Opportunities in Dividend Investing: A Seeking Alpha Expert Panel

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 |  Includes: EEP, ENB, HCBK, JNJ, PG
by: SA Editors

Today at 2pm ET we hosted here a live discussion on current opportunities in dividend investing. The panelists are three SA contributor portfolio managers who place particular emphasis on dividend-yielding stocks in their clients' portfolios. Here are the panelists, their credentials and some of their recent writing on dividend investing:

Chuck Carnevale is co-founder and chief investment officer at EDMP Investment Management of Lutz, Florida. Prior to EDMP, he was a partner in a 30-year-old established registered investment advisory in Tampa, Florida. He's also been a partner with a private NYSE member firm, the President of a NASD firm, and a Vice President of a major American Stock Exchange listed company.

Chuck's recent writing on dividend stocks: 5 Food Stocks: Dividends and Growth Make a Tasty CombinationCoach: Growth and Growth Yield at a Reasonable PriceDividends Get No Respect

Greg Donaldson is the director of Portfolio Strategy of Donaldson Capital Management of Evansville, Indiana. He has been in the securities business since 1975.

Greg's recent writing on dividend stocks: J&J vs. 10-Year T-Bonds: The Power of Rising DividendsNike Looks on Track for a Christmas Season Run

Joseph Shaefer is the CEO and Chief Investment Officer of Stanford Wealth Management, LLC, a Registered Investment Advisor near Lake Tahoe, CA. Prior to forming Stanford in 1990, he was a Senior VP at Schwab, where his final position was head of Schwab's Fixed Income Investments.

Joe's recent writing on dividend stocks: 5 Excellent, Non-Pipeline Income StocksCanadian Royalty Trusts – Will Dividends Rise or Fall?Investing for the New Housing Dynamic

This is the first of a series of Seeking Alpha live panel discussions on dividend investing. We plan to convene monthly on opportunities in this sector, while soliciting real-time comments and questions from our community. Set up an email reminder below to make sure you don't miss it.

~ Mick Weinstein, Seeking Alpha Editor in Chief

Here's the transcript of the live discussion:

Opportunities in Dividend Investing: A Seeking Alpha Expert Panel (12/07/2009)
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1:59
Mick Weinstein:
Hello, everyone. We'll start in a couple minutes, at the top of the hour.
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Monday December 7, 2009 1:59 Mick Weinstein
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2:00
Greg Donaldson:
I'm at my post.
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Monday December 7, 2009 2:00 Greg Donaldson
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2:00

Chuck Carnevale: We are ready.

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Monday December 7, 2009 2:00 Chuck Carnevale
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2:01
Mick Weinstein, SA Editor:
Great. Joe will hopefully join us in process...
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Monday December 7, 2009 2:01 Mick Weinstein, SA Editor
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2:02
Mick Weinstein, SA Editor:
So let me begin with an observation... when the crisis struck last year, we saw a sudden surge in interest in dividend investing.
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Monday December 7, 2009 2:02 Mick Weinstein, SA Editor
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2:02
Mick Weinstein, SA Editor:
Not surprising, of course, that investors were interested in safety.
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Monday December 7, 2009 2:02 Mick Weinstein, SA Editor
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2:02
Mick Weinstein, SA Editor:
But both of you have been committed to dividend investing in your portfolios in all markets...
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Monday December 7, 2009 2:02 Mick Weinstein, SA Editor
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2:03
Greg Donaldson:
Yes, we have been dividend centric investors for nearly 20 years.
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Monday December 7, 2009 2:03 Greg Donaldson
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2:03
Mick Weinstein, SA Editor:
So I'd like to know, first of all, why you place such emphasis on dividend yield in equities investing? And what balance sheet factors do you particularly look for?
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Monday December 7, 2009 2:03 Mick Weinstein, SA Editor
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2:04
Mick Weinstein, SA Editor:
Let's start with you Greg
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Monday December 7, 2009 2:04 Mick Weinstein, SA Editor
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2:05
Greg Donaldson:

I did some extensive research in the late 1980s and found that among all the economic data for "some companies" the dividend was the best predictor of value. Cash flow is obviously important, but we are most concerned with dividend payout ratio versus earnings.

