Dividends Value » OFC

We Were Dividends, Before Dividends Were Cool *

D4L — Wed, 20 Oct 2010 07:30:55 +0000

It seems nowadays that every investing article ends with the same conclusion – you should be buying dividend stocks. They are all quoting studies citing the performance edge that dividends have enjoyed over the long-term and the value of a semi-fixed return generated from periodic dividend payments. However, you should beware of some of the information provided. Beyond the simple concepts, some of the writers are making really bad recommendations and cross-breeding dividend investing with their preferred form of investing.

Dividend growth investing is not about exit points, momentum swings, relative strength, sector rotation; instead it is about studying fundamentals, selecting superior stocks and building a portfolio with a long-term horizon. When we buy a dividend stock, we hope to hold it forever. What makes a good dividend stock? Here are some of the things I look for:

Good Business Model

Sell things that people want or need, and do it in such a way that it is difficult or impossible for others to duplicate. There is a reason that pharmaceutical companies, such as Abbott Laboratories (ABT), are so profitable. With effective drugs under patent that sustain or enhance people’s life these companies have a deep moat. Consumer goods companies like Procter & Gamble Co. (PG) and Kimberly-Clark Corporation (KMB) manufacture products such as soap, detergent and toilet paper that we just can’t do without. Sure, there may be generic substitutes, but over the years many of these products have endeared themselves to consumers who are willing to pay a few cents more for the name brand.

Strong Free Cash Flow

Dividends are paid with cash remaining after paying the operating expenses and replacement capital (free cash flow). If a company has trouble meeting these basic needs, then its dividend is perilously at risk. Companies with a low free cash flow payout (FCF) payout are well-positioned to sustain their dividend. Such companies include: Target Corporation (TGT) at 13.85% FCF Payout, Diebold, Inc. (DBD) at 17.21%, International Business Machines Corp. (IBM) at 19.48% and Walgreen Company (WAG) at 22.71%.

Acceptable Debt Level

Generating a strong free cash flow is not enough – cash has to be available to be paid as dividends. As a result of the economic downturn, many companies are feeling pressure to reduce debt to stay within their covenants and try to maintain their debt rating. If a company’s excess cash is being used to service debt, there may not be any left over to increase dividends. Companies with a low debt to total capital include: T. Rowe Price Group Inc. (TROW) at 0.00% Debt to Total Capital, Automatic Data Processing Inc. (ADP) at 0.69%, Harleysville Group Inc. (HGIC) at 13.19% and Genuine Parts Company (GPC) at 15.76%.

Good Balance between Dividend Yield and Growth

There is usually a reason why a stock’s yield is above average. Often it is the market’s way of saying it doesn’t believe the company can maintain the dividend. Most people understand this risk. However, there is also risk to a stock that has a high dividend growth rate. To maintain a high dividend growth rate the company has to grow cash available for dividends at the same rate. This is often difficult to do. Here are several companies with a good balance between dividend yield and dividend growth rate: The Coca-Cola Company (KO) 2.94% yield and 7.32% dividend growth rate, UGI Corporation (UGI) 3.06% yield and 5.70% growth, The Clorox Company (CLX) 3.24% yield and 9.35% growth, Johnson & Johnson (JNJ) 3.31% yield and 8.42% growth and Corporate Office Properties (OFC) 4.25% yield and 5.22% growth.

For those of us that have invested in dividends for years (decades for some), we know dividend growth investing is not a passing fad to be “played” then move on the next hot investment strategy. Part of me will be glad when dividend investing falls out of favor and the masses moves on.

Full Disclosure: Long ABT, PG, ADP, HGIC, CLX, GP, JNJ, KMB, KO. See a list of all my income holdings here.

(Photo Credit)

12 Stocks Raising Their Dividends *

D4L — Fri, 17 Sep 2010 07:30:46 +0000

When it comes to selecting dividend stocks, one of the most important items to look for is consistency in raising dividends. Sure it is easy to increase dividends when the economy is booming and business is good, but to be consistent a company has to persevere and continue to increase dividends even during the tough times.

Below are several companies that have recently increased their cash dividends to shareholders:

Philip Morris Int’l (PM), comprising the international operations spun off by Altria in early 2008, is the largest publicly traded manufacturer and marketer of tobacco products. September 10th the company increased its quarterly dividend 10.3% to $0.64/share. The dividend is payable on Oct. 8 to shareholders of record on Sept. 24. The ex-dividend date is Sept. 22. The yield based on the new payout is 4.67%.

