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SDS (Seductive Dividend Stocks)
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Sorry I hide my true identity but I'm a physicist/engineer, native contrarian and idea generator. I am an eclectic dividend investor with motto "In God We Trust, All Others Pay Cash" applied to companies I invest in. I like to read /and read a lot - did you look on my SA photo 8-)? /... More
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  • In God We Trust, All Others Pay Cash. (1 May 2012). 7 comments
    May 3, 2012 9:55 AM

    A Mexican store in San Jose, California posted sign "In God we trust, all others pay cash", they did not accept credit cards or checks and I do not pretend to be a God so I paid cash. I think this poster (footnote 1) might be a motto of dividend investors. I do not trust 100% any CFO although I use numbers they publish for stock analyses. I require cash from any stock I own.

    Currently I invest

    a) about 57% in companies from David Fish's CCC list;

    b) about 6% in "slow" companies with mostly positive long-term DCR but zero DCR in some years;

    c) about 15% in companies /mostly non-US/ without solid annual DCR patterns required by David Fish but with upside trend in dividends;

    d) about 15% in companies that reduced or froze dividends /I bought some after dividend cuts/ and delisted from CCC;

    e) about 4% in high yield stocks (YOC above 10%) with DCR<0 in some years;

    f) about 3% in dividend capture situations.

    Examples of dividends histories of companies I own are given in footnote 2A

    I did not count here a big chunk in SP500 fund (dividends reinvested) within my 401k plan that cost me 0.05% (footnote 2B). I invest below 1% of my money in each company I own.

    I consider myself as eclectic dividend investor although I am 93% dividend growth investor. That is why I consider David Fish CCC list is a free gem.

    David Fish started CCC list in December 2007 and updates it each month. Initially 139 companies with at least 24 years of positive annual DCR were included in the 2007 list of Dividend Champions, there are 461 companies with at least 5 years of positive annual DCR in the latest list (105 Champions, 165 Contenders and 191 Challengers). Expansion occurs due to reduction of time frame for positive DCR (i.e. addition of Contenders (9/30/2008) and Challengers (7/27/2010) to Champions) and inclusion of companies with long dividend histories overlooked by David Fish in different CCC categories (e.g. Franklin Resources to Champions).

    52 companies reduced dividends and 88 companies froze dividends in the period 1/1/2008-4/30/2012 and were delisted by David from CCC status (see worksheet "Changes" in Excel version of CCC list). I'd not blame companies for dividend freeze during strong economy recession in this period and I'd like to estimate probability of dividend cuts. Because some companies were initially overlooked I can get only lower boundary estimation (footnote 3) for cutters. Only 6 companies cut dividends before formation of Contenders worksheet, 12 Contenders cut dividends after September 2008 and 8 Challengers cut dividends after July 2010. For the sake of simplicity I assume linear time dependence for dividend cuts (in reality most cuts occurred in 2009-2010). In this case if full CCC (all companies included) were created in December 2007 I'd expect that at least 60 companies (33 Champions 14 Contenders and 13 Challengers) reduced dividends during the considered period. Therefore 11.52% = 60/ (461+60) companies qualified for CCC reduced dividends during economy recession at beginning of XXI century. It gives less than 3% annual "default rate" but keep in mind that I do low boundary estimation (again see footnote 3).

    This ~ 3% probability of dividend cuts in stocks universe that fit David Fish criteria is almost the same as default rate for investment grade bonds. IMO it means that investment in CCC list is quite safe.

    From now on "In God we trust, all others pay cash" becomes my investment motto.

    Footnotes:

    1. "In God we trust" is printed on each US paper money (I not sure that I can use term banknotes because USA Federal Reserve issues them). Actually there is the book "In God we trust, all others pay cash" by Jean Shepherd but I did not read it. I'm an atheist because I grew up in communist country with strong anti-religious propaganda and because my professional fields in physics and engineering do not required God existence.

    2A. Examples of dividends histories of companies I own:

    PBI

    Fig. 1 Example of dividends for a) type company

    EXC after 2002

    Fig. 2 Example of dividends for b) type company

    SLF in US $

    Fig. 3 Example of dividends for c) type company

    GE (bought before dividend cut) and HCBK (biught after cut)

    Fig. 4 Examples of dividends for d) type company

    STD

    Fig. 5 Example of dividends for e) type company

    NPK

    Fig. 6 Example of dividends for f) type company

    2B. I'd like to thank Vanguard for such reasonable fees for S&P500 fund. I'm looking forward for dividend ETFs with sub-0.1% fees. My brokerage commission and fees were 0.06% in 2011.

    3. I do not blame David Fish for this, he is doing terrific public service for dividend growth investors. As far as I understand David Fish rejects a company ( for example found in December 2011 that paid dividends with steady positive DCR between 1900 and 2009, had negative DCR in 2010 and paid more dividends in 2011 that it paid in 2009) from CCC list and not mentions this company in "Changes" worksheet.

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Comments (7)
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  • David Fish
    , contributor
    Comments (7305) | Send Message
     
    Concerning what you said right at the end of the blog...yes, I simply did not add a company that had a recent cut or freeze but had qualified before that. No point adding it and deleting it at the same time.

     

    But this brings up a valid point about what could be considered "missing" companies. There may be companies that had streaks but cut or froze them before I developed the spreadsheet. Again...no pointing adding and deleting them at the same time, especially if their streaks ended before current year. So a historical "frozen angel" couldn't be added to the Appendix C on the Notes tab because that references the Changes tab...which would list only companies that had been in the listings, then deleted. An example would be a company that raised for many years until 2007, but froze before I could add them...so there's no mention of them.
    2 May 2012, 01:54 PM Reply Like
  • SDS (Seductive Dividend Sto...
    , contributor
    Comments (3049) | Send Message
     
    Author’s reply » David,
    Thank you for the conformation.
    Unfortunately I know info about bonds default rates only till 2009
    ( http://bit.ly/JEoxTC ) but it seems that low boundary estimation (less than 3% annually) for dividend cuts across CCC is almost the same as default rate of Investment Grade bonds. IMO this is a good news considering "legal" status of bonds vs. dividends.

     

    I don't think it worth to create a database of "missing" companies in the framework of your CCC list although database of cutters/freezers can be very useful for backtests.

     

    SDS
    3 May 2012, 01:15 AM Reply Like
  • David Fish
    , contributor
    Comments (7305) | Send Message
     
    I agree...trying to summarize all the "missing" companies would be frustrating because I would always think that I'm missing plenty of them and the research would be too painstaking. If such companies are really good, they'll work their way back to Challenger status eventually.
    3 May 2012, 01:07 PM Reply Like
  • SDS (Seductive Dividend Sto...
    , contributor
    Comments (3049) | Send Message
     
    Author’s reply » Agree, see them in CCC.
    Do you know where I can find default rate for bonds in 2008-2011?
    Before this study I did not expect that CCC cut rate were almost the same as good bonds default rate.
    SDS
    3 May 2012, 02:31 PM Reply Like
  • David Fish
    , contributor
    Comments (7305) | Send Message
     
    Not sure if it'll have what you want, but here's one place to check:
    http://1.usa.gov/IN0WMj
    3 May 2012, 05:20 PM Reply Like
  • SDS (Seductive Dividend Sto...
    , contributor
    Comments (3049) | Send Message
     
    Author’s reply » Thanks for the link.
    4 May 2012, 10:06 AM Reply Like
  • Bob Wells
    , contributor
    Comments (4915) | Send Message
     
    Great work. Thanks.

     

    Bob
    5 May 2012, 03:33 PM Reply Like
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