Dividend Stocks ( General Discussions )

[winston]

The Seven Signs of Trouble

The one difficulty with income investing is figuring out whether the dividend is solid. You need to be very confident of the company itself and of its long-term prospects before investing. Some warning signals that a dividend may be in danger include the following:

* A "payout ratio" greater than 100%: If a company is paying out more in dividends than it is likely to earn, a dividend cut is almost certainly in the offing. Avoid dividend stocks with high price-earnings (P/E) ratios, and especially companies that are either making losses, or that are expected to.

* "Extraordinary items" in last year"s income: If the company divested a subsidiary, or had an exceptional year, it may have paid a special dividend to celebrate. That special dividend is unlikely to be repeated.

* Highly cyclical industry in credit crunch or downturn: Towards an end of an economic cycle or apex of a market upswing, cyclical companies often have so much cash that they don"t know what to do with it all. If the company you own shares in opts to make an acquisition at pricey, market-top prices, consider yourself unlucky.

On the other hand, if the company has a savvy, shareholder friendly management team, the company will pay out some of that cash in the form of a big dividend, consider yourself to be on the "lucky" side of the shareholder ledger. But just make sure to remember that the payout isn"t likely to be repeated once the formerly bullish upswing reverses course and heads lower.

* The loss of patent protection: If a pharmaceutical company has been highly reliant on revenue from a particular "blockbuster" drug, and that blockbuster comes off patent next year, the dividend is likely to be cut as earnings will decline. Some companies in other, non-pharmaceutical sectors have concessions to operate in important markets that may produce a similar effect.

* Political pressure on the company"s business sector: BP PLC (NYSE: BP) has a very nice dividend yield right now - in the neighborhood of 11%. Even so, BP"s shares should be avoided until we"re sure that the Gulf oil spill is sorted out, because the Obama administration is trying to strong-arm BP into eliminating its dividend in order to make sure it has enough cash to pay for the cleanup.

Just yesterday (Monday), in fact, the stock sold off an additional 9.7% on fears of that dividend cut. Uncertainty is bad for stocks, and with BP there"s more than enough uncertainty to go around.

* Big one-time write-offs: Companies will present their earnings with big write-offs hidden as "extraordinary items" and eliminated from earnings comparisons. But beware: Going forward, companies may be more careful about paying out dividends on such "operating" earnings.

* Unsustainable earnings: Some analysts and trading services are currently recommending Hatteras Financial Corp. (NYSE: HTS), which invests primarily in government-guaranteed mortgages and has a current yield that"s better than 16%. However, a close look shows that HTS makes money for one reason - it capitalizes on the steep "yield-curve differential" between short-term and long-term interest rates.

In other words, Hatteras Financial borrows short-term money and invests in long-term mortgages. Since even U.S. Federal Reserve Chairman Ben S. Bernanke can"t keep short-term rates at their current level - near 0% - forever, the time will come when those benchmark interest rates have to rise.

And when that happens, HTS will see its profit potential take a major hit. Indeed, the company may even make losses as the capital value of its mortgages declines. Speculate on HTS by all means, if you want to, but recognize that the juicy yield won"t last.

http://moneymorning.com/2010/06/15/defe ... vesting-6/

[winston]

How to Participate in the World's Best Income Investment Strategy
By Dan Ferris, Extreme Value
Saturday, July 10, 2010


Early last year, I gave an interview on what I believe is the world's greatest income investing secret.

While you can take advantage of this secret at any time, certain times are better to begin than others.

Right now is one of the times I wouldn't just call "better than others." I'd call it a "you need to do this with a lot of money as soon as possible" kind of time.

The traditional ways of income investing – like owning real estate stocks (REITs), oil trusts, or government bonds – are worthless compared to this wealth-compounding strategy.

The secret is buying shares of World Dominating stocks with large and growing dividends.

World Dominators are the No. 1 companies in their industries. They're consistently profitable, year after year. They gush free cash flow. And they pay a lot of that cash out to their shareholders. Think Wal-Mart, ExxonMobil, and Procter & Gamble.

World Dominators don't have the highest current yields. The stocks above pay between 2.5% and 3.5%. But the best income stocks aren't the ones with the highest current yields. That's a common mistake among income investors.

High yields come with high risk. Investors get sucked into risky REITs and energy trusts because they want to earn a high yield right away. But too often, the extra risk produces losses.

Especially now, you need to keep your money safe.

That's why the best income strategy is to buy the safest stocks, the World Dominators. And they are perfect for long-term income investors because they pay dividends that go up every year.

ExxonMobil has raised its dividend every year for 27 years. Wal-Mart has raised its dividend every year for 34 years. And Procter & Gamble has raised its dividend every single year for 56 years.

