Dividend Stocks ( General Discussions )

Re: Dividend Stocks

Postby winston » Sat Jun 04, 2011 8:04 pm

Where to Find Extraordinary Income Streams That Always Go Up By Dan Ferris,
Saturday, June 4, 2011

For years now, I've been pounding the table on World Dominating Dividend Growers.

These companies are at the tops of their industries. They gush free cash flow and pay out ever-increasing dividends like clockwork. Some of these companies have grown their dividends for 40 years in a row.

But I realize many of you doubt the wisdom of owning these stocks. So today, I'm going to show you why dividend growth stocks are the closest to a sure thing that exists in the stock market. They're the only source of return you can count on to rise every year. They're unbeatable investments.

I've told you about this many times. But now I'd like to show you…

Let's start with retail dominator Wal-Mart (WMT). Take a look at Wal-Mart's dividend growth over the last 10 years…

It's relentless. Wal-Mart's dividend has grown every year, year after year, through the biggest housing boom and bust in history… the worst financial disaster in American history… Federal Reserve inflation… higher food prices… terrorist attacks… two recessions… $150 oil… and $1,500 gold.

Through all of it, Wal-Mart has continued to grow its business and dividend payment by 18% per year. At that rate, if you buy today, you'll earn a double-digit yield over your original cost within eight years.

Let's look at another example: World Dominating Dividend Grower Medtronic (MDT). Medtronic's dividend goes up every year, like all the other World Dominating Dividend Growers.

It's been paying a dividend since 1974, and it has raised that dividend every year for 32 years in a row. Its dividend has grown 18.4% per year for the last 10 years. If that growth continues, in 10 years, you'll be earning 13.6% in dividends.

Now let's compare that to the performance of the S&P 500 as a whole. The chart below tracks the average dividend paid out by S&P 500 stocks over the same 10-year period…

It's not bad. The average dividend payment is up overall during the period. But when things got tough in 2008 and 2009, many companies slashed their dividends. And now, the S&P 500 is paying about the same amount as it paid in 2006.

Five years of dividend growth was wiped out of existence. If you were depending on dividends from the average stock as a source of income, you took a heavy pay cut.

But while most companies cut or eliminated their dividends, Wal-Mart and Medtronic continued to raise their dividends by double digits every year.

The bottom line is, the market can't promise you growing income. It can't even promise you steady income. Only the World Dominating Dividend Growers can.

They're the best investments around. And if you're investing for income, they'll beat the stock market, year after year.


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Re: Dividend Stocks

Postby winston » Wed Jun 15, 2011 10:25 pm

4 Secrets To Finding The Best Dividend Stocks

Here is what I look for when buying a dividend growth stock for my long-term portfolio:


Sustainability

In this era of ultra-low interest rates, who wouldn't like to earn an 18% yield. An 18% yield would be outstanding! Unfortunately, an 18% yield is not sustainable. Companies simply can not generate enough cash to pay operating expenses, purchase capital, service debt, grow the business and afford to pay an 18% yield over the long-term.

Often times when you see an 18% yield quoted, it is not really what it appears to be. When a company does not generate sufficient cash to maintain its dividend, over an extended period of time, but continues to pay the dividend, a portion of the dividend will be classified as a return of capital.

A return of capital is the payment of some or all of your investment in the company's stock. A return of capital reduces the basis of your stock. It is not a dividend - it just looks like one. Often the portion that is classified as return of capital is only disclosed at tax time, thus the full payment is used in calculating the dividend yield.


Strong Free Cash Flows

As an accountant, I can tell you our profession in its pursuit of theoretical perfection has adulterated the financial statements to the point that it has become very difficult for non-accountants to understand what’s behind the numbers.

A dividend payout ratio is supposed to provide the investor with an indication of how much cash as a percent of earnings the company is paying its investors. A payout ratio based on GAAP net earnings could potentially have a lot of noise in it and not provide a clear picture of the economic condition of the business.

Instead of GAAP earnings, I prefer to focus on cash. Free Cash Flow has many definitions, but the one I use is operating cash flow less capital expenditures. Capital expenditures are deducted since you can’t run a business for any period of time without expending some level of capital.

These two numbers are easily located on the Statement of Cash Flows. This is the best snapshot of what cash the business has generated from “normal” operations and is available for dividends, debt, acquisitions and purchases of treasury stock.

To succeed as a dividend investor, you must find companies that can sustain and grow dividends by focusing on their ability to generate cash. You can fake earnings, but you can’t fake cash.


Low Debt

To gauge how levered a company is, the metric I like to look at is debt to total capital. Debt includes both long-term and short-term debt and is readily available on the liabilities side of the balance sheet.

Total capital is a combination of debt and shareholders equity. When you divide debt by total capital a desirable rate is something less than 45%, but I will consider rates up to 50% on a short-term basis.

To find and buy dividend stocks that will continue to raise their dividends, it is not enough to only look at a company’s free cash flow. Many companies generate significant free cash flow, but the pertinent question is how much of the cash is already spoken for in the form of debt obligations.


NPV MMA Diff. Above Target

Even if a company can sustain and grow their dividend, is it the best option available? Would I be better off putting the money in a 20 Treasury, or another dividend growth stock. To answer these questions, I use my NPV MMA Differential calculation.

A dividend stock's NPV MMA Differential is a hypothetical $1,000 investment in a stock and a Money Market Account (MMA) earning earning a 20 year average rate (I use a 20 year Treasury as a proxy). The value calculated is the net present value (NPV) of the difference between the dividend earnings of this investment and the interest income from the MMA over 20 years.

The calculation takes into account the time value of money, thus if it takes too long for the stock's dividend yield to exceed the MMA rate, then the calculation will return a negative value. This means you are financially better off to put your money in the MMA. If the dividend stock is a better investment then the NPV MMA Diff. calculated will be positive.

