Several notable companies raised their dividends last week. Dividend raises are not only getting more frequent, but they also seem to be spreading globally as well. A dividend raise in this tough environment indicates confidence in the business and the ability to generate free chas flow. A strong cash flow also enables companies to fund future growth internally, rather than relying exclusively on the capital markets for growth. The companies which decided to share their continued growth with shareholders by rewarding them with a dividend raise include:
Vodafone (VOD), a mobile telecommunications company with operations in Europe, the Middle East, Africa, the Asia Pacific, and the United States., raised its final dividend by 3.5% to 0.052 GBP per share. ADR holders are expected to receive a dividend payment of $0.80 for the second half of 2009 based off current forex rates. Vodafone is an international dividend achiever, which has rewarded its shareholders with an uninterrupted streak of increased dividends for over ten consecutive years. The stock currently yields 4.30%.
ACE Limited (ACE), which provides insurance and reinsurance services to commercial and individual customers worldwide, increased its regular cash dividend by 7% to 31 cents per share. ACE Limited is aninternational dividend achiever, which has increased its quarterly dividend in each of the last fifteen years, which it has more than doubled since 2001. The stock currently yields 2.80%.
Raven Industries, Inc. (RAVN), which manufactures various products for industrial, agricultural, construction, and military/aerospace markets in North America, increased its quarterly dividend by 8% to 14 cents per share. Raven Industries, Inc. is a dividend achiever, which has increased its quarterlydividend in each of the past thirteen years, which it has more than doubled since 2004. The stock currently yields 1.90%.
AAON, INC. (AAON), which engages in the manufacture and sale of air-conditioning and heating equipment, increased its semi-annual cash dividend by 13% to 18 cents per share. AAON, INC. has rewarded its shareholders with an uninterrupted streak of increased dividends since 2006. The stock currently yields 1.70%.
Northrop Grumman Corporation (NOC), which provides products, services, and solutions in information and services, aerospace, electronics, and shipbuilding in the United States, increased its regular cash dividend from 40 cents to 43 cents per share. Northrop Grumman Corporation has rewarded its shareholders with an uninterrupted streak of increased dividends for 5 consecutive years. The stock currently yields 3.60%.
Xcel Energy Inc. (XEL), which engages in the generation, purchase, transmission, distribution, and sale of electricity to residential, commercial, industrial, and public authorities in the United States, boosted its dividend by 3.2% to 24.50 cents per share. Xcel Energy Inc has rewarded shareholders with an uninterrupted streak of increased dividends since 2004. The stock currently yields 5.80%.
Airgas, Inc. (ARG), which is one of the largest U.S. distributor of industrial, medical, and specialty gases, and hardgoods, such as welding equipment and supplies, increased its regular cash dividend by 12.50% from 16 cents to 18 cents per share. Airgas, Inc. has rewarded its shareholders with an uninterrupted streak of increased dividends since 2004. The stock currently yields 1.70%.
Unum Group (UNM), which provides group and individual disability insurance products in the United States and the United Kingdom, raised its quarterly dividend by 10% to 8.25 cents per share. Unum Group lost its dividend achiever status in 2000 and has been unable to consistently increase dividends since then. The stock currently yields 1.80%.
AmerisourceBergen Corporation (NC), a pharmaceutical services company, which offers drug distribution and related services to healthcare providers and pharmaceutical manufacturers, announced its plans to raise quarterly dividends by 20% to $0.06/share after a 2:1 stock split. AmerisourceBergen Corporation has increased dividends for 4 consecutive years. The stock currently yields 1.10%.
I also expect several dividend aristocrats such as Clorox (CLX) and Lowe’s (LOW) to raise their distributions by the end of May, marking it one of the busiest month for dividend increases.
Lowe’s (LOW) has raised its dividend every May since 2004. This dividend growth stock has been raising dividends for 46 consecutive years and has a 5-year dividend growth rate of 46.70%.
Clorox (CLX) has raised its dividend every May over the past 2 years. Before that the board of directors of Clorox tended to announce dividend increases in November for the preceding three years. This dividend growth stock has been raising dividends for 31 consecutive years and has a 5-year dividend growth rate of 11.20%. (analysis)
Full Disclosure: Long CLX
Showing posts with label DIVIDEND NEWS. Show all posts
Showing posts with label DIVIDEND NEWS. Show all posts
Monday, May 25, 2009
Monday, January 19, 2009
Six Dividend Stocks Raising the bar
The stock market averages keep responding in a way that shows investors are expecting the worst in terms of profitability for most major US and Global corporations. Some pundits are getting bullish, while others are getting increasingly bearish. The odds of both camps being correct are slim to none. With this confusing information, what are investors supposed to do?
