Dividends Value » PG

Don’t Touch These 5 Dividend Stocks! *

D4L — Wed, 23 Mar 2011 07:30:23 +0000

Has someone near and dear to you responded with a ‘I was only trying to help’ after royally messing something up? Have you ever tinkered with a computer, smart phone or something else only to learn it no longer works and you are not sure how to fix it? Our dividend stock investments can suffer the same fate if we provide them with too much of the wrong type of attention. Here are some things to remember to keep your income investments on the straight and narrow…

Avoid Irrelevant Information

I tire of hearing the stock reports that sound like a horse race, ‘After early mixed results, the Dow edged up two points today despite a government report indicating unemployment is running at two-tenths of a percent above previous estimates…’ Will any of this have meaning in 10 years? 5 years? 1 year? In a month or a week? If you tune in to the same program tomorrow, you will likely hear an equally irrelevant, and possibly contrary, rant. Successful investing is a marathon, not a 40 yard dash.

Avoid Excess Trading

The investment community is geared toward trading. The media with their incessant play-by-play call of the market creates a sense of urgency. If the market is going up, you are made to feel like you are missing out on enormous gains, while market declines leave the investor feeling the need to sell before losing it all. The common thread here is the investor is being pushed to trade. Excessive buying and selling will at best mute a portfolio’s return and at worse, will deplete it.

Buy And Hold

Its ironic that buy-and-hold (through dividend and value investing) is seeing a resurgence, while concurrently being attacked on many fronts as being dead and no longer valid. Some attacks are a result of ignorance on the part of those not fully understanding the concept. Buy-and-hold is not buy-and-forget. All investment strategies should have a well-defined exit plan. Making a quick buck is not part of the exit strategy of long-term buy-and-hold dividend and value investors. Instead, it is our desire to hold the stock forever, assuming the stock continues to meet out investing criteria. When the stock no longer performs as anticipated, such as cutting its dividend, it is immediately sold.

Dividend Stocks Worth Waiting On

If our investment horizon is forever, we must do our due diligence up front and select only the very best stocks. Below are several stocks that have earned the patience of many dividend growth investors:

Johnson & Johnson (JNJ) | Yield: 3.7%
Johnson & Johnson is a leader in the pharmaceutical, medical device and consumer products industries. JNJ is a member of the S&P 500, a Dividend Aristocrat and a member of the Broad Dividend Achievers™ Index and a Dividend Champion. The company has paid a cash dividend to shareholders every year since 1944 and has increased its dividend payments for 49 consecutive years.

McDonald’s Corp. (MCD) | Yield: 3.2%
McDonald’s Corporation is the largest fast-food restaurant company in the world, with about 32,500 restaurants in 117 countries. MCD is a member of the S&P 500, a Dividend Aristocrat and a member of the Broad Dividend Achievers™ Index and a Dividend Champion. The company has paid a cash dividend to shareholders every year since 1976 and has increased its dividend payments for 35 consecutive years.

The Coca-Cola Company (KO) | Yield: 2.9%
The Coca-Cola Company is the world’s largest soft drink company, KO also has a sizable fruit juice business. KO is a member of the S&P 500, a Dividend Aristocrat and a member of the Broad Dividend Achievers™ Index and a Dividend Champion. The company has paid a cash dividend to shareholders every year since 1893 and has increased its dividend payments for 48 consecutive years.

Procter & Gamble Co. (PG) | Yield: 3.1%
The Procter & Gamble Company is a leading consumer products company that markets household and personal care products in more than 180 countries. PG is a member of the S&P 500, a Dividend Aristocrat and a member of the Broad Dividend Achievers™ Index and a Dividend Champion. The company has paid a cash dividend to shareholders every year since 1891 and has increased its dividend payments for 54 consecutive years.

Wal-Mart Stores Inc. (WMT) | Yield: 2.8%
Wal-Mart Stores, Inc. is the largest retailer in North America, WMT operates a chain of discount department stores, wholesale clubs, and combination discount stores and supermarkets. WMT is a member of the S&P 500, a Dividend Aristocrat and a member of the Broad Dividend Achievers™ Index and a Dividend Champion. The company has paid a cash dividend to shareholders every year since 1973 and has increased its dividend payments for 36 consecutive years.

