Posted by
4Life |
Friday, July 10, 2009
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commentary
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This month I will turn 47. That means I am a few years past the mid-point of my career. It seems that with each birthday, I think about and plan for retirement a little more. I have long since resolved that social security will not provide for my needs in retirement (nor was it ever intended to). I am one of an ever-shrinking group that is still covered by a defined benefit pension plan. So, how should a pension fund figure into my retirement?
A recent CNN Money article asked the question, 'Can you count on those monthly pension checks from your former employer?' and provided the following five things you need to know:- Many pension plans are underfunded.
By law, company plans must have on hand most of the money promised to employees. This wasn't an problem until the market turned down.
- But underfunded doesn't mean "can't pay."
You're not necessarily on the hook for the plan's underfunding. Employers must cover their plans' deficits.
- It may, however, mean some changes in how much you'll get.
If the plan is less than 80% funded, you won't have the option of taking the benefit as a full lump-sum payment. And if your plan is less than 60% funded, your company may be forced to freeze it
- You're at greater risk of losing your job than your pension.
A company "can dip into cash reserves to fund its pension," but if there are no reserves, the firm must cut costs, which may mean layoffs. So, ironically, your pension may be safe at the expense of your job.
- Still, you ought to have a backup plan.
While you're fairly safe on benefits accrued, don't count on future ones. Your goal should be to save enough for retirement to fill the gap between your estimated expenses and what you've earned in your pension.
Up until the Delta pension ran into problems, I (naively) assumed what I was owed from my company's pension plan was an automatic entitlement. However, events over the last five years have shown that when things go wrong, you may only receive a small portion of what was promised in glossy HR pamphlet.
Looking at number 5. above, "you ought to have a backup plan", I would go one step further and say, "You ought to have a primary plan." My retirement plan relies primarily on what I have invested and control, such as my 401(k), IRA and taxable portfolio. I realize that will likely get something out of my pension plan even if a 'worse case scenario' occurs, so I count that portion. As for social security, I don't even consider it in my retirement plan. If I receive anything from social security, I will just treat it as a bonus.
To achieve my retirement goals, I am investing with a defined asset allocation model looks at all my investments in total. In retirement, your portfolio shifts from an investing mode to an income mode by either selling appreciated (hopefully) assets and/or withdrawing dividends for living expenses. My plan is to build an ever-increasing income stream from bonds and dividend stocks such as:- iShares Barclays 20+ Year Treas Bond (TLT) - Yield: 4.16%
- Vanguard Short-Term Bond ETF (BSV) - Yield: 3.40%
- Abbott Laboratories (ABT) - Yield: 3.50% - Analysis
- Genuine Parts Co. (GPC) - Yield: 4.80% - Analysis
- Procter & Gamble Co. (PG) - Yield: 3.40% - Analysis
As the old adage goes, 'Everyone has a plan - failing to plan is planning to fail.' Retirement planning does not have to be complicated, but not doing it will complicate your retirement.
Full Disclosure: Long ABT, GPC, PG. See a list of all my income holdings here.
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Posted by
4Life |
Thursday, July 09, 2009
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admin
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Since its launch in 2007, Dividends4Life has been a leading provider of relevant information for dividend investors. I am proud of the wealth of information made available free of charge to my readers. Beginning today, Dividends4Life, through its sister site Dividends Value, will offer some premium content for serious dividend investors. It is my intention not to alter the free information currently provided, but to supplement it with some premium content.
The D4L-Dashboard is my first premium service. For each stock that I track, I gather a significant amount of information - currently about 500 cells per stock. With the number of securities tracked approaching 100, this is just too much information to quickly and efficiently digest. So I developed a color coded dashboard that allows me to quickly absorb the information.
The dashboard includes a significant amount of information on all 86 stocks that I currently follow, including buy price, Star rating, risk rating, and much more. For the stocks that I own, the report shows the amount I own as a percentage of my income portfolio and annual dividend income. Also, included is weekly commentary on what I am planning to buy, have bought and changes in the status of tracked stocks.
Even though I provide free detailed stock analysis on many dividend companies, the amount of preparation needed limits me to one analysis per week and I won't review that company again for at least six months. As we have all learned, things change quickly in the market. A strong buy three weeks ago may not still be a strong buy today.
The D4L-Dashboard allows You to See What I See.
