Power of Dividend Growth 2009 edition

[m1ax]

I don't know if anyone on this board reads French. In any case, I invite you to visit my blog at

http://dividendsngrowth.blogspot.com/

It's a stock dividend-oriented website. If you want a translation, you can get a decent one here:

http://tinyurl.com/8srkun

If you wish to leave a comment, I'll be pleased to read it.

Good investing!

m1ax

[JaydoubleU]

Sensei, perhaps you should write an article entitled,

"The Danger of Low Yields"

Thinking about it in the shower just now, it occurred to me that if a high yield signifies either a low stock price and therefore a buying opportunity (value), or the danger of a dividend cut, a lower relative yield suggests that the stock price has held in pretty well and may offer less value going forward.

The classic advice to dividend growth investors is not to chase high yield, but this is the area where the greatest value may lie.

BMO MAY be forced to cut the dividend. But if not, it represents a phenomenal buying opportunity now. The dividend at RUS, similarly, MAY be sustainable, and if it is, the stock price should eventually return to a level at which the dividend is commensurate with historical averages.

Lots of ifs and buts and maybes, which is why I try to combine high yield/low growth (eg RUS) with lower yield and higher growth (eg JNJ).

[Sensei]

Hi,

Jay, sounds like you do some of your best thinking in the shower. My great ideas usually come at 6 am just after I wake up. Unfortunately, they are usually about the day's lesson plans, not about investing.

Otherwise, fundamentally, I'm doing what you say. I'm holding some high dividend growth, low current yielders like JNJ to buffer the risk in some high current yielders like PFE. One interesting point is that with today's low stock valuation, risk has decreased dramatically on overall return ie dividend + capital appreciation.

However, as time wears on, a new stock with much less than a 3% yield doesn't work out mathematically for me. I want to be, and maybe have to be, at US$24000 dividend income by March 2019. A stock with a current 3% yield and 6-8% dividend growth will work as long as there are some stocks with a higher yield mixed in to increase DRIP potential. I worked it out with a starting US$6500 dividend combo model with reinvested dividends and adding $40,000 over time. There are dangers in too many low yield stocks unless they are going to grow at about 15% per year just as there are dangers with all high yielding stocks.

That said, I'm not chasing anything really high anymore. I like some picks I've made in the 4% - 5% range recently like TD, RY, MFC, and PWF in Canada, and ATC, GPC, PM, and HCN in the U.S. I'm not really looking for anything new above 7%. A typical stock of interest to me these days would be UPS which is a wide moat company with a current yield of 3.7%. T (high yield narrow moat), RET.A (high yield narrow moat), ENB (low yield, wide moat) are up next for Canada. There is method in my madness. Afterall, I'm a product of Morningstar and several investors on FWR!

BTW, can't find anything in the UK that really interests me right now. You?

BAC has now become moribund. I will receive $1 US in dividends for 2009. Way too optimistic on that one.

Cheers

[Sensei]

I don't know if anyone on this board reads French. In any case, I invite you to visit my blog at

http://dividendsngrowth.blogspot.com/

It's a stock dividend-oriented website. If you want a translation, you can get a decent one here:

Merci Marc,

J'ai lu la premiere page de votre blogue et je veux lire plus de vos commentaires quand j'aurai le temps.

Bon courage

[m1ax]

Thank you. It's my intention to improve the website everyday. I hope you will be a frequent visitor.

Merci. J'ai bien l'intention de continuer à garnir les archives. Faites un saut fréquemment afin de vérifier le contenu.

M1ax

[JaydoubleU]

BTW, can't find anything in the UK that really interests me right now. You?

The ones I own and would add to are those that obtain alot of their earnings outside of the UK: DEO and VOD. I can't understand why these have been so weak after both met targets, raised dividends, and offered encouraging forward guidance. I like the fact that you can buy them in Pounds, which is very depressed, while the earnings come in many different international currencies.

I especially like DEO. Do you have this one yet? Talk about a wide moat. An article in the Financial Post a couple of months ago pointed out that the demand for single malt scotch will always outstrip supply because of the time it takes to age this stuff. I wasn't aware that DEO actually limits the export of scotch to various countries, each having a quota.

I also hold NGG which raised 8% last half. Has drifted lower but easily outperforming the index. Watching PSO, though it requires further investigation.