Conclusion

We live in an action-oriented world. In a microwave society that provides us instant everything, we look for immediate feedback for our actions. Sometimes it is hard to abide by the old adage ‘if it’s not broke, don’t fix it’, but when it comes to our dividend growth investments, we need to allow time to work its wonders on our portfolio.

Full Disclosure: Long JNJ, MCD, KO, PG, WMT. 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)

These 11 Dividend Stocks Could Make You Wealthy *

D4L — Wed, 02 Mar 2011 07:30:03 +0000

It seems the older I get the more I fight with my weight. I know how to lose weight – I have done it several times. The formula is not difficult, eat less and exercise more. My problem, like many others, is in the implementation. In much the same way, the formula to building wealth is rather simple – spend less than you earn and invest the difference. Once again implementation is where many people come up short. With the right focus and some positive feedback, building wealth can be much easier than shedding the spare tire around your mid-section. Here’s how to do it…

Fad Diets and Fad Investing Plans Rarely Work

Forget about those ‘Make 534% On Every Trade’ ads that you see on many financial websites. Real wealth is built with sweat equity and a sound financial plan. The only people making money off fad investments are the people selling them. To understand what will and will not work in the future you must understand the concepts that have worked in the past. Granted, each success story is different, but there are common traits as Philip E. Humbert noted when he studied successful people and came up with the “Top 10 Traits of Highly Successful People.” Here are 3 traits that we can apply to our investments:

1. Highly successful people work hard

They get up early, rarely complain. They expect high performance from others, but they expect extraordinary performance from themselves. Success starts with a recognition that hard work pays off. Highly successful investors don’t waste time trying to find an quick and easy way to get rich in the stock market.

2. Highly successful people are self-reliant and take responsibility

How many times have you heard, ‘I am fat because of my genes, my thyroid, my wife, my husband, …’ Or how many times have you heard, ‘I am broke because, I don’t make enough (my boss’ fault), things are so expensive (companies’ fault), Social Security will fund for my retirement, …’

3. Highly successful people “look over the horizon” to see the future

We live in a society of instant gratification. There is no planning for the future and certainly no foresight what the future will bring. A successful retirement just doesn’t happen – it is build with a plan over many decades.

Dividend Stocks To Help Grow Your Wealth

A long-term buy-and-hold investing approach focusing on quality dividend growth stocks has has provided the means for many investors to enjoy a comfortable retirement. If you start early enough, you will go beyond a comfortable retirement into the realm of building long-term wealth. For starters, you might consider these dividend stocks that have been rewarding their investors with growing dividends for 40 or more consecutive years:

Sysco Corporation (SYY) | Growth Yrs: 40 | Yield: 3.7%
Sysco Corporation is a large distributor of food and related products, primarily to the food-service or food-away-from-home industry.

Black Hills Corporation (BKH) | Growth Yrs: 40 | Yield: 4.7%
Black Hills Corp. is a South Dakota-based holding company that encompasses electric utility and integrated energy businesses.

California WaterService Group (CWT) | Growth Yrs: 43 | Yield: 3.4%
California Water Service Group operates regulated water utilities in California, Washington, New Mexico and Hawaii, and provides other non-regulated services.

Hormel Foods Corp. (HRL) | Growth Yrs: 45 | Yield: 1.9%
Hormel Foods Corp. company is a leading processor of branded, convenience meat products (primarily pork) for the consumer market.

Colgate-Palmolive (CL) | Growth Yrs: 47 | Yield: 2.6%
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.

Coca-Cola Company (KO) | Growth Yrs: 48 | Yield: 2.7%
The Coca-Cola Company is the world’s largest soft drink company, KO also has a sizable fruit juice business.

Johnson & Johnson (JNJ) | Growth Yrs: 48 | Yield: 3.5%
Johnson & Johnson is a leader in the pharmaceutical, medical device and consumer products industries.

