Roundup: If Only You Really Knew…

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There’s a lot we don’t know. Perhaps, if we knew more, we would be willing to take a few more risks. Perhaps we would take the plunge a little more often. However, often we are just stuck making financial and investing decisions as best we can. But, if you are looking for a little more information, here are some great posts to help you out:

  1. If You Only Invested Then…A Little Motivation for Now: Hindsight is usually 20/20. And The Dividend Pig really brings this home. However, the post is also meant to be inspirational. Get to it now, and you could do well later.
  2. 3 Hidden Truths about Market Crashes – Why They Crash When They Are Handled By Professionals: Do you really want to learn about what’s going on at the stock market? The Dividend Guy gives you a crash course in stock market crashes.
  3. You Call This an Efficient Market?: Over at the Oblivious Investor, Mike takes a look at efficient market theory. He also explains why the market isn’t always all that efficient. An interesting and enlightening read.
  4. What is an IPO?: Monetvator takes a look at the ins and outs of IPOs. If you want to get in early, you need to know this information. It could help you later on.
  5. How To Save $100,000 In Cash: Are you ready to get serious about saving a huge amount of capital? Buy Like Buffett provides you with some viable options for reaching your goal of $100,000 in cash.
  6. Retiring Overseas: What if you knew you could live somewhere else? Dividend Mantra takes a look at retiring overseas and enjoying a good lifestyle for less. He looks at the Philippines specifically.
  7. Top 10 Finance Blogs: Dividend Ninja considers different finance blogs, and shares information about where you can go to get great advice and insight.

Managing Your Dividend Expectations

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One of the best ways to make money in the stock market is to get involved in dividend investing. If you are careful, you can find success in dividend investing. Before you get started, though, there are some things to keep in mind. If you expect too much too soon, or think that dividend investing comes without risks, you will be in for an unpleasant surprise.

1. You Can’t Expect Immediate, Huge Amounts of Income

The first thing that you have to understand about dividend investing is that you can’t expect to earn money in significant amounts to start with. Unless you have a large amount of capital to invest, you are unlikely to own enough shares to see a significant income stream. Instead, building a dividend investment portfolio is the work of time and effort. You have to be ready to invest regularly, and be patient. Dividend investing is not get rich quick.

2. It’s Important to Research Your Investments

Investing shouldn’t be about just putting money into anything that comes along. If you want to be a successful dividend investor, you need to do some research. This can be boring at times, since you won’t see exciting returns, and you will have to research what makes sense for your situation. Know what plan will work best for you, and understand different methods of evaluating stocks, including look at P/E ratios or considering the dividend growth model.

3. You Could Lose Money

Another thing to understand about dividend investing is that you could lose money. Even though solid dividend stocks come with relatively low risk, as compared to some other investments, there is still the chance that you could lose money. A lot of money. Remember that there are share prices are involved – not just dividend earnings. If you sell when the market is low, you could lose a great deal of money, just as you would with any investment.

Also, remember that dividend payouts aren’t guaranteed, and that you could lose a portion of your income if a company cuts (or eliminates) the payout.

4. Pay Attention

It’s also a good idea to pay attention to things like diversity and asset allocation. Consider what asset allocation is likely to work well for you, and invest for diversity across sectors, as well as consider foreign dividend stocks. That way, you won’t be overexposed in one area should it take a hit.

Also, remember that paying attention means buying when there are bargains to be had. Pay attention to when dividend stocks go on sale. You can pick up more shares for a better price, boost your payout in some cases, as well as preparing for future growth.

Warren Buffett Makes a Big Investment in BAC

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Once again, Warren Buffett is making big news today with another big deal. Following his own advice about being greedy when others are fearful, Warren Buffett just made a big investment in Bank of America. The deal, worth about $5 billion, is in the form of BAC preferred stock. In 2008, Warren Buffett made a similar deal with Goldman Sachs just after Lehman Brothers went down.

While BAC hasn’t been approved to begin paying dividends to shareholders of common stock yet, the embattled bank recently authorized a dividend payment to those holding preferred stock. As a result, it is likely that Buffett will see some of his investment come back to him. And, of course, if Bank of America manages to recover, Buffett stands to see a rather substantial return.

Preferred Shares in Banks Can Offer Decent Yields

Instead of focusing only on common shares of banks, it might be worth it look into preferred bank shares. Dividends on common shares of most bank stocks are quite low, even though this past year has some dividend increases. Preferred shares, though, offer better yields, as we have seen with BAC. If you are interested in chasing some higher yields, preferred shared might offer some possibilities.