Colony Financial (CLNY) is a real estate finance company that was organized to acquire, originate and manage a diversified portfolio of real estate-related debt instruments. September 13th the company raised its quarterly dividend 19% to $0.25/share. The dividend will be paid on October 14, 2010, to stockholders of record on September 30, 2010. The ex-dividend date is September 28, 2010. The yield based on the new payout is 5.43%.

LaSalle Hotel Properties (LHO) is a hotel real estate investment that acquires and develops hotel properties, particularly upscale and luxury full-service hotels in major urban markets. September 14th the company increased its quarterly dividend to $0.11/share. The dividend is payable on October 15, 2010 to common shareholders of record on September 30, 2010. The ex-dividend date is September 28, 2010. The yield based on the new payout is 1.91%.

PACCAR (PCAR) is a heavy-duty truck manufacturer produces the well-known Peterbilt and Kenworth brand heavy-duty highway trucks. September 14th the company raised its quarterly dividend 33% to $0.12/share. The dividend is payable December 6, 2010, to stockholders of record at the close of business on November 19, 2010. The ex-dividend date is November 15, 2010. The yield based on the new payout is 1.06%.

Yum! Brands (YUM) operates, franchises, has interests in or licenses the largest number of fast food restaurants in the world, with more than 37,000 units in over 110 countries, including the KFC, Pizza Hut and Taco Bell chains. September 14th the company increased its quarterly dividend 19% to $0.25/share. The dividend is payable on Nov. 5 to shareholders of record on Oct. 15. The ex-dividend date is Oct. 13. The yield based on the new payout is 2.17%.

UDR (UDR) is a real estate investment trust, which specializes in apartment properties, owns about 46,000 apartment homes throughout the U.S. September 15th the company raised its quarterly dividend 2.8% to $0.185/share. The dividend is payable on November 1, 2010 to UDR common stock shareholders of record as of October 15, 2010. The ex-dividend date is October 13, 2010. The yield based on the new payout is 3.47%.

Marsh & McLennan (MMC) is a global professional services concern provides risk and insurance services, investment management and consulting services through its operating companies. September 15th the company increased its quarterly dividend to $0.21/share. The dividend is payable on Nov. 15 to shareholders of record on Oct. 8. The ex-dividend date is Oct. 6. The yield based on the new payout is 3.49%.

BioMed Realty Trust (BMR) is a real estate investment that acquires, develops and manages laboratory and office space for the life science industry. September 15th the company raised its quarterly dividend 13.3% to $0.17/share. The dividend is payable on October 15, 2010 to stockholders of record at the close of business on September 30, 2010. The ex-dividend date is September 28, 2010. The yield based on the new payout is 3.64%.

Kroger (KR) is a supermarket operator with about 2,500 stores in 31 states and it also operates convenience stores, jewelry stores, supermarket fuel centers, and food processing plants. September 16th the company increased its quarterly dividend 10.5% to $0.105/share. The dividend is payable on December 1, 2010 to shareholders of record as of the close of business on November 15, 2010. The ex-dividend date is November 11, 2010. The yield based on the new payout is 1.93%.

International Bancshares Corp. (IBOC) provides commercial and retail banking services in Texas and Oklahoma; it also facilitates international trade primarily along the U.S. border with Mexico. September 16th the company raised its quarterly dividend 11.8% to $0.19/share. The dividend is payable on October 18, 2010, to shareholders at the close on September 30, 2010. The ex-dividend date is September 28, 2010. The yield based on the new payout is 4.40%.

Corporate Office Properties (OFC) owns, manages, leases, acquires and develops suburban office properties located in Mid-Atlantic region of the U.S. and other select markets. September 16th the company increased its quarterly dividend by 5.1% to $0.4125/share. The dividend is payable on October 15 to shareholders of record on Sept. 30. The ex-dividend date is Sept. 28. OFC is a Dividend Achiever and has raised its dividend for 13 consecutive years. The yield based on the new payout is 4.38%.

Texas Instruments (TXN) is one of the world’s largest manufacturers of semiconductors, this company also produces handheld graphing and scientific calculator products. September 16th the company raised its quarterly dividend 8% to $0.13/share. The dividend is payable on November 22 to shareholders of record on November 1. The ex-dividend date, then, will be on October 28. The yield based on the new payout is 2.08%.