That's over half a century of dividend raises.

Best of all, you can count on these companies to raise their dividends year after year because they dominate their industries. Wal-Mart is the world's biggest retailer. ExxonMobil is the No. 1 oil and gas company. And Procter & Gamble is the largest consumer-products company in the world (selling to half the world's population).

Here's what it means for long-term income investors: In 10 years, that 2.5%-and-growing yield can give you a 10% return on your original investment. Imagine owning a business like Wal-Mart and getting a 10% yield. It's an income investor's dream come true.

Being the No. 1 company in the industry is how these companies are able to crank out huge amounts of cash flow year after year and pay higher and higher dividends. They don't have to grow in order to keep paying out big dividends, year after year.

Obviously, everyone knows about these companies. But what most people don't realize is that right now they're cheaper than ever. World Dominators are the most valuable companies in the world. Most of them are easily worth anywhere from 20 times earnings to as much as 30 times earnings. Right now, all of them are trading for less than 15 times earnings.

One of them, ExxonMobil, is selling for just eight times this year's estimated earnings. Two of them trade for just 10 times earnings. You can't count on this to last forever. When World Dominators get this cheap, the only thing to do is buy them.

I've been writing newsletters for almost 14 years and I've never found as sure a thing in the stock market as buying cheap World Dominators. These stocks are like bonds with interest payments that grow. They're ideal for income investors, because over time, they'll pay you more and more income as each year passes. Bonds can't do that. World Dominators can. Buy them now, while they're still cheap enough.


Source: Daily Wealth

[winston]

TOL:-

As the market is in a trading range and probably not go anywhere for the next year, some of my friends are starting to buy Dividend stocks because they are getting next to 0% on their savings.

I have no idea where things are heading but one thing I have learnt, is that I would rather sit in Cash get 0% in the short term, then to try to get 5% on Dividends and risk losing 15% on the Capital...

The the only time that I may buy a Dividend Stock is when it has crashed while it's fundamentals are still ok. I will then wait for the rebound and get some Dividends while I'm waiting ...

[ichew]

hi W
agree with 2 hands

from the recent crisis, i learned tat
1) unless one is indeed deep pockets, it is better to follow rule #1 - nv lose $$
2) lowering tide, lower all boats
3) div can be cut
4) high div stks can have cash-calls like rights issues

[kennynah]

The the only time that I may buy a Dividend Stock is when it has crashed while it's fundamentals are still ok. I will then wait for the rebound and get some Dividends while I'm waiting ...

so are the rest.... good luck !!

[winston]

Hmmm.... I'm not sure that I would be buying a Cyclical stock after it has crash.

However, I will certainly be excited about a Consumer stock after it has crashed with the market and especially if it's fundamentals is intact.

[Chinaman]

hi W
agree with 2 hands

from the recent crisis, i learned tat
1) unless one is indeed deep pockets, it is better to follow rule #1 - nv lose $$
2) lowering tide, lower all boats
3) div can be cut
4) high div stks can have cash-calls like rights issues

bro i,
so wat is the best idea? ...hehe, do nothing

[kennynah]

7th month ai lai liao.... eng eng nothing to do... some would say...better dont anyhow punt...
so, maybe no feel for any market direction, or not up to the energy level to trade... best is stay out...go watch movies..fishing...look at babes on boats... origami... walk about... etc...

companies who are in bad shape cannot keep giving out dividends or reduce it drastically... difficult to find a company that can be immune to major cyclical crashes...without impacting their fundamental earning capacity...

everything in stock market is forward looking... no point looking at financial statements in details and solely use that as a basis for buying/selling... since they are a snapshot of the past...

[ichew]

bro i,
so wat is the best idea? ...hehe, do nothing

hi bro C

sorry, i realise i may have been a bit misleading
i am only against bro W's frens buying div stks just becos they r getting 0% on their savings
cos i have seen frens who bgt into high div stks like REITs, shipping trusts etc n got burned

to me do nothing better than doing wrong thing

since money hard earned, b4 doing anything better tink thrice
preaching to myself too

[winston]

3 Signs of an Impending Dividend Cut

Most investors are not surprised when a company cuts its dividend. They saw the early warning signs well in advance of the actual cut.

Here are three signs that a company is heading toward a dividend cut:

1.) An abrupt or permanent shift in a company’s business model as a result of business conditions.
2.) A dividend yield that is higher than average and/or higher than others in the industry.
3.) Diminishing cash available to pay dividends.

Ultimately, the ability of a company to pay its dividend is determined by its cash position – both cash on its balance sheet and its ability to generate cash flow.

http://dividendsvalue.com/7082/3-signs- ... idend-cut/