Linked here is a PDF copy of my analysis of Sysco Corp (SYY) (alt.1, alt.2). Below are some highlights from the above linked analysis:
Company Description: SYSCO Corporation, through its subsidiaries, engages in the marketing and distribution of a range of food and related products primarily for food service industry in the United States and Canada.
Fair Value: I consider four calculations of fair value, see page 2 of the linked PDF for a detailed description: 1.) Avg. High Yield Price, 2.) 20-Year DCF Price, 3.) Avg. P/E Price and 4.) Graham Number. SYY is trading at a discount to two of the four valuations listed above. If I exclude the high and low valuation, and average the remaining two valuations, SYY is trading at a 9.8% premium. SYY gets a Star for being fairly valued. However, since it is trading at a premium, there are some mixed signals here.
Dividend Analytical Data: In this section I consider five factors, see page 2 of the linked PDF for a detailed description: 1.) Rolling 4-yr Div. > 15%, 2.) Dividend Growth Rate, 3.) Years of Div. Growth, 4.) 1-Yr. > 5-Yr Growth and 5.) Payout 15% of avg. SYY scored a grand-slam home run in this section, earning all 4 available Stars. This is the type of performance I look for in my dividend stocks.
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: 1.) NPV MMA Diff. and 2.) Years to >MMA. SYY earned a Star for 1.) above with a $19,472 (per $1,000 invested) 20-year NPV differential to a MMA earning 5.11%.
Other: SYY raised its dividend in 2008 to $0.22/share from $0.19/share in 2007. This is a 15.8% increase. I like to see increase in excess of 15% - at that level a stock's yield on cost will double every 5 years. From S&P: We expect results of this leading U.S. food distributor to include both internal growth and additional acquisitions, with SYY increasing its market share. Over time, we look for SYY's profitability to benefit from an increased amount of consolidated purchasing, the addition of regional distribution centers, improved management of freight costs, and better inventory management.
Conclusion: SYY earned one Star in the Fair Value section, a perfect four Stars in the Dividend Analytical Data section and one Star in the Dividend Income vs. MMA section for a total of Six Stars, one more than my scale allows, which rates it as a 5-Star Strong Buy. Even at these valuations, I plan to add to my position in SYY during 2008.
Disclaimer: As always this is only my opinion and you should not rely on it. Before buying or selling any stock you should do your own research and reach your own conclusion. See my Disclaimer for more information.
Full Disclosure: At the time of this writing, I own shares of SYY in my IRA.
What are your thoughts on SYY?
Recent Stock Analyses:
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In late November 2007 I added a widget to display my dividend holdings on the right sidebar. I have not been completely satisfied with this widget for a several reasons:
- With all the embedded information (news, graphs, etc.) it slows down the page loads.
- The version of this widget that shows % change is too wide for my sidebar (my focus is always on % change vs. a monetary change).
- The widget is limed to 25 securities, so there is not enough room for my stocks and ETF holdings.
I have attempted to address these issues by moving my dividend stock holdings widget to a separate page so that it is only displayed on command. By placing it in the body of post I have room to use the wider widget with the % change displayed, and it also allows me the flexibility to add a second post for my ETF holdings. You can now access these by selecting Holdings from the header menu.
Let me know what you think of the new setup!
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The Digerati Life hosted this week's Carnival of Personal Finance. For those readers not familiar with the CoPF, it's where personal finance bloggers submit their best articles of the week with one blog doing the hosting. The entries are separated into categories including Editor’s Picks, Credit and Debt, Budgeting and Frugality, Investing and Wealth Building, Shopping and Consumerism, Money Management and Financial Planning, Insurance and Risk Management, Financial Thoughts and Advice, Taxes and The Economy, and Real Estate.
This week's Carnival included my article on Dynamic Dividend Investing. Articles I enjoyed reading included (in no particular order):
- Returning to China and the Surreal and Dangerous Feeling of Being Wealthy @ The Bag Lady
- Spend Less Than You Earn - The Wrong Way To Think @ Brip Blap
- How attitudes change as you pay off debt @ So Sick of Debt
- Respecting a Gift Giver Who Sticks to his Budget @ One Frugal Girl
- Earn $1 Million By Not Buying a Nintendo Wii! @ Cash Money Life
- How to Make a List of Rules to Invest By @ The Investor’s Journal
- My Two Cents on ‘12 Investing Mistakes and How You Can Learn From Them’ @ Chance Favors
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This page has moved to:
http://www.dividend-growth-stocks.com/p/tools.html
Click HERE to access it.