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

(Photo Credit)

Increasing Dividend Yield Part II: REITs *

D4L — Wed, 10 Mar 2010 11:30:04 +0000

This is the second installment in a multi-part series that looks at various options used by income investors to boost their yield while waiting for dividend growth to lift their portfolio’s overall yield-on-cost. Last week we looked at Utilities. This week we are looking at Real Estate Investment Trusts (REITs).

Below is some background information on REITs from REIT.com:

Congress created REITs in the U.S. in 1960 as a way to make investment in large-scale, income-producing real estate accessible to all investors in the same way they typically invest otherwise – through the purchase and sale of liquid securities. U.S. REITs have seen their equity market capitalization soar from $90 billion to roughly $200 billion in just the past 10 years.

In order for a company to qualify as a REIT in the U.S., it must comply with certain ground rules specified in the Internal Revenue Code. These include: investing at least 75 percent of total assets in real estate; deriving at least 75 percent of gross income as rents from real property or interest from mortgages on real property; and distributing annually at least 90 percent of taxable income to shareholders in the form of dividends.

The 90% distribution requirement and no corporate taxes are the reasons REITs yields are often above average. However, it is important to note that because REITs pay no income tax, they are not eligible for the special treatment as a “qualified dividends”, which are normally taxed at 15%. When comparing REIT yields to investments with qualified dividends, you must always look at them on an after-tax basis.

Consider an example where a taxpayer with a federal marginal tax rate of 30% owns AT&T (T) with a yield of 6.56% and Universal Health Realty Income Trust (UHT) with a yield of 6.82%. On an after-tax basis T, which qualifies for the 15% tax rate, will yield 5.58%, while UHT will only yield 4.78%.

Like utilities, most REITs rely on new capital either in the form of debt or equity to fund investments, pay debt and pay dividends, albeit to a lesser extent. Consider the following:

Universal Health Realty Income Trust (UHT) – Yield: 6.82%
Shares Outstanding: 2000 9m; 2008 11m
Long-Term Debt: 1999 $75.2m; 2008 $32.7m
Years of Negative Free Cash Flow: 0 of 10

National Retail Properties, Inc. (NNN) – Yield: 6.76%
Shares Outstanding: 2000 30m; 2009 79m
Long-Term Debt: 1999 $101.7m; 2009 $0m ($961.1m in short-term)
Years of Negative Free Cash Flow: 5 of 10

HCP, Inc. (HCP) – Yield: 6.12%
Shares Outstanding: 2000 102m; 2009 274m
Long-Term Debt: 2000 $1,158.9m; 2009 $5,456.1m
Years of Negative Free Cash Flow: 5 of 10

Realty Income Corporation (O) – Yield: 6.00%
Shares Outstanding: 2000 53m; 2009 103m
Total Debt: 2000 $404m; 2009 $1,354.6m
Years of Negative Free Cash Flow: 7 of 10

Essex Property Trust (ESS) – Yield: 4.56%
Shares Outstanding: 2000 18m; 2009 29m
Long-Term Debt: 2000 $595.5m; 2009 $0.0m ($1,847.4m short-term)
Years of Negative Free Cash Flow: 6 of 10

Corporate Office Properties Trust, Inc. (OFC) – Yield: 4.07%
Shares Outstanding: 2000 25m; 2009 56m
Long-Term Debt: 2000 $193.7m; 2009 $0.0m ($2,053.8m short-term)
Years of Negative Free Cash Flow: 9 of 10

Federal Realty Investment Trust (FRT) – Yield: 3.67%
Shares Outstanding: 2000 39m; 2009 59m
Long-Term Debt: 2000 $485.3m; 2009 $1,731.6m
Years of Negative Free Cash Flow: 2 of 10

Each of the above companies are growing their debt and/or shares outstanding, while not always generating sufficient cash to fund their operating expenses, including normal capital replacements (except for UHT). For a company to consistently raise its dividend, it must generate cash flows sufficient to meet operating obligations and to service outstanding debt. Since a REIT is legally required to pay out 90% of its earnings, it is less likely to eliminate its dividend, but it could drastically cut the dividend in the face of persistent weak earnings (like any company).

Similar to the utilities mentioned last week, I purchased some of the above companies many years ago, but I won’t be rushing to add to increase my positions.

