Power of Dividend Growth 2009 edition

[JaydoubleU]

[Split off a long thread http://www.financialwebring.org/forum/v ... p?t=101627 by ModeratorA]

Omedetou Gozaimasu!

Sensei, that was the thought I had when I read the article posted by Tag:

Companies will probably cut dividends this year, but not my companies

All but four companies I own raised last year, and this year I expect about 50% of the weight of my portfolio to raise again: these include POW, PWF, JNJ, T-N, TRP, RCI.B, FTS, NGG, VOD, DEO...

Many others will likely hold: RY, BNS, TD, RET.A, RUS, MBT, BCE, MFC, BT, PFE, GE, GDL.

2008 was not a great year on paper, but if I calculate the capital gains I took earlier in the year and then add in the dividends, it wasn' bad at all: perhaps a 7% return. (Ignoring, of course, the short-term decline in market value)

BTW, Looking at my watchlist, I notice that some of the big gainers of the past week were in consumer discretionary (RET.A), industrials (RUS) and materials (GDL). What's up? I can understand a rush of new positioning into the financial sector, which may be expected to lead any recovery, but the other sectors are widely regarded as DO NOT ENTER sectors in a recession. End of tax-loss selling? Investors rushing into dividend-paying stocks of any kind? Buying stocks trading near or under BV?

[Sensei]

Akeome, to you guys too.

2-yen, thanks for the opinion. And yes, I think I will want to continue working as long as possible if you call what I do now 'work'. You can't really beat having 3-4 months off per year.

My advice to you would be to put the portfolio to bed, check it once a month only and let those dividends roll in.

That is the plan. There are times of the year when the whole thing needs to be put to bed anyway just because I'm too busy to handle it in detail. I hope to do one thorough review per quarter, and just look in on it between times. Hopefully the dividends WILL roll in without much more maintenance than that. I'm not anticipating any (more) dividend cuts to what I have.

Jay, I'll be putting in some LOs later today on MBT, PWF, MFC, and RUS (after much agonizing). I think today's final prices are a result of very thin and purposeless trading and don't indicate anything at all. I can't think that they point in any direction going into the new year. Another gut, down from where they are now, seems more likely than up.

The best thing about 2008 was that I started focussing more on dividends. At least it is positive cash flow. The rest, when I look at overall portfolio values, was a wash.

Here's a New Year's resolution. I'm going to be firm about my limit orders and not raise according to current pricing!!!!!

Cheers

[Taggart]

BTW, Looking at my watchlist, I notice that some of the big gainers of the past week were in consumer discretionary (RET.A), industrials (RUS) and materials (GDL). What's up? I can understand a rush of new positioning into the financial sector, which may be expected to lead any recovery, but the other sectors are widely regarded as DO NOT ENTER sectors in a recession. End of tax-loss selling? Investors rushing into dividend-paying stocks of any kind? Buying stocks trading near or under BV?

I don't know at what point the financials and retailers turn around, but indeed they will one day, otherwise I wouldn't be buying items like Reitmans and Le Chateau, when they hit their lows.

Anthony Bolton's New Year prediction:

From The Times (UK)

December 14, 2008

Bolton expects next year’s rally to be led by financial stocks and so-called consumer cyclicals such as retailers.

[Sensei]

Hi,

I'm trading out of LYG which currently pays no dividend to another UK bank which does pay a dividend. It looks like this bank will be HBC. However, it also seems possible that the dividend will be cut sometime in February.

The pros for me are:

HBC pays quarterly
HBC does not withhold tax
HBC has done better than many other banks over the last few months. Even if they cut the dividend, they'll still be paying one according to what I've found out.
International exposure to emerging markets

The cons are:
The possible dividend cut
Possible losses we don't know about
International exposure to emerging markets

Here's the question:

Let's say that we like the bank over the long haul and they will pay some kind of dividend AFAWK. Would you buy before the dividend cut or after? Why?

Cheers

[2 yen]

Sensei.......why not put in a bid at a price you are comfortable with that will yield at least, say, 3% after a 50% cut. Just a thought. That way, if you really think they are going to cut, you will end up with the stock in your portfolio, but will not beat yourself up for having paid too much.

