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?
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Over the last year the financial industry has taken a beating. Many banks have failed while others have taken drastic measures to preserve their future. The markets have recognized the turmoil this and punished bank stocks. Historically, financials are some of the most consistent and highest yielding stocks. As such, they are a cornerstone of most dividend/income portfolios. In my personal portfolio, I held six bank stocks at the beginning of the year. Year-to-date through October 31st, I had earned positive returns on two of them:
2. U.S. Bancorp (USB) - October YTD Return 0.8%U.S. Bancorp was formed through the February 2001 merger of Minneapolis-based U.S. Bancorp and Milwaukee-based Firstar Corp. With almost 2,500 branches throughout the U.S., we view USB as well diversified geographically. USB has a strong market share in many of the areas it competes in. Its low-cost model, geographic and product diversity, large existing customer base, and scale give it a competitive advantage over many of its peers.
Yield: 6.18%
Last Dividend Increase: January 2008 ($0.40 to $0.425)
Buy Below Price: $24.52
Current Price: $27.51
Last Reviewed: 12/27/07
1. BB&T Corporation (BBT) - October YTD Return 19.7%BB&T Corp has a large presence in its home state of North Carolina, as well as in Virginia, with additional offices in Georgia, South Carolina, the District of Columbia, and seven other states. The company exhibits strong credit quality of its loan portfolio, high net interest margin, high loan loss reserves and a long history of profitability.
Since the end of October the market has continued to exhibit a high degree of volatility. As of November 10, 2008 only BBT remains in positive return territory. Be sure of one thing, there will be winners that emerge at the end of this financial crisis. There is also a great deal of risk associated with financials, so do your homework before making any buy/sell decisions.
Yield: 6.10%
Last Dividend Increase: August 2008 ($0.46 to $0.47)
Buy Below Price: $35.79
Current Price: $30.81
Last Reviewed: 6/23/08
Disclosure: Long USB and BBT.
(Photo: Adrian van Leen)
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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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In an utopian world, the perfect dividend stock would be one that is both high-yield and provide a high dividend growth rate. Its share price would appreciate ratable with its increasing dividend. All of this would be driven by increasing earnings and cash flow. Ok, so much for my fantasies, the perfect dividend stock just may be a balanced compromise. Consider the following:
High Yield/Low Dividend Growth: When investors first consider dividend investing, High Yield is where they usually go first. I guess it is human nature to want it now and want a lot of it. Unfortunately, high yield stocks often carry higher than average risk - there is usually a reason that the stock yield is higher than average. It could be because the company is in a limited growth industry, is in a volatile industry, experienced recent financial problems and its share price has fallen, or shareholders perceive future financial problems. I have set aside a small portion of my portfolio to invest in these types of stocks. Examples of these stocks would include:
Low Yield/High Dividend Growth: After being burned on an over-allocation of high yield stocks, would be dividend investors normally start reading-up on the subject. The first thing that they learn is that Dividend Growth is more important than Dividend Yield. While Dividend Yield will stroke you today, Dividend Growth is much more important to long-term wealth creation. Companies in this category tend to be well established, dominate in their market and in industries less affected by cyclical geopolitical factors. However, it is important to note that these stocks carry a different kind of risk. Since your long-term return is dependent on the companies increasing their dividends over many years in the future, there is a real risk of something occurring that would prevent them from executing their strategy. Examples of these stocks would include:
Moderate Yield/Moderate Dividend Growth: This is a category that is not often discussed since most dividend investors focus on the other two categories above. I would classify stocks in this category with yields from 3.5% to 8.0% and a dividend growth rate between 5% and 15%. For some this defines the perfect dividend stock - good current payment with good future opportunity for growth. These companies' stories are varied. For some, they would normally reside in one of the other two categories, but hit a bump in the road. For others they normally reside here due to their growth and risk profile. Examples of these stocks would include:
As with all investments, risk can never be eliminated. However, to minimize risk I employ an asset allocation model. In addition, I limit my investments in each of the above categories.
The dividend growth rates quoted above are the average annual rates from 1998-2007.
Full Disclosure: At the time of this writing I was long in FR, ED, AFL, CNI, GE and USB.