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A few weeks ago The Dividend Guy posted an article titled "What Will it Take to Have $300,000 by 2018?". In his article he calculated how much money he needed to save on a monthly basis and considered various scenarios by changing the rate of return.
Ultimately he settled on a "Below Average Scenario" that used a conservative rate of return of 8%, which is lower than the average market performance over the last 80 years. At 8%, it required him to make monthly payments of around $900 to grow his initial investment of $60,000 to $300,000 over the next 10 years.
In a comment to his post, I noted that if $900/month is currently not in the budget, he might consider another variable "Annual Increases" in the calculation. This would allow for a lower starting monthly contribution that would be made up over time with higher future contributions tied to expected salary increases. Given the uneven cash flows, this is more easily modeled in Excel using the Goal Seek option. The linked model [10-Year Investment Calculator.xls] does just that.
As with any financial calculation of this type you enter Starting Value [PV], Monthly Contribution [PMT], Rate of Return [I/Y], and for this model Period [N] is set at 10 years. The new field added is "Annual Increase in Contribution". When left blank, the model calculates $912 which is approximately what The Dividend Guy came up with. However, if you enter a number in the Annual Increase in Contribution field such as 4% and press the Calculate button next to Monthly Contribution Field, the calculated monthly contribution drops from $912 to to $779. Looking at the 10-year table below you can see that the contribution starts at $779 and grows to $1,109 in the final year. For the hard-core data junkies, each of the years can be expanded by pressing the [+] to the left of the year.
As noted in the spreadsheet, enter your desired 10-year goal in the blue cell and any three variables in the bright yellow cells. To calculate the remaining variable, press the Calculate button next to it. If you want to see what an investment will grow to based on the inputs, enter the variables in the bright yellow cells and watch the value in cell D17.
A few administrative notes:
- To download the file, right-click the link and select "Save Target As..."
- The spreadsheet was created in Microsoft Excel 2003
- To use the Calculate button, the Analysis Toolpak add-in must be installed (see the Analysis Toolpak Help tab in the spreadsheet for instructions on how to do this).
- Please note my Disclaimer in the spreadsheet. This model is for illustrative and educational purposes only.
Related Articles:
- Dynamic Dividend Investing
- When Is A Lot of Cash A Bad Thing?
- Dividend Investing With ETFs
- Fishing in the Bathtub
- Share Buybacks - Do they really help?
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I would like to give thanks to all my readers on this special day. Enjoy the time spent with your family and those that mean the most to you.
Read More...
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Linked here is a PDF copy of my detailed analysis of First Industrial Realty, Inc. (FR) (alt.1, alt.2). Below are some highlights from the above linked analysis:
Company Description: First Industrial Realty Trust, Inc. operates as a real estate investment trust. The company engages in the ownership, management, acquisition, sale, development, and redevelopment industrial real estate in the United States and Canada.
Fair Value: I consider four calculations of fair value, see page 2 of the linked PDF for a detailed description: 1.) Avg. High Yield Price, 2.) 20-Year DCF Price, 3.) Avg. P/E Price and 4.) Graham Number. FR is trading at a premium to all of the four valuations listed above. If I exclude the high and low valuation, and average the remaining two valuations, FR is trading at a 130.0% premium. FR has a Star deducted for trading at a premium.
Dividend Analytical Data: In this section I consider five factors, see page 2 of the linked PDF for a detailed description: 1.) Rolling 4-yr Div. > 15%, 2.) Dividend Growth Rate, 3.) Years of Div. Growth, 4.) 1-Yr. > 5-Yr Growth and 5.) Payout 15% of avg. FR earned two Stars in this section for 3.) it has grown dividends for 10+ years and 4.) its one year dividend growth rate is greater than its 5 year compound annual growth rate.
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: 1.) NPV MMA Diff. and 2.) Years to >MMA. FR earned one Star in this section for 2.) since its 8.12% dividend yield is well in excess of the current MMA rate.