[Sensei]

Hi,

Most of my UK stocks have drifted lower. Currently, I'm holding DEO, NGG, PSO, BP, BT (rocketed lower), AZN, and UL. A few notes for comparision:

1. Can't seem to pull the trigger on VOD, although I agree with your take. I have a significant holding in VZ.

2. I could top up DEO. Only half a BL at the moment. The dividend has become quite attractive.

3. I like PSO. I took the macro approach when I bought it. I like their textbooks, especially in TOEFL testing and reading, and of course Penguin. Lots of opportunities in Asia as economies grow there. All companies have to work on online capabilites, but PSO is pretty far ahead of the game.

4. I sold LYG at 8.30. Huge loss of course. I'm really conflicted by the banking sector in the U.K. No good choices that I can see. I thought about HBC, but more rumors of dividend cuts there. But what else? Any secret banks?

5. I like GSK, but have not been able to pull the trigger there either.

6. BP is promising going forward. Nice dividend payed 4x a year.



Cheers

[adrian2]

4. I sold LYG at 8.30. Huge loss of course. I'm really conflicted by the banking sector in the U.K. No good choices that I can see. I thought about HBC, but more rumors of dividend cuts there. But what else? Any secret banks?

Their preferred counterparts, maybe? I own RBS.M on NYSE which has been about a triple since I switched RBS into it (which continued its free fall in the mean time).

[brad911]

A few notes for comparision...

Here's what I hold in my RSP Sensei for an alternative perspective of global dividend stocks.

BAP, BBV, DEO, GSK, NOK, SNY, TEVA & TOT

[Sensei]

Here's what I hold in my RSP Sensei for an alternative perspective of global dividend stocks.

BAP, BBV, DEO, GSK, NOK, SNY, TEVA & TOT

You brought BBV and BAP to my attention recently. I've looked at the others at least once and am holding DEO. Except GSK and DEO, if I buy them for the dividends the yield would have to be something like BBV's to suck up a possible 18% tax hit. No RSP for this cowboy unfortunately.

I notice you are not holding AZN, a notable omission in your drug basket which I noticed on another thread, perhaps even CB with mdo777. (OK, I still read it.)


Cheers

[brad911]

I notice you are not holding AZN, a notable omission in your drug basket...

That's a keen observation

I actually held 30 or so healthcare stocks in that an old portfolio, but determined some time ago that I didn't need anywhere near that amount to gain adequate exposure to this sector.

AZN, with reference to what I already hold, doesn't add an element of diversification - only additional yield. The same goes for not owning Merck, Bristol Myers Squibb or Eli Lily. What I did was pick what I felt were the strongest companies for specific exposure to the sector and trimmed out the redundancies that I felt weren't necessary.

[Sensei]

Hi,

Thanks for the comments.

When I chose AZN, I was looking at it with GSK. I probably chose AZN for a higher dividend yield at that time. Other than that I didn't see much difference between the two. Phew! Maybe I didn't blow it this time. My pharma holdings are PFE, JNJ, and AZN, so I'm a little light relatively speaking. Still have plans to add GSK, not because there aren't better companies, but for tax reasons.

Cheers

[brad911]

I don't own either and they're not the highest yielding pair in the pharma group, but NVS and NVO are two that I'm watching with interest as long-term investments. Both have very strong divisions in diabetic products and the future of that is well....the sky's the limit (unfortunately)

[scampbell]

Never a bad time for dividends
Posted: January 21, 2009, 9:05 AM by Jonathan Ratner

http://network.nationalpost.com/np/blogs/tradingdesk/archive/2009/01/21/volatility-not-expected-to-decline-until-earnings-downgrades-slow.aspx

[Taggart]

The Press and Journal (UK)

Published: 26/01/2009

City of London trust manager takes a conservative approach

The City of London Investment Trust was launched in 1891 and aims to provide long-term growth in income and capital by investing mainly in UK shares.

The trust has the commendable record of having increased its dividend in each of the past 42 years and, despite the current turmoil, portfolio manager Job Curtis expects this trend to be continued next year because of the reserves retained from last year.

He added: “I estimate that the market will have dividend growth of minus 15% in 2009, but we can smooth the income from the trust by using our reserves.”

[Spidey]

What's up with SAP? The stock price is tumbling due to writedowns and low product prices.

Anyone think there is value at this price or is there more damage to come?

[brad911]

What's up with SAP? The stock price is tumbling due to writedowns and low product prices. Anyone think there is value at this price or is there more damage to come?

