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.

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(Photo Credit)

Not much of a chance if you let the Wall Street players define the rules. However, you might just slay the giant if you define the rules and focus on quality blue chip dividend growth stocks and long-term, buy-and-hold and investing strategy.

Below are two companies building future yield with increased cash dividends for their shareholders:

Spectra Energy (SE) in an integrated natural gas holding company engaged in gas gathering and processing, and gas transportation and storage, in the U.S. and Canada, and provides retail gas distribution to 1.3 million customers in Ontario, Canada. January 3rd the company increased its quarterly dividend 4% to $0.26/share. The dividend is payable on March 14, 2011, to shareholders of record at the close of business on February 11, 2011. The ex-dividend date is February 9, 2011. The yield based on the new payout is 4.2%.

Bank of the Ozarks (OZRK) owns Bank of the Ozarks, which provides retail & commercial banking products and services via 70 banking and two loan production offices in AR, TX, NC (Dec. 31, 2007). January 3rd the company raised its quarterly cash dividend 6.25% to $0.17/share. The dividend is payable January 21, 2011 to shareholders of record as of January 14, 2011. The Company has increased its quarterly dividend in four of the last five quarters. OZRK is a Dividend Achiever and has raised its dividend for 16 consecutive years. The yield based on the new payout is 1.5%.

In addition to the above, the following stocks are will go Ex-dividend in January:

- Urstadt Biddle Properties (UBA) went Ex-dividend on 1/3/2011, Yield: 5.1%
- Erie Indemnity Company (ERIE) went Ex-dividend on 1/3/2011, Yield: 3.1%
- ABM Industries Inc. (ABM) went Ex-dividend on 1/4/2011, Yield: 2.1%
- AT&T Inc. (T) went Ex-dividend on 1/5/2011, Yield: 5.8%
- Sysco Corp. (SYY) went Ex-dividend on 1/5/2011, Yield: 3.5%
- NSTAR (NST) went Ex-dividend on 1/5/2011, Yield: 4.0%
- Universal Corp. (UVV) went Ex-dividend on 1/6/2011, Yield: 4.8%
- Graco Inc. (GGG) will go Ex-dividend on 1/14/2011, Yield: 2.1%
- Hormel Foods Corp. (HRL) will go Ex-dividend on 1/20/2011, Yield: 2.0%
- Pentair Inc. (PNR) will go on Ex-dividend on 1/27/2011, Yield: 2.1%

Selecting stocks with increasing dividends is critical for an income growth strategy. The above list contains stocks that recently raised their dividends or are ex-dividend in January; 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 T, SYY. See a list of all my income holdings here.

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(Photo Credit)

Dividends Received

Total dividends received during the month were $218.33, consisting of:

• $29.04 The Coca-Cola Company (KO)
• $7.57 Vanguard Intermediate-Term Bond ETF (BIV)
• $11.48 Genuine Parts Company (GPC)
• $14.96 Automatic Data Processing, Inc. (ADP)
• $31.68 Kimberly-Clark Corporation (KMB)
• $27.00 Leggett & Platt, Incorporated (LEG)
• $24.00 Cincinnati Financial Corp. (CINF)
• $38.00 Sysco Corp. (SYY)
• $4.90 PowerShares Emerging Mkt Debt (PCY)
• $29.70 Medtronic, Inc. (MDT)

Dividend Stock Purchases

The following securities were purchased during the month:

• 30 Shares Johnson & Johnson (JNJ) providing $64.80 in annual dividend income
• 50 Shares Harleysville Group Inc. (HGIC) providing $72.00 in annual dividend income
• 58 Shares AT&T, Inc. (T) providing $97.44 in annual dividend income
• 40 Shares Automatic Data Processing, Inc. (ADP) providing $54.44 in annual dividend income

Also, I liquidated my position in Vanguard Intermediate-Term Bond ETF (BIV).

Annualized Dividend Income

Including the above purchases, my annual PCP dividend income is now $2,494.16 at the current dividend rates. This is up $293.84 from last month’s $2,200.32 amount. The PCP has never had a monthly decline in annualized dividend income.

