Dividend Safety Analysis: Tobacco Stocks

For anyone looking for income from higher yielding tobacco stocks, the following is a dividend safety analysis I posted on my 4% Portfolio website that covered  Lorillard, Altria, British American Tobacco, and Reynolds.

In a previous dividend safety analysis we took a look at Philip Morris International (PM). Based on feedback from that article, several readers requested that a current dividend safety analysis be done for other tobacco companies as well. In particular, Altria Group Inc. (MO), Reynolds American Inc. (RAI), Lorillard, Inc. (LO), and British American Tobacco plc (BTI). Instead of doing these individually I thought it would be good to see them compared side-by-side in one analysis. READ MORE

Analyzing the Safety of a Dividend

The term “safe” is a relative one. Most people feel safer in their car than on an airplane even though statistics clearly prove the plane is a safer way to travel. Some people don’t feel safe sleeping in an isolated cabin in the woods but have no problems walking down a city street at night. A person’s feeling of safety is defined by their past experiences and observations which determines their own personal comfort within a situation. The same goes for a person’s definition of safe when deciding on making an investment.

My Grandmother was a child of the Great Depression. She has led a sheltered life and is very careful with her money. I have had no luck trying to convince her that CDs are not a very good investment for generating income. She doesn’t care, she knows they are “safe” as they are FDIC insured. She does not understand that her one year CD earning 1% is actually losing money when you include the effect that the current rate of inflation has on her investment.
Dividend Safety Analysis

Inflation Insurance For Your Retirement

“Inflation is as violent as a mugger, as frightening as an armed robber and as deadly as a hit man.” -Ronald Reagan

When approaching retirement the main question a retiree will try to answer is “How much money do I need to cover my annual expenses“.  While this is certainly a question that has to be answered, there is another one that must be considered as well – “What will my annual expenses be in 10, 20, or 30 years?”

The term “fixed income” is used far too often when discussing retirement investing and planning. Fixed income suggests you should be able to decide today how much income you are going to need each year of retirement. But because of inflation we know that our expenses are not going to be fixed, so we should not plan for our income to be either. If you plan to withdraw the same amount from your retirement account annually then you will be losing purchasing power each year due to inflation. And many people underestimate the effect inflation has on their retirement plans. While we have seen wide swings of the inflation rate with highs above 10% in the late 70′s and early 80′s, the general rule of thumb is to plan for an annual rate of 3%. So how does that 3% affect your spending power over time?  READ MORE

Ka-Ching! Microsoft Just Gave Me a 22% Raise

Microsoft (MSFT) today announced a 22% increase of its quarterly dividend from $0.22 to $0.28 which now gives the stock a 3.4% dividend yield. They also announced a $40 billion stock buyback program that replaces a previous buyback program that was set to expire. Both of these actions demonstrate MSFT's determination to return value to shareholders through other means than price appreciation.

This increase more than doubles an investors Yield on Cost for those who were invested in 2010 when the company was paying a quarterly dividend of $0.13. That is an impressive feat in such small amount of time.

5 Safe Dividend Stocks When Using The 4% Rule

The 4% Rule

The 4% rule is a general rule of thumb used by financial experts to determine how much individuals should be withdrawing from their retirement account each year. This is considered a safe and sustainable rate for a retiree with a long life expectancy.

In a high interest rate environment, generating 4% of income from your retirement nest egg could be achieved. With today’s low bond, Treasury Bill, CD, and money market rates, retirees have been forced to use other alternatives. These alternatives typically require investors to reduce their retirement savings each year. Or they rely on mutual fund investments to attempt to increase their portfolio and provide income and yet, they are not aware of the fees being accrued no matter the rate of success or failure of the mutual fund. Although the 401(k) and mutual funds were created to benefit the investor, financial companies are the ones who have truly been rewarded.

In the past decade retired investors have had to weather two economic recessions, a mortgage crisis, and a highly volatile stock market. Those planning for an upcoming retirement have likely heard the horror stories of retirement accounts getting wiped out during this time causing many retirees to re-enter the workforce in order to get by.  This has created a great deal of timid investors wary of risking their life savings in the stock market, but still searching for a way to generate a safe and reliable income stream. READ MORE

Introducing The 4% Portfolio

I have been working very hard the past six months on a new site that is designed to help retirees build a retirement portfolio for themselves. This website provides a more intelligent way for retirees to follow the 4% Rule without having to sell stock or reduce their overall retirement savings each year. I am very proud to introduce to you The 4% Portfolio

The 4% Portfolio allows individual investors to take control of their retirement accounts. The 4% Portfolio provides a smarter, simpler and less stressful solution to retirement investing and is designed around the following ideals.