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Monday December 7, 2009 2:05 Greg Donaldson
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2:06
Mick Weinstein, SA Editor:
what do you mean 'predictor of value'? Future price appreciation and dividend growth?
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Monday December 7, 2009 2:06 Mick Weinstein, SA Editor
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2:07
Greg Donaldson:

Again for some companies there is a correlation between dividend growth and price growth.

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Monday December 7, 2009 2:07 Greg Donaldson
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2:08
Greg Donaldson:
Thus, a company with dividend growth that is outpacing price growth might have some catching up to do pricewise over the next few months and years.
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Monday December 7, 2009 2:08 Greg Donaldson
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2:08
Chuck Carnevale:
Yes, since the dividends are ultimately paid out of earnings, I am most interested in the financial health of the business itself. Therefore, I never analyze the balance sheet in a vacuum. The balance sheet shows me the financial health of a company in present time. Therefore, I always reeview it in conjunction with the income statement and statement of cash flows. In our view, it's a matter of cause and effect. Although we agree that dividend producing companies have proven to be good investments, we believe it's primarily a function of the business' earnings power. Earnings power includes not only the ability of the company to generate earnings, but the velocity or speed which we call rate of change of earnings the business is capable of generating. Therefore, we don't think it's the dividends that cause the great returns, rather we see it as the ability of the company to generate earnings from which dividends are paid.
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Monday December 7, 2009 2:08 Chuck Carnevale
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2:09
Mick Weinstein, SA Editor:
so dividends are an indicator of longer-term value and likelihood of appreciation, not so much an end in themselves for you both?
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Monday December 7, 2009 2:09 Mick Weinstein, SA Editor
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2:10
Greg Donaldson:

I'm asked that all the time. Of course dividends have represented about 40% total returns so they have a real contribution to rate of return, but dividend growth to us is a primary predictor of a company's value.

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Monday December 7, 2009 2:10 Greg Donaldson
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2:11
Chuck Carnevale:
Yes, but not only are the an indicator of long-term value, as dividends are paid out, the investor is in essence receiving a return of capital. From this perspective, each dividend reduces the amount of capital with risk as it's paid back. Therefore, dividends also offer a safety factor.
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Monday December 7, 2009 2:11 Chuck Carnevale
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2:12
Mick Weinstein, SA Editor:
certainly for an equities investor who has an eye on dividends... 10 year treasuries are yielding 3.37% now, so you're looking for that neighborhood of dividend yield in stocks these days?
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Monday December 7, 2009 2:12 Mick Weinstein, SA Editor
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2:13
Mick Weinstein, SA Editor:
balanced against your earnings considerations?
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Monday December 7, 2009 2:13 Mick Weinstein, SA Editor
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2:14
Greg Donaldson:
We have two style of dividend management. One has a current dividend yield of 3.5% and the other has a dividend yield of 2%. The second style has higher dividend growth expectations.
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Monday December 7, 2009 2:14 Greg Donaldson
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2:15
Mick Weinstein, SA Editor:
Greg, you've written about the concept of 'wasted dividend' in your model. Would you describe this a bit?
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Monday December 7, 2009 2:15 Mick Weinstein, SA Editor
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2:16
Chuck Carnevale:
One of the most interesting characteristics of the recent stock market rally has been the fact that large-cap blue chip stalwart companies have not participated to the maxium extent. Therefore, some of the highest quality companies out there can be bought today with starting yields that are historically high. Therefore, we see a window of opportunity that is very unusual for companies of this quality. High quality companies with a history of raising their dividends at above-average rates can be compiled with starting yields as high or higher than ten-year treasuries. This is very unusual.
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Monday December 7, 2009 2:16 Chuck Carnevale
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2:17
Mick Weinstein, SA Editor:
very interesting, Chuck, we'll get back to that soon when we talk about current opportunities
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Monday December 7, 2009 2:17 Mick Weinstein, SA Editor
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2:17
Greg Donaldson:

We use two different kinds of models. A dividend discount model and a multiple regression model. For the DDM, we do not count dividends paid for industrial companies above 55% of their earnings. We call these wasted dividends.

