Below are several companies building future returns with higher cash dividends:

BCE (BCE) is a Canadian wireline and wireless telecommunications company. December 10th the company raised its annual dividend 7.7% to $1.97/share. The dividend is payable on April 15, 2011 to shareholders of record at the close of business on March 15, 2011. The ex-dividend date is March 11, 2011. The yield based on the new payout is 5.5%.

Occidental (OXY) has global exploration and production operations. Its subsidiary, OxyChem, is one of the largest U.S. merchant marketers of chlorine and caustic soda. December 10th the company increased its quarterly dividend 21% to $0.46/share. The yield based on the new payout is 2.02%.

General Electric (GE) sells products ranging from jet engines and gas turbines to consumer appliances, railroad locomotives and medical equipment. It also owns NBC Universal, and is a leading provider of consumer and commercial financing. December 10th the company raised its quarterly dividend 17% to $0.14/share. The dividend is payable on Jan. 25 to shareholders of record on Dec. 27. The ex-dividend date is Dec. 22. The yield based on the new payout is 3.27%.

Honeywell (HON) is the world’s largest maker of cockpit controls, small jet engines and climate control equipment and also makes industrial materials and automotive products. December 10th the company increased its annual dividend 10% to $1.33/share. The yield based on the new payout is 2.55%.

Horace Mann (HMN) is an insurance holding company that markets and underwrites personal lines of property and casualty insurance, retirement annuities and life insurance. December 10th the company raised its quarterly dividend 37% to $0.11/share. The dividend is payable on Dec. 31 to shareholders on record as of Dec. 20. The ex-dividend date is Dec. 16. The yield based on the new payout is 2.48%.

Iron Mountain (IRM) provides information protection and storage services. December 13th the company increased its quarterly dividend 200% to $0.1875/share. The dividend is payable on January 14, 2011 to stockholders of record on December 27, 2010. The ex-dividend date is December 23, 2010. The yield based on the new payout is 3.2%.

Dynex Capital (DX) invests principally in single-family residential and commercial mortgage loans and securities. December 13th the company raised its quarterly dividend 8% to $0.27/share. The dividend is payable on January 31, 2011 to shareholders of record as of December 31, 2010. The ex-dividend date is December 29, 2010. The yield based on the new payout is 9.5%.

Pfizer (PFE) is the world’s largest pharmaceutical company. It produces a wide range of drugs across a broad therapeutic spectrum. December 13th the company increased its quarterly dividend 11.1% to $0.20/share. The dividend is payable March 1, 2011, to shareholders of record at the close of business on February 4, 2011. The ex-dividend date is February 2, 2011. The yield based on the new payout is 4.68%.

CSC (CSC) is a computer services company provides consulting, systems integration and outsourcing services. December 13th the company raised its quarterly dividend 33% to $0.20/share. The dividend is payable on January 13, 2011 to stockholders of record at the close of business on December 23, 2010. The ex-dividend date is December 21, 2010. The yield based on the new payout is 1.7%.

Colony Financial (CLNY) operates as a commercial mortgage REIT that focuses on acquiring and originating commercial real estate mortgage loans and real estate-related debt. December 13th the company increased its quarterly dividend 20% to $0.30/share. The dividend is payable on January 14, 2011, to stockholders of record on December 31, 2010. The ex-dividend date is December 29, 2010. The yield based on the new payout is 6.1%.

Bristol-Myers Squibb (BMY) engages in discovering, developing, and delivering medicines that help patients prevail over serious diseases. December 14th the company raised its quarterly dividend to $0.33/share. The dividend is payable on February 1, 2011, to stockholders of record at the close of business on January 7, 2011. The ex-dividend date is Jan. 5. The yield based on the new payout is 4.97%.

U-Store-It Trust (YSI) engages in the ownership, operation, acquisition, and development of self-storage facilities in the United States. December 14th the company increased its quarterly dividend 180% to $0.07/share. The dividend is payable on January 21, 2011 to common shareholders of record on January 7, 2011. The yield based on the new payout is 3.1%.

