Dividends Value » TEG

3 Dividend Stocks That I Will NEVER Lose Money On *

D4L — Wed, 16 Mar 2011 07:30:20 +0000

Wouldn’t it be nice to buy stocks that only had upside. While we are wishing why don’t we add in predictable earnings, predictable dividends and, of coarse, we don’t want to pay a premium for this investment. Does this sound unrealistic? Possibly, at face value, but there is a way to accomplish this. It won’t happen overnight, but it can be done. Here is how I have been able to do it…

Start With Quality Stocks

Just as ‘better ingredients make a better pizza’, higher quality stocks provide more predictable dividends and an increased chance of becoming one of these Golden Stocks. As with any income investment, I look for stocks that have consistently increased their dividends for many consecutive years and operate in businesses that do well over all parts of the economic cycle.

Add In A Generous Portion Of Time

This is not an overnight process. Most good things are worth waiting for. If you are to establish a long-term relationship with a stock, it better be a quality stock. Time is a powerful force, with it we can overcome poor choices, poor timing and bad decisions. Without it, we immediately are forced to pay for our indiscretions.

Strategic Selection Of Entry And Exit Points

Just typing the above made the hair on the back of my neck stand up — It sounds too much like market timing, for which I have no use for. However, all successful strategies have an element in them that encourages investors to buy low and sell high. Consider how asset allocation works. When one sector experiences a decline, the investor will buy that sector to keep his or her allocation in balance. Later when it rises, the investor may be forced to sell to rebalance their allocation. In much the same way, I tend to smile a lot when the market is crashing-and-burning. It is at these times when truly great stocks are being traded and rock-bottom prices. As we will see, these purchases are more quickly turned into Golden Stocks.

Three Golden Stocks

So what exactly is a Golden Stock? The concept did not originate with me, and others have different names for it, including ‘zero-basis stock.’ I don’t care for that name since, in reality it is nearly impossible to hold a stock with zero basis (at least the way the IRS calculates basis). A Golden Stock is one in which I have fully recovered my entire investment either through dividends or from partial liquidation or a combination of both. In my income portfolio, I am currently holding these 3 Golden Stocks:

3M Company (MMM) | YOC: 4.4% | Yield: 2.3%
This stock was originally purchased in March 2009 when the market was at its low. In October 2010, I sold 50% of my shares. Proceeds from that sale, along with dividends received, account for 101.1% of my original investment.

Emerson Electric Co. (EMR) | YOC: 3.5% | Yield: 2.3%
My EMR holdings were purchased in July 2009 and October 2009. The July purchase was at $31.64 while the October purchase was at $39.59. In February 2011, I sold 55% of my shares. Proceeds from that sale, along with dividends received, account for 100.4% of my original investment.

Integrys Energy Group, Inc. (TEG) | YOC: 7.3% | Yield: 5.4%
TEG is different from the first two stocks in that its quarterly dividend has been frozen at $0.62/share since March 2009. I purchased one block in November 2008 at $43.81 and a second block in February 2009 at $36.83. In March 2011, I sold 67% of my shares. Proceeds from that sale, along with dividends received, account for 102.7% of my original investment.

More Golden Stocks On The Way

In addition to the above, several of my other income holdings are well on their way to becoming Golden Stocks. These include:

The Coca-Cola Company (KO) | YOC: 3.8% | Yield: 2.7%
This stock is in most every dividend growth investors portfolio. I have currently recovered through sales and dividends 21.2% of my initial investment.

Realty Income Corp. (O) | YOC: 6.9% | Yield: 5.0%
This stock is hold-over from my yield chasing days. When I started investing the right way, I held on to a handful of the better high-yield dividend stocks. I have currently recovered through sales and dividends 26.8% of my initial investment.

Consolidated Edison, Inc. (ED) | YOC: 5.5% | Yield: 4.7%
I have held a position in this stock since January 2005. Though its dividend increases have been rather modest, they have been consistent. I have currently recovered through sales and dividends 43.8% of my initial investment.

