Daily Gains Letter

Dividends


The Ultimate Dividend Paying Stock with a 23-Year Track Record

By for Daily Gains Letter | Feb 11, 2013

DL_Feb_11_2013_JohnLow interest rates might be good for borrowing money and buying assets, like a house, but they can put a serious dent in a retirement fund. By taking “income” out of fixed income, the Federal Reserve has made retirement a pipe dream for many.

In the past, investing in bonds and treasuries meant those who were heading toward retirement could find solace in fixed income returns. It provided holders with stable retirement income; they knew what their annual returns would be, and could budget and spend accordingly. Not anymore.

According to the Federal Reserve, in 2007, a $100,000 short-term CD (certificate of deposit) would have generated $4,780 in annual income. At the end of 2012, that same CD generated only $190.00 in annual income. Factor in inflation, and your investment actually lost money.

Even for those low-risk investors who are nearing retirement, there are still areas where you can park your money and beat the low interest rates offered by banks and other so-called “safe” investments (i.e. bonds, treasuries, CDs).

With the eurozone recession, sovereign debt, government spending, and geopolitical tensions, the U.S. economy—and the global economy for that matter—is expected to remain moribund with anemic growth.

With that in mind, many investors are turning their attention to financially strong companies with a long history of providing high-yield dividends.

Why are so many companies sitting on large stashes of cash? With the bull market nearing its fourth anniversary, many think it’s getting a little long in the tooth and is prime for a correction. Translation: many corporations are afraid to invest in this marketplace. And the best way to keep … Read More


Creating a Lot of Wealth the Safer Way

By for Daily Gains Letter | Jan 22, 2013

DL_Mitchell_11On the continuing theme of blue chip investing and saving for retirement, I want to highlight a couple of dividend paying stocks that I think are worth considering in any savings plan that has an equity component. Mutual funds are useful tools and so are exchange-traded funds (ETFs). Both give you the ability to diversify your holdings and save for retirement passively. But, as part of an overall strategy, I do think it’s wise to consider building long-term positions in select dividend paying stocks, and employ dividend reinvestment to build your wealth.

One blue chip that’s been a real standout in terms of its wealth generation for shareholders is International Business Machines Corporation (NYSE/IBM), otherwise referred to as IBM. Especially over the last 20 years, IBM has made a ton of money for its shareholders. It’s done so fairly consistently and hasn’t fallen as much as the stock market during corrections.

This blue chip (pardon the pun; IBM is often referred to as “big blue”) hasn’t had the biggest dividend yield in the marketplace, but even over the last two and a half years, the company’s dividend per share has grown to $0.85 from $0.55 on a quarterly basis. That’s significant and, if you were to enroll in the company’s dividend reinvestment program, you’d amplify your returns by quite a bit.

Another blue chip that has proven to generate a lot of wealth for blue chip investors is Colgate-Palmolive Company (NYSE/CL). You might never think of the toothpaste and dish soap business as being exciting, but when you look at the returns this company has generated, all that goes out … Read More


Your Retirement Strategy—It Doesn’t Have to Be Complicated

By for Daily Gains Letter | Jan 17, 2013

DL_Mitchell_9If you’re saving for retirement, you probably have some exposure to the stock market, whether it’s through individual companies, mutual funds, or exchange-traded funds (ETFs). Right now, the interest rate cycle favors the stock market, but a lot of investors aren’t very encouraged by the stock market and its potential for good returns. This is largely because of the extreme volatility we’ve had in share prices over the last 12 years. Big corporations seem to be doing great, but the volatility on the stock market can really wear you down. And depending on when you’re planning for retirement, the volatility of your investments can be directly responsible for your timeframe.

Mutual funds have gone a long way towards helping investors diversify, but by the time you pay those management fees and expenses, most funds don’t beat the major indices. I’ve always thought that a good way to save for retirement is to have exposure to the stock market through both an index and individual companies. You can build positions in both when share prices are down.

Of course, one of the best ways to build wealth for retirement is through the use of a DRIP, otherwise known as a dividend reinvestment plan. It’s one of the best ways to boost your investment returns over time—take those dividend payments and reinvest them in new shares of a good company with an excellent long-term track record of wealth creation on the stock market.