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Monday December 7, 2009 2:17 Greg Donaldson
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2:17
Chuck Carnevale:

Should I only be letting Greg respond at this point? Sorry if I'm being rude.

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Monday December 7, 2009 2:17 Chuck Carnevale
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2:18
Mick Weinstein, SA Editor:
no, not at all!
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Monday December 7, 2009 2:18 Mick Weinstein, SA Editor
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2:18
Mick Weinstein, SA Editor:
so Greg, you assess what you think is a reasonable dividend for a given sector at a given time, and cast off anything beyond that in your model?
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Monday December 7, 2009 2:18 Mick Weinstein, SA Editor
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2:19
Mick Weinstein, SA Editor:
anchored to earnings?
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Monday December 7, 2009 2:19 Mick Weinstein, SA Editor
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2:20
Greg Donaldson:
Yes, especially if they do not have free cash flow to support the dividend payments. Dividends of and by themselves can be a trap. We try to avoid dividend traps.
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Monday December 7, 2009 2:20 Greg Donaldson
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2:20
Joseph L Shaefer:
Thank you for your forbearance, Greg, Chuck and Mick. Everyone is out of surgery and recovering nicely and I've cajoled the hospital into letting me in to their server. Ready to participate!
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Monday December 7, 2009 2:20 Joseph L Shaefer
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2:20
Mick Weinstein, SA Editor:
Great, Joe, thanks for joining... and glad to hear everyone's well and that we're making good use of the hospital's computer resources :/
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Monday December 7, 2009 2:20 Mick Weinstein, SA Editor
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2:20
Greg Donaldson:
Welcome Joe. Glad to hear the good news.
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Monday December 7, 2009 2:20 Greg Donaldson
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2:21
Mick Weinstein, SA Editor:
Joe, at this stage we're talking about models - what do you fundamentally look for in a compelling dividend stock investment?
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Monday December 7, 2009 2:21 Mick Weinstein, SA Editor
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2:23
Chuck Carnevale:

In theory, payout ratios tend to be determined based on a company's need to retain earnings in order to fund growth. Companies that are not supporting super fast growth, will generally reward shareholders by paying dividends buying back stock, making acquisitions, etc. Therefore, again in theory, as a company matures its growth rate slows and its pay-out ratio tends to increase. Therefore, we look for companies with a pay-out ratio around the 50% or less level, and sill have the ability to grow at above-average rates - for example, 7% or better.

