the Company’s strategic initiatives and our commitment to returning capital to our shareholders, the board increased the dividend for the second consecutive year,” Frank Blake, chairman & CEO. “It is our intent to increase our dividend every year. Our longer-term targeted dividend payout ratio is 40 percent.” The dividend is payable on March 24, 2011, to shareholders of record on the close of business on March 10, 2011. This is the 96th consecutive quarter the Company has paid a cash dividend. The yield based on the new payout is 2.7%.

Flowserve Corp. (FLS) is one of the world’s leading providers of fluid motion and control products and services. February 21st the company increased its quarterly dividend 10.3% to $0.32/share. The dividend is payable on April 14, 2011, to shareholders of record as of the close of business on March 31, 2011. The yield based on the new payout is 1.1%.

Gentex Corporation (GNTX) is the leading supplier of automatic-dimming rearview mirrors and camera-based active safety systems to the global automotive industry. February 21st the company increased its quarterly dividend 9% to $0.12/share. The dividend is payable April 21, 2011, to shareholders of record of the common stock at the close of business on April 7, 2011. The yield based on the new payout is 1.5%.

Genuine Parts Co. (GPC) is a distributor of automotive replacement parts in the U.S., Canada and Mexico. February 21st the company increased its quarterly dividend 10% to $0.45/share is payable April 1, 2011 to shareholders of record March 11, 2011. GPC has paid a cash dividend every year since going public in 1948, and 2011 marks the 55th consecutive year of increased dividends paid to shareholders. The yield based on the new payout is 3.4%.

Abbott (ABT) is a global, broad-based health care company devoted to the discovery, development, manufacture and marketing of pharmaceuticals and medical products, including nutritionals, devices and diagnostics. February 18th the company increased its quarterly dividend 9% to to $0.48/share. This marks the 39th consecutive year that Abbott has increased its dividend payout and the 349th consecutive quarterly dividend to be paid by Abbott since 1924. The dividend is payable May 16, 2011, to shareholders of record at the close of business on April 15, 2011. The yield based on the new payout is 4.1%.

Questar Corp.’s (STR) is a Rockies-based integrated natural gas company with an enterprise value of about $4.3 billion and three complementary lines of business. February 18th the company increased its quarterly dividend 9% to $0.1525/share. The dividend is payable March 21, 2011 to shareholders of record on March 4, 2011. This is the company’s 265th consecutive quarterly dividend. Questar has increased its dividend 38 times in the last 39 years. The yield based on the new payout is 3.4%.

MOCON, Inc. (MOCO) is a leading provider of detectors, instruments, systems and consulting services to research laboratories, production facilities, and quality control and safety departments. February 18th the company increased its quarterly dividend 5% to $0.10/share. The dividend is payable on May 20, 2011, to shareholders of record on May 6, 2011. The yield based on the new payout is 3.2%.

Selecting stocks with increasing dividends is critical for an income growth strategy. The above list contains stocks that recently raised their dividends; it is not a list of recommend buys. As always, due diligence should be performed before buying or selling any stock. For a list of stocks with a long string of consecutive cash dividend increases, see this list.

Full Disclosure: Long ABT, CL, GPC. See a list of all my income holdings here.

(Photo Credit)

Becton, Dickinson and Co. (BDX) Dividend Stock Analysis *

D4L — Mon, 31 Jan 2011 07:30:59 +0000

This article originally appeared on The DIV-Net January 24, 2011.

Linked here is a detailed quantitative analysis of Becton, Dickinson and Co. (BDX). Below are some highlights from the above linked analysis:

Company Description: Becton, Dickinson and Co provides a wide range of medical devices and diagnostic products used in hospitals, doctors’ offices, research labs and other settings.

Fair Value: In calculating fair value, I consider the NPV MMA Differential Fair Value along with these four calculations of fair value, see page 2 of the linked PDF for a detailed description:

1. Avg. High Yield Price
2. 20-Year DCF Price
3. Avg. P/E Price
4. Graham Number

BDX is trading at a discount to 1.), 2.) and 3.) above. The stock is trading at a slight discount to its calculated fair value of $86.55. BDX earned a Star in this section since it is trading at a fair value.

