Investors Should Not Be Complacent About Dividend Champions [View article]
I liked your article, because you had some valid points. Investors should not purchase dividend stocks blindly, but only if the business fundamentals and the valuation made sense.
However, even if investors blindly purchased all dividend achievers, they would have done slightly better than the market. Not all dividend achievers are a buy however. Investors who have a head on their shoulders can research company, buy it if its a good buy and sell it if it is a good sell (dividend cut). Investors are essentially managing their own portfolio, and being in charge of their own destiny, while saving on management fees, conflicts of interest and other shenanigans from the mutual funds industry.
You have several factual errors. You say " In fact, only the 101 currently reigning “Dividend Champions” from an original list of perhaps 500-700 stocks promising “dividends for life” 25 years ago would have survived the test of time."
There were approximately 84 dividend champions in 1991, while there were 362 dividend achievers.
Another factual error is that Enron, Xerox were never dividend champions. Neither was Lehman - it was only a div achiever.
Just because a company drops from the list, doesn't mean that it went to zero and investors lost everything. Some companies like Kellogg stopped raising dividends after a 44 year run, but maintained them, until it started raising distributions again several years ago. Many promising dividend growth stocks get bought out by larger competitors at a steep premium. Very few actually "go under".
Dividend Stock Analysis: Walgreen Company [View article]
Donzoab,
Luckily I invest for the future, not for the past.
Diversification is also important. Even if you hold the best dividend stocks, you need to spread the risk. For example many financials were great dividend stocks until 2007- 2008. Not so great since then..
I fall in love with many companies, especially if I get high yield that is sustainable and a growing distribution. But I buy and monitor. I read 10Ks, news, but once an analysis of a wide-moat company has been done, "noise" doesn't really change my opinion by much. Unless there is a drastic change.. Like the story of the sleepy water utility ( Vivendi) becoming a media company, and spinning off its "sleepy business" ( Veolia) to focus on growth. That would have been a major warning sign...
I would have never bought GM.. ENE was a stable pipeline company until the early 1990s, and then changed its strategy.
Actually, investors who sold after dividend cuts, would have avoided most of the losses in companies like FNM, GM etc. But few investors are willing to learn, unfortunately.
2 High Yield Stocks Currently On My Buy List [View article]
I make estimates when I buy stocks. That's why the stocks I write about are right for me, but might not work for others.
If something changes I know if I am going to do or not do something when it happens.
KMP will probably grow distributions by 5-6% for a decade. After that I am fairly confident it will be able to at least match levels of inflation, if not even better ( talking about distributions per unit )
2 High Yield Stocks Currently On My Buy List [View article]
KMI owns KMP GP interest as well as KMP and KMR stock. I would say KMP would keep growing distributions by 5-6% for the foreseeable future. KMI's dividend growth should be higher than that because of 50% IDR.
I typically require 10 years of annual dividend increases before even looking at a position. But KMI and PM are an exception.
10 Stocks for a Stable Dividend Stream of Income [View article]
Well, stock price gains are great, and as a long-term dividend investor I want to buy stocks that will appreciate over time. At the same time I receive my dividends like clockwork. Dividend income is more stable and comes in consistently, whereas income from capital gains fluctuates over time. That's why dividends are a great way to fund your retirement.
Stocks do go up by 10% over time, but this could include 16 year periods of no capital gains ( 1966-1982), followed by 18 year periods of above average capital gains ( 1982-2000), followed by a period of no capital gains ( 2000 - present day).
I don't know about you, but I like to eat every day and I need to pay my rent, utilities every month. I cannot tell my utility company or WalMart that I will pay them later because stock prices are down.
The Highest Yielding Dividend Champions, Challengers and Contenders [View article]
Of these companies, I would say GTY's dividend is in great danger.
Once your largest tennant stops paying rent on time you are in trouble. If a small time tennant doesn't pay rent, you can evict them and it is their problem. If a tennant responsible for 55% of revenues stops paying rent, then the landlord is in trouble.
10 Stocks for a Stable Dividend Stream of Income [View article]
A company that pays 9% yield today has a higher risk of a dividend cut than a company that has a 3% yield today. It is true that a company paying a 3% yield today might stop increasing dividends of course.
But that is a much lower risk than buying a 9% yielder today, which cuts distributions or even completely eliminates them. A company yielding 3% today is likely reinvesting half of its profits back into the business, whereas a company yielding 9% is likely paying all of its cash flow from operations ( FFO for REITS or DCF for MLPs), and growing the business by selling bonds or additional stock. Thus, a dip in earnings would lead to dividend cuts for the higher yielding stock. It would not lead to dividend cuts for the lower yielding stock, unless things really deteriorate.
Buying a 9% yielder just so you can spend 3% and reinvest 6% does not seem like a prudent strategy. True, you can get a 6% increase in dividends. But do you think that this is the most optimal situation for a time when inflation might pick up to say, double digits? Will a high yielder of today be able to raise distributions fast enough in order for their investors to keep up with inflation? Companies that distribute a portion of their earnings and reinvest the rest in the business will likely be able to raise distributions fast enough to keep up with inflation.