• Earn at least 4% in income each year through dividend payments without having to reduce your portfolio balance.
• Invest only in safe, established companies with strong financial histories.
• Increase the investor’s income each year through dividend raises.
• Reduce volatility within your portfolio.
• Reduce or eliminate worries about price fluctuations.
• Eliminate the reliance on price appreciation to fund your retirement.
• Eliminate paying high fees to the big financial corporations.

Forget Yield -- Dividend Growth Is The Metric That Matters For Retirement Income

Income investors had a little scare in May and June. Bond prices took a tumble and dragged down assets that have come to be viewed as bond substitutes—including popular dividend-paying stocks, MLPs and REITs.

Now that the dust has settled and the income markets have regained some semblance of normalcy, let’s take a step back and review the case for income stocks.  With the Fed’s quantitative easing eventually coming to an end and with bond yields likely to rise in the years ahead, does it still make sense to look to the stock market for income?  Or might investors be better off buying and rolling over a bond ladder to meet their income needs? READ MORE

Disclosure: Long O, WMT

TAGS: [O] [WMT] [JNJ]

Dividend Investors Should Ignore Price Fluctuations

In this day and age we are bombarded with stock market information anywhere we go. You can find stock prices on many TV channels, newspapers, the internet and mobile phones or tablets. This excess of information creates information overload which creates the urge to buy and sell stocks in nanoseconds. This could prove hazardous to your wealth however. Research has shown that investors who actively trade the markets generate lower returns that index funds. In fact, investors would be better suited to just ignore price fluctuations and simply focus on fundamentals. READ MORE

Disclosure: Long WMT, MCD,ABT

TAGS: [KO] [WMT] [MCD] [JNJ] [ABT] [PG]

Dividend Growth Investing is a Perfect Strategy for Young Investors

Imagine your perfect day. You wake up when you are rested, without the need of any alarm clocks. You then do some working out , followed by having a nice healthy breakfast. You then read at your leisure, have a lunch later in the day to beat the 11:30 – 1 pm crowds, and then review your brokerage accounts. You notice dividends from several companies are deposited today, and you decide to transfer them to your checking account. You check for any major items concerning your portfolio holdings, and spend a few hours researching a new dividend stock.

After that you get more time to concentrate on your activities, be it volunteering at the local homeless shelter, mentoring high school students, learning a new language or simply catching up on some good books. Later that day, you might decide to enjoy a few with your mates/gals. This dream is brought to you by dividend investing.  READ MORE

Disclosure: I am long KMR

TAGS: [KMI] [KO] [PM] [PG] [JNJ] [KMR]

Dividend Income is More Stable than Capital Gains

Over the past century stocks have delivered a 10% annual total return on average. The total return consists of price appreciation and dividend payments. The issue with average returns is that over the past century, there are only a few occasions where stocks clocked in annual returns of somewhere close to 10% in a given year. In reality, some years these returns have been much more than 10%, whereas in other years these returns have been less than 10%. As a result, investors should be warned that these 10% in annual returns are not a sure thing every year.  READ MORE


Full Disclosure: Long WMT, KMR, O

TAGS: [MCD] [WMT] [CVX] [KMR] [O]

7 Banking Stocks To Buy For Current Yield And Future Dividend Growth

In 2007 the financial sector was responsible for $51 billion in dividend payments to shareholders. By 2010, that amount had decreased to just $19 billion. The mortgage crisis forced many banks to cut or even suspend dividend payments. Returning the clock to present day, it is hard not to get excited about the potential for bank stocks in the current market. The Financial Sector ETF (XLF) has gained nearly 20% since the beginning of the year. The majority of banks are passing the government mandated "stress tests" and dividend payments are increasing on a regular basis once again. READ MORE



TAGS: [BMO] [BNS] [FLIC] [JPM] [SASR] [TD] [WFC] [PNC]

A Reminder Of Why You Stick With Dividend Stocks

Sorry for the long delay since my last post. I've been very busy and I've had little time to dedicate to original posts of my own. I'm slowly working on analyzing additional banking stocks to consider for my dividend growth portfolio and hope to have that completed soon. In the meantime, here is a Seeking Alpha article from an author I've enjoyed reading.