One such company that I like to point out that fits well into this investment strategy is PepsiCo, Inc. (NYSE/PEP). PepsiCo is a lot more than just a soft … Read More


How to Earn Income in a Low Interest Rate Environment

By Sasha Cekerevac for Daily Gains Letter | Jan 14, 2013

DL_Sasha_7Historically, investors who are looking for income have bought bonds and other fixed-income investments to generate yield. This unprecedented level of monetary policy has pushed interest rates to historically low levels. This means that income from bonds will be extremely low, and after taking inflation into account, it will actually be negative.

The danger is that not only is an investor going to lose money over the long term, but they will also see dramatically lower prices for fixed-income instruments once interest rates start rising. At this point, investing in stocks that pay out a solid dividend yield makes sense as a prudent investment strategy.

At this point, many people may be hesitant to look at investing in stocks after such a strong move since 2009. Many companies have reduced their dividend yield as other people have been active in investing in stocks, pushing prices up.

What one should do is look out over the next decade and see which offers a more attractive option, bonds or stocks. With the 10-year U.S. Treasuries yielding 1.9%, the S&P 500 index dividend yield approximately 2.8%, and the potential for capital appreciation, the choice seems quite obvious to me.

Investing in stocks is advantageous when one looks to buy pullbacks over a long period of time. This allows for a higher dividend yield and a better entry point for accumulation.

With bond yields being at such a low level, inflation will eat away returns. However, if inflation were to occur, this would push up asset prices, including stocks. Once again, investing in stocks that have a solid dividend yield helps generate income, while … Read More


Your Retirement Strategy—It Doesn’t Have to Be Complicated

By for Daily Gains Letter | Jan 10, 2013

DL_Mitchell_7_If you’re saving for retirement, you probably have some exposure to the stock market, whether it’s through individual companies, mutual funds, or exchange-traded funds (ETFs). Right now, the interest rate cycle favors the stock market, but a lot of investors aren’t very encouraged by the stock market and its potential for good returns. This is largely because of the extreme volatility we’ve had in share prices over the last 12 years. Big corporations seem to be doing great, but the volatility on the stock market can really wear you down. And depending on when you’re planning for retirement, the volatility of your investments can be directly responsible for your timeframe.

Mutual funds have gone a long way to helping investors diversify, but by the time you pay those management fees and expenses, most funds don’t beat the major indices. I’ve always thought that a good way to save for retirement is to have exposure to the stock market through both an index and individual companies. You can build positions in both when share prices are down.

Of course, one of the best ways to build wealth for retirement is through the use of a DRIP, otherwise known as a dividend reinvestment plan. It’s one of the best ways to boost your investment returns over time—take those dividend payments and reinvest them in new shares of a good company with an excellent long-term track record of wealth creation on the stock market.

One such company that I like to point out that fits well into this investment strategy is PepsiCo, Inc. (NYSE/PEP). PepsiCo is a lot more than just a soft … Read More


Warren Buffett Is Right—Buy Dividend Stocks Over Time, and Build Your Wealth

By for Daily Gains Letter | Jan 3, 2013

Build Your WealthIf you are saving for your retirement, it’s likely that you will have some exposure to the stock market, whether it is through mutual funds, exchange-traded funds (ETFs), or individual stocks. If there’s one thing I’ve learned over the years, it’s that you don’t have to be chasing the latest highflier to do well on the stock market. In fact, picking a solid blue chip name with increasing dividend payments to shareholders is often a much more fruitful and less stressful way to invest.

Even in mature industries, you can do well over time by owning a solid business. What’s required is to take those dividend payments and reinvest them in new shares. This is how you create wealth for yourself on the stock market.

Consider, for example, a company like PepsiCo, Inc. (NYSE/PEP). This beverage and snack maker sells a lot of brand-name products that you would be familiar with. The company has a long track record of appreciating in value on the stock market and increasing its dividends to shareholders. The company’s recent stock market chart is below:

Pepsico Inc Chart

Chart courtesy of www.StockCharts.com

PepsiCo is a $100-billion global company that currently boasts a dividend yield over three percent. If you pull up a very long-term stock market chart on the company, you will notice how consistent it has been at appreciating in value. The company offers a dividend reinvestment plan, so all those quarterly dividends are automatically used to acquire new shares in the company over time. This creates a compounding effect as more shares equal more dividends, and what is useful about PepsiCo’s dividend reinvestment plan is that … Read More


How to Earn Income in a Low Interest Rate Environment

By Sasha Cekerevac for Daily Gains Letter | Dec 28, 2012

DL_Sasha_6Historically, investors who are looking for income have bought bonds and other fixed-income investments to generate yield. This unprecedented level of monetary policy has pushed interest rates to historically low levels. This means that income from bonds will be extremely low, and after taking inflation into account, it will actually be negative.