Portfolio Returns

• Month: 2.31%
• Year-to-date: 11.98%
• Life-to-date: 15.30% (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-December.

(Photo: sanja gjenero)

Below are several dividend stocks that recently rewarded their shareholders with increased cash dividends:

Wendy’s/Arby’s (WEN) the combined restaurant systems include more than 10,000 restaurants in 50 states and 21 countries worldwide. November 12th the company increased its quarterly dividend 33%to $0.015/share. The dividend is payable on December 15, 2010 to Wendy’s/Arby’s Group, Inc. stockholders of record as of December 1, 2010. The ex-dividend date is November 29, 2010. The yield based on the new payout is 1.7%.

Sysco Corp. (SYY) is a large distributor of food and related products, primarily to the foodservice or food-away-from-home industry. November 12th the company raised its quarterly dividend 4% to $0.26/share. The dividend is payable on January 28, 2011, to common shareholders of record at the close of business on January 7, 2011. The ex-dividend date is January 5, 2011. SYY is a Dividend Achiever and has raised its dividend for 41 consecutive years. The yield based on the new payout is 3.6%.

Intel (INTC) is the world’s largest manufacturer of microprocessors, the central processing units of PCs, and also produces other semiconductor products. November 12th the company increased its quarterly dividend 13% to $0.18/share. The yield based on the new payout is 3.4%.

Adams Resources & Energy (AE) is engaged in the business of marketing crude oil, natural gas and petroleum products. November 12th the company raised its quarterly dividend 8% to $0.54/share. The dividend is payable on December 15, 2010 to shareholders of record as of December 1, 2010. The yield based on the new payout is 2.3%.

Chicago Rivet & Machine (CVR) produces and sells rivets, cold-formed fasteners, screw machine products, automatic rivet setting machines, parts and tools for such machines, and leases machines. November 15th the company increased its quarterly dividend 20% to $0.12/share. The dividend is payable December 20, 2010 to shareholders of record at the close of business on December 3, 2010. The ex-dividend date is December 1, 2010. The yield based on the new payout is 2.6%.

Mattel (MAT) is a large toy company whose brands and products include Barbie dolls, Fisher-Price toys, American Girl dolls and books, and Hot Wheels. November 15th the company raised its annual dividend 10.7% to $0.83/share. The dividend is payable on December 16, 2010, to stockholders of record on December 3, 2010. The ex-dividend date is December 1, 2010. The yield based on the new payout is 3.4%.

Elbit Systems (ESLT) is an international defense electronics company. November 16th the company increased its quarterly dividend 22% to $0.36/share. The dividend’s record date is November 30, 2010, and the dividend will be paid on December 13, 2010. The ex-dividend date is November 26, 2010. The yield based on the new payout is 2.9%.

Comerica (CMA) is a bank holding company based in Dallas with operations in Michigan, California, Texas, Arizona, and Florida. November 16th the company raised its quarterly dividend 100% to $0.10/share. The dividend is payable on Jan. 1, 2011, to shareholders of record on Dec. 15. The yield based on the new payout is 1.1%.

Montpelier Re (MRH) provides insurance and reinsurance solutions to the global market. November 16th the company increased its quarterly dividend 11% to $0.10/share. The dividend is payable on January 14, 2011, to all shareholders of record as of December 31, 2010. The ex-dividend date is December 29, 2010. The yield based on the new payout is 2.1%.

MeadWestvaco Corp. (MWV) is primarily a major producer of paperboard packaging used in a variety of consumer markets. November 17th the company raised its quarterly dividend 9% to $0.25/share. The dividend is payable on December 1, 2010, to stockholders of record at the close of business on November 26, 2010. The ex-dividend date is November 24, 2010. The yield based on the new payout is 3.9%.

S.Y. Bancorp (SYBT) provides commercial banking, personal banking, investment management, and trust services in the United States. November 17th the company increased its quarterly dividend 6% to $0.18/share. The dividend is payable January 3, 2011, to stockholders of record as of December 13, 2010. The ex-dividend date is December 9, 2010. The yield based on the new payout is 3.0%.