Commercial Net Lease Realty, Inc. (NNN) | YOC: 7.9% | Yield: 5.9%
This stock is another hold-over from my yield chasing days. In May 2009, I sold 51% of my shares after NNN failed to raise its dividend. However, it later raised its dividend in August 2010 to keep its streak of annual dividend increases alive. I have currently recovered through sales and dividends 68.6% of my initial investment.

Health Care Property Investors Inc. (HCP) | YOC: 6.0% | Yield: 5.0%
Yet another hold-over from my yield chasing days. I have held a position in this stock since March 2005. On paper, I should have sold this stock a long time ago, but it has continued to appreciate and to raise its dividend. It will likely be my next Golden Stock. I have currently recovered through sales and dividends 81.2% of my initial investment.

Conclusion

Needless to say, the statement that I will NEVER lose money on my 3 Golden Stocks is predicated on not purchasing any additional shares, which may or may not be the case. These stocks have already paid for themselves once, and given the right circumstances, I would be willing to let them do it again. Dividend growth stocks are truly stocks that pay you to own them.

Full Disclosure: Long MMM, EMR, TEG, KO, O, ED, NNN, HCP. See a list of all my income holdings here.

(Photo Credit)

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)

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.

(Photo Credit)

17 Stocks With Room To Grow Their Dividend *

D4L — Wed, 27 Oct 2010 07:30:50 +0000

Dividend sustainability is paramount for the high-yield investor. Having a stock cut its dividend could potentially crush their income. A high-yield investor is less concerned about dividend growth than maintaining the current high-yield. Most traditional dividend growth stocks pay a moderate to low yield, thus sustainability is not enough – the dividend growth investor also expects substantial and consistent growth.

This expectation does not change even when the economy turns down and earnings decline; dividend growth investors still require annual dividend growth. The companies that are able to accomplish this are those with a operating model that generates strong free cash flows with room to pay out a higher percentage as dividends. Below are several companies with a low free cash flow payout (below 40%):

	Current	FCF
Company	Yield	Payout
Cardinal Health (CAH)	2.44%	11.01%
Diebold, Inc. (DBD)	3.30%	17.21%
General Dynamics (GD)	2.54%	25.84%
PPG Industries, (PPG)	2.84%	26.16%
Medtronic Inc. (MDT)	2.52%	27.88%
ADP, Inc. (ADP)	3.08%	30.34%
Procter & Gamble (PG)	3.04%	31.30%
Intel Corporation (INTC)	3.19%	32.05%
Abbott Labs (ABT)	3.27%	34.76%
Genuine Parts (GPC)	3.45%	39.57%

An interesting twist to the above is a 2006 study conducted by Credit Suisse that found high dividend yield stocks generally
outperformed those with lower yields. However, the best returns did not come from those with the highest yields, but those with higher yields coupled with low payout ratios. The study found that high yield, low payout stocks that produced the better returns were priced at low ratios of price-to-earnings, and as a corollary, at high ratios of earnings-to-price; i.e., earnings yield. Put another way, the stocks prices were depressed, thus creating the higher yield and a value play. Below are several dividend growth stocks with a higher yields (around 4%+) and low free cash flow payouts (50% and below):

	Current	FCF
Company	Yield	Payout
Integrys Energy (TEG)	5.09%	24.43%
Pitney Bowes Inc. (PBI)	6.60%	43.01%
Atmos Energy (ATO)	4.60%	46.64%
Cincinnati Finl. (CINF)	5.21%	46.87%
Eli Lilly and Co. (LLY)	5.54%	50.33%
Federated Investors (FII)	4.02%	39.92%
Harleysville Grp (HGIC)	3.95%	34.72%

At some point we will all want to retire, but that is not to say we want our portfolio to stop working for us. A good dividend growth stock portfolio will not only provide us income in our retirement, but provide us more income each year than the one before.

Full Disclosure: Long GD, MDT, ADP, PG, INTC, ABT, GPC, TEG, CINF, LLY, HGIC. See a list of all my income holdings here.