My main recommendation for buy and hold investors is to ignore all the day to day chatter and forecasts, since noone can predict enough market movements in order to make money. The best course of action to take is to assume a long-term strategy of buying stocks that keep increasing their dividends even during the current uncertain economic and market conditions.
CVS Caremark Corporation (CVS) announced that its Board has approved a 10.5% increase in its quarterly dividends to $0.07625 per common share. CVS Caremark Corporation has consistently increased itsdividends since 2003. The stock currently yields 1.10%.
Cintas Corporation (CTAS) announced that its Board has approved a 2% increase in its annual dividends from $0.46 to $0.47 per common share. Cintas Corporation is a dividend achiever, which has consistently increased its dividends for 25 years. The stock currently yields 2.00%. Over the past 8 years the company has managed to double its dividends.
Enterprise GP Holdings L.P., (EPE), which is engaged in the ownership of general and limited partner interests of publicly traded partnerships engaged in the midstream energy industry and related businesses, announced that its Board has approved an increase in its quarterly dividend to $0.47 per unit. Enterprise GP Holdings L.P. has consistently paid and increased its dividends every single quarter since 2005. The partnership shares currently yield 9.20%.
Linear Technology (LLTC) announced that its Board has approved an increase in its quarterly dividend from $0.21 to $0.22 per common share in an effort to return value to shareholders. Linear Technology is adividend achiever, which has consistently increased its dividends since 1992. The dividend growth has been astounding, as LLTC has managed to double its dividend payments to shareholders every three years on average for the past 16 years. The stock currently yields 3.80%.
Monsanto Company (MON), announced that its Board has approved a 10% increase in its quarterly dividend from $0.24 to $0.265 per common share. Monsanto Company has consistently increased its dividends since 2001. In fact the new dividend payment represents a 489% increase in comparison to the first dividend payments in 2001 of $0.045/share. The stock currently yields 1.20%.
Family Dollar Stores, Inc. (FDO) announced that its Board has approved a 8% increase in its quarterly dividend from $0.125 to $0.135 per common share. Family Dollar Stores, Inc.is a dividend aristocrat that has consistently increased its dividends for thirty-three consecutive years. The stock currently yields 1.80%.
LLTC looks like a promising dividend growth stock in order to gain some technology exposure in my dividend stock portfolio. I will add it to my list for further research. FDO looks promising in the current economic environment, however due to its low yield I would only consider initiating a position there on dips below $18.
My main recommendation for buy and hold investors is to ignore all the day to day chatter and forecasts, since noone can predict enough market movements in order to make money. The best course of action to take is to assume a long-term strategy of buying stocks that keep increasing their dividends even during the current uncertain economic and market conditions.
CVS Caremark Corporation (CVS) announced that its Board has approved a 10.5% increase in its quarterly dividends to $0.07625 per common share. CVS Caremark Corporation has consistently increased itsdividends since 2003. The stock currently yields 1.10%.
Cintas Corporation (CTAS) announced that its Board has approved a 2% increase in its annual dividends from $0.46 to $0.47 per common share. Cintas Corporation is a dividend achiever, which has consistently increased its dividends for 25 years. The stock currently yields 2.00%. Over the past 8 years the company has managed to double its dividends.
Enterprise GP Holdings L.P., (EPE), which is engaged in the ownership of general and limited partner interests of publicly traded partnerships engaged in the midstream energy industry and related businesses, announced that its Board has approved an increase in its quarterly dividend to $0.47 per unit. Enterprise GP Holdings L.P. has consistently paid and increased its dividends every single quarter since 2005. The partnership shares currently yield 9.20%.
Linear Technology (LLTC) announced that its Board has approved an increase in its quarterly dividend from $0.21 to $0.22 per common share in an effort to return value to shareholders. Linear Technology is adividend achiever, which has consistently increased its dividends since 1992. The dividend growth has been astounding, as LLTC has managed to double its dividend payments to shareholders every three years on average for the past 16 years. The stock currently yields 3.80%.
