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

Company Description: Pfizer, Inc. engages in the discovery, development, manufacture, and marketing of prescription medicines for humans and animals in the United States, Europe, Canada, Asia, and Latin America.

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. PFE is trading at a discount to all but 4.) above. If I exclude the high and low valuation, and average the remaining two valuations, PFE is trading at a 16.7% discount. PFE earns a Star for 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 and 5.) Payout 15% of avg. PFE earned a Star in 3.) above. It has increased its dividend for 10+ years. However, a Star is deducted because the current dividend payout of 96% exceeds 10-year average of 77% by more than 15 points.

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. PFE earned both available Stars in this section. Its current yield of 6.04% is in excess of the high-yield MMA rate of 4.61% and its NPV MMA Diff. is $37,063.

Other: PFE is both an S&P 500 Dividend Aristocrat and a member of The Broad Dividend Achievers™ Index. It has increased its quarterly cash dividend payments for 41 consecutive years. PFE recently raised its dividend 10%.

Conclusion: PFE earned one Star in the Fair Value section, a net of zero Stars in the Dividend Analytical Data section and two Stars in the Dividend Income vs. MMA section for a total of three Stars, which rates it as a 3 Star-Hold.

PFE is at a cross-road. Earnings have declined somewhat as key drugs come off patent. Its Lipitor patent expires in 2010. Lipitor accounts for about a fourth PFE's sales. PFE has not introduced a "home-run" drug for sometime. However, the near-term (~2 years) outlook is good. I continue to add PFE in modest amounts as my allocation and PFE's valuation allows .

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 own shares of PFE (2.4% of my Income Portfolio).

What are your thoughts on PFE?


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Summary only...

Investors have long enjoyed a love-hate relationship with pharmaceutical stocks. This sector is unique in that their products are effectively scheduled for obsolescence via expiring patents. As such, a pharmaceutical company's pipeline of new products is just as important, or maybe more important, than the company's current offerings.

Let's play the part of Goldilocks and take a look at three leading pharmaceutical stocks and see how they stack up as potential dividend income investments (financial information as 9/19/2008):

Abbott Laboratories (ABT) - Yield 2.48%
ABT operates in five segments: Pharmaceutical, Nutritional, Diagnostics, Medical Devices and Animal Health. During 2007, pharmaceuticals accounted for 57% of operating revenues.

ABT's major products include: Humira to treat rheumatoid arthritis and psoriatic arthritis ($3.0 billion in 2007 sales); Biaxin a broad-spectrum antibiotic($724 million); Depakote a leading anti-epileptic and bipolar disorder drug ($1.6 billion); Kaletra an anti-HIV medication ($1.3 billion); and TriCor cholesterol treatment ($1.2 billion).

ABT has a relatively strong new product pipeline, with possible significant launches in both the medical device and pharmaceutical areas. Risks include generic competition to Synthroid and Biaxin, and pipeline disappointments.

Buy Below: $36.67
9/19 Close: $58.60
NPV MMA Diff: ($1,054)

Goldilocks Says: ABT is Too Hot! It is a good company with good near-term prospects. Unfortunately, it has already been priced into the stock. I last reviewed ABT on July 21, 2008 with a similar result.


Pfizer Inc. (PFE) - Yield 7.12%
The world's largest pharmaceutical company, Pfizer produces a wide range of drugs across a broad therapeutic spectrum.

PFE's major products include: Lipitor the world's largest-selling cholesterol-lowering agent (sales of $12.7 billion in 2007); off-patent Norvasc antihypertensive ($3.0 billion); Caduet a combination of Lipitor and Norvasc ($568 million); Zyvox a treatment for severe bacterial infections ($944 million); Vfend an antifungal ($632 million); Lyrica a treatment for nerve pain and epileptic seizures ($1.8 billion); Geodon an antipsychotic ($854 million) and Xalatan/Xalcom for glaucoma ($1.6 billion).

PFE is facing two significant problems: Patents expiring and a weak pipeline. Near-term expiring patents include Lipitor (estimated to expire 2010), Aricept for Alzheimer’s (2010) and Xalatan for glaucoma (2011).

Buy Below: $27.72
9/19 Close: $18.55
NPV MMA Diff: $60,093

Goldilocks Says: PFE is Too Cold! A recent agreement with generic drugmaker Ranbaxy delaying that U.S. launch of a generic version of Lipitor until the end of November 2011 will extend Lipitor's cash cow status and temporarily ease dividend concerns. However, PFE needs a blockbuster release to replace Lipitor. An obvious replacement is not in the pipeline. I last reviewed PFE on March 17, 2008 and expressed pipeline concerns then.

Eli Lilly and Co. (LLY) - 4.14%
LLY is a leading producer of prescription drugs offers a wide range of treatments for neurological disorders, diabetes, cancer, and other conditions. The company also sells animal health products.

LLY's major products include: Zyprexa, schizophrenia and bipolar disorder (sale of $4.8 billion in 2007); Cymbalta, a potent antidepressant, ($2.1 billion); Diabetes care products ($3.2 billion); Gemzar, lung cancer and pancreatic cancer ($1.6 billion); Cialis, erectile dysfunction ($1.2 billion); Evista, osteoporosis ($1.1 billion); Alimta, lung cancer ($854 million); Forteo, osteoporosis ($709 million); and Humatrope, human growth hormone ($441 million).

