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  • Dividend Growth Investing: Is It A Strategy Of Cliches? [View article]
    I just realized that the above table was not using 20 year historical growth rate, but was using an analyst based growth rate with 10 year average P/E. My comments above were based on the first table presented.

    Here is the table with the 20 year growth rate and P/E. Notice in this scenario, SPY has a below average CAGR and would also have the lowest total dividends. In this scenario, there is no need to question whether one should invest in SPY over the dividend stocks.

    Ticker * Total Cash * CAGR
    SPY * $21,822 * 8.11%
    CVX * $25,282 * 9.72%
    GE * $19,927 * 7.14%
    JNJ * $24,790 * 9.50%
    KO * $27,879 * 10.80%
    PEP * $28,036 * 10.86%
    PG * $25,986 * 10.02%
    XOM * $36,961 * 13.97
    Jul 7 04:37 PM | Likes Like |Link to Comment
  • Dividend Growth Investing: Is It A Strategy Of Cliches? [View article]
    My takeaways from the above is that on a "total return" basis, SPY should outperform all but one of my seven stocks. But on a "dividends received" basis, the seven stocks should provide more "income".

    Would I be better off in 10 years investing in SPY and selling the shares needed to meet my spending needs? Maybe. But then I add the risk of selling into a declining market to match the dividends received from the seven stocks.

    And finally, I don't need the DGI stocks to repeat their bull market performance to be successful. By using DGI stocks and spending the dividends received, I take the market value out of the equation.
    Jul 7 04:09 PM | 5 Likes Like |Link to Comment
  • Dividend Growth Investing: Is It A Strategy Of Cliches? [View article]
    Advisor4,

    I calculated an expected 10-year total return on 7 dividend stocks in my portfolio and the S&P 500 index based on Thursday's close. I assumed each stock would sell at its historic 20-year average P/E in 10 years and that earnings and dividend would grow at the 20 year historical average earnings growth over the next 10 years. I assumed no reinvestment of dividends but added the dividends paid to the sale proceeds in the CAGR calculation. Here are my expectations based on an initial $10K investment.

    Ticker * total dividends paid * total cash received* CAGR
    CVX * $4,840 *$25,282 * 9.72%
    GE * $5,189 * $29,917 * 11.58%
    JNJ * $3,627 * $22,075 * 8.24%
    KO * $4,084 * $23,694 * 9.01%
    PEP * $4,248 * $24,938 * 9.57%
    PG * $4,391 * $25,500 * 9.81%
    XOM * $3,646 * $23,488 * 8.91%
    SPY * $3,390 * $27,574 * 10.68%
    Jul 7 03:55 PM | Likes Like |Link to Comment
  • Protecting Your Income Portfolios In Today's Market: Consider Defensive Utility Stocks [View article]
    I agree with Chowder's picks and would add GE, PEP and XOM. That 11 stock portfolio would have an average yield of 3.3% with a growth rate of 6.4%. Its average P/E is 15.2, which equates to fair value on a Fast Graph.
    Jun 28 09:24 AM | 8 Likes Like |Link to Comment
  • Wisconsin Energy lands Integrys Engery in $9.1B deal [View news story]
    This is not a cash transaction for $71.47 per share. "Integrys shareholders will receive common stock at a fixed exchange ratio of 1.128 Wisconsin Energy shares plus $18.58 in cash per Integrys share."

    WEC closed at $45.26, times 1.128 shares equals $51.05, plus $18.58 cash totals $69.63. TEG closed at $68.33. WEC's $69.63 minus TEG's $68.33 equals $1.30, which is the price of the regulatory risk that the transaction will not being completed and the dividend difference between now and closing. The market appears to be pricing TEG correctly based on the fixed exchange ratio and cash offer.
    Jun 23 05:17 PM | Likes Like |Link to Comment
  • Wisconsin Energy lands Integrys Engery in $9.1B deal [View news story]
    Way to go Charlie! The TEG (WPS) shareholders are being rewarded for their patience and will begin receiving increasing dividends from a larger and stronger company. Thank you for your efforts to increase the long term WPS shareholder's value. You've done a great job as CEO of our company!
    Jun 23 07:56 AM | 1 Like Like |Link to Comment
  • Dividend Yield Vs. Dividend Growth Revisited - Does It Matter? [View article]
    Great examples. Results don't surprise me at all. A 12% total return equals a 12% total return. Total returns can be any combination of yield plus growth, assuming the stock price growth is equal to the dividend growth.

