How Long-Term Investors Can Prepare For A Looming Correction [View article]
When an investment produces an income, it changes the dynamic of the investment. For example, say you purchase a rental home for $100,000 and receive $600 in rental income per month. The very next day you find out the rental home drops to only $80,000. Do you sell? You could, but as long as you keep receiving the $600, the drop in price becomes somewhat meaningless. The value comes from the income being received.
It works the same way with dividends. If you buy $10,000 worth of a stock paying 5%. Every year, you'll receive $500. Even if the balance drops to $8,000, $7,000, $6,000; you'll still be getting the $500 (unless the dividend gets cut of course). That is why most dividend investors want to see a long history of dividend payments or increases even in deep market declines/recessions.
These great companies can continue to pay dividends even increase them through recessions because they sell produces that people need even when they are about to lose their jobs or have already lost their jobs. Most people even if they lose their job will continue to smoke, take needed medication, use hygiene products, and drink soda. PG and JNJ have been increasing their dividends for 50 years. JNJ has increase its dividend by at least 5% for the past 25 of those years.
If a recession does occur, the dividends reinvested will buy more shares at a lower price, accelerating the returns as the stocks price starts to recover!
Will Johnson & Johnson Continue To Increase Its Dividend? [View article]
Great article! But you shouldn't think, you should know that JNJ is a must have in any dividend growth portfolio. I personally think the dividend aristocrat group needs to be split up. How do you put a company with 50 years of dividend increases in the same group as a company that has only 25 years of dividend increases? Not to mention, JNJ has been able to increase their dividends by at least 6% for the past 25 years.
Dogs Of The Dow: A Look At The Results For 2012 [View article]
Jeremy Siegel actually talked about this strategy in his book "The Future for Investors". The companies with the lowest P/E ratio of the original S&P 500 did outperform companies with highest P/E ratio. It is hard to beat expectations when expectations (P/E) is already set high.
However, he found that the lowest P/E ratios were not the best returning stocks. The best performing stocks are the ones that grew faster than their expected growth (P/E) and paid a dividend. "If earnings are better than expected, that means that the stock is underpriced and purchasing more shares through dividend reinvestment will enchance the return even more."
Dogs Of The Dow: A Look At The Results For 2012 [View article]
The strategy isn't complicated. You select the top 10 yielding stocks and hold them for 1 year.
Let me guess, you read somewhere that 80% of money managers fail to consistently beat the market? That is a fallacy. You don't have to beat the market every single year to have better long-term returns. If you beat the market by 15% one year, then lag by 1% the next, did you consistently beat the market? No, but you do have better returns.
Dogs Of The Dow: A Look At The Results For 2012 [View article]
There are similiar strategies like this. Jeremy Siegel writes about them in his book, The Future for Investors: Why the Tried and True Triumph over the Bold and the New. Great book, I highly recommend it.
Anyway, there are the Dow 10 (or Dogs of the Dow), S&P 10, and the Core 10. They all have the same basic strategy. The S&P 10 is obviously the top 10 highest yielding dividend stocks of the S&P 500. The Core 10 picks the top 10 highest yielding dividend stocks who have increased their dividends for 15+ years.
There is also a strategy called Small Dog of the Dow, where you buy only the top 5 highest yielding. Then Montey Fool version back tested a strategy call the Foolish Four where you buy the #2 - #5 highest dividend yielding (basically just removing the #1).
I've made quite a few test portfolios to compare the results with the S&P 500. The results from Dogs of the Dow is the best one I've seen so far. It all depends on when you bought them of course. Yet, you will end up buying some stocks like HPQ that might be seen as a declining investment. I'm not sure if any stock has cut their dividends while being in the strategy.
Closed-End Funds With Yields Over 5% [View article]
If any are like ZTR, these are not safe investments. They could be considered scams for foolish investors. Most guarantee a high rate of return based on current stock price, not your original purchase price. The dividend amount is not guaranteed.
For example, before ZTR did a reverse stock split, the stock started out at $15 a share, paying a dividend of 12.5 cents monthly or $1.50 annually = 10% yield. As the stock price declined, so did the dividends being paid. When the stock dropped to $3 a share, they were paying a mere $.03 dividend. That means if you bought at the beginning at $15 a share but are now getting $.03 in dividends, your effective yield is only 2.4% and continues to decline.