Full Disclosure: Long T, NNN, HCP, O. See a list of all my income holdings here.

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38 Dividend Securities For A Well-Rounded Asset Allocation *

D4L — Wed, 17 Feb 2010 11:30:12 +0000

I am a firm believer that asset allocation plays a significant part in a portfolio’s long-term results. Recently, I received a question asking if you could have a diversified portfolio of dividend stocks. It is an interesting question that deserves further examination.

As for my portfolio, I consider asset allocation only when looking at my holdings in total. It would be much too difficult to maintain a good allocation within individual portfolios (income, growth, 401(k), Roth IRA, etc.), while trying to maintain my overall allocation. However, an investor could build a degree of allocation into a portfolio of dividend income securities. Consider the following:

Business Services Sector

Automatic Data Processing Inc. (ADP)
Yield: 3.33% | Style: Large Growth | Analysis
C H Robinson Worldwide Inc. (CHRW)
Yield: 1.86% | Style: Large Growth
Expeditors International of Washington Inc. (EXPD)
Yield: 1.16% | Style: Mid Growth

Consumer Goods Sector

Clorox Company (CLX)
Yield: 3.23% | Style: Mid Core
Coca-Cola Company (KO)
Yield: 3.04% | Style: Large Growth | Analysis
Procter & Gamble Company (PG)
Yield: 2.85% | Style: Large Core | Analysis

Consumer Services Sector

Genuine Parts Company (GPC)
Yield: 4.19% | Style: Mid Value | Analysis
Sysco Corporation (SYY)
Yield: 3.56% | Style: Large Core | Analysis
McDonald’s Corporation (MCD)
Yield: 3.22% | Style: Large Core | Analysis

Energy Sector

BP Plc ADR (BP)
Yield: 6.15% | Style: Large Value
Chevron Corporation (CVX)
Yield: 3.75% | Style: Large Value
ExxonMobil Corporation (XOM)
Yield: 2.56% | Style: Large Value

Financial Services Sector

Harleysville Group Inc. (HGIC)
Yield: 3.90% | Style: Small Value | Analysis
Chubb Corporation (CB)
Yield: 2.85% | Style: Large Value | Analysis
Aflac Inc. (AFL)
Yield: 2.38% | Style: Large Core | Analysis

Hardware Sector

Diebold Incorporated (DBD)
Yield: 3.67% | Style: Small Value
Linear Technology (LLTC)
Yield: 3.23% | Style: Mid Core
Raven Industries Inc. (RAVN)
Yield: 1.90% | Style: Small Growth | Analysis

Health Care Sector

Meridian Bioscience Inc. (VIVO)
Yield: 3.27% | Style: Small Growth
Johnson & Johnson (JNJ)
Yield: 3.08% | Style: Large Core | Analysis
Cardinal Health Inc. (CAH)
Yield: 2.10% | Style: Large Core | Analysis

Industrial Materials Sector

Nucor Corp. (NUE)
Yield: 3.40% | Style: Large Core | Analysis
Emerson Electric Co. (EMR)
Yield: 2.90% | Style: Large Core | Analysis
3M Company (MMM)
Yield: 2.58% | Style: Large Core

Media Sector

McGraw-Hill Companies Inc. (MHP)
Yield: 2.63% | Style: Large Core

Pharmaceuticals Sector

Eli Lilly & Company (LLY)
Yield: 5.77% | Style: Large Value
Abbott Laboratories (ABT)
Yield: 2.97% | Style: Large Growth | Analysis

Real Estate Sector

Essex Property Trust (ESS)
Yield: 5.14% | Style: Mid Core
Corporate Office Properties Trust Inc. (OFC)
Yield: 4.29% | Style: Mid Core
Federal Realty Investment Trust (FRT)
Yield: 4.06% | Style: Mid Core

Telecommunications Sector

CenturyLink Inc. (CTL)
Yield: 8.10% | Style: Large Value
AT&T Inc. (T)
Yield: 6.54% | Style: Large Value | Analysis

Utilities Sector

Integrys Energy Group Inc. (TEG)
Yield: 6.61% | Style: Mid Value
Consolidated Edison Company (ED)
Yield: 5.59% | Style: Large Value
MGE Energy Inc. (MGEE)
Yield: 4.45% | Style: Small Core

Bonds

Vanguard Short-Term Bond ETF (BSV)
Yield: 2.74% | Style: Short-Term Bond
Vanguard Intermediate-Term Bond ETF (BIV)
Yield: 4.32% | Style: Intermediate-Term Bond
Vanguard Long-Term Bond ETF (BLV)
Yield: 5.16% | Style: Long-Term Bond

Needless to say, the above will not provide a perfect allocation, but it goes a long way to provide diversity in a portfolio focused only on income securities. In my personal portfolio, I buy the best available dividend securities and use my other investments to balance my asset allocation.