Other: FR lost money in 2005 ($0.61) and 2006 ($1.42) before recovering in 2007 (+$2.42 est). FR is positioned as one of the largest providers of industrial real estate in the U.S., with a diversified portfolio of long-term customers. In an effort to increase efficiency, companies are increasingly concentrating their business among larger providers such as FR.
Conclusion: FR had a Star deducted in the Fair Value section, two Stars added in the Dividend Analytical Data section and one Star added in the Dividend Income vs. MMA section for a total of Two Stars, which rates it as 2-Star Weak. It is important to note that while FR lost money in 2005 and 2006, it continued to increase its dividend in those years. The ability to not only sustain, but to increase its dividend in the face of adversity is an important attribute of a quality dividend company. Given all the above, along with my current allocation of real estate and this stock, I am neither buying nor selling FR at this time.
Disclaimer: As always this is only my opinion and you should not rely on it. Before buying or selling any stock you should do your own research and reach your own conclusion. See my Disclaimer for more information.
Full Disclosure: At the time of this writing, I own shares of FR.
What are your thoughts on FR?
Recent Stock Analyses:
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This page has moved to:
http://dividendsvalue.com/process/
Click HERE to go there.
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This week I participated in two Carnivals, the Carnival of Personal Finance #131 and the Carnival of Smarter Investing #9. Details of each are listed below.
I. Get Rich Slowly hosted this week's Carnival of Personal Finance. For those readers not familiar with the CoPF, it's where personal finance bloggers submit their best articles of the week with one blog doing the hosting. This week's carnival had a Christmas theme. The entries are separated into categories including Main presents (best articles) , Christmas carols (all about Christmas) , New Years’ resolutions (year-end topics) , Boughs of holly (debt) , Eggnog (credit), Christmas bonus (investing) , Gifts from Grandma (retirement) , Candy canes (saving and frugality) , Five gold rings (money management) , Tinsel-lined tree (budgeting) and Stocking stuffers (miscellaneous topics) .
This week's Carnival included my article on 5 Lessons Learned About Investing. Articles I enjoyed reading included (in no particular order):
- Plan Your Escape: Five reasons to manage your money
- Million Dollar Journey: Confessions of a car salesman
- Plonkee Money: Celebrating a frugal Christmas
- Money Crashers: Three tips for better gift-giving
- Big Dreams and Small Change: Is it bad to ask for toilet paper for Christmas?
- Green Panda Treehouse: 3 ways to wisely spend your bonus
II. boozwatt.com hosted the Carnival of Smarter Investing. Each week the CoSI posts featured articles by investors and writers in the areas of business and real estate. Articles this week were classified into the categories of Entrepreneurial, Investing and Real Estate.
This week's Carnival included my article titled You're Fired! Articles I enjoyed reading included (in no particular order):
- Value Seeker: Common Mutual Fund Investing Mistakes
- Jose DeJesus MD: Avoid These Mutual Funds - Be Like Goldilocks
- Blaine: Frugality, America's worst nightmare
- Ted Reimers: Buying a Home near a College is a good investment
Finally, my article Dynamic Dividend Investing was linked at the bottom of the Wall Street Journal article Discounted Funds Are Wall Street's Best Buy under "Blog Posts About This Topic ". Read More...
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This article appeared in the Carnival of Personal Finance #132.
Recently Stock Gumshoe posted a fascinating article Dividend Doubling Dynamos: 3D and the 61 Day Strategy for 50% More Dividends! discussing a strategy that allows you maximize annual dividend income while taking into account the effect it will have on your taxes. The dividend returns (10+%) piqued my interest, so I have spent some time looking at this strategy by focusing on Alpine's Total Dynamic Dividend Fund (AOD), a closed-end fund that utilizes this strategy.
The Alpine Total Dynamic Dividend Fund attempts to optimize both dividend income and long-term growth of capital. This is a very diverse and flexible fund. It employs a global, multi-cap, multi-sector, and multi-style investment approach. The fund combines four research-driven investment strategies – Growth, Value, Special Dividends, and Dividend Capture Rotation. Each is discussed below:
Strategy I: Growth Dividend Payers
The objective here is for capital appreciation and rising dividend income. This is your traditional dividend investing strategy - identify companies with lower, but still attractive current dividend yields, that have good earnings growth potential. The focus here is on capital appreciation potential and consistently growing dividends.