(Photo: sanja gjenero)
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The week before last we mentioned that JPMorgan (JPM), the second-largest U.S. bank, slashed its dividend by 87% to $0.05. Possibly that wasn't quite enough to keep keep big brother happy, so JPM took their quarterly dividend down to $0.01/share. The dividend is to be paid on Friday, April 3, 2009 to common stockholders of record as of Friday, March 20, 2009. JPM closed down 8.14% - it is always good to deliver bad news twice.
Last Wednesday, following in JPM's footsteps, U.S. Bancorp (USB) slashed its dividend by 88% to $0.05/share. U.S. Bancorp Chairman, President and Chief Executive Officer Richard K. Davis said, "The decision to reduce our quarterly dividend was thoughtfully considered and very difficult, given the importance of the dividend to our shareholders." USB closed down 12.48% after the announcement. Then dropped another 18.2% on Thursday.
While the financials continue to wither, some companies are designed to flourish in these difficult economic times. Last Thursday, Wal-Mart (WMT) reported that same store sales, ex-fuel, for the month rose 5.1%, and its Board increased the quarterly dividend 15% to $0.2725/share. WMT's dividend now yields around 2%. This is the 35th consecutive year WMT has raised its dividend. CEO Mike Duke said, "The strength of our operations and the resulting strong financial position allow us to increase our dividend payout to shareholders again this year. Our free cash flow remains strong enough to fund Wal-Mart's growth around the world, make strategic acquisitions and fund returns to shareholders through dividends and share repurchases."
Other companies are poised to perform by raising their cash dividends to shareholders. Here are several that have recently done just that:
For more companies around the world with a long string of consecutive dividend increases, see Dividends Value's Stock Ideas page.
Full Disclosure: Long WMT
(Photo: Steve Woods)
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When the government wants to spend pork, but not call it pork they rebrand it as an "investment" in our future. Such is the case with the Troubled Asset Relief Program (TARP). So, as taxpayers and "investors" how have we fared with our "investment" and how does TARP fit into our dividend portfolios?
In a report issued last Friday, the Congressional Budget Office (CBO) concluded that the Treasury lost more than 25% of the $247 billion it spent as of Dec. 31 bailing out banks, according to a report released on Friday.
The CBO used a modified Black-Scholes option pricing model to value the TARP assets. The calculation was based on the present value of the dividends banks are required to pay taxpayers on the warrants issued in exchange for the funds received. The present value of the warrants was only $183 billion at December 31st, resulting in the Treasury providing a “subsidy” to the banks of $64 billion.
Terms of the TARP agreement require banks to pay back 5% annually in dividends for the first five years, and 9% after that if taxpayers haven’t been repaid. The warrants expire in 10 years. Last Thursday, Lawrence Summers, President-elect Barack Obama’s chief economic advisor, promised that the incoming administration would take steps to improve returns on TARP funds for taxpayers, in part by limiting dividend payouts to shareholders.
Prominent financial companies participating in TARP include:
Some institutions, such as Bank of America, have returned to the trough to feed again off TARP funds. As dividend investors, we must carefully consider whether or not banks participating in the TARP program should be included in our income portfolios.
Full Disclosure: Long BBT, USB
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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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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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January has come and gone and that means 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% |
| Jan/2008 | 3,280 | 4.99% |
| Purchases | 212 | -0.11% |
| Div. Changes | 41 | 0.06% |
| Sales | (27) | 0.04% |
| Dec/2007 | 3,054 | 5.00% |
| Net Changes | 228 | 0.12% |
| Nov/2007 | 2,826 | 4.88% |
For the month dividend income increased $226, while Yield on Cost (YOC) declined 0.01%. These changes were driven by new purchases, divided changes and sales. Let's examine each of the these categories:
Purchases: The $212 increase in annual dividend income and 0.11% decrease in YOC related to the following purchases (yield at the time of purchase):
- $71 USB (5.48%)
- $36 PAYX (3.46%)
- $32 GE (3.37%)
- $43 VFH (2.90%)
- $30 SYY (2.89%)
Dividend Changes: The $41 increase in annual dividend income and 0.06% increase in YOC related to the following dividend changes (a=dividend stated in annual terms, q=quarterly, m=monthly):
- $21 SDY (ETF - 1.77a>2.76a - 0.03%)
- $6 GE (0.28q>0.31q - 0.01%)
- $7 FR (0.71q>0.72q - 0.01%)
- $1 O (0.136125m>0.13675m - 0.00%)
- $6 CNI (correction .01%)
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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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Like virtually everything else in this world Dividend Stocks can be placed into a few categories based on their historic performance and expectations for the future. Here are three broad categories and some representative selections from each:The Good
As you might guess, these dividend stocks that are doing exactly what they should do - consistently raising their dividends each year in spite of troubled economic times. Some of these companies are in sectors that are less affected by the economic downturn, but they have one thing in common, they are well-managed by executives that understand the importance of growing the companies dividends. Here are some examples of these companies:
The Bad
Companies that held their dividends flat. Dividend investors are keying on companies that can consistently raise their dividends year after year. Sometimes a company can't do this this. Instead of cutting the dividend, they hold it flat and try to weather the economic storm. This may not always be a bad thing, because it shows that management understands the importance of maintaining its dividend. Many dividend investors, myself include, may overlook a single flat year. Here are several companies that missed their last dividend increase:
Each of the above stocks has been classified as On The Shelf. That means they 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. As I was writing this article, PFE announced Monday that it was going to slash its second quarter dividend 50%. I immediately sold the stock after its dividend cut.