The danger is that not only is an investor going to lose money over the long term, but they will also see dramatically lower prices for fixed-income instruments once interest rates start rising. At this point, investing in stocks that pay out a solid dividend yield makes sense as a prudent investment strategy.

At this point, many people may be hesitant to look at investing in stocks after such a strong move since 2009. Many companies have reduced their dividend yield as other people have been active in investing in stocks, pushing prices up.

What one should do is look out over the next decade and see which offers a more attractive option, bonds or stocks. With the 10-year U.S. Treasuries yielding 1.9%, the S&P 500 index dividend yield approximately 2.8%, and the potential for capital appreciation, the choice seems quite obvious to me.

Investing in stocks is advantageous when one looks to buy pullbacks over a long period of time. This allows for a higher dividend yield and a better entry point for accumulation.

With bond yields being at such a low level, inflation will eat away returns. However, if inflation were to occur, this would push up asset prices, including stocks. Once again, investing in stocks that have a solid dividend yield helps generate income, while … Read More


How to Avoid Danger When Searching for a Good Dividend Yield

By Sasha Cekerevac for Daily Gains Letter | Dec 24, 2012

DL_Sasha_3When looking at the historical returns of stocks, a recurring investment strategy that has been successful is to have some equities that have a dividend yield. Adding this type of equity to a portfolio can help boost long-term returns and smooth out the volatility.

However, a dividend yield investment strategy is not as straightforward as simply looking for stocks that have the highest dividend yield. One must carefully choose equities for a portfolio that hit a number of criteria.

A company can issue a dividend, but they are not forced to continue making payments, unlike a bond. A bond is a contract in which an investor owns a company’s debt, and the firm that borrows the money must pay according to the covenants of the bond issuance. Dividend yield is the return on payments made by the company to shareholders, effectively returning capital to the owners.

When looking for stocks for this investment strategy, one must pay attention to the financial strength of a corporation. The stronger the company, the more likely it will continue issuing a dividend. If a company has a weak balance sheet, there is the potential that the firm may cut or eliminate its dividend yield altogether.

One way to evaluate companies for this investment strategy is to look at the free cash flow payout ratio. The payout ratio is the percent of cash that the firm is issuing to maintain its dividend yield. If a company is paying out most or all of its cash in the form of a dividend yield, this is a warning sign, as the firm might not be able to … Read More


One of the Best Ways to Create Wealth: Dividend Reinvestment

By for Daily Gains Letter | Dec 18, 2012

Dividend ReinvestmentRight now we have a stock market that isn’t doing anything. Earnings outlooks are modest and so are investor expectations for capital gains. In fact, 2013 is shaping up to be a tough year for stocks and return on investment is likely to be very modest. This is why dividend income is so crucial to your savings and financial planning.

For our beginner investors, a dividend is the payment that a company distributes to its shareholders as a percent of earnings. Management can decide whether to pay a dividend, how much it is, and the frequency of payments. Dividends are often distributed quarterly and are quoted as the amount of dividend per share. Companies that are growing fast tend not to issue a dividend, as they pour money back into the business.

Investing in the stock market isn’t for everyone, but one of the ways you can grow your wealth over time is to own higher dividend paying stocks, and reinvest those dividends into new shares. If you don’t need the income because you’re saving, dividend reinvestment is one of the best stock market investment strategies you can employ. More shares equal more dividends and your actual stock market returns begin to compound quicker than you think.

Consider, for example, a company like PepsiCo, Inc. (NYSE/PEP), which is stock with a long-term track record of wealth creation and rising dividends for stockholders. According to its history on the stock market, PepsiCo looks to have been a good buy every time it experienced a major pullback in its share price. The company’s recent stock chart is featured below:

Untitled-1

Chart courtesy of … Read More