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Friday, November 30, 2007

* Carnival of Personal Finance #128

This week's Carnival of Personal Finance #128 was hosted by StockTradingToGo. For those readers not familiar with the CoPF, it's where personal finance bloggers submit their best articles of the week with one blog doing the hosting. The entries are separated into categories including Investing, Debt, Saving and Budgeting, Money Management, Credit, Finance and Taxes, Career and Other.

Thursday, November 29, 2007

* What's Up With Citi's (C) Payday Loan?

Earlier this week it was reported in Bloomburg that Citigroup will receive $7.5 billion cash from the state-owned Abu Dhabi Investment Authority (ADIA) to prop up its capital base after record mortgage losses wiped out almost half its market value. Initially this looked like a good thing. However, I found this quote a little disturbing:

Wednesday, November 28, 2007

* Stock Analysis: BAC

Linked here is a PDF copy of my detailed analysis of Bank of America Corporation (BAC). Below are some highlights from the above linked analysis:

Monday, November 26, 2007

The Most Important Financial Statement

We all know what surprising the street will do to a stock's price. The street focuses on quarterly revenue, EPS, EBIT, EBITDA and margins. The income statement is where you find all the metrics that the street loves. It therefore must be the most important financial statement. Not!

Friday, November 23, 2007

* Carnival of Personal Finance #127

Moolanomy did an incredible job hosting this week's Carnival of Personal Finance #127. For those readers not familiar with the CoPF, it's where personal finance bloggers submit their best articles of the week with one blog doing the hosting. The entries are separated into categories including Real Estate, Investing, Taxes, Credit, Debt, Economy, Saving, Frugality, Insurance, Money Management, Budgeting and Finance.

Thursday, November 22, 2007

* Men at Work

I am currently moving to a three column template so please forgive the "mess" while construction is underway. I have already learned that widgets lose their contents when you import an xml file... Sigh...

No substantive content has been lost so I will recover.

Wednesday, November 21, 2007

* Stock Analysis: JNJ

Linked here is a PDF copy of my detailed analysis of Johnson & Johnson (JNJ). Below are some highlights from the above linked analysis:

* My Dividend Stock Holdings

I have added a widget that provides delayed quotes and news on dividend stocks I own. This is not a recommendation to buy these stocks. Some of the stocks listed I have classified as hold, thus I am neither buying or selling. For some others listed, I am waiting for the appropriate exit point. For all others, I am actively buying.

Tuesday, November 20, 2007

* Financial Melt-down Continues

The financial melt-down continued yesterday. It was particularily brutal among the banks with Goldman's downgrade of Citigroup (C) to sell. Goldman's analyst said C's writedowns may total $15 billion over the next two quarters. Washington Mutual (WM) took it on the chin Monday losing an additional 7.3%. WM is down nearly 50% since early October.

Monday, November 19, 2007

* Yield on Cost: Measuring for Success

This article appeared in The Carnival of Personal Finance #128.

If the first step in sucuessfully managing something is to determine the desired outcome (set a goal), then the logical second step is to determine how to measure your progress to ensure you are moving toward your goal. Most investors look at anualized returns and compare it to a benchmark when evaluating their portfolio. Beyond benchmarking an annualized return, there is a great disparity in how investors measure their progress. One of the more interesting metrics I track is Yield on Cost (YOC). It is simply the annual dividend rate times number of shares owned divided by what you paid for the investment (basis).

Sunday, November 18, 2007

Stock Analysis: AFL

Linked here is a PDF copy of my detailed analysis of AFLAC Inc. (AFL). Below are some highlights from the above linked analysis:

Company Description: Aflac Incorporated engages in the marketing and sale of supplemental health and life insurance plans in the United States and Japan.

Friday, November 16, 2007

Weekly Links 11/16/2007

Million Dollar Journey did a wonderful job hosting The Carnival of Personal Finance #126. For those readers not familiar with the CoPF, it's where personal finance bloggers submit their best articles of the week with one blog doing the hosting. The entries are separated into categories including Real Estate, Investing, Tax Talk, Debt/Credit, Career, Economy, Saving/Frugality, Money Management and General Finance.

Wednesday, November 14, 2007

Stock Analysis: SFI

Linked here is a PDF copy of my detailed analysis of iStar Financial Inc. (SFI). Last week I added to my position in this stock. Below are some highlights from the above linked analysis:

Company Description: iStar Financial, Inc. operates as a finance company focused on the commercial real estate industry. The company, which is taxed as a real estate investment trust (REIT), provides financing to private and corporate owners of real estate.

Monday, November 12, 2007

Is Your Portfolio Average?