Similar to a stock's dividend yield, it is desirable to have a higher NPV MMA Diff. But also like a dividend yield, if it is too high, you need to start asking why? The NPV MMA Diff. can be used to compare two or more investments. Like all calculations, the value of the output is directly tied to the quality of the input (garbage in, garbage out).

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Re: Dividend Stocks

Postby winston » Fri Jun 24, 2011 8:17 pm

This Simple Stock Market Strategy Would Have Increased Returns 926% By Tom Dyson

"Dividends don't matter."

I was playing golf with a stock trader last weekend. When I told him I specialize in stocks that pay dividends, he gave me a look of condescension.

"I don't understand what the big deal is with dividends," he explained. "The stock falls by the amount of the dividend, so you can't benefit from it. Total return is the only thing that matters."

On the surface, my golf partner is right. A dividend is simply a cash payout from the company to the shareholder. Whatever the shareholder gains, the company loses. So it seems shareholders don't actually come out ahead.

But as I'll show you today, to say cash payouts like these don't matter is wrong. They improve returns by thousands of percent over the long term.

My friend Meb Faber proved this to me the other day…

Meb is a professional stock market number cruncher, or as he calls himself, a "quant." He's used his skills to create some incredible investing strategies. (You can read more about them here and here.) He also launched an ETF (the symbol is GTAA) so you can follow his system with just one click.

Meb recently crunched the numbers on dividends and other cash payouts and found something amazing.

He started with the Russell 3000, an index of 3000 small-cap stocks. Since 1972, the market-cap weighted Russell 3000 index gained 9.98% a year on average. But when Meb took the highest dividend payers in the index, (the top 10% of dividend payers), he found they returned 13.29% per year… an improvement of more than 3% over the common index.

Meb didn't end his study there…

When most people think of companies returning cash to investors, they think of dividends. But there are two other ways a company returns cash to shareholders.

Stock buybacks are the first way. A company might decide to pay shareholders by buying back its own stock in the open market. To an accountant, it's an identical transaction as a dividend. Cash leaves the company. Cash goes to the shareholders. The difference is, instead of sending each shareholder a check for, say, $100, the company causes the investors' stock to rise in value by $100.

The shareholder has a capital gain instead of a cash income, but the result to the shareholder is the same.

The second way a company returns cash to shareholders without paying dividends is by paying down debt. Cash flows from the company and accrues to shareholders, just like a dividend. In this case, the cash pays off a bondholder who has a senior claim to the stockholder. Once the bondholder is out of the way, the shareholder is that much closer to the future profits.

When you include these two additional ways companies return cash to shareholders, you get the true "cash" yield to shareholders. Meb calls this the "shareholder yield."

Meb repeated his study on the Russell 3000, taking total shareholder yield into account. This is what he found…


Group / Average Annual Return
Russell 3000 / 9.98%
Dividend Yield (top 10%) / 13.29%
Shareholder Yield (top 10%) / 16.93%


Earning 9.98% over 38 years turns $1,000 into $37,147. Earning 16.93% a year over 38 years turns $1,000 into $381,229.

In other words, over 38 years, that annual difference of nearly 7% would have increased your total returns by 926%.

The conclusion is, my golf buddy is totally wrong. Stocks that pay out cash generate far higher returns than stocks that don't.

If you're investing for high returns and are ignoring stocks that pay cash out to shareholders, you're missing the point. You should almost always favor companies that pay out cash to investors over those that don't.


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Re: Dividend Stocks

Postby kennynah » Fri Jun 24, 2011 8:39 pm

imo, dividend plays are meaningful for wealthy long term investors..

what do you think?
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Re: Dividend Stocks

Postby iam802 » Fri Jun 24, 2011 9:04 pm

kennynah wrote:imo, dividend plays are meaningful for wealthy long term investors..

what do you think?



maybe those retirement funds as well?
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2. The trend will END but I don't know WHEN.

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Re: Dividend Stocks

Postby kanglc » Fri Jun 24, 2011 11:24 pm

kennynah wrote:imo, dividend plays are meaningful for wealthy long term investors..

what do you think?


For me, 1) no time, 2) no skill, 3) no guts. So just go for dividends.
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Re: Dividend Stocks

Postby kennynah » Fri Jun 24, 2011 11:33 pm

you are way too modest kanglc :)
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Re: Dividend Stocks

Postby Chinaman » Sat Jun 25, 2011 12:36 am

i never buy stock that never pay dividend
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Re: Dividend Stocks

Postby kennynah » Sat Jun 25, 2011 1:27 am

and you are a wealthy man...see, my theory is correct...dividend play are for the oo lui lang 有钱人 :lol:
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Re: Dividend Stocks

Postby winston » Wed Jul 06, 2011 11:11 pm

The Most Important Thing To Consider When Selecting A Dividend Stock

In selecting a dividend growth stock, investors look at many metrics and try to determine what the future holds for the company. Among those considered are free cash flow, debt levels, current yield, dividend growth rate and fair value. Not to diminish any of these, because they are all very important, but they are not the most important thing that we need to look for.

Free cash flow helps define the viability of the business to generate sufficient cash to meet the operating expenses and replacement capital. A high debt level can be a drain on free cash flow, sometimes to the point the company can no longer afford to pay a dividend.

Current yield defines the money we will earn today. If it is too low we may not be able to cover our living expenses. Inflation is inevitable, especially when the money supply is expanded. A robust dividend growth rate in excess of inflation will ensure we never lose purchasing power.

When selecting a dividend growth stock there is really only one factor that is important – sustainability. As dividend growth investors we are looking for stocks that will continue to raise their dividends into the future.

Below are three things I consider when assessing the sustainability of a dividend growth stock:

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