Category Archives: dividend

Modern Dividend Theory Explained – Seeking Alpha

Modern Dividend Theory Explained – Seeking Alpha: According to Investopedia, Modern Portfolio Theory (MPT) is defined as follows:

A theory on how risk-averse investors can construct portfolios to optimize or maximize expected [total] return based on a given level of market risk, emphasizing that risk is an inherent part of higher reward.

I’ve been thinking that it’s time we developed a parallel Modern Income Theory. Part of that would be a Modern Dividend Theory (MDT). I am going to restrict myself to the latter, because it is my area of expertise.

I am going to try to start off developing this theory by comparing MPT concepts to analogous MDT concepts. The MDT concepts are hyptheses, but then again so are most MPT concepts.

As you read through the following, you will notice significant contrasts, starting right off with the underlying goals themselves. I think this is why MPT proponents have difficulty even talking to MDT proponents, because the goals and tenets are so different.

Wikio

47 Dividend Hikes Expected By The End Of November – Seeking Alpha

47 Dividend Hikes Expected By The End Of November – Seeking Alpha: In compiling the Dividend Champions list (found here) I get to see which companies are nearing the anniversaries of their previous dividend increases. Since most of these firms raise their payout about the same time every year, I can say with some confidence that they are likely to do so again.

Beyond Thanksgiving

In recent articles in this series, I have shown companies expected to increase their dividends soon, up to 10 weeks ahead of their Ex-Dividend Date. But, as SA Contributor Clay King mentioned in the comments to my previous update (here), McDonald’s (MCD) is expected to announce its next increase in a couple of weeks, more than two months before its Ex-Dividend Date. So I’ve extended the “forward look” to more than 11 weeks for this article, although I will probably return to the 10-week pattern for my next update.

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Dividends in Danger? Frontier, CenturyLink, Conoco Phillips, 4 Others in the Crosshairs – Seeking Alpha

Dividends in Danger? Frontier, CenturyLink, Conoco Phillips, 4 Others in the Crosshairs – Seeking Alpha: “This is the fifth installment in a series that collects and summarizes SA members’ opinions about companies whose dividends may be in danger. Not all information for each company has been independently verified. Readers’ comments have been integrated and edited. If you wish to see the full comment stream, consult last month’s article.”

Wikio

Is Dover Corp. a Cyclical, Growth or Dividend Growth Stock? – Seeking Alpha

Dividend Growth Stocks: 6 High-Yield Financial Services Stocks With Rising Dividends

The Financial Services Sector includes insurance companies, banks, brokerages, mutual funds and other similar companies. Before the 2008-09 financial services meltdown, these stocks were the cornerstone on many income portfolios. The companies were flush with cash, the stocks provided relatively high yields, good dividend growth rates and carried very little perceived risk.

Unfortunately, things are not always as they seem. Under the surface banks were making questionable loans, while investment firms were creating and peddling exotic financial instruments. In effect, their CEO’s were building houses of cards in a hurricane – it was destined to come tumbling down, and it did.

As a result, investors learned some very valuable, but expensive lessons. This should serve as a warning when investing in the Financial Services Sector – not a stop sign. Many of these companies are now in very lucrative positions.

With interest rates as low as they are, banks are enjoying decent spreads, not to mention all the new fees they are charging their customers. As more consumers take advantage of electronic banking, we are becoming more tied to our accounts. The pain threshold of changing banks is high, and they know it.

Have you ever filed an insurance claim and were satisfied with the outcome?

Insurance companies are the ultimate business. They charge premiums to protect you. Then take the premiums, invest them and earn a return, which is then reinvested. The money is theirs to keep if you don’t file a claim. If you do file a claim, the insurance company will find ways to minimize what they actually pay you – then raise your rates for filing a claim.

You can complain about these companies, or invest in the industry and profit from them. I’ve chosen the latter.

This week week, I screened my dividend growth stocks database for Financial Services companies with a yield at or above 4% and have increased their dividends for at least 14 consecutive years. The results are presented below:

Mercury General Corp. (MCY)
Yield: 6.2% | Years of Dividend Growth: 24
Mercury General Corp. is an insurance holding company, primarily in California, writes a full line of automobile coverage for all classifications of risk.