Cincinnati Financial (CINF) | Growth Yrs: 50 | Yield: 4.7%
Cincinnati Financial Corp. markets primarily property and casualty coverage. It also conducts life insurance and asset management operations.

3M Company (MMM) | Growth Yrs: 52 | Yield: 2.3%
3M Co. provides enhanced product functionality in electronics, health care, industrial, consumer, office, telecommunications, safety & security and other markets via coatings, sealants, adhesives, and other chemical additives.

Procter & Gamble (PG) | Growth Yrs: 54 | Yield: 3.1%
The Procter & Gamble Company is a leading consumer products company that markets household and personal care products in more than 180 countries.

Emerson Electric Co. (EMR) | Growth Yrs: 55 | Yield: 2.3%
Emerson Electric Co. designs and supplies product technology, and delivers engineering services and solutions to a wide range of industrial, commercial, and consumer markets around the world.

Conclusion

If losing weight and building wealth were easy, there wouldn’t be people wanting to sell you the secret. Notice there aren’t any seminars on how to yawn (though several accounting seminars have caused me to do it.) The first step toward success is deciding to take responsibility for our future. With a little planning, effort and the right dividend growth stocks, we can be well on our way to creating long-term wealth.

Full Disclosure: Long SYY, CL, KO, JNJ, CINF, MMM, PG, EMR. See a list of all my income holdings here.

(Photo Credit)

13 Dividend Stocks Headed In The Right Direction *

D4L — Wed, 23 Feb 2011 07:30:59 +0000

A photograph captures a moment in time. Seconds after the flash dims a tree could have fallen on the object of the photo or the sad looking man in the photo could have been told he just won a million dollars. In much the same way a dividend stock analysis is a snapshot in time, but the real question for the savvy dividend investor is ‘where is the stock headed?’ Here are four important directional metrics that I look for when updating my stock database…

1. Declining Shares

Many companies sell stock to raise cash. The important question is what is the company going to do with the cash? Is it for an acquisition or “general corporate purposes?” The latter is code for the business is not generating enough cash to stay afloat on its own. I am wary of a company that consistently has more shares outstanding in the current year when compared to the prior year. As I enter updates to my database, equal or lower shares outstanding is a sign of a healthy business.

2. Declining Debt

When companies need to raise cash and selling shares is not a good option, they often will issue debt. Once again, the important question is what is the company going to do with the cash? Like issuing shares, debt for a strategic acquisition is much more palatable than for “general corporate purposes.” I am wary of a company that consistently has more debt outstanding than the year before. As I enter updates to my database, I make note of companies with a declining debt balance and see that as a sign of a healthy business.

3. Rising Equity

Changes in shareholder’s equity are a result of earnings, dividends paid, treasury stock purchased, stock options exercised and stock issued. If shares outstanding aren’t increasing, and equity is rising then the business is generating sufficient earnings to cover dividends and share repurchases. Increasing the value of the company by running the business well is a sign of a healthy company.

4. Rising Free Cash Flow/Share

Ultimately, we want our investments to generate more free cash flow so they can pay us higher dividends. Free cash flow is an important metric in that it excludes cash generated from issuing stock or issuing debt or selling off parts of the business. Free cash flow is limited to only the cash generated from running the business.

Dividend Stocks Headed In The Right Direction

Combining the equity and debt metrics, I looked for companies with a declining Debt to Total Capital ratio, and combining the free cash flow and shares outstanding metrics, I looked for a rising free cash flow per share. Below are several companies I noted that exhibited each of the above characteristics:

Automatic Data Processing Inc. (ADP) is one of the world’s largest independent computing services companies, providing a broad range of data processing services.
Debt to Total Capital | 2005: 1%, TTM: 1%
Free Cash Flow/Share | 2005: $2.10, TTM: $3.06
Yield: 2.84%

Cullen/Frost Bankers, Inc. (CFR) is one of the largest multi-bank holding company headquartered in Texas, has more than 110 offices in various cities in the state.
Debt to Total Capital | 2005: 30%, TTM: 15%
Free Cash Flow/Share | 2005: $2.13, TTM: $5.23
Yield: 2.98%