Other Dividend News: MOCO, GKSR, MO

Other dividends have been announced in the past week. MOCON’s (MOCO) board of directors just announced a quarterly cash dividend of 10 cents per share. Additionally, G&K (GKSR) Services announced that it is boosting its payout to 13 cents a share, and Altria Group (MO), parent of Philip Morris, is raising its dividend to 41 cents a share.

Additionally, a few stocks are going ex-dividend on Monday. Some of the companies that are planning to go ex-dividend on Monday include Time Warner Cable (TWC), Barrick Gold Corporation (ABX), and Hugoton Royalty (HGT).

It looks like there should be plenty of interesting opportunities available to dividend investors for quite some time.

Roundup: Helpful Hints

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As you put your finances in order or get ready to invest, it helps to have some hints from those who have gone before. Here are some great, inspirational and helpful posts from different bloggers in the past week:

  1. Plan to invest as shares fall: Monevator helps you stay focused on the long term. Be ready to invest when the market is dropping. It’s a good way to get more for less.
  2. It Feels Like Wal-Mart on a Black Friday — 4 Stocks That Will Rewards Your Gut To Invest In Volatile Markets: Are you ready to invest, even with this volatility? The Dividend Guy provides you with some helpful hints to investing during crazy times.
  3. Dividend Stocks are Not Popular: The Dividend Pig takes a look at trends in dividend investing. An interesting post that can help dividend investors decide what to focus on as they make decisions. Take some time for introspection.
  4. The 7 Links Project: This is a cool post from Dividend Ninja. As part of the 7 Links Project, he shares some very helpful posts. Take a look, and see if you can learn something from 7 of Dividend Ninja’s best posts.
  5. How To Evaluate The Benefits Of Breaking Your Mortgage: This is a great post on looking over your options when it comes to your mortgage. The Passive Income Earner shares some ideas about how you can break your mortgage and refinance to a lower rate — as long as it makes sense.
  6. Moving Day: Over at Dividend Mantra, you can learn about why he is ready to move to a smaller apartment. This is a pretty cool (and inspiring) post about how sometimes it makes sense to downsize.
  7. Safe Withdrawal Rates and Life Expectancy: As you get ready to withdraw money from your retirement account, you’ll want to do it right. Oblivious Investor has some helpful information about choosing a safe withdrawal rate to help you outlive your money.

Promising Canadian Dividends

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When it comes to dividend investing, it can help to add a little diversity to your portfolio. One way to add some diversity to your dividend stock portfolio is to add some foreign stocks. You don’t have to look across the ocean to find solid foreign dividend stocks, though. Our neighbor to the north, Canada, has plenty of promising dividend stocks to add to your portfolio.

Why You Should Consider Canadian Dividend Paying Stocks

One of the best reasons to consider Canadian dividend paying stocks is due to the relative stability of the economy. The recession following the 2008 financial crisis didn’t affect Canada the same way that it affected the U.S. Canada has held up fairly well, and that means that you can find some quality dividend stocks.

Some companies in Canada did freeze the dividends during the recession. Many Canadian banks kept their dividend payouts the same, rather than increasing payments, during the recession – even though they weren’t as hard hit as U.S. banks, or European banks. However, banks like the Bank of Montreal and Royal Bank of Canada could very well start raising dividends in the relatively near future. Other Canadian dividend stocks could also conceivably increase their payouts soon.

Canadian Dividend Stock Ideas for Your Portfolio

You can find some decent Canadian dividend stocks with yields above 2.5%. These companies come from a variety of industries:

  • Rogers Communications: This company provides wireless Internet, phone, and TV services, as well as home monitoring. It’s a telecom company providing residential and business services. This one is actually available on the NYSE (RCI). Yield: 3.72%
  • Canadian Real Estate Investment Trust: This REIT has been in existence for 17 years, and it specializes in high quality real estate assets. You have to get this one OTC (CRXIF.PK) in the U.S., or you can get it on the Toronto Stock Exchange (REF.UN). Yield: 4.34%
  • Shopper’s Drug Mart: One of the recognizable retailers in Canada, specializing in drugstore items, as well as other consumer items. Once again, you can’t get this one on the NYSE in the U.S.; you have to go pink sheets (SHOMF.PK) or use the TSX (SC). Yield: 2.52%
  • Toromont Industries: This heavy equipment company makes it a point to provide diversified growth in a number of areas. Again, you can only get it OTC in the U.S. (TMTNF.PK), or get it on the Toronto exchange (TIH). Yield: 3.37%

There are plenty of other solid Canadian companies out there that pay regular dividends, and offer you the chance to add a little diversity to your investment portfolio. It’s worth checking into – especially if you can find some Canadian companies trading on a U.S. stock market.