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Monday December 7, 2009 2:23 Chuck Carnevale
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2:24
Joseph L Shaefer:
Though I am solidly in the camp of those who believe in dividend investing, I prefer those companies and sectors that already pay a substantial dividend AND have a history (and are in an industry) where regular dividend increases are the norm. For example, many natural gas pipeline MLPs yield more than 8%, are conservatively managed, and have raised their dividends every year since they are paid on the amount of gas going through their pipeline -- the owner of the gas takes all the risk in the price of the product.
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Monday December 7, 2009 2:24 Joseph L Shaefer
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2:25
Mick Weinstein, SA Editor:
so Joe, you see particular opportunity in that sector now, natural gas pipeline MLPs?
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Monday December 7, 2009 2:25 Mick Weinstein, SA Editor
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2:26
Mick Weinstein, SA Editor:
I'm going to begin splicing in some questions from our readers...
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Monday December 7, 2009 2:26 Mick Weinstein, SA Editor
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2:26
[Comment From Patrick HardenPatrick Harden: ]
How do you feel about the dividends currently provided by U.S. mortgage REITs? Do you believe that the returns justify the risk in this asset class? More importantly, do you believe those dividends are sustainable?
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Monday December 7, 2009 2:26 Patrick Harden
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2:27
Joseph L Shaefer:
I do. At any given time, some sectors are in favor while others aren't. Right now, the natural gas sector is prices as if there will always be a glut. That simply won't be the case! The oil pipeline operators tend to have a more stable business environment, since their fees are regulated and are based on the volume of product transported, not by the price of oil. Natural gas pipeline firms, on the other hand, often operate gas-gathering systems, which connect individual wells to public pipelines, which then connect to processing plants. This makes natural gas pipeline MLPs more exposed to changes in the price of the underlying commodity. However, most operators use hedging strategies to reduce their susceptibility to price swings and guarantee a steadier market at a steadier price.
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Monday December 7, 2009 2:27 Joseph L Shaefer
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2:28
Greg Donaldson:
The mortgage REIT sector is a little too risky for our blood at this time.
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Monday December 7, 2009 2:28 Greg Donaldson
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2:28
Mick Weinstein, SA Editor:
Joe presented his thinking on nat gas for income investors here, by the way
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Monday December 7, 2009 2:28 Mick Weinstein, SA Editor
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2:29
Mick Weinstein, SA Editor:
Greg and Chuck, what particular dividend stocks do you like here?
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Monday December 7, 2009 2:29 Mick Weinstein, SA Editor
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2:29
Joseph L Shaefer:
Responding to Mr. Harden, I much prefer the lesser-yielding, but more stable and better-growing, apartment REITs at this time. My sense is that, if people cannot handle their current mortgage, they may be resigned to selling their homes to get money to live on, but I believe they will be unwilling to move down in quality unless their circumstances force them to. If their illusory “paper wealth” was $550,000 in “equity” and it’s now reduced to just $250,000, they will still sell to get that $250,000 in cold hard investable cash, but the pain of doing so will be lessened if they move to an even nicer place than they left behind.
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Monday December 7, 2009 2:29 Joseph L Shaefer
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2:29
Chuck Carnevale:
When dealing with mortgage REITs, the critical factor is FFO (Funds From Operations) this is analogous to cash flow for most companies. Given the current high level of risk with mortgages, I believe this industry should be looked at with a cautious eye. There is a great deal of risk in the sustainability of their FFO. Therefore, we tend to avoid them as well.
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Monday December 7, 2009 2:29 Chuck Carnevale
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2:31
Mick Weinstein, SA Editor:
Also, what are your thoughts on dividend-focused ETFs, like DVY and PID?
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Monday December 7, 2009 2:31 Mick Weinstein, SA Editor
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2:31
Greg Donaldson:

We like several foreign dividend paying stocks. L"Oreal, Nestle, and Royal Dutch Shell. In the US, we like PG, Nike, Johnson and Johnson and United Tech.

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Monday December 7, 2009 2:31 Greg Donaldson
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2:32
Mick Weinstein, SA Editor:
Greg, to what extent are those US picks a bet on the US consumer's spending picking up?
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Monday December 7, 2009 2:32 Mick Weinstein, SA Editor
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2:32
Greg Donaldson:
The dividend ETFs are fine. It's just important to know what the strategy of the fund is, yield or growth.
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Monday December 7, 2009 2:32 Greg Donaldson
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2:33
Mick Weinstein, SA Editor:
referring to PG and Nike in particular, of course
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Monday December 7, 2009 2:33 Mick Weinstein, SA Editor
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2:33
Greg Donaldson:

It's a little hard for us to get too excited about prospects for the US consumer. Right now 62% of the revenues of our portfolios come from outside the US.

