Taking stock of dividend investing

Many investors have become fans of dividend investing in recent years. If you lived through the tech wreck of 2000, the post-9/11 markets drop and the world financial system's near-collapse in 2008, you have probably come to appreciate the simple pleasure of getting regular dividend payments from boring companies -- especially if they rise regularly.

The fact so many investors seek out dividends has been helpful in persuading more companies to return value to shareholders directly through dividends. This is important. Academic research has shown many companies do a poor job of reinvesting their profits, especially if they try to diversify by purchasing other companies in different industries. A 2003 paper in the Financial Analysts Journal (with a refreshingly non-academic title: Surprise! Higher Dividends Higher Earnings Growth) found companies that paid out more of their profits as dividends had higher growth in profits.

This may explain another interesting fact many investors are not aware of: There is a growing body of research showing you can actually beat the broad stock market by investing for dividends.  READ MORE

Roth IRA Backdoor

First of all, having "backdoor" in the title of this post may have not been the best idea.  I'm worried about the type of Google search results this post may end up in. Secondly, yes, I'm writing ANOTHER article about Roth IRAs.  What can I say, if you aren't utilizing them you're missing out.  I can't stress that enough. Also, I'm writing this now because you can still fund an account using 2011 money if you're reading this before April 15.

That being said, this isn't an article where I'm going to keep harping on why you should be funding a Roth.  This article is specifically for those poor souls who make too much money to contribute to a Roth.  There is a catch 22 for IRA's, those who have enough money to max out their contribution aren't allowed to do so due to income limits.

Apple's Dividend Potential

Sorry for the lack of posts recently, March Madness dominated my time and attention the past week.  Its not like much happened since then... except for the fact that the largest company in the U.S. finally decided to pay a dividend.  I'm sure many of you saw or heard that, starting in September, Apple (AAPL) will begin paying a quarterly dividend of $2.65.  This would equate to $10.60 / year for a current dividend yield of 1.8%.

I received emails from some of you asking what I thought about this and if I believe Apple is a good dividend growth stock to buy.  My initial thought, its about time they paid a dividend!  Apple was sitting on over $97 billion in cash and its pile of money was growing every quarter.  I'm all for them reinvesting money back into the company to continue to innovate and stay ahead of the competition, but that cash hoard is wildly excessive.  Of course part of the problem is that a lot of their cash ($64 billion) is held offshore.  If they were to bring any of that cash back into the U.S to use as a dividend, they would have to pay 35% tax on it (this is a very stupid law, but I won't get into it now).  But they've still got billions here at home and are making billions more every month so its nice to see them giving some back to the stockholders.

Dividend Growth Analysis: Meredith (MDP)

Meredith Corporation (MDP) is a media and marketing company that engages in magazine publishing and related brand licensing, television broadcasting, integrated marketing, interactive media, and video production businesses in the United States. Its more popular print publications include Better Homes and Gardens, Family Circle, and Ladies' Home Journal. It also owns 12 network-affiliated television stations and 30 websites, among other assets. Dividend Analysis

Stock Sale: Aflac (AFL)

The Dow dropped just over 200 points on Tuesday, giving Wall Street its worst day in three months.  This drop was attributed to renewed fears of a disorderly default in Greece, concerns that China's slowdown would affect global growth, and the belief that the market is due for a pull-back after a hot start to the year.

We've seen these days before, many many times before really.  They had been quite frequent the past few years, but this is the first one I can recall in 2012.  I think these are fantastic buying opportunities.  When great stocks go on sale because of general, macro economic reasons that have little or no affect on that specific stock, its time to act.  While stocks were on a run since the beginning of the year I have been putting money into my account waiting for an opportunity to add to existing positions or initiate a position in a new stock.  Today was that opportunity.

KA-CHING! Wal-mart just gave me a 9% raise

Wal-mart (WMT) announced on Thursday that it was raising its yearly dividend from $1.46 to $1.59, a 9% increase.  WMT has raised its dividend every year since it first declared a dividend of 5 cents per share in 1974.  Between share buybacks and dividends, WMT returned $11.3 billion to shareholders last year.

This most recent bump follows a dividend increase of over 20% last year.  Although I was expecting a double-digit dividend increase again this year, I am happy with the 9% raise.  WMT decreased prices this past holiday season in order to bring back customers it had previously lost.  The price decrease generated more business, but hurt their profit margins in the near-term.  I believe this decrease in margins is the reason we did not see 10%+ increase.

Fun Calculators & Tools

"Fun Calculators"?  Yeah, there is such a thing.  At least I think so.  When calculators can prove how much your money can grow they can certainly be fun.  They can also help motivate you to stick with your investing goals.

In some of my posts I have referenced how money invested over a certain period of time growing at a percentage can grow to a large sum of money.  Some you have asked how I got this number... basically you want me to show my work.  I think this is a good idea, and probably something I should have done awhile ago.  Instead of showing you though I'm going to provide you with my Excel calculators that I use.

Hopefully you'll have "fun" playing with the inputs too so you can see how your own investments can grow if you stick with a dividend growth investment plan.

Roth IRA for Kids

In my last article I discussed how I am going to help my son get a head start in investing and how to keep him interested in dividend growth stocks as he gets older. I am excited about the potential of this plan; the only problem is that the government is going to get their share of it as well. If you are reading this then I assume you are not a Communist that enjoys paying taxes, so I'd like to show how you can grow a small amount of money for your child into a very large sum without having to worry about a politician getting their hands on one cent.

For those of you not familiar with a Roth, shame on you, please read this article. Roth IRA's are a powerful retirement tool that is not utilized enough by individuals who have the opportunity to do so. What is utilized even less - and likely unknown to many - is funding a Roth IRA for a child.  READ MORE

7 Stocks for Your Child's Retirement

For any of you who are parents, soon-to-be parents, potential parents, grandparents... basically if you have a child or will have a child whose financial independence you care about, this post is for you.

This past September I had a major financial impact that occurred in my life, my son was born. Like most Dads I have since envisioned teaching my son about sports, girls, and of course dividend stocks. What's that? Most Dads don't teach their sons about dividends stocks? Well that's a shame, consider my son a leg up then.

Within a couple of days of receiving his SSN I had opened a 529 plan and custodial brokerage account and set up automatic deposits for each. As I contemplated what his first DRIP stock would be I realized I was approaching this choice as if it was my own portfolio. Or course I wanted to buy a solid dividend growth stock that we could reinvest dividends into for the next 60 years, but I also wanted this to be a great teaching tool for my son. Sure the ALFAC (AFL) duck is funny, but I'm not sure demonstrating DRIP investing to him with a supplemental insurance company was going to grab his attention and get him excited about investing (although I do think it would be a good dividend growth stock to own).  READ MORE


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Boring Terms We Need To Know: PEG Ratio

In our last "boring terms" post we analyzed the common P/E ratio.  Another ratio that ties into P/E that we use in our dividend growth stock analysis is PEG Ratio.  PEG stands for Price/Earnings to Growth.  This ratio demonstrates a stocks current P/E to its expected earnings growth - typically its estimated 5 year growth.

This term was popularized by Peter Lynch, a very successful investor that works for Fidelity Investments. Peter stated in his 1989 book One Up on Wall Street that "The P/E ratio of any company that's fairly priced will equal its growth rate".  So a fairly valued company will have its PEG equal to 1.  The lower the PEG the more undervalued a stock is based on future estimated growth.