Side Note:
Many Canadian dividend payers fall under our monthly dividend stock list and are featured in our best investment list.

US Stocks On Sale

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Earlier this year, it was getting difficult to find good dividend paying stocks at a reasonable price. Markets had been climbing higher and higher, reaching peak levels back in March and April, with the Dow closing at 12,810 on April 29th, 2011. The S&P 500 also reached a peaked level on April 29th, closing at 1,363. Then on August 4th, all that changed when global markets reacting to a possible U.S. default along with European debt woes, began to tumble.

The Dow ended up losing -16%, and the S&P off -18% from those April highs as well. Many investors began “backing up the truck” in the days to follow, finding some of their best investments on sale. Although the future direction of the economy and markets remains uncertain, many high-quality dividend paying stocks are still trading at reasonable price points, as compared to only a few months ago. Here are a few of my favorite U.S. Stocks on sale.

Procter & Gamble (PG)

I can’t think of a better inflationary hedge, or recessionary proof stock than Procter & Gamble. This 167 billion-dollar company, markets more than 250 products to more than five billion consumers in 130 countries. The range of well known home and beauty products which PG manufactures is staggering. Let’s face it, economic downturn or not, people still buy their favorite brand names.

PG currently has a P/E ratio of 15.49, a dividend payout ratio of 53.4%, and a dividend yield of 3.4%. It’s debt to equity ratio is currently at 0.80 which is considered modest. PG is currently trading at $60.86 per share, down -9.6%
from its high of $67.38 back on May 18th. $60 is a significant support level for PG, when compared over a 5 year horizon. A breakout below this level may indicate further price declines.

Sysco Corp. (SYY)

If you’re a chicken, Sysco would be your least favorite company. As an investor it should be at the top of your list, since it’s trading near its 52 week lows. This global food giant distributes food products and supplies to restaurants, healthcare and educational facilities, as well as to lodging establishments. SYY has a market capitalization of 15.9 billion, a P/E ratio of 13.92, and a dividend payout ratio of 53%, with a dividend yield of 3.70%.

The debt-to-equity ratio is higher however at 1.73, and this may be a factor in its current share price. SYY is currently trading at $27.30 per share, slightly above its 52 week low of $27.13. This may be a good entry point on this company, and the current market turmoil has had less influence on Sysco as compared to other companies. $27 is also a 5-year support level for SYY that you may want to watch closely before buying.

PepsiCo Inc. (PEP)

While everyone was loading up on Coca-Cola (KO), PepsiCo (PEP) flew right under the radar. A less than stellar earnings report on July 21st, 2001, sent PepsiCo shares down from $68.49 to $63.86 by July 27th, a decline of over -6.7% in a few days. PepsiCo found it difficult to raise its prices to offset soaring commodity costs, and this eventually affected its bottom line. As with PG, PepsiCo is a consumer discretionary which is less influenced by market declines. Even with price increases due to inflation, people will still buy Pepsi, eat potato chips, or eat Quaker oatmeal for breakfast.

Brand recognition is one of the most important factors among the consumer staples. PepsiCo has a market capitalization of nearly 100 billion dollars, a P/E ratio of 16.05, a dividend payout ratio of 52.4%, and a debt-equity ratio of 0.99. The current dividend yield is 3.20%. PEP is currently trading at $63.09 per share, off -10.5% from its high of $70.52 back on July 7th, 2011. This may be a good entry point for PepsiCo (PEP).

Home Depot (HD)

During our home renovation, I became very familiar with Home Depot (HD). I found a company which dominated our Canadian equivalent Rona Inc. (RON-TSX), was focused on customer service, and was the favorite of local contractors and renovation fans alike. And you can even get a Harvey’s hot dog after buying power tools! Back on October 1st, 2010, I recommended Home Depot on my blog when it was trading at $31.68 per share.

With the recent market declines, Home Depot (HD) is again looking attractive at $32.16 per share, off -16.4% from its high of $38.48 back on February 18th, 2011. Its price before the market declines on July 25th, was $36.65 per share, or a -12.2% difference from its current price. Home Depot (HD) has a market capitalization of 51.2 billion, a P/E ratio of 15.45, and a dividend payout ratio of 48%. The dividend yield is currently at 3.00% for HD, and the debt to equity ratio is higher at 1.41.

