Money and Finance
The market downturn this past week -- indeed, over the past month -- has reignited my interest in buying stocks, and particularly dividend payers. Stocks were in general looking a bit expensive earlier in 2012 and I struggled to find many good opportunities. Frankly, I was getting a bit bored with the market and simply let my dividends roll in. Now, however, I see a number of stalwarts with strong cash flows and solid balance sheets yielding 4-5% (which, in the US is quite high) likely trading with suitable margins-of-safety and I can't help but get interested in buying up some undervalued names.
By no means am I going "all-in" here as some of the reasons for the downturn are justified -- Europe could remain a thorn in the side of the global economy for a number of years and the horrible U.S. jobs figure on Friday may have indicated a stalled U.S. recovery. Going into what will be a heated presidential election in November (and don't forget the debt ceiling debate comes up again in September), I don't have high hopes for the market the rest of this year. That said, if you have a long (10+ year) time horizon and can handle a little volatility in equities, that could make 2012 a great time to go hunting for dividend stocks -- building patiently, deliberately, and strategically, of course.
As you're shopping around for ideas, start with dividend-payers that fit this profile:
- How To Find A Good Dividend Growth Stock - Part 2
Last week, we set up a simple stock screen with an objective of "Identifying quality dividend-paying small- to mid-cap companies with sustainable competitive advantages and the potential for 7%+ annual dividend growth over the next 7-10 years." We...
- Where To Find Value In The Dividend Market Today
There's no question that dividend-paying stocks have become more popular in recent years as interest rates on fixed income and savings products declined. Indeed, dividend-focused ETFs and mutual funds have experienced strong inflows, some higher-yielding...
- Introducing The Dividend Compass
When it comes to equity analysis, a lot of attention is paid to valuation -- and rightly so, as your investing career will likely be a short one if you consistently overpay for assets. Surprisingly, however, there's typically little attention paid...
- Second & Third Picks In Wmd Portfolio - Glaxosmithkline & Ibm
The more real they are, the more fun blogs are to follow. So in that spirit, rather than talking about ideas in the abstract I maintain a hypothetical portfolio to track ideas where I'll semi-regularly (and hypothetically) invest and track buying...
- Dividend Compass - Royal Dutch Shell
Todd Wenning's Dividend Compass is a diagnostic tool that covers the parts of fundamental analysis most useful to dividend investors. This is a pretty broad set of metrics, Todd describes them here: "Sales growth: Sales are the life-blood of a company....
Money and Finance
A Great Time to Go Hunting for Dividends
The market downturn this past week -- indeed, over the past month -- has reignited my interest in buying stocks, and particularly dividend payers. Stocks were in general looking a bit expensive earlier in 2012 and I struggled to find many good opportunities. Frankly, I was getting a bit bored with the market and simply let my dividends roll in. Now, however, I see a number of stalwarts with strong cash flows and solid balance sheets yielding 4-5% (which, in the US is quite high) likely trading with suitable margins-of-safety and I can't help but get interested in buying up some undervalued names.
By no means am I going "all-in" here as some of the reasons for the downturn are justified -- Europe could remain a thorn in the side of the global economy for a number of years and the horrible U.S. jobs figure on Friday may have indicated a stalled U.S. recovery. Going into what will be a heated presidential election in November (and don't forget the debt ceiling debate comes up again in September), I don't have high hopes for the market the rest of this year. That said, if you have a long (10+ year) time horizon and can handle a little volatility in equities, that could make 2012 a great time to go hunting for dividend stocks -- building patiently, deliberately, and strategically, of course.
As you're shopping around for ideas, start with dividend-payers that fit this profile:
- Yield above 3%
- Earnings payout ratio (cover) below 50% (2x)
- FCF payout ratio (cover) below 60% (1.7x)
- Interest coverage (EBIT/interest expense) over 3x
- Sustainable competitive advantages (a quantitative sign of a sustainable competitive advantage could be consistent ROIC > 12% and double-digit operating profit margins)
- A track record of increasing dividends (consider at least seven years of history)
- Ideally management with a meaningful equity stake in the company
Most free online screening tools will allow you to employ these metrics in your search. I should stress that it's important to consider these metrics over a number of years and not just in 2011 or 2012 as some companies -- particularly cyclical companies -- could have had near-peak metrics recently. Again, you want to find companies that have consistently delivered strong results and can deliver sustainable results going forward.
We may face some more market volatility in 2012, but it's absolutely essential to remain patient and focused on our own objectives in the face of this volatility. Hang in there, investors.
A short post this week -- I plan to have something more substantive next week. A happy Jubilee weekend to my U.K. readers!
Best,
Todd
- How To Find A Good Dividend Growth Stock - Part 2
Last week, we set up a simple stock screen with an objective of "Identifying quality dividend-paying small- to mid-cap companies with sustainable competitive advantages and the potential for 7%+ annual dividend growth over the next 7-10 years." We...
- Where To Find Value In The Dividend Market Today
There's no question that dividend-paying stocks have become more popular in recent years as interest rates on fixed income and savings products declined. Indeed, dividend-focused ETFs and mutual funds have experienced strong inflows, some higher-yielding...
- Introducing The Dividend Compass
When it comes to equity analysis, a lot of attention is paid to valuation -- and rightly so, as your investing career will likely be a short one if you consistently overpay for assets. Surprisingly, however, there's typically little attention paid...
- Second & Third Picks In Wmd Portfolio - Glaxosmithkline & Ibm
The more real they are, the more fun blogs are to follow. So in that spirit, rather than talking about ideas in the abstract I maintain a hypothetical portfolio to track ideas where I'll semi-regularly (and hypothetically) invest and track buying...
- Dividend Compass - Royal Dutch Shell
Todd Wenning's Dividend Compass is a diagnostic tool that covers the parts of fundamental analysis most useful to dividend investors. This is a pretty broad set of metrics, Todd describes them here: "Sales growth: Sales are the life-blood of a company....