Some of my fellow dividend investors have accused Warren Buffett of being a closet dividend investor. I won't quite go that far, but there is significant common ground between dividend and value investors. With that said, let's take a close look at Mr. Buffett's most recent 13-F filing with the Securities and Exchange Commission.

Comparing Berkshire Hathaway's (BRK.A) December 31, 2008 13-F with its March 31, 2009 13-F, I made the following observations for Q1/2009:

• BRK didn't add any new positions to its portfolio


• BRK didn't fully liquidate any positions in its portfolio


• BRK added shares in seven stocks: BNSF Railway (BNI), Union Pacific (UNP), Wells Fargo (WFC), U.S. Bancorp (USB), Johnson & Johnson (JNJ), and Nalco Holding Company (NLC)


• BRK reduced shares in four stocks: CarMax (KMX), ConocoPhillips (COP), Costco Wholesale Corporation (COST) and Constellation Energy Group, Inc. (CEG)
  

Of the stocks held in BRK's 13-F portfolio, the following ones are either held in my income portfolio or are on my watch list of dividend stocks:

Coca Cola (KO) - Yield 3.34% - Analysis
The Coca-Cola Company is the largest manufacturer, distributor and marketer of nonalcoholic beverage concentrates and syrups in the world.

Johnson & Johnson (JNJ) - Yield 3.55% - Analysis
Johnson & Johnson is engaged in the research and development, manufacture and sale of a range of products in the healthcare field.

Kraft Foods (KFT) - Yield 4.44% - Analysis
Kraft is engaged in manufacturing and marketing packaged food products, including snacks, beverages, cheese, convenient meals and various packaged grocery products.

Lowes Companies (LOW) - Yield 1.89% - Analysis
Lowe's Companies, Inc. is a home improvement retailer.

M&T Bank (MTB) - Yield 5.57%
M&T Bank Corporation is a bank holding company. As of December 31, 2008, the Company had two wholly owned bank subsidiaries.

Procter & Gamble Co. (PG) - Yield 3.39% - Analysis
The Procter & Gamble Company is focused on providing branded consumer goods.

Wal-Mart Stores, Inc. (WMT) - Yield 2.19% - Analysis
Wal-Mart Stores, Inc. operates retail stores in various formats worldwide.

In addition, Buffett continues to hold a position in several stocks that I sold over the last twelve months for either cutting or failing to raise their dividend. Those are:

Bank of America Corporation (BAC) - Yield 0.35%
Bank of America Corporation (Bank of America) is a bank holding company and a financial holding company.

General Electric (GE) - Yield 9.20%
General Electric Company is a diversified technology, media and financial services company.

The Home Depot, Inc. (HD) - Yield 3.89%
The Home Depot, Inc.is a home improvement retailer selling an assortment of building materials, home improvement and lawn and garden products, and provide a number of services.

SunTrust Banks, Inc. (STI) - Yield 3.04%
SunTrust Banks, Inc. is a diversified financial services holding company whose businesses provide a range of financial services to consumer and corporate clients.

U.S. Bancorp (USB) - Yield 1.04%
U.S. Bancorp operates as a financial holding company and a bank holding company. U.S. Bancorp provides a range of financial services, including lending and depository services, cash management, foreign exchange, and trust and investment management services.

It is not surprising that the most famous value investor holds several dividend stocks. Historically, stocks that pay dividends have out-performed those that don’t. When you buy dividend stocks at a discount, it’s like turbo-charging your return!

Full Disclosure: Long in JNJ, KO, MTB, PG, WMT . See a list of all my income holdings here.


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As the government tries to thaw the credit freeze, the next potential catastrophe is starting to heat up. I am beginning to see more and more written on the pending problem of underfunded pension plans. Unfortunately, this problem could have many faces and take a significant amount of time to sort out.

First, a short primer for those fortunate enough not to be involved in pension accounting. There are two basic types of company sponsored retirement plans - defined contributions (DC) and defined benefits (DB) plans. As the names imply, a DC plan defines what the company will contribute to the plan on behalf of the employee. An example of a DC plan is a 401(k) where the company will match the first 5% contributed by the employee. There is no guarantee of what the employee will get out of the plan. The DB plan in contrast defines the benefit the employee will receive upon retirement, such as a salary of 80% of his or her highest earnings year, weighted by years of service. In the DC plan the employee assumes the risk of under-performance, while in the DB plan the employer assumes the risk.

For DB plans, actuaries will look at the number of employees, their ages, their income and other factors to determine what the company's future liability will be. The actuaries will then look at the invested assets, estimate a future return and determine if the assets will be sufficient to cover the future liability. When the market is spiraling up, assets are usually greater than the liabilities and the company does not have to put any money in the plan, thus it does not have recognize an expense. But when the market is down, as it has been lately, the liability is greater than the assets on hand. This is referred to as underfunded, and over time the company has to come up with cash and recognize an expense.

