Chris Johnson’s Favorite Dividend Stocks for a Recovering Market

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I usually keep CNBC on while I’m working during the day and yesterday I overheard a commentator saying one of my favorite things to hear, “We like dividend paying stocks.”

The analyst being interviewed was Chris Johnson, chief investment strategist for Johnson Research Group and Director of research JK Investment group.  He has over 20 years of experience specializing in technical sentiment analysis and options strategies.

Johnson believes the market is in the 2nd of 4 stages.  The first stage is when the market bottoms out which has already passed.  The 2nd stage is where the recovery has begun but investors are skeptical.  The 3rd and 4th stages are where the market accelerates to point where value investors start to sell off stocks and take profits.  So naturally Johnson thinks now is a great time to be putting money to work.  He also cited the all of the investment capital that still remains on the sidelines.  He is expecting much of it to flow into equities later this year.

Towards the end of the interview Johnson highlighted a few of his best dividend picks.

Cincinnati Financial Corp (CINF)

Cincinnati Financial has a dividend yield of 4.6% and a 5 year dividend growth rate of 3.74%.  The company has increased its dividend for 51 consecutive years.  CINF is up 18% in 2012 and Mr. Johnson believes it has further to go.

Coca-Cola Company (KO)

Johnson sited Coke and the next company on the list, McDonalds because he favors consumer staple companies with growth and solid dividend yields. KO has a dividend yield of 2.7% and a payout ratio of 51%. It has increased its dividend for 49 consecutive years and has a 5 year dividend growth rate of 8.6% which gives it a DSO rating of 98/100.

McDonald’s (MCD)

McDonald’s had disappointing February sales numbers which drove the stock down a little in the last few days but Johnson still believes in the stock for its growth. MCD has a dividend yield of 2.7% and a 5 year dividend growth rate of 24.8%. It has a payout ratio of 50% and is one of the top rated stocks on our safe dividend list. Other global consumer brands that are similar to Coke and McDonald’s include Pepsi (PEP) and Kellogg (K).

Ross Stores (ROST)

Ross Stores has a very low dividend yield of just .8% which means it doesn’t make any list on our site but the company has demonstrated a commitment to increasing the dividend. It has raised the dividend for 17 consecutive years and has a 3 year dividend growth rate of 11% and a 5 year dividend growth rate of 16.6%. ROST has a very low payout ratio of 17%.

Costco Wholesale (COST)

Who doesn’t like shopping at Costco? I know I’m there all the time. Costco is another low yielding stock where the company at least appears to be committed to increasing the dividend. COST has a dividend yield of just 1.1%, with a 5 year dividend growth rate of 14.4% and a payout ratio of 29%. Costco has raised its dividend for 7 consecutive years.

If you are interested you can watch the full CNBC interview here.

What to Consider When Deciding on Asset Allocation

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One of the most important predictors of success as an investor is your asset allocation. The way you invest your money across asset classes makes a big difference in your future success. Stocks, bonds, cash, real estate, commodities, and other asset classes combine to provide you with returns. The right asset allocation can mean the difference between success – and big losses.

As you decide how to allocate your investment funds amongst asset classes, it helps to keep a few things in mind. Here are some items to consider as you determine your asset allocation:

  • Risk tolerance: Your first move is to decide on your risk tolerance. You need to think about how much risk your portfolio can handle, as well as what sort of emotional risk tolerance you have. The higher your risk tolerance, the more risky assets you can include in your portfolio. A lower risk tolerance requires that you choose less risky assets for your portfolio. If this is something you don’t feel qualified to tackle on your own considering talking to a qualified wealth management advisor.
  • Needed returns: Another consideration is needed returns. Some asset classes tend to offer the potential for higher returns in the long term. Stocks are thought to offer higher returns than cash or bonds in the long run. If you need to boost your portfolio growth, stocks are often thought of the way to do it.
  • Changing life milestones: Asset allocation isn’t static. It should change. As you reach different life milestones, your investing and financial needs change. Your risk tolerance also changes as you go through life. As you shift from an interest to growth to an interest in income, your asset allocation is likely to change. Make sure to evaluate your needs periodically and re-balance your portfolio.