Teck Resources (TCK) is engaged in mining and related activities. November 17th the company raised its semi-annual dividend 54% to $0.30/share. The dividend is payable January 4, 2011, to shareholders of record at the close of business on December 15, 2010. The ex-dividend date is December 13, 2010. The yield based on the new payout is 1.3%.

Johnson Controls (JCI) supplies building controls and energy management systems, automotive seating, and batteries. November 17th the company increased its quarterly dividend 23% to $0.16/share. The dividend is payable January 4, 2011 to shareholders of record at the close of business on December 10, 2010. The yield based on the new payout is 1.7%

New Jersey Resources (NJR) is an energy services holding company providing retail and wholesale energy services to customers in states from the Gulf Coast to the New England regions. November 17th the company raised its quarterly dividend 5.9% to $0.36/share. The dividend is payable January 3, 2011 to shareholders of record on December 15, 2010. The ex-dividend date is December 13, 2010. NJR is a Dividend Achiever and has raised its dividend for 16 consecutive years. The yield based on the new payout is 3.5%.

Schawk (SGK), one of the world’s largest providers of digital graphics services, designs, creates and manages images and text for reproduction to precise specifications for a variety of promotional and advertising media. November 18th the company increased its quarterly dividend to $0.08/share. The dividend is payable on December 30, 2010, to stockholders of record as of December 13, 2010. The ex-dividend date is December 9, 2010. The yield based on the new payout is 1.9%.

Neenah Paper (NP) is a leading international producer and distributor of premium fine papers and technical products used in filtration, tape, abrasives, and other specialty markets. November 18th the company raised its quarterly dividend 10% to $0.11 per share. The dividend is scheduled to be paid in March 2011. The yield based on the new payout is 2.5%.

Union Pacific (UNP) operates the largest U.S. railroad, with over 32,000 miles of rail serving the western two-thirds of the country. November 18th the company increased its quarterly dividend 15% to $0.38/share. The dividend is payable on Jan. 3 to shareholders of record on Nov. 30. The ex-dividend date is Nov. 26. The yield based on the new payout is 1.66%.

Brown-Forman (BF-A) manufactures, bottles, imports, exports and markets a variety of alcoholic beverage brands. November 18th the company raised its quarterly dividend 6.7% to $0.32/share. The dividend is payable December 27, 2010, to shareholders of record as of December 7, 2010. The ex-dividend date is December 3, 2010. The yield based on the new payout is 2%.

Campbell Soup (CPB) is a major producer of branded soups and other grocery food products. November 18th the company raised its quarterly dividend 5% to $0.29/share. The dividend is payable on January 31, 2011 to shareholders of record at the close of business on December 27, 2010. The ex-dividend date is December 23, 2010. The yield based on the new payout is 3.4%.

NSTAR (NST) serves some 1.4 million electric and natural gas customers in Massachusetts, has agreed to be acquired by Northeast Utilities. November 18th the company raised its quarterly dividend 6.3% to $0.425/share. The dividend is payable February 1, 2011 to shareholders of record as of January 7, 2011. The ex-dividend date is January 5, 2010. NST is a Dividend Achiever and has raised its dividend for 12 consecutive years. The yield based on the new payout is 4.1%.

Ruddick (RDK) derives the bulk of its sales from its Harris Teeter supermarket chain, which operates in eight southeastern states. It also manufactures thread and yarn. November 18th the company increased its quarterly dividend to $0.13/share. The dividend is payable on January 1, 2011, to shareholders of record on December 10, 2010. The yield based on the new payout is 1.4%.

Nike (NKE) is the world’s leading designer and marketer of high-quality athletic footwear, athletic apparel, and accessories. November 18th the company raised its quarterly dividend 6.9% to $0.31/share.The dividend is payable on Dec. 30 to shareholders of record on Dec. 6. The ex-dividend date is Dec. 2. The yield based on the new payout is 1.5%.

Laclede Group (LG) primarily distributes natural gas on a retail basis in St. Louis and nearby suburban areas. November 18th the company raised its quarterly dividend 2.5% to $0.405/share. The dividend is payable on January 4, 2011, to shareholders of record on December 10, 2010. The ex-dividend date is December 8, 2010. The yield based on the new payout is 4.6%.