The people who want to achieve and aspire to be very good in their profession don’t mind the way we do things. It’s not normal to want to be as good as you can be. It’s normal to be average.
– Nick Saban, Head Football Coach, University of Alabama

Saturday, November 10, 2007

Fair Value Data

See Also: Fair Value for an updated discussion.

Each stock analysis contains a link to a detailed analytical PDF. In this PDF is a section titled Fair Value Data (located in the top left section of the PDF). This section provides metrics to help you to determine if the investment is trading at a premium, discount or if it is fairly priced. Below is a description of each item in the Fair Value Data section from page 2 of the detailed analysis:

Friday, November 9, 2007

Stock Analysis: ACAS

This article appeared in The Carnival of Personal Finance #126.

Linked here is a detailed quantitative analysis of Linked here is a PDF copy of my analysis of American Capital Strategies, Ltd. (ACAS). Earlier this week I added to my position in this stock. Below are some highlights from the above linked analysis:

Thursday, November 8, 2007

Share Buybacks - Do they really help?


In his Weekly Investing Roundup - November 2, 2007, The Dividend Guy wrote:

Even though I love dividend investing, there seems to be a real trend out there as companies turn to buying back shares instead of issuing dividends. I think there is a belief that buybacks bring more value to shareholders in the form of reduced float and higher share price. I am not convinced this is in investor’s best interests. Here is the article from S&P (pdf).

Wednesday, November 7, 2007

Dividend Analytical Data

Last week I posted a Stock Analysis on PAYX including a link to a PDF containing a detailed analysis. In this article, I will explore the section titled Dividend Analytical Data (located in the top center section of the above linked PDF). This section evaluates certain attributes of a dividend investment that I consider relevant. Below is a description of each item in the Dividend Analytical Data section from page 2 of the detailed analysis:

Rolling 4-yr Div. > 15%:
Dividends will double every 5 years if they grow by 15%. This test is TRUE, and a Star is added, if dividends grew on average in excess of 15% for each consecutive 4 year periods, within the last 10 years of history.

Dividend Growth Rate:
The minimum dividend growth rate of the 1, 3, 5, 7, 10 year dividend growth rate or 15%, if "Rolling 4-yr Div. > 15%". A Star is awarded if the dividend growth is 15% or greater.

Years of Div. Growth:
The number of consecutive years of dividend growth. A Star is awarded for consecutive growth in 10 or more years. A Star is deducted if the number of
years is less than 5 years.

1-Yr. > 5-Yr Growth:
This test identifies if dividend growth is accelerating. A Star is awarded if the 1-year dividend rate growth exceeds 5-year dividend growth rate.

Payout 15% of avg.:
This test identifies companies who have significantly increased dividends paid as a % of earnings. A Star is deducted if the current dividend payout exceeds the 10-year average by 15 points (+15%).

Rolling 4-yr Div. > 15% is one of my favorite attributes. This test evaluates the consistency of dividend increases over the last 10 years. If you are only looking at a 10-year average, a stock could double its dividend in the first year, grow it by 6% in the subsequent 9 years and end up with an 10-year average growth rate of 15.4%. However, that scenario would fail the Rolling 4-yr Div. > 15% test. A Star is added, if the result of this test is True.

For the Dividend Growth Rate I have opted to take a conservative route. I calculate a 1, 3, 5, 7, 10 year compound annual growth rate and assume the lowest value. However, if that amount is less than 15% and the Rolling 4-yr Div. > 15% test is true, I use 15%. By considering the Rolling 4-yr Div. > 15%, a company in a cyclical industry is not unduly penalized for having a single down year, when it has a history of being a strong performer. A Star is added if the dividend growth is 15% or greater.

We all want a raise each year from our employer. The same should be true for the companies we invest in. One of the most important aspects of a dividend stock is its ability to consistency raise dividends over time. Years of Div. Growth looks back and counts how many consecutive years the company has raised it dividend. A Star is added for consecutive growth in 10 or more years, while a Star is deducted for less than 5 years.

If growing dividends at a consistent rate is good, then growing dividends at an accelerated rate is excellent! The 1-Yr. > 5-Yr Growth test rewards companies when their last dividend increase that was in excess of the its 5-year compound annual growth rate. A Star is added to companies that pass the 1-Yr. > 5-Yr Growth test.

Most dividend companies understand the importance of a consistent dividend. When times are tough, most well-established dividend companies will attempt to maintain their dividend policy, even if it means paying out a higher percentage of their earnings. The Payout 15% of avg. test penalizes companies that have raised their dividend payout in excess of their 10-year average by 15 points (+15%) by deducting a Star. This does not necessarily mean a company is bad, it just merits further attention. It is a positive sign, if the company is willing to maintain its dividend policy during a short-term downturn. It is up to you to determine if the downturn is short-term or if something has fundamentally changed.

When evaluating a company's dividend attributes, what do you consider to be the most important?

