Dividend Stocks ( General Discussions )

[ucypmas]

I don't understand the "buy a put to protect long position" suggestion.

Supposedly this works if I have a time horizon within the put's expiry date, and intend to liquidate out and therefore only tap part of the yield (having spent some on the put option) with capital intact (and hopefully the stock price doesn't move out of range of protection provided by the put)?

[kennynah]

I don't understand the "buy a put to protect long position" suggestion.

which part dont u understand ?

Supposedly this works if I have a time horizon within the put's expiry date, and intend to liquidate out and therefore only tap part of the yield (having spent some on the put option) with capital intact (and hopefully the stock price doesn't move out of range of protection provided by the put)?

suppose what works?...i read this 10 times...and i simply dont understand what you are saying ???? please elaborate this one more time...

[ucypmas]

I realised that I have managed to mangle my explanation.

Let me try again. Put options go up in value when the price of the underlying stock goes down. So if I have a time horizon of 1 year, I buy/write a put of the corresponding period, and that will protect the position in the stock provided that the price does not move out of the range afforded by the put. At the end of the year I liquidate, and get my capital back, with dividend yields, less the cost of the puts since they expire worthless. Is that what you were proposing? For the astute people?

[kennynah]

a BUY WRITE and Long Put transaction, involves 3 things :

a) Long stock position
b) Short Call OTM option
c) Long Put OTM option

this link will bring u the details..

viewtopic.php?f=16&t=702&st=0&sk=t&sd=a&start=10

[ucypmas]

Thanks for the link! Cheers!

[winston]

From OCBC:-

Zooming in on "quality" dividends. We believe it is better to stick with Singapore's blue chips as these have largely maintained the stance of paying dividends as long as cash flow is strong and if cash is not required for major acquisitions.

Cyclical sectors such as Property, Commodities, Tech and Oil & Gas may face difficulties in maintaining payouts as cash flow will be
affected if its earnings fail to hold up to expectations.

Zooming in on the quality of payouts, we prefer Banks, Telcos and selected REITS (CMT, MLT and SUN) as we believe these are likely to maintain their payout ratios and yields (for REITS).

[winston]

The Worst Quarter Ever By Andrew Gordon

The earning season is drawing to an end. But even before it began, we already knew that a lot of companies were in big trouble. Their dividends told us.

Historically, far more companies have raised their dividends as opposed to cutting or suspending them. But in the first quarter of 2009 - for the very first time since 1955 when Standard & Poor's started tracking this - the ratio reversed. For every three companies that raised dividends, four cut them.

This is yet another red flag indicating how tight credit still is.

But how about those dividend hikers?

Many raised their dividends by 5 to 10 percent or more this past quarter. And you can even find some - including Shell and AstraZeneca - that have upped their dividend payments by over 10 percent.

Raising dividends in this period of tight credit and slumping demand is either a huge bullish statement on the prospects of the company in question or...

The biggest con job this side of the Madoff scandal.

Occasionally I find a dividend hiker I don't like. For example, General Dynamics raised its dividend last month but also announced that it would be laying off 12 percent of its workforce. This is not a company confident about its future earnings growth.

But I've found that 98 percent of dividend hikes are legit - made because the company has deep reserves of cash and solid revenues.

Companies like that are good investments right now. You'd be getting a double bang for your buck: increasingly big dividend checks and share prices poised to go up.

Source: earlytorise.com

[winston]

Six steps to consistently identify the most stable – and highest – yields by Louis Basenese,

"This is going to be the worst [dividend-cutting year] in 50 years," Howard Silverblatt, Senior Index Analyst at Standard & Poor's, predicted in January. So far he's right with industry titans like General Electric and Dow Chemical announcing cuts.

Keep in mind, Dow Chemical maintained or increased its dividend every year since 1912. That means conditions this year are worse for the company - at least on a cash flow basis - than during the Great Depression.

Against this backdrop, it's understandable why many investors consider no dividend safe. But that's a mistake. Fact is, countless companies will weather this storm with their dividend intact.

To find such companies I focus on the following six criteria and I recommend you do the same:

Simple business. The fewer the moving parts the fewer things that can go wrong and sap cash intended for dividend payments. Focus on companies doing one or two things that you can understand, as opposed to massive corporations with dozens of operating segments.

Steady demand. Given the Great Recession, the first thing we need to verify is demand for a company's products. After all, a company needs a steady stream of cash coming in to afford to pay it out to shareholders. Stick to industries or sectors with recession-proof or recession-resistant demand (food, alcohol, tobacco, health care, etc.).

High cash balance. Cash IS king, especially when it comes to maintaining a dividend. Consider it insurance against any unexpected slowdowns. At a minimum, insist on enough cash to cover one quarter's worth of dividends.

Minimal need for credit. Securing credit in this market is extremely difficult. Accordingly, I focus on companies that do not need to raise significant amounts of capital. Remember, too, when interest rates rise, so do interest payments for companies that rely on a significant amount of debt. So it's also important to focus on companies with reasonable or low debt balances. This insures interest payments won't sap money intended for us.

Cash flow positive. If a company's not generating cash each quarter, the only way to pay a dividend is by borrowing or tapping into cash reserves. Such practices are not sustainable over the long term. Eventually, the dividend will be cut.

Earnings buffer. Insist on a dividend payout ratio (annual dividends/annual net income) of 80% or less. A company paying out 100% of earnings has no wiggle room in the event of a slowdown. If business suffers, so will the dividend.

Obviously not every stable dividend-paying stock will meet all these criteria. But the more criteria a stock fits, the more stable you can consider its dividend.

