Dividends Value » AIG

The 2010 Dividend Stock Ideas List *

D4L — Wed, 24 Feb 2010 11:30:53 +0000

Last year 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 are 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: 4.50%
- Conn. Water Service (CTWS) | Yield: 4.00%
- Weyco Group Inc. (WEYS) | Yield: 2.70%

Needless to say, last year saw many companies fall off the list. Overall the number of constituents fell to 218 stocks in 2010 from 319 in 2009. What made last year so unusual were the number of big-name companies that no longer qualified for inclusion on the list, some that had paid increasing dividends for decades, including:

- American International Group, Inc. (AIG)
– Bank of America Corporation (BAC)
– General Electric Co. (GE)
- The Home Depot, Inc. (HD)
- Johnson Controls Inc. (JCI)
- Pfizer Inc. (PFE)
- US Bancorp (USB)

The news wasn’t all bad. Partially offsetting the 133 companies that fell off the list were 32 new companies joining the Dividend Stock Ideas List. For the most part, these aren’t household names, not yet at least, but here are some names we will likely be seeing in the future:

- Arrow Financial Corporation (AROW) | Yield: 3.90%
- Energy Transfer Partners L.P. (ETP) | Yield: 7.80%
- Federated Investors, Inc. (FII) | Yield: 3.70%
- Getty Realty Corp. (GTY) | Yield: 8.50%
- Hudson City Bancorp, Inc. (HCBK) | Yield: 4.60%
- Investors Real Estate Trust (IRET) | Yield: 7.80%
- NSTAR (NST) | Yield: 4.60%
- Northeast Utilities (NU) | Yield: 3.80%
- Plains All American Pipeline LP (PAA) | Yield: 6.80%
- Suburban Propane Partners LP (SPH) | Yield: 7.30%

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 CLX, KO, EMR, JNJ, MCD, PG, WMT, CVX, NUE. See a list of all my income holdings here.

(Photo Credit)

Has The Insurance Industry Finally Turned The Corner? *

D4L — Tue, 04 Aug 2009 10:30:31 +0000

There are not many companies whose fortunes are as closely tied to the stock market as those in the insurance industry. When the market is climbing, insurers will often soar beyond the market, and will fall harder when the market declines. With the recent uptick in the market, is now a good time to consider insurance companies?

Insurance companies make money using a very simple formula: They collect premiums from customers, then invest the premiums while waiting for the claims to come in. Hopefully, the claims will be less than the investment value, thus providing a profit for the company. This industry relies heavily on actuaries. These are people who compute premium rates based on probabilities using statistical records based giving consideration to risks and other factors. A bad assumption here could lead to a premium that is too low resulting in an ultimate loss.

If you have ever filed a claim with an insurance company, you know what an onerous task it is to get money out of them. Looking at the claims portion of the equation, it is easy to under why they want to minimize claims paid. Each dollar they don’t pay you and each additional day they hold unto dollars they do pay you, is additional investment income for the company.

During an extended bull market, it is easy to take for granted that the investment portion of the formula will be positive. However, a lesson the insurance industry recently had to relearn was that the stock market does not always go up. The collapse of American International Group, Inc. (AIG) in September from ill-chosen investments was a dramatic event for those invested in the industry.

Manulife Financial Corp. (MFC), North America’s largest insurance company, also has struggled as a result of the declining equity markets. The Company has reported huge losses in excess of one billion Canadian dollars in the fourth quarter of 2008 and the first quarter of 2009. Much of which can be attributed to increasing reserves to cover long-term segregated fund and annuity guarantees. Segregated funds are popular investments similar to mutual funds but contain insurance contracts that limit risk for the investors.

Recently the sharp market rebound has provided relief to insurers such as MFC who had to set aside cash for guarantees on performance-based products. The increase in the market will also give the insurers a chance to rebuild capital and shuffle reserves.