Zyprexa has a patent expiration of 2011. Actos for Type 2 diabetes goes off patent the same year.

Buy Below: $45.12
9/19 Close: $46.69
NPV MMA Diff: $4,978

Goldilocks Says: LLY is Just Right! (Well, Almost) LLY has a diverse drug portfolio with limited near-term patent expiration exposure, and more importantly a robust pipeline. LLY is trading slightly over my buy below price. It will periodically dip below the $45.12 (such as last week). I last reviewed LLY on March 17, 2008 and felt it was a good buy on dips.

The buy below price is the minimum of the Mid-2 (as described in Fair Value Data) and price needed to generate the minimum NPV MMA Diff. (as described in Measure What's Important) with a 5% premium added for ABT and LLY. As always, you will need to do your own research and reach your on conclusion as to appropriateness of adding any of these securities to your portfolio.

Disclosure: Long in PFE.


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Summary only...

The renewing of life. There is nothing more natural than the live birth of a child. In this birth there is life, hope, unlimited potential, and yes, eventually death. Though we don't like to focus on it, death is just as natural as birth. In much the same way, it is natural for a percentage of dividend stocks to fail each year, either in not raising their dividend or literally ceasing to exist. As we plan for out own death by buying life insurance and making final arrangements, we must have a plan in place for when inevitable happens and we must sell an under-performing dividend investment.

Dividend investors are looking for solid companies that consistently grow their dividends. Last week Pfizer Inc. (PFE) cut its dividend by 50%, and as such is no longer suitable for my dividend portfolio. The quandary faced when selling a stock after a dividend cut is replacing the lost income without assuming undue risk. As with most stocks, PFE's price had declined over time and the stock was yielding over 7% prior to the dividend cut announcement. Immediately, after the announcement the stock dropped 7% and was only yielding around 4%. Fewer dollars are now available to replace income from the previous higher yield. So what do you do to replace this income without assuming unreasonable risk?

Fortunately, I had built up a risk reserve by purchasing lower risk stocks and trimming my positions in higher risk investments over the last several months. My portfolio was poised to take additional risk, but I limited the risk to the amount needed to replace the lost income. This was done in a two step process:

1. With the cash received from the PFE sale, I purchased shares of Eli Lilly and Co (LLY) to help preserve my sector allocation. At the time, LLY was yielding slightly over 5% and was rated less risky than PFE prior to the announcement. This dividend income from this purchase fell well short of that lost from the PFE sale.


2. With limited funds available, I had to assume additional risk to get yield needed to maintain the prior level of dividend income. To accomplish this, I opted to purchase a small block of CenturyTel Inc (CTL) yielding around 10%.
   

PFE and CTL were both classified as high risk stocks and each had the exactly same risk rating. With LLY classified as a medium risk stock, I now had fewer dollars in the higher risk category, thus the overall risk of my portfolio is now lower and I am earning slightly more dividend income. There are good and bad ways to increase your portfolio's return. As the old saying goes, when life hands you lemons, choose to make lemonade.

(Photo Credit)


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Summary only...

Standard & Poor's has speculated that the dollar amount of S&P 500 dividend payments will drop 10% in the fourth quarter, the biggest drop since 1958. However, more than half of companies will pay more in 2008 vs. 2007. This oddity is driven by the banks, which have historically paid some of the highest dividends. As any dividend investor can tell you, the banks have led the way in dividend cuts. In September and October, 16 financial companies cut their dividend payments by $14.6 billion.

S&P 500 Dividend Aristocrats is designed to measure the performance of S&P 500 index constituents that have followed a policy of consistently increasing dividends every year for at least 25 consecutive years. The constituents are equally weighted and rebalanced each quarter. Members are removed during the December update if calendar-year dividends did not increase from the previous year, or they are removed intra-year if the stock is dropped from the underlying S&P 500.

Dividend investors have a lot to be thankful for. The 60 companies making up the Dividend Aristocrats have outperformed the S&P 500 index year-to-date by almost 12 percentage points.

SmartMoney recently published a dividend growth stock screen with the following criteria:

• Past year dividend growth greater than 10%
• Ten-year average dividend growth greater than 10%
• Price/free-cash-flow ratio below 20
• Dividend yield greater than 3%

That screen produced the following 6 stocks:

• Caterpillar (CAT) - 4.64% current yield - Last reviewed: 9-10-2008
  
• Darden Restaurants (DRI) - 4.84% current yield - Last reviewed: n/a
  
• Garmin Ltd. (GRMN) - 4.32% current yield - Last reviewed: n/a
• Intel (INTC) - 4.27% current yield - Last reviewed: 10-6-2008
  
• Pfizer (PFE) - 7.86% current yield - Last reviewed: 3-17-2008
• Black & Decker (BDK) - 4.24% yield - Last reviewed: n/a

Of the stocks that I have reviewed, I currently rate:

• CAT as a 4 Star-Buy with a buy below price of $43.22
  
• INTC as a 4 Star-Buy with a buy below price of $21.21
• PFE as a 3 Star-Hold with a buy below price of $27.72

After running the remaining 3 companies through my D4L-PreScreen.xls model, BDK with a NPV of MMA Differential of $49,200 qualifies for a more complete evaluation. However, since it is time for a dividend increase and BDK has only increased its dividend for 5 consecutive years, I would wait to see what the company does prior to performing a full evaluation. DRI has only seriously raised their dividend for the last 3 years. GRMN has only paid a dividend (annual) since 2003.