Asset Allocation and Dividend Investing

It is worth noting that you can still use asset allocation principles when you are engaged in dividend investing. Indeed, there are income funds that pay dividends and include a variety of bonds as well as dividend paying stocks. You can add diversity to your income portfolio with the help of REITs, which can help you add real estate to your portfolio while providing you with dividends.

Before you consider that a predominant focus on dividends precludes a diverse asset allocation, it’s important to consider your options. There are ways to use principles of sound asset allocation to your advantage, even if you prefer high yield stocks. As you prepare for the future, don’t forget to consider asset allocation as part of your plan.

10 Utility Dividend Stocks with Consecutive Dividend Increases

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Its no secret that dividend increases drive total returns.  Increasing the dividend maintains the yield as the stock price increases.  Alternatively if a stock’s yield is increasing without the stock price rising investors buy up the stock driving ROI for shareholders.

Utility stocks were one of the most favored investments during the chaotic market conditions we faced in 2010 and 2011.  In the last few months we have see the market start to recover and investors have shifted their focus to other growth stocks.  That has left many of these utility stocks trading at a good value.  Each of these stocks has raised its dividend for 6 years or more and has a dividend yield over 3%.

Edison International (EIX)

Edison International is an electric utility company that has a dividend yield of 3% and has increased its dividend for 7 years.  The company has a 5 year dividend growth rate of 3.16% and a payout ratio of 43%. The company’s next ex-dividend date is March 28th, 2012.

Alliant Energy Corp (LNT)

Alliant is an electric utility company that has a dividend yield of 4.6% and has increased its dividend for 8 consecutive years.  LNT has a 5 year dividend growth rate of 8.5% and a payout ratio of 62%.  The company’s stock is up over 8% in the last 12 months and its next ex-dividend date will be in April, 2012.

South Jersey Industries (SJI)

South Jersey Industries is a gas utility company that has a dividend yield of 3% and a 5 year dividend growth rate of 10.2%.  The company has increased its dividend for 8 consecutive years and has a payout ratio of 50%.  The company’s 3 year net income growth rate is 5.1%.  Their next ex-dividend date is March 7th, 2012.

Chesapeake Utilities Corporation (CPK)

Chesapeake Utilities is a gas company that has a dividend yield of 3.4% and has increased its dividend for 8 consecutive years.  CPK has a 3 year net income growth rate of 25%  and a payout ratio of 46%.  The stock is mostly even over the last 12 months.

Dominion Resources (D)

Dominion is an electric utility company that has a dividend yield of 3.9% and has increased its dividend for 8 consecutive years. The company has a 5 year dividend growth rate of 7.3% and a payout ratio of 80%.  Dominion just had its ex-dividend date last week.

Wisconsin Energy Corp (WEC)

Wisconsin Energy has a dividend yield of 3.16% and has increased its dividend for 8 consecutive years.  The electric company has a large 5 year dividend growth rate of 17.7% and a low payout ratio of 47%.  The stock is up almost 20% in the last year.  Its next ex-dividend date will be in May.

PG&E Corporation (PCG)

PG&E Corporation an electric utility company that has a dividend yield of 4.33% and has increased its dividend for the last 6 years.  It has a 5 year dividend growth rate of 6.6% and a payout ratio of 86%.  The stock is down about 9% over the last year. The company’s next ex-dividend date is March 28th, 2012.

Xcel Energy (XEL)

Xcel is an electric utility company that has a dividend yield of 3.9% and has incraesed its dividend for 8 years.  It has a 5 year dividend growth rate of 3.1% and a payout ratio of 60%.  The company has increased its net income by 9% over the last 3 years and has an ex-dividend date coming up on March 20th.