Erie Indemnity Co. (ERIE) provides sales, underwriting, and policy issuance services to the policyholders of Erie Insurance Exchange in the United States.
Debt to Total Capital | 2005: 0%, TTM: 0%
Free Cash Flow/Share | 2005: $4.33, TTM: $6.93
Yield: 2.77%

Genuine Parts Co. (GPC) is a leading wholesale distributor of automotive replacement parts, industrial parts and supplies, and office products.
Debt to Total Capital | 2005: 16%, TTM: 15%
Free Cash Flow/Share | 2005: $2.03, TTM: $3.57
Yield: 2.97%

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.
Debt to Total Capital | 2005: 29%, TTM: 20%
Free Cash Flow/Share | 2005: $1.75, TTM: $3.08
Yield: 2.25%

The Procter & Gamble Company (PG) is a leading consumer products company that markets household and personal care products in more than 180 countries.
Debt to Total Capital | 2005: 38%, TTM: 33%
Free Cash Flow/Share | 2005: $2.65, TTM: $3.46
Yield: 3.00%

RPM International Inc. (RPM) makes specialty coatings and products for the structural waterproofing and corrosion control markets, as well as products for the consumer, do-it-yourself, and hobby markets.
Debt to Total Capital | 2005: 44%, TTM: 43%
Free Cash Flow/Share | 2005: $0.81, TTM: $1.34
Yield: 3.47%

J.M. Smucker Co.’s (SJM) products include coffee, fruit spreads, peanut butter, shortening and oils, ice cream toppings, health and natural foods, and beverages. The Folgers coffee business was acquired in November 2008.
Debt to Total Capital | 2005: 21%, TTM: 19%
Free Cash Flow/Share | 2005: $1.84, TTM: $3.69
Yield: 2.61%

Sonoco Products Co. (SON) makes paper and plastic packaging products serves various industries and markets in more than 85 countries.
Debt to Total Capital | 2005: 38%, TTM: 29%
Free Cash Flow/Share | 2005: $0.98, TTM: $1.68
Yield: 3.10%

Suburban Propane Partners LP (SPH) is a limited partnership that markets propane gas and other refined fuels to residential, commercial, industrial, and agricultural customers.
Debt to Total Capital | 2005: 88%, TTM: 44%
Free Cash Flow/Share | 2005: $0.33, TTM: $3.67
Yield: 5.88%

AT&T Inc. (T) 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.
Debt to Total Capital | 2005: 42%, TTM: 39%
Free Cash Flow/Share | 2005: $2.10, TTM: $2.50
Yield: 5.88%

V.F. Corp. (VFC) is a global apparel company, with leading shares in denim and daypacks. It is transforming itself into a designer and marketer of lifestyle apparel brands.
Debt to Total Capital | 2005: 22%, TTM: 20%
Free Cash Flow/Share | 2005: $4.11, TTM: $9.46
Yield: 2.71%

Verizon Communications Inc. (VZ) offers wireline, wireless and broadband services primarily in the northeastern United States. It acquired MCI Inc in 2006 and has since sold or spun off non-core assets. Alltel was acquired in early 2009.
Debt to Total Capital | 2005: 50%, TTM: 39%
Free Cash Flow/Share | 2005: $2.37, TTM: $6.07
Yield: 5.22%

Businesses can pay dividends with cash generated from many sources. They can generate cash by issuing shares, which dilutes our ownership. They can generate cash by issuing debt, which burdens the company with interest payments. Or, they can generate cash by running the business well, which neither dilutes the current shareholders’ interest or burdens them with future cash payments. Which would you rather have?

Full Disclosure: Long ADP, GPC, OMI, PG, T. See a list of all my income holdings here.

