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Old 02-26-2009, 10:04 AM   #21
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There are a few companies, like the old Phillip Morris that grew a lot AND paid heavy dividends, but those are a dying breed, as most "old school" dividend stocks got on the frothy growth bandwagon.........
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Old 02-26-2009, 10:11 AM   #22
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A couple of days ago, JP Morgan Chase cuts their dividend from 38 cents to 5 cents a share, even though they are well capitalized and in no danger. They decided it was prudent to hoard cash.
I don't think they are "hoarding cash". Jamie Dimon said he wanted to repay the TARP money (which he was forced to take BTW even though JPM didn't need it) as quickly as possible. I'm sure the board figured this was the easiest way to raise capital without further diluting the current shareholders.
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Old 02-26-2009, 11:25 AM   #23
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Well, I am very very glad to be told that the dividend investment strategy is still working for those of you who are using it. It had seemed like an appealing strategy until this past year when so many dividends were slashed. Personally, I never wanted to deal with holding individual stocks and that seemed like the only way to really take advantage of that strategy.

But I thought the dividend slashing was spreading beyond financials and this was my concern. Textron slashed their dividend yesterday.

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Old 02-26-2009, 11:34 AM   #24
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http://www.valueline.com/dow30/f1899.pdf
http://www.valueline.com/dow30/f2084.pdf

Dividends are not an inhibitor of value by forcing a taxable event. Dividends have historically been the greatest return of the total market return. Investing in companies for their dividends for me is far easier than investing on the basis of their earnings, because it is remarkably easy for companies to manipulate their earnings any way they want. Dividends are real cash and to pay real cash is needed forcing a discipline on corporate executives.

Look at the 2 stocks discussed here. JP Morgan and Coca Cola- the 2 companies cannot be more different as an investment for their dividends. Yet both in 2008 paid $1.52 annually in dividends though a review of the history and prospects of the companies would lead one easily to the correct decision of which company to invest in for the future of dividend income in a retirement.

Coke has always earned it's dividend and is paying out about 40-50 percent to shareholders. There is nothing at present in it's business to show this is in jeopardy. It has the highest financial and safety ratings and their earnings are very predictable. In the late 90's investors went crazy and gave this stock a 50PE and a .6% dividend, not because Coca-Cola had unbelieveable options but because investors outlook was insane. Earnings have grown 6.5% over the last 10 years. Coca Cola has one of premier name brands in the world that cannot be easily duplicated.

JP Morgan on the other hand has had no clear dividend policy, they are relatively low in Financial Strength, they have had 3 years so far this decade where they did not even earn their dividend and were estimated to only earn a trifle more than the dividend this year. Dividend growth had averaged only 1.5 % over the past 5 years and for 6 years in the past decade they did not raise the dividend at all. Earnings are very unpredictable and unreliable and earnings have shown only 2 percent growth in the last decade. The government is deciding how their business should be run and how much they can pay their executives. For that reason they want to get out of TARP as fast as possible.


I view Coke as my partial business, with as with all my dividend stocks I expect a percentage of the earnings as a payout to share in the rewards and growth of the company. This is a Benjamin Graham basic tenet, and as a matter of fact for defensive investors he advises limiting yourself to dividend paying stocks.

There are plenty of stocks that with diligent care can provide for a nice dividend portfolio. The best part about dividends is when all the growth investors decide your dividend company is really a growth company and the stock price soars during good times, you can sell to move to another company that provides greater dividends dollar for dollar while still maintaining higher than inflation dividend growth.

I have never found a time when there are not dividend stocks that meet my criteria and yield at least 2 percent with dividends growing faster than the inflation rate. My short list just from the Dow 30 is JNJ, PG, UTX, MCD, XOM, KO. The other 24 for one reason or another do not make the cut for me. Other good dividend prospective companies I follow include PEP (pepsi), BFB (Brown Forman makers of Jack Daniels), for some smaller companies there is HWKN (Hawkins maker of specialy chemicals), NVO (Novo Nordisk maker of insulin and other diabetes care products that just fell into my dividend range) or perhaps UGI a solid growing utility.

It is best to maintain a list of stocks that meet a dividend criteria, follow the holdings and switch when something occurs in a holding that is not expected. Examples of this include not raising a dividend when expected, dividends as a percentage of earnings is climbing too high, earnings becoming less predictible, reduction in companies financial rating (I use value line as they are far quicker to change than any "official" ratings companies, which get mired in politics with executives).