Dividend Analytical Data: In this section there are three possible Stars and three key metrics, see page 2 of the linked PDF for a detailed description:

1. Free Cash Flow Payout
2. Debt To Total Capital
3. Key Metrics
4. Dividend Growth Rate
5. Years of Div. Growth
6. Rolling 4-yr Div. > 15%

BDX earned two Stars in this section for 1.) and 2.) above. A Star was earned since the Free Cash Flow payout ratio was less than 60% and there were no negative Free Cash Flows over the last 10 years. The stock earned a Star as a result of its most recent Debt to Total Capital being less than 45%. The company has paid a cash dividend to shareholders every year since 1926 and has increased its dividend payments for 38 consecutive years.

Dividend Income vs. MMA: Why would you assume the equity risk and invest in a dividend stock if you could earn a better return in a much less risky money market account (MMA)? This section compares the earning ability of this stock with a high yield MMA. Two items are considered in this section, see page 2 of the linked PDF for a detailed description:

1. NPV MMA Diff.
2. Years to > MMA

BDX earned a Star in this section for its NPV MMA Diff. of the $549. This amount is in excess of the $500 target I look for in a stock that has increased dividends as long as BDX has. If BDX grows its dividend at 10.8% per year, it will take 8 years to equal a MMA yielding an estimated 20-year average rate of 3.9%.

Memberships and Peers: BDX is a member of the S&P 500, a Dividend Aristocrat and a member of the Broad Dividend Achievers™ Index. The company’s peer group includes: Abbott Laboratories (ABT) with a 3.7% yield, Baxter International Inc. (BAX) with a 2.5% yield and Medtronic, Inc. (MDT) with a 2.4% yield.

Conclusion: BDX earned one Star in the Fair Value section, earned two Stars in the Dividend Analytical Data section and earned one Star in the Dividend Income vs. MMA section for a total of four Stars. This quantitatively ranks BDX as a 4 Star-Buy.

Using my D4L-PreScreen.xls model, I determined the share price would need to increase to $85.23 before BDX’s NPV MMA Differential decreased to the $500 minimum that I look for in a stock with 38 years of consecutive dividend increases. At that price the stock would yield 1.92%.

Resetting the D4L-PreScreen.xls model and solving for the dividend growth rate needed to generate the target $500 NPV MMA Differential, the calculated rate is 10.6%. This dividend growth rate is slightly below the 10.8% used in this analysis, thus providing only a minimal margin of safety. BDX has a risk rating of 1.00 which classifies it as a low risk stock.

Operating in the competitive medical equipment market, BDX generally has enjoyed more favorable demand and pricing than others in the medical equipment industry. The company’s needle and surgical business has provided investors with robust returns for years. As a result of BDX’s innovation and judicial deployment of capital, its business continued to prosper during the economic downturn. The stock is favorably priced below my buy price of $86.55. However, I hesitate to buy with its yield below 2.0%. For additional information, including the stock’s dividend history, please refer to its data page.

Disclaimer: Material presented here is for informational purposes only. The above quantitative stock analysis, including the Star rating, is mechanically calculated and is based on historical information. The analysis assumes the stock will perform in the future as it has in the past. This is generally never true. Before buying or selling any stock you should do your own research and reach your own conclusion. See my Disclaimer for more information.

Full Disclosure: At the time of this writing, I held no position in BDX (0.0% of my Income Portfolio). I held positions in ABT and MDT. See a list of all my income holdings here.

Related Articles:

- Harleysville Group Inc. (HGIC) Dividend Stock Analysis
- Nucor Corporation (NUE) Dividend Stock Analysis
- AFLAC Incorporated (AFL) Dividend Stock Analysis
- Cincinnati Financial Corp. (CINF) Dividend Stock Analysis
- More Stock Analysis

What Will Your Dividend Income Be When You Retire? *

D4L — Wed, 19 Jan 2011 07:30:23 +0000

We all want a secure retirement where we don’t have to worry about making ends meet. After spending 30 or more years in the workforce, its time to kick back and enjoy our golden years. Unfortunately, many people don’t plan for retirement and just assume that their company pension, 401(k) or Social Security will take care of them. That’s a dangerous assumption and a recipe for disaster.

Here are some eye-opening statistics from saperston.com:

The latest census figures indicate that only one in every ten Americans today is financially prepared to retire when they reach age 65. Here are a few other facts on retirement gathered from a variety of sources.

* Forty-seven percent of U.S. households are not covered by either a defined benefit or defined contribution plan (The WEFA Group). Twenty-five percent of employees who qualify for 401(k) plans do not contribute to them (an estimate from Buck Consultants).