One of the unfortunate side effects of buying an overvalued stock is that, almost by definition, there will be a period of time in which the total return rate that the investor enjoys will likely trail the growth rate of the firm (provided prices are rational and do not transition from "overvalued" to "more overvalued"). This fact can make it worthwhile to pose the following question: If I currently own a stock that is trading above a price that I would be willing to pay to purchase additional shares, what is the point of continuing to hold it? READ MORE

Disclosure: I have no position in the stocks mentioned in this article

TAGS: [CVX] [JNJ] [PG] [XOM]

Banking Stocks Continue to Improve

Back in late 2011 I decided it was time to invest in banks again. The affects of the mortgage crisis had finally took a turn for the better and banks' financials were improving. TARP funds were being paid back, lending was opening back up, and most importantly dividend payments were increasing again. I wrote about four bank stocks with future dividend potential, and due to the research from that article I decided to take a chance on PNC Financial Services Group, Inc. (PNC).

Since then, PNC hasn't rewarded me much in price appreciation, but it has rewarded me in dividend increases. Last year PNC gave investors a 14% raise. This past week it increased its dividend payment again by 10%. The new payout gives PNC a yield around 2.7%.

Phillips 66 Upcoming MLP: How It Will Affect PSX

Phillips 66 (PSX) has been on a tear since splitting from ConocoPhillips (COP) last year. Aside from its run-up in price, it has also raised its dividend for three straight quarters as well as announced plans to spin-off certain assets into a Master Limited Partnership (MLP).

All of this of course was great news, but I wanted to know about the details of the MLP spin-off. What assets were going to be included in the new company? Will existing shareholders receive shares of this new company, or will it benefit through holding stock in PSX? Well PSX recently shed some light on these questions.

2 Big Dividends to Avoid (and 1 to Embrace)

The following post comes from the Motley Fool. It serves as a nice reminder that bigger is not always better when looking at dividend yield.

With yields on ultra-safe debt stuck in the gutter, many investors are reaching for higher income through dividend-paying stocks. That's a fine strategy -- as long as you're comfortable with the extra risks involved.

To minimize those risks, you won't want to reach too high. Dividend yields that are more than about 4%, for example, are usually worth extra research. You'll also want to screen for dividends that are backed up by strong earnings and sales growth. Ideally, those dividends will have a good chance of rising -- or at least staying put.  READ MORE

My Annual Roth IRA Rant

It's tax time. Time for everyone to get a fresh reminder that Uncle Sam is a greedy old fart who takes away a lot of your money. Oh, and next year most of you will be paying even more. Are you ok with that? I should hope not, but don't fret there is a way to fight back. Invest your money in a Roth IRA.

Those of you who have followed me know I'm a huge proponent of Roth IRAs and dividend stocks. It gives me great pleasure to receive dividend payments in my Roth IRA account, reinvest those dividends to utilize the compounding affect, and not have to worry about paying a cent to the IRS.

My Favorite Thing About Dividend Stocks

Other than the wonderful compounding affect that will make me a wealthier man when I retire, the thing I enjoy most about dividend stocks is that they allow me to be lazy. Granted I do put in a lot of time evaluating a stock before I invest, but once I buy a quality dividend growth company I can relax while that company's employees work hard to put more and more cash in my pocket.

I was on a nice, relaxing vacation last week. I checked in on the market a couple of times out of curiosity and even checked my work email once, but otherwise my mind was elsewhere. I didn't want to think about work and ruin a relaxing moment. I knew I didn't have to worry about my investments because my money was invested in companies who are working hard on my behalf. And wouldn't you know it, when I returned home I discovered that, KA-CHING!, I got two more fat raises.

Ka-Ching! Hasbro just gave me an 11% raise

Yep, another one. Three straight weeks of double digit dividend increases. Getting tired of these? I know I'm not! 

Hasbro (HAS) announced last week that it would be increasing its quarterly dividend by 11% from $.36 to $.40. The size of this increase is likely a surprise to many since the company reported a decrease in full-year revenue and earnings for 2012 vs 2011. Despite the drop management still had no problems with making such a large increase which I believe should be viewed as a positive for 2013 and beyond.

When I first analyzed Hasbro last June and decided to buy I was able to get in just before the stock price popped. Many investors would have been thrilled at the immediate price increase, but honestly I was hoping for the price to come back down so I could buy more on the cheap. My original buy price was under $33 which now gives me a yield on cost of almost 5.0% for my original investment. My only other purchases since then has been the automatic dividend reinvestments.

2013 Dividend Aristocrats

The Dividend Aristocrats list is an excellent starting point for dividend growth investors to begin their research.  In order to make this list a company needs to be in the S&P 500 (top 500 publicly listed companies by market capitalization) AND it needs to have increased its dividend payout for at least 25 consecutive years. You won't find the likes of Apple (AAPL), Google (GOOG), or General Electric (GE) on this list as they have yet to prove themselves worthy.  Actually, GE was on the list until it had to cut its dividend in 2009.

