Can Procter & Gamble Save Your Retirement Portfolio? [View article]
I agree with your premise that dividend growth stocks are an attractive investment, but PG is a very poor example, in my opinion. To gauge the economic and financial health of a company, it is much better to look at earnings and revenue growth, not DPS growth. PG has produced poor earnings growth in recent years, 1.4% annually from 2008 through 2012, which is why it has attracted activist investors like Bill Ackman who want to shake up management. Dividend growth was faster than EPS growth because the company raised its payout ratio to 58%, which is high not low (the S&P 500 is around 30%). There is little reason to think the company can raise its DPS 8% annually in the future.
Dividends: Beware Feeble And Fading Aristocrats [View article]
Robert, Thank you for your comments. In looking for attractive dividend-paying stocks, I prefer not to use an approach (Dividend Aristocrats) that rules out entire sectors of the market, including most tech companies, most banks, and younger companies in general. As I said, the Aristocrats are indeed an interesting "shopping list" but one needs to look elsewhere as well.
Dividends: Beware Feeble And Fading Aristocrats [View article]
I don't follow the logic of your first comment. If for ABC Corp. EPS growth will not lead to a rise in share price, then if ABC pays a dividend that WILL improve total return because at least the investor is receiving a dividend. Total return will equal the dividend yield, instead of being zero.
On your second point, of course a few companies cut or eliminate dividends during a recession. But even in the last recession S&P DPS fell 21%, which means 79% of the pre-crisis dividend continued to be paid and could be reinvested when stocks were cheap. The decline in share buy-backs was much greater. And the 2008-2009 recession saw an exceptionally big drop in S&P DPS; in most recessions the decline is more like 2-4%. So if you hold a well-diversified portfolio you will in fact have decent cash flow to reinvest in stocks at attractive prices during a recession.
On your third point, while there will be times when dividends are cancelled or cut, they are much more transparent than share buy-backs. When was the last time your saw a press release from a company saying, "Even though our board has announced a buy-back program, last quarter we did not buy back any shares, and our share count crept higher due to exercising of employee stock options"? Never.
Dividends: Beware Feeble And Fading Aristocrats [View article]
Thanks for the advice. I agree there is a lot of good content on SA. We have to keep in mind that the division between "dividend paying" and "non-dividend paying" stocks is not fixed. Knowing that investors are keen to buy dividend-paying stocks, Wall Street will provide more dividend-paying product to investors, some of it over-priced. And the valuations of some dividend payers have become excessive. So going forward it will be harder to succeed in "dividend growth" investing over the next years than the past few. That is one reason why it is risky to focus too much on dividends as opposed to the overall quality of the business and its valuation.
Dividends: Beware Feeble And Fading Aristocrats [View article]
Thanks for the feedback. In the article, I didn't discuss my approach to stock picking in much detail. Basically I look for a decent yield, fairly high return on capital, and sustainable growth in EPS and DPS. I also favor stocks whose consensus EPS forecasts are rising; this will be a particularly useful metric over the next year as overall profit growth weakens or even disappears.
Illustrating Inflation Vs. Dividend Growth [View article]
Excellent article. In addition to the stocks discussed, I would look to younger, more dynamic companies (including a few tech stocks) that pay meaningful dividends which are likely to grow rapidly over the next few years. The problem with some "dividend aristocrats" -- including certain staple and healthcare stocks which look fairly expensive now -- is that they have illustrious pasts but problematic futures.
Can Procter & Gamble Save Your Retirement Portfolio? [View article]
Dividends: Beware Feeble And Fading Aristocrats [View article]
Dividends: Beware Feeble And Fading Aristocrats [View article]
Dividends: Beware Feeble And Fading Aristocrats [View article]
On your second point, of course a few companies cut or eliminate dividends during a recession. But even in the last recession S&P DPS fell 21%, which means 79% of the pre-crisis dividend continued to be paid and could be reinvested when stocks were cheap. The decline in share buy-backs was much greater. And the 2008-2009 recession saw an exceptionally big drop in S&P DPS; in most recessions the decline is more like 2-4%. So if you hold a well-diversified portfolio you will in fact have decent cash flow to reinvest in stocks at attractive prices during a recession.
On your third point, while there will be times when dividends are cancelled or cut, they are much more transparent than share buy-backs. When was the last time your saw a press release from a company saying, "Even though our board has announced a buy-back program, last quarter we did not buy back any shares, and our share count crept higher due to exercising of employee stock options"? Never.
Dividends: Beware Feeble And Fading Aristocrats [View article]
Dividends: Beware Feeble And Fading Aristocrats [View article]
Illustrating Inflation Vs. Dividend Growth [View article]