Monsanto Company (MON), announced that its Board has approved a 10% increase in its quarterly dividend from $0.24 to $0.265 per common share. Monsanto Company has consistently increased its dividends since 2001. In fact the new dividend payment represents a 489% increase in comparison to the first dividend payments in 2001 of $0.045/share. The stock currently yields 1.20%.
Family Dollar Stores, Inc. (FDO) announced that its Board has approved a 8% increase in its quarterly dividend from $0.125 to $0.135 per common share. Family Dollar Stores, Inc.is a dividend aristocrat that has consistently increased its dividends for thirty-three consecutive years. The stock currently yields 1.80%.
LLTC looks like a promising dividend growth stock in order to gain some technology exposure in my dividend stock portfolio. I will add it to my list for further research. FDO looks promising in the current economic environment, however due to its low yield I would only consider initiating a position there on dips below $18.
Wednesday, November 26, 2008
Arbitrage Opportunities – CEG and ROH
With the stock market declines that hedge fund and mutual fund redemptions as well as the deleveraging on Wall Street have caused, investors are definitely wondering whether they would ever be able to reach their financial goals. The increasing volatility of the markets has certain stocks trading at multi year lows, despite strong fundamentals, pushing yields to multi-year highs.
In this market turmoil, I believe that sticking to fundamentally sound strategies such as value investing ordividend growth investing is the way to escape the day to day volatility. I also believe that learning more about value investing is essential, as the market will present many once in a lifetime opportunities for investors.
One value investing strategy is merger arbitrage. In my previous post related to CEG merger, I outlined the basic idea behind this strategy. I still believe that CEG deal will close by the middle of 2009. At current prices and if the stock keeps its 8% current yield, enterprising investors could make about 18%.
Furthermore I have kept my eyes open for other arbitrage opportunities. Rohm and Haas (ROH) is another merger arbitrage play to consider. In July, Dow Chemical announced that it was considering acquiring ROH for $78/share in cash. You could check my analysis of ROH here.
On October 29 the shareholders of ROH approved the deal. Furthermore the Hass family, which owns over one third of Rohm-Haas, is a strong supporter of the deal, as it seeks to unload their position.
The merger is expected to close in early 2009, pending regulatory approvals, and the agreement provides that Rohm and Haas Company will retain its name and Philadelphia Headquarters.
An earlier article by Jimmy Lathrop listed some of the risks that could prevent this arbitrage opportunity to work out. The strongest reason in my opinion is this one:
1. There is a chance that the credit crisis could slow or scuttle the deal. Even though Warren Buffett arranged part of the financing to include sale of equity interests with Berkshire Hathaway (BRK.A) as well as the Kuwait Investment Authority, the main underwriters to pay the shareholders of Rohm and Haas Company will come through a loan provided by Citigroup (C), Morgan Stanley (MS) and Merrill Lynch (MER). To put things mildly, there is significant uncertainty as to whether one, two or all three of these banks who signed this agreement on July 10, 2008, will be a functioning entity on January 15, 2009.
I believe that ROH is a buy at these levels as long as the deal does not get derailed. Furthermore the stock is paying 41cents/quarter in dividends, which is a decent payment while you are waiting for the deal to close.
In this market turmoil, I believe that sticking to fundamentally sound strategies such as value investing ordividend growth investing is the way to escape the day to day volatility. I also believe that learning more about value investing is essential, as the market will present many once in a lifetime opportunities for investors.
One value investing strategy is merger arbitrage. In my previous post related to CEG merger, I outlined the basic idea behind this strategy. I still believe that CEG deal will close by the middle of 2009. At current prices and if the stock keeps its 8% current yield, enterprising investors could make about 18%.
Furthermore I have kept my eyes open for other arbitrage opportunities. Rohm and Haas (ROH) is another merger arbitrage play to consider. In July, Dow Chemical announced that it was considering acquiring ROH for $78/share in cash. You could check my analysis of ROH here.
On October 29 the shareholders of ROH approved the deal. Furthermore the Hass family, which owns over one third of Rohm-Haas, is a strong supporter of the deal, as it seeks to unload their position.
The merger is expected to close in early 2009, pending regulatory approvals, and the agreement provides that Rohm and Haas Company will retain its name and Philadelphia Headquarters.
