Several Dividend Aristocrats have increased their dividends in January. The companies are:
New Old Change
AFLAC Inc – Ticker AFL 0.96 0.82 17.07%
Comerica Inc – Ticker CMA 2.64 2.56 3.13%
Consolidated Edison – Ticker ED 2.34 2.32 0.86%
Family Dollar Stores– Ticker FDO 0.50 0.46 8.70%
McGraw-Hill Companies– Ticker MHP 0.88 0.82 7.32%
From this list, the only company that fits my fundamental criteria is MHP, which has a one year dividend growth rate of 7.32%. In terms of changes within the index I expect that SNV might be removed from the dividend aristocrats list. The reason is that its shareholders have received shares in TSYS, which was completely spun off from Synovus in the transaction at the beginning of 2008. On paper the dividend will be cut, but in reality this reflects a spin off and I guess the dividend aristocrats committee does not take into consideration the cash that stockholders received. I believe that SNV would keep increasing its dividends over time. The same thing happened with Altria group after the spin-off of KFT. Even though the dividend fell from 0.82 to 0.69, it’s crawling back up at the time of this writing and would soon exceed the pre-spin-off levels.
Expected dividend increases in February
Based off historical information from this spreadsheet, I would expect that the following companies increase their dividend in February: MMM ABT ADM CINF KO KMB NUE PBI SHW SIAL WWY. Those dividend aristocrats have increased their dividends during every month of February over the past 4 years. Upon a closer examination of the dividend growth behavior of the 60 dividend aristocrats, it seems that every month there is at least one company that raises its dividend. It’s nice to get a pay raise every month. The only company that has increased its dividend twice in one year is STT- State Street.
Monday, February 4, 2008
Sunday, January 20, 2008
A comparison of investing in high-yield, low dividend growth stock versus investing in a low-yield, high dividend growth stock without capital gains
I was asked before about the reasoning behind my statement that I would buy a stock whose dividend is increasing even by one percentage point per year, if it has a high yield, rather than invest in stocks which increase their dividend payment by at least 10% per year. To answer this question, lets me walk you through my calculations:
Let’s say that you have 2 stocks- A and B in each of which we invest $100,000. We assume that both stocks will always trade at $10 for simplicity sake. Stock A is yielding 5% per year (50 cents per share), while Stock B is yielding 2% (20 cents per share). The dividend growth in Stock A is a meager 1%, while Stock B’s dividend is growing at 5% annually. We will look at two outputs – total return and changes in annual income. It would take stock B 24 years to reach the same annual income level as stock A. In addition, it would take stock B around 40 years to achieve the same total dollar return as stock A. If however we had a growth stock C, which was yielding .5 % at the start of the experiment, and whose dividend was growing at 10% annually, it would take the annual income around 27 years to reach Stock A’s dividend income. It would also take around 42 years for the total dollar return of Stock C to reach the total dollar return of Stock A. I have also included a $100,000 investment in bonds, which yield 6% every year.
The return from the invested capital though, would have been increasing substantially over time assuming that we didn’t reinvest our dividends back into our stocks. After 10 years the yield on cost for Stock A is 5.5%, Stock B is 3.3% and Stock C is 1.3%. After 10 more years stocks A, B and C are yielding 6.1%, 5.3% and 3.4%. An investor, who simply purchased bonds, would have been making the same 6% over and over. I am attaching my spreadsheet below. This file is for informational purposes only; I just tried to make my point that you have to not only buy a stock which has a high dividend growth rate, but also a one which has a pretty decent yield. A major limitation of this analysis was that I assumed that stocks would not realize anycapital gains over the period; that’s why the long-term results of Stocks A, B and C are almost identical to long-term results for Bonds. However it shows you that if you reinvest dividends, stocks achieve a higher compounding power than bonds.
You can see the file here or here.