Delta Natural Gas (DGAS)

Delta Natural Gas is of course a gas utility company that has a dividend yield of 3.7% and has increased its dividend for the last 7 consecutive years.  DGAS has a 5 year dividend growth rate of 2.5% and a payout ratio of 80%.  The stock is up over 20% in the last 12 months and just recently had an ex-dividend date last week.

AGL Resources (GAS)

AGL is a gas utility company that has a dividend yield of 3.4% and a 5 year dividend growth rate of 5.1%.  It has a payout ratio of 89% and has increased its dividend for 8 consecutive years.  AGL is down 5.7% year to date.

Using a Stock Screener to Choose Dividend Stocks

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Choosing dividend stocks for your portfolio can be a daunting task. You want stocks that will help you reach your goals for investing, income and for life. But how do you know which stock to choose? There are thousands of dividend stocks out there, and it can be difficult to decide which ones are best for you.

Enter the stock screener. You can use a stock screener to help you find dividend stocks that fit your requirements. Many web sites and brokerages offer stock screeners that can help you get an idea of what is available to you. Some of the qualifications you can screen for include:

  • Dividend Yield
  • PEG ratio
  • Price/book ratio
  • Market capitalization
  • Profit margin

Some dividend stock screeners also let you see dividend growth over the past few years. These qualities let you quickly narrow down your options. If you are looking for a stock to add to your dividend growth portfolio, you might look for a small cap with a high yield and with good estimated five year EPS growth. For those looking for other qualities in a dividend stock, your requirements might be different.

Different stock screening tools provide a variety of qualifications that can be used to pare down the offerings. Once you specify which stocks you want to include, the stock screener will return companies that match your parameters. This gives you a good place to start, and some ideas that appeal to you.

Once you have used the stock screener to narrow down your options, you can begin investigating the companies. Look closely at the fundamentals. How is the stock doing? Is it lower because of short-term factors? If so, you can get a really good deal. You can also look at the dividend history to see whether the company increases payouts regularly. If you are interested in regular dividend growth, dividend aristocrats can be a good place to start.

You don’t have to wade through piles of paperwork and read tons of reports to narrow down your stock options. With the help of an online stock screening tool, dozens of ideas can be delivered to you in seconds. This provides you with a way to pinpoint the stocks that are most likely to do you the best good in your portfolio, and help you reach your dividend investing goals. Find a dividend stock screener that you trust, and start your dividend stock search from that point.

5 Tips for Building Your Dividend Income Portfolio

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One of the most difficult aspects of building an income portfolio with dividend stocks is the patience needed to succeed. Creating a portfolio that offers reasonable returns that meet your monthly cash flow needs is, for the most part, a work of time. Here are 5 tips that can help you get started building your dividend income portfolio:

1. Don’t Assume You Need a Large Amount of Capital

Dividend investors don’t need a large amount of capital to get started. Indeed, it’s possible to open a brokerage account with as little as $0. Some brokers won’t require an initial deposit. You don’t even have to buy whole shares in many cases. It’s usually possible to purchase partial shares, so you can use whatever money you have to make a purchase. Start small, and you might be surprised at what you can accomplish.

2. Invest Consistently

If you want to build an income portfolio using dividend stocks, you need to invest consistently. This means that you invest on a regular basis, whether it’s once a week or once a month. Set up a regular schedule so that you are investing at regular intervals. Consistency is key if you want to take advantage of dollar cost averaging, and if you want to ensure that your portfolio grows.

3. Use DRIPs During the Building Phase

You can boost your power to build your portfolio if you make use of dividend reinvestment plans during your building phase. While you are building up your portfolio, use DRIPs, to help you accelerate the process. The dividend payouts will automatically buy more shares, so that you see bigger payouts, so you can buy more shares. This process will help you build your portfolio faster. You can stop using DRIPs once you are done building the portfolio and you are ready to receive the payouts for your regular expenses.

4. Consider Stocks that Regularly Raise Dividends

While the past can’t predict the present, you can still get an idea of a company’s dividend practices by considering the history. Look for stocks that consistently raise dividends. One good place to start is the list of safe dividend stocks. These are stocks that raise dividends at least once a year for the past 25 years. If you hold stocks that show regular dividend increases, you have a better chance of building your portfolio faster. Combine regular increases with a DRIP, and you have a potentially winning portfolio.