Old Republic International (ORI)
Yield: 6.0% | Years of Dividend Growth: 30
Old Republic Intl writes property and liability, mortgage guaranty, title and life, and disability insurance.

Cincinnati Financial Corp. (CINF)
Yield: 5.8% | Years of Dividend Growth: 51
Cincinnati Financial Corp. markets primarily property and casualty coverage. It also conducts life insurance and asset management operations.

People’s United Financial Inc. (PBCT)
Yield: 4.6% | Years of Dividend Growth: 14
People’s United Financial Inc. provides a full range of banking and financial service products to individuals, corporations, and municipal customers in the U.S. Northeast.

Harleysville Group Inc. (HGIC)
Yield: 4.5% | Years of Dividend Growth: 25
Harleysville Group Inc. underwrites a broad array of personal and commercial coverages. These insurance coverages are marketed primarily in the Eastern and Midwestern United States.

Community Trust Bank Corp. (CTBI)
Yield: 4.3% | Years of Dividend Growth: 31
Community Trust Bank Corp. owns and operates Community Trust Bank, Inc. of Pikeville, KY, which provides commercial banking services in Kentucky and West Virginia; and a trust company.

As with past screens, the data presented above is in its raw form. Some of the the companies would be disqualified for poor dividend fundamentals. However some of the others may be worth additional due diligence.

My database, D4L-Data, is an Open Office spreadsheet containing more than 20 columns of information on the 210+ companies that I track. The data is sortable and has built-in buttons and macros to make it easy to use. Companies included in the list are those that have had a history of dividend growth. The D4L-Data spreadsheet is a part of D4L-Premium Services and is updated each Saturday for subscribers

Wikio

30 ‘Overdue’ Dividend Increases: Streaks in Doubt? – Seeking Alpha

30 ‘Overdue’ Dividend Increases: Streaks in Doubt? – Seeking Alpha

Dividend Growth Stocks: 10 Stocks With A Strong Cash To Dividend Coverage



Dividends are not paid with sales, earnings, EPS, EBIT or EBITDA. Instead dividends are paid with cash. As an investor, you want to pay close attention to the cash flow statement. Unfortunately, it is probably the least used and most misunderstood statement.


Ultimately, cash flow is what drives the value of any financial asset. The reason analysts look at revenue, EPS, EBIT, EBITDA and margins, they are trying to estimate the level of cash the company will generate in the future.

Dividends In Downturns

When a company consistently generates more cash than it uses, it is able to increase dividends paid, buy back shares, reduce debt, or acquire another company. However, as we learned in the 2008-2009 economic downturn, businesses sometimes go through lean times.


When the economy slows, investors in dividend growth stocks not only expect their dividend to continue, but they also expect it to continue to grow. Some companies do it with debt or by issuing shares.


However, some really fortunate companies are able to access the cash from an unusual place… directly from their balance sheet.

Cash To Dividend Coverage

Below are several companies that have accumulated large balances of cash relative to their dividends, along with the percentage of cash on hand compared to the cash paid for dividends over the last twelve months:


Intel Corporation (INTC)
Yield: 3.4% | Coverage: 115%
Intel Corporation is the world’s largest manufacturer of microprocessors, the central processing units of PCs, and also produces other semiconductor products.


Microsoft (MSFT)
Yield: 2.4% | Coverage: 141%
Microsoft, the world’s largest software company, develops PC software, including the Windows operating system and the Office application suite.


Cincinnati Financial Corp. (CINF)
Yield: 5.6% | Coverage: 150%
Cincinnati Financial Corp. markets primarily property and casualty coverage. It also conducts life insurance and asset management operations.


ConocoPhillips Co. (COP)
Yield: 3.5% | Coverage: 183%
ConocoPhillips Co. was formed in 2002 when Phillips Petroleum and Conoco merged and is now is the fourth largest integrated oil company in the world


Wal-Mart Stores, Inc. (WMT)
Yield: 2.7% | Coverage: 205%
Wal-Mart Stores, Inc. is the largest retailer in North America and operates a chain of discount department stores, wholesale clubs, and combination discount stores and supermarkets.