NB&T Financial (NBTF) provides commercial banking and financial services to individuals and corporate customers in southwestern Ohio. December 14th the company raised its quarterly dividend 3.5% to $0.30/share. The dividend is payable January 24, 2011 to shareholders as of record December 31, 2010. The ex-dividend date is December 29, 2010. The yield based on the new payout is 5.3%.

Realty Income (O) leases its retail properties primarily to regional and national retail chain store operators. December 15th the company increased its monthly dividend to $0.14425/share. The dividend is payable on January 18, 2011 to shareholders of record as of January 3, 2011. The ex-dividend date is December 31, 2010. O is a Dividend Achiever and has raised its dividend for 16 consecutive years. The yield based on the new payout is 5.2%.

Scholastic Corp. (SCHL) publishes and distributes children’s books, as well as the develops educational technology products in the United States and internationally. December 15th the company raised its quarterly dividend 33% to $0.10/share. The dividend is payable on March 15, 2011 to shareholders of record as of the close of business on January 31, 2011. The ex-dividend date is January 27, 2011. The yield based on the new payout is 1.3%.

Moodys Corp (MCO) provides credit ratings and related research, data, and analytical tools; risk management software; and quantitative credit risk measures and credit portfolio management solutions. December 15th the company increased its quarterly dividend 9.5% to $0.115/share. The dividend is payable March 10, 2011 to stockholders of record at the close of business on February 20, 2011. The ex-dividend date is February 17, 2011. The yield based on the new payout is 1.7%.

ABM Industries (ABM) provides janitorial, parking, security, engineering, and lighting services for commercial, industrial, institutional, and retail facilities in the U.S. and Canada. December 16th the company raised its dividend 3.7% to $0.14/share. The dividend is payable on February 7, 2011 to stockholders of record on January 6, 2011. The ex-dividend date is January 4, 2011. ABM is a Dividend Achiever and has raised its dividend for 16 consecutive years.

Ensign Group (ENSG) provides skilled nursing and rehabilitative care services in California, Arizona, Texas,Washington, Utah, Colorado, and Idaho. December 16th the company raised its quarterly dividend 10% to $0.055/share. December 16, 2010 7:26 AM EST The Ensign Group, Inc. (Nasdaq: ENSG) has declared a quarterly cash dividend of $0.055 per share, $0.22 annualized. The yield based on the new payout is 1.0%.

Waste Management (WM) provides integrated waste management services in North America including collection, transfer, recycling, disposal, and waste-to-energy services. December 16th the company increased its quarterly dividend 8% to $0.34/share. The yield based on the new payout is 3.8%.

Autoliv (ALV) develops, manufactures, and supplies automotive safety systems to automotive industry. December 16th the company increased its quarterly dividend 14% to $0.40/share. The dividend is payable on Thursday, March 3, 2011 to shareholders of record on the close of business on Thursday February 3, 2011. The ex-dividend date is February 1, 2011. The yield based on the new payout is 2%.

Pentair (PNR) operates as a diversified industrial manufacturing company worldwide. The company’s Water segment offers products and systems that are used in the movement, storage, treatment, and enjoyment of water. December 16th the company raised its annual dividend 5% to $0.80/share. PNR is a Dividend Achiever and has raised its dividend for 34 consecutive years. The yield based on the new payout is 2.2%.

Urstadt Biddle (UBA) engages in the acquisition, ownership, and management of commercial real estate properties. December 16th the company increased its quarterly dividend to $0.245/share. The dividend is payable January 21, 2011 to stockholders of record on January 7, 2011. The ex-dividend date is January 5, 2011. UBA is a Dividend Achiever and has raised its dividend for 16 consecutive years. The yield based on the new payout is 5.2%.

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 O. See a list of all my income holdings here.

Related Posts
- Low-Debt Dividend Stocks
- The 2010 Elite Dividend Stocks List
- 5 Dividend Stocks Trading Below Fair Value
- Dividend Stocks vs. Dividend ETFs
- The 2011 Dividend Aristocrats

(Photo Credit)

Below are several stocks using real cash to raise their dividends:

A. O. Smith (AOS) produces electric motors and residential and commercial water heaters. July 23rd the company increased its quarterly dividend 8% to $0.21/share. The dividend is payable on August 16, 2010, to shareholders of record July 30, 2010. The ex-dividend date is July 28, 2010. Yield on the dividend is 1.6%. AOS is a Dividend Achiever and has raised its dividend for 17 consecutive years. The yield based on the new payout is 1.50%.