Let’s say that you have 2 stocks- A and B in each of which we invest $100,000. We assume that both stocks will always trade at $10 for simplicity sake. Stock A is yielding 5% per year (50 cents per share), while Stock B is yielding 2% (20 cents per share). The dividend growth in Stock A is a meager 1%, while Stock B’s dividend is growing at 5% annually. We will look at two outputs – total return and changes in annual income. It would take stock B 24 years to reach the same annual income level as stock A. In addition, it would take stock B around 40 years to achieve the same total dollar return as stock A. If however we had a growth stock C, which was yielding .5 % at the start of the experiment, and whose dividend was growing at 10% annually, it would take the annual income around 27 years to reach Stock A’s dividend income. It would also take around 42 years for the total dollar return of Stock C to reach the total dollar return of Stock A. I have also included a $100,000 investment in bonds, which yield 6% every year.
The return from the invested capital though, would have been increasing substantially over time assuming that we didn’t reinvest our dividends back into our stocks. After 10 years the yield on cost for Stock A is 5.5%, Stock B is 3.3% and Stock C is 1.3%. After 10 more years stocks A, B and C are yielding 6.1%, 5.3% and 3.4%. An investor, who simply purchased bonds, would have been making the same 6% over and over. I am attaching my spreadsheet below. This file is for informational purposes only; I just tried to make my point that you have to not only buy a stock which has a high dividend growth rate, but also a one which has a pretty decent yield. A major limitation of this analysis was that I assumed that stocks would not realize anycapital gains over the period; that’s why the long-term results of Stocks A, B and C are almost identical to long-term results for Bonds. However it shows you that if you reinvest dividends, stocks achieve a higher compounding power than bonds.
You can see the file here or here.
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.
Saturday, November 3, 2007
6 Dividend Stocks rewarding their shareholders with higher payouts
Last week was marked by more volatility which doesn’t seem to surprise anyone. Luckily this time the direction was up as the stock market had its best week since 1974, mainly fueled by the half a percentage point interest cut by the Federal Reserve as well the smaller than expected contraction in the GDP.
During those large swings up and down it is easy for investors to lose focus on the big picture and not sticking to their financial plan by converting all of their holdings to cash. Luckily there were several dividend companies that reminded their patient long-term holders that increasing dividend payments could help them out in increasing their total returns over time.
Vornado Realty (VNO) announced that its Board has approved a 5.60% increase in its quarterly dividend from $0.90 to $0.95 per common share. Vornado Realty is a dividend achiever having increased its dividends for over fifteen years. The stock currently yields 5.60%.
Home Properties (HME) announced that its Board has approved a 1.50% increase in its quarterly dividend from $0.66 to $0.67 per common share. Home Properties is a dividend achiever having increased its dividends for over one decade. The stock currently yields 7.20%.
Questar (STR) announced that its Board has approved a 2.00% increase in its quarterly dividend from $0.1225 to $0.1250 per common share. Questar is a dividend aristocrat having increased its dividends for 29 years. The stock currently yields 1.50%.
Williams Partners L.P. (WPZ) announced that its Board has approved a 15.00% increase in its quarterly distgributions from $0.55 paid in third quarter 2007 to $0.635 per unit. The partnership stock currently yields 12.10%.
Dominion Resources (D) management anticipates that in January it will recommend to the board of directors an annual dividend rate in 2009 of $1.75 per share, or a quarterly dividend rate of 43.75 cents per share. This represents nearly an 11 percent increase over the current annual dividend rate of $1.58 per share. This utility currently yields 4.40%.
The Hanover Insurance Group, Inc. (THG) announced that its Board has approved a 12.50% increase in its annual dividend from $0.40 to $0.45 per common share. The stock currently yields 1.30%.
This dividend increases list led me to put VNO and HME on my list for further research.
During those large swings up and down it is easy for investors to lose focus on the big picture and not sticking to their financial plan by converting all of their holdings to cash. Luckily there were several dividend companies that reminded their patient long-term holders that increasing dividend payments could help them out in increasing their total returns over time.