Wal-Mart (WMT)

Many investors have been frustrated buying Wal-Mart (WMT) and seeing little capital appreciation in the stock price over the years. Many of these investors also view Wal-Mart as an income only investment, buying solely for the dividend yield. Yet if you were to buy Wal-Mart on the dips, and hang on long-term for the ride, you would have grown a nice nest egg on this global retail giant. Wal-Mart is also a great defensive stock during market declines.

During the 2008-2009 financial crisis for example, Wal-Mart lost $15.88 per share, or a -25.4% loss from its peak of $62.41 per share back on September 8th, 2010. That may sound like a big loss, but the entire Dow Jones Industrial Average lost nearly -40% during the same time period. In other words, Wal-Mart held its ground, and still paid you a dividend.

Since March 2009, Wal-Mart has regained its share price back to $51.79 per share. This is at a -4.8% discount, from its price of $54.47 on July 21st, and definitely a good buy opportunity. Wal-Mart has over 179 billion dollars in assets, a P/E ratio of only 11.31, a dividend payout ratio of only 31.8%, and a current debt ratio of .90. The dividend yield is currently 2.8%.

Disclaimer

Please note the Dividend Ninja is not a professional financial advisor or an investment dealer. This article does not offer professional or financial advice is not a recommendation to buy securities mentioned, and is intended to provide general information only. The Dividend Ninja is not responsible for the investment decisions you make.

Beginning Investors: Consider Direct Stock Purchase Plans

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Many beginning dividend investors are curious to know how they can get started with a relatively small amount of capital. After all, many beginning investors don’t have a huge amount of cash to tie up in stocks. Most beginning investors have smaller amounts of money, and are more likely to be interested in dollar cost averaging. One way that you can get started with dividend investing is to see if your stock of choice comes with a direct purchase plan.

Direct Stock Purchase Plans

Online discount brokers have offered great opportunities for ordinary people to easily – and affordably – invest. You can do a lot with online brokers. However, you still might be paying more in fees than you would like. If you want to save some money in terms of fees, it might be worth it to see if you can use a direct stock purchase plan.

With a direct stock purchase option, you buy your shares directly from the company, via that company’s transfer agent. Some direct purchase options are completely free to you, with the company itself assuming the costs associated with having the transfer agent complete the transaction. In other cases, though, you may have to pay a small fee. Many direct purchases come with fees of between $1 and $5. That’s still better than a large number of the transaction fees paid to discount brokers.

You can make a one-time purchase, or you can set up a plan. Direct stock purchase plans can also provide you a way to take advantage of dollar cost averaging. You open an account with the company’s transfer agent, and then you can arrange to have money automatically deducted from your checking account each month to buy shares, or partial shares.

If you use a direct stock purchase plan to buy dividend stocks, you can enjoy the ability to steadily build your income portfolio. Many dividend paying companies that offer direct stock purchase plans also offer DRIPs, so you can reinvest your dividend earnings automatically if you want.

Disadvantage to Direct Stock Purchase Plans

Of course, there are disadvantages to all such plans. Before you decide to purchase your dividend stocks through a direct stock purchase plan, you need to understand some of the downsides. The main downside is that, since you are on automatic, you can’t choose when to buy. This means that you might not always get the best stock price on your purchase. Your purchase is made at whatever price the stock is when the transaction is completed. If you are involved in dollar cost averaging, it usually evens out over time, but you might not have the same control as you would with a discount broker.

In the end, only you can decide if a direct stock purchase plan is right for you. Many beginners, though, find this mode of purchasing dividend stocks attractive because it allows them to use a small amount of capital, as well as save money in fees.

Roundup: What to Do When the Stock Market Crashes

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Volatility has been the watchword on the stock market over the past few sessions. So what do you do with all of these mini crashes and crazy relief rallies? If you are trying to sort things out, here are some great posts to help you make sense of the madness:

  1. A Market Correction is a Great Time to Buy: The Dividend Pig makes the case for buying when the stock market drops. Take a look at all the dipping going on right now, and think of it as a chance to get some quality stocks on sale.
  2. Keep Calm and Steady: Dividend Ninja takes a look at the craziness surrounding us in the markets, and offers some practical advice: Stay calm. Take a step back, and look at your plan. Stay the course.
  3. Recent Buy…: Dividend Partisan takes a look at what’s on sale in the stock market. Rather than getting all bent out of shape about stock losses, it’s a great opportunity to find some good bargains.
  4. What You Should Do In A Flash Crash On The Stock Market: The Dividend Guy takes a look at what is happening on the stock market, and helps you prepare for what’s next. Some solid advice on what you should do in the event of a flash crash.
  5. Recent Buy: Dividend Mantra offers another look at recent buying opportunities in a down market. It’s all about your mindset — and if you want to succeed, your mindset should be one of looking for opportunities.
  6. Tax-Loss Harvesting: The Oblivious Investor takes a look at how you can turn your losses into a tax advantage. Learn the basics of tax loss harvesting, and how it can help you come tax time if you do it right.
  7. Building Long-Term Value in a Short-Term World: Value Walk takes a look at how you can improve your long-term outlook, even as everyone else is focused on the short-term.
  8. Best Investments: We wrote this article a few days ago to discuss the three different types of dividend stocks every income investor should have in their portfolio.

Dividend Stocks and Tax-Advantaged Accounts

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It’s true that one of the reasons that many people begin investing in dividend stocks is because of the potential for income. Income investing with dividend stocks can help you build up a revenue stream that you can use to cover day-to-day expenses. However, not everyone uses dividend stocks as a way to provide income. In some cases, dividend stocks can be great for building up a nest egg quicker. In such cases, some planning to reduce your tax liability it in order.

Holding Dividend Stocks in Tax-Advantaged Accounts

If you have a more long term strategy for your dividend investments, you should consider where you are holding them. When you receive dividend payments, you have to pay taxes on them. This means that the value of your gains is eroded. If you are using your dividend investments to reach long term goals, paying taxes on income that you aren’t planning to use doesn’t make much sense. This is where tax-advantaged accounts come in.

A tax-advantaged account is one that allows you some sort of tax-break. Earnings from these accounts have different rules applied, and that can mean that you build wealth more efficiently with your dividends. If you hold dividend paying stocks in a tax-advantaged account, your dividend earnings aren’t taxed when you earn them.

If you hold your dividend investments in a tax-deferred account, such as a 401k or a traditional IRA, you won’t have to pay taxes on the dividends until you withdraw money from your account. It gets even better if you have a Roth account. For dividend investments held in a Roth account, you don’t have to pay taxes on your withdrawals, so your earnings are tax-free. DRIPs can be especially helpful int these situations. That’s pretty smooth.

The great thing is that this allows you to reinvest your dividends without any tax costs to erode the value. You can increase your efficiency, and earn more over time. It’s a great boon to the investor, especially the dividend investor who doesn’t expect to use the earnings from his or her dividends for decades.

Considerations

Before you use this strategy, though, you want to make sure that you understand the rules and limits that come with different tax-advantaged accounts. As long as you meet the requirements, you can gain a huge advantage by picking and choosing where you hold your long term dividend investments. If you plan correctly, you can maximize your dividend dollars.

3 Tips for Successful Dividend Investing

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Many people are looking for the perfect formula to help them figure out how to invest successfully. However, there is no one magic formula that can guarantee adequate stock returns. Instead, it requires planning and effort to successfully build up your dividend portfolio. While there are many things that you can do to improve your results with dividend investing, here are 3 tips that I’ve found especially helpful when it comes to choosing good stocks for your dividend portfolio:

1. Get Educated

Learn about dividend stocks. Learn about how they work, and learn about how to evaluate yield. Find out more about what makes a quality dividend stock, and how to determine which stocks are more likely to help you meet your goals. Educate yourself about companies you are interested in, and familiarize yourself with terms common to investing and dividend investing. Learning how to choose dividend stocks, and understanding how money and investing work, can go a long way toward helping you find success as a dividend investor.

2. Focus on High Quality Stocks

Instead of looking only at dividend yield, consider looking at other factors that make a high quality stock. Look at companies that have a long history of stable growth, and that pay out dividends regularly. Dividend aristocrats are generally good choices, and show high quality. Companies that are cash rich can also be good choices, since it usually indicates that they are doing something right – especially when they use some of that cash to reward shareholders by paying dividends.

3. Make a Plan and Stick With It

You are much more likely to do well when you create a dividend investing plan and then stick with it. Think about your long term and short term goals, and determine which dividend stocks might be able to help you reach those goals. If you are educated about your options, and if you focus on high quality stocks, you should be able to create a plan to fit your needs. After that, you will need to stick with your plan. When you get too emotional, or sell at the first sign of economic trouble, you could upset your long term goals. If you have a good plan, make an effort to stick with it. While you might need to reconsider some of your investments if something changes fundamentally about a dividend stock, but, overall, it’s a good idea to stick with your plan.