If you are relying on them as a source of income, you should expect this income to decrease over time which most income investors should look into something that will increase over time. Add insult to injury, you pay a management fee for declining income.
Bottomline: Look at the history of the dividend payments. Are they decreasing or increasing?
Also it doesn't take into account companies that are regularly increasing their dividends which increases their yields based on purchase price.
For example, if you were lucky enough to grab CVX when it dipped below $60, the current dividend was $.65, giving it a dividend yield of 4.3%. Now that it has increased its dividends to $.90, you'd be getting a 6% based on the original $60 purchase price. As the dividend continues to increase, so will your yield based on purchase price.
Dividend Investors Are Getting Paid To Hold These Dividend Stocks [View article]
DGI you have to have this problem. How do I add to a stock I'm currently up in? I know, I have a high quality problem. :)
For example, I'm up 25% in WMT. If I bought in again at the current price, it would decrease my average cost per share to a 13% profit. Not only that, but my dividend yield based on cost would be lowered as well.
Why Dividend Champions Of The Past Will Offer Minimal Long-Term Income And Total Returns [View article]
Viperman, if you really want to read a good study. Read "The Future for Investors: Why the Tried and the True Triumph over the Bold and the New." by Jeremy Siegel
He concludes: investor returns are not based on growth alone but on growth vs expectation. If a company has a high expectation (PE), the price is already baked into the stock. While a company with a low expectation (PE) does better for investors return.
Also, for a long-term investment, reinvesting dividends plays a huge role of investor return. When the market turns sour and stocks become undervalued, the dividends are able to buy more of the undervalued stock acting as an accelerator when the market recovers.
The results from his study produced strategies such as: Dogs of the Dow, Small Dogs of the Dow, The S&P 10, and The Core 10. Each consist of purchasing the highest dividend yield of the groups and holding them for a period of 1 year. Then rebalance to reflect the new top 10 (most you will keep). It has been one of the few strategies I've heard of that consistently beats the market.
Why Dividend Champions Of The Past Will Offer Minimal Long-Term Income And Total Returns [View article]
You should really check out this website. For many dividend investors, consistency is key. PG has been able to increase their dividends by at least 7% for the past 23 years. There aren't many companies that can claim that. Actually there are only 3 others: JNJ, FDO, WMT.
While some stocks might be growing their dividends a faster pace, I think these stocks deserve higher valuations based on their dividend increasing performance.
Philip Morris International: Upcoming Dividend Raise Is Selling Opportunity [View article]
With all the stocks to chose from, this stock shouldn't scare you. Dating back to its parent company, its been increasing the dividends for 42 years. As crazy as it sounds, a bad economy is actually better for long-term investors than flat or a rising economy. The more shares your dividends can buy, the better.
How Long-Term Investors Can Prepare For A Looming Correction [View article]
It works the same way with dividends. If you buy $10,000 worth of a stock paying 5%. Every year, you'll receive $500. Even if the balance drops to $8,000, $7,000, $6,000; you'll still be getting the $500 (unless the dividend gets cut of course). That is why most dividend investors want to see a long history of dividend payments or increases even in deep market declines/recessions.
These great companies can continue to pay dividends even increase them through recessions because they sell produces that people need even when they are about to lose their jobs or have already lost their jobs. Most people even if they lose their job will continue to smoke, take needed medication, use hygiene products, and drink soda. PG and JNJ have been increasing their dividends for 50 years. JNJ has increase its dividend by at least 5% for the past 25 of those years.
If a recession does occur, the dividends reinvested will buy more shares at a lower price, accelerating the returns as the stocks price starts to recover!
Will Johnson & Johnson Continue To Increase Its Dividend? [View article]
http://bit.ly/16pbWhU
Is Now The Time To Buy Municipal Bonds? [View article]
Is Now The Time To Buy Municipal Bonds? [View article]
You have any book recommendations for someone looking to learn about the fixed income markets?
