It is good to periodically take a look at your holdings and the various sectors that you are invested in. My single largest sector is financials. It currently makes up 11% of my total investment portfolio. I like to limit any individual sector to 10%, thus I am slightly over-allocated. I am currently invested in six banks. I will be very surprised if I can make the same statement on December 31, 2008. Then again, I have been surprised several times over the last 18 months. At time of this writing, I owned BAC, BBT, MTB, RY, STI and USB.
Bank stocks make up a significant piece of my financials. For most of the year I held these banking stocks:Bank of America Corporation (BAC) -20.9%
The percentages above represent my year-to-date return (through 6/4/2008) for the period I held the stock. Not a pretty picture, for the most part. USB has been the lone bright spot.
BB&T Corporation (BBT) -2.5%
M&T Bank Corporation (MTB) +3.7%
Royal Bank of Canada (RY) -0.9%
SunTrust Banks, Inc. (STI) -20.1%
U.S. Bancorp (USB) +7.9%
Wachovia Corporation (WB) -30.7% -Sold 4/15/2008
In my article "Time is My Friend", I noted that I have too many bank stocks at six (seven with WB in my IRA). It was my desire reduce my bank holdings down to three to four stocks. Later the same month in my "State of the Dividend Address", I identified STI and MTB as my two weakest banks and moved them to "On The Shelf". I opted to wait and let the weakest bank stocks identify themselves over time before selling.
Fast forward to about a month and WB cuts its dividend. As per my policy, I immediately sell the stock. One down. Recently, MTB chose to leave its dividend flat at $0.70 and placed one foot in the grave. In an earlier stock analysis of BAC, I speculated it too would hold its dividend flat in September. As for the others:
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It is good to periodically review the make-up of your portfolio and determine if it is meeting your expectations and is properly allocated. I've determined that I have too many bank stocks. There are currently six, in my dividend portfolio. If I want to limit my dividend stock portfolio to 25 equities, six bank stocks are too many. Three to four banks are appropriate for my portfolio. I have decided the weakest of the six must go. So who will be asked to leave. Let's compare based on March 6, 2008 closing data:
| Description | BAC | BBT | MTB | RY | STI | USB |
| NPV MMA Diff. | 98,490 | 28,293 | 34,311 | 304,230 | 8,812 | 76,113 |
| Yield | 6.82% | 5.91% | 3.56% | 4.18% | 5.46% | 5.35% |
| Div. Growth | 12.4% | 9.5% | 15.6% | 20.0% | 5.5% | 14.1% |
| (Disc.)/Prem. | -15.9% | -17.8% | -20.2 | -17.2 | -2.9% | -4.2% |
| Stars | 4 | 5 | 5 | 5 | 2 | 4 |
STI may seem like a logical choice for dropping due to its low rating. However, the low rating is due to its most recently announced dividend increase to $0.77/share, which lowered its growth rate to 5.5% from 10%. I suspect most of the other banks will significantly lower their growth rate. Let's consider what happens if the dividend growth rate drops to 5%, and 10% for those above 10%:
BAC:
- Dropping the dividend growth rate to 10% drops the NPV MMA Diff. to $47,993
- Dropping the dividend growth rate to 5% drops the NPV MMA Diff. to $14,803
BBT:
- Dropping the dividend growth rate to 5% drops the NPV MMA Diff. to $9,963
MTB:
- Dropping the dividend growth rate to 10% drops the NPV MMA Diff. to $7,395
- Dropping the dividend growth rate to 5% drops the NPV MMA Diff. to $835
RY:
- Dropping the dividend growth rate to 10% drops the NPV MMA Diff. to $12,104
- Dropping the dividend growth rate to 5% drops the NPV MMA Diff. to $2,853
USB:
- Dropping the dividend growth rate to 10% drops the NPV MMA Diff. to $12,104
- Dropping the dividend growth rate to 5% drops the NPV MMA Diff. to $2,853
Based on the above, it appears that STI and MTB are the weak links. However, when I reviewed the cash flow statements MTB and STI's were the strongest. At the beginning of this week and this post, I had full intentions of selling a bank stock. But after this limited review, I have opted to wait. I am confident that one will slip and fall behind the others, and when it does I will ponce on it like a lion and cast it from my portfolio. Sometimes the best move is no move at all. In time the appropriate stocks to divest will begin to reveal themselves. Time is my friend.