Saputo? They beat estimates and as I've stated before lower cheese prices aren't anything new for the company - they've known/expected this for some time. I believe the company offers good value at this valuation. It's a consumer staple stock, so it will trade at a higher valuation than companies in other sectors, but they are wonderfully managed, have a very strong balance sheet and continue to make strategic acquisitions that they don't over pay for.

Damage is relative - do you think investors and/or the market will get more uneasy if the economy continues to do poorly? Revenue for 2008 was up, they're focused on costs and have a fairly good moat beginning to form around their operations. As with any company it's up to the individual to choose what amount of risk they're willing to take in a company over the short, medium or long-term.

*I own shares in SAP & buy as much of their milk & cheese as I can.*

[JaydoubleU]

"Gold-plated UK dividends"

http://tinyurl.com/cnoznw

[Spidey]

Wish I had of followed my instincts and added to my SAP yesterday. The shares are up almost 14% in one day!

[Peculiar_Investor]

Wish I had of followed my instincts and added to my SAP yesterday. The shares are up almost 14% in one day!

Spidey, do you realize that there is a stock specific topic for Saputo, http://www.financialwebring.org/forum/v ... p?t=102940

[Taggart]

According to data from Ned Davis Research, companies that have increased dividends for at least five years beat the market in every year from 1972 to 2008. Davis notes that during that time they posted an average yearly gain of 8.9%, compared with 6.2% for the Standard & Poor's 500-stock index. Those that usually show little change in their payouts gained just 6.3%.

[JaydoubleU]

Not a whole lotta love on this thread lately. Hmmm.

I've recently read various stuff recommending investments in China, commodities, corporate bonds, and even GOLD.

As a dividend growth investor I am wary of all of these plays, and yet I see the logic in various forms of diversification out of common equities, out of North America, etc. How best can the DGI play these themes: China rising, commodities, bonds or even gold?

I am fully aware of HSE, ECA and ABX. What I am angling at, is how to take advantage of the long term trends while generating an income flow. Thoughts?

[Taggart]

Not a whole lotta love on this thread lately. Hmmm.

I've recently read various stuff recommending investments in China, commodities, corporate bonds, and even GOLD.

As a dividend growth investor I am wary of all of these plays, and yet I see the logic in various forms of diversification out of common equities, out of North America, etc. How best can the DGI play these themes: China rising, commodities, bonds or even gold?

I am fully aware of HSE, ECA and ABX. What I am angling at, is how to take advantage of the long term trends while generating an income flow. Thoughts?

China rising:

For China, Dividend Achievers has only two stocks on their 2009 list. China Telecom and Huaneng Power. I own neither. At present, the only China I have is what's in the emerging markets index fund and ETF.

Commodities:

No direct commodity investments. When fund manager, Mohamed El-Erian was asked about Petrobas, this was his reply:

"Petrobras is a commodity-sensitive stock -- but not a commodity".

Bonds:

Still own all Canadian government bonds, although the yields on corporates look tempting.

Gold:

I've bought either precious metal funds or a gold stock like Barrick off and on over the last quarter century, but it never seemed to work for me. Always seemed to buy at the wrong time. I don't know what I'm doing, so I choose not to play that game anymore.

[Peculiar_Investor]

For the record, I like dividend growers.

However, this is sobering, S&P 500 Dividend Cuts Hit Record.

He said the "optimistic" estimate is for a 13% reduction in actual cash dividends in 2009. That would be the worst decline since a 17% drop in 1942.

Given the current economic environment, where companies are attempting to conserve cash and earnings are dropping, I'm becoming less confident that dividends with provide their typical floor to stock prices. If Canadian Banks can be yielding in the high single-digits, Mr. Market is sending indications that must be considered, IMHO.

[scomac]

If Canadian Banks can be yielding in the high single-digits, Mr. Market is sending indications that must be considered, IMHO.

Mr Market is sending a message alright, but I wouldn't interpret it in the way that you are inferring. Many seem to assume that the high dividend yields of numerous stocks are indicative that the market thinks dividend cuts are inevitable. I would posit that the marignal buyer -- after all this is who is setting the price at this point -- doesn't want to assume any potential downside risk that is foreseeable, therefore he/she is discounting all foreseeable possible negative events with no concern for the probabilities of these events occuring. At this point, the marginal buyer is demanding a very high risk premium for his/her capital.