Air Products And Chemicals: This Dividend Champion's Dividend Is Risky [View article]
Dogs Of The Dow: A Look At The Results For 2012 [View article]
However, he found that the lowest P/E ratios were not the best returning stocks. The best performing stocks are the ones that grew faster than their expected growth (P/E) and paid a dividend. "If earnings are better than expected, that means that the stock is underpriced and purchasing more shares through dividend reinvestment will enchance the return even more."
Dogs Of The Dow: A Look At The Results For 2012 [View article]
Let me guess, you read somewhere that 80% of money managers fail to consistently beat the market? That is a fallacy. You don't have to beat the market every single year to have better long-term returns. If you beat the market by 15% one year, then lag by 1% the next, did you consistently beat the market? No, but you do have better returns.
Dogs Of The Dow: A Look At The Results For 2012 [View article]
Anyway, there are the Dow 10 (or Dogs of the Dow), S&P 10, and the Core 10. They all have the same basic strategy. The S&P 10 is obviously the top 10 highest yielding dividend stocks of the S&P 500. The Core 10 picks the top 10 highest yielding dividend stocks who have increased their dividends for 15+ years.
There is also a strategy called Small Dog of the Dow, where you buy only the top 5 highest yielding. Then Montey Fool version back tested a strategy call the Foolish Four where you buy the #2 - #5 highest dividend yielding (basically just removing the #1).
I've made quite a few test portfolios to compare the results with the S&P 500. The results from Dogs of the Dow is the best one I've seen so far. It all depends on when you bought them of course. Yet, you will end up buying some stocks like HPQ that might be seen as a declining investment. I'm not sure if any stock has cut their dividends while being in the strategy.
Closed-End Funds With Yields Over 5% [View article]
For example, before ZTR did a reverse stock split, the stock started out at $15 a share, paying a dividend of 12.5 cents monthly or $1.50 annually = 10% yield. As the stock price declined, so did the dividends being paid. When the stock dropped to $3 a share, they were paying a mere $.03 dividend. That means if you bought at the beginning at $15 a share but are now getting $.03 in dividends, your effective yield is only 2.4% and continues to decline.
If you are relying on them as a source of income, you should expect this income to decrease over time which most income investors should look into something that will increase over time. Add insult to injury, you pay a management fee for declining income.
Bottomline: Look at the history of the dividend payments. Are they decreasing or increasing?
Are Dividend Stocks In A Bubble? [View article]
For example, if you were lucky enough to grab CVX when it dipped below $60, the current dividend was $.65, giving it a dividend yield of 4.3%. Now that it has increased its dividends to $.90, you'd be getting a 6% based on the original $60 purchase price. As the dividend continues to increase, so will your yield based on purchase price.
Dividend Investors Are Getting Paid To Hold These Dividend Stocks [View article]
For example, I'm up 25% in WMT. If I bought in again at the current price, it would decrease my average cost per share to a 13% profit. Not only that, but my dividend yield based on cost would be lowered as well.
Why Dividend Champions Of The Past Will Offer Minimal Long-Term Income And Total Returns [View article]
Why Dividend Champions Of The Past Will Offer Minimal Long-Term Income And Total Returns [View article]
He concludes: investor returns are not based on growth alone but on growth vs expectation. If a company has a high expectation (PE), the price is already baked into the stock. While a company with a low expectation (PE) does better for investors return.
Also, for a long-term investment, reinvesting dividends plays a huge role of investor return. When the market turns sour and stocks become undervalued, the dividends are able to buy more of the undervalued stock acting as an accelerator when the market recovers.
The results from his study produced strategies such as: Dogs of the Dow, Small Dogs of the Dow, The S&P 10, and The Core 10. Each consist of purchasing the highest dividend yield of the groups and holding them for a period of 1 year. Then rebalance to reflect the new top 10 (most you will keep). It has been one of the few strategies I've heard of that consistently beats the market.
Why Dividend Champions Of The Past Will Offer Minimal Long-Term Income And Total Returns [View article]
While some stocks might be growing their dividends a faster pace, I think these stocks deserve higher valuations based on their dividend increasing performance.
http://bit.ly/rCDtjJ
Philip Morris International: Upcoming Dividend Raise Is Selling Opportunity [View article]