One of the biggest pension plans in the world is General Motors (GM). A recent New York Times article looked at GM, which hasn't been doing so well lately, and the effect of its underfunded pension plan. As of last November the estimated shortfall in GM pension plan was $20 billion. So what happens if it fails?

If GM's pension plan collapses, the Pension Benefit Guaranty Corporation (PBGC) will pick up part of the tab. However, most of that shortfall would be made up by workers in the form of smaller benefits — not by GM or the PBGC. Unfortunately, this will likely set other pension funds into play. Since GM's plan is so large, its failure will result in the PBGC losing a big source of the premium revenue. But more importantly, other automakers such as Ford, Toyota and Honda will be looking to rid themselves of their DB plans to cut costs and stay stay competitive.

The Pension Protection Act (PPA) and IRS regulations impose restrictions on accelerated payments (e.g. lump sum distributions) when the funding level falls below 80%. This is not just a problem with companies in struggling industries. Tyler Durden in a March 7, 2009 article cites data from a Merrill Lynch Pension Database showing several well-known companies with a projected (data as of 10/22/08) funded status below 80%. Here is a sampling of some traditional dividend companies:

• Johnson & Johnson (JNJ) Deficit: $3.5 billion Funding Status: 70%
  
• Exxon (XOM) Deficit: $3.4 billion Funding Status: 69%
  
• Chevron (CVX) Deficit: $2.6 billion Funding Status: 69%
  
• General Dynamics (GD) Deficit: $2.3 billion Funding Status: 68%
  
• PepsiCo (PEP) Deficit: $1.8 billion Funding Status: 72%
  
• Kimberly-Clark (KMB) Deficit: $1.4 billion Funding Status: 72%
  
• Kraft Foods (KFT) Deficit: $1.1 billion Funding Status: 83%
  

Generations before us relied on defined benefit pension plans to ensure their lifestyle in retirement. Our generation may not have the same luxury. There is one thing this economic and financial downturn has taught us - there are no sure things in life. We must take responsibility for our financial future and mange it.

Full Disclosure: Long JNJ, CVX, PEP, KMB (my income holdings)


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Each Sunday I highlight the Carnivals I participated in over the past week, along with any notable articles that I came across. For those readers not familiar with carnivals, it's where personal finance bloggers submit their best articles of the week with one blog serving as the host. The entries are separated into various categories such as Investing, Credit, Debt, Budgeting, Frugality, Wealth Building, Money Management, Financial Planning, Insurance, Taxes, The Economy, Real Estate, et. al.

Below are the carnivals that I participated in this week, along with a link to my article:

• Festival of Stocks published: Stock Analysis: Kraft Foods Inc (KFT)
  
• Carnival of Personal Finance published: Refining Risk Measurement Of Dividend Stocks
  
• Carnival of Financial Planning published: Double-Digit Dividend Securities In the News
  

Articles I enjoyed reading included (in no particular order):

The DIV-Net Featured Articles

• The Div Guy presented Taxation of Master Limited Partnerships
  
• Dividends4Life presented Stock Analysis: Procter & Gamble Co. (PG)
  
• The Dividend Guy presented The U.S. Dividend Champions
  
• the moneygardener presented Increase Your Dividend Income in 2009!
  
• The Stock Market Prognosticator presented A Freshly Cooled Financial Volcano
  
• Dividend Growth Investor presented When to buy back dividend shares that you have previously sold?
  

Articles From DIV-Net Members

• The Dividend Guy presented Hedging a Dividend Portfolio
  
• Dividend Growth Investor presented Dividend Aristocrats List for 2009
  
• the moneygardener presented more cheese please
  
• Stock Market Prognosticator presented The Words of Wisdom of Henry Clews
  
• The Div Guy presented Worst to First: American Capital (ACAS)
  
• Disciplined Approach to Investing presented The Year Of The Vanishing Dividend Increase: 2008
  
• Living Off Dividends & Passive Income presented What Happens When Demand for US Debt Dries Up?
  
• Old School Value presented List of Merger Arbitrages for 2009
  
• Triaging My Way To Financial Success presented Investment Review - 2008
  
• Barel Karsan presented Home Depot's P/E At Historic Low
• Everyday Finance presented Biotech Seasonal Cycle Extending?
• Contrarian Value Investing presented Poll: How will the stock market end in 09?
• Buy Value presented Canadian Stock Screener
  

The Wealth, Money & Life Network Featured Articles

• Dollar Frugal presented Killing Two Birds With One Stone
  
• Her Every Cent Counts presented Career Advice: 10 Tips to Negotiate a Raise on Hire
  
• How I Save Money presented Suze Orman On the Oprah Show
  
• Saving For A Home Of My Own presented January Goals
  

There are some really good articles here, please take time and read a few of them.