As always, you should never act solely on a screen or recommendation. You should perform your own research and reach your own conclusion before buying or selling an investment security.

Sources:
S&P 500 Dividend Aristocrats
6 Stocks With Improving Dividends

Full Disclosure: At the time of this writing, I was long in CAT, INTC, PFE


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Summary only...

Pfizer (PFE) has been named as a Top 25 ”Dividend Giant” by ETF Channel, with a stunning $6.53B worth of stock held by ETFs, and above-average ”DividendRank” statistics including a strong 3.68% yield, according to the most recent Dividend Channel ”DividendRank” report.

The report noted a strong quarterly dividend history at Pfizer and favorable long-term multi-year growth rates in key fundamental data points. The annualized dividend paid by Pfizer is $1.20 per share, currently paid in quarterly installments, and its most recent dividend ex-date was on 02/03/2016.

Source: InvestorPlace

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Summary only...

It seems each week another dividend Aristocrat, Achiever or Champion cuts its dividend after increasing it for 10 or more years. In most cases the companies' investors were not surprised because they saw the early warning signs that indicated a dividend cut was imminent. Here are three signs that a company is heading toward a dividend cut:

I. Change In Business Conditions

An abrupt or permanent shift in a company's business model as a result of business conditions could lead to a dividend cut. Over the last 18 months or so, virtually all businesses have experienced an adverse change in business conditions. However, the pertinent question is to what degree?

Consider Gannett Co. (GCI) who publishes 90 daily U.S. newspapers, nearly 1,000 non-daily publications in the U.S., and close to 300 U.K. titles. With the mass adoption of the internet, traditional news outlets such as newspapers are experiencing a slow death. GCI cut its dividend earlier this year after several years of declining earnings.

Pfizer's (PFE) recent dividend cut would fall in this category. After years of unsuccessful attempts to get approval of a "blockbuster" drug, the cash rich company sought a merger partner with a good drug pipeline. In anticipation of it proposed combination with Wyeth, PFE cut its dividend.

II. Dividend Yield Above Historic and Industry Norms

A dividend yield that is higher than average and/or higher than others in the industry are indications, not all is well with the company. The market is adjusting to compensate for the higher risk of holding the company. When dividend yields start creeping up, it is time to start evaluating if the company can continue to pay its dividend.

Consider Bank of America Corp. (BAC). Between 2000 and 2007 the company's dividend yield hovered in the 3%-4% range. In 2008, the dividend yield ranged from around 5% to the teens prior to its dividend cut. The same situation occurred with General Electric (GE) over the same period. GE's dividend yield from 2000-2007 normally were in the range of 1.5%-3.5%. However, in 2008 they the dividend yield than doubled as investors lost confidence in the company. Eventually, BAC and GE cut their dividends.

III. Diminishing Cash Available to Pay Dividends

Ultimately, the ability of a company to pay its dividend is determined by its cash position - both cash on its balance sheet and its ability to generate cash flow. All the companies above had one thing in common - a deterioration of cash flow available for paying dividends.

After GCI's free cash flow peaked in 2004 at $1.3 billion, it slipped over the next four years to $852 million in 2008. Though GE's free cash flow was increasing, the company was taking on significant debt. GE's debt increased from $201 billion in 2000 to $524 billion in 2008 and it could no longer afford its dividend.

A Look Ahead

Unfortunately, there will be more dividend cuts in the coming days. Two companies currently on my radar are Nucor Corp. (NUE) and Caterpillar Inc. (CAT).

On March 17th, NUE warned of a first quarter loss as the slumping economy sapped demand for the metal forcing it to cut output. "The economy has fallen off a cliff -- and there is no visibility as to the timing of the recovery," Nucor Chairman, Chief Executive and President Dan DiMicco said in a statement. NUE's free cash flows through 2008 had been strong and it ended 2008 with $920 million net debt (debt less cash) vs. $879 million in 2007. NUE is ok for now, but I look forward to reading their Q1 earnings release.

Last week CAT announced that its global machinery sales fell 27 percent in February, the third straight month of declines as the economic downturn has eroded demand for heavy equipment. In a separate announcement the company said it had notified an additional 2,454 workers in three states that they were losing their jobs as the company continues to try to bring production in line with plummeting demand. CAT's financial position is not as strong as NUE. Its free cash flow in 2008 was less than half of 2007 and it ended 2008 with no cash and $33 billion in debt vs. $27 billion net debt in 2007. This is another quarterly earnings release that I look forward to reading.