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Earlier this week we looked at my top 5 high fliers for 2008. Unfortunately, for every up, there is a down and that is certainly true for my portfolio. As before, we will look at results through July 31, 2008. Here they are my cellar dwellers with comments:
#5 - General Electric (GE) -19.3% Total 2008 Return
Of my cellar dwellers, GE is the one I am most bullish on. I liked it at $38 when I bought my first tranche in July/2007, and liked it even more at $29 when I bought my last tranche this month.
#4 - First Industrial Realty, Inc. (FR) -22.3% Total 2008 Return
This was my first ever dividend investment. It was purchased in December/2003. FR has consistently raised it's dividend since then; and unfortunately, its share price has consistently fell since then. FR has more lives than a cat - each time I give it up for dead, FR raises its dividend.
#3 - SunTrust Banks, Inc. (STI) -31.8% Total 2008 Return
Until recently, STI wore the cellar dweller crown. It very well could be the next bank divested, if it cuts its dividend.
#2 - American Capital Strategies, Ltd. (ACAS) -31.9% Total 2008 Return
ACAS has long been one of my favorite stocks. I have been in and out of it since February/2004 and still have a positive 2.2% life-to-date annualized return. ACAS continues to raise its dividend, but at some point it operating results will have to turn around.
#1 - iStar Financial Inc. (SFI) -63.8% Total 2008 Return
SFI is on a breathing machine and short of an immaculate recovery it likely will not make it to the end of the year. It's 14.6% yield on cost will be missed, while its double-digit share price collapse will not.
I take solace that even with these poor performers, I am still ahead of the S&P 500 for the year. In dividend investing, you can't focus too much on the good or bad. You learn from each and keep your eye on the long-term.
Disclosure: Long in GE, FR, STI, ACAS and SFI.
(Photo: Steve Woods)
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Last week I listed the stocks in my portfolio that I considered to be "My Favorite 5 Stocks for Today". I thought it would be interesting to followup with the stocks that I am holding that are on the other end of the spectrum. It is important to note these picks will change over time (maybe even by the time the market opens on Monday). Below are the 5 stocks in my portfolio that I am the least happy with:
- HD - HD has held its dividend constant at $0.225/share for the last six quarters, and I suspect it will continue for at least one more quarter. That's ok if you have a double-digit yield, but at 3+% I expect more. This stock is currently "On The Shelf".
- WMT - Unlike HD, WMT raised its dividend at the appointed time, but at 8.0% it wasn't enough to keep my model smiling. At the current yield and a lower growth rate the NPV MMA Diff. is now negative. WMT is no longer a buy but is also "On The Shelf".
- STI - As noted in an earlier post, I am holding too many different bank stock (6) and I am looking to sell 2-3 of them. From a total return standpoint STI is my worst performer of all income stocks that I hold, which has put it "On The Shelf".
- MTB - Ditto STI above. From a total return standpoint, MTB is my second-worst performer of all income stocks that I hold, which too has put it "On The Shelf".
- SFI - Within my income investments, SFI is by far my most risky investment. This is reflected in its ~20% yield. SFI is normally above-average when it comes to volatility, but recently, its volatility has been especially high. SFI is currently not "On The Shelf", but I am watching it closely.
Disclaimer: Material presented here is for informational purposes only and is based solely on my opinion. 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 all the above-mentioned stocks.
What are your 5 least-favorite stocks in your portfolio?
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Markets this year have been highly volatile and directionally down. This is depressing for short-term investors, but for us dividend investors it is an exciting buying opportunity! I have been able to increase my position in GE and initiate a position in JNJ. I have been able to increase positions in high yield securities like ACAS, AOD and several banks.
Now a declining market is only good if the companies continue to perform and raise their dividend as expected. Sometimes, for various reasons, that doesn't happen. In yesterday's article "On The Shelf", I described a new concept that I have adopted. In short, if a security is not performing at the desired level for additional purchases, but also is not performing badly enough to warrant a sale, then I will put it "on the shelf". By that I mean it will be set aside within my income portfolio with no additional purchases made until its outlook improves or deteriorates to the point it should be sold.