5. Be Realistic about Your Time Frame

Finally, you have to be realistic about the time it takes to build an income portfolio. You’re not going to end up with enough shares to generate the payouts you need for regular income in a short period of time. It takes planning and time. You can expect to take between seven and 10 years to build an income portfolio. It might even take longer, if you have to start with smaller capital. Be realistic about your time frame, and plan accordingly.

You can start a dividend portfolio now, and reap the benefits later. A dividend income portfolio is meant for the future, and not something you can expect to see regular cash flow from right now.

HealthCare REITs with Strong Dividend Growth

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Healthcare REITs have been gaining a lot of attention in recent weeks. Many of these stocks have been upgraded by analysts due to the positive outlook they have on the sector. Healthcare REITs are generally companies that buy, develop and manage properties and facilities that provide healthcare services. These facilities can be long term care facilities or offer nursing and other health services.

Healthcare REITs dominate the list of Real Estate Investment Trusts that have maintained dividend growth over the last 5 – 10 years. Many of these trusts are well positioned to take advantage of the expected senior living demand the US will face as the baby boomer generation begins to retire. We found 5 REITS with at least 4 years of consecutive dividend growth and a dividend yield over 4%.

Health Care REIT, Inc. (HCN)

Health Care REIT has increased its dividend for 4 consecutive years and has a dividend yield of 5.1%. Their 5 year dividend growth rate is 2.4%. HCN tends to raise its dividend every other quarter and it has increased its dividend again in the first quarter of 2012. Health Care REIT’s properties include skilled nursing facilities, senior housing, inpatient and outpatient medical centers and medical office buildings.

HCP Inc (HCP)

HCP has increased its dividend for 19 consecutive years and had a dividend yield of 4.7%, well below their 5 year average of 6.1%. Their 5 year dividend growth rate is 2.4%. HCP develops and manages a diverse set of healthcare real estate. Its properties include senior housing, medical offices, life science, skilled nursing and hospitals.

Omega Healthcare Investors (OHI)

Omega Healthcare Investors has increased its dividend for 8 consecutive years and has a dividend yield of 7.3% and a strong 5 year dividend growth rate of 10%. OHI invests in income producing healthcare facilities. Most of its investments are made in long-term care facilities in the US. The company also provides leas and mortgage financing for skilled nursing facilities.

Senior Housing Properties (SNH)

Senior Housing Properties has increased their dividend for 10 consecutive years and has a dividend yield of 6.6%. Their 5 year dividend growth rate is 2.6%. Senior Housing Properties owns over 200 senior living properties located in the US. It also owns 2 rehab hospitals and 82 medical offices.

Universal Health Realty Income (UHT)

Universal Health Realty Income has increased its dividend for 20 years. It has a dividend yield of 6.2% and a 5 year dividend growth rate of just 1.4%. UHT invests in a wide range of healthcare facilities that include surgery centers, rehab hospitals, acute care hospitals and medical office buildings. UHT also invests in childcare centers and preschools.

Bonus Stock: LTC Properties, Inc. (LTC) only has 2 consecutive years of dividend increases but we wanted to mention it here anyway because it is also a healthcare REIT with solid dividend growth. LTC has a dividend yield of 5.3% but was downgraded earlier this month by Stifel Nicolaus over valuation concerns. LTC pays its monthly dividends.

Should You Sell a Dividend Cutter?

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One of the reasons that many people sell dividend paying stocks is because the company decided to cut its dividend. However, immediately selling a dividend cutter may not always be the best choice. In some cases, the cut might be temporary. Before you give up on a dividend stock, consider the circumstances surrounding the cut, and make sure that you are really sure that selling is the best option.

Will You Be Taking a Big Capital Loss?

Sometimes, a dividend is cut because of tough economic times, or because of some other external issue. If you sell in the middle of a market drop, you could very well be taking on a huge capital loss. In some cases, selling in order to harvest a loss for tax purposes might be worth it – as long as you do so after some careful thought.

