Saturday, July 12th, 2008
The Board of Directors of Colgate-Palmolive Company (NYSE: CL) declared quarterly cash dividends of $.40 per common share, payable on August 15, 2008, to shareholders of record on July 24, 2008.
For those of you looking for a dividend that is as close to certain as you can get, look no further as Colgate-Palmolive has paid uninterrupted dividends on its common stock since 1895.
Colgate on the Defense
With the turmoil that has been the stock markets in the past weeks and months, many investors (at least those who haven’t gone to 100% cash) are turning to defensive stocks to assist in preserving capital. With a Beta of just 0.31, Colgate (CL) is one of the least volatile dividend stocks on the market.
In addition to a healthy dividend and price stability (in relation to the market), Colgate also offers some excellent growth numbers for a company of such extreme size. Colgate boasts a Return on Assets (ROA) of 17.03 and a Return on Investment (ROI) of 29.07; both of which trump the industry numbers quite handily.
Colgate Dividend Data
With many dividend stocks struggling with earning this year, the management of the company’s dividend payout ratio is of particular importance. Colgate has a dividend payout ratio of just 43.4% of earnings, which will allow for some flexibility in earnings capacity without sacrificing the dividend rate in the short term. A dividend payout ratio of below 60% is a relatively conservative guideline for investing in dividend growth stocks.
When investing in a good dividend growth stock, one of the criteria that I use is to set a purchase price for a stock when its dividend yield is around 25-30% above the 5-year average dividend yield. Colgate’s 5-year average dividend yield is 1.88% and the current yield is 2.27% - a yield that is 20% higher than average.
Another criteria that I use is that the dividend growth rate must be greater than that of the S&P 500. Otherwise a dividend growth investor would be more prudent buying the entire index to mitigate risk. The dividend growth rate for the S&P 500 is currently at 11.0%, while Colgate features a dividend growth rate of over 14% - a healthy 3% points higher than the index.
Buy What You Know -Colgate
Unless you have been living under a rock for the past century, you will recognize Colgate-Palmolive as a leading global consumer products company. The company is very successful in its focused niche markets of Oral Care, Personal Care, Home Care and Pet Nutrition.
Colgate sells its products in over 200 countries and territories around the world under some of the world’s most recognized brand names as Colgate, Palmolive, Mennen, Softsoap, Irish Spring, Protex, Sorriso, Kolynos, Elmex, Tom’s of Maine, Ajax, Axion, Soupline, and Suavitel, as well as Hill’s Science Diet and Hill’s Prescription Diet.
Stock Summary
As investors looking at Colgate (CL), we have a stock that is quite a bit less volatile than the broader market with a beta of just 0.31, a greater than average dividend yield at 2.27% that is growing at a faster pace than the index. In addition, the company has features an excellent return on investment and wide array of well branded products that people still need to buy regardless of economic conditions.
Full Disclosure: The author does not own shares of Colgate-Palmolive at the time of writing.
Posted in Investment News | 3 Comments »
Monday, July 7th, 2008
If one is a dividend growth investor, they are probably considered (or should be) the longest of the long-term investors. To the absolute amazement of other investors, once the stock is purchased, the dividend growth investor may not care what the price of that stock is as long as the dividends continue to grow.
The substantial gains that are reaped by re-investing the growing dividends from our favorite stocks lies in the exponential power of compounding - which often takes years to build into a noticeable contribution to a portfolio.
Because the re-investment process can seem unproductive and the dividend growth insignificant at first, it is easy for others to dismiss dividend growth investing as “too conservative” or even unprofitable. As much as we preach that slow and steady wins the race, even the most seasoned dividend growth investor can begin to question the effectiveness of the strategy from time to time.
A Real Life Example
Many times it takes a real life example of dividend growth investing to help to keep one motivated to continue the long , often boring, journey of building a portfolio of dividend growing common stocks.
The recent bid by InBev to take over Anheuser Busch (BUD) provided this motivating real-life example that what the essence of dividend growth investing is all about.
This is what the “end-game” of our dividend growth strategy should look like - it’s beautiful!
In 1980, Sean Gorham bought his first piece of a public company: a $500 investment in Anheuser-Busch, even though he had no connection to the brewer or its St. Louis roots. He’s reinvested the dividends, or the cash payout shareholders receive, over the years.
“I’ve always admired how well the company is run. They exude a very clean image and a very American image,” said Gorham, 48, an insurance agent who lives in York, Maine, about an hour northeast of Anheuser-Busch’s Merrimack, N.H., brewery. “It’s been one of the best investments I’ve had. … The dividend I get every year is more than what I originally paid for” the stock.