* At the end of WWII, there were 42 workers paying into Social Security for each person receiving benefits. Today, barely three people contribute for each recipient. Projections are that by 2030, when most baby boomers will have retired, just two working people will contribute for each person receiving benefits (Social Security Administration, Trust Funds Report, 1992).

* Social Security benefits will replace only 16% of the income of married couples earning $50,000 to $100,000 and only 9.5% of the income of married couples earning $100,000 and only 9.5% of the income of married couples earning $100,000-plus (Office of Research and Economic Analysis, Pension and Welfare Administration).

* Sixty-nine percent of American adults aged 25 to 44 expect to retire in the “traditional” sense of spending retirement in leisure. But reality hits home as they near retirement-63% of 45- to 54-year-olds expect a retirement of leisure, and only 49% of those 55 or older say the same (Aetna Life Insurance and Annuity Co.).

* Working people tend to think their retirement lifestyle will be better than their current lifestyle, but retirees report their standard of living has declined. Example: Twenty-six percent of workers say they are “just making ends meet,” but only 16% think they will live this way in retirement. Of retirees, 20% are “just making ends meet,” while 16% describe their pre-retirement lifestyle this way (Employee Benefit Research Institute).

* A Baby Boom Retirement Savings Index, published each year by Merrill Lynch, shows that as of November ’94, baby boomers were saving only 38.2% of what they will need to maintain growth-adjusted living standards in retirement. The index is basically unchanged in the three years the index has been published (Merrill Lynch Strategic Planning).

It doesn’t have be this way. A little knowledge and planning will get you on the road to financial security. Often the first question is ‘what will I make in retirement if I start saving today?’ This can be difficult to answer given all the uncertainties in the future. However, I have made it easy for you by setting up a Google Documents Retirement Calculator Spreadsheet that can be used to model your projected retirement income from dividend stocks. Please do NOT edit the spreadsheet, only enter values in the yellow cells and leave the calculator usable for the next person. For those with access to Excel or Open Office, you can download the spreadsheet here.

The spreadsheet is really easy to use. It has three relevant tabs: 1.) Input, 2.) Results and 3.) Details. Let’s work through a simple example. On the input tab enter:

Current Age: 20
Retirement Age: 65

Income Stocks Current Value: 5000
Income Stocks Cost Basis: 4000 (What you paid for the stocks)
Income Stocks Annual Dividend Income: 225
Annual Contribution: 1200 (or $100 per month)

Dividend Growth Rate: 6%
Contribution Growth Rate: 4% (e.g. your annual raise from your employer)
Inflation Rate: 3% (important, but often overlooked)

Enter this in then go to the Results Tab. Here you will see what things will look like at retirement if all your assumptions are correct. In this case:

In 45 years when you retire at age 65:

- Your portfolio’s market value will be: $2,334,233
- Your portfolio’s cost basis will be: $1,061,365

- Your portfolio’s current yield will be: 4.50%
- Your portfolio’s yield-on-cost will be: 9.90%

- Your portfolio’s annual income will be: $105,040
- The above income In today’s dollars will be: $27,777

The 4.5% yield may seem high, but it is an average yield. Consider the following basket of stocks that would give you about a 4.5% yield and 6% dividend growth rate:

	Current	Growth
Company	Yield	Rate
Abbott Labs (ABT)	3.67%	8.27%
Colgate (CL)	2.59%	12.48%
CenturyLink, Inc. (CTL)	6.55%	3.57%
Harleysville Grp (HGIC)	3.65%	8.00%
J&J (JNJ)	3.37%	8.42%
Leggett & Platt (LEG)	4.62%	2.96%
Procter & Gamble (PG)	2.94%	6.96%
AT&T, Inc. (T)	5.91%	2.44%
Universal Health (UHT)	6.61%	1.47%
Average	4.44%	6.06%

A $2 million dollar portfolio paying me $105 thousand a year sounds pretty good, but look at the last line. Could you live on $27,777 today? With 3% annual inflation that $105 thousand in 45 years has the same purchasing power as $27 thousand dollars today. Ouch!

It sounds bad but the reality is that if you know this is coming you can plan for it. After the kids are out of college and your house is paid for you will have a lot more disposable income to put toward retirement. The problem is that many people don’t realize they have a problem and that disposable income goes toward European trips, vacation homes, bass boats, et. al. Also, there will likely be other retirement income sources, such as a pension, 401(k), social security, etc.

