A High-Yield, Low-Payout Dividend Growth Model Portfolio For 2013 [View article]
Thanks for your thoughts, Bob. I can see where for a high-payout ratio stock, we would want to check other factors (that you list) to determine if it may still be worth holding on to. I'm curious…are there scenarios when low-payout stock would be considered unacceptable from a screen standpoint? The obvious would be if the yield was very low, though I'm already screening on that one too. I agree that investors should then look at other factors to decide which low-payout stocks to buy, though the research bought the whole group and it performed well! I like the screen for identifying 30-50 stocks that I can then think about in more depth.
A High-Yield, Low-Payout Dividend Growth Model Portfolio For 2013 [View article]
Hi Dave, The payout ratio is (divs / net income), and net income already factors in interest payments, so assuming the firm can at least roll over any maturing debt, the remaining funds are technically available to be declared for distribution. (Note: I'm simplifying a bit, as divs really get paid from the cash flows, whereas retained earnings/net income is an accrued value. They could reinvest the cash into facilities, inventory, etc.) However, I do agree with you that there is a difference between the ability to raise a dividend (low payout ratio) and deciding to actually raise it (management decision). This is why I like seeing high DGRs for these stocks, as I see that as a proxy for management working to return $$ to investors.
A High-Yield, Low-Payout Dividend Growth Model Portfolio For 2013 [View article]
Hi jp99,
I'm assuming you mean their liabilities (debt+other liabilities) to assets (capital) ratio. My read is that much of this is not debt (i.e. bonds/loans) but related to the underfunded pension. LMT is using a pretty low discount rate (4%), which means the present value of future liabilities is higher. I've worked with other companies that had a discount rate closer to 8% (a bit high in today's environment), but reduces the present value of the future pension payouts (makes things look "good"). LMT has made some extra payments to close the gap ($3B+, based on what I saw in the last annual report), and as of 2012, it looks like the pension is closed to new employees, though I skimmed that rather quickly. If LMT can earn more than 4% on its investments (it is assuming 8%), it will start to close the underfunded gap. Going forward, these changes in assumptions should be beneficial, but in the short-term, it adds to the present liability. I would expect to see some reduction in the next year, otherwise, would take another look in more detail to see if this is a concern. Cash flow wise, LMT appears to cover its payments without difficulty.
A High-Yield, Low-Payout Dividend Growth Model Portfolio For 2013 [View article]
Hi emac99, I don't have a resource with payout guidelines per industry, though maybe someone else on SA has something. It will vary, and I've considered using higher payout levels for utilities, for example. Also, the metric doesn't make as much sense for REITs and MLPs.
For the income-growth model, which I will update next month, I don't have a hard cap on payout, but I like to see it below 65% ideally. However, the ratio is also impacted by short-term, one-time expenses, so for higher payout ratio stocks, check the operating cash flow and/or free cash flow. This is where the HYLP model goes strictly by the reported numbers, but I would consider stocks not passing this screen, if the cash flows and business are sound.
A High-Yield, Low-Payout Dividend Growth Model Portfolio For 2013 [View article]
Perhaps, but the dividend is quite safe and even with a 10% EPS decline, NOC could still raise its dividend easily. While short term growth could be flat, there (sadly) always seems to be a need for new defense spending, and our leadership and their thinking constantly change, so I don't worry too much about holding LMT, RTN, and NOC types of stocks for the longer-term, while enjoying the div in the meantime.
A High-Yield, Low-Payout Dividend Growth Model Portfolio For 2013 [View article]
Thanks, Mike! That is the research (see first link in the article) that I applied to this portfolio. It's a good read for those interested in learning more.
A High-Yield, Low-Payout Dividend Growth Model Portfolio For 2013 [View article]
Originally, I didn't want to reinvest because some investors may be living off the income and therefore I didn't want to inflate my returns by reinvesting. As I think about it, I probably shouldn't use a bond fund then for the same reason. I should just collect the dividends as cash, and report total return based on divs collected + cap gains. What all of you do with the divs (reinvest or spend) is then a separate issue. Makes my life simpler, so that sounds like a good plan!
A High-Yield, Low-Payout Dividend Growth Model Portfolio For 2013 [View article]
Well, the thinking is your payout ratio (dividend per share / earnings per share) is low either because: (A) your earnings are growing fast (good problem), or (B) management has been tight with the dividend payout. While (B) is not great, the other metrics are high yield and DGR, so we should still be in good shape and have lots of cushion for safety and future growth.