Full Disclosure: Long ABT, ADP, AFL, BIV, BLV, BP, CLX, CTL, CVX, ED, EMR, GPC, HGIC, JNJ, KO, LLY, MCD, MMM, NUE, PG, SYY, T, TEG. See a list of all my income holdings here.

(Photo Credit)

9 Stocks Increasing Their Dividends *

D4L — Fri, 18 Sep 2009 10:30:44 +0000

It is good once again to see companies raising their dividends after last week pause and Kraft’s (KFT) announcement it was freezing its dividend at $0.29/share for the 5th straight quarter. Dividend increases are the fuel that keeps our dividend income machines running. Without dividend increases, many dividend stocks would not fare well when compared to other income-based investments.

Below are several companies rewarding their shareholders with higher cash dividends:

Brady Corp. (BRC) is an international manufacturer and marketer of solutions that identify and protect premises, products and people. Products include labels and signs, safety devices, printing systems and software, and precision die-cut materials. Recently, the company increased its quarterly dividend 2.9% to $0.17/share. The dividend will be paid on October 30, 2009, to shareholders of record at the close of business on October 9, 2009. BRC is a Dividend Achiever and has increased its dividend for 24 consecutive years. The current yield based on the new dividend is 2.33%.

Village Super Market (VLGEA) operates a chain of 23 ShopRite supermarkets in New Jersey and Pennsylvania. This past week, the company raised its dividend 7% to $0.23/share. The dividend is payable on October 22, 2009 to shareholders of record at the close of business on October 1, 2009. The ex-dividend date is September 29th. The current yield based on the new dividend is 3.14%.

Agree Realty (ADC) is a real estate investment trust that engages in the development, acquisition, and management of retail properties leased to national and regional retail companies in the U.S. Monday, the company bumped its quarterly dividend 2% to $0.51/share. The dividend is payable October 15, 2009 to shareholders of record at the close of business on September 30, 2009. The current yield based on the new dividend is 8.59%.

Philip Morris Int’l (PM) increased its quarterly dividend 7% to $0.58/share. The current yield based on the new dividend is 4.88%.

Kroger (KR) a supermarket operator, with about 2,500 stores in 31 states, also operates convenience stores, jewelry stores, supermarket fuel centers, and food processing plants. Thursday, the company raised its quarterly dividend 5.5% to $0.095/share. The dividend will be paid on December 1, 2009 to shareholders of record as of the close of business on November 16, 2009. The current yield based on the new dividend is 1.83%.

W. P. Carey (WPC) owns and manages a diversified portfolio of net leased corporate real estate. Yesterday, the company raised its quarterly dividend to $0.50/share. This is the company’s 34th consecutive distribution increase. The current yield based on the new dividend is 7.01%.

Corporate Office Properties (OFC) owns, manages, leases, acquires and develops suburban office properties located in Mid-Atlantic region of the U.S. and other select markets. Thursday the company bumped its quarterly dividend 5.4% to $0.3925/share. The dividend will be paid on October 15, 2009 to shareholders of record on September 30, 2009. OFC is a Dividend Achiever and has increased its dividend for 12 consecutive years. The current yield based on the new dividend is 4.10%.

Texas Instruments (TXN) is one of the world’s largest manufacturers of semiconductors, and also produces hand-held graphing and scientific calculator products. The company yesterday increased its quarterly dividend 9% $0.12/share. The dividend will be payable November 16, 2009, to stockholders of record on October 30, 2009. The current yield based on the new dividend is 2.03%.

NYMAGIC, INC. (NYM) specializes in ocean marine, inland marine and non-marine liability insurance. Thursday, the company increased its dividend to $0.06/share. The dividend is payable on October 6, 2009 to shareholders of record on September 30, 2009. The current yield based on the new dividend is 1.44%.

This year many companies have increased their dividends and there will be more to do so before the year end. For stocks with a long string of consecutive dividend increases, see this list.

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