The Misplaced Mania Over Dividend-Paying Stocks [View article]
Off hand, I am not looking through 500 names to try and prove your point, but I will give 4 names that are in the Nasdaq 100 - the index that should be technology heavy, shouldn't pay a dividend (forget about increasing over many years) and should have some debt.
CHRW, EXPD, FAST
Finally, Intel. Here was a company that purposely took on more debt. Why? It would cost them more money in dividends on all of the existing shares vs borrowing cheap money, reducing the share count and still (highly likely) increase the dividends paid out in 2012. That's a business I want to (and am) associated/invested with.
The Misplaced Mania Over Dividend-Paying Stocks [View article]
Jeep5ter:
The reason why the author, an RIA as many have pointed out, is interested in total return is because he is paid on total assets under management, not on as you so nicely stated, "income generation."
The dichotomy exists because all investment firms want more assets under management, but it was talking with my grandmother when she never mentioned her portfolio size, but how much cash flow she had to pay her bills for the month. That was the "2x4 between the eyes" moment where I need to create my own dividend annuity now while I am young (mid 30s) with the assets I currently have. Choose the rent payers (div growth companies) who have voluntarily given you, the owner, an inflation-adjusted (and hopefully more) increase every year without even asking. Make the place look prettier every year (DRIP or selectively reinvest, your choice) so that the rent continues to go up. At some point, the market may get so frothy that it is worth selling the property and taking the cap gains, but in the meantime, I'll take the cash flow versus the whims of the market.
"Both are excellent businesses, but it seems that shares of Emerson have a larger degree of "margin of safety" built into the share price than Colgate."
Tim: I respectfully disagree. I will use the concept from IQTrends to say, only looking at dividend yield, Colgate is more undervalued.
Colgate: 92.39 Dividend of $2.32 for 2.5% yield. Historical range from under to overvalue is 2.4% to 1.1%, or price wise from $96.67 at historically undervalued to $211 for historically overvalued.
Emerson: 46.59 Dividend of $1.60 for 3.5% yield. Historical range from under to overvalue is 4% to 2%, or price wise from $40 at historically undervalued to $80 for historically overvalued.
Hence, Emerson is close to undervalued territory by its own historical dividend range, but just because it yields more does not mean that it is cheaper. Colgate is historically undervalued by 0.1% so one would be getting in at a fair price based on yield alone. (of course do your own DD on every otherfactor out there) Altria is not fair to include because, as you pointed out, the spinoffs skew its long standing historical range.
Battle Of Dividend Kings: Chevron Vs. Exxon [View article]
Using Yahoo Finance and the adjusted close price as of December 31, 2000:
CVX: 29.32 12/31/2000 Now 107.50 Cap Appreciation (only, no dividends considered) of 267%
XOM: 33.98 then Now 85.22 Cap App of 151%
Not that I did, but if I had to choose 10 years ago between these 2, I would have gone with CVX back then. It would only be for the simple fact the law of large #s. The next double now will take XOM to an 800 Billion dollar market cap. There's only so much growth that can occur when you start talking about GE and CSCO 10 years ago, and now Apple, XOM, Google today. Sure, it can occur, but I'll take a smaller company (up to about 100 B) with a growing dividend than CVX or XOM now.
Targeting A Retirement Income Level From A Dividend Growth Portfolio - Part 2 [View article]
As you note, this was in an IRA. Wouldn't Larry want his 50,000 after taxes? That means he really needs closer to $60,000 in dividends making the needed DGRs even higher.
Are Dividend Champion Growth Rates Indicative Of Future Outperformance? [View article]
Mr. Gall:
My apologies that you did use the CCC list. Couple of follow up questions:
Why 24 months versus 12 or 36 or 60 months?
When looking at stock prices on Yahoo Finance, did you use the closing price as stated at the time or the adjusted closing price as accounted for stock splits and paying out dividends? If we don't use the latter, many dividend yields are going to look artifically low because the dividends were adjusted for the stock splits.
Are Dividend Champion Growth Rates Indicative Of Future Outperformance? [View article]
Great article. You know Mr. Fish has added at the end of the spreadsheet how much a dividend has gone up in any year of the last 12 years? It would be easier than ever to quickly sort and pick the stocks that meet the criteria. You can even do it mid year from the last increase.