The Ugly
Companies that cut their dividends. Fourth quarter 2008 was the worst period for dividend cuts since 1956 when Standard & Poor's started keeping records. Unfortunately, the carnage may not be over. UBS Securities strategist Thomas Doerflinger estimates that S&P 500 dividends per share will drop an additional 8% in 2009. That would be the largest decline since the Great Depression and only the eighth time since 1942 that dividends fell in consecutive years. Here are several companies that contributed to the 2008 decline:
Long-term, the best companies to add to our dividend portfolios are those that will continue raising their dividends even during economic downturns. These stocks tend to have conservative payouts less than 50%, which allows them to maintain their dividends during the tough times. They also have growing sales and earnings - you can't continue to pay higher dividends unless you have the earnings to back it up.
Full Disclosure: Long JNJ, KMB, MCD, PEP, PG, WMT, GE, HD, USB
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As part of defining your investing process, don't forget to spend some time understanding risk. Seasoned investors will tell you that you should know your risk profile before starting to invest. There are several tools available on the web to help you gauge your risk profile. Here are a few:
Once you know your investment risk profile, how do you gauge the risk of individual securities in your portfolio or your portfolio as a whole? I tend to weigh the risk on my portfolio as a whole and make adjustments through the selection of more or less risky investments. For my dividend stocks I look at these measures:
1. S&P Qualitative Risk Assessment + S&P S&P Quality Ranking
My broker provides S&P reports on individual securities and most ETF/CEFs. As part of this report S&P includes a Qualitative Risk Assessment and Quality Ranking. They define these as such:
For my tracking purposes, I combine the two into a RQ (risk/quality) rating and assign A (low), B (medium) or C (high) for the Qualitative Risk Assessment and 1 (A+) to 8 (D) for the Quality Ranking. Thus a company such as Coca-Cola (KO) that has a Low Qualitative Risk Assessment and a Quality Ranking of A would be represented as an A2 company in my system. Here are some combined rankings on several popular dividend company's:
capsulize the nature of this record in a single symbol. It should be noted, however, that the process also takes into consideration certain adjustments and modifications deemed desirable in establishing such rankings. The final score for each stock is measured against a scoring matrix determined by analysis of the scores of a large and representative sample of stocks. The range of scores in the array of this sample has been aligned with the following ladder of rankings from highest to lowest: A+, A, A, B+, B, B-, C, D and Not Ranked.
Currently, I don't have any C stocks. My most risky stocks have a rating of B4. I like use this metric to evaluate my dividend stock portfolio in total. The weighted average of my dividend stock portfolio is A3. I am comfortable with that rating, but under the right circumstances I would be willing allow it to fall to B2. If the overall portfolio fell to a B (moderate risk), I would limit the S&P Quality Ranking to a 2 (A). I would never want the overall S&P Quality Ranking to drop below a 3 (A-). Click here to see the RQ rating for all my dividend stock holdings.
2. Current Dividend Yield and NPV of MMA Differential
All things being equal, higher risk stocks command a higher dividend yield. Consider these two extremes:
If you had to invest your life's savings in only one of the above stocks, which would you choose? Your answer will reveal something about your risk tolerance. Obviously, the market believes that WMT is less risky than CTL.