The above three items will help you determine which companies are at risk of cutting their dividends. Cash is king, so pay special attention to free cash flows and debt levels.

Full Disclosure: Long CAT and NUE.

(Photo Credit)

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Summary only...

The election is over and no matter how you feel about Obama, he will be the next U.S. president. Some economists are projecting total government borrowing in excess of $1.5 trillion in the fiscal year ending next September. Such a sharp increase in new debt could push up interest rates and continue the downward pressure on the stock market. Even in a down market, there are always winners. Let's take a look at some of the possibilities:

Energy
There is a belief that the new administration will channel money to the energy sector, such as solar energy and hybrid cars, as a way to stimulate the economy. Some possible beneficiaries include:

• Suntech Power Holdings (STP)
  
• SunPower Corp (SPWRA)
• Energy Conversion Devices Inc. (ENER)

Defense
Against conventional wisdom, U.S. defense contractors tend to do well Democratic administrations. Winners would include:

• Lockheed Martin (LMT)
  
• Northrop Grumman (NOC)

Pharmaceuticals
With the credit crisis in the forefront, healthcare reform will likely be low on the priority list. That should provide stability for drug stocks and to investors seeking safety after a rough ride in the market. Stocks to consider:

• Abbott Laboratories (ABT)
  
• Eli Lilly and Co (LLY)
• Pfizer Inc (PFE)

Financials
Banks may be the big losers in an Obama administration. There could be pressure put on banks to help borrowers avoid foreclosure by renegotiating mortgages. Also there could be pressure to lower fees on credit cards. Some banks that will feel the pressure include:

• Bank of America Corp./Countrywide (BAC)
• J.P. Morgan Chase & Co. (JPM)
  

Times will certainty be different, but it is important to remember a sound dividend investing philosophy historically has withstood the tests of time through both democratic and republican administrations. Don't make the mistake of sitting on the sidelines.

Disclosure: Long LLY and PFE

References:
- How stock sectors might fare in an Obama administration
- U.S. Debt Could Tie Obama's Hands


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Summary only...

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 Price	Recent 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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Summary only...

When investors purchase their initial position in a stock, it is usually after their most rigorous research. Once a stock is in their portfolio, some investors relax on the research for subsequent purchases. Each and every time you purchase a stock, you should run it through the same process as if you were buying it for the first time.

Case in point, my income portfolio currently consist of 8 ETFs and 27 individual stocks. Of the 27 individual stocks, only 7 of them would I consider purchasing today based on their valuation. They are listed below along with their buy below price and other information as of 9/12/2008:

AFLAC Inc (AFL) - Yield: 1.65%
Buy Below: $66.75
9/12 Close: $58.60
NPV MMA Diff: $13,075
Concern: The above data assumes a very aggressive dividend growth rate of 20%. With a low yield of 1.65%, AFL needs the high growth rate to be viable. From 1998-2007 the dividend growth rate averaged 22.3% with a low of 11.8% in 2001 to a high of 45.5% in 2007. Another concern is AFL's currency exposure in Japan, where roughly 75% of the company's earnings are derived.

BB&T Corporation (BBT) - Yield: 5.72%
Buy Below: $35.79
9/12 Close: $34.05
NPV MMA Diff: $10,573
Concern: BBT's exposure to the banking industry's current issues with funding and credit quality.

BP Plc (BP) - Yield: 6.29%
Buy Below: $83.28
9/12 Close: $54.79
NPV MMA Diff: $34,463
Concern: Failure to come to an understanding with Russia over its operations in the region (TNK-BP), inability to diversify away from Russia and terrorism could adversely affect BP's future performance.

General Electric (GE) - Yield: 4.40%
Buy Below: $32.69
9/12 Close: $26.75
NPV MMA Diff: $8,103
Concern: Slower-than-expected global economic growth, as well as manufacturing and regulatory problems and the potential for higher delinquency rates in GE's financial services segment.

Paychex Inc (PAYX) - Yield: 3.65%
Buy Below: $49.88
9/12 Close: $34.01
NPV MMA Diff: $149,426
Concern: The highly competitive nature of the outsourcing industry as well as the threat of new entrants into the human resources segment could pose problems for PAYX in the future.

Pfizer Inc. (PFE) - Yield: 6.96%
Buy Below: $27.72
9/12 Close: $18.62
NPV MMA Diff: $56,099
Concern: Patent expirations and pipeline uncertainties could cause PFE significant problems in the future if left unresolved.

Royal Bank of Canada (RY) - Yield: 3.99%
Buy Below: $49.08
9/12 Close: $46.46
NPV MMA Diff: $250,334
Concern: A further weakening of the Canadian economy, which grew at only 0.3% in the June quarter, a prolonged housing-related downturn in the United States economy, and unexpected sharp currency fluctuations.

The buy below price is the minimum of the Mid-2 (as described in Fair Value Data) and price needed to generate the minimum NPV MMA Diff. (as described in Measure What's Important). As always, you will need to do your own research and reach your on conclusion as to appropriateness of adding any of these securities to your portfolio.

Disclosure: Long in all the aforementioned securities.


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Summary only...