(Photo: Sachin Ghodke)

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This article originally appeared on The DIV-Net December 22, 2008.

Linked here is a PDF copy of my detailed analysis of Kraft Foods Inc (KFT) (alt.1, alt.2). Below are some highlights from the above linked analysis:

Company Description: Kraft Foods is the largest U.S. branded food and beverage company, and the second largest in 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
4. Graham Number

KFT is trading at a discount to 1.) and 3.) above. Since KFT's tangible book value is not meaningful, a Graham number can not be calculated. If I exclude the high and low valuations and average the remaining two, KFT is trading at a slight discount. KFT earned a Star in this section since it is trading at a 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
5. Payout 15% of avg.

KFT earned no Stars in this section. KFT has paid a cash dividend to shareholders every year since 2001 and has increased its dividend payments for 7 consecutive years. Last year's dividend payout was 64%, up from 52% in 2006. Since the increase was in excess of 15 points, a Star is deducted, leaving a net of zero 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.
2. Years to >MMA

KFT earned one Star in this section for 2.) above. The NPV MMA Diff. of the $7,218 is below the $10,000 minimum I look for in a stock that has increased dividends as long as KFT has. If KFT grows its dividend at 7.7% per year, it will take 2 years to equal the cumulative earnings from a MMA yielding an estimated 20-year average rate of 4.61%. KFT earned a Star since its Years to >MMA of 2 is less than 5 years.

Other: KFT is a member of the S&P 500. Its leading global market position has allowed it to build a strong balance sheet and cash flows. The company has used its cash flow to pay increasing dividends and currently has a generous yield in excess of 4%. Due to the relatively stable nature of the company's end markets, the stock should benefit from investors looking for defensive or lower-risk investments. Risks include execution of internal restructuring, competitive conditions, higher input costs and possible disappointing consumer acceptance of new product introductions.

Conclusion: KFT earned one Star in the Fair Value section, lost one Star in the Dividend Analytical Data section and earned one Star in the Dividend Income vs. MMA section for a net total of one Star. This quantitatively ranks KFT as a 1 Star-Very Weak stock.

Using my D4L-PreScreen.xls model, I determined the share price would need to decrease to $23.49 for KFT's NPV MMA Differential to increase to the $10,000 that I like to see. At that price the stock would yield 4.77%.

Resetting the D4L-PreScreen.xls model and solving for the dividend growth rate needed to generate the needed $10,000 NPV MMA Differential, the calculated rate is 8.9%. This dividend growth rate is above the 7.7% used in this analysis.

KFT is a strong international brand and has a lot working in its favor. Before purchasing KFT, I would like to see a higher NPV MMA Differential and lower payout ratio (64% in 2007). My buy price for KFT is $23.49. For additional information on KFT, including its 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.

Full Disclosure: At the time of this writing, I held no position in KFT (0.0% of my Income Portfolio) .

What are your thoughts on KFT?


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Each Sunday I highlight the Carnivals I participated in over the past week, along with any notable articles that I came across. For those readers not familiar with carnivals, it's where personal finance bloggers submit their best articles of the week with one blog serving as the host. The entries are separated into various categories such as Investing, Credit, Debt, Budgeting, Frugality, Wealth Building, Money Management, Financial Planning, Insurance, Taxes, The Economy, Real Estate, et. al.

Below are the carnivals that I participated in this week, along with a link to my article:

• Festival of Stocks published: Stock Analysis: Clorox Co. (CLX)
  
• Carnival of Personal Finance published: American Safari: Stalking Three Great Dividend Stocks
  
• Carnival of Financial Planning published: Stock Analysis: Donaldson Company, Inc (DCI)
  
• Carnival of Money Hacks published: Is Now The Time to Consider Long-term Bonds?
  

Articles I enjoyed reading included (in no particular order):

The DIV-Net Featured Articles

• The Div Guy presented Reasons to buy stock now
  
• Disciplined Approach to Investing presented Dividend Aristocrats Performance With One Week Remaining In The Year
  
• Dividends4Life presented Stock Analysis: Kraft Foods Inc (KFT)
  
• The Dividend Guy presented Online Financial Calculator Suggestions
  
• the moneygardener presented Happy Holidays!
  
• The Stock Market Prognosticator presented A Contrarian Strategy In The Newspaper Industry
  
• Dividend Growth Investor presented When to sell my dividend stocks?
  

Articles From DIV-Net Members

• The Dividend Guy presented An Updated To His Blog
  
• Dividend Growth Investor presented Dividend Aristocrats in danger
  
• the moneygardener presented how did I save so much money?
  