General Electric (GE) sells products ranging from jet engines and gas turbines to consumer appliances, railroad locomotives and medical equipment. It also owns NBC Universal, and is a leading provider of consumer and commercial financing. July 23rd the company raised its quarterly aividend 20% to $0.12/share. The dividend is payable October 25, 2010 to shareowners of record at the close of business on September 20, 2010. The ex-dividend date is September 16, 2010. The yield based on the new payout is 2.97%.

Enbridge Energy Partners (EEP) owns the U.S. portion of the world’s longest crude oil pipeline. A natural gas transportation business was acquired in late 2001. July 23rd the partnership increased its quarterly distribution 2.5% to 1.0275/unit. The distribution is payable August 13, 2010 to unitholders of record on August 5, 2010. The ex-dividend date is August 3, 2010. The yield based on the new payout is 6.91%.

Boardwalk Pipeline (BWP) engages in the interstate transportation and storage of natural gas. July 26th the company raised its quarterly distribution 1% to $0.51/unit. The distribution is payable on August 9, 2010, to unitholders of record as of August 2, 2010. The ex-dividend date is July 29, 2010. The yield based on the new payout is 6.37%.

Alliance Holdings GP (AHGP) produces and markets coal primarily to utilities and industrial users in the U.S. It offers a range of steam coal with varying sulfur and heat contents. July 26th the company increases its quarterly distribution to $0.4825/unit. The distribution is payable on August 19, 2010, to AHGP’s unitholders of record as of the close of trading on August 12, 2010. The ex-distribution date is August 10, 2010. The yield based on the new payout is 5.32%.

Crane Co. (CR) is a diversified manufacturer and distributor of engineered products for the fluid handling, aerospace, construction and automatic merchandising industries. July 26th the company raised its quarterly dividend 15% to $0.23/share. The dividend is payable on September 10, 2010 to shareholders of record as of the close of business on August 31, 2010. The ex-dividend date is August 27, 2010. The yield based on the new payout is 2.57%.

International Flavors & Fragrances (IFF) is a leading producer of flavors and fragrances, used in a wide variety of consumer goods, derives over 70% of annual sales from operations outside the U.S. July 27th the company increased its quarterly dividend 8% to $0.27/share. The dividend is payable on October 6, 2010 to all IFF shareholders of record as of September 22, 2010. The ex-dividend date is September 20, 2010. The yield based on the new payout is 2.36%.

Norfolk Southern (NSC) operates 21,200 route miles serving 22 eastern states, the District of Columbia, and Ontario, Canada. July 27th the company raised its quarterly dividend 5.9% to $0.36/share. The dividend is payable on Aug. 6 to shareholders of record on Sept. 10. The ex-dividend date is Aug. 4. The yield based on the new payout is 2.55%.

Community Trust Bancorp (CTBI) provides commercial banking services in Kentucky andWest Virginia; and a trust company. July 27th the company increased its quarterly dividend 1.7% to $0.305/share. The dividend is payable on October 1, 2010, to shareholders of record on September 15, 2010. The ex-dividend date is September 13, 2010. CTBI is a Dividend Achiever and has raised its dividend for 30 consecutive years. The yield based on the new payout is 4.46%.

Williams Partners (WPZ) engages in gathering, transporting, processing, and treating natural gas, as well as fractionating and storing natural gas liquids. July 27th the partnership increased its quarterly distribution 2% to $0.6725/unit. The distribution is is payable on August 13, 2010, to unitholders of record at the close of business on August 6. The ex-dividend date is August 4, 2010. The yield based on the new payout is 5.82%.

Sealed Air Corporation (SEE) is a leading global manufacturer of a wide range of food and protective packaging materials and systems. July 27th the company raised its quarterly dividend 8% to $0.13/share. The yield based on the new payout is 2.33%.

PF Chang’s (PFCB) owns and operates the P.F. Chang’s China Bistro and PeiWei Asian Diner restaurant chains. July 28th the company increased its quarterly dividend to $0.25/share. The yield based on the new payout is 2.26%.