However, in some cases dividend cuts are temporary. There is a chance that dividends will be raised again after market conditions stabilize. Many companies go through dividend cuts, and then raise them against later. You will need to decide whether or not you think the dividend cut is a symptom of a fundamental problem, or a defensive response to difficult times.

If you think that the stock will recover, and that dividends will be reinstated, don’t be too hasty in selling the stock. You don’t want to take a large capital loss on top of the loss of the dividend income.

Evaluate the Fundamentals

Of course, not every company cuts dividends during difficult times. Dividend aristocrats show consistency in raising dividends – even during times of economic recession. When considering which stocks to add to your portfolio, it can help to look at the fundamentals of the company. The management, balance sheet, cash reserves, and other items can be assessed in order to determine whether or not the company is still solid.

Deciding to Sell

It is difficult to decide to sell any investment, including a dividend stock. However, you do need to do what’s best for your portfolio. In some cases, investors choose to wait and see if a dividend will be reinstated, or at least wait to see if the stock price rises again in order to reduce some of the capital losses that come with selling.

Another indicator that it might be time to sell is if the company has cut the dividend several times in a row. A cut, and then holding steady, might not mean that a long term problem is on the way. However, several cuts in successive quarters, or the elimination of the dividend altogether, might give someone pause.

Ultimately, it’s up to you to decide what is going to work best in your portfolio, as well as whether you think it’s time to sell a dividend stock. Consider your position, and consider whether you think that the dividend stock will recover.

Earning Dividends in Real Estate: REITs

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One of the ways that you can diversify your dividend portfolio, while also providing you with reasonable returns and dividends, is to investing in real estate investment trusts (REITs). A REIT can provide you with the addition of real estate to your investment portfolio without requiring you to come up with a large amount of capital. Plus, REITs pay out dividends.

Brief Overview of REITs

Real estate investment trusts are basically collections of real estate investments. They can be public or private in nature, and the publicly held REITs are traded on stock exchanges much like stocks. This makes them easy to purchase. REITs can include commercial or residential real estate investments, as well as investments in real estate related assets such as storage companies and mortgage providers.

REITs are desirable because of their tax structure; corporations formed them originally with the intent to create a tax benefit. Because of the tax treatment REITs enjoy, they are required to pay 90% of their taxable income out to investors. This means that, in some cases, the dividend yield can be quite generous.

Investing in REITs

Whenever you choose dividend investments, you need to be careful about your efforts, and do your research. This is especially important as you consider REITs. The climate following the relatively recent mortgage market meltdown and the financial crisis of 2008 means that many REITs have been hit pretty hard. They have lost value, and some of them have cut their dividend payouts.

This state of affairs means that there are some great deals to be had, allowing you to find REITs at very reasonable prices. However, you do need to be careful. As you would with any dividend stock, investigate the merits of the REITs you are considering before you decide to invest:

  • Consistent dividend performance: Look at the dividend performance of the company. Look at the pattern of dividend payouts and increases. Consider that solid companies have regular performance, and regular increases. During times of trouble, the prudent REIT doesn’t need to cut dividends as much. Look back: There are some REITs that have been less affected by global real estate market setbacks than others. While future performance can’t be guaranteed by the past, the past can, nevertheless, provide some insight.
  • Reasonable expectation for growth: Look at the holdings of the REITs in question. Is there reasonable expectation for growth? Consider whether or not the REITs you are researching offer the potential for earnings growth as the current economic situation improves. A REIT heavily invested in subprime mortgages might not be your best option, but a REIT that has a reasonable expectation of earnings because of more prudent assets might not be a bad choice.

Now might be a good time to consider REITs. With the US economy, and the global economy, showing some symptoms of recovery, it is possible that real estate could also see some amendment. If this is the case, the REITs in your dividend portfolio could allow you to see regular income – and an increase in that income – as the situation improves.