Vornado Realty (VNO) announced that its Board has approved a 5.60% increase in its quarterly dividend from $0.90 to $0.95 per common share. Vornado Realty is a dividend achiever having increased its dividends for over fifteen years. The stock currently yields 5.60%.
Home Properties (HME) announced that its Board has approved a 1.50% increase in its quarterly dividend from $0.66 to $0.67 per common share. Home Properties is a dividend achiever having increased its dividends for over one decade. The stock currently yields 7.20%.
Questar (STR) announced that its Board has approved a 2.00% increase in its quarterly dividend from $0.1225 to $0.1250 per common share. Questar is a dividend aristocrat having increased its dividends for 29 years. The stock currently yields 1.50%.
Williams Partners L.P. (WPZ) announced that its Board has approved a 15.00% increase in its quarterly distgributions from $0.55 paid in third quarter 2007 to $0.635 per unit. The partnership stock currently yields 12.10%.
Dominion Resources (D) management anticipates that in January it will recommend to the board of directors an annual dividend rate in 2009 of $1.75 per share, or a quarterly dividend rate of 43.75 cents per share. This represents nearly an 11 percent increase over the current annual dividend rate of $1.58 per share. This utility currently yields 4.40%.
The Hanover Insurance Group, Inc. (THG) announced that its Board has approved a 12.50% increase in its annual dividend from $0.40 to $0.45 per common share. The stock currently yields 1.30%.
This dividend increases list led me to put VNO and HME on my list for further research.
Tuesday, September 4, 2007
SYSCO (SYY) Dividend Stock Analysis
SYSCO Corporation, through its subsidiaries, engages in the marketing and distribution of a range of food and related products primarily for foodservice industry in the United States and Canada.
SYSCO is a dividend champion as well as a component of the S&P 500 index. It has been increasing its stock dividends for the past 37 consecutive years. From the end of 1997 up until August 2008 this dividend growth stock has delivered an annual average total return of 11.60 % to its shareholders.
At the same time company has managed to deliver a 14.40% average annual increase in its EPS since 1998.
The ROE increased from the 25% to over 40% before falling down slightly to 33% in 2007.
Annual dividend payments have increased over the past 10 years by an average of 17.90% annually, which is higher than the growth in EPS. Using the rule of 72 an 18% growth in dividends translates into the dividend payment doubling almost every four years. If we look at historical data, going as far back as 1989, SYY has indeed managed to double its dividend payment every four years on average.
If we invested $100,000 in SYY on December 31, 1997 we would have bought 8780 shares (Adjusted for two 2:1 stock splits). In March 1998 your quarterly dividend income would have been $395.10. If you kept reinvesting the dividends though instead of spending them, your quarterly dividend income would have risen to $2279 by July 2008. For a period of 10 years, your quarterly dividend payments would have increased by 389%. If you reinvested it though, your quarterly dividend payments would have increased by 477%.
The dividend payout ratio has slowly increased from upper teens to mid twenties over our study period. A lower dividend payout is always a plus, since it leaves room for consistent dividend growth minimizing the impact of short-term fluctuations in earnings.
I think that SYY is attractively valued with its low price/earnings multiple of 17.50 and low dividend payout ratio as well as an attractive dividend yield at 2.80%. The current dividend yield is pretty attractive based off historical standards. The current P/E is also attractive relative to what it has been over the past decade.
Friday, June 1, 2007
Carnivals, Festivals and Blogs- May 31, 2008
Carnivals and Festivals
My article Kinder Morgan Energy Partners (KMP) Dividend Analysis, was selected to appear on 90th edition of The Festival of Stocks May 26, 2008, hosted by Circle of Competence.
My post on Why Do I Like Dividend Achievers, was selected to appear on the 154th edition of Carnival of Personal Finance #154, hosted by Canadian Dream Free at 45.