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 SYY, INTC. See a list of all my income holdings here.

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As a child most of heard (or watched) Aesop’s fable The Tortoise and the Hare. The story is about confident hare that brags about how fast he can run while poking fun at a slow-moving tortoise. The tortoise having tired of the hare’s fodder challenges him to a race. The hare jumps out to an early lead and decides to take a nap midway through the race. When he awakes, he finds that the tortoise made steady progress and beat him to the finish line.

Have you ever stopped to ponder just where are all these get-rich-now infomercial millionaires? I know several people who have purchased one or more of these get-rich-now kits, but I don’t know of anyone who actually got rich from purchasing the kit. Warren Buffett and Bill Gates didn’t build their fortunes with a get-rich-now kit. They worked hard built it steadily over time.

In much the same way, a disciplined approach to investing, such as dividend growth stocks, can be highly effective. Though it may seem boring to many, I find it exciting to see my income growing as the finish line approaches. Consider these slow and steady growers:

There are really no shortcuts to long-term wealth. Many of those that win the lottery end up losing the money through mismanagement (or worse.) Dividend growth stocks may be slow, but they are also steady; and slow and steady wins the race.

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

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(Photo: Photo Credit)

Have A Plan

If you suddenly found yourself unemployed and were unable to immediately replace the lost income, do you know what you would do? I suspect there are few families that have given a lot of thought to this. It is like buying a cemetery plot – it is not high on the list to things to consider. The drive home after receiving a pink slip is too late to start planning; at this point you should be in a position to start executing your plan.

Prepare to Execute Your Plan

Schools and businesses have fire drills for a reason. We all know we need to get out of a burning building, but do we really know how until we practice. Recently, my employer had a fire drill and too many people were going down the stairs on one side of the building and this created a traffic jam. If it had been a real fire many would have lost their lives.

In the same regard, it would make sense to take your plan and play “what if I lost my job today. ” You need to understand the answers to these questions: How long can I go without finding a replacement job? Will my plan permanently damage my financial position? What adverse effect will this have on my family (kids’ college, braces, house payments, etc.)? What is the worse case scenario? How will we fare in the worse case scenario?

Develop Alternative Income Streams

One of the best ways to ensure financial success is to develop alternative income steams. If one stream dries up, you have others to fall back on. We all have things we are good at, most can be packaged in a way to provide alternative income. Again, this is not something you can quickly develop the day you are terminated.

Dividend Growth Stocks

One of the best alternative income sources are dividend growth stocks. Just like a regular job they can provide you a steady AND growing income. With advance planning, your income portfolio can become the foundation of your contingency plan. Here are several dividend stalwarts to consider when building your income portfolio:

General Dynamics (GD) is the world’s fifth largest military contractor and also one of the world’s biggest makers of corporate jets. The company has paid dividends since 1979 and has increased them the last 19 years. Current yield: 2.61%

Colgate-Palmolive Company (CL) is a consumer products company, whose products are marketed throughout the world. Colgate’s Oral Care products include toothpaste, toothbrushes, oral rinses, dental floss and pharmaceutical products. The company has paid dividends since 1895 and has increased them the last 47 years. Current yield: 2.64%

Medtronic Inc. (MDT) is a global medical device manufacturer has leadership positions in the pacemaker, defibrillator, orthopedic, diabetes management and other medical markets. The company has paid dividends since 1977 and has increased them the last 33 years. Current yield: 2.68%

The Coca-Cola Company (KO) is the world’s largest soft drink company. It engages in the manufacture, distribution, and marketing of nonalcoholic beverage concentrates, fruit juices and syrups worldwide. The company has paid dividends since 1893 and has increased them the last 48 years. Current yield: 3.01%

McDonald’s Corporation (MCD) is the largest fast-food restaurant company in the world, with about 32,500 restaurants in 117 countries. The company has paid dividends since 1976 and has increased them the last 34 years. Current yield: 3.03%

The Procter & Gamble Company (PG) is a leading consumer products company markets household and personal care products in more than 180 countries. The company has paid dividends since 1891 and has increased them the last 54 years. Current yield: 3.21%