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Monday December 7, 2009 2:33 Greg Donaldson
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2:33
Mick Weinstein, SA Editor:
have you moved outside the US just in recent years?
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Monday December 7, 2009 2:33 Mick Weinstein, SA Editor
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2:33
Joseph L Shaefer:
Dividend-focused ETFs are fine. As a mattoer of fact Wisdom Tree (WSDT) has an entire family of funds dedicated to the proposition that the dividend-paying sub-sector of more traditional asset classes and categories is the place to be. I think these are great for folks with a smaller portfolio in order to achieve diversification. But if possible I'd rather, for our clients, select the specific industires and companies our research indicates are the safest and most likely to continue increasing their dividends.
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Monday December 7, 2009 2:33 Joseph L Shaefer
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2:34
Greg Donaldson:
64% of PG's revenue come from outside the US. I don't have Nike's in front of me, but my guess is it is about the same.
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Monday December 7, 2009 2:34 Greg Donaldson
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2:34
[Comment From Grant DossettoGrant Dossetto: ]
With the Fed's continued insistence on zero percent short term rates and deflationary pressure related to consumer and private sector deleveraging we continue to see low rates on government treasuries. The 2 year yield is now down well below 1%. In this environment it seems that the ability to earn 2 to 3% through dividends would attract bond investors as well as equity investors interested in the fundamentals of the company. Do you worry that we could see a bubble in high dividend yield companies as long as interest rates remain unprecedentedly low?
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Monday December 7, 2009 2:34 Grant Dossetto
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2:34
Greg Donaldson:
We began moving outside the US about three years ago.
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Monday December 7, 2009 2:34 Greg Donaldson
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2:35
Chuck Carnevale:
Currently we have identified approximately 30 to 40 what we would call extremely high quality names across various industries. We believe in diversification, therefore, we tend to not overweight any specific sector. For examples of several stocks we like today across different sectors: McDonald's in restaurants; Proctor & Gamble in consumer staples, we like ADP, assuming eventual jobs recovery, Pepsi-Co and Sysco to name a few. We see all of these as companies with yields in the three percent area that are capable of doubling every three to five years. Therefore, we see a very attractive total return opportunity with names like these.
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Monday December 7, 2009 2:35 Chuck Carnevale
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2:35
Mick Weinstein, SA Editor:
Greg and Joe, are any of Chuck's names in your portfolios as well?
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Monday December 7, 2009 2:35 Mick Weinstein, SA Editor
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2:36
Greg Donaldson:

I am calling the "great dividend paying stocks" the new gold standard because I do think there is a buying surge coming. I'll have more in a bit.

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Monday December 7, 2009 2:36 Greg Donaldson
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2:37
Joseph L Shaefer:
Yes, Sysco and Pepsi...
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Monday December 7, 2009 2:37 Joseph L Shaefer
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2:37
Greg Donaldson:
We own everyone of Chuck's companies.
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Monday December 7, 2009 2:37 Greg Donaldson
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2:38
Chuck Carnevale:
Regarding the U.S., we tend to like large multi-national companies that are domiciled in the U.S. We believe that gives us better quality of information being reported while still participating in the world economies.
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Monday December 7, 2009 2:38 Chuck Carnevale
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2:39
Mick Weinstein, SA Editor:
With this year's big runup in the broader market, a lot of investors feel it may be too late to buy stocks, but they see high dividend blue chips as a way of mitigating against the downside. What would you say to such investors?
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Monday December 7, 2009 2:39 Mick Weinstein, SA Editor
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2:39
Greg Donaldson:

It may sound a bit strange, but many of these great companies have stronger balance sheets that most nations of the world. At some point, unless interest rates rise dramatically, people are going to figure out that McDonalds with a 3.5.% yield and a worldwide presence is a better buy than a T-bond.