Newmont Mining (NEM) is one of the world’s largest gold producers, and is also engaged in the production of copper. July 28th the company raised its quarterly dividend 50% to $0.15/share. The dividend is payable on September 29, 2010 to holders of record at the close of business on September 8, 2010. The ex-dividend date is September 6, 2010. The yield based on the new payout is 1.08%.

Hawkins (HWKN) formulates, blends and distributes bulk and specialty chemicals in the U.S. It operates in three segments: Water Treatment, Industrial, and Pharmaceutical. July 28th the company increased its semi-annual dividend 7.1% to $0.30/share. The dividend is payable on October 8 to shareholders of record on September 24. The ex-dividend date is September 22. The yield based on the new payout is 2.00%.

Barrick Gold (ABX) is the world’s largest gold company in terms of both production and reserves. July 29th the company raised its quarterly dividend 20% to $0.12/share. Barrick expects to move from a semi-annual dividend to a quarterly dividend going forward. The quarterly dividend is payable on September 15, 2010 to shareholders of record as of the close of business on August 31, 2010. The ex-dividend date is August 27. The yield based on the new payout is 1.20%.

Republic Services (RSG) became the second largest U.S. provider of solid waste services in North America when it acquired AlliedWaste Industries in December 2008. July 29th the company increased its quarterly dividend 5% to $0.20/share. The dividend is payable on October 15, 2010 to shareholders of record on October 1, 2010. The yield based on the new payout is 2.50%.

Maxim Integrated (MXIM) designs, develops and manufactures linear and mixed-signal integrated circuits used mainly in signal processing applications. July 29th the company raised its quarterly dividend to $0.21/share. The yield based on the new payout is 4.67%.

Health Care REIT (HCN) invests in health care facilities, including senior housing, specialty care, and medical office buildings. July 29th the REIT increased its quarterly dividend 1.5% to $0.69/share. The dividend is payable August 20, 2010, to stockholders of record on August 9, 2010. The ex-dividend date is August 4, 2010. The yield based on the new payout is 6.10%.

DTE Energy (DTE) is involved in the development and management of energy-related businesses and services nationwide. July 29th the company raised its quarterly dividend to $0.56/share. The yield based on the new payout is 4.65%.

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: No position in the aforementioned stocks. See a list of all my income holdings here.

Related Posts
- 8 Dividend Stocks With Above Market Performance
- The 2010 Dividend Aristocrats
- Industrial Strength Dividends
- What’s More Powerful Than Compound Interest?
- Increasing Dividend Yield Part III: Preferred Stock

(Photo Credit)

Something Bad Will Happen

Eventually, every investor will hold a stock that falls out of favor and endures a double-digit decline. Understanding this from the onset makes it easier to deal with. If we go ahead and accept this as fact, then when it happens it really shouldn’t be a shock. This sounds simple, but is really an important step in removing emotion from the equation. It is much easier to reach the correct hold or sell decision when evaluating the facts from a rational perspective.

Diversify Your Holdings

When bad things happen to an individual stock, it usually pulls down other stocks in the same industry. Consider the April 20, 2010 explosion and fire on Transocean Ltd’s (RIG) drilling rig Deepwater Horizon licensed to BP where 11 workers were killed. It is more than a month later and BP still has not stopped the oil flow. Below you can see that several companies in the same industry, have all under-performed the S&P 500 (SPY), some more than others:

Limit Your Exposure

The single most important thing you can do to manage the risk associated with holding individual stocks is to simply limit your exposure. My standing rule is to limit each individual stock to no more than 5% of my income portfolio, based on market value and income. If any single company were to go bankrupt and the stock went to $0, my loss would be less than 5% – the market has moved my portfolio more than that in a single day.

At the end of March I held a position in BP that represented 1.6% of my income portfolio and generated 2.1% the portfolio’s income. This small position kept me from being overly concerned. If BP ended up bankrupting, these would not have been dramatic losses. Limiting your exposure in any single stock to a reasonable level lets you sleep at night even when that stock is facing adversity.