Strategy II: Value Dividend Opportunities
Strategy II's objective is for current high dividend income and capital appreciation. This portion of the fund focuses on investments with higher than average dividend yields. The focus here is on under-valued or mispriced equity opportunities, turnaround opportunities, restructuring or major corporate action expected to add value and companies with low valuations relative to their historical averages. This is not much different than when I add some higher yield slightly more risky stocks in my portfolio. The next two strategies are where the Alpine Total Dynamic Dividend Fund differentiates itself.
Strategy III: Special Dividend Research
The fund's management team seeks to identify and capture special dividends paid by companies. Special dividend situations occur when companies return large cash balances to shareholders as one-time dividend payments due to a restructuring or recent strong operating performance.
Strategy IV: Paired Rotation Strategy
The Fund’s paired rotation strategy pairs similar stocks and captures multiple dividends per year versus four quarterly dividends. Put another way, while most dividend stocks pay four dividends per year, Alpine’s paired rotation strategy seeks to capture more dividend payments with the same investment capital by “rotating” between securities with similar characteristics throughout the year. Generally, the fund attempts to capture six to eight dividends per year, instead of four, on the same invested capital. This will obviously pump up the investments return. It is important to note that using this strategy will will expose the fund to increased trading costs and potential for capital loss or gain, particularly in the event of significant short-term price movements of stocks subject to dividend capture trading.
I can attest that this strategy actually works. Several years ago I was employing it in my IRA with favorable results. However, I discontinued using it due to the enormous amount of time it took to manage that many buys and sells. Also, to effectively execute this strategy you need to trade large blocks to dilute the trading costs.
The Alpine Total Dynamic Dividend Fund is managed by Jill Evans. Based on the limited information I could find on her, she seems to be well-respected. Below is a comment I found about her in the Motley Fool Caps user comment section:
Alpine Funds, who brought us the star mutual fund ADVDX, is the company behind AOD and I believe AOD is going to become their next star. When it comes to income investing, Jill Evans who manages this closed-end fund is one of the best out there. She utilizes a dividend capture strategy in a third of the portfolio in which she works to rotate the portfolio in such a way that the dividends qualify for the 15% tax bracket and that she can pick up 6 dividends a year. The result is a fund that will yield about 10% per year, which is an income investor's dream! I said earlier that I believe AOD is Alpine's next star, and the reason for that is it has advantages over their other well-known funds. Being a closed-end fund, inflows and outflows are not a worry for Ms. Evans, she knows what she has to work with and can count on that. This is Alpine's preferred method of investing, and I think it fits them well. Additionally, AOD has an advantage over AGD because it was formed to fix some problems in AGD. AGD is limited in how much of the portfolio can be invested internationally which Ms. Evans realized limited the fund. AOD doesn't have this limitation. It gives Ms. Evans and Alpine all the tools they need to do what they do better than anyone else...create a high yield. I own the fund and highly recommend it.
While perusing the company's prospectus, I noticed it was allowed to invest in Master Limited Partnerships (MLPs). I am not a fan of MLPs, primarily due to the tax hassles associated with waiting on a final K-1 from the company and wading through a mountain of tax forms to ensure everything is properly accounted for. I made a quick call to the company to ask about this issue and learned that the fund was not currently invested in MLPs and if it were to do so, the closed-end fund would deal with the K-1 nightmare and issue me a simple 1099. The person I talked to was very knowledgeable and fully understood my concerns and was able to intelligently address them.
The closed end-fund is relatively new. It was formed in January 2007 and has paid a monthly dividend of $0.18 per month since May 2007. Recently, it declared an $0.18 dividend for the next three months. It will be interesting to see if and how much the fund raises its dividend in the future.
Full disclosure: The fund intrigued me enough that I purchased a small position in it. This will force me to continue tracking it.
What do you think about the concept of dividend capture?
Related Articles:
- Dynamic Dividend Investing - Feb/08 Update
- Tracking Yield On Cost
- Is It Time To Upgrade Your Portfolio?