Let's take a look at several securities that are candidates for the shelf:
Home Depot (HD)
The decline in residential construction has hit HD hard. It has struggled as of late and this has been reflected in its dividend. HD has held its dividend constant at $0.225/share for the last six quarters. Its dividend yield of 3.6% does not allow me to look the other way. Assuming it increases its dividend within a year, the stock could be salvaged, depending on the magnitude of the increase.
Verdict: On The Shelf
Walmart (WMT)
WMT this week raised their quarterly dividend from $0.22/share to $0.2375/share. The market rejoiced and ran WMT's price up. It was one of my few black stocks on that red day, but I was not happy! This was only an 8.0% increase and when I dropped the new dividend rate into my model the NPV MMA Diff. went negative (-2,444). Under the current circumstances WMT was no longer a buy.
Verdict: On The Shelf
SunTrust Bank (STI)
As discussed in my article "Time is My Friend", STI recently raised its quarterly dividend from $0.73/share to $0.77/share. This lowered its growth rate to 5.5% from 10%. Its NPV MMA Dif. is still positive at $9,447. I suspect most of the other banks will significantly lower their growth rate so, as noted in the article, I am taking a wait and see approach to the banks I hold.
Verdict: On The Shelf
M&T Bank Corporation (MTB)
When I started writing "Time is My Friend" I expected the outcome to be a sell for MTB. On a return basis it has been the poorest performer of the banks that I hold. My gut tells me it still may be the first to go once all the dividend increase data is in. As such, I do not think it is appropriate to purchase additional shares at this time.
Verdict: On The Shelf
It is important to continue evaluate your holdings to determine if they merit a buy, hold or sell. I plan to add another section in my holdings for "On the Shelf" securities. These four will be the first to move in. I have an ETF that is eying the neighborhood as well, so stay tuned...
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These are the days that value and dividend investors long for. There have been times in the past where I struggled to find stocks worthy of purchasing. Now, the challenge is to pick the best available stocks that will maximize my chances of future success.
When looking for value priced stocks, the Price-To-Book (P/B) ratio is one that I like to focus on. It is calculated as share price divided by book value per share. Book value is most often calculated as Assets less Liabilities. However, some people conservatively calculate book value as Assets less Intangibles less Liabilities. I prefer the latter since it excludes goodwill and other intangibles which would be difficult to recover in a liquidation.
A low P/B ratio could indicate a stock is undervalued. Since GAAP accounting is mostly based on historical cost, a viable growing company will normally be worth more than its book value. However, there are times when good companies will be punished along with the bad. It is our job as investors to separate the good companies from those that have fundamental problems.
Fortunately, online stock screens make searching through a large number of companies quite simple. This MSN stock screen will identify companies in the S&P 500 with a P/B less than 1 and a dividend yield >3% (MSN screen will likely only work in Internet Explorer):D4L-Cheap Dividend Stocks
The screen produced 21 stocks on 8/3/2008 when I ran it. Some such as Fannie Mae (FNM) were stocks with obvious fundamental problems and not worthy of additional evaluation. Here are 8 familiar names I pulled from the list:
Criteria:
- S&p 500 Member
- Current Dividend Yield >= 3%
- Price/Book <= 1 Company (Symbol), Price/Book, Yield
CBS (CBS), 0.50, 6.76%
Lehman Brothers (LEH), 0.53, 3.65%
Capital One Financial (COF), 0.63, 3.61%
American Capital (ACAS), 0.72, 20.35%
Cincinnati Financial Corp (CINF), 0.83, 5.61%
Amer International Group (AIG) 0.84, 3.29%
SunTrust Banks (STI), 0.85, 7.33%
NiSource Inc (NI), 0.91, 5.49%
This screen is not a buy list, but something to be used to identify stocks that could potentially be a value play. Remember, when stocks go on sale, it is only a good deal when the value you receive is greater than the price you pay!