It's interesting to note there are more stocks from the CCC list there than on your list, particularly the year where only MSA qualified. Now I didn't look at the prices to see what the yield would have been, but I can't imagine all of those stocks having less than a 1% yield?
'Show Me The Kwan, Jerry!' Cash Is King [View article]
Mr. Connellan:
Great article and you do bring to light the most important yet underrated of the 3 financial sheets one should really look at. Question for you: Forgetting the MLPs because their funding is a little different, do you only consider companies that are positive in cash flow? Where's your cutoff point?
I have been doing what you said to look at two things. One I call Net FCF - can a company's TTM pay for capex, acquisitions and dividends just from CFO using no debt? Usually the answer is no, but if they can, they get on a very short list.
#2: Looking at Net Present Yield and Total Share Yield NPY = %Dividend Yield from CF sheet + %Change in Shares outstanding Total Share Yield = NPY + % Change in Debt
I never like to see a company reduce share count but balloon their debt. I feel like they are doing a slight of hand and tricking consumers (eg: check out HAS and ODC).
So looking at PM for TTM as of September 30, 2011: Net FCF: +86 (good) Div Yield (CF sheet): 3.5% Net Share Yield: 4.1% Net Present Yield: 7.61% (great) Debt Yield: -0.13% Total Share Yield: 7.48% (still really good)
As an owner of the stock, PM taking on this little debt when you can see the benefits of what they are doing for their shareholders doesn't bother me one iota. It's not the only way I look things but is an extremely important part of the puzzle.
Is Yield On Cost Really Important To Dividend Investors? [View article]
SDS, extreme, and richjoy:
The answer to your question, SDS, about taxable investments is yes, I have analyzed it and I will include it below. It is from the book I wrote for my kids (now 6 and 3) and richjoy, you have the book. I'll apologize now - it's 3 paragraphs but gets to EXACTLY what you are asking about. For anyone who wants a copy, just email me and it would be extremely beneficial for alexs135. We may be one of only about a dozen people looking at the I4I section. Let me also state that the #s you see does not take inflation into account and that is mentioned in a different chapter.
Excerpt:
So I want to do some math right now that helped me understand how important dividend growth is to be able to retire not only comfortably, but filthy rich with very little initial investment and why we need to challenge the first 2 chapters I started this book with.
We have $90,000 to invest for the stock market. This is money that is there for long-term investing so we can let this be in the stock market for 20-30 years and don't need it to buy a car or a down payment for a house, etc. Our goal is to buy dividend-paying stocks so that we can get $100,000 in dividends after tax, a number I am using that is a nice, round number and would put you in the top 15% of all income earners while just sitting on your behind (US Census, 2005). (To put the $100,000 in perspective, the 2009 national average of household income is about $63,000. The median income for 2009 is right around $50,000.) We create a portfolio so that our starting yield is 3.5% (easily doable and I will show you how), we expect this portfolio's yield (not the stock itself but the dividend money) to grow at 8% per year (realistic without being impossible), we reinvest all of these dividends back into our current portfolio and paying the necessary taxes along the way, and we are going to assume this tax rate on dividends is 30% (the current tax rate in 2011 on qualified dividends, to be explained later what qualified means, is 15%). Using these assumptions, to receive $100,000 free and clear in just dividends on our initial $90,000 (the only money we personally put in) will take 27 years. So if you started at 30 years old, you can have enough money coming in to live comfortably every year 5 years before you needed Social Security and you never have to touch the initial principal of $90,000... ever.
But let's compare this to our portfolio that focuses solely on share prices and we need to work backwards on the math. To get $100,000 in after tax dividends, we need $143,000 in dividends at a 30% tax rate. To get $143,000 in dividends if our portfolio yields 3.5%, we need a starting portfolio of $4 million. To go from $90,000 to 4 million in the same 27 year time period, you need your portfolio to grow 15.1% per year for 27 years!! The best risk-adjusted Lazy Portfolio I could create on a back test was 12.73%. To push the envelope and get 2.4% more per year out of a pure growth portfolio is bringing so much risk to your money it would be hard to sleep for the conservative investor. What we as investors need to realize is that we want to start the annuity now. For some reason, we have been taught to grow the portfolio and that it can only be by share price that grows. But if this is money you want to be there for income purposes and grow CONSISTENTLY, and PREDICTABLY, we need to start as soon as possible to have the money coming back to us and REINVESTING the money back into predictable companies.