Is General Electric (GE) the next major company to cut its dividend after holding it flat for a period of time? Last year, in a public statement GE CEO Jeff Immelt said that GE would hold its dividend flat through 2009. Recently, there has been mounting pressure on the company that may make that promise difficult to keep.

Last month, Standard & Poor’s (S&P) lowered its outlook on General Electric’s debt ratings to “negative”. S&P said there was at least a one-in-three chance it would cut GE’s grade from triple-A within the next two years. A rating cut would raise the company’s borrowing costs, diminishing a key advantage GE Capital has had over its competitors.

In a further tightening of the noose, Sterne Agee analyst Nick Heymann said the company likely faces a serious decision - sustain the dividend or the AAA rating. Heymann thought a rating change would not come until the first-quarter or second-quarter financial results are released in April and July, respectively.

Only a precious few companies still carry the AAA debt rating. They include Berkshire Hathaway Inc. (BRK.A), Exxon Mobil Corp (XOM), Johnson & Johnson (JNJ) and Pfizer Inc. (PFE).

For those of us who include dividends from GE stock in our retirement plan, we may want to reexamine our retirement vision.

Disclosure: Long GE, JNJ, PFE.

(Photo: Steve Woods)


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Summary only...

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:

• Johnson & Johnson (JNJ) in May 2008 increased its quarterly dividend 10.8% to $0.46/share
  
• Kimberly-Clark Corporation (KMB) in March 2008 increased its quarterly dividend 9.4% to $0.58/share
  
• McDonald's Corp. (MCD) in November 2008 increased its quarterly dividend 35.1% to $0.50/share
  
• Pepsico, Inc. (PEP) in June 2008 increased its quarterly dividend 13.3% to $0.425/share
  
• Procter & Gamble Co. (PG) in April 2008 increased its quarterly dividend 14.3% to $0.40/share
  
• Wal-Mart Stores Inc. (WMT) in April 2008 increased its quarterly dividend 8.2% to $0.238/share
  

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:

• General Electric Co. (GE) last raised its dividend December 2007
  
• The Home Depot, Inc (HD) last raised its dividend November 2006
  
• Pfizer Inc. (PFE) last raised its dividend November 2007
  
• US Bancorp (USB) last raised its dividend December 2007
  

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:

• Bank of America Corporation (BAC) first dropped its dividend in December 2008
  
• Fifth Third Bancorp (FITB) first dropped its dividend in June 2008
  
• KeyCorp (KEY) first dropped its dividend in August 2008
  
• Regions Financial Corp. (RF) first dropped its dividend in September 2008
  

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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I always enjoy this time of year. The Christmas music, decorations, family gatherings, holiday plays and stock picks. Stock picks? Yes, 'tis the season for stock predictions! Virtually every financial writer will pen an article selecting his or her top picks for the upcoming year. I enjoy reading them and the logic behind them. As a long-term buy and hold investor, generally most aren't useful for me; nevertheless, I enjoy reading them. Here are some excerpts and picks from several of the experts:

In Jubak's Journal, Jim Jubak believes the markets will recover before the larger economy does. He provides 5 picks for the beginning of the year and 5 for later, with lots of caveats. His 5 best stocks for the first half of 2009:

• Deere (DE) - a farm machine producer that tracks the price of agricultural commodities.
• Enbridge (ENB) - a natural-gas and oil pipeline company that has a 3.8% yield.
• ExxonMobil (XOM) - the world's best integrated oil company for the current environment. [reviewed July 7, 2008]
  
• Flowserve (FLS) - It makes pumps and valves for moving everything from water to oil and has a yield of 2%.
• Rayonier (RYN) - a producer of wood products and an owner of timberland. Yield: 7.2%.

His 5 best stocks for the second half of 2009:

• Goldcorp (GG) - the world's low-cost producer of gold.
• Google (GOOG) - the dominant Internet search company just gets more dominant.
• HSBC (HBC) - the best banking franchise left standing in Asia.
• Petrobras (PBR) - The Brazilian national oil company has dozens of new fields under development. It was added to Jubak's Picks on Aug. 26, 2008.
• Thompson Creek Metals (TC) - the second-largest private producer of molybdenum in the world.

In their normal fun and frivolous way the Motley Fool picks The Best Stocks for the Year Ahead. Here are six of them:

• Yum! Brands (YUM) - a quick service restaurant with over 35,000 units in more than 100 countries and territories.
  
• PepsiCo (PEP) - a global snack and beverage company. [reviewed May 26, 2008]
• Coca-Cola (KO) - a manufacturer, distributor and marketer of nonalcoholic beverage concentrates and syrups. [reviewed October 22, 2008]
• Philip Morris International (PM) - an international tobacco company.
• Kinder Morgan Energy Partners (KMP) - a pipeline transportation ad energy storage company in North America.
• Enterprise Products Partners (EPD) - a North American midstream energy company.