Anheuser-Busch stock began being traded in 1933 in the over-the-counter market, where brokers buy and sell among themselves rather than through a stock exchange. The company first was listed on the New York Stock Exchange on April 18, 1980, making it more widely accessible to individual investors.
In the past 28 years, Anheuser-Busch’s stock has split four times. So one share bought in 1980 is now 24 shares - how’s that for creating shareholder value.
It Takes Time And Commitment
Obviously this example is one that has taken nearly 30 years to develop, but the fruits of the labor are tremendous.
Given this example, an investor who today is 30 or even 40 years old could begin to build a portfolio of dividend growing common stocks and expect to receive an excellent income in retirement that grows each year - likely at a rate higher than inflation!
When one commits to the strategy of dividend growth investing, it requires an extreme amount of patience and discipline in the first few years. It may take as many as ten years of dividend growth before the re-invested dividends make significant contribution to the growth of the portfolio.
Reaching The Tipping Point
Many financial planners will dub a person’s working years as the “accumulation phase” of one’s life. This means that during these years (roughly from age 20-65) the purpose of investing is to accumulate assets that will allow the investor to hopefully maintain their current lifestyle in retirement.
During the first decade or two, accumulating assets is the most difficult as investors tend to have other “important” expenses such as purchasing a home, raising a family, retiring student loans and consumer debt etc.
While a full blown discussion on the time value of money is not necessary in this article, one must recognize that buying assets such as dividend growth stocks during the early years of the accumulation phase will allow for the advantages of compound growth to kick in and the tipping point will be reached faster.
The tipping point is the point where the return from investments begins to grow at a greater rate than expenses. You will notice that one does not say that investment income meets expenses because, it is known that expenses increase with inflation and (mortgage excluded) may actually have increased in retirement depending on medical needs etc.
Motivation To Follow A Proven Path
During the accumulation phase, success stories like the one above can prevent investors from straying from the proven path of investing in solid dividend growth stocks to fund a prosperous retirement.
Where do you get the motivation to stay committed to your investment strategy?
Resources: St. Louis Today
Posted in Investor Education | 5 Comments »
Wednesday, June 18th, 2008
In a recent article by John Heinzl (Globe and Mail) he asks himself if, as a dividend growth investor, he and all other dividend investors are idiots? Heinzl outlines the feelings that we typically have every so often as dividend investors. That is, missing out on the “multibaggers” that everyone is talking about around the water cooler at work.
Here is a quote that sums up how us dividend investors might feel at the moment:
…Because when everyone else is doing the logical thing and shoveling money into growth stocks that are shooting to the moon, only a big fat idiot would stubbornly sit on a portfolio of boring dividend stocks that are, for the most part, doing jack squat.
It’s interesting that he mentions high flying stocks like Potash Corp. and Research in Motion as being the ones that he missed out on, while he talks about owning our favorite dividend growers - banks, insurers, pipelines and drug makers.
How Far Can You See?
When investing in dividend growth stocks , it isn’t about making a killing this week or this month.
- It is about investing for the long haul and watching your dividend income rise consistently year over year while your “investor” counterparts are searching for the next hot tip.
- It’s about holding onto that dividend paying stock and not worrying about the stock price, as long as that dividend keeps growing.
- It’s about protecting your hard-earned money from inflation and making your money work for you.
- It’s about knowing the company can’t fake a cash dividend.
- It’s about money in your pocket.
Over the long term we know (and Heinzl reiterates) that dividend growing common stock prices also out perform those stocks that pay stable or no dividends.
So What Now?
There is a famous saying from Warren Buffett that goes something like this:
“Be fearful when others are greedy, and greedy when others are fearful”
Of course this is easier said than done, otherwise we’d all be running a multi-billion dollar company like Berkshire Hathaway.
While it may take some serious resolve to start loading up on some of our favorite dividend payers, most notably banks stocks, sticking to a long term plan will make you rich in the long run.
So, to echo the words of Mr. Heinzl I’ll end with this quote:
Am I going to sell my dividend stocks to buy these high fliers now? Hell, no. If anything, I’ll be adding to my existing positions, and reinvesting the extra dividends in even more shares to take advantage of the magic of compounding.
So, don’t worry about the water cooler talk and stick to your plan. Soon enough you’ll be saying goodbye to the water cooler forever when the compounding effects of your rising dividend income begins to exceed your salary!
Here’s to your wealth!