(Photo Credit)

When To Sell A Dividend Stock *

D4L — Wed, 25 Aug 2010 07:30:47 +0000

As a long-term buy-and-hold investor, most of my evaluation efforts are aimed at determining when to buy a stock. Sometimes it is necessary to sell a stock and we need to be equally adept at identifying those times. I have stated on numerous occasions that I have one hard and fast sell rule for my individual dividend stocks: When an individual stock held as a dividend investment lowers its dividend, immediately sell it. However, there are other times it makes sense to sell. Consider these:

Significant Price Run-up Distorting Dividend Fundamentals

When you buy a dividend stock at a depressed level it will eventually return to its norm. However, at its normal level the dividend fundamentals could be so bad that you would be better off putting the money to work somewhere else. For this evaluation, my primary indicator is the NPV MMA Differential. When this metric goes negative, it in effect is saying you are better off putting the into a money market account for the next 20 years. When this occurs I look for a way to exit the position and retrieve my original investment, leaving the portion attributable to capital appreciation. Examples of stocks that I hold with these characteristics (or close to it) are:

Dividend Freeze Leading to Poor Dividend Fundamentals

When a company fails to raise its dividend (dividend freeze), the dividend fundamentals quickly deteriorate if its yield is low. It is easier to be patient when the yield is higher and the stock is still earning its way. However, as dividend growth investors, ultimately we expect our dividends to grow: Below are several stocks that failed to raise their dividends at the expected time:

Historical Performance Is Not Indicative Of Expected Results

Sometimes historical results are indicating the stock is a good investment, but something just doesn’t seem right. In situations like this there is probably a reason for the uneasiness and it is in our best interest to understand why we feel that way. Usually we know something that is not reflected in the financials.

This recently occurred with my AFLAC Inc. (AFL) position. I had been closely watching AFL since the time it first failed to raise its dividend. For a stock with a yield as low as AFL, dividend growth is paramount for its long-term success. My model’s calculated dividend growth rate was higher than what I expected going forward, at least for the near term. Its annual dividend growth has been declining since 2008, with 2010 growth only 3.6% (considering 2 dividends at $0.28 and two at $0.30). This was the only single digit increase in the last 10 years. When considering AFL’s most recent increase, the NPV MMA differential is under-performing its target. AFL has a large exposure to hybrid bonds (particularly European banks) and exposure to European sovereign debt. This makes them more risky than many other Financial Services companies. I have been looking to reallocate a portion of my financial Financial Services holdings (currently in excess of 10%) and I considered AFL one of my weaker financial stocks, so I sold it.

Substantial Change In The Business

Sometimes the world changes and what you were selling yesterday at a premium you can’t give away today. This phenomenon has been played out since the beginning of time. Rock gathers were replace with club makers who were replaced with spear makers who were replaced with arrow makers who were replaced with musket makers who were replaced with rifle makers, and so on. We see this happening today with the print media. Companies like Courier Corporation (CRRC) that publishes, prints and sells books, and Gannett Co., Inc. (GCI) an international media company that owns USA Today have struggled recently as people have moved from print media to online. Both companies were unable to continue the string of consecutive dividend increases.

Other times a catastrophe will shake a company to it very foundation. This has been most evident with the recent oil disaster in the Gulf. BP (BP) was not prepared for a situation like it faced. As the damage claims mounted, investors lost confidence in management to stop the oil flow and began to sell off the stock. A dividend cut soon followed.

Buy-And-Hold Not Buy-And-Forget

All investors need to be vigilant and keep a close watch on their investments. There are few certainties in an uncertain world. Things change and adjustments must be made. Buy-and-hold is a successful investment strategy; buy-and-forget is a recipe for disaster.

Full Disclosure: Long MMM, EMR, GPC, ITW, PAYX, LLY, PGN, TEG. See a list of all my income holdings here.

(Photo: sanja gjenero)

My Top 6 Performing Dividend Stocks Just Might Surprise You *

D4L — Wed, 18 Aug 2010 07:30:37 +0000

As I have stated many times, my goal is to create an ever growing income stream from dividend stocks. Secondarily, it is my desire to beat the S&P 500 over time. With that said, I rarely look at the capital performance of individual stocks. However, I recently sorted my portfolio by Total Gain % (total gain/basis) and was mildly surprised at the top performers.

It is important to note that dividends paid are not factored in the Total Gain % calculation. Therefore, the total return is actually higher than the numbers reported. The holding periods differ for each, so I have noted the purchase dates.