[JaydoubleU]

I'm going to hold onto LYG until they reinstate the dividend. Could be sometime this year.

It's down so far that I don't see the point in selling; the cash raised wouldn't buy much.

[Sensei]

Good Morning,

Nice start to the day and 2009. MFC, MBT, and PWF orders were filled and all are above my LO! Hopefully a sign of a better year.

Sensei.......why not put in a bid at a price you are comfortable with that will yield at least, say, 3% after a 50% cut.

Aye. There's the rub, the bid price.

I'm going to hold onto LYG until they reinstate the dividend. Could be sometime this year.

It's down so far that I don't see the point in selling; the cash raised wouldn't buy much.

Thanks for the input. That is a good point and normally that would be my thinking, too. There are other pros and cons attached to LYG, though. My thinking, so far: I'm sure LYG will reinstate 'a' dividend at some point. However, they have to retire government preferred shares first. I heard they might do that within a year. (That's a pro, I guess). One con I see is the HBOS acquisition. LYG was almost forced into buying this ailing company, again by the government. I don't think it will ruin LYG, but I don't think it bodes well for any future dividends. The UK housing market seems like it is in for a long period of 'reconsolidation'. Whatever the case, the biggest con is LYG is a non-performing asset on my balance sheet. If I follow through on the sale, it is just a lateral transfer to a currently performing asset.

I also feel a bigger and more broadly-based bank is a better fit going forward. Of note, I actually received a dividend from BAC. In spite of everything that has happened, I'm still getting a roughly 3% yield on my original investment. It brought home the power of a large corporation to pay dividends. I see HBC as a similar play, a deep pocket bank that has navigated a rough year and still pays a dividend. The international exposure of HBC seems like a pro, but as I joked above, could be a con, too.

Anyway, my LO of 8.25 doesn't seem like it will be met anytime soon, so I can chew on it some more.

Cheers

[Sensei]

Hi,

Just thought I'd reinvigorate our thread with a report I received today. In a newsletter I receive, it noted that the model dividend portfolio of stocks chosen according to company moat, consistent dividend increases, and so on, outperformed a list of several dividend income ETF/MF-type portfolios on income yield for 2008, and in many cases on capital gains. Powershares, Vanguard, and Wisdom Tree did not deliver as much income as DIY self-select system by a wide margin.

Many people ask on FWR about buying MFs and ETFs for dividend income. In my tenure as a dividend investor, I don't see any compelling reason to do so. The method of stock selection and the results, apparently, are quite different. Previously, I looked at PHN's dividend fund and I saw a lot of dead air, IOW a lot of stocks that pay little or no dividends. Also, at least the U.S. dividend income fund, provides very little income that I can see, a yield of 2% if my figures are correct. (13 cent distribution on a $6 unit value.) The Canadian dividend income fund is only slightly better at 2.6% (1.46 dist. $56 unit value). Even with my inexperience and amateurishness, I've done and will do (I believe) a lot better than that. The main problem with the ETF/MF approach is that they are still trying to build unit value rather than work on dividend streams. Also, an ETF or MF can't take advantage of dividend increases which increase yield on CB.

I do still have a number of mfs, but I limit these to sectors not covered by my dividend stock portfolio such as emerging markets, Europe, Latin America, and the far east, as well as U.S., Europe, and Fareast small caps. These are also tax-sheltered investments.

Cheers

[Taggart]

Barron's

SATURDAY, JANUARY 10, 2009

Back in Vogue: Europe's High-Payout Companies

[Sensei]

Hi,

It's a scary world out there these days. Just read on Globeinvestor that more banks will have writedowns and dividend cuts. I sold LYG and I was considering HBC as a replacement, but fortunately have not pulled the trigger.

Are others just staying away from non-Canadian banks?

Cheers

[Sensei]

Thanks for the post Tag.

I've actually done some DD on most of the companies mentioned, but there are two problems with non-U.S. stocks from my point of view.

