Dividend shares are a good bet for retirement?

8:30 AM dividend, Energy companies, Retirement, Shares No Comments

Business Week | By Tom sightings, US News & world report

Many stocks have to walk up, but some areas of the market offer more stable stocks with inflation-beating returns to finance your golden years.

One of the most difficult problems is retirees face in today's financial markets how to make a decent return on our savings. In the old days, we could put money in the Bank, drawing 5 percent interest and life from the proceeds. No more.

Actually a little in the past year, interest rates have risen. But a 5-year Treasury Bills only 1.6 percent interest charged. A 5-year Bank CD offers less than 2 percent. A medium-term corporate bond or bond fund might be 3 percent, but let helpless against inflation bonds.

Other investments offer better repayment, but it's always a compromise. Master limited partnerships (MLPs), such as can high yields to drop, but you are subject to a complex tax situation. Life annuity can pay more, but usually does not provide protection against inflation.

What is shares with high dividend? This is not a new idea, and many of the stocks have already offered much of investors to limit maybe future income. But several areas of the market offer relatively stable stocks with inflation-beating dividend.

We all go to the supermarket, shampoo, toothpaste and cleaning supplies to buy. Procter & gamble (PG) expresses a 3.2 per cent dividend. Clorox (CLX), the producer of bleach, pays also 3.2 percent. Warren Buffett favorite stock, Coca Cola (KO), a little less bubbly pour 3 percent. And you always go to McDonalds (MCD)? The company offers a 3.5 percent dividend.

Are these stocks a good bet? Yes. But keep in mind that you bet still.

Americans are aware of the risks of oil production by environmental disruption in the Middle East. But we need fuel for our cars and our homes for heating, and some offer the large energy companies for decent dividends.

Chevron (CVX), the second largest United States oil company, yields 3.6 percent. Conoco (COP) Income 4.3 percent. Energy companies increase their attractiveness by providing a well-accepted hedge against inflation. A good bet? Probably as good as you will find.

Johnson & Johnson (JNJ), Merck (MRK) and Pfizer (PFE) are large, companies that sell recipes, non-prescription drugs, and in some cases medical devices. All numbers better than 3 percent dividend. And despite the uncertainties of expiring patents and the affordable care Act, one could argue that as long as we need medical care, these companies remains healthy. A good bet? Likely.

Verizon (VZ) and AT & T (T) call solid dividend-4.6 percent and 5.7 percent respectively. Both companies generate enough money. But they are price pressures from consumers, even while they are forced to heavy investments to upgrade their networks. Are dividends safe? Most likely. Are the shares a good bet? Your guess is as good as me.

Electric turn enterprises traditional retiree income. Duke Energy (DUK), Southern Company (SO) and American electric power (AEP) deliver all dividends more than 4 percent. But the most utility stocks have suffered in the past year, the heat-related interest revealed its weakness: when interest rates rise, these shares go up. A good bet? Only if you think interest rates are not higher.

Individual stocks present their own risks, so that for many of us an ETF or fund with high dividend stocks promises a more secure way. Vanguard offers such ETFs that cover each of these five areas, as well as a more general high dividend yield (VHDYX) mutual funds with a 2.8 percent dividend. Most other major fund companies have their own versions of high dividend of equity fund.

Make no mistake, dividend stocks put on the risks of the market, which can be sizeable. Should still be high better payouts than bank offer CDs or State bond and probably at least a part of the portfolios of most pensioners paid shares.

At the time of publication sightings in the possession of a small number of shares of the VZ and T.

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Is dividend investing doomed?

9:30 AM dividend, doomed, investing No Comments

| By Jeff Reeves, MarketWatch

It's time investors stopped worshiping at the altar of dividend stocks, and started weighing whether they are truly as low-risk as they used to be.

I like juicy yields as much as the next guy, since I personally lean towards buy-and-hold investing for the long-term with reinvested dividends.

But frankly, the constant drum-beating around the power of dividend payers gets on my nerves.

It's about time investors stopped worshiping at the altar of dividend stocks, and start thinking seriously about the relative risk of dividend stocks -- and more importantly, whether this particular corner of the equities market is truly as low-risk and income-rich as it used to be.