My post TEPPCO Partners (TPP) Dividend Analysis. was selected to appear on The 14th Money Hacks Carnival - Weird Golf Facts Edition, hosted by PTMoney.
My post Dividend Champions Watchlist was included in the Carnival of Everything Finance: # 18, hosted byEverything Finance.
Blogs
FireFinance published his monthly list of the Top 100 Personal Finance Blogs. My blog is ranked #41 according to sitemeter and #50 according to quantcast.
Dividends4Life presented Stock Analysis: PepsiCo, Inc. (PEP). I myself am a fan of the company. You could read about my opinion here and here.
DividendMoney posted How To Develop Your Investing Style.
The Money Gardener presented BNS earnings down, dividend up. It's always nice to find a company which consistently increases its dividends twice per year.
Million Dollar Journey posted updates on his investing in Smith Manoeuvre Portfolio - May 2008.
I also enjoyed the chart in The Dividend Guy’s May Dividend Portfolio Review.
DivGuy is getting pretty good at finding buyout opportunities to invest in. I enjoyed reading his postAnother buyout offer on one of my stocks: Calpine (CPN).
Passive Family Income is Creating a new Income Stream using Prosper.
Articles
My article Kinder Morgan Energy Partners (KMP) Dividend Analysis, was selected to appear on 90th edition of The Festival of Stocks May 26, 2008, hosted by Circle of Competence.
My post on Why Do I Like Dividend Achievers, was selected to appear on the 154th edition of Carnival of Personal Finance #154, hosted by Canadian Dream Free at 45.
My post TEPPCO Partners (TPP) Dividend Analysis. was selected to appear on The 14th Money Hacks Carnival - Weird Golf Facts Edition, hosted by PTMoney.
My post Dividend Champions Watchlist was included in the Carnival of Everything Finance: # 18, hosted byEverything Finance.
Blogs
FireFinance published his monthly list of the Top 100 Personal Finance Blogs. My blog is ranked #41 according to sitemeter and #50 according to quantcast.
Dividends4Life presented Stock Analysis: PepsiCo, Inc. (PEP). I myself am a fan of the company. You could read about my opinion here and here.
DividendMoney posted How To Develop Your Investing Style.
The Money Gardener presented BNS earnings down, dividend up. It's always nice to find a company which consistently increases its dividends twice per year.
Million Dollar Journey posted updates on his investing in Smith Manoeuvre Portfolio - May 2008.
I also enjoyed the chart in The Dividend Guy’s May Dividend Portfolio Review.
DivGuy is getting pretty good at finding buyout opportunities to invest in. I enjoyed reading his postAnother buyout offer on one of my stocks: Calpine (CPN).
Passive Family Income is Creating a new Income Stream using Prosper.
Articles
I enjoyed reading America's hottest investor. Being the contrarian that I am, I bet that CGM Focus fund will significantly underperform over the next 5 years.
I also enjoyed reading about The next Buffetts at Canadian Business. In his first book Peter Lynch mentions that whenever someone refers to a stock as the next big thing, then you should stay away from it. In other words, putting money on LNUX, which was touted as the next Microsoft in 1999, would have been a disastrous investment.Guest Articles
My post Automatic Data Processing (ADP) Dividend analysis marked the 100th post on Dividend Growth Investor. I am very interested in collaborating with fellow personal finance and investment bloggers. To celebrate my centennial, if you are an aspiring writer, and you have an opinion on Personal Finance, Investing, Retirement Planning or a similar money related story, and you want to get more exposure I would love to receive and publish your article on my blog.
Feel free to send the articles to my e-mail address at dividendgrowthinvestor at gmail dot com.
I would be considering only original articles, which haven't been posted anywhere else before. You could place up to 3 links to your blog/website in the article. the material shouldn't be offensive and should be ok to be read by all audiences ( no R rated stuff please).
One week from today, I would let you know if I would be including your article or not. If I publish it, you could also publish it on your blog/website on the same day as me. If its not chosen, you could publish it whenever you wish to.
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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