Posted in Investment News | 6 Comments »
Monday, June 9th, 2008
A recent article in The Globe and Mail has me slightly concerned about the financial well-being of our baby boomer generation. It appears that there has been a trend of late (from 2001-2006) according to census data that shows baby boomers assuming more debt.
Why This Concerns Me
At a time when many folks should be enjoying life and harvesting the fruits of their labor, they have assumed more debt. Why are taking on more debt?
It appears that many are completing renovations to their homes, and that is not all bad. If the repairs are needed to sustain the home for the rest of their days, like new windows, shingles, furnace etc. then so be it. However, taking out a second mortgage to add a sunroom or additional living space does not make sense for the majority of empty-nesters.
Even worse, some are taking out a second mortgage to buy depreciating assets like vehicles and may find themselves on the car loan treadmill for the rest of their lives if they are not careful.
Why This Is Smart
Taking out a second mortgage is smart if you are not planning on retiring until the mortgage is paid off because mortgages are the cheapest source of capital (next to student loans). There is no sense paying more interest that you have to, which is why I have a large line of credit on my home. The line of credit on my home is currently at 4.75% and is interest only. This works great for acting fast on “no-brainer” investing opportunities.
Another reason that this data might not represent a clear picture of a trend is that it is not indexed to life expectancy rates. You see, people of a certain age, even 10 years ago, had a much lower life expectancy that baby boomers do today. Not only that, their health and quality of life is much better than previous generations. What this means is that they may be working later in life and they expect to live a healthier and longer life being more active. All in all, today’s baby boomers may not be in as much trouble as this data may lead us to believe.
My Take
While I certainly don’t plan on having to use the equity in my home when I am in my 60’s (at least for anything other than investing), I suppose we never know what circumstances might present themselves in the future.
I am a relatively conservative individual by nature and I don’t really like to own “stuff” just for the sake of having something, so I can’t see myself wanting to increase my standard of living if I don’t have the additional income stream to provide it.
Have the baby boomers finally fallen victim to the consumer driven marketing ploys that have been so effective at convincing those of us in our twenties and thirties that we must keep up with the Jonses?
What do you think?
Posted in Investment News | 1 Comment »
Saturday, June 7th, 2008
Lately I have been reviewing my investment portfolio in light of the new addition to may family and have discovered a few minor things that needed tweaking.
I mentioned in an earlier post that my wife and I have purchased additional life insurance through my employer’s group plan. This plan offers a heckuva great deal on life insurance if you are a younger, non-smoking employee or spouse.
The Cost of Life Insurance
My wife’s additional life insurance of $200,000 costs us $4.10/month.
My additional life insurance of $200,000 costs us $7.90/month.
For those of you unfamiliar with Life Insurance, females are proven to be less of an insurance risk with their typically longer life spans and lower frequency of accidental death. Therefore, it is usually very inexpensive to purchase term life insurance for a female in her twenties.
I really couldn’t believe how cheap a good life insurance policy can be. If you’d like to check it out for yourself you can click here to get a free life insurance quote.
Employer Sponsored Life Insurance Benefits
Like many employers, both my wife’s employer and mine offer life insurance as part of a paid employee benefit package. Our employer paid plans are quite different and it is fairly typical that not all plans are created equal.
My wife’s employer sponsored life insurance plan offers her a flat benefit (as of her union’s last contract) of $177,000. This equates to approximately 3X her annual gross salary at this time. However, her life insurance benefit is not indexed to inflation (except when a new bargaining agreement is reached) and is not derived as a function of her salary. As such, when her salary increases as it does annually, her life insurance benefit remains at $177,000.
My employer sponsored life insurance plan, on the other hand, is derived as a function of my salary. It is in fact 3X my gross earnings (not including commissions and bonuses). My employer sponsored life insurance is now $186,000.
How Much Life Insurance Should I Have?
There are many, many schools of thought on life insurance and I am certainly not an expert in the field. However, I do feel that my wife and I are adequately insured.
Because our only debt is our mortgage at about $175,000, my $386,000 in coverage will more than cover that debt allowing my wife to focus her income solely on the day to day living expenses of the household which would obviously decrease if I am not around to eat 90% of the groceries, take long hot showers, and leave the TV on all night!
This would also leave my wife with $211,000 tax free dollars to invest for my daughter’s future and take care of any unexpected expenditures that may arise in the future.
If the life insurance proceeds invested in a basket of dividend growing common stocks, this lump sum should provide her with approximately $8,000/year in additional income that is likely to grow at a higher rate than inflation over time.
Do I Really Have Enough?
As mentioned earlier, there are many different schools of thought on the calculations that should be used to determine the “proper” amount of life insurance. Some people would say that I need at least 10X my income; I think that is over-insuring.