1. They are taxed quite highly. As mentioned in the article, many companies pay high dividends for their own tax reasons, meaning the tax is passed on to the investor. So, unless you can park the stock in a tax-sheltered account somehow, ex. U.K., you are looking at 20-25% withholding tax. OTOH, taxation is quite favorable in the U.K. U.K. companies don't withhold anything and leave it up to the investor on how to deal with the tax.

2. No country, not even the U.K. has as reliable a dividend paying protocol as the U.S. and Canada. Most NA corporations pay quarterly and some (O, YLO.UN) monthly. European and other countries are almost erratic by comparison. Even the U.K. system is fraught with differing interrim and final payments for company years that don't match calendar years. There are also currency risks involved.

Of note in the article, is BP. It pays quarterly. I know because I own it. On the strength of a substantial dividend which appear sustainable, I topped up in November.

I'm not saying don't look into it, but there are some negatives.

Cheers

[adrian2]

Are others just staying away from non-Canadian banks?

I've shifted most of my allocation to preferred shares (an idea I had before Kevin O'Leary started touting it on BNN, BTW).

[brad911]

Are others just staying away from non-Canadian banks?

I still hold BBV & WFC but that's it outside of CDN financials.

[Sensei]

Hi,

WFC seems like a good choice. I have USB and BAC. USB seems to have stayed out of the news, like WFC. I sold half of my BAC a long time ago, but feel there is some hope for the other half long term. Short term, I don't feel there will be any upward movement in the dividend, and perhaps down. Anyway, it is too low to consider selling right now.

BBV. Hmm, I had to look that one up. I thought it might have been a typo for BBT. No, sure nuf its there. A South American bank. Can you tell us more, Brad? I'd be curious about your tax experience for that one and timing and reliability of the 9.5% dividend.

Cheers

[brad911]

I hold it in my RSP and to the best of my knowledge have received 100% of the dividend. I don't anticipate any dividend cut as the revenue and cashflow streams of the company are well diversified by country, currency & market.

The company, IMO, is a little gem of a global bank. Its largely avoided a lot of the pain many other European banks have experienced and its a nice compliment to my holdings in BAP. I really like South America as a long-term investing prospect and with limited options for investing I like my BAP, BBV & TEF holdings.

Scomac I believe still owns this stock outside of a registered account so he may be able to better supply taxable information on the dividends.

[Sensei]

Hi,

More bank shenanigans as we speak (almost). BAC gets more funds from the bailout fund, rumors of dividend cut, etc. etc. Yeah, I know, 'Sensei, what did you expect?'

Back to Canada, TD is bolstering up its Tier 1 capital with two kinds of preferred stock (bond?)

From the date of issue to, but excluding, June 30, 2019, interest on the TD CaTS IV - Series 1 is payable semi-annually at a rate of 9.523% per year. Starting on June 30, 2019

It seems this will not be available to us mere retail investors.

The TD CaTS IV Notes will not be listed on any stock exchange.

(PrefBlog, quoted on the Preferred thread FWR)

You have to wonder how this new obligation will affect dividends on the ordinary common stock, or, for that matter, on the common stock price.

Tears

[scomac]

Scomac I believe still owns this stock outside of a registered account so he may be able to better supply taxable information on the dividends.

There is an 18% witholding tax on dividends from BBV in my non-registered account. The next dividend is payable on the 22nd of the month.

[Sensei]

Hi,

Thanks, Brad and Scomac. Useful information as usual.

Cheers

[Taggart]

Barrons (U.S.)

THURSDAY, JANUARY 15, 2009

Dividend Stocks That Shouldn't Disappoint

LAST YEAR, MANY LARGE U.S. companies had to cut or eliminate their dividends. And in 2009, the dividend news is likely to grow worse.

But income-hungry investors who prize dividend payments can still generate reliable returns from the elite among the Standard & Poor's 500 index's dividend-paying stocks.

To come up with a handful of dividend-paying stocks that we think won't let investors down, Barron's Online started with Standard & Poor's S&P 500 Dividend Aristocrats.