When judging risk I like to look at current dividend yield in conjunction with NPV of MMA Differential. A high yield and a high NPV of MMA Differential could indicate a risky stock. Here are some risky stocks and ETF/CEFs that I am holding based on a high current yield and NPV of MMA Differential:
Many of the recent companies that I sold after a dividend cut resided at or near the top of this list when they cut their dividend. Of the two methods, I have found the second one to be a better indicator of future performance.
In addition, I also look at the current market price vs. my calculated Buy Below price. A large disparity indicates the market believes the stock will perform much differently in the future than it has in the past. As with any forward looking exercise, it is a mixture of art and science.
Full Disclosure: At the time of this writing, I was long in GE, USB, JNJ UTX, PG, WMT, AOD, ETO, CTL, PAYX
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Dividend payers deserve a berth in any long-term stock portfolio. But seemingly attractive dividend yields are not always as fetching as they may appear. Let's see which companies in the banking industry offer the most promising dividends. When hunting for promising dividend payers, unsophisticated investors will often just look for the highest yields they can find. But extremely steep dividend yields can be precarious, and even solid ones are vulnerable to dividend cuts.
I usually like to look at long-term dividend growth rates, but the banking industry has suffered so much upheaval in recent years that those growth rates are negative, and sharply so, for many big banks. The industry seems to be getting its act together, though, and many dividends are rising. I've compiled some of the major dividend-paying players in the banking industry, ranked according to their dividend yields: BB&T (BBT), PNC Financial Services (PNC), US Bancorp (USB), Wells Fargo (WFC) and KeyCorp (KEY).
Source: Motley Fool
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- 10 Higher Yield Dividend Stocks
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Warren Buffet, CEO of Berkshire Hathaway (NYSE:BRKB), now says that holding large reserves of cash for a long time is not sensible. He also told CNBC that a “logical dividend policy” will be discussed in next year’s annual report.
UBS (NYSE:UBS) wants to sell its collateralized debt obligations assembled in 2007, during the current week. The instruments carry a face value of $1.5 billion, and are connected to loans involving hotels, malls and skyscrapers.
Source: Wall St. Cheat Sheet
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Last week, a Barron's article argued that an expected increase in Treasury bond yields could lead investors to ditch dividend stocks for bonds. Yields on 10-year Treasury bonds were at 2.61% at 11:30 a.m. Monday morning, but Sam Stovall of S&P Capital IQ told Barron's that the research firm expects the yield to reach 2.9% by the end of the year and 3.3% by the end of 2015. And when that happens, Stovall continued, investors will replace dividend stocks, which currently popular as the investment with the highest return, with bonds as they did in May 2013 following the announcement of the Federal Reserve's intent to taper its bond buying program.
With this in mind, we ran a screen for investors intent on keeping dividend stocks on hand. We began with a group of stocks that are going ex-dividend this week. Next, we narrowed down that group to high dividend stocks with yields of 2% or greater. We were left with nine stocks on our list. Do you think these dividend stocks with high cash flow are promising income investments? Use this list as starting point for your own analysis, and let us know what you think in the comments: Axis Capital Holdings Limited (AXS), Fifth Third Bancorp (FITB), Fulton Financial Corporation (FULT), Great Southern Bancorp Inc. (GSBC), Home Loan Servicing Solutions, Ltd. (HLSS), Independent Bank Corp. (INDB), Maiden Holdings, Ltd. (MHLD), U.S. Bancorp (USB) and Xerox Corp. (XRX).
Source: NASDAQ
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When a company owner makes a profit, he has two options: invest the money or pay a dividend to its shareholders. Because paying shareholders will entice more investors to buy a stake in the company, many decide to pay out a dividend. Not all companies that pay out a dividend are a good choice. It’s important to research the company, its profits, and the many factors that play into its dividend history. Some of the leading experts in dividend investments provide excellent advice for how to choose the best dividend stocks.
Warren Buffett, a successful dividend investor, shares this tip. He bases his picks on dividend payouts that have at least doubled payouts over the past five years. He also looks at payout ratios, recommending those that are below industry norms. Right now, he’s chosen a few stocks he believes will be a positive dividend investment: Wells Fargo (NYSE: WFC) and U.S. Bancorp (NYSE: USB).