- Morningstar Dividend Leaders Index
- My Top 3 Investing Mistakes
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Linked here is a PDF copy of my detailed analysis of U.S. Bancorp (USB) (alt.1, alt.2). Below are some highlights from the above linked analysis:
Company Description: U.S. Bancorp operates as the holding company for U.S. Bank that provides commercial banking and financial services in the United States.
Fair Value: I consider four calculations of fair value, see page 2 of the linked PDF for a detailed description: 1.) Avg. High Yield Price, 2.) 20-Year DCF Price, 3.) Avg. P/E Price and 4.) Graham Number. USB is trading at a discount to two of the four valuations listed above. If I exclude the high and low valuation, and average the remaining two valuations, USB is trading at a 1.6% discount. USB gets a Star for being fairly valued.
Dividend Analytical Data: In this section I consider five factors, see page 2 of the linked PDF for a detailed description: 1.) Rolling 4-yr Div. > 15%, 2.) Dividend Growth Rate, 3.) Years of Div. Growth, 4.) 1-Yr. > 5-Yr Growth and 5.) Payout 15% of avg. USB only earned one Star in this section for 3.) above - it has grown dividends for 10+ 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: 1.) NPV MMA Diff. and 2.) Years to >MMA. USB earned Stars for both 1.) and 2.) above.
Other: USB is a member of the S&P 500 Dividend Aristocrats and the Broad Dividend Achievers™ Index. From a recent S&P analysis: "USB remains one of the most profitable large cap banks in our coverage universe, in terms of returns on equity and assets, which highlights the company's focus on revenue growth and cost controls, and what we see as its attractive mix of high margin fee businesses. We believe that the company's diversified revenue model of economically sensitive businesses, combined with our projection of accelerating growth in commercial lending and USB's strong focus on expense management, will generate above industry average profitability."
Conclusion: USB earned one Star in the Fair Value section, one Star in the Dividend Analytical Data section and two Stars in the Dividend Income vs. MMA section for a total of Four Stars which rates it as a 4-Star Buy.
Disclaimer: As always this is only my opinion and you should not rely on it. Before buying or selling any stock you should do your own research and reach your own conclusion. See my Disclaimer for more information.
Full Disclosure: At the time of this writing, I own shares of USB.
What are your thoughts on USB?
Recent Stock Analyses:
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Mr. M as we have previously discussed, your recent performance has been less than expected for someone in your position, with your experience. I realize that you have been with the company for over 10 years and were an Achiever during that time, but your recent behavior is not something that can be tolerated in this organization and your qualifications no longer meet the criteria set forth in this position's job description. It is nothing personal, but I'm going to have to let you go. You will be escorted to your desk and be allowed to gather your personal effects, then escorted out of my portfolio!
On Monday of this week Washington Mutual (WM) announced that they were slashing their dividend. This was not totally unexpected, WM's mortgage business has suffered as a result of the sub-prime meltdown. I held a small position in WM when the announcement came out.
One of the more difficult decisions an investor has to make is when to sell? In this instance, it was not a difficult decision for me. As a income investor I expect the companies I invest in to increase their dividends each year. If times are tough and a company holds its dividend flat for one year, it will be evaluated based on expectations of future performance and I could decide to hold on to it for an additional year and then evaluate it again. However, I want no part of a company that cuts its dividend, as such, I sold my position in WM on Tuesday. It seems I am not the only person that feels this way, WM's price continued to fall during the week.
Full disclosure: At the time of this writing, I do not own shares of WM.
What rules do you consider when deciding to sell a stock?
Related Articles:
- Sometimes Being Right Is Just Wrong
- Investing In What's Important
- Rev-up Your Portfolio With Asset Allocation
- Process Overview and Asset Allocation
- The Canadian Connection
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Money $mart Life hosted this week's Carnival of Personal Finance. For those readers not familiar with the CoPF, it's where personal finance bloggers submit their best articles of the week with one blog doing the hosting. The entries are separated into categories including Financial Reflection & Planning, Frugal Living, Saving Money, Making Money, Debt, Credit Cards, Travel Finance, College, Real Estate, Insurance, Career, Economy, Money Mistakes, Money Management, Prosper, Investing and Other.