The appeal of dividends is undeniable, especially in this low-rate environment where there simply aren't any interest-bearing assets. And it's undeniable that many retired Americans are in a financial situation where income via reliable dividend payers makes a lot of sense.

But if you need proof of just how fashionable -- or darn near bubble-like -- income investing is, just consider that the newly created Retirement Income Certified Professional is the hottest designation for financial advisors in the 87-year history of the American College of Financial Services.

When fee-based advisors are clamoring to be experts in a given discipline in order to get in front of more customers, that tells you something.

The popularity of dividend stocks over the last few years is obvious, and has resulted in a seismic shift in valuations for this once-sleepy sector.

As Mebane Faber of Cambria Investment Management recently pointed out, dividend stocks that normally trade at a deep discount to the broader market are now trading for a significant premium. Consider that in 1997, the price-to-earnings ratio (P/E) of defensive sectors characterized by dividend payers was sometimes as much as 40 percent below the relative P/E of the broader market . . . but in 2013, defensive dividend payers are trading for a 20 percent premium.

So much for low-risk investments if you're paying a higher relative earnings multiple than the other stocks on Wall Street.

Interestingly enough, despite this expansion in valuation multiples, there has been a simultaneous contraction in dividend payout rations. Every dividend investor knows this -- with dividends going from about three-quarters of corporate profits around World War II to about 50 percent in the 1970s and 1980s to roughly 30 percent after the damage of the Great Recession.

There are a host of items to blame for this trend. There's the rise of tech stocks like Apple (AAPL) and Cisco (CSCO) and Oracle (ORCL) that make up a large part of the S&P 500 Index ($INX) now, but up until recently haven't paid a dime . . . and remain miserly with their payout ratios even after instituting a dividend. There's also the general sense that corporations are hoarding their profits instead of distributing money to shareholders, with non-financial stocks now sitting on over $1.5 trillion in cash and investments.

But any way you slice it, dividends aren't what they used to be as a share of the profits.

Josh Brown over at The Reformed Broker shared a Merrill Lynch tidbit recently that pointed out the change in beta across market sectors. And surprisingly, the beta -- roughly translated as "volatility" to those who don't know their Wall Street Greek -- of historically low-risk sectors like telecoms, staples and utilities has been on the rise. On the other hand, historically cyclical and volatile sectors like materials and financials are seeing their beta readings fall.

In plain English, this means that what you thought of as sleepy stocks are now supercharged -- with the ability to deliver big outperformance or underperformance, depending on the environment.

And forget about beta -- what about alpha, or the ability to move in opposite of the broader indexes instead of marching in the same direction? Consider 2011, where the broader S&P index and the Utilities SPDR ETF (XLU) put up 14 percent returns in calendar 2011. Or more recently in the last three months, where supposedly bulletproof blue-chips AT&T (T) and Procter & Gamble (PG) have been fighting just to break even while the broader S&P 500 is sitting on almost 3.5 percent gains.

Not exactly your grandad's slow-and-steady dividend stocks, eh?

Income is nice, but if you are exposing yourself to massive capital risk in dividend stocks then perhaps you need to reconsider your definition of low-risk investing.

These are uncomfortable realities of dividend investing in the wake of the financial crisis, as well as the harsh truth of what it's like to seek income under the yoke of a Federal Reserve funds rate that is effectively zero.

The volatility is up, the dividends are down and investors are paying a premium for this risky combination.

But what are the alternatives? Even if inflation remains low enough for the meager returns on Treasurys and corporate bonds to keep pace with inflation, that's cold comfort for those investors who still need to grow their funds instead of just bleed them down to live off of.

And furthermore, even if you are comfortable with 0.9 percent in a "high yield" CD, a good investment portfolio is always diversified to have some equity exposure -- and like it or not, dividend-paying blue-chips remains the go-to asset of choice.

It is obviously an overreaction to say we are witnessing the death of dividend investing, since we will always have corporations that deliver cash back to shareholders in some manner and there will always be a place for these stocks in a good investing portfolio.

But it is not too crazy to posit that we could be witnessing the end of low-risk dividend investing.

Because even if companies keep dishing out the dividends, unless the premium paid on income stocks or the low payout ratios begin to reverse course, this corner of Wall Street has dramatically changed over the past few decades.

And certainly not for the better.