Investors who focus only on yield alone, tend to forget about total returns. It is good to keep receiving the dividend checks monthly/quarterly, but it is also good to pick stocks which offer the potential for capital appreciation. chasing yield, without understanding the business, will lead to drop in income when the dividend is cut and capital losses.
The higher yielding stocks have another risk - that their business structure will be phased out. Just ask Canadian Canroy investors what happened to them since 2006...
Anyway, I enjoy conversations about dividend investing and trying to find "holes" in strategies. After all, this is the path that I have chosen for myself to support me in retirement. So if I am missing something, please let me know.
However, I find it difficult to engage in theoretical discussions, driven primarily of using numbers which are not tied to real world situations in some sort. Would you please include a list of 10 high yield stocks, yielding 9%, which would support your idea of spending 3% and reinvesting 6%?
Other than that, continuing playing with theoretical numbers would be an exercise in futility and a waste of my time.
10 Stocks for a Stable Dividend Stream of Income [View article]
Plowjockey,
If someone is just retiring and all they have is $100K - $200K in investable assets that need to generate income now, there are very few options available.
Sure they could buy the highest yielding stocks, and the dividend payments might even come for a few years. But the highest yielding stocks typically come from companies that pay out all their earnings as distributions. Even a slight dip in earnings could cause these companies to cut dividends.
Others are partnerships or trusts, which do not pay taxes, but rather have their investors pay taxes ( typically more complex tax return, and income is taxed at ordinary level). If these structures were to be phased out by congress, you would see your distribution income get decimated. It is very difficult to get back to work when you are in your 50s and 60s and after you have lost a chunk of your money.
Another risk is inflation. Even if you find a very high yielder today, chances are that it will not increase dividends by much if at all. As a result the purchasing power of your income will decrease over time.
There are a lot of other risks I see with a concentrated strategy chasing the highest yielding stocks while not having enough capital. But that's just me - I like to look at minimizing risk of outliving my capital.
I like a moderate yielding stocks, which raise dividends and have stable businesses that would generate high earnings over time to support the rising dividend payments. That way I figure I would have a low risk of having to look for a job flipping burgers in my 60s.
10 Stocks for a Stable Dividend Stream of Income [View article]
Actually, the analysis presented above included total returns for S&P 500. The thing that kills you in retirement using an asset depletion strategy is having to sell 2-3% of your starting portfolio value when the market is own 50% from the starting date.
The average yield of the list above is 3.30%. If those dividends increase by 7% per year for 3 years, your yield on cost could be over 4%. Of course, you still need to have a diversified portfolio with at least 30 stocks, representative of as many sectors as possible, without sacrificing quality.
You could also add in a few reits, MLPs and a utility or two to increase current yield. But you should not sacrifice long term growth for yield alone. You need a rising stream of dividends to provide cushion against inflation.
Back in 2000 I would not have bought most of the stocks listed above. But back in 2000, there were other stocks which would have fit my entry criteria. some Reits were very undervalued in 1999-2000..
McDonald's: A True Dividend Champion [View article]
MCD is priced fairly. It will be attractively valued up to $104 in 2011, and $114 in 2012.
Investors Should Not Be Complacent About Dividend Champions [View article]
However, even if investors blindly purchased all dividend achievers, they would have done slightly better than the market. Not all dividend achievers are a buy however. Investors who have a head on their shoulders can research company, buy it if its a good buy and sell it if it is a good sell (dividend cut). Investors are essentially managing their own portfolio, and being in charge of their own destiny, while saving on management fees, conflicts of interest and other shenanigans from the mutual funds industry.
You have several factual errors. You say " In fact, only the 101 currently reigning “Dividend Champions” from an original list of perhaps 500-700 stocks promising “dividends for life” 25 years ago would have survived the test of time."
There were approximately 84 dividend champions in 1991, while there were 362 dividend achievers.
Another factual error is that Enron, Xerox were never dividend champions. Neither was Lehman - it was only a div achiever.
Just because a company drops from the list, doesn't mean that it went to zero and investors lost everything. Some companies like Kellogg stopped raising dividends after a 44 year run, but maintained them, until it started raising distributions again several years ago. Many promising dividend growth stocks get bought out by larger competitors at a steep premium. Very few actually "go under".
Dividend Stock Analysis: Walgreen Company [View article]
Luckily I invest for the future, not for the past.
Diversification is also important. Even if you hold the best dividend stocks, you need to spread the risk. For example many financials were great dividend stocks until 2007- 2008. Not so great since then..
The Risks Of Dividend Investing [View article]
I would have never bought GM.. ENE was a stable pipeline company until the early 1990s, and then changed its strategy.
Actually, investors who sold after dividend cuts, would have avoided most of the losses in companies like FNM, GM etc. But few investors are willing to learn, unfortunately.
Novartis AG: Dividend Stock Analysis [View article]
Novartis AG: Dividend Stock Analysis [View article]
Do you have any reputable external information to support this claim?