6. Realty Income Corp. (O) – Yield: 5.4% | Total Gain: 24.91%
Purchases: 5/2006, 11/2006, 12/2006, 2/2007, 6/2007
Realty Income Corporation engages in the acquisition and ownership of commercial retail real estate properties in United States.

5. Canadian National Railway Company (CNI) – Yield: 1.7% | Total Gain: 26.14%
Purchases: 11/2007, 7/2008
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.

4. Integrys Energy Group, Inc. (TEG) – Yield: 5.7% | Total Gain: 26.22%
Purchases: 11/2008, 2/2009
Integrys Energy Group, Inc., serves about 485,000 regulated electric and 1,674,000 regulated gas customers. The company also operates an unregulated retail marketing business.

3. CenturyLink, Inc. (CTL) – Yield: 8.1% | Total Gain: 27.87%
Purchases: 11/2008, 1/2009, 5/2009
CenturyLink, Inc. acquired larger telecom peer Embarq in a stock deal in July 2009. Combined, the company provides voice service to 7 million customers and Internet service to 2 million customers in both rural towns and larger cities, like Las Vegas.

2. Emerson Electric Co. (EMR) – Yield: 2.8% | Total Gain: 35.87%
Purchases: 7/2009, 10/2009
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.

1. 3M Co. (MMM) – Yield: 2.5% | Total Gain: 73.72%
Purchases: 3/2009
3M Co. is a diversified technology company with a presence in various businesses, including industrial & transportation, healthcare, display & graphics, consumer & office, safety, security & protection services, and electro and communications.

Each of these gains were a direct result of applying a value approach to dividend investing by taking advantage of opportunities when the stock is trading well below its fair value. A dividend growth and value strategy are well aligned often provide the conservative investors with a double benefit. Consider the MMM case:

I purchased MMM near its low in March 2009 at $48.88. At the time I calculated MMM’s Mid-2 fair value to be $84.06 and saw no fundamental reason for the stock to be trading so low. Trading at 41% of its fair value, MMM had tremendous potential for capital gain. However, I don’t purchase stocks for my income portfolio based on capital gain potential. Fortunately, the same forces providing capital gain opportunities were at work on the income side. The low price produced an eye-popping 4.25% yield on the day the stock was purchased. This was for a stock that had only yielded in the mid 2% range, on average, over the prior 10 years.

In the interest of full disclosure, I think it only fair to also mention the stocks at the other end of the spectrum. Again there were several surprises here also:

6. Harleysville Group Inc. (HGIC) – Yield: 4.6% | Total Loss: (3.39%)
Purchases: 1/2010
Harleysville Group Inc. 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.

5. Eli Lilly & Co. (LLY) – Yield: 5.4% | Total Loss: (3.89%)
Purchases: 10/2008, 1/2009
Eli Lilly and Company discovers, develops, manufactures and sells prescription drugs that offers a wide range of treatments for neurological disorders, diabetes, cancer, and other conditions. The company also sells animal health products.

4. Nucor Corporation (NUE) – Yield: 3.7% | Total Loss: (4.16%)
Purchases: 10/2008, 7/2009, 11/2009
Nucor Corporation is engaged in the manufacture and sale of steel and steel products. As the largest minimill steelmaker in the U.S., Nucor has one of the most diverse product lines of any steelmaker in the Americas.

3. Johnson & Johnson (JNJ) – Yield: 3.7% | Total Loss: (5.91%)
Purchases: 2/2008, 4/2008, 6/2009, 12/2009
Johnson & Johnson engages in the manufacture and sale of various products in the health care field worldwide.

2. Colgate-Palmolive Co. (CL) – Yield: 2.8% | Total Loss: (8.54%)
Purchases: 5/2010
Colgate-Palmolive Company (Colgate) 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.

1. Paychex Inc. (PAYX) – Yield: 5.0% | Total Loss: (34.43%)
Purchases: 11/2007, 1/2008,
Paychex Inc. provides payroll accounting services to small- and medium-sized concerns throughout the U.S.