Remember, everyone has a retirement plan – some have a thoughtful roadmap that they are following, while the others, by default, are planning to fail. Which group are you in?

Full Disclosure: Long ABT, CL, CTL, HGIC, JNJ, LEG, PG, T, UHT. See a list of all my income holdings here.

(Photo: Steve Woods)

10 Under-Valued Dividend Stocks *

D4L — Wed, 05 Jan 2011 07:30:59 +0000

By many measures, 2010 was a great year for dividend growth stocks. There were far fewer dividend cuts and fewer companies that failed to raise their dividends at the expected time. From a valuation standpoint dividend stocks performed quite well, with many income portfolios outperforming the S&P 500.

The down side to this is that great values are harder to find. However, that is not to say they aren’t still out there. Of the 198 stocks I track, only 29 (15%) are trading below my calculated fair value, up from 7% this time last year. Here are some of the more interesting ones…

Becton, Dickinson and Co. (BDX) provides a wide range of medical devices and diagnostic products used in hospitals, doctors’ offices, research labs and other settings.
Fair Value: $109.88 | Recent Price: $84.73 | Yield: 1.6%

Owens & Minor, Inc. (OMI) is a leading domestic distributor of medical and surgical supplies to the acute care market, a health care supply chain management company, and a direct-to-consumer (DTC) supplier of testing and monitoring supplies for diabetes.
Fair Value: $35.94 | Recent Price: $29.56 | Yield: 2.4%

Wal-Mart Stores, Inc. (WMT) is the largest retailer in North America. The company operates retail stores in various formats worldwide. It operates through three segments: Wal-Mart Stores, Sam’s Club, and International.
Fair Value: $63.69 | Recent Price: $54.56 | Yield: 2.2%

Abbott Laboratories (ABT) is a diversified life science company and is a leading maker of drugs, nutritional products, diabetes monitoring devices, and diagnostics.
Fair Value: $55.43 | Recent Price: $47.82 | Yield: 3.6%

Colgate-Palmolive (CL) is a major consumer products company that markets oral, personal and household care, and pet nutrition products in more than 200 countries and territories.
Fair Value: $91.57 | Recent Price: $79.79 | Yield: 2.5%

Johnson & Johnson (JNJ) is a leader in the pharmaceutical, medical device and consumer products industries.
Fair Value: $70.24 | Recent Price: $62.82 | Yield: 3.4%

Walgreen Company (WAG) is the largest U.S. retail drug chain in terms of revenues, this company operates more than 8,000 drug stores throughout the U.S. and Puerto Rico.
Fair Value: $43.77 | Recent Price: $39.32 | Yield: 1.50%

Medtronic Inc. (MDT) is a global medical device manufacturer with leadership positions in the pacemaker, defibrillator, orthopedic, diabetes management, and other medical markets.
Fair Value: $41.34 | Recent Price: $37.41 | Yield: 2.4%

Harleysville Group Inc. (HGIC) underwrites a broad array of personal and commercial coverages. These insurance coverages are marketed primarily in the Eastern and Midwestern United States.
Fair Value: $41.10 | Recent Price: $37.39 | Yield: 3.6%

Microsoft Corporation (MSFT) is the world’s largest software company, develops PC software, including the Windows operating system and the Office application suite.
Fair Value: $28.55 | Recent Price: $27.98 | Yield: 2.3%

I calculate Fair Value weighing The Mid-2 Price and the NPV MMA Price. The wieght depends on where we are in the cycle. Currently it is weighted as 25% Mid-2 price + 75% NPV MMA price. The Mid-2 Price considers four fair value calculations, Avg. High Yield Price, 20-Year DCF Price, Avg. P/E Price and Graham Number, the highest and lowest fair values are excluded and the remaining two calculations are averaged to calculate the Mid-2 price. The NPV MMA Price is where the NPV MMA value equals the NPV MMA target.

Needless to say, we need to consider a lot more than just valuation when making a stock purchase. As dividend growth investors, I would argue that dividend fundamentals are more important than valuation. As long-term buy and hold investors, we can over-come paying too much for a great stock with time. However, time is unlikely to help a fairly valued stock with poor dividend fundamentals.

Full Disclosure: Long OMI, WMT, ABT, CL, JNJ, MDT, HGIC. See a list of all my income holdings here.