I don’t want my wife and daughter to struggle financially, but at the same time I don’t want to spend a lot of money banking on my own demise that I could invest in other assets with current cash flow- like stocks (which would be left to my wife as well) !
There has to be a happy medium and I believe that I am very close to that with my current insurance situation.
Your Take on Life Insurance
Am I missing anything?
How do you calculate your life insurance needs? There are several calculators out there, most online insurance companies have them on their websites. Click here and go to InsureMe.com to use their calculator for your life insurance needs.
I’d love to hear your thoughts in the comments.
Posted in Investment News | 5 Comments »
Sunday, June 1st, 2008
Welcome to readers from The Street.com and the Kirk Report. Please take a moment to visit our About Page to see why we love dividend stocks and subscribe to our blog using the Subscribe Form on the right side of the page.
I am a huge proponent of buying the best dividend paying stocks when they are value priced. However, if you aren’t sure about picking an individual stock and you still want to reap the rewards of Dividends, check out this list of some different Dividend Exchange Traded Funds (ETF’s).
The Vanguard Dividend Appreciation Fund (AMEX: VIG) is a one of the cheapest dividend ETFs, with an expense ratio of 0.26%. Some rivals charge as much as 0.60%. But fees aren’t everything here. VIG’s current yield — slightly less than 1.77% — is on the low side, as is its total return of roughly 7% since its inception in late April 2006.
VIG is benchmarked to the Mergent Dividend Achievers Select Index, a subset of the Mergent Dividend Achievers Index — a market-cap-weighted index of stocks with a consistent history of increasing dividends. Its holdings are highly concentrated in three sectors: consumer staples at 23%, financials at 20%, and industrials at 17% of assets. The top five stock holdings include Johnson & Johnson, GE, ExxonMobil, AIG, and IBM, each representing roughly 4% of assets.
Among other ETFs focusing on high-yielding equities, the iShares Dow Jones Select Dividend (NYSE: DVY), the first dividend ETF, has gathered more than $7 billion in assets. It invests in 100 of the highest dividend-yielding securities (excluding real estate investment trusts) in the Dow Jones U.S. Total Market Index.
First Trust Morningstar Dividend Leaders (AMEX: FDL) invests in the top 100 stocks of the Morningstar Dividend Leaders Index. These are the index’s highest-yielding stocks, ranked by the consistency with which they pay dividends and the ability to sustain those dividends going forward. Three securities — Citigroup, Bank of America, and Altria — together make up more than one-fourth of the fund.
State Street SPDR Dividend (AMEX: SDY) invests in the 50 highest dividend-yielding S&P Composite 1500 constituents. This index tracks equities that have consistently increased dividends every year for at least 25 years. Investing in these long-term dividend-paying stocks reduces the risk that the fund’s holdings will cut their dividends.
For Dividend Daredevils
More adventurous investors might consider the Claymore/Zacks Yield Hog ETF (AMEX: CVY), which aims to double the yield of other dividend-paying ETFs. The fund invests in high-yield securities such as preferred shares, master limited partnerships, closed-end funds, American Depository Receipts, and Real Estate Investment Trusts. It’s a riskier play, since the holdings don’t all have a long history of regular, stable dividends.
Paying the piper
Tax law changes in 2003 lowered the tax on most dividends to 15%, making dividend-paying stocks more appealing. This law is set to expire at the end of 2008, and if it does, dividend-paying stocks may become less desirable.
Courtesy of Motley Fool
Posted in Investor Education, Stock Studies | 2 Comments »
Wednesday, May 28th, 2008
It seems like there is a never ending stream of “get rich” books and can’t miss investing courses out there and to be honest, some of them might actually work.
I’m not sure about you, but I have always believed that in order to actually profit from a strategy, you have to feel comfortable with it. I know there are stock traders out there that make a lot of money moving in and out of stocks, but that was never really my style. I have learned a lot about stock charts and technical analysis from some of these traders and have applied some of their techniques to my own investing. But that’s just it, you have to develop a style that is right for you.
Developing Your Investing Style
I have always believed that no matter what your thoughts are about a particular investing strategy, it is never a bad idea to learn about it. Most publicized techniques combine several data points and have been successful at one time or another. I personally like to learn about various techniques and utilize certain pieces that I feel may help me to make better decisions when buying stocks.
I have combined information from techniques that focus on value investing, momentum investing, swing trading, yield chasing, and growth investing to assist me in purchasing stocks and ETF’s for my portfolio.