Source: Wealth Daily
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Kelly King, Chairman and CEO of BB&T (BBT), a large U.S. regional bank and vocal critic of the government's bank bailout plan, described its participation in the TARP program as "destructive." King went on to say “Our plan is to repay the TARP funds as soon as it is humanly possible. It creates excessive controls, it has a negative impact on our people and our strategies and it runs a great risk of politicizing the lending process, which is very unhealthy.”
On May 11th, BBT announced that it would sell $1.5 billion of stock and reduce its dividend by 68 percent so that it can repay a $3.1 billion investment. Goldman Sachs & Co (GS), JPMorgan (JPM) and Morgan Stanley (MS) are arranging the stock offering.
Having previously increased its dividend for 37 consecutive years, this is a tough pill for a once-proud Dividend Aristocrat to swallow. King said the decision marked "the worst day in my 37-year career," and pledged to increase the payout when he can. Like most dividend cutters, BBT's shares plummeted falling over 7.5% on the day of the announcement and another 7.5% on the following day.
BBT wasn't the only one running from the government's "help". Two other large U.S. banks that passed the government's "stress test" announced stock offerings on Monday to raise capital in order to repay their TARP debt. U.S. Bancorp (USB), the parent company of U.S. Bank, said Monday that it has launched a $2.5 million public offering of its common stock and Capital One Financial Corp. (COF) also announced a public offering of 56 million shares of its common stock.
As with all individual income stocks that cut their dividends, I immediately sold my entire position in BBT after reading the announcement.
Full Disclosure: No position in the aforementioned stocks. See a list of all my income holdings here.
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Warren Buffett is one of the top investors of the past century. His every move is closely followed by investors and mainstream media. Unfortunately, he doesn't trade very often. When he buys stocks, he holds them for years. So investors who are worried about short-term returns can't really gather much intelligence from Buffett's holdings.
We compiled 10 Warren Buffett stocks that are relatively cheap because they have P/E ratio of below 12 and 52-week returns of lower than 5.%. 1. Wells Fargo & Co. Del (WFC), 2. Wal-Mart Stores, Inc. (WMT), 3. US Bancorp (USB), 4. Washington Post Co. (WPO), 5. M & T Bank Corporation (MTB), 6. Torchmark Corp. (TMK), 7. General Electric Co. (GE), 8. Bank of New York Mellon Corp. (BK), 9. Ingersoll-Rand Company LTD. (IR) and 10. Gannett Inc. (GCI)
Source: Seeking Alpha
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With interest rates on the rise, investing in regional banks is cool again. A popular index has returned more than 30% in just the past year, helped by the so-called "Trump bump" in bank stocks. These three regional banks offer dividend yields that should only grow as time goes on.
But as the market is assigning higher valuations to regional banks, as a whole, investors would be better served shopping for quality rather than bargain banks that are cheap for a reason. Below, I'll outline the case for three regional banks in particular -- First Hawaiian (NASDAQ:FHB), First Republic Bank (NYSE:FRC), and U.S. Bancorp (NYSE:USB).
Source: Motley Fool
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Though there's a good chance your portfolio has taken a pounding of late, it probably pales in comparison to the paper losses Warren Buffett has racked up in six-plus weeks. Since the market peaked, Buffett's investment portfolio at Berkshire Hathaway (NYSE:BRK.A)(NYSE:BRK.B) has lost approximately $87 billion in market value, through April 2. While we won't know the full gamut of companies that Buffett purchased until mid-May, which is when Berkshire Hathaway will file its 13F with the Securities and Exchange Commission, I consider it highly likely that the Oracle of Omaha added to his existing positions in the following four stocks in March...
I'd be very surprised if Buffett didn't put at least some of his capital to work in money-center bank JPMorgan Chase (NYSE:JPM) last month. Perhaps the only other big bank that can really rival JPMorgan Chase in the performance department is U.S. Bancorp (NYSE:USB). Berkshire Hathaway held an 8.7% stake in the company at the end of 2019, leaving enough room for Buffett to add to the position without crossing the 10% ownership threshold. Having first taken a position in grocery store chain Kroger (NYSE:KR) during the fourth quarter of 2019, I find it highly likely that Berkshire Hathaway will have further grown that stake during the first quarter (and likely in March). Finally, don't be surprised if Buffett nibbled on what's been a favorite value stock of late, General Motors (NYSE:GM).
Source: Motley Fool
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