These are the elite dividend payers, the cream of the crop. Investors who have been fortunate enough to hold these companies over the long-term are significantly wealthier and will likely be enjoying future dividend increases yet again this year.

There are three new inductees to this prestigious club in 2013 thanks to their 25th consecutive dividend increase.

Ka-Ching! Phillips 66 just gave me (another) 25% raise

Another week and another big raise, but this came from an unexpected stock, Phillips 66 (PSX). Why was it unexpected? Well because they already gave me a 25% raise three months ago!

PSX has been on an impressive run since it split away from its parent company ConocoPhillips (COP). Not only has it raised its dividend three straight quarters and over 50% since it began trading earlier this year, its stock price has also increased by more than 75%. Those would be impressive numbers for a stock over several years, let alone several months. So how has PSX managed to do this in such a short time?

Ka-Ching! Realty Income just gave me a 19% raise

Realty Income Corp. (O) announced last week that it will be increasing its monthly dividend from  $0.15175 per share to $0.1809167  (yeah, that's a lot of numbers beyond the decimal). This is a whopping increase of 19.2% and gives Realty an effective annual yield of 5%, up from 4.2%.

So how did a company with a 5 year average dividend growth rate of under 3% manage to make such a large increase? Realty's recent successful bid to acquire American Realty Capital Trust (ARCT) allowed them to make such a move. The buyout was announced this past summer, but shareholders of ARCT were not happy with the initial offer. It took some sweetening on Realty's end to get the job done, including a one-time cash payment of $0.35 / share to ARCT investors, but the overall deal looks like a good one for Realty shareholders.

The Best Investment Advice You'll Never Take

Some of you may have heard of or even subscribe to the daily emails from the folks at DailyWealth.com. Although some of their stuff can be a little too "doom and gloom" or politically focused for my taste, they do have some good insights into the market.  They are also big proponents of dividend reinvestment and have written about it on many occasions. I found a recent article rather interesting, with the headline "The Best Investment Advice You'll Never Take".  Well, hopefully you're not one of those.

I guarantee you won't take my advice...

Over the past two weeks, I've shown you how to use the single greatest investment secret ever discovered. I've shown you how to buy capital-efficient companies and compound your wealth at double-digit rates – safely – for decades.

I've described exactly how to measure capital efficiency (it's easy) and explained the pitfalls to avoid (even smart investors fall into these traps).

Using just the information contained in these two essays, a little bit of common sense, and a little bit of discipline, you can become a world-class investor using this strategy. And yet... very, very few people will pursue this approach.  READ MORE

A Potential Dividend Growth Future Star

As a dividend growth investor, one of the primary stats I look at when evaluating a stock is the number of annual dividend increases. The longer a stock has been increasing its dividend payment, the more that becomes part of the corporate identity. Typically, it takes a major event within the company (or industry) to prevent the board of directors from continuing to raise its dividend after a long history has been established. This adds a layer of safety that helps me sleep better at night. I am quite certain that Kimberly-Clark (KMB) - 38 years of increases, Wal-Mart (WMT) - 37 years of increases, and AFLAC (AFL) - 30 years of increases, will provide me with a raise once again this year. Companies like these should be at the core of any dividend growth portfolio.  READ MORE

TAGS: [AMGN] [AFL] [INTC] [MSFT] [KMB] [WMT]

No New Taxes! ... For Most of Us

If you haven't yet sifted through all the noise and political B.S. about the recently agreed upon "Fiscal Cliff" deal you may have missed some fantastic news for dividends. The taxes on dividends did not increase as much as expected, and for many of us not at all!

The new deal permanently sets the top tax rate for dividend (and capital gains) at 20% for couples earning more than $450,000 ($400,000 for single filers). For anyone earning below this, dividends and capital gains will continue to be taxed at the current rates. So many of us will continue to pay 15% on dividend income. This is way better than I had expected.

This means that dividend income will continue to be one of the lowest taxed sources of income. Investors who previously dumped dividend paying stocks before the end of the year will likely be jumping back in. This may cause a temporary bubble in the prices of some dividend stocks, but I fully expect the upcoming debt ceiling bickering to create another buying opportunity.

I couldn't be happier with this decision. Of course, this development still has no bearing on my Roth IRA. I continue to get paid tax free income in my Roth and reinvesting those tax free payments into more shares, creating the beautiful compounding affect that is going to allow me to retire in style. Tax season is coming up, so when you see that large sum of cash going to Uncle Sam remember that there is a way around it.

Speaking of my Roth, I just made a recent buy in my account.  Its an early dividend payer that I feel could become a dividend growth star over time. I'm putting together an article on it now and plan to publish it early next week.

Related Articles: Roth IRA + Dividend Stocks = Awesome!