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10 Stocks Expected to Grow Their Dividends in 2011 *

D4L — Fri, 31 Dec 2010 07:30:47 +0000

In this space we normally look at companies that have recently raised their dividends. However, as the year draws to a close there were very few companies of note increasing their dividends this week. With that, I thought it would be interesting to see who were the big dividend raisers in 2010 and what we might see in 2011. Here are ten companies for your consideration:

Abbott Laboratories (ABT) in April 2010 raised its dividend 10% to $0.44/share from $0.40/share. In April 2009 it raised its dividend 11%. ABT has increased its dividend for 38 consecutive years and I expect them to do so again next year. The 2011 increase should be similar to the 2010 increase, or possibly higher, since the company’s 12-month trailing free cash flow is up significantly compared to 2009. I project a 2011 increase of 10%. The stock is currently yielding 3.7%.

Kimberly-Clark Corp. (KMB) in March 2010 raised its dividend 10% to $0.66/share from $0.60/share. In 2009 it raised its dividend 3.4%. KMB has increased its dividend for 38 consecutive years and I expect them to do so again next year. I project 2011 be lower than the 2010 increase since the company’s 12-month trailing free cash flow is down from the 2009 high. I project a 2011 increase of 8%. The stock is currently yielding 4.2%.

Clorox Company (CLX) in July 2010 raised its dividend 10% to $0.55/share from $0.50/share. In 2009 it raised its dividend 8.7%. CLX has increased its dividend for 33 consecutive years and I expect them to do so again next year. I project the 2011 increase will be similar to the 2010 increase since the company’s 12-month trailing free cash flow is flat with 2009. I project a 2011 increase of 10%. The stock is currently yielding 3.5%.

Johnson & Johnson (JNJ) in May 2010 raised its dividend 10.2% to $0.54/share from $0.49/share. In 2009 it raised its dividend 6.5%. JNJ has increased its dividend for 48 consecutive years and I expect them to do so again next year. I project the 2011 increase will be higher than the 2010 increase since the company’s 12-month trailing free cash flow is up from 2009. I project a 2011 increase of 12%. The stock is currently yielding 3.5%.

McDonald’s Corp. (MCD) in November 2010 raised its dividend 10.9% to $0.61/share from $0.55/share. In 2009 it raised its dividend 10%. MCD has increased its dividend for 34 consecutive years and I expect them to do so again next year. I project the 2011 increase will be lower than the 2010 increase since the company’s 12-month trailing free cash flow growth is less than the 2010 dividend increase. I project a 2011 increase of 7%. The stock is currently yielding 3.5%.

Wal-Mart Stores Inc. (WMT) in March 2010 raised its dividend 11% to $0.3025/share from $0.2725/share. In 2009 it raised its dividend 14.7%. WMT has increased its dividend for 36 consecutive years and I expect them to do so again next year. I project the 2011 increase will be lower than the 2010 increase since the company’s 12-month trailing free cash flow growth is less than the 2010 dividend increase. I project a 2011 increase of 5%. The stock is currently yielding 2.3%.

Eaton Vance Corp. (EV) in October 2010 raised its dividend 12.5% to $0.18/share from $0.16/share. In 2009 it raised its dividend 3.2%. EV has increased its dividend for 30 consecutive years and I expect them to do so again next year. I project the 2011 increase will be similar to the 2010 increase since the company’s 12-month trailing free cash flow is similar to 2010. I project a 2011 increase of 12%. The stock is currently yielding 2.3%.

Colgate-Palmolive Co. (CL) in March 2010 raised its dividend 20% to $0.53/share from $0.44/share. In 2009 it raised its dividend 10%. CL has increased its dividend for 47 consecutive years and I expect them to do so again next year. I project the 2011 increase will be lower than the 2010 increase since the company’s 12-month trailing free cash flow growth is lower that 2010′s growth. I project a 2011 increase of 15%. The stock is currently yielding 2.6%.

Walgreen Company (WAG) in March 2010 raised its dividend 27% to $0.175/share from $0.1375/share. In 2009 it raised its dividend 22%. WAG has increased its dividend for 35 consecutive years and I expect them to do so again next year. I project the 2011 increase will be lower than the 2010 increase since the company’s 12-month trailing free cash flow growth is less than the 2010 dividend increase. I project a 2011 increase of 12%. The stock is currently yielding 1.8%.