Use Investing Elements That Make Sense To You
While understanding all there is to know about an investing strategy from reading a book or two is usually out of the question for me, I can always find a nugget of information that makes complete sense and add it to my stock screening routine.
For instance, reading How To Make Money In Stocks by William O’Neil is about trend trading and momentum trading. However, I have used some of the techniques in that book to understand the relationship between price and volume. I have used this information to develop my own strategies on when to buy stocks that are on my watch list. I have found that O’Neil’s strategies work especially well in up-trending markets where traditional value investing leaves us with few stocks trading at a deep discount.
Combining Data Points For Increased Accuracy
In statistical theory, the more pieces of information (points of reference) that you have on a particular item, the more accurate your results should be. The same holds true with investing in stocks - unless you hold out for more and more points of reference and never pull the trigger on a buy.
The general idea is to combine several different points of reference when analyzing a stock in order to minimize your risk. Use those investment strategies that make sense to you and look for common results from different points of reference. For example: if the chart is showing significant volume buying (showing institutional investors buying large amounts of stock) and both the earnings per share and revenue are growing rapidly, there is a good chance that this stock is going to trend higher.
Your Personality Can Make You Money
If you are a laid back and patient person, you can make money investing.
If you are hyperactive and bordering on attention deficit disorder, you can make money investing.
The key to making any investment strategy work for you is to understand your personality. I personally do not have the motivation (or the patience) to follow stock tickers on a daily basis, let alone minute by minute, as some day traders do. And guess what - that’s okay! I still make money in the stock market and so can you.
If you dread the fact of holding stocks over long periods of time and seeing a stock in your portfolio over a week or even overnight scares you to death - that’s okay! You can still make money in the stock market.
If we can understand ourselves, we then have the ability to tailor an investing program that fits our differing lifestyles and personalities.
In Summary
- Understand if your personality and risk tolerance are more appropriate for long-term investing or shorter term trading.
- Use only investing strategies that make sense to you. (If you don’t really understand them, then you’re not going to make money)
- Develop many points of reference and pieces of data to ensure you feel comfortable with your investment decision
- Combine the strategies that you understand into your own system.
Once you have a profitable system that you feel comfortable with, continue to review strategies that may allow you to add another point of reference to your toolbox. However, I always abide by the rule “if it’s not broke, don’t fix it!”
I hope this helps you in developing your own investment strategy and I’d love to hear how you have developed your current investing process. Feel free to contact me or drop a comment below!
-Tyler
Posted in Investor Education | 5 Comments »
Wednesday, April 9th, 2008
As investors, we can spend a lot of time managing various risks within our portfolio.
There is inflation risk, political risk, systematic and non-systematic risk the list goes on. However, the average investor may not pay a lot of attention to the effects of currency risk.
Currency Risk Example
If you are a U.S. investor and you have stocks in Canada, the return that you will realize is affected by both the change in the price of the stocks and the change of the Canadian dollar against the U.S. dollar. Suppose that you realized a return in the stocks of 15% but if the Canadian dollar depreciated 15% against the U.S. dollar, you would realize no gain.
The Kicker
In most cases, bearing more risk gives the investor and opportunity for a higher return. However, this is not the case with currency risk. Actually, several academic studies (without 100% certainty mind you) have determined that a portfolio with no hedge against currency is at no particular advantage to gain superior returns than the same portfolio for which currency risk is hedged.
What does this mean?
Essentially, this means that if you are carrying currency risk, meaning your portfolio is not hedged against currency fluctuations, you are carrying a needless risk.
As you can see, currency risk can have a dramatic effect on your portfolio’s “real return”. It is for that reason that you should not only pay attention to the stock markets, but also take a glimpse at the currency markets from time to time.
How Currency Risk Affects Your Retirement Plan
Yes, currency risk does have a place in retirement planning. For example, if you are a Canadian who is nearing retirement and you have a steady (and growing) stream of dividends coming in from Canadian companies you are set. Or are you? If you are like many retired Canadians, you will travel during your retirement to different countries. Currency risk may not affect the casual traveler too much during retirement if most of their expenses are in Canadian dollars.
On the other hand, many retired Canadians travel for extended periods of time, particuarly in the southern United States. Therefore, they bear a lot of expenses that are in United States Dollars. In this case it would be prudent to hold some investments in high quality, dividend growth stocks that pay their dividends in United States Currency.
If your retirement plan is one in which you expect to travel extensively and/or have many expenses in another currency, you might want to remember this little article. It just might save you some headaches in the future.
Here’s to retirement!
Posted in Investor Education | 3 Comments »