I don't think dividends will be going away any time soon, but many companies who do not have earnings to support are and will be forced to cut them. The recent stock market decline has brought many of these to values not seen in quite a while for them.

I do want to point out that one of the worst performing "indexes" has been DVY, the "dividend achievers". Far from being a passive index, this is rather a low-expense investing scheme which was a rag-tag collection of the highest paying dividend stocks with investing rules that end in the absurdity of selling after the dividend is cut. Well at that point most of loss in that stock has occurred. JP Morgan, Pfizer, (soon to get GE booted I think),the list goes on and on and was at one point almost 50 percent in the financial sector. By the time this mess is done it will probably own almost no financial stocks. Since it's inception in 2003 it has seen it's price fall by 40 percent.
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Old 02-26-2009, 11:42 AM   #25
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Wow - excellent post Running_Man! Thanks so much for providing the details. I didn't see how you guys could navigate through these horrendous times, but I think you have explained exactly how you manage it.

And, I was well aware that the mutual funds and ETFs such as DVY that had attempted to implement a dividend income strategy ended up way overweighted in financials and have been brutalized by recent market behavior, so I thought that was pretty much inevitable for dividend investors. Thanks for correcting me.

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Old 02-26-2009, 11:44 AM   #26
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Even easier to see.. you have 1 share of xyz at 1.00 .. it rose 4% and is now 1.04... they pay a 4% dividend.... you get .04 and your share is 1.00 now


the none dividend paying stock was 1.00 and did not pay out a dividend and also rose
and is now 1.04.... i could sell the same 4 cents off and have the same thing
Mathjak, I suppose that by some theory you could be correct. But by long history you are not. See the post by DaLoanBoy above.

Ha
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Old 02-26-2009, 12:15 PM   #27
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I believe I read an article that predicted the S&P500 dividend would be cut by 13% this year. While not great news its not the end of the world. I'll let you know how my dividends hold up in March.
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Old 02-26-2009, 12:48 PM   #28
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LOL, just while reading this, I heard the news CHUBB (insurance company) just raised their dividend 6.1%.
Running_man, excellent post, well spoken and great details.
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Old 02-26-2009, 03:15 PM   #29
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Mathjak, I suppose that by some theory you could be correct. But by long history you are not. See the post by DaLoanBoy above.

Ha
Yep ha ha, that was exactley my point... thru smoke and mirrors the companies that sent you some of your money back some how became a self fulfilling prophesy..... for no real sound reason those companies got all the attention and grew faster then the companies that didnt give away the company assets.......

people began to think of those dividends as if they worked like interest from a bank and sooooo the rest is history as data shows dividend paying stocks out performed in the past
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Old 02-26-2009, 03:31 PM   #30
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Fed to banks: don't use bailout funds for dividends
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Old 02-26-2009, 03:32 PM   #31
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Yep ha ha, that was exactley my point... thru smoke and mirrors the companies that sent you some of your money back some how became a self fulfilling prophesy..... for no real sound reason those companies got all the attention and grew faster then the companies that didnt give away the company assets.......

people began to think of those dividends as if they worked like interest from a bank and sooooo the rest is history as data shows dividend paying stocks out performed in the past
I don't think it is that at all, if the money is kept in the business you need a profitable way to invest it. Most companies can self-fund fine at 50-75 percent of earnings for investment. When you add the next 25-50 percent in then companies will begin to look outside their present line of industry or move into the lesser profitable areas in order to increase their market share. As the size of the company grows faster than the industry they are in, the growth rate of the company will naturally slow.

Without a dividend to provide an alternate way to value of the business, (think of dividends as being a corporate I-bond) the slowing growth rate will result in a reduced PE over time. In my opinion the choices a dividend policy enforces in the long run -- the dividend paying company can maintain a more level percentage of growth than one that invests all of their income into their industry.
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Old 02-26-2009, 03:33 PM   #32
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FDIC: Problem Banks Up 50% in Fourth Quarter

Regulators said there were 252 banks in trouble at the end of 2008, up from 171 in the third quarter.
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Old 02-26-2009, 05:00 PM   #33
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I don't think they are "hoarding cash". Jamie Dimon said he wanted to repay the TARP money (which he was forced to take BTW even though JPM didn't need it) as quickly as possible. I'm sure the board figured this was the easiest way to raise capital without further diluting the current shareholders.

If they didn't need the money, then what happened to it They should have enough capital to pay it back now... because they really didn't do anything with it... or else they needed the money...