[Taggart]

G&M

January 16, 2009

JOHN HEINZL

Even in a recession, 'dividend fountains' flow

Dividend stocks have long been considered a safe haven in times of economic turmoil. But after a flurry of dividend cuts last year - the fourth quarter was the worst since Standard & Poor's started keeping records in 1956 - identifying stocks that can maintain, or better yet, increase their dividends has never been more important.

UBS Securities strategist Thomas Doerflinger estimates that S&P 500 dividends per share will fall by 8 per cent in 2009, led by financial and materials. That would be the biggest decline since the Great Depression and only the eighth time since 1942 that dividends have fallen year over year.

[Taggart]

The Sydney Morning Herald (Australia)

January 17, 2009

Even in a financial crisis, a good pick can pay dividends

There are definitely opportunities. The All Ordinaries Index is trading on a dividend yield of about 8.5 per cent, with a swag of stocks yielding more than 10 per cent and the banks yielding 9 per cent plus. Those stocks with a question mark over their survival and no hope in hell of maintaining their dividends head the list of those to be avoided, but you would be hard-pressed to find a decent industrial stock yielding less than the 4.25 per cent cash rate - even before you include the tax benefits of dividend imputation.

[mpav]

Barron's

SATURDAY, JANUARY 10, 2009

Back in Vogue: Europe's High-Payout Companies

I lived in Europe for a while, and one thing to note about dividend investing there is that there is a cultural difference. By that I mean, you will generall get a higher payout, but a couple factors have to be kept in mind:

- dividends are usually only twice a year, may be an issue for some you like the flow
- while not great, if a company adjusts their payouts (cuts etc.) it is not such a issue...so you will see companies go up and down much more than here
- we buy the ADR's here (usually) and it just isnt that easy to get info

Every since I moved to NA, I like our approach here much better as you can use the dividends as a key indicator of corporate health, payouts are more conservative with a focus on conservative growth etc.
-

[JaydoubleU]

I was a little surprised that John Heinzl's article on dividend fountains did not include JNJ.

[Sensei]

mpav, that seems to confirm what I've read and experienced. As I pointed out above, also FX is an issue that affects reliability of income. When I looked at the numbers for BBV, for example, even the quarterly dividends varied by a few pennies and I assume this is FX influenced variation.*

Interesting articles by Taggart as usual. Except MCD, if the current yield is 3.4%, I didn't find Barron's choices from the dividend aristocrats all that exciting. If I choose any company under a 3% current yield, it would have to be an absolutely sterling firm. PG fits sthat description I already have a position which I want to add to.

Yup, JNJ is nice, too. I nibbled when yield was over 3% recently.

The key point of dividend investing for me is getting the yield on ACB up to 7% or more in the next 10 years. WMT doesn't work at 1.8% current yield even if they raise 18% per year going forward, which I doubt. As a retailer, they just don't have that kind of power. I sold out WMT at 55 for a $13 a share profit a couple of months ago. I think better dividend opportunities abound both for future and current income.

Cheers

*You've got my attention with BBV. I, of course, would have to pay the tax. But with a 9% yield it could work. Spain and Portugal certainly deserve question marks about how they will affect the overall business. 'Latin America' is definitely an economic growth hotspot, so I also agree the stock value could appreciate based on operations there, although as I've spouted quite often, stock value doesn't necessarily interest me.

[Sensei]

OK, I'll just say this and then I'll shut up!

Most have been shrinking their shares outstanding via stock buybacks. The median "true yield" - the dividend yield plus the annual percentage decline in shares outstanding over the past three years - is 4 per cent.

This is from the Heinzl article above. At this point in my education as a dividend investor, this is an interesting idea, but I think it makes a lot of assumptions about how the market works. One is that buybacks increase share value. I'm not sure this is always true, but if it is, then new share purchasers are looking at decreased yield or paying more for the same yield. Also, dividends are paid from cash flow and not related to increasing or decreasing share value mostly. The people who benefit from share buybacks are often growth investors (or people who have stock options?) who, when they realize the benefit of a share buyback, are ex-investors in that company. I'm not sure that a buyback increases dividend income.

What do others think?

Cheers