Lowe’s Companies, Inc. (LOW)
Yield: 2.3% | Coverage: 254%
Lowe’s Companies, Inc. sells retail building materials and supplies, lumber, hardware and appliances through more than 1,700 stores in the U.S. and Canada.


Lockheed Martin Corp. (LMT)
Yield: 3.6% | Coverage: 337%
Lockheed Martin Corp. is the world’s largest military weapons manufacturer and is also a significant supplier to NASA and other non-defense government agencies receiving about 93% of its revenues from global defense sales.


Johnson & Johnson (JNJ)
Yield: 3.2% | Coverage: 377%
Johnson & Johnson is a leader in the pharmaceutical, medical device and consumer products industries.


Aflac Incorporated (AFL)
Yield: 2.7% | Coverage: 387%
Aflac Incorporated provides supplemental health and life insurance in the U.S. and Japan. Products are marketed at work sites and help fill gaps in primary insurance coverage. Approximately 80% of earnings comes from Japan and 20% from the U.S.


Walgreen Co. (WAG)
Yield: 1.7% | Coverage: 426%
Walgreen Co. is the largest U.S. retail drug chain in terms of revenues. It operates more than 8,000 drug stores throughout the U.S. and Puerto Rico. Just last week WAG decided to access some of this cash with a record 28% dividend increase.


As an investor in dividend growth stocks, I want to know my company is financially capable of paying me a higher dividend each year, and the cash flow statement is the first place to look when making this determination. Cash on the balance sheet is like an insurance policy for the times when the business sputters.


Full Disclosure: Long INTC, CINF, COP, WMT, LOW, LMT, JNJ, AFL, WAG. See a list of all my dividend growth holdings here.

Wikio

5 Undervalued Blue Chips With Above-Average and Growing Yield – Seeking Alpha

Yesterday the following PRNewswire press release reported that S&P indices announced a powerful uptrend in dividend increases for calendar year 2011. This provides continued validation of the unique opportunity that blue-chip dividend paying stocks offer investors today.
(Click to enlarge)
Five Dividend Paying Blue Chips Offering Yields Above the 10-year Treasury Bond
The following table lists five blue-chip companies with long histories of increasing their dividends that are currently trading at discounts to their historical valuations. Consequently, these five blue chips are also offering investors abnormally high entry-level yields greater than available from a 10-year treasury bond. But best of all, each offers the opportunity for their yields to increase at above-average rates into the future.
(Click charts to expand)
Five Blue Chips – A Pictorial Review
The following pictorial review depicts five leading blue chips through the lens of F.A.S.T. Graphs™, the fundamentals analyzer software tool that correlates stock price to earnings. In addition to the earnings and price correlating graphs, the associated performance results for the time period with a dividend cash flow table are included. Since these are all well-known companies, this article will let the graphs speak for themselves based on the “essential fundamentals at a glance” as they are presented. A short video will follow the graphics which will provide more detail on what the graphics portray and how to interpret the information.
Kimberly-Clark Corp. (KMB)
Unilever PLC-ADR (UL)
Abbott Laboratories (ABT)
Novartis AG-ADR (NVS)
Procter & Gamble Co. (PG)
Watch this video for a more detailed interpretation of the F.A.S.T. Graphs™ on these five blue chips.
Conclusions
We believe the most important take away from this article is what we consider to be the rare opportunity that these large-cap blue-chip dividend paying companies offer investors today. With interest rates at historical lows, extremely high-quality blue chips like these should be expected to be trading at premiums. Since fixed income is less competitive at low rates, the price earnings ratios of common stocks, especially high-quality large-cap blue chips, should be sitting at all-time highs. Instead, the market, for no apparent reason that we can understand, is behaving directly opposite of what logic would dictate.
Therefore, this window of opportunity where high-quality dividend paying blue chips can be bought with dividend yields approximately double what they would normally be could very possibly quickly close. As always, we suggest that investors do their own due diligence on each example company cited. On the other hand, the essential fundamentals as depicted in the graphs provide a comprehensive starting point. Consequently, we believe that each of these companies should be given careful consideration by the dividend growth investor seeking an increasing yield on cost from conservative equities.
Disclosure: I am long KMB, UL, ABT, NVS, PG.