(Photo: sanja gjenero)
Full Disclosure: Long in ACAS and STI
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It is the first Saturday of the month, so it is time for a goals/progress update. My goals were defined in this December 1, 2007 Investing Goals post. Below is an updated version of the table found in the original post.
| Description | Dividend Income Annualized | Yield on Cost |
|---|---|---|
| 2027 Goal | 110,000 | 20.00% |
| 2017 Goal | 30,000 | 10.00% |
| 2008 Goal | 4,000 | 4.90% |
| Dec/2007 | 3,054 | 5.00% |
| Purchases YTD | 1,029 | 0.12% |
| Div. Changes YTD | 55 | 0.08% |
| Sales YTD | (120) | 0.06% |
| Mar/2008 | 4,018 | 5.26% |
| Purchases | 460 | 0.13% |
| Div. Changes | 1 | 0.00% |
| Sales | 0 | 0.00% |
| Feb/2008 | 3,557 | 5.13% |
| Net Changes | 277 | 0.14% |
| Jan/2008 | 3,280 | 4.99% |
| Net Changes | 226 | -0.01% |
| Dec/2007 | 3,054 | 5.00% |
| Net Changes | 228 | 0.12% |
| Nov/2007 | 2,826 | 4.88% |
As of March 31st, I have already exceed my full-year goal, which tells me I didn't spend enough time coming up with the goal. The basis of my 2008 goal was investing $3,000/month in securities with a 2.5% yield (3000*12*.025=900). I will have a year's worth of data to consider when establishing the 2009 goal later this year and will hopefully develop a more challenging goal.
For the month, dividend income increased $461, and Yield on Cost (YOC) increased 0.13%. These changes were driven by new purchases and dividend changes (no sales in March). Let's examine each of the these categories:
Purchases: The $460 increase in annual dividend income and 0.13% increase in YOC related to the following purchases (yield at the time of purchase):
- $31 VIG (1.69%)
- $195 AOD (12.84%)
- $59 PGN (5.81%)
- $31 SYY (3.08%)
- $128 ACAS (12.03%)
- $16 AFL (1.54%)
Dividend Changes: The $1 increase in annual dividend income and 0.00% increase in YOC related to the following dividend changes (a=dividend stated in annual terms, q=quarterly, m=monthly):
- $3 AFL (0.205q>0.24q - 0.01%)
- $9 PFE (0.29q>0.32q - 0.01%)
- $2 STI (0.73q>0.77q - 0.00%)
- $2 CNI (0.21248q>0.2318q - 0.00%)
- $1 ED (0.58q>0.585q - 0.00%)
- (-$16) ETFs (-0.02 - see below)
Sales: I did not sell any investments in March.
The next monthly progress update will be on Saturday, May 3rd.
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At the end of last week, the market ripped higher presumably from hedge fund manager David Tepper's comments when he said he likes equities here. Now add to the mix another well known manager in John Paulson. His hedge fund Paulson & Co of course made billions from his bet against subprime as detailed in the book, The Greatest Trade Ever. Given his success, everyone now latches onto his every word, hoping for advice.
Paulson did divulge some of his latest views at a lecture for New York's University Club. Simply put, he said to buy stocks and sell bonds. His favorite stocks are blue-chips with dividends such as: Johnson and Johnson (JNJ) and Coca Cola (KO). Playing on his 'recovery' theme, he also continues to like Bank of America (BAC), Suntrust Banks (STI), and Regions Financial (RF).
Source: Seeking Alpha
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I’m sure I don’t have to tell you that all three of these moves (when done right, of course) line our pockets. It’s just a question of how you want your profits: in cash (dividends) or gains (M&A and buybacks, as both juice earnings, and share prices along with them). So today we’re going to zero in on 3 stocks that are doing the best job of using their cash piles to fatten our portfolios, starting with…
SunTrust Banks (NYSE:STI) just rolled out a 25% dividend hike on June 28, after passing the Federal Reserve’s latest “stress test” for banks. It also announced a $2.0-billion share-repurchase program—52% bigger than the previous one. Wyndham Worldwide was a bargain before it renamed itself Wyndham Destinations (NYSE:WYND) and spun off its hotel arm as Wyndham Hotels & Resorts (NYSE:WH) in May … and both stocks are even cheaper now. Prudential Financial (NYSE:PRU) is a buyback machine, having announced $1.5 billion in repurchases back in December, just as tax reform got the stamp of approval.