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Monday December 7, 2009 2:39 Greg Donaldson
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2:39
Joseph L Shaefer:
Mr. Dossetto -- Of course, even in an incredibly low-rate interest environment, very high yielding stocks are found if the market itself -- or that sector -- has plunged. In an SA article I wrote March 3rd, I recommended ROYAL DUTCH SHELL (NYSE:RDS.B). RDS.B was 37 that day, bringing that stock to less than 5 times earnings and a more than 8% yield! (To me, that was a clanging bell announcing we were close to a bottom... 8% was available on a AAA company -- even though interest rates at the Fed were just 1%...)
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Monday December 7, 2009 2:39 Joseph L Shaefer
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2:41
Chuck Carnevale:
One of the overlooked characteristics of many of our blue chip companies has been their ability to weather the recession extremely well. Some did have modest drops and/or slow-downs in earnings, but not to the extent that it caused them to cut dividends. Therefore, we feel they are at historically bargain valuations today.
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Monday December 7, 2009 2:41 Chuck Carnevale
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2:42
Joseph L Shaefer:
Re Mick's question -- is it too late? No -- not if you studiously seek out those areas where investor sentiment has passed by quality companies in essential industries that are simply out of favor because other areas are grabbing the headlines and the new investable funds at that point.
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Monday December 7, 2009 2:42 Joseph L Shaefer
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2:43
Mick Weinstein, SA Editor:
Do you adjust your weighting on dividend stocks at any point during the cycle?
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Monday December 7, 2009 2:43 Mick Weinstein, SA Editor
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2:44
[Comment From Jonathan LissJonathan Liss: ]
How do you account for the fact that dividend stock strategies tended to greatly underperform during the recent downturn. For example, using DVY, the iShares Dow Jones Select Dividend ETF as a proxy, the fund has returned just 6% over the recent 12-month period as compared to 21% for the Dow, 26% for the S&P 500 and 45% for the Nasdaq. Even the Financials SPDR returned 13% over the recent 12-month period. How do you account for this significant underperformance?
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Monday December 7, 2009 2:44 Jonathan Liss
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2:44
Greg Donaldson:

We make adjustments based on valuation with some input from our macroeconomic call.

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Monday December 7, 2009 2:44 Greg Donaldson
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2:45
Greg Donaldson:
Jonathan,