Target Corp. (TGT) in August 2010 raised its dividend 47% to $0.25/share from $0.17/share. In 2009 it raised its dividend 6.2%. TGT has increased its dividend for 43 consecutive years and I expect them to do so again next year. I project the 2011 increase will be lower than the 2010 increase since the company’s 12-month trailing free cash declined from the the 2010 level. I project a 2011 increase of 7%. The stock is currently yielding 1.7%.

Obviously, the above increases are pure speculation on my part. But in a world where cash is king, somehow great companies always find a way to increase their dividends each year.

Full Disclosure: Long ABT, KMB, CLX, JNJ, MCD, WMT, CL. See a list of all my income holdings here.

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Dividend Stocks vs. a Safe Distribution Rate *

D4L — Wed, 29 Dec 2010 07:30:39 +0000

One of the most interesting questions that often comes up is “How much can you safely withdraw each year from your retirement portfolio?” In 1995, Peter Lynch wrote that a 7% annual withdrawal rate would be prudent for an all-stock portfolio. He later retracted his analysis when financial columnist Scott Burns proved that a 7% withdrawal rate could put you back into the work force just to make ends meet.

There is not a lot of research in this area since most people spend their time contemplating capital accumulation, not spending it. However, there are a few studies on “safe” withdrawal rates. Let’s look at a few of them and consider what could be a better alternative…

The Bengen Study

In February 1997, the Wall Street Journal columnist Jonathan Clements reported on a study by San Diego based financial planner William Bengen. Bengen looked at year-by-year returns since 1925 for a 50/50 stock/bond portfolio. He assumed half the portfolio was in the S&P 500 and half in intermediate term government bonds. Using a 30 year holding period, he calculated that a 4.1% withdrawal rate would allow you to survive the worst market declines.

The Harvard Study

In 1973, Harvard University did a study to determine how much they could safely withdraw from their endowment fund without eroding the principal. Assuming a portfolio of 50% stocks and 50% bonds and cash, Harvard’s analysts calculated they could withdraw 4% the first year and then adjust the subsequent year’s withdrawals for inflation. For example, if there was 10% inflation, the second year’s withdrawal would be 4.4% of the initial (i.e., first year) asset value.

The Trinity Study

Dallas Morning News columnist Scott Burns has written extensively on a “safe” withdrawal study by three Trinity University researchers. The Trinity Study measures the “success rate” of various portfolios from 1926 to 1995. The “success rate” is the percent of time a retiree could sustain a given withdrawal rate without depleting his retirement assets. The optimal asset mix is 75% stock/25% long term corporate bonds. For a 30 year payout period and a 4% withdrawal rate, this mix had a 98% success rate. At a 3% withdrawal rate, the 75/25 mix had a 100% success rate. Interpolating these results would give you a “safe” withdrawal rate of slightly less than 4%, virtually identical to the Harvard study.

So it seems that 4% is the number that all these studies are pointing to based on on historical data. But is it a safe number if you retire today? More recently Burns wrote:

The established safe-withdrawal-rate rules of thumb are based on long periods of time in which yields were higher than they are today and stock valuations were lower. A growing school of thought believes future withdrawal rates should be reduced to reflect expected lower future returns. This would knock another 1.5 to 2 percentage points off the safe withdrawal rate.

You must also consider is that these studies are based on investment returns before expenses. If you’re paying an investment advisor an annual fee of 2% of assets and he has you invested in no-load mutual funds with a 0.5% expense ratio, your annual expenses are 2.5%. Your “safe” withdrawal rate is is now 2.5% lower than what you previously thought.

Dividend Growth Stocks: A Better Way

When I retire, I want a high degree of assurance that I won’t run out of money, have to start a second career or develop a taste for cheap dog food. I plan on achieving my goal of an ever growing income with a diversified portfolio of high-quality dividend stocks. Why would I settle for trying to live on as little as 1.5% to 4% of my portfolio, when I can build a portfolio of dividend paying stocks that will provide for my needs without depleting the principle. Here are several stocks that I plan to rely on for decades to come:

Abbott Laboratories (ABT) | Dividend Growth: 8.3%| Yield: 3.6%
ABT is a diversified life science company and is a leading maker of drugs, nutritional products, diabetes monitoring devices, and diagnostics.

Genuine Parts Co. (GPC) | Dividend Growth: 2.5%| Yield: 3.2%
GPC is a leading wholesale distributor of automotive replacement parts, industrial parts and supplies, and office products.

Harleysville Group Inc. (HGIC) | Dividend Growth: 8.0%| Yield: 3.7%
HGIC underwrites a broad array of personal and commercial coverages. These insurance coverages are marketed primarily in the Eastern and Midwestern United States.