Abbott Laboratories (ABT) is engaged in the discovery, development, manufacture and sale of a diversified line of healthcare products including: drugs, nutritional products, diabetes monitoring devices and diagnostics. The company has paid dividends since 1926 and has increased them the last 38 years. Current yield: 3.29%

The Clorox Company (CLX) is a diversified producer of household cleaning, grocery and specialty food products is also a leading producer of natural personal care products. The company has paid dividends since 1968 and has increased them the last 35 years. Current yield: 3.30%

Johnson & Johnson (JNJ) engages in the manufacture and sale of various products in the health care field worldwide. The company has paid dividends since 1944 and has increased them the last 48 years. Current yield: 3.41%

Sysco Corporation (SYY), through its subsidiaries, engages in the marketing and distribution of a range of food and related products primarily for foodservice industry in the United States and Canada. The company has paid dividends since 1970 and has increased them the last 39 years. Current yield: 3.44%

Harleysville Group Inc. (HGIC) is a regional holding company for property and casualty insurance companies that operates in 32 states, primarily in the eastern half of the U.S. The company has paid dividends since 1986 and has increased them the last 24 years. Current yield: 4.12%

AT&T Inc. (T) provides telephone and broadband service, and the company holds full ownership of AT&T Mobility (formerly Cingular Wireless). AT&T Corp. was acquired in late 2005 and BellSouth in late 2006. The company has paid dividends since 1984 and has increased them the last 27 years. Current yield: 5.87%

The Bottom Line

Even if you never lose your job, one day you will retire and will face a very similar situation. Your salary will go away, replaced by much smaller Social Security payment, and possibly a pension payment (for a shrinking group of employees). More and more retirees have to manage their nest egg to ensure you don’t run out of money. A good plan, the ability to execute and multiple revenue streams including blue-chip dividend growth stocks will make the transition much easier.

Full Disclosure: Long GD, CL, MDT, KO, MCD, PG, ABT, CLX, JNJ, SYY, HGIC, T. See a list of all my income holdings here.

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Linked here is a detailed quantitative analysis of Sysco Corporation (SYY). Below are some highlights from the above linked analysis:

Company Description: Sysco Corporation, through its subsidiaries, engages in the marketing and distribution of a range of food and related products primarily for foodservice industry in the United States and Canada.

Fair Value: I consider four calculations of fair value, see page 2 of the linked PDF for a detailed description:

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

SYY is trading at a discount to 1.) and 3.) above. The stock is trading at a slight premium to its calculated fair value of $30.59. SYY did not earn any Stars in this section.

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

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

SYY earned two Stars in this section for 2.) and 3.) above. The stock earned a Star as a result of its most recent Debt to Total Capital being less than 45%. SYY earned a Star for having an acceptable score in at least two of the four Key Metrics measured. The company has paid a cash dividend to shareholders every year since 1970 and has increased its dividend payments for 39 consecutive years.

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

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

SYY earned a Star in this section for its NPV MMA Diff. of the $670. This amount is in excess of the $500 target I look for in a stock that has increased dividends as long as SYY has. If SYY grows its dividend at 6.5% per year, it will take 3 years to equal a MMA yielding an estimated 20-year average rate of 3.71%. SYY earned a check for the Key Metric ‘Years to >MMA’ since its 3 years is less than the 5 year target.

Other: SYY is a member of the S&P 500 and a member of the Broad Dividend Achievers™ Index.

Conclusion: SYY did not earn any Stars in the Fair Value section, earned two Stars in the Dividend Analytical Data section and earned one Star in the Dividend Income vs. MMA section for a total of three Stars. This quantitatively ranks SYY as a 3 Star-Hold.

Using my D4L-PreScreen.xls model, I determined the share price would need to increase to $33.67 before SYY’s NPV MMA Differential decreased to the $500 minimum that I look for in a stock with 39 years of consecutive dividend increases. At that price the stock would yield 2.91%.