Focus On Quality

Your core portfolio should focus on quality with the “meat and potatoes” blue-chip stocks. You might want to add some high-yield and high-risk stocks in limited amounts to “spice” things up. Below are several quality blue-chip stocks that are the cornerstone of most dividend growth investor’s portfolio, along with their risk number:

Finally, it is a good idea to have a written mission statement for your income portfolio that includes your goals and what you will and will not do in the portfolio. It may sound silly to take the time to write this down, but it is very helpful when fear or greed tempts you from your predefined path.

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

Related Posts
- Five Dividend Stocks To Buy On A Dip
- Optimizing Your Asset Allocation
- How To Buy Dividend Stocks At The Bottom
- Dividend Stocks: Confident and Secure
- Four Dividend Stocks Stepping Up In The Downturn

(Photo: sean carpenter)

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:

- Clorox Co (CLX) | Yield: 3.30%
- Coca-Cola Co (KO) | Yield: 2.90% | Analysis
- Emerson Electric (EMR)| Yield: 2.80% | Analysis
- Exxon Mobil (XOM)| Yield: 2.60%
- Johnson & Johnson (JNJ)| Yield: 3.10% | Analysis
- McDonald’s Corp (MCD)| Yield: 3.40% | Analysis
- Procter & Gamble (PG)| Yield: 2.80% | Analysis
- Wal-Mart Stores (WMT) | Yield: 2.00% | Analysis

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:

- Chevron Corporation (CVX) | Yield: 3.70%
- Donaldson Company (DCI) | Yield: 1.10%
- McCormick & Co. (MKC) | Yield: 2.80%
- Nucor Corp. (NUE) | Yield: 3.20% | Analysis
- Raven Industries, Inc. (RAVN) | Yield: 1.90% | Analysis

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)

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:

• Clorox Co (CLX) – 32 years
• Coca-Cola Co (KO) – 47 years – [Analysis]
• Exxon (XOM) – 27 years
• Johnson & Johnson (JNJ) – 47 years – [Analysis]
• McDonald’s Corp (MCD) – 33 years – [Analysis]
• Procter & Gamble (PG) – 53 years – [Analysis]
• Wal-Mart Stores (WMT) -35 years – [Analysis]

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 4th, 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 18, 2009.

The following stocks will be added to the Dividend Aristocrats:

• Brown-Forman Corporation (BF.B)
• Cintas Corp. (CTAS)

The following stocks will be dropped from the Dividend Aristocrats:

• Avery Dennison Corporation (AVY)
• BB&T Corp. (BBT)
• Gannett Co., Inc. (GCI)
• General Electric Co. (GE)
• Johnson Controls Inc. (JCI)
• Legg Mason Inc. (LM)
• M&T Bank Corp. (MTB)
• Pfizer Inc. (PFE)
• State Street Corp. (STT)
• US Bancorp (USB)

As the number of drops vs. adds indicates, the last 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 CLX, KO, JNJ, MCD, PG, WMT. See a list of all my income holdings here.

(Photo Credit)

It is easy to be captivated with a top performer. Everyone loves a winner. During the 80′s and 90′s when Jack Welch ran General Electric (GE) the company was a well-oiled machine that routinely beat the streets expectation and the ever-increasing stock price reflected its performance. I once said that if I could only buy one stock for the rest of my life, it would be GE.

Then there’s the first-love dart – that first stock that you bought. For some reason there is often an emotional attachment for the first of anything. Some business owners frame the first dollar they earn, while some investors have a hard time letting go of the first stock they purchased, especially if the stock performed well for an extended period of time. For me it wasn’t the first stock I purchased (I can’t even remember what it was), but instead it was the first stock I purchased for its dividend that held a special place. That stock was a REIT, First Industrial Realty Trust Inc. (FR).

So what happened? Both stocks cut their dividends and I immediately sold them. To achieve our long-term investing goals we must remove emotion from the equation. It is a recipe for disaster when we make investing decisions based on a past relationship with a stock that is contrary to the current fact pattern.

That is not to say I am not fond of certain stocks. For example, I currently like or admire these dividend stocks:

Johnson & Johnson (JNJ) – Yield: 3.30% – Analysis
Johnson & Johnson engages in the manufacture and sale of various products in the health care field worldwide.