Source: InvestorPlace
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I continue to be unhappy with the performance of the income ETFs. The dividends tend to be volatile and unpredictable, which is not what a dividend investor is looking for.
Once again it is time for a goals/progress update. With several dividend cuts in October, I am pleased to say that my annualized dividend income still managed to eek out an increase for the month. This kept alive the string of consecutive months of increases dating back to November 2007 when I began tracking it. November 2008 will be a challenge to keep the string going as, I have already experienced one dividend cut. I am well ahead of my 2008 goal; thus, it is unlikely I will fall below it.
My goals were defined in this December 1, 2007 Investing Goals post. Below is an updated version of the table found in the original post.Description Dividend
Income
AnnualizedYield
on Cost2027 Goal 110,000 20.00% 2017 Goal 30,000 10.00% 2008 Goal 4,000 4.90% Dec/2007 3,054 5.00% Purchases YTD 3,236 0.55% Div. Changes YTD 46 0.08% Sales YTD (844) -0.25% October/2008 5,492 5.38% Purchases 850 0.37% Div. Changes 25 0.03% Sales (724) -0.31% September/2008 5,341 5.29%
The above information covers the current month and year-to-date through the current month.
Click here for a Detailed Historical Progress Update Table.
For the month, annualized dividend income increased $151, and Yield on Cost (YOC) increased 0.09%. These changes were driven by new purchases, dividend changes and sales. Let's examine each of the these categories:
Purchases: The $850 increase in annual dividend income and 0.37% increase in YOC related to the following purchases (yield at the time of purchase):
I had higher than normal funds to invest in October due to the sale of the three stocks described below and the third month of a quarter provides the highest dividends in my portfolio. All the above purchases, except BP and AOD lowered my YOC. As noted in earlier updates, I generally expect YOC to drop each month since most new investments will yield less than my current YOC, and dividend increases will not be sufficient to offset it.
Since some of the securities sold were in my risky category, I was comfortable taking a calculated risk on one of the securities. The AOD purchase was opportunistic. I fully expect a future dividend cut, but on the day I bought it, I believed the closed-end fund was trading at a significant discount to the underlying securities. Since I purchased it about a month ago, it is up around 35% in this tough market. Combine that with its previously declared forth quarter dividend (37.05% yield), AOD has the potential to be quite profitable.
Dividend Changes: The $25 increase in annual dividend income and 0.03% increase in YOC related to the following dividend changes (a=dividend stated in annual terms, q=quarterly, m=monthly):
That's it for this time. The next monthly progress update will be on Saturday, December 6th.
(Photo: sanja gjenero)
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Dividend growth stocks deserve a place in your portfolio, no matter how modest the allocation, simply because they often return 100% to 200% or better relatively quickly as their payouts rise. You’ve probably noticed you rarely see your favorite stock paying more than 2% or 3%, even if the company raises its dividend every year. That’s because its price gets bid up as its payout rises – so you never quite get the bargain 4% yield you’re always waiting for, unless something really bad happens (like 2008).
I’d ditch the expensive blue chips for underappreciated midcaps – which usually outperform their larger counterparts anyway. Here are four stocks from my watch list trading at less than 10-times free cash flow. All are growing their payouts quickly AND reducing their share counts meaningfully – a bullish sign of things to come: SunTrust Banks, Inc. (STI), Travelers Companies Inc (TRV), Valero Energy Corporation (VLO) and GATX Corporation (GATX).
Source: InvestorPlace
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AT A media lunch earlier this year, the host - a US investment bank - asked the guests for their views of the market in 2011. My response was: 'Everybody seemed very bullish. When everybody's bullish, it might be prudent to be cautious.' Another guest said his view was that this year would be another good year. And the host said he agreed.
Year to date, the Straits Times Index (STI) has slumped by some 8 per cent. Our portfolios, made up of mostly small-cap stocks, saw a bigger decline of about 13 per cent on average. Against the onslaught of bad news after bad news, the highest dividend yielding portfolio has shown to be the most resilient. It has shed 8.5 per cent year to date.