When I use my credit card, I don't 'need' the money because I have plenty to pay it back when it comes due...
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Old 02-26-2009, 05:03 PM   #34
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Running_Man: v. good post. Dividends keep them honest. They cannot mess with it and keep paying out for long (unless they are under the TARP?).
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Old 02-26-2009, 05:13 PM   #35
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FDIC: Problem Banks Up 50% in Fourth Quarter

Regulators said there were 252 banks in trouble at the end of 2008, up from 171 in the third quarter.
We are creeping up to the 747 S&L's that went under in the late 80's and early 90's. I think the concern has more to do with size than the final total.
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Old 02-26-2009, 07:39 PM   #36
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Running_Man,

I have recently become more interested in dividend investing. I only recently found the Dividend Growth Investor web site. Several ETFs were mentioned--PFM, SDY, PID, DVY and PEY. I then found Vanguard's VIG (9.15% financials & 9.03% energy) and did a little investigating. I like the components of VIG, but the yield is a little low (3.42%). PEY is 2/3 financials and I don't like that at all. PFM and SPY have similar performance. I like PFM's larger energy content (10.8% vs 1.3%) and lower financials content (17.9% vs. 22.4%) and their 10 largest holdings a lilttle more than SDY, but SDY has the methodology--the S&P High Yield Dividend Acheivers--and a better yield (6.27% vs. 3.57%). PID is International Dividend Acheivers, which are difficult for me to evaluate. It has a high financials content (34.6%), but good energy content (6.7%) and a nice yield (7.93%), although it is suspiciously high.

So, PFM, SDY, PID and VIG look interesting to me. I have my own ideas about energy stocks these days, so being light on energy does not bother me.

I am not quite ready to go the individual stock route beyond a couple of energy stocks and BRK-B (which may have been a poorly timed purchase). These ETFs look like a reasonable way to start out.

I would welcome your comments. It is clear that you know a lot more about dividend ETFs than I do.

Thanks,

Ed
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Old 02-26-2009, 09:44 PM   #37
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We are creeping up to the 747 S&L's that went under in the late 80's and early 90's. I think the concern has more to do with size than the final total.
S&L totaled $519B. We are all ready up to $354B. (As of Jan 21, 2009)
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Old 02-26-2009, 10:35 PM   #38
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Adjusted for inflation? That was 20 years ago.
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Old 02-26-2009, 11:04 PM   #39
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S&L totaled $519B. We are all ready up to $354B. (As of Jan 21, 2009)
I think that was my point.
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Old 02-27-2009, 09:10 AM   #40
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Running_Man,

I have recently become more interested in dividend investing. I only recently found the Dividend Growth Investor web site. Several ETFs were mentioned--PFM, SDY, PID, DVY and PEY. I then found Vanguard's VIG (9.15% financials & 9.03% energy) and did a little investigating. I like the components of VIG, but the yield is a little low (3.42%). PEY is 2/3 financials and I don't like that at all. PFM and SPY have similar performance. I like PFM's larger energy content (10.8% vs 1.3%) and lower financials content (17.9% vs. 22.4%) and their 10 largest holdings a lilttle more than SDY, but SDY has the methodology--the S&P High Yield Dividend Acheivers--and a better yield (6.27% vs. 3.57%). PID is International Dividend Acheivers, which are difficult for me to evaluate. It has a high financials content (34.6%), but good energy content (6.7%) and a nice yield (7.93%), although it is suspiciously high.

So, PFM, SDY, PID and VIG look interesting to me. I have my own ideas about energy stocks these days, so being light on energy does not bother me.

I am not quite ready to go the individual stock route beyond a couple of energy stocks and BRK-B (which may have been a poorly timed purchase). These ETFs look like a reasonable way to start out.

I would welcome your comments. It is clear that you know a lot more about dividend ETFs than I do.

Thanks,

Ed
I began looking at the Dividend Achievers after reading a book on income investing, then when Nords switched it into 23 percent of his portfolio I looked further into what is actually done. There is nothing in the strategy to prevent overcommitment to one segment and eliminates stocks when dividends cut, way too late to my mind. PID from what I have seen is slightly better in that they want stocks that have raised dividends 5 years in a row but have many of the same issues and 38 percent financials are far too many for a dividend portfolio.

At that point I gave up looking at the dividend ETF's, although if there were one that took the Russell 3000 and only took the dividend payers in that index, I would look into the possibility of investing in that when the yield was high enough, I don't even know if something like that exists. I refocused my energy on individual dividend stocks again.
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