Nucor Corp. (NUE) – Yield: 3.10% – Analysis
Nucor Corporation is engaged in the manufacture and sale of steel and steel products. As the largest minimill steelmaker in the U.S., Nucor has one of the most diverse product lines of any steelmaker in the Americas.

United Technologies Corp. (UTX) – Yield: 2.60% – Analysis
United Technologies Corp. is an aerospace-industrial conglomerate with a portfolio including Pratt & Whitney jet engines, Sikorsky helicopters, Otis elevators and Carrier air conditioners, among other products.

McDonald’s Corp. (MCD) – Yield: 3.60% – Analysis
McDonald’s Corporation is the largest fast-food restaurant company in the world. Its restaurants serve a varied, yet limited, value-priced menu in more than 100 countries around the world.

3M Co. (MMM) – Yield: 2.80% – Analysis
3M Co. is a diversified technology company with a presence in various businesses, including industrial & transportation, healthcare, display & graphics, consumer & office, safety, security & protection services, and electro and communications.

Not all of the above stocks are on my current buy list, but they are some of the ones that I keep a close eye on for good opportunities to add to my position.

Full Disclosure: Long JNJ, NUE, UTX, MCD, MMM. See a list of all my income holdings here.

Recently, Daniel Gross in a Newsweek article stated, “The Great Recession, which rolled over our financial lives like one of P.J. Keating’s giant pavers, is most likely over.” He went on to make the following observations in the article:

• The U.S. economy shrank at nearly a 6 percent annualized rate between September 2008 and March 2009, placing the global economy into recession for the first time since World War II.
• Home sales have risen for three straight months—a first since 2004.
• The stock market has rallied 44 percent since March.
• Seven of the 10 indicators in the Conference Board Leading Economic Index pointed upward.
• When economists proclaim a recession over, they mean economic output has stopped contracting.
• The U.S. economy needs annual growth of at least 1.5 percent just to feel like we’re standing still.
• Unemployment is likely to keep climbing.
• “I see 1 percent growth in the economy in the next few years. It’s going to feel like a recession, even when it ends.” stated New York University economist Nouriel Roubini
• The Obama administration’s strategy rests on what some might call industrial policy or excessive government intervention—or even creeping socialism.

Not surprising, a lot of the hardest hit stocks have seen the largest increase off their 52 week low. Based on August 4, 2009 prices, these would include: General Electric (GE) 141%, U.S. Bank (USB) 169%, Manulife Financial Corp. (MFC) 249%, AFLAC Inc. (AFL) 268%,  Bank of America (BAC) 518%.

Not all dividend stocks have fully enjoyed the recent run up.  Some are still relatively close to their 52 week low and are fairly valued based on my buy price. Based on August 4, 2009 prices, here are some to consider:

• Procter & Gamble Co. (PG) – 26% – Recent Price: $55 – Fair Value: $65.98 – Analysis
• Sysco Corp. (SYY) – 26% – Recent Price: $24 – Fair Value: $27.56 – Analysis
• Automatic Data Processing Inc. (ADP) – 23% – Recent Price: $38 – Fair Value: $40.86 – Analysis
• McDonald’s Corp. (MCD) – 20% – Recent Price: $55 – Fair Value: $67.86 – Analysis
• Wal-Mart Stores, Inc. (WMT) – 8% – Recent Price: $50 – Fair Value: $56.19 – Analysis

I look at a market recovery as a bitter-sweet event. For a dividend investor, buying stocks at a highly depressed price is a Godsend, but for the market to remain healthy and liquid, it must eventually rise.

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

Comparing Berkshire Hathaway’s (BRK.A) December 31, 2008 13-F with its March 31, 2009 13-F, I made the following observations for Q1/2009:

• BRK didn’t add any new positions to its portfolio
• BRK didn’t fully liquidate any positions in its portfolio
• BRK added shares in seven stocks: BNSF Railway (BNI), Union Pacific (UNP), Wells Fargo (WFC), U.S. Bancorp (USB), Johnson & Johnson (JNJ), and Nalco Holding Company (NLC)
• BRK reduced shares in four stocks: CarMax (KMX), ConocoPhillips (COP), Costco Wholesale Corporation (COST) and Constellation Energy Group, Inc. (CEG)

Of the stocks held in BRK’s 13-F portfolio, the following ones are either held in my income portfolio or are on my watch list of dividend stocks:

Coca Cola (KO) – Yield 3.34% – Analysis
The Coca-Cola Company is the largest manufacturer, distributor and marketer of nonalcoholic beverage concentrates and syrups in the world.