An earlier article by Jimmy Lathrop listed some of the risks that could prevent this arbitrage opportunity to work out. The strongest reason in my opinion is this one:
1. There is a chance that the credit crisis could slow or scuttle the deal. Even though Warren Buffett arranged part of the financing to include sale of equity interests with Berkshire Hathaway (BRK.A) as well as the Kuwait Investment Authority, the main underwriters to pay the shareholders of Rohm and Haas Company will come through a loan provided by Citigroup (C), Morgan Stanley (MS) and Merrill Lynch (MER). To put things mildly, there is significant uncertainty as to whether one, two or all three of these banks who signed this agreement on July 10, 2008, will be a functioning entity on January 15, 2009.
I believe that ROH is a buy at these levels as long as the deal does not get derailed. Furthermore the stock is paying 41cents/quarter in dividends, which is a decent payment while you are waiting for the deal to close.
Monday, September 29, 2008
Dividend Stocks in the news over the past week
The past several months have been characterized by tremendous volatility and a lot of negative news regarding the state of the economy as a whole. Given the uncertainties in the global economy, investors are wondering whether they should cash out their portfolios and simply wait for the storm to end.
I think that this would not be a good move, especially for the dividend investor who already has adiversified portfolio of income producing stocks. Such an investor will be more focused on the dividend raises that his or her stocks deliver.
Investors focusing on every tick of the market might miss some rare investment opportunities when there is a disconnect between fundamentals and price. Don’t forget that even during a crisis people will continue to eat, shave, take showers, purchase beverages, smoke and eat out. Thus it always pays to not lose track of the big picture, even during the most challenging times for your portfolio.
Several stocks had some major dividend increases over the past week. Others didn’t deliver such exciting news but reaffirmed their payments to shareholders.
McDonalds increased its annual dividend by 33% to $2.00 share. The company has increased its dividends for over 32 consecutive years. Annual dividend payments have increased over the past 10 years by an average of 25%. The current yield stands at 2.40%. The new dividend increases the yield to 3.16%
Microsoft increased its annual dividend by 18% to $0.52 share. The company has increased its dividends since 2003. MSFT has recorded double digit annual dividend payment increases over the past 5 years. The current yield stands at 2.00%.
Accenture increased its annual dividend by 19% to $0.5 share. The company has increased its dividends since 2005. ACN has recorded double digit annual dividend payment increases over the past three years. The current yield stands at 1.26%.
Campbell Soup increased its annual dividend by 14% to $1.00 share. The company has increased its dividends every year since 2004. CPB has recorded double digit annual dividend payment increases over the past 4 years. The current yield stands at 2.30%. The new dividend increases the yield to 2.66%
Lockheed Martin increased its annual dividend by 36% to $2.28 share. The company has consistently increased its dividends every year since 2003. LMT has recorded double digit annual dividend payment increases over the past 5 years. The current yield stands at 1.50%. The new dividend increases the yield to 2.03%
Of these stocks MCD only fits my criteria for purchase. The rest of the stocks have been added to my watchlist for further investigation.
I think that this would not be a good move, especially for the dividend investor who already has adiversified portfolio of income producing stocks. Such an investor will be more focused on the dividend raises that his or her stocks deliver.
Investors focusing on every tick of the market might miss some rare investment opportunities when there is a disconnect between fundamentals and price. Don’t forget that even during a crisis people will continue to eat, shave, take showers, purchase beverages, smoke and eat out. Thus it always pays to not lose track of the big picture, even during the most challenging times for your portfolio.
Several stocks had some major dividend increases over the past week. Others didn’t deliver such exciting news but reaffirmed their payments to shareholders.
McDonalds increased its annual dividend by 33% to $2.00 share. The company has increased its dividends for over 32 consecutive years. Annual dividend payments have increased over the past 10 years by an average of 25%. The current yield stands at 2.40%. The new dividend increases the yield to 3.16%
Microsoft increased its annual dividend by 18% to $0.52 share. The company has increased its dividends since 2003. MSFT has recorded double digit annual dividend payment increases over the past 5 years. The current yield stands at 2.00%.
Accenture increased its annual dividend by 19% to $0.5 share. The company has increased its dividends since 2005. ACN has recorded double digit annual dividend payment increases over the past three years. The current yield stands at 1.26%.