Full Disclosure: No position in the aforementioned securities. See a list of all my income holdings here.

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(Photo Credit)

Tags: [PAYX]

Monday, November 5, 2007

Dividend Income vs. MMA

What is the primary reason you invest in dividend stocks? For me, it is a means to build a growing income that can be relied on during retirement. So, why choose dividend stocks instead of another income investment? I view it as an opportunity to see my earnings grow each year, not only from reinvested dividends, but from an increasing dividend rate.

Why would you assume the equity risk and invest in a dividend stock if you could earn a better return in a less risky money market account (MMA)? When I screen for worthy dividend investments, one of my first tests is to determine if the investment will perform better than a MMA over time.

Last week I posted a Stock Analysis on PAYX including a link to a PDF containing a detailed analysis. In this article, I will explore the section titled Dividend Income vs. MMA (located in the top right section of the above linked PDF). This section helps me determine if the investment's dividend income could possibly pay more than interest earned from a MMA, over time. Below is a description of each item in the Dividend Income vs. MMA section from page 2 of the analysis:
MMA Rate:
Representative high money market rate (MMA) at a financial institution that is insured by the FDIC up to the legal limit ($100,000). Currently using a 20 year Treasury as a proxy.

NPV MMA Diff.:
The basis of this calculation is a hypothetical $1,000 investment in this stock and a MMA earning the MMA Rate above. The value calculated is the net present value (NPV) of the cumulative differences between the dividend earnings of this investment and the interest income from the MMA over 20 years. Other assumptions include: 1.) dividends grow at the Dividend Growth Rate above, 2.) dividends are reinvested, 3.) share price appreciation is not considered, 4.) interest income is reinvested in the MMA. A Star is added for amounts over a certain amount depending on how long a company has paid a dividend. $10,000 for a company that has paid a dividend for less than 10 years, $7,500 for a company that has paid a dividend from 10-25 years and $2,500 for a company that has paid a dividend for more than 25 years. A Star is deducted if the amount is negative.

Years to >MMA:
The number of years until dividend earnings exceed the earnings from a hypothetical money market account earning the MMA rate above, considering the other assumptions listed in "NPV MMA Diff." above. A Star is added if the number of years is less than 5.
Considering the proxy was paying 5.36% APR at the time this article was written, yield's on most dividend paying stocks are well below that of a high-yield MMA . Thus, my emphasis on over time. As noted in the NPV MMA Diff. description above, my chosen time horizon is 20 years. Given the future uncertaintly, if it takes less than 5 years for the investment's annual earnings to exceed the MMA's annual earning (Years to >MMA), a Star is added.

To quickly perform this test, I enter 10 years of dividend payments and the current yield of a stock into my model. Given those inputs, the model will calculate the NPV of the earnings difference on a hypothetical $1,000 investment in the stock and a MMA. If the amount calculated is negative, you would earn more by putting your money in a MMA. Even if the amount is positive, a lot can happen in 20 years, so I look for a $10,000 cushion. This is the level I have elected to add a Star.

Let me point out some potential flaws to my calculation:
  1. I assume a steady interest rate for the MMA over the 20 year period.
  2. Since I am looking at the ability of the investment to generate income, I ignore any share price appreciation.
Due to the great disparity between certain high-yield MMA rates and published rates (http://www.bankrate.com/ today is reporting the national average for MMA is 3.5%), I have chosen to use a rate that I am actually getting. Over time, I will probably normalize the MMA interest rate I use by building an average of the available high-yield MMA rates .

Before I perform the tests above, I check to see if the company has lowered its dividend over the last 10 years.

What is the first thing you look at when evaluating a dividend stock?

Full Disclosure: No position in the aforementioned securities. See a list of all my income holdings here.

Related Articles:
- Building Yield: 15 Consumer Goods Dividend Stocks
- 10 Higher Yield Dividend Stocks
- Who Owns The Top Dividend Stocks?
- Who Owns The Top Dividend Stocks?
- Top 10 Articles For 2010

(Photo Credit)

Tags: PAYX

Saturday, November 3, 2007

Stock Analysis: PAYX

Linked here is a PDF copy of my analysis of Paychex, Inc. (PAYX). Last week I initiated a position in this stock. Below are some highlights from the above linked analysis:

Company Description: Paychex, Inc. provides payroll and integrated human resource and employee benefits outsourcing solutions for small- to medium-sized businesses in the United States.

Friday, November 2, 2007

Process Overview and Asset Allocation

Note: Much of this post is obsolete. I no longer allocate based on the investment targets as described below.

I am a process oriented investor. By process oriented I am referring to a defined system that I follow when investing - to the point it is nearly mechanical. That's not to say it is rigid; it is constantly evolving and changing as I learn.

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