As noted above, Total Loss % is only measuring capital loss. With the exception of PAYX, the other stocks are well positioned for quick turnaround. LLY and NUE have a positive return when dividends are factored in. HGIC and JNJ have small negative returns as a result of the more recent purchases. CL’s negative return is also result of its recent purchase. Having a portfolio where your bottom stocks’ performance isn’t really that bad, is one of the things I love about dividend stock investing.

Full Disclosure: Long O, CNI, TEG, CTL, EMR, MMM, HGIC, LLY, NUE, JNJ, CL, PAYX. See a list of all my income holdings here.

(Photo Credit)

Increasing Dividend Yield Part I: Utilities *

D4L — Wed, 03 Mar 2010 11:30:05 +0000

This is the first 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. This week we are looking at Utilities – those investments long considered as a safe harbor for “orphans and widows.”

What’s the difference between a Ponzi scheme and a utility company? Before I answer that question, let’s look at what a Ponzi scheme is. Wikipedia defines it as:

A fraudulent investment operation that pays returns to separate investors from their own money or money paid by subsequent investors, rather than from any actual profit earned. The Ponzi scheme usually entices new investors by offering returns other investments cannot guarantee, in the form of short-term returns that are either abnormally high or unusually consistent. The perpetuation of the returns that a Ponzi scheme advertises and pays requires an ever-increasing flow of money from investors to keep the scheme going.

In effect, a Ponzi scheme pays yesterday’s investors with money from today’s investors. It works great until there aren’t enough new investors to pay the old investors. In a similar manner, most utility companies rely on new capital either in the form of debt or equity to fund investment and to pay dividends. Consider the following:

Atmos Energy Corp. (ATO) – Yield: 4.88%
Shares Outstanding: 2000 31m; 2009 92m
Long-Term Debt: 2000 363.2m; 2009 2,159.5m
Years of Negative Free Cash Flow: 5 of 10

Black Hills Corp. (BKH) – Yield: 5.10%
Shares Outstanding: 2000 22m; 2009 38m
Long-Term Debt: 1999 160.7m; 2008 719.2m
Years of Negative Free Cash Flow: 7 of 10

Connecticut Water Service Inc. (CTWS) – Yield: 4.01%
Shares Outstanding: 2000 7m; 2009 8m
Long-Term Debt: 1999 65.4m; 2008 92.2m
Years of Negative Free Cash Flow: 5 of 10

California Water Service Group (CWT) – Yield: 3.29%
Shares Outstanding: 2000 15m; 2009 20m
Long-Term Debt: 1999 156.6m; 2008 373.5m
Years of Negative Free Cash Flow: 10 of 10

Consolidated Edison, Inc. (ED) – Yield: 5.52%
Shares Outstanding: 2000 212m; 2009 276m
Long-Term Debt: 2000 5,415.4m; 2009 9,854.0m
Years of Negative Free Cash Flow: 6 of 10

MGE Energy Inc. (MGEE) – Yield: 4.40%
Shares Outstanding: 2000 16m; 2008 22m
Long-Term Debt: 1999 148.6m; 2008 272.5m
Years of Negative Free Cash Flow: 7 of 10

Middlesex Water Co. (MSEX) – Yield: 4.31%
Shares Outstanding: 2000 10m; 2008 13m
Long-Term Debt: 1999 82.5m; 2008 118.2m
Years of Negative Free Cash Flow: 10 of 10

Progress Energy, Inc. (PGN) – Yield: 6.48%
Shares Outstanding: 2000 157m; 2008 260m
Long-Term Debt: 1999 3028.6m; 2008 10,659.0m
Years of Negative Free Cash Flow: 5 of 10

Integrys Energy Group, Inc. (TEG) – Yield: 6.17%
Shares Outstanding: 2000 26m; 2008 76m
Long-Term Debt: 1999 634.5m; 2008 2,396.7m
Years of Negative Free Cash Flow: 10 of 10

Each of the above companies are growing their debt and shares outstanding while generating insufficient cash to fund their operating expenses, including normal capital replacements, in at least 5 of the last 10 years. For a company to consistently raise its dividends, it must generate strong cash flows sufficient to meet operating obligations and to service outstanding debt. When the day comes that these companies can not raise enough capital to fund the operating requirements, the first source of additional cash will likely come in the form of a lower or eliminated dividend.