Source: Business Times
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Most people with money in the market are investing in a nest egg, such as their retirement or their children’s college fund. This is the kind of money that people don’t want to gamble with: they want to invest it with as little risk as is tolerable. They want to invest for the long run and would rather see their money grow slowly but surely than in dramatic swings between profits and losses. For this class of investor, stocks with large dividends have always been a favorite pick.
If you’re interested in dividend stocks, something to look out for are companies that are expected to increase their dividend rapidly in the near future. Here's a look at the top seven: American Tower Corp. (NYSE:AMT), Zimmer Holdings Inc. (NYSE:ZMH), Discover Financial Services (NYSE:DFS), Progressive Corp. (NYSE:PGR), SunTrust Banks Inc. (NYSE:STI), Regions Financial Corp. (NYSE:RF) and Citigroup Inc. (NYSE:C).
Source: Wall St Cheat Sheet
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Big banks continue to struggle and rely on TARP funds to prop them up. Last week Bank of America (BAC) reported a net loss of $0.48 per share for the fourth quarter, well below the consensus of an $0.08 profit. Merrill Lynch's preliminary results indicate a fourth quarter loss of $15 billion due to the turmoil in the capital markets. The U.S. government agreed to provide BAC an additional $20 billion to assist in the Merrill acquisition. In addition, the government has agreed to provide BAC protection against certain losses on $118 billion in selected capital markets.
The TARP money comes with strings. One of which is a reduction of common dividends. BAC declared a first-quarter dividend of $.01 per share. The company's previous two dividends were $0.32 and $0.64 per share. Not to be out done, Citigroup (C) declared a quarterly dividend on the company's common stock of $0.01 per share. Its last two dividends were $0.16 and $0.32 per share.
Tuesday, concern spread to Wells Fargo (WFC) after analysts at Friedman Billings Ramsey said Wells Fargo will likely cut its dividend in the first half of the year because the bank needs to conserve cash. That resulted in a 20% drop in its share price. Then yesterday, SunTrust Banks, Inc. (STI) reported a fourth quarter loss of $1.08 per share and reduced its quarterly dividend from $0.54 to $0.10 per share.
While the big banks are taking government funds and slashing dividends, here are some smaller banks standing strong by raising dividends:
Today's market has been challenging to even the most seasoned investors. Dividend stocks provide an opportunity for long-term growth and income if we follow a few simple rules.
Disclosure: No position in the aforementioned securities.
(Photo: Steve Woods)
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With all the talk about the financial crisis, market melt-downs, Dow/S&P crashing, et. al., the one metric that really matters to each of us individually is the performance of our personal portfolio. So, how is your portfolio doing this year? Mine has performed above expectations.
Investing Goals
Year to date through October, I am up 67%, with no single negative month so far in 2008. I am at 137% of my 2008 goal and expect to go higher. Before you brand me a liar, heretic or worse, let me explain. The above statements are relative to the goals I set for my portfolio, which is not total shareholder return or a specific portfolio size. My goals were defined in this December 1, 2007 Investing Goals post.
My investing goals center around dividend income and yield on cost. If the first step in successfully managing something is to set a goal, then the logical second step is to determine how to measure your progress to ensure you are moving toward your goal.
Align Your Goals With The Desired Results
If you are a long-term buy and hold income investor, does the absolute size of your portfolio matter? Put another way, if you need to generate $100,000 of income each year to live on, does it really matter if that income is generated from a $900,000 or $1,100,000 portfolio?
Many people make the mistake of setting the wrong goal, such as 'I want to be a millionaire' or I want a portfolio of certain size. Okay, once you have a million dollars or a large portfolio, what are you going to do with it? Will it be enough for you to live on? How do you plan to make it work for you?
Resiliency In The Face of Adversity
Like most investors, my portfolio's 2008 return is negative. However, it has performed significantly better than the S&P. Relative to its goal of increasing dividend income, my portfolio has faced adversity during the year:
Three stocks cut their dividend, resulting in an immediate sale:
In addition, three stocks have been put "On The Shelf" after not increasing their dividend:
There will likely be other problem stocks before the financial crisis is over. However, one of the true advantages of income investing over capital appreciation is it can be successful in any type of market conditions.