[winston]

Pocketing Nice Dividends with Hot Small-Caps by Marc Lichtenfeld

Highlights in this issue:
Why you shouldn’t choose between dividends or growth.
How to find hot dividend stocks.

If you've unfamiliar with my prior columns, you might not know that I focus primarily in the small-cap space – both in my specialist areas of healthcare and biotech and other sectors, too.

Typically, small-cap stocks purchased for capital appreciation and big gains more so than they are sought for dividends income.

But I'm actually a big fan of dividends, and the stability of the income they bring as well.

So is there a way to keep an eye on growth and earn solid, steady income at the same time? Usually, the two don't go hand-in-hand – especially not in the small-cap sector.

But that doesn't mean to say that it's impossible to grab the best of both worlds.

There is a way to load your portfolio with outstanding profit potential and generate income too. Here's how I found them..

Digging For Dividends

I'm not a market timer so I'm not going to tell you that now is the time to get out of equities before the market turns lower.

But what I will say is that with the Nasdaq and Russell 2000 (small-cap) indexes having blasted off their lows by 58% and 67% respectively, it makes sense to get a bit more defensive.

The reason is two-fold - and very simple: Owning dividend-paying stocks generates income and improves a portfolio's return over the long-term.

However, it's hard to find good small-cap companies that pay dividends. Smaller companies usually pour any excess cash back into the business to help it grow, rather than distributing it back to shareholders.

In fact, of more than 7,400 stocks with market caps under $1 billion, only 1,356 pay dividends. And if you want a meaningful dividend yield - let's say 3% - the number decreases to less than 800.

I further whittled down the list to companies with high current ratios, low debt, and profit expectations to help ensure that dividends would continue to get paid.

I also stayed away from companies that paid a very high dividend. Companies with yields approaching 10% or higher may find those payouts unsustainable if business continues to be difficult.

Yes, if you want a higher potential reward, you do need to take on more risk. But buying stocks with sky-high dividends is riskier than those with solid but more sensible yields.

[winston]

Where All the Money You'll Ever Make in Stocks Will Come From
By Dan Ferris, editor, Extreme Value

I'm convinced the return of the king is upon us.

It's often said that cash is king. But for the past generation or so, nobody cared much for the guy. Consumers borrowed as much of him as they could to buy stuff they couldn't afford. Investors avoided him because they wanted to speculate on Internet stocks, condos, and commodities.

But now, more than at any time in the past three decades, investors need to own stocks that consistently pay cash dividends. It's too risky to own the traditional junk most folks typically own.

Everyone seems to have forgotten about them today, but dividends are the main way you make money in stocks over the long term. If you're going to get rich in stocks, you're going to receive lots of dividends, and you're going to reinvest those dividends. Growing rich in stocks over time has meant this for much of the last two centuries.

Referring to a study of the period from 1872 to 2000 in his excellent book, Behavioural Investing, analyst James Montier says, "Over the long term, dividend yield has provided over 50% of the total return to equities!"

Montier's findings also showed that, during the turbulent 1970s, growth and valuation changes produced negative results, but stockholders still made money by collecting cash dividends.

When times got tough, dividends were all you earned from stocks. From 1970 through 1982, the U.S. went through four recessions. Inflation averaged 5% per year. Other similar studies I've seen suggest Montier's data overstates the case slightly, but the point remains: Dividends bailed investors out during the 1970s.

But that's just the payment of cash dividends. It says nothing of the power of reinvested dividends. In The Future for Investors, Wharton professor Jeremy Siegel published an even more astounding finding:
From 1871 to 2003, 97 percent of the total after-inflation accumulation from stocks comes from reinvesting dividends. Only 3 percent comes from capital gains.

Whether it's a 132-year epoch or a turbulent decade during which inflation has investors too scared to buy, the data all point in one unmistakable direction. As financial researcher and investment manager Rob Arnott put it, "Dividends not only dwarf inflation, growth, and changing valuation levels individually, but they also dwarf the combined importance of inflation, growth, and changing valuation levels."

Dividends rule. Over your lifetime, the odds are squarely against any outcome but this: You'll either make a lot of money on reinvested dividends or you won't make much money in stocks.

How can you get started earning dividends and then reinvesting them? Or stated more simply, how can you start getting rich in stocks?

I don't think you can do better than what I've been telling my Extreme Value readers for years: Stick with the world's best businesses with long uninterrupted histories of increasing their dividends. Stick with what I call "World Dominators."

A World Dominator is generally the largest, most powerful company in its industry. It can raise prices to stay ahead of inflation and use its enormous size to keep costs low. Raising prices or being the lowest-cost provider means these World Dominators tend to crush the competition. So they often generate enormous amounts of cash. That cash can support dividends through good times and bad.

Take one of my favorite Dominators, Procter & Gamble. It has raised its dividend every year for 55 years in a row. Or another, Wal-Mart. It has raised its dividend every year of its existence as a public company.

As a giant, World Dominating business like P&G or Wal-Mart matures, its excellent competitive position keeps the cash rolling in while the capital expenditures fall due to slower growth. That cash and share repurchases provide investors with growing dividends and capital appreciation. They sport smallish current dividend yields (usually in the 2%-4% area), but as cash flow increases, a Dominator you buy now will yield 10% in five to seven years.

By the way, Warren Buffett – the world's richest investor – owns both of these stocks... and a bunch of other World Dominators. He gets it. He knows cash is king. And he sticks with companies that generate mountains of it. I recommend you do the same.

Source: Daily Wealth