We only use uverse Internet for now. Three speeds to look at -12,18,24 Mbps. We have the 12- plenty fast. First 12 months is 24.99/ month, but regular price is 48 bucks per month plus tax.
Retire In Half The Time With Dividend Growth Investing [View article]
Jeff:
Let's go back to the equation a second. You say that instead of dividend growth we should use earnings growth. I understand the argument because to have a profit is the reason the excess cash of dividends can be distributed. But I see it as this:
The company has much more info than we will ever have. They have a much better idea, I believe, of what will happen with their company than I can ever do. A dividend increase is telling me how much they believe in the future prospects over the next 12 months. Since I may push down to 2.5% as an initial starting yield for a stock, as long as they are telling me an 8% minimum increase in the dividend, I am happy. (2.5+8 = 10.5% expected return for next year)
Now here would be an interesting research study. Let's use PG to use an example. I am going with the assumption that the day PG announces their increase in the dividend is also the day they release their guidance for the upcoming year in revenue and EPS range. Is there any way to do a study showing their EPS projection compared to PG's dividend increase for the year or looking retroactively, their dividend increase of this year compared to PG's EPS growth from last year or what they expected their growth to be? My hunch tells me that the dividend increase somehow miraculously ends up smack dab in the middle of their projected EPS growth range a majority of the time.
SDS:
I created a spreadsheet that tabulates dividend growth with zero percent capital appreciation. You can add money (on an annual basis) or subtract for that matter if you are in the silver years of distribution and change the tax rate to see what happens to your after-tax dividend money. It was this spreadsheet that convinced me this is the only way I can be successful at investing. I suppose a column could be added in terms of appreciation/depreciat... but like RAS, I am interested in the income component. I just happen to try and build my income stream in my mid 30s than the mid 50s.
If anyone wants the spreadsheet, PM me your email address.
The Misplaced Mania Over Dividend-Paying Stocks [View article]
CHRW, EXPD, FAST
Finally, Intel. Here was a company that purposely took on more debt. Why? It would cost them more money in dividends on all of the existing shares vs borrowing cheap money, reducing the share count and still (highly likely) increase the dividends paid out in 2012. That's a business I want to (and am) associated/invested with.
The Misplaced Mania Over Dividend-Paying Stocks [View article]
The reason why the author, an RIA as many have pointed out, is interested in total return is because he is paid on total assets under management, not on as you so nicely stated, "income generation."
The dichotomy exists because all investment firms want more assets under management, but it was talking with my grandmother when she never mentioned her portfolio size, but how much cash flow she had to pay her bills for the month. That was the "2x4 between the eyes" moment where I need to create my own dividend annuity now while I am young (mid 30s) with the assets I currently have. Choose the rent payers (div growth companies) who have voluntarily given you, the owner, an inflation-adjusted (and hopefully more) increase every year without even asking. Make the place look prettier every year (DRIP or selectively reinvest, your choice) so that the rent continues to go up. At some point, the market may get so frothy that it is worth selling the property and taking the cap gains, but in the meantime, I'll take the cash flow versus the whims of the market.
eyetri2
Dividend Stocks Defy Bubble Classification [View article]
Tim: I respectfully disagree. I will use the concept from IQTrends to say, only looking at dividend yield, Colgate is more undervalued.
Colgate: 92.39 Dividend of $2.32 for 2.5% yield. Historical range from under to overvalue is 2.4% to 1.1%, or price wise from $96.67 at historically undervalued to $211 for historically overvalued.
Emerson: 46.59 Dividend of $1.60 for 3.5% yield. Historical range from under to overvalue is 4% to 2%, or price wise from $40 at historically undervalued to $80 for historically overvalued.
Hence, Emerson is close to undervalued territory by its own historical dividend range, but just because it yields more does not mean that it is cheaper. Colgate is historically undervalued by 0.1% so one would be getting in at a fair price based on yield alone. (of course do your own DD on every otherfactor out there) Altria is not fair to include because, as you pointed out, the spinoffs skew its long standing historical range.