2 High Yield Stocks Currently On My Buy List [View article]
2 High Yield Stocks Currently On My Buy List [View article]
If something changes I know if I am going to do or not do something when it happens.
KMP will probably grow distributions by 5-6% for a decade. After that I am fairly confident it will be able to at least match levels of inflation, if not even better ( talking about distributions per unit )
2 High Yield Stocks Currently On My Buy List [View article]
I typically require 10 years of annual dividend increases before even looking at a position. But KMI and PM are an exception.
10 Stocks for a Stable Dividend Stream of Income [View article]
Stocks do go up by 10% over time, but this could include 16 year periods of no capital gains ( 1966-1982), followed by 18 year periods of above average capital gains ( 1982-2000), followed by a period of no capital gains ( 2000 - present day).
I don't know about you, but I like to eat every day and I need to pay my rent, utilities every month. I cannot tell my utility company or WalMart that I will pay them later because stock prices are down.
The Highest Yielding Dividend Champions, Challengers and Contenders [View article]
Once your largest tennant stops paying rent on time you are in trouble. If a small time tennant doesn't pay rent, you can evict them and it is their problem. If a tennant responsible for 55% of revenues stops paying rent, then the landlord is in trouble.
10 Stocks for a Stable Dividend Stream of Income [View article]
But that is a much lower risk than buying a 9% yielder today, which cuts distributions or even completely eliminates them. A company yielding 3% today is likely reinvesting half of its profits back into the business, whereas a company yielding 9% is likely paying all of its cash flow from operations ( FFO for REITS or DCF for MLPs), and growing the business by selling bonds or additional stock. Thus, a dip in earnings would lead to dividend cuts for the higher yielding stock. It would not lead to dividend cuts for the lower yielding stock, unless things really deteriorate.
Buying a 9% yielder just so you can spend 3% and reinvest 6% does not seem like a prudent strategy. True, you can get a 6% increase in dividends. But do you think that this is the most optimal situation for a time when inflation might pick up to say, double digits? Will a high yielder of today be able to raise distributions fast enough in order for their investors to keep up with inflation? Companies that distribute a portion of their earnings and reinvest the rest in the business will likely be able to raise distributions fast enough to keep up with inflation.
Investors who focus only on yield alone, tend to forget about total returns. It is good to keep receiving the dividend checks monthly/quarterly, but it is also good to pick stocks which offer the potential for capital appreciation. chasing yield, without understanding the business, will lead to drop in income when the dividend is cut and capital losses.
The higher yielding stocks have another risk - that their business structure will be phased out. Just ask Canadian Canroy investors what happened to them since 2006...
Anyway, I enjoy conversations about dividend investing and trying to find "holes" in strategies. After all, this is the path that I have chosen for myself to support me in retirement. So if I am missing something, please let me know.
However, I find it difficult to engage in theoretical discussions, driven primarily of using numbers which are not tied to real world situations in some sort. Would you please include a list of 10 high yield stocks, yielding 9%, which would support your idea of spending 3% and reinvesting 6%?
Other than that, continuing playing with theoretical numbers would be an exercise in futility and a waste of my time.
10 Stocks for a Stable Dividend Stream of Income [View article]
If someone is just retiring and all they have is $100K - $200K in investable assets that need to generate income now, there are very few options available.
Sure they could buy the highest yielding stocks, and the dividend payments might even come for a few years. But the highest yielding stocks typically come from companies that pay out all their earnings as distributions. Even a slight dip in earnings could cause these companies to cut dividends.
Others are partnerships or trusts, which do not pay taxes, but rather have their investors pay taxes ( typically more complex tax return, and income is taxed at ordinary level). If these structures were to be phased out by congress, you would see your distribution income get decimated. It is very difficult to get back to work when you are in your 50s and 60s and after you have lost a chunk of your money.
Another risk is inflation. Even if you find a very high yielder today, chances are that it will not increase dividends by much if at all. As a result the purchasing power of your income will decrease over time.
There are a lot of other risks I see with a concentrated strategy chasing the highest yielding stocks while not having enough capital. But that's just me - I like to look at minimizing risk of outliving my capital.
I like a moderate yielding stocks, which raise dividends and have stable businesses that would generate high earnings over time to support the rising dividend payments. That way I figure I would have a low risk of having to look for a job flipping burgers in my 60s.
10 Stocks for a Stable Dividend Stream of Income [View article]
The average yield of the list above is 3.30%. If those dividends increase by 7% per year for 3 years, your yield on cost could be over 4%. Of course, you still need to have a diversified portfolio with at least 30 stocks, representative of as many sectors as possible, without sacrificing quality.
You could also add in a few reits, MLPs and a utility or two to increase current yield. But you should not sacrifice long term growth for yield alone. You need a rising stream of dividends to provide cushion against inflation.
Back in 2000 I would not have bought most of the stocks listed above. But back in 2000, there were other stocks which would have fit my entry criteria. some Reits were very undervalued in 1999-2000..
9 Master Limited Partnerships for Yield and Growth [View article]
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I discuss EEQ and KMR there.
So, don't blame me for reading my articles here.