Wikio

Dividends in Danger? Nokia, CenturyLink and 5 Others Attract Attention – Seeking Alpha

This is the fourth installment in a monthly series that collects and summarizes SA members’ opinions about companies whose dividends may be in danger. Not all information for each company has been independently verified. Readers’ comments have been integrated and edited. If you wish to see the full comment stream, consult last month’s article.
Always perform your own due diligence before making any investment decisions.
Sysco
Sysco (SYY) has been extensively discussed in each article since this series began, and it drew a few more comments this month. The consensus on Sysco still seems to be that its dividend is not in great danger, but that it bears watching because of the effects of rising food costs on the company’s cash flow. A “food fight” broke out between a commenter that highly criticized Sysco’s product quality and those that defended it, but that seems tangential to the dividend question. Sysco has in fact raised its dividend for 41 straight years, and its next increase would normally come in January, 2012. The following points were made this month:
  • For the first time in several quarters, SYY’s cash position has actually improved.
  • Chuck Carnevale wrote a favorable article about SYY in late April that should have been mentioned last time: “Sysco: Gourmet Stock at Fast Food Price with Sweet Dividend Dessert.” Chuck’s detailed analysis concluded that, “[W]e believe that their dividend which has increased in each of their 40 years as a public company is well covered and should continue to grow. The current yield of approximately 3.6% is reflective of the fact that their stock currently trades at a discount to their historically normal price earnings multiple.”
Frontier Communications
Shortly before last month’s article was published, Frontier (FTR) announced its fourth consecutive dividend at $0.1875/share. This puts it in the Frozen Dividends category. There is a separate section below about frozen dividends. The dividend was dropped 25% to its current amount last September, after the company had maintained its previous dividend of $0.25/share frozen for the previous four years. As mentioned last month, the company’s announced plan is to hold the dividend steady for the next two years while they fully integrate wirelines acquired from Verizon (VZ), and then begin raising the dividend again, presumably in 2012-2013.
Meridien Bioscience
Conversation continued about Meridien (VIVO). It was noted as having earnings that did not cover their dividend last year, will barely cover it this year, and next year might recover enough to allow for a tiny increase. Meridien has publicly announced a policy of setting a payout ratio of between 75% and 85% of each fiscal year’s expected net earnings, although it is hedged by language that the actual declaration and amount of dividends will be determined by the board of directors in its discretion based upon its evaluation of earnings, cash flow requirements and future business developments, including acquisitions. (See press release.)
Nokia
Nokia (NOK) was added to the list of stocks on watch. The company announced sliding sales volume and prices for its products, and “removed all earnings guidance for the remainder of 2011.” (See Dow Jones news report.) The company’s announcement, on May 31, was followed by a slew of downgrades, takeover rumors, denials that it was for sale, “no comments” by other companies that they were seeking to take it over, replacement of its chief technology officer, and severe price drops.
The stock hit a new 52-week low on June 16. The stock’s yield has ballooned to 9.5%, but a couple of commenters said that it would be foolish to chase that yield.
Harsco
Harsco (HSC) was noted as having a payout ratio exceeding 100% of earnings. The company just announced its most recent dividend on June 14. (See press release.) This will be the 7th consecutive dividend of the same amount, making it another frozen dividend.
CenturyLink
CenturyLink (CTL) drew commentary:
  • CTL has been generating some dividend cut discussion. Although it has a 37-year dividend-growth streak, key worries are integration risk from a couple of mergers and a high payout ratio of earnings. Additionally, CTL missed its dividend-increase anniversary in March, but it has done this before and still kept its streak alive.
  • On the positive side, the payout ratio of free cash flow (FCF) is just 50%. Also, ROE and some other metrics don’t flag a CTL dividend cut, and management has stated that they can do the mergers and maintain the dividend.
  • In 2008, when CTL’s board boosted the quarterly dividend by more than 10x, it stated its intention to pay out “essentially all” of its FCF to shareholders rather than basing its payout ratio on earnings per share. The company then went six quarters before raising the dividend, and it may be on track for another six-quarter period between increases. While there may be no imminent danger of a cut, future increases may not be substantial. CTL’s last increase, in March, 2010, was 3.6%. Its yield is already high at about 7.3%.
Old Republic International
Discussion of Old Republic (ORI) was revived after almost fading out. Previous reasons for concern had included negative cash from operations, declines in receivables, increases in payables, and Yahoo’s reporting of the payout ratio at 531%. ORI has a 30-year increase streak going, although its most recent increase was just 1.5% in March.
This month a reader stated that in his opinion, the dividend at ORI is in serious danger, especially if they are forced to support their mortgage insurance subsidiary. Also, they were “foolish enough” to buy stock in two of their competitors. It is questionable whether their other businesses can generate enough profit to overcome these losses.