Benjamin Graham Was Right: Price Is Paramount [View article]
If I read this correctly, scenario #1 was buying March 2000. My guess is you would have only received 3 quarterly dividend payments, not 4.
And scenario 2, buying in December, let's just say December 30th, you would have zero dividend payments for the year 2000.
It's a slight miscalculation but you definitely don't get the dividends, full, partial or otherwise at the December stock price.
Battle Of Dividend Kings: Chevron Vs. Exxon [View article]
CVX: 29.32 12/31/2000 Now 107.50 Cap Appreciation (only, no dividends considered) of 267%
XOM: 33.98 then Now 85.22 Cap App of 151%
Not that I did, but if I had to choose 10 years ago between these 2, I would have gone with CVX back then. It would only be for the simple fact the law of large #s. The next double now will take XOM to an 800 Billion dollar market cap. There's only so much growth that can occur when you start talking about GE and CSCO 10 years ago, and now Apple, XOM, Google today. Sure, it can occur, but I'll take a smaller company (up to about 100 B) with a growing dividend than CVX or XOM now.
eyetri2
Targeting A Retirement Income Level From A Dividend Growth Portfolio - Part 2 [View article]
Nice illustrations to get the point across.
Are Dividend Champion Growth Rates Indicative Of Future Outperformance? [View article]
My apologies that you did use the CCC list. Couple of follow up questions:
Why 24 months versus 12 or 36 or 60 months?
When looking at stock prices on Yahoo Finance, did you use the closing price as stated at the time or the adjusted closing price as accounted for stock splits and paying out dividends? If we don't use the latter, many dividend yields are going to look artifically low because the dividends were adjusted for the stock splits.
eyetri2
Are Dividend Champion Growth Rates Indicative Of Future Outperformance? [View article]
It's interesting to note there are more stocks from the CCC list there than on your list, particularly the year where only MSA qualified. Now I didn't look at the prices to see what the yield would have been, but I can't imagine all of those stocks having less than a 1% yield?
Still very intriguing.
'Show Me The Kwan, Jerry!' Cash Is King [View article]
Great article and you do bring to light the most important yet underrated of the 3 financial sheets one should really look at. Question for you: Forgetting the MLPs because their funding is a little different, do you only consider companies that are positive in cash flow? Where's your cutoff point?
I have been doing what you said to look at two things. One I call Net FCF - can a company's TTM pay for capex, acquisitions and dividends just from CFO using no debt? Usually the answer is no, but if they can, they get on a very short list.
#2: Looking at Net Present Yield and Total Share Yield
NPY = %Dividend Yield from CF sheet + %Change in Shares outstanding
Total Share Yield = NPY + % Change in Debt
I never like to see a company reduce share count but balloon their debt. I feel like they are doing a slight of hand and tricking consumers (eg: check out HAS and ODC).
So looking at PM for TTM as of September 30, 2011:
Net FCF: +86 (good)
Div Yield (CF sheet): 3.5%
Net Share Yield: 4.1%
Net Present Yield: 7.61% (great)
Debt Yield: -0.13%
Total Share Yield: 7.48% (still really good)
As an owner of the stock, PM taking on this little debt when you can see the benefits of what they are doing for their shareholders doesn't bother me one iota. It's not the only way I look things but is an extremely important part of the puzzle.
eyetri2
Positioning Your Equity Portfolio For High Yield With Moderate Risk, Part V [View article]
Is Yield On Cost Really Important To Dividend Investors? [View article]
The answer to your question, SDS, about taxable investments is yes, I have analyzed it and I will include it below. It is from the book I wrote for my kids (now 6 and 3) and richjoy, you have the book. I'll apologize now - it's 3 paragraphs but gets to EXACTLY what you are asking about. For anyone who wants a copy, just email me and it would be extremely beneficial for alexs135. We may be one of only about a dozen people looking at the I4I section. Let me also state that the #s you see does not take inflation into account and that is mentioned in a different chapter.
Excerpt:
So I want to do some math right now that helped me understand how important dividend growth is to be able to retire not only comfortably, but filthy rich with very little initial investment and why we need to challenge the first 2 chapters I started this book with.