Fortune magazine in their The best stocks for 2009 article points out the silver lining of the market meltdown: Equities are cheaper than they've been in years. They predict that these ten prospects will flourish during 2009:

• Altria (MO) - is the holding company of Philip Morris USA Inc. (PM USA) and John Middleton, Inc., which are engaged in the manufacture and sale of cigarettes and other tobacco products.
• Annaly (NLY) - a real estate investment trust (REIT) that owns and manages a portfolio of mortgage-backed securities.
• Dell (DELL) - a technology company, which offers a range of product categories, including desktop personal computer.
• Devon Energy (DVN) - an independent energy company engaged primarily in oil and gas exploration, development and production.
• Diamond Offshore (DO) - provides contract drilling services to the energy industry worldwide.
• Fluor (FLR) - a holding company that, through its subsidiaries, provides engineering, procurement and construction management.
• Johnson & Johnson (JNJ) - is engaged in the research and development, manufacture and sale of a range of products in the healthcare field. [reviewed October 29, 2008]
  
• Medco Health Solutions (MHS) - a pharmacy benefit manager.
• Pfizer (PFE) - a research-based, global pharmaceutical company. [reviewed March 17, 2008]
• Potash Corp. (POT) - an integrated fertilizer and related industrial and feed products company.

Finally, Selena Maranjian at the Motley Fool picks a single best stock in the article Best Stock for 2009: Johnson & Johnson. The article points out several important facts about JNJ:

• 75 consecutive years of sales increases.
• 24 consecutive years of adjusted earnings increases.
• 46 consecutive years of dividend increases.

In addition, the stock had a 10-year 140% total return for investors, compared to a 51% total return for the S&P 500.

We are all looking for the perfect stock. Over the years I have evaluated several of the above stocks as potential dividend investments, most did not pan out. Dividend investors are looking for stocks that will perform well over the long run, not just 2009. Of the stocks mentioned above, I am actively buying JNJ, KO and PEP.

Full Disclosure: Long JNJ, KO, PEP and PFE

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Earlier we looked at the RQ (Risk/Quality) ratings of individual stocks. This was a good start to help us understand the risk profile of a stock, and our dividend stock portfolio, but it didn't quite go far enough. Since then I have continued to measure, calculate and calibrate a more comprehensive measure of risk. I sill use the RQ rating as 50% of the new measure, but I have added these two important indicators of risk:

I. Current Price vs. Calculated Price (P)
As part of my quantitative analysis, I calculate a "Buy Below" price. In short, this price is the lower of 1.) the Mid-2 Fair Value or 2.) price needed to generate an acceptable NPV MMA Differential. If the current price is less than plus or minus 10% of the calculated price then this portion of the calculation is assigned a value of 1 (low risk). A difference between plus or minus 10% but less than 20% is assigned a value 2 (medium risk), while anything plus or minus 20% or greater is assigned a 3 (high risk). The 10% and 20% are purely arbitrary and subject to future calibration.

This portion of the calculation determines if the stock is trading within an expected range based on historical metrics such as P/E and yield. Also considered are its valuations using a Graham number and a discounted cash flow model (DCF).

II. Dividend Yield (Y)
Dividend yield is an indication of market sediment, and often an early warning for a troubled stock. In this portion of the calculation, the current yield is compared to predetermined levels and a risk value is assigned. Currently, I am assigning a 1 (low risk) to yields less than 5%, a 2 (medium risk) to values from 5% to less than 8% and a 3 (high risk) for values 8% and greater. As above, the predetermined levels are purely arbitrary and subject to future calibration.

Some might argue that it is "normal" for certain industries to pay out a higher yield, such as 10%. However, I think that "normal" higher yield could be indicative of the implicit higher risk of that industry. Blue water shipping (ocean going) would be an example of this. Also, certain industries, such as utilities, tend to sustain a higher yield due to their lack of growth opportunities.

RQ Revisted
As noted in Measuring Dividend Stocks Investment Risk Profile, the RQ portion is calculated based on S&P's Qualitative Risk Assessment (R) and Quality Ranking (Q).

If the Qualitative Risk Assessment is A, 1 (low risk) is assigned; if B, 2 (medium risk) is assigned and if C, 3 (high risk) is assigned. For the Quality Ranking, S&P assigns ratings of A+, A, A-, B+, B, B-, C, D and Not Ranked. For this calculation, 1 (low risk) is assigned if the rating is A+, 2 (medium risk) is assigned if the rating is A or A-, everything else is assigned a 3 (high risk). Again, the predetermined levels are purely arbitrary and subject to future calibration.