So, back to the original question, what is the difference between a Ponzi scheme and a utility? The answer is simply disclosure. All the above information on these companies was made available via S.E.C. filings. Unlike Bernard Madoff, these companies are telling you exactly what they are doing, thus there is no intent to defraud. I own some of the companies above, but I won’t be rushing to add to increase my positions.

Caveat emptor!

Full Disclosure: Long ED, PGN, TEG. See a list of all my income holdings here.

(Photo Credit)

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)

3 Styles Of Sucessful Dividend Investing *

D4L — Wed, 09 Dec 2009 10:30:48 +0000

There are certainly many ways to categorize the different styles of investing in dividend stocks, including yield, risk, growth, etc. An investment strategy based on any of these could be successful, if implemented within the framework well-crafted plan. Over the years, I have found that most dividend investing styles fall into one of the three major categories listed below:

High Yield/Low Growth

I would classify dividend stocks with a yield over 5% and dividend growth less than 2% in this group. This is probably the most popular group, particularly among those new to income investing. It is human nature to want it now and lots of it, and high yield stocks appear to deliver that desire. However, there is often a reason the stock’s yield is so high and many times the investor learns the hard way the yield is not always sustainable. Examples of stocks in the high yield/low growth group include:

National Retail Properties, Inc. (NNN) – Yield: 7.12 – Dividend Growth: 1.4%
Integrys Energy Group, Inc. (TEG) – Yield: 6.63 – Dividend Growth: 1.5%
Realty Income Corporation (O) – Yield: 6.61 – Dividend Growth: 2.1%
CenturyTel Inc. (CTL) – Yield: 5.97 – Dividend Growth: 0.0%

Low Yield/High Growth

I would classify dividend stocks with a yield less than 2.5% and dividend growth greater than 7.5% in this group. Low yield and high growth dividend stocks are the other extreme of high yield and low growth stocks. Their long-term risk is associated with growing the yield-on-cost over time. If the dividend growth rate is cut, the investor’s future earnings and yield will also be cut. Stocks in this group would include:

Aflac Incorporated (AFL) – Yield: 2.44 – Dividend Growth: 16.7% [Analysis]
United Technologies Corp. (UTX) – Yield: 2.25 – Dividend Growth: 15.0% [Analysis]
Eaton Vance Corp. (EV) – Yield: 2.05 – Dividend Growth: 15.0%
Colgate-Palmolive Company (CL) – Yield: 2.02 – Dividend Growth: 10.3%
Wal-Mart Stores, Inc. (WMT) – Yield: 2.01 – Dividend Growth: 11.3% [Analysis]
Canadian National Railway Company (CNI) – Yield: 1.63 – Dividend Growth: 15.0%
Lowe’s Companies, Inc. (LOW) – Yield: 1.53 – Dividend Growth: 15.0% [Analysis]

Moderate Yield/Moderate Growth

I would classify dividend stocks with a yield between 2.5% to 5% and a dividend growth rate between 2% to 7.5% in this group. This is a good compromise between the above too extremes. It is an approach focusing on a moderate yield and dividend growth rate. Keeping these two metrics at a reasonable level will help reduce the likelihood of either being cut. Companies in this group are your traditional dividend growth stocks, as seen from the list below:

Chubb Corp. (CB) – Yield: 2.88 – Dividend Growth: 6.1% [Analysis]
The Procter & Gamble Company (PG) – Yield: 2.81 – Dividend Growth: 7.3% [Analysis]
Johnson & Johnson (JNJ) – Yield: 3.00 – Dividend Growth: 7.5% [Analysis]
Automatic Data Processing Inc. (ADP) – Yield: 3.09 – Dividend Growth: 5.5% [Analysis]
Emerson Electric Co. (EMR) – Yield: 3.13 – Dividend Growth: 6.4% [Analysis]
Chevron Corporation (CVX) – Yield: 3.41 – Dividend Growth: 5.1%
SYSCO Corporation (SYY) – Yield: 3.39 – Dividend Growth: 4.3% [Analysis]

In my personal investing strategy, I incorporate measured participation in each of the above groups. My primary focus is on the Moderate Yield/Moderate Growth stocks, believing that over time this group carriers the highest probability of success. The remaining two groups offer the potential for above average returns – as long as they continue to perform at the estimated level, which is often difficult to do over time.