Johnson & Johnson (JNJ) – Yield 3.55% – Analysis
Johnson & Johnson is engaged in the research and development, manufacture and sale of a range of products in the healthcare field.

Kraft Foods (KFT) – Yield 4.44% – Analysis
Kraft is engaged in manufacturing and marketing packaged food products, including snacks, beverages, cheese, convenient meals and various packaged grocery products.

Lowes Companies (LOW) – Yield 1.89% – Analysis
Lowe’s Companies, Inc. is a home improvement retailer.

M&T Bank (MTB) – Yield 5.57%
M&T Bank Corporation is a bank holding company. As of December 31, 2008, the Company had two wholly owned bank subsidiaries.

Procter & Gamble Co. (PG) – Yield 3.39% – Analysis
The Procter & Gamble Company is focused on providing branded consumer goods.

Wal-Mart Stores, Inc.  (WMT) – Yield 2.19% – Analysis
Wal-Mart Stores, Inc. operates retail stores in various formats worldwide.

In addition, Buffett continues to hold a position in several stocks that I sold over the last twelve months for either cutting or failing to raise their dividend. Those are:

Bank of America Corporation (BAC) – Yield 0.35%
Bank of America Corporation (Bank of America) is a bank holding company and a financial holding company.

General Electric (GE) – Yield 9.20%
General Electric Company is a diversified technology, media and financial services company.

The Home Depot, Inc. (HD) – Yield 3.89%
The Home Depot, Inc.is a home improvement retailer selling an assortment of building materials, home improvement and lawn and garden products, and provide a number of services.

SunTrust Banks, Inc. (STI) – Yield 3.04%
SunTrust Banks, Inc. is a diversified financial services holding company whose businesses provide a range of financial services to consumer and corporate clients.

U.S. Bancorp (USB) – Yield 1.04%
U.S. Bancorp operates as a financial holding company and a bank holding company. U.S. Bancorp provides a range of financial services, including lending and depository services, cash management, foreign exchange, and trust and investment management services.

It is not surprising that the most famous value investor holds several dividend stocks. Historically, stocks that pay dividends have out-performed those that don’t. When you buy dividend stocks at a discount, it’s like turbo-charging your return!

Full Disclosure: Long in JNJ, KO, MTB, PG, WMT . See a list of all my income holdings here.

Case in point, the Forbes article Buy-And-Hold In Disrepute by Robert Lenzner. He tries to tie the buy-and-hold strategy to a risky BRIC (Brazil, Russia, India and China) investment:

They lost even more in Russia and other emerging markets–to the tune of 70% or more–if they bought into the “BRIC” investing concept promoted hard by Goldman Sachs (GS) in the early part of the decade. You needed to buy and sell, not buy and hold. If you bought and held, you had the pleasure of the run-up followed by the pain of the collapse.

A true implementation of buy-and-hold would include a reasonable asset allocation framework in which emerging markets would never command anything more than a small percentage of total invested assets. Since, the individuals investing their hard-earned money should not be responsible in any way, who can we blame Mr. Lenzner?

The truth is that the public was badly served by its investment advisers, like Alliance Bernstein, or their big public mutual funds, which stayed 100% invested all through the lead-up to the worst financial crisis since the 1930s. They took little or no money off the table. They never called your Aunt Sadie to advise her to take profits in 2006 and 2007 before the bottom dropped out.

So, the brilliant investment advisers should immediately sell as the investment peaks, then buy back in as it hits bottom? I thought we were talking about buy-and-hold. This sounds a lot like market timing.

Investors beware: You have to watch over your money like hawks, read your monthly statements and ask questions. You must be active, not passive, when dealing with commoditized investment firms…

Finally, we agree on something. Maybe I should stop reading on a high note.