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5 tweaks to your dividend strategy

4:00 PM dividend, strategy, tweaks No Comments

| By Eleanor Laise, Kiplinger

While a scattershot approach to dividends may have worked in years past, investors should now take a more targeted approach to collecting those payouts.

For dividend investors, it's time to get picky. Investors focused on stocks paying regular dividends have lately reaped a bountiful harvest. But investors who snap up dividend payers indiscriminately -- or load up on the highest-yielding stocks they can find -- may find themselves with some rotten apples. Rising interest rates may hurt some types of dividend-paying stocks far more than others -- and some of the most traditional dividend-paying sectors, such as utilities and telecom services, are likely to feel much of the pain, money managers and analysts say.

And while financial firms have rolled out a host of new dividend-focused mutual funds and exchange-traded funds, investors should tread carefully. They must scrutinize the funds' strategies and portfolios to be sure they're not overloading on overvalued dividend sectors that are poised for a fall.

Investors may be reluctant to tweak their dividend portfolios at a time when payouts are looking more generous. Among companies in Standard & Poor's 500-stock index, dividend payments in the first half of this year jumped about 14% over the first six months of 2012, with further growth projected in the second half of 2013. And 82% of companies in the S&P 500 pay dividends, the highest level in nearly 14 years.

Although older investors may need to get more selective, they can remain confident in dividend stocks' benefits for retirement portfolios. For portfolios in drawdown mode, high-quality dividend stocks can provide steady and growing income as well as the potential for capital appreciation and a shield against inflation. The long-term returns of dividend payers have beaten the broader market with lower volatility. Between 1926 and 2012, dividends accounted for 42% of the S&P 500's total return.

Some retirees find that a well-curated collection of dividend payers helps them cover retirement expenses while largely ignoring the market's ups and downs. Bruce Miller, 62, of Vancouver, Wash., started building his portfolio of dividend payers soon after retiring from the Air Force in 1999. He looks for companies that have at least a ten-year track record of paying dividends, a dividend growth rate of at least 5% per year and cash flow amounting to at least 150% of the payout.

Miller's favorites include consumer-product makers such as Clorox and Kimberly-Clark. While a military pension covers most of his basic expenses, Miller finds steady dividends a reliable way to maintain his lifestyle, which includes a second home and traveling to see his seven grandchildren. As a buy-and-hold investor, he says he doesn't worry about stock price swings. "What I care about is the ability of companies to pay their dividend," he says.

Stocks yielding close to 3% or more may look attractive compared with the 2.6% yield of ten-year Treasury bonds, but investors should remember that dividend stocks are not a substitute for fixed income. Although dividend payers tend to be less volatile than the broader stock market, they've been considerably more volatile than bonds. Retirement portfolios should remain broadly diversified among cash, bond and dividend stock holdings.

The challenge today is guarding those dividend holdings against the market's blows. While a scattershot approach to dividends may have worked in years past, investors should now take a more targeted approach to collecting those payouts. Here's how to refine your dividend strategy to focus on reliable and growing payouts in the years ahead.

Income-focused fund managers who have a lot of leeway to move money among bonds, stocks, convertibles and other asset classes have lately made some big shifts toward dividend stocks. But those shifts have largely focused on finding future dividend growth, not the highest current yield.

In the Franklin Income Fund, for example, just 36% of assets were in bonds at the end of June, down from 51% a year earlier, says manager Ed Perks. Instead of beefing up allocations to some of the market's highest yielding sectors such as utilities and real estate investment trusts, Perks says, he moved money into sectors offering lower yields but stronger dividend growth potential, such as technology, energy and materials.

Likewise, the Delaware Dividend Income Fund, which can invest in bonds as well as stocks, has shifted more money toward stocks in the past year, says manager Babak Zenouzi. At the same time, Zenouzi says, he deliberately lowered the yield in the fund by selling high-yield "junk" bonds and higher yielding REITs.

Many fund managers say they've retreated from higher yielding stock sectors largely because they've become too pricey as investors have gorged on the highest payouts they can find. "A lot of this yield-chasing is chasing very expensive and unsafe yield," Zenouzi says.

Older investors have additional reasons to focus on dividend growth rather than current yield. Steadily growing dividends can help maintain your purchasing power in retirement. And in some cases, a high dividend yield may indicate that the market has knocked down the stock's price in anticipation of a potential dividend cut or other troubles. (Dividend yield is the annual dividend per share divided by the stock price.)