Campbell Soup increased its annual dividend by 14% to $1.00 share. The company has increased its dividends every year since 2004. CPB has recorded double digit annual dividend payment increases over the past 4 years. The current yield stands at 2.30%. The new dividend increases the yield to 2.66%
Lockheed Martin increased its annual dividend by 36% to $2.28 share. The company has consistently increased its dividends every year since 2003. LMT has recorded double digit annual dividend payment increases over the past 5 years. The current yield stands at 1.50%. The new dividend increases the yield to 2.03%
Of these stocks MCD only fits my criteria for purchase. The rest of the stocks have been added to my watchlist for further investigation.
Friday, July 25, 2008
The ultimate passive investment strategy
I recently read a paper from Jeremy Siegel and Jeremy Schwartz titled “The Long-term Returns on the Original S&P 500 Firms”.
In this paper the authors calculate the total returns of a buy and hold of the original 500 companies in 1957. They found that on average 20 stocks annually have been added and deleted from the index (without considering that a merger of two S&P 500 companies is an addition to the index) since 1957. The authors also used three methods of calculating the returns:
Survivors’ Portfolio (SP). The survivor portfolio consists only of shares of the original S&P 500 firms. Shares of other firms received through mergers are immediately sold and the proceeds invested in the remaining survivor firms in proportion to their market value. For example, when Mobil Oil was merged into Exxon in 1999, shareholders of Mobil are assumed to sell the shares they received from Exxon-Mobil and invest the proceeds in the remaining survivor firms. All spinoffs are immediately sold and the proceeds reinvested in the parent firm. Funds received from privatizations are sold and the proceeds re-invested in the original surviving firms in proportion to their market value.
Direct Descendants’ Portfolio (DDP), which consists of the shares of firms in the survivors’ portfolio plus the shares issued by firms acquiring an original S&P 500 firm. In the case of the Mobil-Exxon merger discussed above, we assume that shareholders of Mobil Oil hold the shares of Exxon that were issued in the merger. If an original firm was taken private, we assume that the cash distributed from the privatization was invested in an indexed portfolio whose returns matched the standard S&P 500 Index.12 If a firm that was taken private is subsequently reissued to the public again, we assume the portfolio repurchases shares in the reissued company with the funds that had been invested in the index at the time the firm went private. As before, spinoffs are immediately sold and the proceeds reinvested in the parent.
Total Descendants’ Portfolio (TDP) and includes all firms in the DDP plus all the spinoffs and other stock distributions issued by the firms in the Direct Descendants’ Portfolio. The only difference between the TDP and the DDP is that the TDP holds all the spinoffs rather than sell them and reinvest in the proceeds in the parent firm. The TDP is identical to the portfolio of a totally passive investor who holds all the spinoffs and shares issued from mergers and never sells any stock.
My favorite portfolio is the Total Descendants portfolio, since it basically represents a very passive investment strategy – buying stock in 500 companies and then forgetting about them for 50 years.
The authors looked into the return of equal weighted and value weighted returns for the three calculation types.
At the end of the paper they determined that by not updating your portfolio of the original 500 companies, with the annual changes in the S&P 500, you’d have outperformed the average pretty handsomely.
My take on this research is that by purchasing the current 500 stocks in the S&P 500, and allocating all stock equally, an investor will be better off in the long run than simply purchasing an ETF. The reason is that ETF’s tend to charge fees of 0.1% annually, which could really add up over time.
In this paper the authors calculate the total returns of a buy and hold of the original 500 companies in 1957. They found that on average 20 stocks annually have been added and deleted from the index (without considering that a merger of two S&P 500 companies is an addition to the index) since 1957. The authors also used three methods of calculating the returns:
Survivors’ Portfolio (SP). The survivor portfolio consists only of shares of the original S&P 500 firms. Shares of other firms received through mergers are immediately sold and the proceeds invested in the remaining survivor firms in proportion to their market value. For example, when Mobil Oil was merged into Exxon in 1999, shareholders of Mobil are assumed to sell the shares they received from Exxon-Mobil and invest the proceeds in the remaining survivor firms. All spinoffs are immediately sold and the proceeds reinvested in the parent firm. Funds received from privatizations are sold and the proceeds re-invested in the original surviving firms in proportion to their market value.