(Photo Credit)

Building Yield: 15 Consumer Goods Dividend Stocks *

D4L — Wed, 02 Feb 2011 07:30:08 +0000

Over the next several weeks I plan to look at different sectors that have traditionally been very friendly to dividend investors. Each of these sectors have attributes that make the companies in them potentially desirable to long-term buy-and-hold dividend growth investors. Understanding these attributes will hopefully help us to select the very best companies for our income portfolios. First up the Consumer Goods Sector…

Consumer Goods Attributes

Demand for household and personal care products is generally stable and not affected by changes in the economy or other factors. There are certain things people will continue to purchase no matter how bad the economy gets. If you lose your job, you probably won’t stop bathing, washing your clothes, brushing your teeth or stop buying toilet paper. Given the relatively low price of most consumer goods, consumers often prefer to pay a few pennies more for a name brand that they are confident with.

Raw material costs is a primary driver of profitability, and the larger more established companies are in a better position to negotiate better terms. Growth comes from a growing population and expanding into emerging markets where the people are starting to earn a wage they can not only life on, but begin to buy things we consider necessities.

Consumer Goods Companies

Below are several leading Consumer Goods companies that I follow. The companies selected have a dividend yield in excess of 2.25% and have raised their dividends for at least 5 years (all but one are in excess of 10 years).

McCormick & Company (MKC) | Yield: 2.3% | Growth: 8.3% | Years: 24
McCormick & Company Inc. manufactures, markets and distributes flavor products and other specialty food products to the entire food industry.

J.M. Smucker Company (SJM) | Yield: 2.6% | Growth: 7.6% | Years: 12
J.M. Smucker Co.’s products include coffee, fruit spreads, peanut butter, shortening and oils, ice cream toppings, health and natural foods, and beverages. The Folgers coffee business was acquired in November 2008.

Colgate-Palmolive (CL) | Yield: 2.6% | Growth: 12.5% | Years: 47
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.

Weyco Group, Inc. (WEYS) | Yield: 2.7% | Growth: 15.0% | Years: 29
Weyco Group, Inc. distributes, wholesale & retail, men’s branded footwear in the U.S., Canada, Europe; offers casual footwear, dress shoes and accessories under Florsheim, other brands.

Coca-Cola Company (KO) | Yield: 2.8% | Growth: 7.3% | Years: 48
The Coca-Cola Company is the world’s largest soft drink company, KO also has a sizable fruit juice business.

Bemis Company, Inc. (BMS) | Yield: 2.8% | Growth: 2.2% | Years: 27
Bemis Company Inc. is a leading maker of a broad range of flexible packaging and pressure-sensitive materials.

Pepsico, Inc. (PEP) | Yield: 2.9% | Growth: 6.5% | Years: 38
PepsiCo, Inc. is a major international producer of branded beverage and snack food products.

V.F. Corporation (VFC) | Yield: 3.0% | Growth: 2.1% | Years: 36
V.F. Corp is global apparel company, with leading shares in denim and daypacks. It is transforming itself into a designer and marketer of lifestyle apparel brands.

Procter & Gamble (PG) | Yield: 3.0% | Growth: 7.0% | Years: 54
The Procter & Gamble Company is a leading consumer products company markets household and personal care products in more than 180 countries.

Sonoco Products Co. (SON) | Yield: 3.1% | Growth: 1.9% | Years: 27
Sonoco Products Co. makes paper and plastic packaging products serving various industries and markets in more than 85 countries.

Avon Products, Inc. (AVP) | Yield: 3.1% | Growth: 4.8% | Years: 20
Avon Products Inc. is the world’s leading direct marketer of cosmetics, toiletries, fashion jewelry, and fragrances and has more than 5 million sales representatives worldwide.

The Clorox Company (CLX) | Yield: 3.4% | Growth: 9.3% | Years: 35
The Clorox Company is a diversified producer of household cleaning, grocery and specialty food products and is also a leading producer of natural personal care products.

H.J. Heinz Company (HNZ) | Yield: 3.8% | Growth: 1.9% | Years: 7
The H.J. Heinz Company produces a wide variety of food products worldwide, primarily condiments, convenience meals and snacks.

Kimberly-Clark Co. (KMB) | Yield: 4.1% | Growth: 6.7% | Years: 38
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.