Resetting the D4L-PreScreen.xls model and solving for the dividend growth rate needed to generate the target $500 NPV MMA Differential, the calculated rate is 5.7%. This dividend growth rate is lower than the 6.5% used in this analysis, thus providing a margin of safety. SYY has a risk rating of 1.25 which classifies it as a low risk stock.

The weak economy has led to weak consumer discretionary spending. In 2009, 62% of SYY’s sales were to restaurants; thus they have felt the full brunt of the downturn. This has carried over to the company’s financials. With a 116% free cash flow payout, SYY is treading water hoping the economy will turn soon. Although SYY is trading close to my buy price of $30.59, I plan to wait on its free cash flow payout to improve before adding to my position. For additional information, including the stock’s dividend history, please refer to its data page.

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

Full Disclosure: At the time of this writing, I was long in SYY (4.2% of my Income Portfolio). See a list of all my income holdings here.

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One concern is how will Social Security, pensions and other retirement vehicles withstand the strain. The 2008 market crash has added concern to the viability of these plans. In a New York Times article, “The Unloved Annuity Gets a Hug From Obama“, income annuities are what the administration is promoting to alleviate the pending problem, but is this really a workable solution?

What are income annuities?

The New York Times article describes annuities  as:

“At its simplest, which is how the White House seems to want to keep it, an annuity is something you buy with a large pile of cash in exchange for a monthly check for the rest of your life.”

What are the problems with income annuities?

Charlie Farrell in “Why Annuities Won’t Fix The Retirement Problem“, described the following problems with income annuities:

I. Cash Out Is Determined By Cash In
The income an annuity will produce is directly related to the amount of money you put into the annuity. So if you don’t have much money saved for retirement, you won’t get much of an income stream from an annuity. And most people don’t have much money saved for retirement.

II. Payment Rates Aren’t High
At today’s interest rates, you’ll get about $5.85 of income per year for every $100 you contribute to the annuity (based on a recent quote from a highly-rated insurer). And this $5.85 would be paid to you and your spouse for as long as you both live. That’s basically a 5.85% payout on your savings in retirement.

III. No Provision For Inflation
Annuity payments don’t increase and are fixed for life. So if inflation runs at 3% a year (the average for the last 80 years), your retirement income will be cut by about 45% by the time you’re 85. Meaning that the $5,850 of income will buy you about $3,220 of stuff in today’s dollars, and the $58,500 will buy you about $32,200. You can buy an inflation-adjusted annuity, but when you do that, your initial payout goes down to somewhere around 4%.

IV. Investment Risk
With an annuity, you lose access to your money. Essentially, you gave your money to the insurance company to purchase the annuity. It’s theirs to keep forever, and your income is dependent on the insurance executives running a sound insurance company for the next 30 or so years. That’s always hard to predict and carries it’s own risks.

Dividend Stocks – A Viable Alternative

Instead of turning over your life-savings to an insurance company (that could be the next AIG), why not build a diversified portfolio of dividend growth stocks? This works best if you have time before retirement. The initial rate may not be as high as the 5.85% quoted above, but careful stock selection will allow growth well in excess of inflation. Unlike depending on a single insurance company, a diversified portfolio of at least 30 stocks will greatly reduce the risk. Below are some good dividend growth stocks that will provide a yield-on-cost greater than 5.85% in ten years, based on the listed assumptions:

		Current	Dividend	10-Year
Company	Analysis	Yield	Growth	YOC
Sysco Corp. (SYY)	Link	3.16%	6.52%	5.95%
Piedmont Nat. Gas (PNY)	Link	4.17%	3.74%	6.02%
Clorox Company (CLX)	-	3.24%	6.83%	6.27%
Intel Corporation (INTC)	-	3.07%	7.44%	6.29%
Coca-Cola (KO)	Link	3.19%	7.32%	6.47%
Chevron Corp. (CVX)	Link	3.73%	5.95%	6.64%
General Dynamics (GD)	Link	2.68%	10.07%	6.99%
Procter & Gamble (PG)	Link	2.95%	9.87%	7.55%
Universal Health (UHT)	-	7.26%	1.47%	8.40%
CenturyLink, Inc. (CTL)	-	8.14%	3.57%	11.56%

Social Security was never intended as a retirement plan, but as a supplement to savings. The key to a successful retirement is not to rely on any single income stream, but to build multiple income streams. These would include Social Security, 401(k), IRA (Roth and/or Traditional), pension plan, bonds, and of course, good dividend growth stocks. There is a reason the insurance companies are excited that Obama is focusing on annuities, and it isn’t because they care about you.