Direct Descendants’ Portfolio (DDP), which consists of the shares of firms in the survivors’ portfolio plus the shares issued by firms acquiring an original S&P 500 firm. In the case of the Mobil-Exxon merger discussed above, we assume that shareholders of Mobil Oil hold the shares of Exxon that were issued in the merger. If an original firm was taken private, we assume that the cash distributed from the privatization was invested in an indexed portfolio whose returns matched the standard S&P 500 Index.12 If a firm that was taken private is subsequently reissued to the public again, we assume the portfolio repurchases shares in the reissued company with the funds that had been invested in the index at the time the firm went private. As before, spinoffs are immediately sold and the proceeds reinvested in the parent.
Total Descendants’ Portfolio (TDP) and includes all firms in the DDP plus all the spinoffs and other stock distributions issued by the firms in the Direct Descendants’ Portfolio. The only difference between the TDP and the DDP is that the TDP holds all the spinoffs rather than sell them and reinvest in the proceeds in the parent firm. The TDP is identical to the portfolio of a totally passive investor who holds all the spinoffs and shares issued from mergers and never sells any stock.
My favorite portfolio is the Total Descendants portfolio, since it basically represents a very passive investment strategy – buying stock in 500 companies and then forgetting about them for 50 years.
The authors looked into the return of equal weighted and value weighted returns for the three calculation types.
At the end of the paper they determined that by not updating your portfolio of the original 500 companies, with the annual changes in the S&P 500, you’d have outperformed the average pretty handsomely.
My take on this research is that by purchasing the current 500 stocks in the S&P 500, and allocating all stock equally, an investor will be better off in the long run than simply purchasing an ETF. The reason is that ETF’s tend to charge fees of 0.1% annually, which could really add up over time.
Sunday, December 9, 2007
Dividend Cuts could be spreading to commodities companies
There were several dividend cuts last week, including a notable one from a commodities company. A report from Deutsche Bank analysts predicted dividend cuts in several mining companies, including Alcoa (AA), Southern Copper (PCU), Cliffs Natural Resources (CLF) and Companhia Vale do Rio Doce (RIO), which further depressed investor sentiment, and sent basic materials stocks lower. The negative dividend news concerning the materials sectors shouldn’t really affect overall dividend sentiment, as the dividend payments that these companies pay are typically not as consistent and smooth in terms of size of payment, due to the cyclical nature of the commodities business. With metals prices dropping significantly off of their record highs over the past few months it is no surprise that Deutsche Bank is expecting dividend cuts in the above mentioned companies.
On December 3, Freeport-McMoRan Copper & Gold Inc. announced a reduction in its copper production and sales, capital spending and expenditures. Furthermore the company announced that it was suspending its dividends. The stock lost 9% from the day of the announcement until the end of the week.
The other three notable dividend cuts included property trusts
Ramco-Gershenson Properties Trust (RPT) announced on December 3rd a 50% dividend cut in its quarterly payment to shareholders to $0.2313/share. The stock lost only 3% by the end of the week on the negative news.
Medical Properties Trust, Inc. (MPW) announced on December 4th that its Board has approved a 25.9% reduction in its quarterly dividend from $0.27 to $0.20 per common share. The stock closed over 8% higher on the day.
Post Properties (PPS) announced on December 2nd that its Board has reduced the quarterly dividend rate on its common stock to $0.20 per share from $0.45/share. The company also announced a stock buyback program which would allow it to repurchase up to $200 million worth of its common and preferred stock until December 2010. Investors reacted positively to this news, sending the stock over 15% higher by the end of the week.
The most interesting story I am seeing evolve over the past couple of weeks is that sectors which have experienced the most in dividend cuts over the past year, are buckling conventional wisdom when it comes to dividend cuts and rally on the news. In terms of investor sentiment this could mark a significant shift from bearish to bullish expectations for many stock holders. Whether this will hold of course will remain to be seen. The best ways for dividend growth investors to exit positions which have cut or eliminated their payments is when the stocks are going higher as opposed to lower.
On December 3, Freeport-McMoRan Copper & Gold Inc. announced a reduction in its copper production and sales, capital spending and expenditures. Furthermore the company announced that it was suspending its dividends. The stock lost 9% from the day of the announcement until the end of the week.
The other three notable dividend cuts included property trusts
Ramco-Gershenson Properties Trust (RPT) announced on December 3rd a 50% dividend cut in its quarterly payment to shareholders to $0.2313/share. The stock lost only 3% by the end of the week on the negative news.