One Quicky
The following stock received no further comments last month, and it will be dropped from next month’s article if it draws no further discussion.
  • Hudson City Bancorp (HCBK). Hudson City had been identified in earlier articles as having a dividend in danger, and the company did indeed cut its dividend on April 20. The dividend was chopped by 47%. Even with its dividend cut, HCBK still has a projected yield of nearly 3.5%, but of course its former 12-year streak of increasing dividends is over.
Frozen Dividends, Foreign Dividends, and Other Items of Discussion
Each month, David Fish presents an article on frozen dividends:Companies whose last dividend increase is more than a year ago. David and I time our articles so that his appears before this one each month. David’s most recent article on the subject is “30 ‘Overdue’ Dividend Increases: Payouts in Peril?” There are some well-known dividend-growth stocks that appeared this month, including CenturyLink (CTL), Harleysville Savings (HARL), Meridien Bioscience (VIVO), PG&E (PCG), PPL (PPL), and United Bancshares (UBSI).
As has been discussed in earlier articles, a dividend freeze can be a precursor to an actual cut. Please see David’s article for more information.
There were also interesting exchanges of comments on two dividend subjects. Rather than reproduce them here (it would double the size of the article), I will give a brief overview here and let you read the comments yourself beneath last month’s article.
  • One thread discussed factors that can be red flags for dividend cuts. Among the signals flagged were payout ratios above 100%; and the absence of a strong “dividend culture,” evidence of which can include a short streak of increases.
  • Another thread discussed the different dividend practices between American (Type A) and foreign (Type F) companies. Type A companies tend to smooth their dividends, while Type F’s tend to let their dividends track their earnings, which can make them lumpy and less likely to compile a very long streak of consecutive annual increases.
Other Articles of Interest
This article appeared within the last month:
About This Series
The goal of this series is to provide a place where SA readers can trade ideas and pool knowledge about dividends that may be in peril. The first three articles have attracted more than 51,000 views and generated more than 350 comments, so it is a subject that SA readers appear to be interested in.
One commenter last month offered several suggestions for making the discussion of each stock more elaborate. His ideas did not gain traction. Most readers seem to understand that the purpose here is to alert each other to stocks that may have dividends in danger for any reason. It’s great when people pool their knowledge and ideas for the benefit of all. In the end, though, it is up to each person to do their own due diligence and make their own decisions.
Thanks for your continued interest, and please comment on companies that you think might have dividends in danger!
Please use the Comments section to discuss the companies mentioned in this article or to nominate other companies for the Dividends in Danger series. If you feel that an entire industry is in danger, please explain why and give examples of companies in the industry that are at risk. The best comments are focused, factual, specific, and reasoned.


Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

36 Companies Likely to Raise Dividends in the Next 10 Weeks – Seeking Alpha

In compiling the Dividend Champions list I get to see what companies are nearing the anniversaries of their previous dividend increases. Since most of these firms raise their payout about the same time every year, I can say with some confidence that they are likely to do so again.
Quiet Time
For the previous article in this series, I extended the forward look to a period of about 10 weeks. But as I explained in last week’s article about the seasonality of dividend increases, we are in the slowest part of the year in terms of activity. But while the fewest increases carry a July Ex-Dividend Date (and August Pay Date), those coincide to some extent with June Announcements, so we may have passed the very slowest period of increases in terms of increased dividend declarations. Of the 28 companies listed in my June 10 article, only three announced increases, so most of them have been carried over here. Based on last year’s announcements, I’m expecting the following companies to announce dividend increases between now and the anniversary of their previous increase:
Dividend Champions (25 or more years):
No.
5/31
Qtrly
LY%
LY
Company
Symbol
Yrs
Price
Yield
Rate
Inc.
Ex-Div
Helmerich & Payne Inc.
38
62.68
0.38
0.0600
20.00
8/11/10
Carlisle Companies
34
48.60
1.40
0.1700
6.25
8/13/10
Walgreen Company
35
43.63
1.60
0.1750
27.27
8/17/10
Dover Corp.
55
67.23
1.64
0.2750
5.77
8/27/10
Nordson Corp.
47
52.02
0.81
0.1050
10.53
8/27/10
Conn. Water Service
41
25.21
3.69
0.2325
2.20
8/30/10
MGE Energy Inc.
34
41.64
3.60
0.3751
1.82
8/30/10
Dividend Contenders (10-24 years):
No.
5/31
Qtrly
LY%
LY
Company
Symbol
Yrs
Price
Yield
Rate
Inc.
Ex-Div
A.O. Smith Corp.
17
41.47
1.35
0.1400
7.69
7/28/10
AptarGroup Inc.
17
53.40
1.35
0.1800
20.00
7/28/10
National Retail Prop.
21
25.78
5.90
0.3800
1.33
7/28/10
CARBO Ceramics
10
150.27
0.53
0.2000
11.11
7/30/10
Inergy LP
10
37.09
7.60
0.7050
1.44
8/4/10
Murphy Oil Corp.
15
68.89
1.60
0.2750
10.00
8/12/10
Alterra Capital Holdings
10
22.75
2.11
0.1200
20.00
8/13/10
Badger Meter Inc.
18
37.22
1.50
0.1400
16.67
8/27/10
Chesapeake Financial
18
11.85
3.71
0.1100
4.76
8/30/10
Computer Services Inc.
22
27.65
1.59
0.1100
15.79
8/30/10
Dividend Challengers (5-9 years):
No.
5/31
Qtrly
LY%
LY
Company
Symbol
Yrs
Price
Yield
Rate
Inc.
Ex-Div
Darden Restaurants
6
50.65
2.53
0.3200
28.00
7/7/10
General Mills
7
39.77
2.82
0.2800
14.29
7/8/10
MSC Industrial Direct
8
69.51
1.27
0.2200
10.00
7/9/10
Astrazeneca plc
7
52.40
4.60
1.2050
15.31
8/4/10
Landstar System Inc.
6
47.32
0.42
0.0500
11.11
8/5/10
Lindsay Corp.
8
67.08
0.51
0.0850
6.25
8/13/10
Maxim Integrated Prod.
9
27.25
3.08
0.2100
5.00
8/18/10
Oil-Dri Corp. of America
8
22.28
2.87
0.1600
6.67
8/18/10
Ritchie Brothers Auction.
8
27.72
1.52
0.1050
5.00
8/18/10
Cummins Inc.
5
105.24
1.00
0.2625
50.00
8/19/10
Ryder System
6
55.00
1.96
0.2700
8.00
8/19/10
Steris Corp.
6
36.09
1.66
0.1500
36.36
8/20/10
Crane Company
6
49.19
1.87
0.2300
15.00
8/27/10
Delta Natural Gas
6
31.57
4.31
0.3400
4.62
8/27/10
ITC Holdings Corp.
6
72.29
1.85
0.3350
4.69
8/30/10
Westlake Chemical
7
56.10
0.45
0.0635
10.43
8/30/10
Bob Evans Farms
5
31.35
2.55
0.2000
11.11
9/3/10
I still anticipate that two companies – Altera Corp. (ALTR) andEnbridge Energy Partners LP (EEP) – will boost their dividends during this period, marking their fifth straight year of increases and promoting them to Challenger status. Both hiked their dividend last year with Ex-Dividend Dates in the first week of August. That’s also when about two dozen MLPs (Master Limited Partnerships) tend to increase the payout each quarter. Not all of these companies will meet the strict standards of every investor, but they may be appropriate for portfolio diversification. Potential investors should do more research before committing funds.
Disclosure: I am long DOV R

Wikio

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