Full Disclosure: Long NNN, TEG, O, CTL, AFL, UTX, WMT, CNI, CB, PG, JNJ, ADP, EMR, CVX, SYY. See a list of all my income holdings here.

(Photo Credit)

9 Small/Mid-Cap Dividend Stocks Answering The Call *

D4L — Wed, 02 Dec 2009 10:30:57 +0000

I have set aside 15% in my asset allocation for small and mid-cap equities. Generally, smaller cap securities are more volatile, but often offer a higher rate of return over the long-term. Most of this allocation is covered by small cap mutual funds in my 401(k).

When many investors think of dividend growth stocks, large-caps like Johnson & Johnson (JNJ) [Analysis], The Procter & Gamble Company (PG) [Analysis], The Coca-Cola Company (KO) [Analysis] and 3M Co. (MMM) [Analysis] come to mind first. Often small/mid-cap stocks are associated with growth stocks, and since the underlying companies are looking to grow there is little or no cash available for dividends. Not all small/mid-cap stocks fall under the growth category, many are considered value stocks and quite a few of these consistently increase their dividends.

For a stock to be included on my Stock Ideas list it must have increased its dividend for at least 10 consecutive years (10 years for Achievers, 25 years for Aristocrats and Champions). Below is a representative sample of several small/mid-cap dividend stocks included on the list, along with the number of years of consecutive dividend increases:

Genuine Parts Co. (GPC) Genuine Parts Co is a leading wholesale distributor of automotive replacement parts, industrial parts and supplies, and office products. This company has increased its dividend for 53 consecutive years and is currently yielding 4.43%. [Analysis]

The Clorox Company (CLX) is a manufacturer and marketer of consumer products. The Company markets brand names, including Clorox bleach, Armor All, STP, Fresh Step/Scoop Away, Kingsford, Hidden Valley, KC Masterpiece, Brita , Glad, etc. This company has increased its dividend for 32 consecutive years and is currently yielding 3.20%.

Integrys Energy Group, Inc. (TEG) operates as a regulated electric and natural gas utility company in the United States and Canada. It purchases, generates, and distributes electric power; and purchases and distributes natural gas. This company has increased its dividend for 51 consecutive years and is currently yielding 7.13%.

Courier Corporation (CRRC) publishes, prints and sells books. Founded in 1824, Courier has two lines of business: full-service book manufacturing and specialty publishing. This company has increased its dividend for 16 consecutive years and is currently yielding 6.34%.

Community Trust Bank Corp. (CTBI) owns and operates Community Trust Bank, Inc. of Pikeville, KY, which provides commercial banking services in Kentucky and West Virginia; and a trust company. This company has increased its dividend for 29 consecutive years and is currently yielding 5.22%. [Analysis]

HCC Insurance Holdings Inc. (HCC) is a multi-line insurer that specializes in aviation, marine, medical stop-loss, offshore energy and property and casualty insurance in the U.S. and the U.K. This company has increased its dividend for 13 consecutive years and is currently yielding 1.99%.

Cincinnati Financial Corp. (CINF) markets primarily property and casualty coverage; it also conducts life insurance and asset management operations. This company has increased its dividend for 49 consecutive years and is currently yielding 6.23%

Leggett & Platt Inc. (LEG) 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. This company has increased its dividend for 37 consecutive years and is currently yielding 5.21%. [Analysis]

RLI Corp. (RLI) provides selected property, casualty and surety insurance. This company has increased its dividend for 35 consecutive years and is currently yielding 2.12%. [Analysis]

The above is not a buy list, but does demonstrate the availability of small/mid-cap dividend growth stocks to potentially help meet this portion of your asset allocation. Sometimes smaller companies are still run my the original founders’ or their families and there is a pride in these companies that is not always found in those run by “professional managers”.

Full Disclosure: Long JNJ, PG, KO, MMM, GPC, CLX, TEG. See a list of all my income holdings here.