Were you told to sell your General Electric (GE) or your Citigroup (C) before they became single-digit stocks? Many value-oriented funds were buying Fannie Mae (FNM) months before it became Uncle Sam’s property.

No, but then again we should take personal responsibility for our market losses. Actually, the article would have been a lot better if it was titled “Professional Money Managers In Disrepute” and the unneeded references to buy-and-hold were omitted. But then again mentioning (or taking shots at) buy-and-hold and Buffett (I spared you from that remark) helps with the search engines and garners clicks.

Full Disclosure: No position in the aforementioned securities, but I did lose money in GE and C, in which I take full responsibility.

I. Change In Business Conditions

An abrupt or permanent shift in a company’s business model as a result of business conditions could lead to a dividend cut. Over the last 18 months or so, virtually all businesses have experienced an adverse change in business conditions.  However, the pertinent question is to what degree?

Consider Gannett Co. (GCI) who publishes 90 daily U.S. newspapers, nearly 1,000 non-daily publications in the U.S., and close to 300 U.K. titles. With the mass adoption of the internet, traditional news outlets such as newspapers are experiencing a slow death. GCI cut its dividend earlier this year after several years of declining earnings.

Pfizer’s (PFE) recent dividend cut would fall in this category. After years of unsuccessful attempts to get approval of a “blockbuster” drug, the cash rich company sought a merger partner with a good drug pipeline. In anticipation of it proposed combination with Wyeth, PFE cut its dividend.

II. Dividend Yield Above Historic and Industry Norms

A dividend yield that is higher than average and/or higher than others in the industry are indications, not all is well with the company. The market is adjusting to compensate for the higher risk of holding the company.  When dividend yields start creeping up, it is time to start evaluating if the company can continue to pay its dividend.

Consider Bank of America Corp. (BAC). Between 2000 and 2007 the company’s dividend yield hovered in the 3%-4% range. In 2008, the dividend yield ranged from around 5% to the teens prior to its dividend cut.  The same situation occurred with General Electric (GE) over the same period. GE’s dividend yield from 2000-2007 normally were in the range of 1.5%-3.5%. However, in 2008 they the dividend yield than doubled as investors lost confidence in the company. Eventually, BAC and GE cut their dividends.

III. Diminishing Cash Available to Pay Dividends

Ultimately, the ability of a company to pay its dividend is determined by its cash position – both cash on its balance sheet and its ability to generate cash flow.  All the companies above had one thing in common – a deterioration of cash flow available for paying dividends.

After GCI’s free cash flow peaked in 2004 at $1.3 billion, it slipped over the next four years to $852 million in 2008. Though GE’s free cash flow was increasing, the company was taking on significant debt. GE’s debt increased from  $201 billion in 2000 to $524 billion in 2008 and it could no longer afford its dividend.

A Look Ahead

Unfortunately, there will be more dividend cuts in the coming days. Two companies currently on my radar are Nucor Corp. (NUE) and Caterpillar Inc. (CAT).

On March 17th, NUE warned of a first quarter loss as the slumping economy sapped demand for the metal forcing it to cut output. “The economy has fallen off a cliff — and there is no visibility as to the timing of the recovery,” Nucor Chairman, Chief Executive and President Dan DiMicco said in a statement.  NUE’s free cash flows through 2008 had been strong and it ended 2008 with $920 million net debt (debt less cash) vs. $879 million in 2007. NUE is ok for now, but I look forward to reading their Q1 earnings release.

Last week CAT announced that its global machinery sales fell 27 percent in February, the third straight month of declines as the economic downturn has eroded demand for heavy equipment. In a separate announcement the company said it had notified an additional 2,454 workers in three states that they were losing their jobs as the company continues to try to bring production in line with plummeting demand. CAT’s financial position is not as strong as NUE. Its free cash flow in 2008 was less than half of 2007 and it ended 2008 with no cash and $33 billion in debt vs. $27 billion net debt in 2007. This is another quarterly earnings release that I look forward to reading.

The above three items will help you determine which companies are at risk of cutting their dividends. Cash is king, so pay special attention to free cash flows and debt levels.

Full Disclosure: Long CAT and NUE.

(Photo Credit)