For more information on the D4L-Dashboard, including a sample report, pricing and subscription information, please see the Overview and Subscribe page. The premium section can always be accessed via the Premium menu option on the top-right of the menu bar above.
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Posted by
4Life |
Tuesday, July 07, 2009
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analysis
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This article originally appeared on The DIV-Net June 29, 2009.
Linked here is a detailed quantitative analysis of United Technologies Corp. (UTX). It is important to note that this is the first week of using my updated analysis model, so you will see some changes from earlier analyses. Below are some highlights from the above linked analysis:
Company Description: United Technologies Corp. is an aerospace-industrial conglomerate with a portfolio including Pratt & Whitney jet engines, Sikorsky helicopters, Otis elevators and Carrier air conditioners, among other products.
Fair Value: I consider four calculations of fair value, see page 2 of the linked PDF for a detailed description:- Avg. High Yield Price
- 20-Year DCF Price
- Avg. P/E Price
- Graham Number
UTX is trading at a discount to 1.), 2.) and 3.) above. Since UTX's tangible book value is not meaningful, a Graham number can not be calculated. UTX is trading at a 29.5% discount to its calculated fair value of $73.14. UTX earned a Star in this section since it is trading at a fair value.
Dividend Analytical Data: In this section there are three possible Stars and three key metrics, see page 2 of the linked PDF for a detailed description:- Free Cash Flow Payout
- Debt To Total Capital
- Key Metrics
- Dividend Growth Rate
- Years of Div. Growth
- Rolling 4-yr Div. > 15%
UTX earned three Stars in this section for 1.), 2.) and 3.) above. A Star was earned since the Free Cash Flow payout ratio was less than 60% and there were no negative Free Cash Flows over the last 10 years. UTX earned a Star as a result of its most recent Debt to Total Capital being less than 45%. UTX earned a Star for having an acceptable score in at least two of the four Key Metrics measured. Rolling 4-yr Div. > 15% means that dividends grew on average in excess of 15% for each consecutive 4 year period over the last 10 years (1999-2002, 2000-2003, 2001-2004, etc.) I consider this a key metric since dividends will double every 5 years if they grow by 15%. UTX has paid a cash dividend to shareholders every year since 1936 and has increased its dividend payments for 17 consecutive years.
Dividend Income vs. MMA: Why would you assume the equity risk and invest in a dividend stock if you could earn a better return in a much less risky money market account (MMA)? This section compares the earning ability of this stock with a high yield MMA. Two items are considered in this section, see page 2 of the linked PDF for a detailed description:- NPV MMA Diff.
- Years to > MMA
UTX earned a Star in this section for its NPV MMA Diff. of the $6,624. This amount is in excess of the $1,800 target I look for in a stock that has increased dividends as long as UTX has. If UTX grows its dividend at 15.0% per year, it will take 3 years to equal a MMA yielding an estimated 20-year average rate of 4.06%. UTX earned a check for the Key Metric 'Years to >MMA' since its 3 years is less than the 5 year target.
Other: UTX is a member of the S&P 500 and a member of the Broad Dividend Achievers™ Index. Over the last ten years, UTX has shown steady growth in both earnings and dividends. UTX has a strong balance sheet with 38% debt to total capital and an excellent free cash flow payout of 29%. UTX should benefit from large backlogs at Airbus and Boeing, moderate demand for global infrastructure, and strong demand for military helicopters. Future risks could include a prolonged downturn in U.S. residential housing market, slowing of growth in commercial construction markets, and prolonged global recession.
Conclusion: UTX earned one Star in the Fair Value section, earned three Stars in the Dividend Analytical Data section and earned one Star in the Dividend Income vs. MMA section for a total of five Stars. This quantitatively ranks UTX as a 5 Star-Strong Buy.
Using my D4L-PreScreen.xls model, I determined the share price could increase to $82.70 before UTX's NPV MMA Differential fell to the $1,800 that I like to see for a stock with 17 consecutive years of dividend increases. At that price the stock would yield 1.86%.
Resetting the D4L-PreScreen.xls model and solving for the dividend growth rate needed to generate the target $1,800 NPV MMA Differential, the calculated rate is 10.7%. This dividend growth rate is well below the 15.0% used in this analysis, thus providing a margin of safety. UTX has a risk rating of 1.50 which classifies it as a low risk stock.