Leggett & Platt, Inc. (LEG) | Yield: 4.7% | Growth: 3.0% | Years: 38
Leggett & Platt Inc makes a broad line of bedding and furniture components and other home, office and commercial furnishings, as well as diversified products for non-furnishings markets.

Conclusion

The Consumer Goods is the third largest sector in my database of dividend stocks. Of the 198 stocks that I track, it currently is represented by 30 stocks (15%). As noted above this is a very important sector for dividend growth investors. It it brings yield stability and potential growth to an income portfolio. Many income and value portfolios are over-weighted in Consumer Goods, including Warren Buffett’s Berkshire Hathaway (BRK.A) at 42%. Keep the soap and toilet paper coming!

Full Disclosure: Long CL, KO, PEP, PG, CLX, KMB, LEG. See a list of all my income holdings here.

(Photo Credit)

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)

Who Owns The Top Dividend Stocks? *

D4L — Wed, 12 Jan 2011 07:30:51 +0000

The internet provides investors with so much useful and interesting information. I could not imagine going back a decade or so and trying to analyze stocks without the internet – waiting for quarterly reports to be mailed for owned companies and calling the investor relations contacts for information on unowned companies. One of my job responsibilities is the statutory reporting for the corporation I work for. Filing 10-Ks, 10-Qs and other such required reports is often tedious, but it gives me a great appreciation of what information is available, including who owns some of the top dividend stocks…

In the U.S., the Securities and Exchange Commission (SEC) requires institutional investment managers who exercise investment discretion over $100 million or more in Section 13(f) securities to report their holdings on Form 13F with the SEC. Because of this required filing we can analyze the holdings of Berkshire Hathaway (Warren Buffett’s holding company) or any other large institution. However, once the Form 13Fs are aggregated, we can see who the large shareholders are for any public company, including these high profile dividend growth companies:

Johnson & Johnson (JNJ) | Yield: 3.5%
- 62.44% Institutional Ownership (%)
- 20.20% Top 10 Institutions (%)
- 00.79% 5%/Insider Ownership (%)
- 4.9% State Street Global Advisors (US)
- 3.8% Vanguard Group, Inc.
- 3.3% BlackRock Institutional Trust Company, N.A.
- 1.6% Berkshire Hathaway Inc.
- 1.4% State Farm Insurance Companies

The Coca-Cola Company (KO) | Yield: 2.8%
- 62.87% Institutional Ownership (%)
- 29.60 Top 10 Institutions (%)
- 04.68% 5%/Insider Ownership (%)
- 8.6% Berkshire Hathaway Inc.
- 3.7% Vanguard Group, Inc.
- 3.6% State Street Global Advisors (US)
- 3.2% Fidelity Management & Research
- 3.1% BlackRock Institutional Trust Company, N.A.

Procter & Gamble Co. (PG) | Yield: 3.0%
- 57.01% Institutional Ownership (%)
- 20.00% Top 10 Institutions (%)
- 00.34% 5%/Insider Ownership (%)
- 3.9% State Street Global Advisors (US)
- 3.8% Vanguard Group, Inc.
- 3.5% BlackRock Institutional Trust Company, N.A.
- 2.7% Berkshire Hathaway Inc.
- 1.5% Fidelity Management & Research

For the above I used MSN MoneyCentral, but many other services provide the same information. Obviously, large index mutual funds, such as the Vanguard Group, Inc. and Fidelity, will hold significant positions in S&P 500 companies, and those in other indexes. Insurance companies, such as Berkshire Hathaway Inc. and State Farm, will always have large sums invested in equities. The above three popular dividend growth stocks are all held by Berkshire Hathaway Inc. (BRK.A). As you can see from BRK.A’s latest 13F on the SEC’s website, they are also holding these other dividend growth stocks:

Buffett is a renowned value investor. As such, BRK.A’s 13F is one of the most viewed each quarter when it is filed. Investors want to know what the Oracle has bought and sold. Many websites use this information to set up a Buffett Tracking Portfolio, along with other respected investors. There is a great deal of information freely available to investors. Sometimes we just need to detour from our familiar paths to discover it.

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

(Photo Credit)

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

(Photo Credit)

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.