Below are some insurers you may want to keep an eye on in the upcoming weeks, along with some company specific risks:

AFLAC Inc. (AFL) – Yield: 3.04% – Analysis
AFL may be overexposed to the financial service sector as a result of its holdings of European bank hybrid bonds. However, the company should not suffer significant losses from its hybrid portfolio.

Manulife Financial Corp. (MFC) – Yield: 3.73%
On Friday June 19th after the market closed, it was reported that MFC received an enforcement notice from the Ontario Securities Commission (OSC) relating to its disclosure before March 2009 of risks related to its variable annuity guarantee and segregated funds business. The preliminary conclusion of OSC staff is that the Company failed to meet its continuous disclosure obligations related to its exposure to market price risk in its segregated funds and variable annuity guaranteed products.

MetLife, Inc. (MET) – Yield: 2.17%
MET’s risks are more of the general nature. They include a further decline in the equity markets coupled with need for additional capital and asbestos-related liability claims.

Prudential Financial, Inc. (PRU) – Yield: 1.33%
PRU’s risks include currency conversion, new guaranteed minimum benefits, acquisition integration and a further sharp decline in the equity markets.

Sun Life Financial Inc. (SLF) – Yield: 3.66%
A large portion of SLF’s fixed income portfolio is concentrated in the financial sector and rated BBB or below carries a higher risk of investment loss. As with the others, SLF also is susceptible a further decline in the equity markets.

Consider the risks before investing, but also keep in mind the best values come when a company is distressed.

Full Disclosure: Long AFL, MFC. See a list of all my income holdings here.

TARP Trips: You Can’t Stop At Just One *

D4L — Wed, 04 Mar 2009 11:30:12 +0000

If you put a band aid on a gaping wound and tell the person that they are going to be all right, your actions have done more harm than good. In many ways this is what is happening with the TARP bail out. And like the old potato chip commercial, a lot of these banks can’t stop at one – they are lining up at the TARP trough to feed again on public money.

Earlier CNBC reported that American International Group (AIG) and the U.S. government are engaged in talks, including the possibility of additional funds for the insurer and trading debt for equity. In case they do not reach a deal, AIG’s lawyers at Weil, Gotshal & Manges LLP were preparing for the possibility of bankruptcy, CNBC said. It was said that AIG was too big to fail the first time around. Is that still true? If so, won’t the government have to pony the needed funds this time, and next time, and next…?

When there is only one trough to eat at, you have to find new ways to keep the dining experience interesting and Citigroup (C) is doing just that. C has proposed to have the Treasury convert its preferred shares in the bank to common equity. This would bring its capital over the acceptable threshold. Once again, the taxpayers will generously pick up the tab. Under the terms reportedly offered by C, the Treasury would convert its preferred shares to common at a huge premium to Citi’s stock price. If the conversion took place at the current price, taxpayers would own 90% of C’s shares. Under C’s proposal they would only end up with 40%. Some analysts complained that C was asking for terms far more generous than it would receive under the Treasury’s new program. “Another *&%# for taxpayers,” observed Henry Blodget on the financial website, Tech Ticker.

Now that C has all but wiped out its shareholders, who’s next? It looks like it might be the bondholders. C’s debt is trading as if the company were already in default. The bondholders face losses even more severe than the extraordinary hits shareholders have taken. As of Sept. 30, 2008, C had $393 billion of long-term obligations, much of which is unsecured and is owned by many of the world’s leading mutual funds and pension funds, as well as by other banks and insurance companies.

Finally, as if the banks didn’t have enough problems. Labor is now targeting banks and the service sector in a big unionization push. I can see their slogan, “You’ve got problems, we got answers. Let us do for you what we did for the auto industry!” Ugh, never mind….

In every situation, there are winners and losers. Those with cash, such as Warren Buffett, are in a position to come out ahead, and those needing cash will promise or pay anything to get it.

Full Disclosure: No position in the above mentioned securities (whew!)