Putting It All Together
My Risk Rating is calculated by averaging the four numeric values above, as such:

(R + Q +P +Y)/4 = Risk Rating

This calculation will yield values between 1 and 3. I divided this range into thirds and assigned an overall rating based on this table:

• 1.00 to less than 1.67 = Low Risk
  
• 1.67 to less than 2.34 = Medium Risk
  
• 2.34 to 3.00 = High Risk

Snapshot Of My Dividend Stock Holdings
Currently, I am holding 35 dividend stocks (excluding ETFs and CEFs). Of which three are rated as high risk:

CenturyTel Inc. (CTL)
CenturyTel Inc. provides a range of telephone services in 25 states, with operations concentrated in Alabama, Arkansas, Louisiana, Missouri and Wisconsin.
Using the above formula (R + Q +P +Y)/4 = Risk Rating: (2 + 2 + 3 + 3)/4 = 2.50

Pfizer Inc. (PFE)
Pfizer, Inc. engages in the discovery, development, manufacture, and marketing of prescription medicines for humans and animals in the United States, Europe, Canada, Asia, and Latin America.
Using the above formula (R + Q +P +Y)/4 = Risk Rating: (2 + 3 + 3 + 2)/4 = 2.50

Health Care Property Investors Inc. (HCP)
Health Care Property Investors, Inc. operates as a real estate investment trust in the United States. The company, through its subsidiaries and joint ventures, invests in health care-related properties and provides mortgage financing on health care facilities.
Using the above formula (R + Q +P +Y)/4 = Risk Rating: (2 + 3 + 3 + 2)/4 = 2.50

17 of my dividend stock holdings are rated as medium risk. Some familiar stocks include:

Intel Corporation (INTC)
Intel Corporation engages in the manufacture and sale of semiconductor chips, as well as in the development of advanced integrated digital technology platforms for the computing and communications industries worldwide.
Using the above formula (R + Q +P +Y)/4 = Risk Rating: (2 + 3 + 3 + 1)/4 = 2.25

Eli Lilly and Co. (LLY)
Eli Lilly and Company discovers, develops, manufactures and sells prescription drugs that offers a wide range of treatments for neurological disorders, diabetes, cancer, and other conditions. The company also sells animal health products.
Using the above formula (R + Q +P +Y)/4 = Risk Rating: (2 + 3 + 2 + 2)/4 = 2.25

Nucor Corp. (NUE)
Nucor Corporation is engaged in the manufacture and sale of steel and steel products. As the largest minimill steelmaker in the U.S., Nucor has one of the most diverse product lines of any steelmaker in the Americas.
Using the above formula (R + Q +P +Y)/4 = Risk Rating: (1 + 3 + 3 + 1)/4 = 2.00

McDonald's Corp. (MCD)
McDonald's Corporation primarily franchises and operates McDonald's restaurants in the food service industry. These restaurants serve a varied, yet limited, value-priced menu in more than 100 countries around the world.
Using the above formula (R + Q +P +Y)/4 = Risk Rating: (2 + 2 + 3 + 1)/4 = 2.00

Consolidated Edison, Inc. (ED)
Consolidated Edison, Inc., through its subsidiaries, provides electric, gas, and steam utility services in the United States serving parts of New York, New Jersey and Pennsylvania.
Using the above formula (R + Q +P +Y)/4 = Risk Rating: (1 + 3 + 1 + 2)/4 = 1.75

I am holding 15 dividend stocks in the low risk category. Included in this group are:

PepsiCo, Inc. (PEP)
PepsiCo, Inc. (PepsiCo) is a global snack and beverage company. The Company manufactures, markets and sells a range of salty, convenient, sweet and grain-based snacks, carbonated and non-carbonated beverages and foods.
Using the above formula (R + Q +P +Y)/4 = Risk Rating: (1 + 1 + 3 + 1)/4 = 1.50

Wal-Mart Stores, Inc. (WMT)
Wal-Mart Stores, Inc. operates retail stores in various formats worldwide. It operates through three segments: Wal-Mart Stores, Sam's Club, and International.
Using the above formula (R + Q +P +Y)/4 = Risk Rating: (1 + 1 + 2 + 1)/4 = 1.25

Kimberly-Clark Corporation (KMB)
This global consumer products company produces tissue, personal care and health care. Its brands include Huggies, Pull-Ups, Kotex, Depend, Kleenex, Scott and Kimberly-Clark.
Using the above formula (R + Q +P +Y)/4 = Risk Rating: (1 + 2 + 1 +1)/4 = 1.25

The Coca-Cola Company (KO)
The Coca-Cola Company engages in the manufacture, distribution, and marketing of nonalcoholic beverage concentrates and syrups worldwide.
Using the above formula (R + Q +P +Y)/4 = Risk Rating: (1 + 2 + 1 + 1)/4 = 1.25

Johnson & Johnson (JNJ)
Johnson & Johnson engages in the manufacture and sale of various products in the health care field worldwide.
Using the above formula (R + Q +P +Y)/4 = Risk Rating: (1 + 1 + 2 + 1)/4 = 1.25

Three dividend stocks had a perfect score of 1.00 (low risk). They were:

United Technologies Corp (UTX)
United Technologies Corp. is an aerospace-industrial conglomerate with a portfolio including Pratt & Whitney jet engines, Sikorsky helicopters, Otis elevators and Carrier air conditioners, among other products.
Using the above formula (R + Q +P +Y)/4 = Risk Rating: (1 + 1 + 1 + 1)/4 = 1.00

Sysco Corp (SYY)
SYSCO Corporation, through its subsidiaries, engages in the marketing and distribution of a range of food and related products primarily for foodservice industry in the United States and Canada.
Using the above formula (R + Q +P +Y)/4 = Risk Rating: (1 + 1 + 1 + 1)/4 = 1.00

Procter & Gamble Co. (PG)
The Procter & Gamble Company (P&G) is focused on providing branded consumer goods products. The Company markets its products in more than 180 countries.
Using the above formula (R + Q +P +Y)/4 = Risk Rating: (1 + 1 + 1 + 1)/4 = 1.00

Overall, the weighted average (based on annual income) of my dividend stocks is 2.26, which would put it on the higher end of the medium category. In an effort to build up a risk reserve that can be accessed when a company cuts its dividend, I would like to lower this number to around 2.