This week's Carnival included my article on Dividend Investing With ETFs. Articles I enjoyed reading included (in no particular order):
- Teach Your Children The Four Basics of Smart Money Management by Change Your Tree
- Five Lifestyle Tips I Wish I Knew When I Started by Shaun Connell
- 7 tips to manage your cash when traveling by plonkee
- Worried about paying for college? Then don’t! by Mighty Bargain Hunter
- How to make paying your year end property taxes painless by Gather Little by Little
- How Do You Plan To Get Ahead? Ways To Increase Your Income by The Digerati Life
- Help! My Spouse Hates Personal Finance by Adfecto Abundantia
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This article appeared in the Carnival of Personal Finance #131.
Four years and one day ago on December 11, 2003, I purchased my first dividend stock. Granted my motives were not pure, nor did I have a clue as to what I was doing. Prior to that I had always been an aggressive growth investor. During my investing years, I have learned many things. However, I would rank these 5 lessons as the most important:
1. Success Can Sometimes be Dangerous
In the late 1990's into early 2000 I was pouring a significant amount of money into tech stocks. At that time most anyone one could make money in the stock market. The formula was easy: buy a tech company, wait a short period of time for it to double, sell it and buy two tech companies with the proceeds - loop to beginning.
My wife and I started planning to build a house in 1999, heavily funded by the profits I had made in the market. When she learned I was still in the market, she demanded I get out immediately and not risk losing her dream house. I begrudgingly got out in 2000 near the top of the tech run up, grumbling all the way; how dare she tell me how to invest; I am the expert. Needless to say, she was right, very right. As I watched the tech bubble burst and my former stock holdings collapse, I considered myself to be one of the more fortunate people alive by getting out when I did.
2. Life's Best Lessons are Taught With Adversity
When the tech bubble burst it caused me no pain. I was living in a paid for house, and began to rationalize the past. "Certainly, I would have figured out the bubble was about to burst and would have got out before too much damage was done," I told myself.
Still a little somber from the near-death investing incident, I eased back into investing with mutual funds. Then I moved to dividend stocks, I had read that stocks that paid dividends were more stable, you could sleep at night, etc. etc.
Not all dividend stocks are the same. Like many new dividend investors, my primary focus when selecting a dividend stock was yield - the higher the better. Unfortunately, this worked quite well for a while. I had build a portfolio of master limited partnerships (MLP), REITs, sub-primes and highly aggressive investments with double-digit yields.
With my new found dividend investing strategy, I was duplicating my prior success, or so I thought. A few of the investments started to decline in price, then they cut their dividend. I discovered that tracking the basis and filing taxes on MLPs were major hassles. I became a net seller. It looked like I was going to be able to change coarse before the losses got too bad. I still held on to a few sub-prime mortgages companies - and had the opportunity to ride them to zero. That was painful. Lesson learned.
3. Dividend Investing is About Future Yield, Not Current Yield
I was fortunate enough to accidentally buy some good dividend stocks and hold them long enough to figure out the "secret" of dividend investing. It is not necessarily starting with a high-yield investment, but ending up with a high-yield investment. This usually occurs by buying investments with a moderate yield, a history of growing dividends and letting time do its job.
4. Successful Dividend Investing is About Substance, Not Style
In my aggressive growth years, I equated dividend investing with old folks and the inept. That was simply not my style. Time and experience have taught me there are no style points awarded in building a winning investment portfolio. In the end the long-term performance (substance) of your portfolio is all that ultimately matters, not how you got there.
5. You Can't Beat the Herd, by Following the Herd
Through the years I have settled down quite a bit. Using well defined investment allocations (see The Process...), I have set boundaries and guidelines to ensure I don't over expose my portfolio to undue risk, and I employ a meticulous process when selecting investments.
However, with that said, I still tend to be a little more aggressive than the typical dividend investor. I take a some calculated risks by mixing in a few higher yielding stocks such as ACAS and SFI along with my traditional dividend picks. I am currently evaluating a closed-end fund that has a double digit yield (stay tuned it will be the subject of an up-coming article). I am looking for that one extra bump, that will push my base portfolio a little bit ahead of the herd.
How do you manage risk in your portfolio?