Disclosure: Long GE, HD and RY
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When I add a stock to my dividend portfolio, it is my intention to hold the stock forever. However, sometimes selling a stock is the right thing to do. In determining when to sell a dividend stock, I have one hard and fast sell rule: When an individual stock held as a dividend investment lowers its dividend, immediately sell it. This rule has served me well. Since I have begun chronicling by investments online, there have been several stocks I sold immediately after a dividend cut. Here is a list of those stocks with my exit price and a recent price:Symbol Date Sold Sell
PriceRecent
Price% Washington Mutual Inc. (WM) 12/11/2007 $18.11 $0.00 100% Wachovia Corporation (WB) 4/15/2008 $25.89 $5.54 79% iStar Financial Inc. (SFI) 10/3/2008 $2.32 $1.09 53% Bank of America Corporation (BAC) 10/7/2008 $28.50 $3.14 89% SunTrust Banks Inc (STI) 10/28/2008 $36.43 $9.36 74% First Industrial REIT (FR) 11/4/2008 $10.22 $2.51 75% American Capital Ltd (ACAS) 11/11/2008 $6.50 $0.59 91% Pfizer Inc (PFE) 1/27/2009 $15.64 $12.73 19% General Electric Co (GE) 2/27/2009 $8.59 $7.06 18% US Bancorp (USB) 3/4/2009 $12.70 $8.82 31%
The "%" column is the percentage decrease between the "Sell Price" and "Recent Price". As you can see, each of the stocks continued to fall after it was sold. That adds substantive evidence that my sell after a dividend cut rule is the correct thing to do. With that said, I have begun to question if there were other indicators that should have led me to an earlier sale. Four of the above stocks have one other thing in common - they froze their dividend before cutting it. The table below shows those stocks and the price on the dividend freeze date (declaration date), along with the three stocks I currently hold with a frozen dividend:Symbol Date Froze Freeze
Price"Sell
Price"% Bank of America Corporation (BAC) 7/23/2008 $30.64 $28.50 7% Pfizer Inc (PFE) 12/15/2008 $17.36 $15.64 10% General Electric Co (GE) 9/25/2008 $25.25 $8.59 66% US Bancorp (USB) 9/16/2008 $33.34 $12.70 62% Home Depot Inc (HD) 11/15/2007 $29.07 $18.00 38% M&T Bank Corp (MTB) 7/23/2008 $68.51 $31.85 54% Royal Bank of Canada (RY) 8/28/2008 $45.68 $22.99 50%
The "Freeze Price" is the closing price the first trading day after the dividend freeze was announced. The "Sell Price" for the first four (those that I have already sold), is the actual price I sold it for and for the three I still hold it is a recent price. Based on the above, it appears the prudent thing to do would be to sell a stock after it freezes its dividend. Like a dividend cut, an investment with a froze dividend is no longer aligned with my dividend portfolio’s goal of building an ever-increasing source of dividend income.
Care should be taken in considering that not only have the above stocks fell over the last year or so, but virtually every other stock has fell. So what appears to be hard and fast rules in this market, will need to be evaluated under different phases of the cycle. But for now, selling after a dividend cut or a dividend freeze appears to be a prudent rule to follow. However, I do not see the dividend freeze rule as stringent as the dividend cut rule. Each situation needs to be evaluated and sometimes an immediate sale is not warranted. Considering all this, I would phrase my dividend rule as such:When an individual stock held as a dividend investment freezes its dividend, this is a strong sell indicator. The specific facts and circumstances should be immediately evaluated and continuously monitored until the stock is either sold or it increases its dividend.
If it is decided not to sell the stock, the pressure to sell should increase as time passes. Another strong indicator to sell would be if the dividend freeze persists long enough to incur a flat dividend year-over-year. Dividend freezes need to be monitored closely. In many instances they are the first step to a dividend cut.
Full Disclosure: Long HD, MTB, RY
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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:
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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