UTX is trading below its buy price of $73.14 and its 2.99% dividend yield is consistent with the 3.00% minimum that I am currently looking for. I would be very comfortable adding to my position at this price as my allocation allows. For additional information, including the stock's dividend history, please refer to its data page.
Disclaimer: Material presented here is for informational purposes only. The above quantitative stock analysis, including the Star rating, is mechanically calculated and is based on historical information. The analysis assumes the stock will perform in the future as it has in the past. This is generally never true. Before buying or selling any stock you should do your own research and reach your own conclusion. See my Disclaimer for more information.
As noted above, this is the first week of using my updated analysis model, so you will see some problems or error, be sure to let me know.
Full Disclosure: At the time of this writing, I was long in UTX (3.2% of my Income Portfolio).
What are your thoughts on UTX?
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Posted by
4Life |
Monday, July 06, 2009
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links
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For your reading pleasure, the articles listed below contain some of the best dividend and value investing insights found on the web. They were written by various members of the Dividend Investing and Value Network (DIV-Net) over the past week:
Articles From DIV-Net Members
There are some really good articles here, please take time and read a few of them.
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Posted by
4Life |
Sunday, July 05, 2009
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commentary
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When evaluating a company as a potential income investment you look at its calculated fair value, ability to generate cash, debt position and the net present value of its dividend stream compared alternative "safe" investments.
In earlier articles, we have looked at each of these in depth. In addition, I look at four other metrics that individually are not as important as the above, but collectively provide great insight into the potential success of a stock as a dividend investment. Here are the four other key metrics that I look at when evaluating a dividend stock:
I. Dividend Growth Rate: The minimum dividend growth rate of the 1, 3, 5, 7, 10 year dividend growth rate or 15%, if "Rolling 4-yr Div. > 15%". This metric is True, if the dividend growth rate is 15% or greater. You can see how this is calculated in my D4L-PreScreen.xls model.
II. Years of Div. Growth: Years of consecutive dividend growth. This metric is True for 15 or more years.
III. Rolling 4-yr Div. > 15%: Dividends will double every 5 years if they grow by 15%. This test is True if dividends grew on average in excess of 15% for each consecutive 4 year periods, within the last 10 years of history.
IV. Years to >MMA: The number of years until dividend earnings exceed the earnings from a hypothetical money market account earning the MMA rate above, considering the other assumptions listed in "NPV MMA Diff." above. This metric is True if the number of years is less than 5.
Taken in the whole, these are tough metrics. Of the 87 stocks that I currently follow, only four had all the above metrics true. They were:
AFLAC Inc. (AFL) - Analysis
Aflac Incorporated engages in the marketing and sale of supplemental health and life insurance plans in the United States and Japan.
- Dividend Growth Rate: 16.7%
- Years of Div. Growth: 27
- Rolling 4-yr Div. > 15%: True
- Years to >MMA: 1
Nucor Corp. (NUE) - Analysis
Nucor Corporation is engaged in the manufacture and sale of steel and steel products. As the largest minimill steelmaker in the U.S., Nucor has one of the most diverse product lines of any steelmaker in the Americas.
- Dividend Growth Rate: 15.0%
- Years of Div. Growth: 36
- Rolling 4-yr Div. > 15%: True
- Years to >MMA: 3
Paychex Inc. (PAYX) - Analysis
Paychex, Inc. provides payroll and integrated human resource and employee benefits outsourcing solutions for small- to medium-sized businesses in the United States.
- Dividend Growth Rate: 17.8%
- Years of Div. Growth: 17
- Rolling 4-yr Div. > 15%: True
- Years to >MMA: 0
McDonald's Corp. (MCD) - Analysis
McDonald's Corporation is the largest fast-food restaurant company in the world. Its restaurants serve a varied, yet limited, value-priced menu in more than 100 countries around the world.
- Dividend Growth Rate: 15.5%
- Years of Div. Growth: 32
- Rolling 4-yr Div. > 15%: True
- Years to >MMA: 2
These metrics focus on compound dividend growth, which is highly important for the successful dividend investor. In my new dividend analysis worksheet, a company will earn a Star for its other metrics if two of the above metrics are True.
Full Disclosure: Long AFL, NUE, PAYX, MCD. See a list of all my income holdings here.
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