Quality dividend paying stocks outperformed the market dramatically in 2008. The last twelve months is just a rebound for the non-dividend payers. In the past three months and one months, dividend payers are leading again.
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Monday December 7, 2009 2:45 Greg Donaldson
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2:45
Joseph L Shaefer:
Re cyclical weighting -- We do, but not in a macro way of saying, "Gee, we are at x point in the market cycle, therefore we'll weight dividend-paying firmsw more heavily. We are always on the prowl for the exceptional company and love to see it when most investors disagree to the point of selling off these shares which increases their yield for us. So we "end up" buying more dividend-payers at the bottom of the cycle. That is by design but not because of a macro decision. We're just more comfortable paying lower prices than higher prices!
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Monday December 7, 2009 2:45 Joseph L Shaefer
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2:46
Chuck Carnevale:
Our firm's investment decisions are heavily driven by valuation. Even the best of companies can become dangerously overvalued whether they paid dividends or not. Many of the companies we currently like have only recently come into value that we believe make economic sense. During much of the frothy period from 1995 to current, many of these companies were out of our value range. We think a benefit of the recession has been a reversion to the mean regarding value. P.S. This response also applies to Mr. Liss' question as well.
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Monday December 7, 2009 2:46 Chuck Carnevale
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2:48
[Comment From IsaacIsaac: ]
Isn't it counterintuitive that dividend stocks outperformed the market, e.g. wouldn't better performing companies not want to pay dividends, knowing people will buy in with or without dividends?
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Monday December 7, 2009 2:48 Isaac
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2:48
Joseph L Shaefer:
I like Greg and Chuck's response to Mr. Liss. Basically, it sounds like the three of us all seek VALUE -- and are comfortable believing that price follow2s value, not the other way around!
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Monday December 7, 2009 2:48 Joseph L Shaefer
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2:49
Mick Weinstein, SA Editor:
Related to Isaac's question - do you ever find situations of sustained growth in, say, tech companies that lead you to invest there regardless of the lack of dividend yield?
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Monday December 7, 2009 2:49 Mick Weinstein, SA Editor
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2:49
Greg Donaldson:
Issac, Dividend investors aren't as old or rare as you might think. I don't think many companies could get by without returning the shareholders their cut of the profits.
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Monday December 7, 2009 2:49 Greg Donaldson
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2:50
Chuck Carnevale:
To Mr. Isaac's question, as I responded earlier, companies tend to make dividend decisions based on their need for capital to fund growth, not whether or not investors are going to like it. A company needs to make capital allocation decisions based on the best use of their capital. Paying dividends in many cases is the best use.
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Monday December 7, 2009 2:50 Chuck Carnevale
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2:50
Greg Donaldson:
We own one company that does not pay a dividend -- Berkshire Hathaway. In this case, we use a book value model that works well for valuation purposes.
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Monday December 7, 2009 2:50 Greg Donaldson
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2:51
Joseph L Shaefer:
A thought-provoking question, Isaac. My sense is that some industries stand for continuing value, year in and year out. They know that investors depend upon them to keep "their part of the bargain" and do their best to provide dividend income. Utilities like Atlantic Power (OTC:ATLIF) for instance, or gas pipelines line Magellan (NYSE:MMP) or Williams Partners (NYSE:WPZ) take this covenant very seriously...
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Monday December 7, 2009 2:51 Joseph L Shaefer
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2:52
[Comment From Patrick HardenPatrick Harden: ]
What company do you believe is the best example of a dividend trap right now?
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Monday December 7, 2009 2:52 Patrick Harden
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2:53
Joseph L Shaefer:
Companies with sustained growth? Absolutely! We use our dividend-paying value stocks as the rock-solid foundation for our portfolio. But by seeking higher yield here, we can afford to buy more non-dividend-payers at the top end of our pyramid.
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Monday December 7, 2009 2:53 Joseph L Shaefer
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2:54
Mick Weinstein, SA Editor:
Related to Patrick's question - have you ever found yourself holding a stock that turned out to be a 'dividend trap'?
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Monday December 7, 2009 2:54 Mick Weinstein, SA Editor
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2:54
Chuck Carnevale:
Regarding Mick's question, when investing for total return, we focus on the rate of change of earnings growth where we can buy that growth at PEG or below. A 40%-plus tech grower such as Cognizant Technologies has generated returns that are multiples of any dividend payer. The key is the needs, goals, objectives and risk tolerances of the investor.
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Monday December 7, 2009 2:54 Chuck Carnevale
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2:54
Greg Donaldson:

Patrick

Sorry, right off the top of my head, I don't have any dividend trap companies. The reason is simple, I don't pay any attention to them. I do believe that many utilities are paying more in dividends than they can afford.

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Monday December 7, 2009 2:54 Greg Donaldson
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2:55
Mick Weinstein, SA Editor:
Chuck and Joe, do you agree with Greg on utilities here?
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Monday December 7, 2009 2:55 Mick Weinstein, SA Editor
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2:55
Joseph L Shaefer:
Mr. Harden, I'd offer an entire sector rather than merely one stock. I think mortgage REITs are in that situation. And I'm not convinced that both shoes have dropped for the money center banks, especially those like Wells Fargo and B of A, that have extensive mortgage exposure, are out of the woods yet.
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Monday December 7, 2009 2:55 Joseph L Shaefer
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2:56
[Comment From Greg Layne Greg Layne : ]
Is there ANY company paying a dividend over 10% right now that is not a trap?
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Monday December 7, 2009 2:56 Greg Layne
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2:56
Chuck Carnevale:

Yes, many utility stocks actually have payout ratios in excess of 100% and very little, if any, growth.

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Monday December 7, 2009 2:56 Chuck Carnevale
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2:57
Greg Donaldson:

Greg

No 10% yields show up in our universe of stocks buyable stocks.