Now, yes, the payout ratio could be temporarily "incorrect" if the firm has high one-time earnings gains (or losses). I figured for gains, even if we include the stock, the div is safe and when earnings return to the norm, the rebalance will kick the stock out in 6-12 months. For one-time charges (lower earnings), they will get excluded due to higher payout ratio, and that is probably fine since they may be having some issues right now.
A High-Yield, Low-Payout Dividend Growth Model Portfolio For 2013 [View article]
I just take David Fish's CCC list and sort based on yield (and then again on payout). There are X number of stocks in the list, so divide by 3 to estimate thirds.
A High-Yield, Low-Payout Dividend Growth Model Portfolio For 2013 [View article]
A High-Yield, Low-Payout Dividend Growth Model Portfolio For 2013 [View article]
The payout ratio is (divs / net income), and net income already factors in interest payments, so assuming the firm can at least roll over any maturing debt, the remaining funds are technically available to be declared for distribution. (Note: I'm simplifying a bit, as divs really get paid from the cash flows, whereas retained earnings/net income is an accrued value. They could reinvest the cash into facilities, inventory, etc.) However, I do agree with you that there is a difference between the ability to raise a dividend (low payout ratio) and deciding to actually raise it (management decision). This is why I like seeing high DGRs for these stocks, as I see that as a proxy for management working to return $$ to investors.
A High-Yield, Low-Payout Dividend Growth Model Portfolio For 2013 [View article]
I'm assuming you mean their liabilities (debt+other liabilities) to assets (capital) ratio. My read is that much of this is not debt (i.e. bonds/loans) but related to the underfunded pension. LMT is using a pretty low discount rate (4%), which means the present value of future liabilities is higher. I've worked with other companies that had a discount rate closer to 8% (a bit high in today's environment), but reduces the present value of the future pension payouts (makes things look "good"). LMT has made some extra payments to close the gap ($3B+, based on what I saw in the last annual report), and as of 2012, it looks like the pension is closed to new employees, though I skimmed that rather quickly. If LMT can earn more than 4% on its investments (it is assuming 8%), it will start to close the underfunded gap. Going forward, these changes in assumptions should be beneficial, but in the short-term, it adds to the present liability. I would expect to see some reduction in the next year, otherwise, would take another look in more detail to see if this is a concern. Cash flow wise, LMT appears to cover its payments without difficulty.
A High-Yield, Low-Payout Dividend Growth Model Portfolio For 2013 [View article]
I don't have a resource with payout guidelines per industry, though maybe someone else on SA has something. It will vary, and I've considered using higher payout levels for utilities, for example. Also, the metric doesn't make as much sense for REITs and MLPs.
For the income-growth model, which I will update next month, I don't have a hard cap on payout, but I like to see it below 65% ideally. However, the ratio is also impacted by short-term, one-time expenses, so for higher payout ratio stocks, check the operating cash flow and/or free cash flow. This is where the HYLP model goes strictly by the reported numbers, but I would consider stocks not passing this screen, if the cash flows and business are sound.
A High-Yield, Low-Payout Dividend Growth Model Portfolio For 2013 [View article]
A High-Yield, Low-Payout Dividend Growth Model Portfolio For 2013 [View article]
A High-Yield, Low-Payout Dividend Growth Model Portfolio For 2013 [View article]
A High-Yield, Low-Payout Dividend Growth Model Portfolio For 2013 [View article]
A High-Yield, Low-Payout Dividend Growth Model Portfolio For 2013 [View article]
A High-Yield, Low-Payout Dividend Growth Model Portfolio For 2013 [View article]
A High-Yield, Low-Payout Dividend Growth Model Portfolio For 2013 [View article]
Now, yes, the payout ratio could be temporarily "incorrect" if the firm has high one-time earnings gains (or losses). I figured for gains, even if we include the stock, the div is safe and when earnings return to the norm, the rebalance will kick the stock out in 6-12 months. For one-time charges (lower earnings), they will get excluded due to higher payout ratio, and that is probably fine since they may be having some issues right now.
A High-Yield, Low-Payout Dividend Growth Model Portfolio For 2013 [View article]
A High-Yield, Low-Payout Dividend Growth Model Portfolio For 2013 [View article]
A High-Yield, Low-Payout Dividend Growth Model Portfolio For 2013 [View article]
A High-Yield, Low-Payout Dividend Growth Model Portfolio For 2013 [View article]