My Favorite Thing About Dividend Stocks

Other than the wonderful compounding affect that will make me a wealthier man when I retire, the thing I enjoy most about dividend stocks is that they allow me to be lazy. Granted I do put in a lot of time evaluating a stock before I invest, but once I buy a quality dividend growth company I can relax while that company's employees work hard to put more and more cash in my pocket.

I was on a nice, relaxing vacation last week. I checked in on the market a couple of times out of curiosity and even checked my work email once, but otherwise my mind was elsewhere. I didn't want to think about work and ruin a relaxing moment. I knew I didn't have to worry about my investments because my money was invested in companies who are working hard on my behalf. And wouldn't you know it, when I returned home I discovered that, KA-CHING!, I got two more fat raises.

Ka-Ching! Hasbro just gave me an 11% raise

Yep, another one. Three straight weeks of double digit dividend increases. Getting tired of these? I know I'm not! 

Hasbro (HAS) announced last week that it would be increasing its quarterly dividend by 11% from $.36 to $.40. The size of this increase is likely a surprise to many since the company reported a decrease in full-year revenue and earnings for 2012 vs 2011. Despite the drop management still had no problems with making such a large increase which I believe should be viewed as a positive for 2013 and beyond.

When I first analyzed Hasbro last June and decided to buy I was able to get in just before the stock price popped. Many investors would have been thrilled at the immediate price increase, but honestly I was hoping for the price to come back down so I could buy more on the cheap. My original buy price was under $33 which now gives me a yield on cost of almost 5.0% for my original investment. My only other purchases since then has been the automatic dividend reinvestments.

2013 Dividend Aristocrats

The Dividend Aristocrats list is an excellent starting point for dividend growth investors to begin their research.  In order to make this list a company needs to be in the S&P 500 (top 500 publicly listed companies by market capitalization) AND it needs to have increased its dividend payout for at least 25 consecutive years. You won't find the likes of Apple (AAPL), Google (GOOG), or General Electric (GE) on this list as they have yet to prove themselves worthy.  Actually, GE was on the list until it had to cut its dividend in 2009.

These are the elite dividend payers, the cream of the crop. Investors who have been fortunate enough to hold these companies over the long-term are significantly wealthier and will likely be enjoying future dividend increases yet again this year.

There are three new inductees to this prestigious club in 2013 thanks to their 25th consecutive dividend increase.

Ka-Ching! Phillips 66 just gave me (another) 25% raise

Another week and another big raise, but this came from an unexpected stock, Phillips 66 (PSX). Why was it unexpected? Well because they already gave me a 25% raise three months ago!

PSX has been on an impressive run since it split away from its parent company ConocoPhillips (COP). Not only has it raised its dividend three straight quarters and over 50% since it began trading earlier this year, its stock price has also increased by more than 75%. Those would be impressive numbers for a stock over several years, let alone several months. So how has PSX managed to do this in such a short time?

Ka-Ching! Realty Income just gave me a 19% raise

Realty Income Corp. (O) announced last week that it will be increasing its monthly dividend from  $0.15175 per share to $0.1809167  (yeah, that's a lot of numbers beyond the decimal). This is a whopping increase of 19.2% and gives Realty an effective annual yield of 5%, up from 4.2%.

So how did a company with a 5 year average dividend growth rate of under 3% manage to make such a large increase? Realty's recent successful bid to acquire American Realty Capital Trust (ARCT) allowed them to make such a move. The buyout was announced this past summer, but shareholders of ARCT were not happy with the initial offer. It took some sweetening on Realty's end to get the job done, including a one-time cash payment of $0.35 / share to ARCT investors, but the overall deal looks like a good one for Realty shareholders.

The Best Investment Advice You'll Never Take

Some of you may have heard of or even subscribe to the daily emails from the folks at DailyWealth.com. Although some of their stuff can be a little too "doom and gloom" or politically focused for my taste, they do have some good insights into the market.  They are also big proponents of dividend reinvestment and have written about it on many occasions. I found a recent article rather interesting, with the headline "The Best Investment Advice You'll Never Take".  Well, hopefully you're not one of those.

I guarantee you won't take my advice...

Over the past two weeks, I've shown you how to use the single greatest investment secret ever discovered. I've shown you how to buy capital-efficient companies and compound your wealth at double-digit rates – safely – for decades.

