Bad News for Stock Markets Makes Good Dividends Easier to Spot

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The big news this week has been a series of losing days on the stock market. U.S. stocks have been retreating on uncertainty related to what’s happening in the euro zone, as well as what’s next for the U.S. economy. With Nobel laureate economist Paul Krugman predicting that the chances of a global recession are at 50% right now, and with investors fairly certain that more political gridlock is on the way over President Barack Obama’s latest jobs plan, there isn’t a lot of hope to go around. The markets dislike uncertainty, and right now, everything seems fairly uncertain.

However, in terms of dividends, the disappointing stock market performances of the past week actually provide some positive news: It’s easier to spot good dividend yields. Indeed, thanks to dropping stocks, the Wall Street Journal reports that about 25% of the S&P 500 pay dividend yields of more than 3%. Now is a great time to do a little bargain hunting for great deals on slow growers. Some of the possible choices for significant gains — when you include dividends reinvested — include:

  • Chevron (CVX): Returns of almost 200% with dividends reinvested.
  • Consolidated Edison (ED): Returns of about 128% with dividends reinvested.
  • Altria (MO): Returns of more than 300% with dividends reinvested.

The Wall Street Journal points out that that these are gains over the last 10 years, and they have more than outpaced returns of the S&P 500 with dividends reinvested. The point is that now, with the stock market struggling, you can more easily spot higher yields — and pick the stocks up at bargains.

It will be interesting to see what happens next. Volatility is likely to continue, but there are ways to reduce your risk. Looking for solid dividend stocks can be one way to improve the chances that you avoid some of the worst of the issues related stock market volatility, and now might just be your chance.

Is Intel A Good Buy?

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Founded in 1968, Intel Corporation (INTC) has grown into a 104 billion dollar company that today dominates the global semi-conductor industry, providing processors for the PC and server market. It is only second to Korea’s Samsung Electronics, with a market cap of 118 billion.

Intel derives approximately 90 per cent of its revenues from the PC market. Over the years it has dominated and trampled its main competitor Advanced Micro Devices (AMD), and left other chip producers such as Texas Instruments (TXN) far behind. It also has a generous dividend yield of 4.30%, a debt to equity ratio of 0.40, a low PE ratio of 9.01, and a low dividend payout ratio of 38.5%. Intel currently has revenue of 48.44 billion (trailing twelve months), with a quarterly revenue growth of 21%. The balance sheet is certainly solid, and with the price at USD $19.64, off -17.7% from May highs, Intel is looking to be an attractive buy.

Missing the Mobile Wave

What Intel does best is produce high performing chips for PC’s and servers, which require speed and power. However mobile processors built for cell-phones or tablets do not use Intel processors (namely Intel’s Atom processor) since Intel chips are heavy on power and run at high temperature. Mobile devices including Apple’s ipads, tablets, and most cell phones run on the ARM (LSE: ARM.L) based processors, largely produced by Samsung. These chips generate less heat and require less power.

Samsung continues to be the leading provider for ARM based processors in the tablet and mobile market. However relations between Samsung and Apple are less than stellar. Back in May, Apple had been rumoured to be making plans with Taiwan Semiconductor Manufacturing Co. to produce the company’s A5 chips. Then there is Google’s recent acquisition of Motorola, which also produces chips and phones to a lesser degree, mainly for Google’s Android phones.

Intel has so far missed the boat on the mobile wave, and continues to produce the high-powered chips for PC’s and servers. While there will always be a demand for Intel’s products and the PC and server market will always remain, the tides of change are already apparent. For example, Hewlett Packard (HP) stunned markets in mid August, when they announced they may abandon their PC business, in a move away from the consumer market. Intel supplies chips to HP.

Should You Invest?

Currently Intel provides an excellent investment opportunity from both a price point and with its fundamentals, as well as a generous dividend. If you are buying Intel as a long term investment, then you need to ask yourself two questions. First, is Intel’s economic-moat in the PC and server markets, enough to sustain its strong revenue and growth? Second, is Intel’s absence in the mobile device marketplace a factor to its future? It really depends on whether the PC and server markets, the core of Intel’s revenue will continue in the years to come. In the future, a lot may ride on whether Intel can move into the mobile market, expand into other markets, or collaborate with Apple. With the constant tides of change in the technology sector, buying Intel isn’t as clear cut as one might expect.

Why You Need to Pay Attention to the Ex-Dividend Date

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Dividend investing can really be a good way to earn a little extra income. Indeed, if you create a plan, and take advantage of dollar cost averaging, it can also be a way to build up a substantial portfolio that can yield solid income opportunities. As long as you are reasonable about your dividend expectations, you can eventually build up a stream of income that can serve you well in retirement, during an emergency, or for other purposes.

One of the things that many dividend investors overlook – at least at first – is the ex-dividend date. It is important that you pay attention to this date, since it can affect when you are actually entitled to a dividend.

Ex-Dividend Date

It sounds like it might be a little ominous (it’s the “ex” that does it), but the ex-dividend date is actually rather straightforward. This is the date at which you become legally entitled to the dividend. But the process of determining the ex-dividend date does take a little bit of twisting and turning.

In order to receive the dividend, you must be a shareholder of record by a specific date. This is often called the record date. We can use Pepsi (PEP) as a recent example. One July 15, 2011, PEP announced that there would be a regular dividend payout of $0.515 per share. This payout will be made on September 30, 2011, to shareholders of record on September 2. That means that, to be able to receive the PEP payout, you have to own shares at market open on September 2, which is the record date.

If you don’t own shares of a dividend stock at the time of opening on the record date, you will miss the dividend payout for that period. This is where the ex-dividend date comes in. You should realize that it takes time to process transactions. It takes two days for you to become the legal owner of shares, as opposed to being the practical owner. So, if you buy shares of PEP on September 1, you won’t be a legal owner in time to be a shareholder of record. You need to buy your PEP shares on August 31, 2011, if you want the PEP dividend payout on September 30.

So, basically, the ex-dividend date is two days before the record date. If you want to be able to get in on the next payout, or if you want to increase your payout by purchasing more shares, you need to make your dividend stock purchase by the ex-dividend date.

Bottom Line

When companies release press releases about their dividend announcements, you won’t see mention of the ex-dividend date. However, this is a very important date. If you want to be entitled to receive the next payout, you need to know the ex-dividend date. Luckily, figuring it out is fairly simple: Just make sure you buy your shares at least two business days prior to the record date.

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.