    Typically, stocks with higher current yields have lower growth of yields and a lower "Chowder" number than low yielding stocks. I see yield as the "bird in the hand" and growth as the "bird in the bush". Everyone knows that a bird in the hand is worth two in the bush. Therefore, I like the "sweet spot" of 3 to 4% yield with 7 to 8% growth, which is equal to one bird in the hand and two birds in the bush.
    Jun 20 04:55 PM | 20 Likes Like |Link to Comment
  • A Case For Passive Income From Stock Dividends - Part 2 [View article]
    Here's another idea to eliminate the "survivorship" bias. Let's select the largest 10 stocks in the S&P 500 index from 1994. Here they are: ge t xom ko rds.b mo wmt mrk ibm pg. Looks like a good selection of dividend growth stocks to me. How'd they perform?

    The above portfolio's total return was 820.4%, outperforming the SPDR S&P 500 ETF's total return of 450.8%. The total return includes stock price appreciation and dividends. The portfolio's volatility was 13.3% which was lower than the S&P 500 volatility of 15.2%. The portfolio's average correlation value is 0.72.

    I'd say that using this non-survivorship selection of stocks confirms the results of this article that buying and holding a selection of top dividend growing companies performs well over long periods of time.

    Want to try the above for other years? Here is where you can find the largest 10 stocks in the S&P 500 by year from 1980 through 2013: http://bit.ly/1p99CV3 and here is how to calculate the total return: http://bit.ly/qt93Bo . Notice that the top 10 do not change very frequently? Therefore, it is not just a coincidence that 1994 happened to be a good year to use for this analysis.
    Jun 5 06:29 AM | 6 Likes Like |Link to Comment
  • A Case For Passive Income From Stock Dividends - Part 2 [View article]
    I agree with the survivorship bias comments but will share my solution for avoiding companies that may not survive the next twenty years. If you only invest in S&P "AAA" & "AA" bond rated companies, there is only a 0.23% chance of a default over a 5 year period. Therefore, if you monitor your portfolio and hold only very high bond rated companies, your chances of failure are very low. "A" rated companies have a 0.65% chance of default, "BBB" rated companies 2.48% chance of default, "BB" rated companies 8.7%, "B" 23.64% and below "b" 44.50%. These are actual default rates based on this link: http://bit.ly/1hA1WeW
    Jun 4 07:30 PM | 8 Likes Like |Link to Comment
  • My Dividend Growth Portfolio's 6th Birthday Report [View article]
    DVK, your comment is right on the money. At this point with only 4 more years of compounding to your goal measurement date, a higher yield is more important than a higher growth rate. If your time frame was longer, growth rate becomes much more important.

    T is not in my portfolio because my time frame focus is 30 years. Its a large position in my 80 year old father's portfolio. I manage both portfolios, but hold different stocks in each portfolio. It all comes down to your investment horizon.
    Jun 1 01:50 PM | 3 Likes Like |Link to Comment
  • Retirees Please Don't Index, You Deserve Better Than Average [View article]
    Pomp, Thank you for sharing your idea for a portfolio in the current environment. I will give you this, you must have "nerves" of steel to put 60% in Chinese companies. I couldn't sleep at night with your portfolio and it sounds like you couldn't sleep with mine. Hopefully we will each meet our goals investing within our comfort zone.
    May 30 03:18 PM | 9 Likes Like |Link to Comment
  • Retirees Please Don't Index, You Deserve Better Than Average [View article]
    What Pomp meant was to read the comments to this article as evidence that investors are choosing dividend stocks because all other yield alternatives are too low and therefore the demand is creating overvaluation.