Related Articles:
- My Top 3 Investing Mistakes
- Sometimes Being Right Is Just Wrong
- It Was An Odd Odyssey
- My Dirty Little Secret
- Reaching Your 10-Year Investing Goal
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Linked here is a PDF copy of my detailed analysis of Consolidated Edison, Inc. (ED) . Below are some highlights from the above linked analysis:
Recent Stock Analyses:
Read More...
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As a relatively new blogger, the one thing that has stood out in my mind is the number of Canadian bloggers in the areas that I am most interested in - finances and dividend investing. I am always scouring the web looking for new ideas and concepts, and it seems that no matter what I use for my launching point, I end up on a Canadian financial/investing site.
To further fuel the fire, I have noticed looking at the stats on Feedburner, that a significant number of the people that visit my site are from Canada. Now this may be a chicken and egg situation - since I spend so much time visiting and commenting on Canadian blogs, that may be why I have so many Canadian readers.
It makes me wonder if I am a misplaced Canadian that was errantly dropped in the deep south (U.S.) I would be interested in your thoughts on why so many of the best financial sites/blogs on dividend income are located in Canada?
Related Articles:
- A Strong Bias for Action
- Passing the Torch - Part 1 of 2
- Sometimes Things Aren't As They Appear
- My Unique Investing Process
- Pre-Screening Dividend Stocks - Part I
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It was a busy week for Carnivals! I participated in two Carnivals. Details of each are listed below.
I. This week's Carnival of Personal Finance #129 was hosted by Cash Money Life. For those readers not familiar with the CoPF, it's where personal finance bloggers submit their best articles of the week with one blog doing the hosting. The entries are separated into categories including Budgeting, Career, Credit, Debt, Economy, Frugality, Investing, Money Management, Real Estate, Saving, Taxes and Other.
This Carnival included my article The Most Important Financial Statement. Articles I enjoyed reading included:
- 5 Lessons Monopoly Can Teach Us About Real Estate Investing by TwoWiseAcres
- November Cashback Rewards: 2.8% by Me vs. Debt
- The 10 Most-Hated Money Saving Tips by Free Money Finance
This Carnival included my article on Investing Goals. Articles I enjoyed reading included:
- The most important financial lessons by Father Sez
- Earn a stable monthly income by Mrs. Micah
- Reassess expenditures and financial planning by Me, Only Better
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This article appeared in the Carnival of Personal Finance #130.
Dividend investing is not necessarily limited to individual stocks. I have found that exchange traded funds (ETFs) offer a viable option when looking for income producing investments. As noted in my The Process... article, 16.5% of my after-tax portfolio is allocated to dividend/income ETFs. The goal of this portion of my investments is to provide growing dividend income with lower risk than owning individual stocks.
I am currently invested in the following ETFs:
- SPDR S&P Dividend ETF (SDY) - The Fund seeks to replicate as closely as possible, before expenses, the price and yield of the S&P High Yield Dividend Aristocrats Index. The Fund uses a passive management strategy designed to track the price and yield performance of the Dividend Index.
- Vanguard Financials ETF (VFH) - Vanguard® Financials ETF seeks to track the performance of a benchmark index that measures the investment return of financial stocks.
- Vanguard Dividend Appreciation ETF (VIG) - Vanguard® Dividend Appreciation ETF seeks to track the performance of a benchmark index that measures the investment return of common stocks of companies that have a record of increasing dividends over time.
- Vanguard REIT ETF (VNQ) - Vanguard® REIT ETF seeks to provide a high level of income and moderate long-term capital appreciation by tracking the performance of a benchmark index that measures the performance of publicly traded equity REITs.
- Vanguard High Dividend Yield ETF (VYM) - Vanguard® High Dividend Yield ETF seeks to track the performance of a benchmark index that measures the investment return of common stocks of companies that are characterized by high dividend yields.
Why would I choose an ETF instead of a mutual fund? ETFs are easily bought and sold through a broker. ETFs held long-term are tax-efficient because of the way they are created and redeemed. A custodial bank holds a basket of stocks in the ETF's account for a fund manager to monitor. Shares are sold representing ownership in the basket of stocks. Generally, there isn't much activity in these accounts that would generate taxable capital gains, which are normally distributed. This allows an investor to defer capital gains to when the ETF is sold.
Do you utilize ETFs in your investing strategy?