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Monday December 7, 2009 2:57 Greg Donaldson
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2:57
Joseph L Shaefer:
Utilities -- so many have risen so much that we find more opportunity in other sectors. I don't know if they are dividend traps; but many are unattractive at these prices relative to many other sectors. There are exceptions, of course!
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Monday December 7, 2009 2:57 Joseph L Shaefer
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2:57
Chuck Carnevale:
Not to our knowledge, but we would tend to avoid looking at anything like that anyway. Our screens would never bring it up.
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Monday December 7, 2009 2:57 Chuck Carnevale
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2:59
Mick Weinstein, SA Editor:
Let me end with a question to all three of you. If I'm an investor with a 15-20 year horizon, what single US-traded dividend stock would you say I should consider first?
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Monday December 7, 2009 2:59 Mick Weinstein, SA Editor
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2:59
Joseph L Shaefer:
Mr. Layne, we are the exception here, I suppose. Becdause we bought many bank preferreds and pipelines when the entire market was down, we now have a number of such issues in the portfolios. Do they abound today? NO. But there are pipelines that, if they miss "earnings" (far less important than cash flow to this industry) will sell off and yield above 10%. If that happens, we're ready to pounce.
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Monday December 7, 2009 2:59 Joseph L Shaefer
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2:59
Chuck Carnevale:
One thing that has really not been focused on so far is waht we call growth yield. Often it's possible that the highest starting dividend will not generate the largest income stream overtime. I.E., a faster growing dividend will overtake a slower dividend.
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Monday December 7, 2009 2:59 Chuck Carnevale
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3:02
Greg Donaldson:

Proctor and Gamble (PG). It has increased its dividend for over 50 consecutive years. It has a world wide franchise. They raised their dividend last year by over 10%, which just shows how powerful their business.

Our models show that PG is currently undervalued by about 20%.

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Monday December 7, 2009 3:02 Greg Donaldson
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3:02
Chuck Carnevale:

My first choice would be McDonald's (NYSE:MCD), second choice J&J (NYSE:JNJ) or Proctor & Gamble, third choice Hudson City Bank Corp. (NASDAQ:HCBK) for growth and yield.

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Monday December 7, 2009 3:02 Chuck Carnevale
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3:02
Joseph L Shaefer:
Mick's question -- if you could buy only one - Enbridge Inc. (NYSE:ENB) operates, in Canada and the U.S., the world’s longest crude oil and liquids pipeline system. The company owns and operates Enbridge Pipelines Inc. and a variety of affiliated pipelines in Canada, and has an approximate 27% interest in Enbridge Energy Partners, L.P. (NYSE:EEP) which owns the Lakehead System in the U.S. and is an old favorite of mine going back decades rather than years. These pipeline systems have operated for over 55 years and now comprise approximately 8,500 miles of pipeline . ENB and EEP deliver more than 2 million barrels per day of crude oil and liquids to end customers. Go for EEP if you need high income today (about 8%) and ENB if you want growth that will one day give, in my opinion, the best combination of capital growth and income.
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Monday December 7, 2009 3:02 Joseph L Shaefer
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3:03
Mick Weinstein, SA Editor:
This has been great, thanks to our panelists and commenters. We'll do it again, and perhaps next time focus on a particular element on dividend investing that came out of this discussion.
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Monday December 7, 2009 3:03 Mick Weinstein, SA Editor
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3:05
Mick Weinstein, SA Editor:
A reminder that we collect all of our articles on dividends here http://seekingalpha.com/tag/dividends
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Monday December 7, 2009 3:05 Mick Weinstein, SA Editor
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3:05
Greg Donaldson:

Mick

Thanks for including me. Thanks also to Chuck and Joseph. Interestingly, Enbridge showed up in our "take a look list" today.

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Monday December 7, 2009 3:05 Greg Donaldson
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3:05
Mick Weinstein, SA Editor:
Great minds, Greg...
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Monday December 7, 2009 3:05 Mick Weinstein, SA Editor
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3:06
Mick Weinstein, SA Editor:
Happy holidays to all.
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Monday December 7, 2009 3:06 Mick Weinstein, SA Editor
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3:07

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