Reading the Balance Sheet: Liabilities and Shareholder Equity

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When choosing a dividend stock for your portfolio, it is important to consider your options, including the health of the company and what its balance sheet looks like. Recently, we considered the side of the balance sheet containing a company’s assets. Now it’s time to look at the other side of the balance sheet – the side containing liabilities.

Company Liabilities

Assets are those items that contribute value to a company. Assets provide value that can provide funding to the business. Liabilities, though, are obligations to others. This is usually money owed to other companies, or to suppliers, or for some other purpose. There are two main types of liabilities:

  1. Current: Current liabilities are those that are paid within the time period of one year. Accounts payable is one example of a current liability. A business normally has to discharge those obligations within a year. Additionally, long-term obligations that are paid within a year are also considered current. So the amount of the interest that is paid on a 20-year loan during the course of the year is considered a current liability.
  2. Long term: A long-term liability is one that does not need to be paid until after a year. This can include non-debt financial obligations, such as an agreement to pay a certain amount of money for a shipment of goods at a later date, as well as debt obligations.

Company liabilities offset the assets, since they represent a drain on the resources of a company.

Shareholder Equity

Interestingly enough, shareholder equity actually goes on the same side of the balance sheet as liabilities. Shareholder equity represents the amount of money invested in the business at the outset. Shareholder equity can increase if the company decides to take some of its earnings and invest them back into the company.

When reading a balance sheet, you will find it divided into two sides. On side the assets will be listed, and on the other side the liabilities and shareholder equity will be listed. As the name “balance” sheet implies, the two sides are supposed to even out. The assets a company has should equal the liabilities plus shareholder equity, and you should see how that comes about. If a balance sheet doesn’t balance, it’s important to look into the numbers to find out why.

As you look at the balance sheet, compare the two sides. You will have an idea of what the company owns, and what its obligations are. If a company appears to be highly leveraged, with lots of debt in comparison to assets, you know that the company is risky. A balance sheet can provide clues about how a company uses money, and that, in turn, can help you decide whether or not to include the investment in your dividend portfolio.

Reading the Balance Sheet: Assets

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When researching dividend stocks, and determining which are solid picks for your investment portfolio, it can help to understand the balance sheet. Take a look at a company’s balance sheet to get an idea of the financial stability of the company before investing. A company that is financially stable is more likely to be able to raise dividends over time, helping you improve your portfolio over all.

You will look at different items on a balance sheet, including assets, liabilities and shareholder equity. Right now, we will look at assets; next week we will tackle liabilities and shareholder equity. Assets, when considering companies, are used to operate the business.

Current Assets

These are assets that can be converted quickly and easily into cash. For the most part, current assets have a life span of a year or less. Cash is, unsurprisingly, the most popular of current assets. Additionally, there are “cash equivalents,” like U.S. Treasuries, that are considered pretty much as good as cash, and that can be liquidated quickly.

Other types of current assets, though, might be accounts receivable – when clients owe money – as well as inventory. Inventory can include ready-made products that company plans to sell, as well as raw materials that will be used to create products and different items in various stages of manufacture.

Non-Current Assets

Those assets that cannot be turned into cash quickly and easily, and which have a longer lifespan, are called “non-current.” These assets are usually considered long-term and tangible. Machinery the company uses, real estate (warehouse, store or land), and other equipment, such as office equipment like computers, phones and chairs, are considered non-current assets.

However, while many non-current assets are tangible, there are those that are not. Patents and copyrights are considered non-current assets. The value of such intellectual property can be incalculable, and should be considered as you estimate the value of a company.

Depreciation

Another consideration is the depreciation of assets over time. During the useful life of an asset, it slowly loses some of its value. It is important to factor in the economic cost of the declining value of assets as you consider company. On the balance sheet, depreciation is deducted from the assets as part of the process of figuring value.

In the end, you need to understand what the company has that is of value. You want to choose dividend stocks that will remain solid over time, and possible show a tendency to grow. A number of assets can prove that the company has sufficient items of value to remain in business – and possibly even grow.