Medical Properties Trust, Inc. (MPW) announced on December 4th that its Board has approved a 25.9% reduction in its quarterly dividend from $0.27 to $0.20 per common share. The stock closed over 8% higher on the day.
Post Properties (PPS) announced on December 2nd that its Board has reduced the quarterly dividend rate on its common stock to $0.20 per share from $0.45/share. The company also announced a stock buyback program which would allow it to repurchase up to $200 million worth of its common and preferred stock until December 2010. Investors reacted positively to this news, sending the stock over 15% higher by the end of the week.
The most interesting story I am seeing evolve over the past couple of weeks is that sectors which have experienced the most in dividend cuts over the past year, are buckling conventional wisdom when it comes to dividend cuts and rally on the news. In terms of investor sentiment this could mark a significant shift from bearish to bullish expectations for many stock holders. Whether this will hold of course will remain to be seen. The best ways for dividend growth investors to exit positions which have cut or eliminated their payments is when the stocks are going higher as opposed to lower.
Wednesday, May 2, 2007
Leveraged Investments
I have always been intrigued by the power of leverage. Using leverage means borrowing money to invest in something for the purpose of magnifying your profit potential.
When you are right, leverage works in your favor. When you are wrong though, leverage could result in disastrous results and bankruptcy.
An interesting leveraged instrument is SSO, which generates double the daily return of the S&P 500 through investments in stock index futures. If the S&P 500 rises by 1 %, SSO will increase by about 2%. The changes are never EXACTLY twice the rate of change for S&P 500 due to tracking errors.
I gathered daily data for S&P 500 going back to 1950. I then calculated the returns for the 58 year period for twice the daily changes in the index. I didn’t account for taxes, commissions, dividends and interest for simplicity purposes. The results are truly astonishing.
Investors who could have stomached the extra volatility from the increased exposure to the S&P 500 could have enjoyed average annual returns of almost 14.33% annually. The worst drawdown in annualreturns occurred from 1972-1974 -68.60%, and 69.50% during the 2000 - 2003 bear markets. In addition to that, investors who bought the back tested index at the end of 1999 are still underwater by 37%.Here are the results per decade:
Year $1 invested at the beginning of the decade grows to: at the end of the decade
1950's $ 11.32
1960's $ 2.13
1970's $ 1.14
1980's $ 7.77
1990's $ 14.14
2000's $ 0.78
For example if you invested $1 in the SSO at the end of 1980, your investment would have grown to $55 by the end of 2007. On the other hand, the same $1 investment in an S&P index fund would have grown to $22.50.
So how should investors incorporate leverage in their portfolios? I believe that a 5% to 10% of ones portfolio could be invested in a leveraged instrument like SSO as a long-term investment. Over time this investment should boost your profitability overall.
When you are right, leverage works in your favor. When you are wrong though, leverage could result in disastrous results and bankruptcy.
An interesting leveraged instrument is SSO, which generates double the daily return of the S&P 500 through investments in stock index futures. If the S&P 500 rises by 1 %, SSO will increase by about 2%. The changes are never EXACTLY twice the rate of change for S&P 500 due to tracking errors.
I gathered daily data for S&P 500 going back to 1950. I then calculated the returns for the 58 year period for twice the daily changes in the index. I didn’t account for taxes, commissions, dividends and interest for simplicity purposes. The results are truly astonishing.
Investors who could have stomached the extra volatility from the increased exposure to the S&P 500 could have enjoyed average annual returns of almost 14.33% annually. The worst drawdown in annualreturns occurred from 1972-1974 -68.60%, and 69.50% during the 2000 - 2003 bear markets. In addition to that, investors who bought the back tested index at the end of 1999 are still underwater by 37%.Here are the results per decade:
Year $1 invested at the beginning of the decade grows to: at the end of the decade
1950's $ 11.32
1960's $ 2.13
1970's $ 1.14
1980's $ 7.77
1990's $ 14.14
2000's $ 0.78
For example if you invested $1 in the SSO at the end of 1980, your investment would have grown to $55 by the end of 2007. On the other hand, the same $1 investment in an S&P index fund would have grown to $22.50.
So how should investors incorporate leverage in their portfolios? I believe that a 5% to 10% of ones portfolio could be invested in a leveraged instrument like SSO as a long-term investment. Over time this investment should boost your profitability overall.
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