• Stock Market Prognosticator presented An Update on the Energy Patch - Part I
  
• The Div Guy presented To Shell-Shocked Investors, Dividends are Sexy
  
• Disciplined Approach to Investing presented S&P Announces 2009 Aristocrats
  
• Living Off Dividends & Passive Income presented 10 Worst Real Estate Markets In 2009
  
• Old School Value presented Forbes Best Small Companies: Part 4
  
• Triaging My Way To Financial Success presented Competition for Capital
  
• Dividend Money presented Fighting The Herd Mentality
  
• Barel Karsan presented Goodfellow Or Greatfellow?
  

The Wealth, Money & Life Network Featured Articles

• Dollar Frugal presented Restaurant Recipes Online
  
• Her Every Cent Counts presented Daily Dollar Briefs
  
• How I Save Money presented Dave Ramsey’s Baby Steps: My Take
  
• Saving For A Home Of My Own presented Small deposits...
  

Other Articles

• Tim Duy presents The Pursuit of Wealth and Its Consequences
• Mark presents Cheap Stocks Selling For Below Net Cash and Net Tangible Book posted at Stock Pursuit, saying, “A look at some stocks selling below net cash and net tangible book value.”
• Steward presents Dollar Cost Averaging Criticism: High Transaction Costs posted at My Family’s Money, saying, “Dollar Cost Averaging is not without its criticisms - one of which is that it can significantly increase your transaction costs.”
• AlexG presents You don’t need to know if a person weights 250 or 400 pounds to see that they are fat.-Warren Buffett posted at Contrarian Value Investing.
• ABCs of Investing presents Index Funds vs ETFs, and says, "A short comparison of index funds vs exchange traded funds (ETFs)." Timely investments for troubled times.
• The Investor presents Government bonds: An exciting new way to lose money to the bear market posted at Monevator.com, saying, “After the appalling stock market performance of 2008, many advisers and commentators are steering their clients towards government bonds, but with yields at 50-year lows, are treasuries the next bubble to burst?”
• Investing School presents 9 Terrific Investing Websites That is Sure to Suck Up Your Time posted at Investing School, saying, “If you are into investing at all, you need to take a look at these great websites for your research needs!”
• Money Saver presents How to Save Money during the Economic Downturn posted at Save Money Tips.
• Mike C. presents Are TheStreet.com Ratings Great Contrarian Indicators? posted at Stock Investing Tips.
• value investor presents Graham vs. Greenblatt (Session 1) posted at Value Investing.

There are some really good articles here, please take time and read a few of them.

(Photo: Sachin Ghodke)

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What if you don't want to spend your retirement managing and worrying about your portfolio? Put it on Auto Pilot, specifically on a Dividend Investing Auto Pilot. Dividends from a quality, well-diversified portfolio are much more predictable than capital gains and best of all, they are passive. You don't have to do anything, they just show up in your brokerage account each quarter. Inflation? Not to worry, the good companies routinely raise their dividends well in excess of the inflation rate.

Below are several select companies that recently decided to help their shareholders beat inflation by boosting their cash dividends:

• Verizon (VZ) Boosts Qtr. Dividend 7% to $0.46/Share (5.24% yield)
  
• Friedman Industries (FRD) Raises Qtr. Dividend 50% to $0.12/Share (5.99% yield)
  
• Supertel Hospitality (SPPR) Increases Qtr. Dividend 2% to $0.1275/Share (11.11% yield)
• Tyco International (TYC) Boosts Qtr. Dividend 33% to $0.20/Share (1.98% yield)
• Kraft Foods (KFT) Increases Quarterly Dividend by 7.4% to $0.29/Share (3.54% yield)

After running these companies through my D4L-PreScreen.xls model, none achieved the necessary NPV of MMA Differential to justify a full evaluation. Though they were short of my target, VZ ($2,136) had a positive NPV of MMA Differential and shows future potential.

Disclosure: No position in any of the aforementioned stocks.

(Photo: Steve Woods)


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Description: Kraft Foods is a member of the S&P 500 and is the largest U.S. branded food and beverage company. The company is the second largest in the world.

Quantitative Stock Analysis: Updated: 12-22-2008
KFT-Analysis.PDF (alt.1, alt.2)

Share Data:

Click the Dividends tab above to see historical dividend information.

Comments: Updated: 12-22-2008
KFT's leading global market position has allowed it to build a strong balance sheet and cash flows. The company has used its cash flow to pay increasing dividends and currently has a generous yield in excess of 4%. Due to the relatively stable nature of the company's end markets, the stock should benefit from investors looking for defensive or lower-risk investments. Risks include execution of internal restructuring, competitive conditions, higher input costs and possible disappointing consumer acceptance of new product introductions.
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Other Resources:
Dividends4Life Articles
Yahoo Finance
Google Finance
MSN Recent News

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