We have $90,000 to invest for the stock market. This is money that is there for long-term investing so we can let this be in the stock market for 20-30 years and don't need it to buy a car or a down payment for a house, etc. Our goal is to buy dividend-paying stocks so that we can get $100,000 in dividends after tax, a number I am using that is a nice, round number and would put you in the top 15% of all income earners while just sitting on your behind (US Census, 2005). (To put the $100,000 in perspective, the 2009 national average of household income is about $63,000. The median income for 2009 is right around $50,000.) We create a portfolio so that our starting yield is 3.5% (easily doable and I will show you how), we expect this portfolio's yield (not the stock itself but the dividend money) to grow at 8% per year (realistic without being impossible), we reinvest all of these dividends back into our current portfolio and paying the necessary taxes along the way, and we are going to assume this tax rate on dividends is 30% (the current tax rate in 2011 on qualified dividends, to be explained later what qualified means, is 15%). Using these assumptions, to receive $100,000 free and clear in just dividends on our initial $90,000 (the only money we personally put in) will take 27 years. So if you started at 30 years old, you can have enough money coming in to live comfortably every year 5 years before you needed Social Security and you never have to touch the initial principal of $90,000... ever.
But let's compare this to our portfolio that focuses solely on share prices and we need to work backwards on the math. To get $100,000 in after tax dividends, we need $143,000 in dividends at a 30% tax rate. To get $143,000 in dividends if our portfolio yields 3.5%, we need a starting portfolio of $4 million. To go from $90,000 to 4 million in the same 27 year time period, you need your portfolio to grow 15.1% per year for 27 years!! The best risk-adjusted Lazy Portfolio I could create on a back test was 12.73%. To push the envelope and get 2.4% more per year out of a pure growth portfolio is bringing so much risk to your money it would be hard to sleep for the conservative investor. What we as investors need to realize is that we want to start the annuity now. For some reason, we have been taught to grow the portfolio and that it can only be by share price that grows. But if this is money you want to be there for income purposes and grow CONSISTENTLY, and PREDICTABLY, we need to start as soon as possible to have the money coming back to us and REINVESTING the money back into predictable companies.
AT&T: My Stock Pick Of 2012 [View article]
We only use uverse Internet for now. Three speeds to look at -12,18,24 Mbps. We have the 12- plenty fast. First 12 months is 24.99/ month, but regular price is 48 bucks per month plus tax.
Wide-Moat Put Writing: An Income Investing Alternative [View article]
Dividend Investing And Black Jack: How Strategic Money Management Can Make You A Winner [View article]
Retire In Half The Time With Dividend Growth Investing [View article]
Let's go back to the equation a second. You say that instead of dividend growth we should use earnings growth. I understand the argument because to have a profit is the reason the excess cash of dividends can be distributed. But I see it as this:
The company has much more info than we will ever have. They have a much better idea, I believe, of what will happen with their company than I can ever do. A dividend increase is telling me how much they believe in the future prospects over the next 12 months. Since I may push down to 2.5% as an initial starting yield for a stock, as long as they are telling me an 8% minimum increase in the dividend, I am happy. (2.5+8 = 10.5% expected return for next year)
Now here would be an interesting research study. Let's use PG to use an example. I am going with the assumption that the day PG announces their increase in the dividend is also the day they release their guidance for the upcoming year in revenue and EPS range. Is there any way to do a study showing their EPS projection compared to PG's dividend increase for the year or looking retroactively, their dividend increase of this year compared to PG's EPS growth from last year or what they expected their growth to be? My hunch tells me that the dividend increase somehow miraculously ends up smack dab in the middle of their projected EPS growth range a majority of the time.
SDS:
I created a spreadsheet that tabulates dividend growth with zero percent capital appreciation. You can add money (on an annual basis) or subtract for that matter if you are in the silver years of distribution and change the tax rate to see what happens to your after-tax dividend money. It was this spreadsheet that convinced me this is the only way I can be successful at investing. I suppose a column could be added in terms of appreciation/depreciat... but like RAS, I am interested in the income component. I just happen to try and build my income stream in my mid 30s than the mid 50s.
If anyone wants the spreadsheet, PM me your email address.
eyetri2