    So Pomp, let's discuss the alternatives in this overvalued market. Have you seen the P/E's on the mid- and small-cap stocks? The P/E on the Russell 2000 is over 80 on a TTM basis. Don't take my word for this, go to the Wall Street Journal's website and see the real-time P/E at this link: http://on.wsj.com/sXXWWp . Should I sell my dividend stocks with an average TTM P/E of 15 for the Russell 2000 index with a TTM P/E of 80? Or should I sell my dividend stocks with a 3.4% yield for the S&P 500 index at a sub-2% yield? Or maybe I should invest in 10 year treasuries at a sub-2.5% yield? Maybe I should just put my money in a 4% yielding money market account and time the re-entry back into the market. Oh wait, that's .04% yield at the moment.

    Yes, I am buying dividend stocks at sub-20 P/E's with dividend yields averaging 3.4% and historic growth rates in the 8% range. Historically, this is average for these stocks. Compared to the alternatives, I call TINA (There Is No Alternative). Please enlighten us to what alternatives you see in the market.
    May 30 07:31 AM | 18 Likes Like |Link to Comment
  • Retirees Please Don't Index, You Deserve Better Than Average [View article]
    I worked in investor relations for two dividend aristocrats during my career. I met many "average" folks who had over $1 million invested my company's stock that were happily living on the dividends. Some of these people told me their father bought the stock years ago and instructed them to never sell it. Others told me they had "their own little mutual fund" of dividend paying companies. Most of these millionaires dressed very ordinary. You might be surprised how many millionaires are living next door.
    May 29 08:29 PM | 12 Likes Like |Link to Comment
  • Retirees Please Don't Index, You Deserve Better Than Average [View article]
    Pomp . . . Welcome back again, I've posted this same reply to your same comment many times in the past. Here's the link to the last time I posted this comment over a year ago. My how time flies. http://bit.ly/TY5ZXE

    I concede that bonds yields are extremely low and therefore any financial instrument priced based on yield spreads is priced high too. But it doesn't appear that dividend stocks are being priced based on yield spreads. Here are some examples.

    Dividend yields are not at historic low levels. I know the S&P500 is only yielding 2% compared to a 4.3% historic mean yield. But, factor in the payout ratio of the historic yield versus today's yield and they come out about equal. Bonds are high, stocks are average. Therefore, stocks are not being priced on yield spread.

    Another example, if dividend stocks are being priced on yield spread, how do you explain that KO went from a 1% yield to 3% yield as the 10 year went from 7% to 2%? If KO were yielding 1% today, I would say it is being priced with a yield spread.

    A third example, it would seem that if you use a stock with a 100% payout ratio it would be more sensitive to rising rates. But again, using MO as an example, it has a current yield of 4.7% versus a 4.8% yield in 2001. Seems to me that the 10 year treasury would have to come up quite a bit before it would be attractive over MO.

    Fourth, if the economy improves causing rates to rise, company earnings would also rise. Or if inflation causes rates to rise that company earnings would rise with some lag.
    May 29 07:21 PM | 2 Likes Like |Link to Comment
  • Do Dividends Lower Stock Prices? Part II [View article]
    "It's also important to note that nothing said above has anything to do with whether a company should pay a dividend or not. That decision should be based on the company's ability to efficiently deploy its capital. If it cannot earn its cost of capital with any "excess" cash not needed to run the business, it should return the capital to shareholders so that they can deploy it more efficiently."

    Larry, I have been agreeing with your math and this article is correct again. What I like about dividend investing is the quote you wrote above. I believe there is value to having management allocate my capital and distribute excess cash to me for living expenses. If management does a good job of allocating capital, my dividend should increase over time by reinvesting in new projects, paying down debt or buying back its stock. If management does a bad job of allocating capital, there is a risk of a dividend cut.

    I could instead create my own "dividends" by owning lower yielding index funds and selling some shares to meet my spending needs. But then I have to decide what is the correct dividend level. (rhetorical questions) Is 4% the correct level? Can I increase it by inflation each year? If I choose the wrong "dividend" rate I risk the worst kind of dividend cut, running out of money. I see value in letting my managements determine the sustainable dividend level for my portfolio. The stocks I invest in know that retirees are their typical investor and manage their capital allocation so they can annually increase their dividend. I am very comfortable continuing with my dividend spending plan for my retirement needs.

    I hope you too can see my side of this controversy. Its not that I don't understand or agree with your math. I just am more comfortable in letting management determine my sustainable spending level.
    May 28 08:46 AM | 5 Likes Like |Link to Comment
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