Full Disclosure: Long SYY, CLX, INTC, KO, CVX, PG, CTL. See a list of all my income holdings here.

Related Posts
- Retirement Planning With A Defined-Benefit Pension
- Where To Find Great Dividend Stocks
- When Is A Lot of Cash A Bad Thing?
- Rev-up Your Portfolio With Asset Allocation
- What Would Warren Buffett Do?

(Photo: sanja gjenero)

As a benchmark, the S&P 500 (SPY) was down 6.93% on a dividend adjusted basis. The following dividend growth stocks were able to best the S&P and provide a positive return:

Procter & Gamble Co. (PG) is focused on providing branded consumer goods products. The Company markets its products in more than 180 countries.
- YTD Dividend Adjusted Return: 0.40%
- Current Yield: 3.10%

Pepsico, Inc. (PEP) is a global snack and beverage company. The Company manufactures, markets and sells a range of salty, convenient, sweet and grain-based snacks, carbonated and non-carbonated beverages and foods.
- YTD Dividend Adjusted Return: 1.74%
- Current Yield: 3.00%

Clorox Corporation (CLX) is a diversified producer of household cleaning, grocery and specialty food products and is also a leading producer of natural personal care products.
- YTD Dividend Adjusted Return: 3.55%
- Current Yield: 3.40%

Sysco Corp. (SYY) engages in the marketing and distribution of a range of food and related products primarily for foodservice industry in the United States and Canada.
- YTD Dividend Adjusted Return: 4.00%
- Current Yield: 3.40%

Genuine Parts Company (GPC) is a leading wholesale distributor of automotive replacement parts, industrial parts and supplies, and office products.
- YTD Dividend Adjusted Return: 6.08%
- Current Yield: 4.00%

Canadian National Railway Company (CNI) operates Canada’s largest railroad, linking customers in Canada, the U.S., and Mexico through approximately 20,400 miles of track.
- YTD Dividend Adjusted Return: 6.54%
- Current Yield: 1.80%

McDonald’s Corp. (MCD) 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.
- YTD Dividend Adjusted Return: 7.28%
- Current Yield: 3.20%

Realty Income Corp. (O) engages in the acquisition and ownership of commercial retail real estate properties in United States.
- YTD Dividend Adjusted Return: 20.45%
- Current Yield: 5.50%

Obviously, not all dividend stocks outperformed the S&P. Below are some high-profile under-performers during the first 6-months of 2010:

Chevron Corp. (CVX) is a global integrated oil company that has interests in exploration, production, refining and marketing, and petrochemicals.
- YTD Dividend Adjusted Return: Down (10.18%)
- Current Yield: 4.00%

The Coca-Cola Company (KO) The Coca-Cola Company is the world’s largest soft drink company. It engages in the manufacture, distribution, and marketing of nonalcoholic beverage concentrates, fruit juices and syrups worldwide.
- YTD Dividend Adjusted Return: Down (10.60%)
- Current Yield: 3.40%

Abbott Laboratories (ABT) is engaged in the discovery, development, manufacture and sale of a diversified line of healthcare products including: drugs, nutritional products, diabetes monitoring devices and diagnostics.
- YTD Dividend Adjusted Return: Down (11.99%)
- Current Yield: 3.70%

Nucor Corporation (NUE) 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.
- YTD Dividend Adjusted Return: Down (16.56%)
- Current Yield: 3.60%

So what does all this mean? For me, the more relevant list is the latter. When a stock under performs the market (assuming there is not a fundamental reason for doing so), two important things are happening: 1.) it is becoming relatively cheaper and 2.) its dividend is becoming more attractive relative to the market. The opposite is occurring for the stocks listed in the first group.

Full Disclosure: Long PG, PEP, CLX, SYY, GPC, MCD, O, CVX, KO, ABT, NUE. See a list of all my income holdings here.