Johnson & Johnson (JNJ) | Dividend Growth: 8.4%| Yield: 3.4%
JNJ is a leader in the pharmaceutical, medical device and consumer products industries.

The Coca-Cola Company (KO) | Dividend Growth: 7.3%| Yield: 2.7%
KO is the world’s largest soft drink company, KO also has a sizable fruit juice business. Its bottling interests include a 34% stake in NYSE-listed Coca-Cola Enterprises (CCE).

McDonald’s Corporation (MCD) | Dividend Growth: 15.0%| Yield: 2.9%
MCD is the largest fast-food restaurant company in the world, with about 32,500 restaurants in 117 countries.

Medtronic Inc. (MDT) | Dividend Growth: 9.4%| Yield: 2.4%
MDT is a global medical device manufacturer with leadership positions in the pacemaker, defibrillator, orthopedic, diabetes management, and other medical markets.

PepsiCo, Inc. (PEP) | Dividend Growth: 6.5%| Yield: 2.9%
PepsiCo, Inc. is a major international producer of branded beverage and snack food products.

The Procter & Gamble Company (PG) | Dividend Growth: 7.0%| Yield: 3.0%
PG is a leading consumer products company markets household and personal care products in more than 180 countries.

Wal-Mart Stores, Inc. (WMT) | Dividend Growth: 11.0%| Yield: 2.3%
WMT is the largest retailer in North America. The company operates retail stores in various formats worldwide. It operates through three segments: Wal-Mart Stores, Sam’s Club, and International.

Not all of these stocks are a buy today, but they are ones you will eventually want to add to your dividend portfolio. Retirement planning doesn’t have to be difficult. A financially successful retirement requires planning, discipline and execution. The sooner you start, the easier it is. Don’t risk running out of money before you run out of life.

Full Disclosure: Long ABT, GPC, HGIC, JNJ, KO, MCD, MDT, PEP, PG, WMT. See a list of all my income holdings here.

Sources: Dallas News, Retire Early, passionsaving.com

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The 2011 Dividend Aristocrats *

D4L — Wed, 15 Dec 2010 07:30:21 +0000

The S&P 500 Dividend Aristocrats is the most prestigious list of dividend stocks. The Dividend Aristocrats index is designed to measure the performance of S&P 500 constituents that have followed a policy of consistently increasing dividends every year for at least 25 consecutive years. This index is a member of the S&P Dividend Aristocrats index series.

Dividend Aristocrats constituents exhibit the following characteristics:

- Underlying Indices – S&P 500
- Weighting – Equally weighted; Constituents re-weighted quarterly
- Reconstitution – Reviewed annually in December

Among others, Dividend Aristocrats include these highly recognizable names, with years of consecutive dividend increases shown:

- 3M Co. (MMM) – 52 years
- Abbott Laboratories (ABT) – 38 years
- Clorox Co (CLX) – 35 years
- Coca-Cola Co (KO) – 48 years
- Exxon (XOM) – 28 years
- Johnson & Johnson (JNJ) – 48 years
- McDonald’s Corp (MCD) – 34 years
- Procter & Gamble (PG) – 54 years
- Wal-Mart Stores (WMT) – 36 years

Members may be deleted during the December rebalance if calendar-year dividends did not increase from the previous year, or intra-year if the stock is removed from the underlying S&P 500.

On December 2nd, S&P announced changes to the Dividend Aristocrats Index. Standard & Poor’s will perform the annual reconstitution of the S&P 500 Dividend Aristocrats Index after the close of trading on Friday, December 17, 2010.

The following stocks will be added to the Dividend Aristocrats:

- McCormick & Company (MKC)
- Hormel Foods Corp. (HRL)
- Ecolab Inc. (ECL)

The following stocks will be dropped from the Dividend Aristocrats:

- Eli Lilly And Company (LLY)
- SUPERVALU Inc. (SVU)
- Integrys Energy Group, Inc. (TEG)

After last year’s significant decline, it is good see the membership number level off. The previous two years were difficult for dividend stocks, but that is not necessarily a bad thing. During good times it is easy for companies to increase dividends, and many companies were added to the index. It is during times of adversity that we learn who the real aristocrats are.

Full Disclosure: Long MMM, ABT, CLX, KO, JNJ, LLY, MCD, PG, TEG, WMT. See a list of all my income holdings here.