I've described exactly how to measure capital efficiency (it's easy) and explained the pitfalls to avoid (even smart investors fall into these traps).

Using just the information contained in these two essays, a little bit of common sense, and a little bit of discipline, you can become a world-class investor using this strategy. And yet... very, very few people will pursue this approach.  READ MORE

A Potential Dividend Growth Future Star

As a dividend growth investor, one of the primary stats I look at when evaluating a stock is the number of annual dividend increases. The longer a stock has been increasing its dividend payment, the more that becomes part of the corporate identity. Typically, it takes a major event within the company (or industry) to prevent the board of directors from continuing to raise its dividend after a long history has been established. This adds a layer of safety that helps me sleep better at night. I am quite certain that Kimberly-Clark (KMB) - 38 years of increases, Wal-Mart (WMT) - 37 years of increases, and AFLAC (AFL) - 30 years of increases, will provide me with a raise once again this year. Companies like these should be at the core of any dividend growth portfolio.  READ MORE

TAGS: [AMGN] [AFL] [INTC] [MSFT] [KMB] [WMT]

No New Taxes! ... For Most of Us

If you haven't yet sifted through all the noise and political B.S. about the recently agreed upon "Fiscal Cliff" deal you may have missed some fantastic news for dividends. The taxes on dividends did not increase as much as expected, and for many of us not at all!

The new deal permanently sets the top tax rate for dividend (and capital gains) at 20% for couples earning more than $450,000 ($400,000 for single filers). For anyone earning below this, dividends and capital gains will continue to be taxed at the current rates. So many of us will continue to pay 15% on dividend income. This is way better than I had expected.

This means that dividend income will continue to be one of the lowest taxed sources of income. Investors who previously dumped dividend paying stocks before the end of the year will likely be jumping back in. This may cause a temporary bubble in the prices of some dividend stocks, but I fully expect the upcoming debt ceiling bickering to create another buying opportunity.

I couldn't be happier with this decision. Of course, this development still has no bearing on my Roth IRA. I continue to get paid tax free income in my Roth and reinvesting those tax free payments into more shares, creating the beautiful compounding affect that is going to allow me to retire in style. Tax season is coming up, so when you see that large sum of cash going to Uncle Sam remember that there is a way around it.

Speaking of my Roth, I just made a recent buy in my account.  Its an early dividend payer that I feel could become a dividend growth star over time. I'm putting together an article on it now and plan to publish it early next week.

Related Articles: Roth IRA + Dividend Stocks = Awesome!

3 Unloved Dividend Stocks to Watch in 2013

I'm in full holiday mode and have been lazy with the articles this month. I've got a few ideas in the works, but currently lack the motivation to complete anything. I've also been in a holding pattern with any purchases until this stupid "fiscal cliff" nonsense gets resolved.  The one good thing that may come from this is that it could create some fantastic buying opportunities if there is panicked selling.  If it does, I'll be waiting to pounce on some stock sales. Speaking of sales, here's an article from  MarketWatch.com that outlines two of my favorite holdings and one potential future holding.  


Three financially sound companies — but where’s the crowd?

McDonald’s Corp., Intel Corp and Microsoft Corp. (US:MSFT) offer a steady dividend and have the cash to increase shareholder payouts, but investors lately have given these blue-chip stocks the cold shoulder.

This year through Dec. 12, Intel (US:INTC)  shares were down 15%, ranking it as the No. 2 percentage decliner on the Dow Jones Industrial Average (US:DJIA) . McDonald’s (US:MCD) had dropped 11%, making it the No. 3 Dow decliner. Only the stock of troubled Hewlett-Packard (US:HPQ)  has fared worse.  READ MORE

Disclosure: I am long INTC and MSFT

TAGS: [INTC] [MSFT] [MCD]

 

Searching For A Dividend Growth Utility Stock

I have been a dividend growth investor for over eight years now. Over those years, I have slowly allocated a diverse portfolio that is spread out among the major sectors, except for one. I have yet to invest in any utility stocks. Now this may come as a shock to other dividend growth investors as utility stocks have been a cornerstone for many dividend portfolios.

Utility stocks have a long history of paying dividends to their shareholders. This is because what they provide (electricity, water, gas) are always in need, despite what the economy is doing. These stocks tend to have stable, predictable, and secure cash flows. And their stocks are typically less volatile vs. the overall market (low beta).  READ MORE




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