Related Posts
- Increasing Dividend Yield Part I: Utilities
- 10 Best U.S. Dividend Stocks
- Managing Risk With Dividend Stocks
- Focus On Stocks, Not The Market
- Increasing Dividend Yield Part V: MLPs

(Photo Credit)

Yield does not come without a price. The five options looked at in prior weeks carry some form of added risk and/or complexity. Ultimately, dividend growth investors realize that long-term and sustainable high-yield investments are grown over time. This is accomplished by purchasing high-quality dividend investments with a reasonable yield and a long history of growing their dividends, and waiting for the yield on cost to grow. Consider the following stocks:

Sysco Corp. (SYY) – [Analysis]
- Current Yield: 3.36%
- Assumed Dividend Growth Rate: 6.52%
- Yield On Cost in 10 Years: 6.32%
- Yield On Cost in 20 Years: 11.89%

Coca Cola Co. (KO) – [Analysis]
- Current Yield: 3.22%
- Assumed Dividend Growth Rate: 7.32%
- Yield On Cost in 10 Years: 6.53%
- Yield On Cost in 20 Years: 13.22%

Abbott Labs (ABT) – [Analysis]
- Current Yield: 3.25%
- Assumed Dividend Growth Rate: 8.27%
- Yield On Cost in 10 Years: 7.20%
- Yield On Cost in 20 Years: 15.93%

Raven Industries Inc. (RAVN) – [Analysis]
- Current Yield: 1.85%
- Assumed Dividend Growth Rate: 15.00%
- Yield On Cost in 10 Years: 7.49%
- Yield On Cost in 20 Years: 30.31%

Kimberly Clark Corp. (KMB) – [Analysis]
- Current Yield: 4.20%
- Assumed Dividend Growth Rate: 6.67%
- Yield On Cost in 10 Years: 8.02%
- Yield On Cost in 20 Years: 15.30%

United Technologies Corp. (UTX) – [Analysis]
- Current Yield: 2.09%
- Assumed Dividend Growth Rate: 15.00%
- Yield On Cost in 10 Years: 8.46%
- Yield On Cost in 20 Years: 34.24%

Harleysville Group Inc (HGIC) – [Analysis]
- Current Yield: 4.09%
- Assumed Dividend Growth Rate: 8.00%
- Yield On Cost in 10 Years: 8.83%
- Yield On Cost in 20 Years: 19.07%

Cardinal Health Inc (CAH) – [Analysis]
- Current Yield: 1.98%
- Assumed Dividend Growth Rate: 15.00%
- Yield On Cost in 10 Years: 8.00%
- Yield On Cost in 20 Years: 32.34%

Nucor Corp. (NUE) – [Analysis]
- Current Yield: 3.15%
- Assumed Dividend Growth Rate: 15.00%
- Yield On Cost in 10 Years: 12.76%
- Yield On Cost in 20 Years: 51.60%

McDonalds Corp. (MCD) – [Analysis]
- Current Yield: 3.27%
- Assumed Dividend Growth Rate: 15.00%
- Yield On Cost in 10 Years: 13.23%
- Yield On Cost in 20 Years: 53.53%

The growth rates used above are the minimum of the compound annual dividend growth rate for the last 1, 3, 5, 7, 10 years or 15% if dividends grew on average in excess of 15% for each consecutive 4 year period, within the last 10 years. The growth rates are for illustrative purposes only. Obviously, no one can definitively say what any stock’s future dividend growth rate will be. However, there were dividend growth superstars over the past 10-years and, needless to say, there will be several in the next 10 years.

Below are links to the other five options to increase the yield in our income portfolio:

1. Increasing Dividend Yield Part I: Utilities
2. Increasing Dividend Yield Part II: REITs
3. Increasing Dividend Yield Part III: Preferred Stock
4. Increasing Dividend Yield Part IV: Bonds
5. Increasing Dividend Yield Part V: MLPs

Full Disclosure: Long SYY, KO, ABT, KMB, UTX, HGIC, NUE, MCD. See a list of all my income holdings here.

(Photo Credit)