I am still refining and calibrating the calculations. However, this is a good start in helping me manage and control the risk associated with my dividend stock portfolio.

Full Disclosure: Long CTL, PFE, HCP, INTC, LLY, NUE, MCD, ED, PEP, WMT, KMB, KO, JNJ, UTX, SYY, PG


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• Do you Have The Frugal Gene
• The First Steps To Investing
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• Process Overview and Asset Allocation

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Want income checks rolling in just for sitting tight and doing nothing? How about capital gains on top of that? One of the best parts about owning high-quality stocks that pay regular dividends is their uncanny ability to produce market-beating returns due simply to the awesome power of compound interest...

These types of stocks let Father Time do the bulk of the heavy lifting, which may not sound exciting but is a tried and true wealth-building strategy. Keeping with this theme, our Foolish contributors think that Pfizer (NYSE:PFE), Sherwin-Williams (NYSE:SHW), and Tupperware Brands (NYSE:TUP) are three large-cap dividend stocks that prove beyond a doubt that boring is beautiful when it comes to creating wealth.

Source: Motley Fool

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With life expectancy in the U.S. reaching all-time highs, it’s a great time to be alive. Of course, the flip side of that coin is the increasing difficulty of saving a suitable nest egg for retirement. It’s one thing to save enough money for 10 years after retirement, but it’s another to have to save for 20 or even 30 years! That’s why if you’re looking at investing in your future, you’ll want to be armed with some solid, established dividend stocks that will throw off income throughout your retirement.

Today, we’re looking at three dividend stocks that not only are established and boast solid financials, but also yield at least 3% — easily trumping the 10-year Treasury right now, not to mention the income you’ll reap as their dividends grow in the future. Here they are, in no particular order: Cisco Systems, Inc. (CSCO), Verizon Communications Inc. (VZ) and Pfizer Inc. (PFE).

Source: InvestorPlace

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Some investors believe that it is a mistake to own stocks as their retirement draws near. However, the Social Security Administration estimates that today's average 65 year old will live for 20 more years, which is why we Fools think that it is a mistake to forgo the stock market altogether in your golden years. After all, well-chosen stocks can provide investors with both near-term income and long-term growth potential, giving their portfolio a better chance of staying ahead of inflation.

Of course, not every stock is a good choice for investors in their 60s. In general, older investors should favor businesses that are stable and offer a good mix of income, growth potential, and value. Here's a list of three stocks I think fit those criteria perfectly: Pfizer (NYSE: PFE), Medivation (NASDAQ:MDVN) and Home Depot (NYSE: HD).

Source: Motley Fool

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There is one common trait that we all share and it is our curiosity. Our need to know what the future will be is a constant preoccupation. The future direction of the stock market fascinates us all. Often, the focus is on the short-term expectation; What is the market going to do next month or next quarter? These questions are entertaining, but they just amount to anything more than a simple speculating game. The market has too many surprises to know what the next move will be. In the other hand trying to set up a long-term direction of the market is not as much colorful, but it is the back-bone of your long-term financial survival that you are wondering about.

Here is the list of the 6 stocks selected: In the oil industry in general, 2 stocks offer a long-term interesting prospect in my view. One, is an oil and gas company, British Petroleum (BP) and the other one, is an offshore deep-water driller called Seadrill Ltd. (SDRL) [Can be replaced by Transocean Ltd. (RIG) which is similar.] In the financial conglomerate I choose General Electric (GE) In the bio-pharmaceutical sector my company is Pfizer, Inc.(PFE) In the bank sector I will go with Wells Fargo and Co.(WFC) In Food conglomerates, I have Altria Group, Inc. (MO)

Source: Seeking Alpha

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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%)

The AOD, PGN and ACAS purchases increased the YOC and more than offset the decreases from the other purchases. I continue to expect YOC to drop monthly since most new investments will yield less than my current YOC, and dividend increases will not be sufficient to offset it. As noted in "MMA Rates Falling, What are You Going to Do?", I nearly doubled my monthly investment quota as a result of the dismal money market rates and attractive yields from declining stocks.

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)

The negative $16 ETF dividend change shown above is not a result of lower dividends, but instead where I had previously over-estimated the annual dividend. Unlike individual stocks, ETFs dividends vary each quarter and generally grow throughout the year, then pull back in the first quarter to a level (hopefully) above the prior year's first quarter, but below the fourth quarter's distribution. Further complicating the issue are other distributions in the fourth quarter. I have modified my process and hopefully it will provide a better full-year estimate and minimize future adjustments.

Sales: I did not sell any investments in March.

The next monthly progress update will be on Saturday, May 3rd.


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