This is the time of year for giving, when goodwill wishes are exchanged. The attitude can be applied to investment considerations. For 6 months, the stock market has had a tough time moving forward in what was supposed to be a third year of recovery. At this time last year, analysts (who turned out to be millionaires for all the "good" advice they give), were revising upward their estimates for 2011. That didn't work out.
Capital appreciation has been tough to earn in recent years. At the start of 2000, the Dow peaked just under 12,000 followed by a major sell off. Today the Dow is about where it was almost 12 years ago. Some of the largest corporations have stocks which have not shown appreciation since then, such as Microsoft (MSFT) and Cisco (CSCO).
Dow Jones Industrials --- 23 years
During this period, dividends were paid. Dividend Aristocrats, which have been increasing annual dividends for a minimum of the prior 25 years, delivered rewards to shareholders. But only about 50 Dividend Aristocrats remain after more than a dozen were removed from the list 3 years ago and only one more this week when S&P published the revised list for 2012. Dividends are quarterly gifts given by management of companies with track records of increasing dividends over a long period.
Below is a list of the best Dividend Aristocrats with some of the highest yields. During a difficult period 3 years, their dividends were raised annually. Most have been raising annual dividends for around 40 years. Their P/Es are modest, typically around 15X, giving good coverage for the dividends and a strong indication that streaks of higher annual dividends will be extended for some time. Higher dividends should lead to higher stock prices even when the markets are stumbling.
|Leggett & Platt (LEG)||22.62||5.0%|
|Abbott Labs (ABT)||54,18||3.6%|
|Johnson & Johnson (JNJ)||63.78||3.6%|
|Procter & Gamble (PG)||64.47||3.3%|
In addition, there is another unusual stock Santa has in his bag. Enbridge Energy (EEP) is a major MLP with ownership measured by units that pay distributions. But it also has a companion corporation, Enbridge Management (EEQ), with shares. Each share is backed by one unit in the MLP and pays stock dividends calculated from distributions paid to units. The implied yield for its stock dividends is 6.7%. Distribution growth has been impressive. In 1993, the distribution was $1.18 and last year it rose to $2.09 ($2.13 currently) and there were no distribution reductions.
MLPs invest large amounts in new projects every year, that's their business. Enbridge has thousands of miles of pipelines moving gas, primarily in Texas and Oklahoma. But the exciting area is expanding pipelines which transport oil from Alberta, Canada, to Cushing, Oklahoma, a major oil hub in the US, and also to eastern Canada.
EEP completed a major expansion in April for its main oil pipeline from Alberta Canada to Cushing, Oklahoma. Currently it is investing in the oil production boom in the upper Midwest. The Bakken Expansion Program is aimed at increasing the company's transport capacity by another 145,000 barrels of oil per day from fields in Montana, North Dakota and southeast Saskatchewan. The Bakken Expansion is expected to cost about $370 million for the US project and $187 million for the Canadian projects. The project should be ready by 2013. To help finance the investment, last week EEP sold 8½ million units at $30.85 per unit to raise $254 million.
These stocks make excellent gifts for those who want growing investments. Capital appreciation is not as reliable as it once was. Dividends with high yields and annual increases (further augmented by reinvested dividends) will play a more important role in growing investments. When stocks stumble trying to find their way, growing dividend income can provide comfort for investors seeking investment growth. Santa's advise is that growing dividends feel good when stock prices increase as expected.