Related Articles:
- Dividend ETF Holdings
- Rev-up Your Portfolio With Asset Allocation
- Investing In What's Important
- Reaching Your 10-Year Investing Goal
- My Dirty Little Secret
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Linked here is a PDF copy of my detailed analysis of McDonald's - Corp. (MCD) (alt.1, alt.2). Below are some highlights from the above linked analysis:
Company Description: McDonald's Corporation primarily franchises and operates McDonald's restaurants in the food service industry. These restaurants serve a varied, yet limited, value-priced menu in more than 100 countries around the world.
Fair Value: I consider four calculations of fair value, see page 2 of the linked PDF for a detailed description: 1.) Avg. High Yield Price, 2.) 20-Year DCF Price, 3.) Avg. P/E Price and 4.) Graham Number. MCD is trading at a discount to only one of the four valuations listed above. If I exclude the high and low valuation, and average the remaining two valuations, MCD is trading at a whopping 58.4% premium. MCD has a Star deducted for trading in excess of 5% of its calculated fair value.
Dividend Analytical Data: In this section I consider five factors, see page 2 of the linked PDF for a detailed description: 1.) Rolling 4-yr Div. > 15%, 2.) Dividend Growth Rate, 3.) Years of Div. Growth, 4.) 1-Yr. > 5-Yr Growth and 5.) Payout 15% of avg. MCD nearly hit a grand-slam home run in this section earning Stars for the first four items above. However, since MCD's payout percentage increased more than 15 basis points (15%) above its historical average, a Star is deducted. Even with an 18 basis point increase, the current payout percentage of 43% is nothing to be alarmed about. In total MCD earns a net of three Stars in this section.
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: 1.) NPV MMA Diff. and 2.) Years to >MMA. MCD earned a Star for 1.) above.
Other: I'm lovin' MCD's Dividend Analytical Data and its Dividend vs. MMA metrics, but from a fair value standpoint, its currently priced like a 5-Star restaurant. It is also important to note MCD only pays a dividend once a year in December. This leaves a lot of time for investors to speculate on the current year's dividend.
Conclusion: MCD had one Star deducted in the Fair Value section, a net of three Stars added in the Dividend Analytical Data section and one Star added in the Dividend Income vs. MMA section for a net total of Three Stars which rates it as a 3-Star Hold. I'm on the sidelines for now, but watching closely.
Disclaimer: As always this is only my opinion and you should not rely on it. Before buying or selling any stock you should do your own research and reach your own conclusion. See my Disclaimer for more information.
Full Disclosure: At the time of this writing, I own shares of MCD.
What are your thoughts on MCD?
Recent Stock Analyses:
Read More...
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This article appeared in the 1st Carnival of Financial Goals - 2008 Resolutions Edition.
Public goals and progress reports are a long-standing tradition in the world of personal finance blogs. As I conclude my first month of blogging, I have given much thought as to what I would put out in the public domain as my goals and how to report progress on them.
I considered net worth, but rejected it since much of my net worth is tied to employee stock options and my company's stock. Thus, the two main drivers of my net worth are the annual vesting of options and share price movements in my company's stock.
Since the focus of Dividends4Life is on the dividend income portion of my portfolio, it seems only logical that the selected goals and progress report should be tied that. The obvious objective of dividend investing is to generate dividend income, so annual dividend income will be one of the metrics I will report on. As noted in my recent article Yield on Cost: Measuring for Success, I consider Yield on Cost (YOC) an important metric, so it will be the other metric I will report on.
In the table below are my 2008, 2017 and 2027 goals, along with my Nov/2007 actual results.
A couple of important items to note:
- YOC will be more sensitive to the yields of what I am buying, versus dividend increases in the early years due to relative size of the purchases versus the portfolio size.
- I am being somewhat conservative with the YOC, particularily in 2027. Assuming no additional purchases, my model calculates a YOC for 2027 of 46.75%.
As time goes by and I have more historical data points, I will be in a much better position to more accurately model future projections. For now it is a stake in the ground, and I am ready to pursue it!
Have you set your 2008 goals yet?
Related Articles:
- Reaching Your 10-Year Investing Goal
- Share Buybacks - Do they really help?
- Fishing in the Bathtub
- Dividend Investing With ETFs
- When Is A Lot of Cash A Bad Thing?
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