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Costco to spend $3 billion on special dividend

5:30 PM billion, Costco, dividend, special, spend No Comments

The Associated Press , Staff

Costco will spend $3 billion to pay a special dividend of $7 per share next month ahead of higher tax rates that may kick in come January.

Many companies are making special end-of-year dividend payments or moving up their quarterly payouts because investors will have to pay higher taxes on dividend income starting in 2013, unless Congress and President Barack Obama reach a compromise on taxes and government spending.

The Issaquah, Wash., company said Wednesday that the special dividend will be payable Dec. 18 to shareholders of record Dec. 10. In addition, Costco Wholesale Corp. will pay its regular quarterly dividend of 27.5 cents per share on Nov. 30 to shareholders of record as of Nov. 16.

Costco also said Wednesday that its November revenue climbed nearly 9 percent to $8.15 billion. Revenue from stores open at least a year rose 6 percent. That increase would have totaled 5 percent excluding gains from gasoline price inflation and stronger foreign currencies. Sales were strongest in Texas, the Midwest and the southeastern U.S., as well as Canada and Mexico, the company said on a conference call. Customers snapped up candy, cooler and deli items and Costco said hardware, health and beauty and women's apparel categories also performed well.

The company is selling $3.5 billion in debt to cover the cost of the special dividend. Costco will sell $1.2 billion in senior notes due in December 2015, $1.1 billion in notes due in December 2017, and $1.2 billion due in December 2019.

Several Costco warehouses were closed during part of the month due to power outages following Superstorm Sandy. The company estimated that the storm trimmed 0.5 percent from sales of stores open at least a year. That is a key gauge of a retailer's health because it excludes results from stores recently opened or closed.

Costco's shares rose $6.07, or 6.3 percent, to close at $102.58 on Wednesday. The stock has climbed from a low of $78.81 in early January to a 52-week peak of $104.43 last month.

Investors have paid a maximum 15 percent tax rate on dividends since 2003. But that historically low rate is set to expire in January. Dividends will be taxed as ordinary income in 2013, the same as wages, so rates will go up depending on which income bracket a taxpayer is in. For the highest earners, the dividend rate could jump to 43.4 percent. Even if a political compromise is reached, there's no guarantee that the tax rate for dividends will remain at its current level.

Fitch Ratings said Wednesday that it lowered Costco's issuer default rating one notch to "A+" from "AA-" because of the debt the company is taking on. Analyst Philip M. Zahn said "A+" is still considered an above-average, investment-grade rating.

Costco runs 618 warehouses in several countries, including 447 in the U.S. and Puerto Rico.

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Goldman profit tops estimates; raises dividend

6:46 PM dividend, estimates, Goldman, profit, raises No Comments

Brendan Mcdermid / REUTERS

A Goldman Sachs sign is seen on the floor of the New York Stock Exchange.

Goldman Sachs said Tuesday its first-quarter earnings fell from a year earlier, but were better than many analysts had anticipated thanks to aggressive cost-cutting and better-than-expected investment banking and trading revenues.

Goldman earned $2.1 billion, or $3.92 per share, during the quarter. In the year-ago period, which was generally stronger for investment banks' trading and banking activity, Goldman earned $4.38 per share, excluding a one-time cost for buying back preferred stock.

The Wall Street investment bank also said it would raise its quarterly dividend to 46 cents per share from 35 cents.

Late last week, Goldman revealed that its Chief Executive Lloyd Blankfein received a $16.2 million pay package last year, a 15 percent increase over the year before that came primarily from a salary bump and greater stock rewards.

According to a filing with the U.S. Securities and Exchange Commission, Blankfein's compensation package included a $2 million salary, a $3 million bonus and $10.7 million worth of stock.

Goldman earned a $2.5 billion profit during 2011, down from $3.6 billion in 2010, and its share price fell 46 percent last year, amid a slowdown in investment banking deals and volatile trading conditions.

One of Wall Street’s most prestigious investment banks, Goldman hit the headlines in March after a column on the opinion pages of The New York Times decried a culture of greed and arrogance at the company.

Reuters contributed to this report.

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Google to split stock; announces dividend

1:24 AM Announces, dividend, Google, split, stock No Comments

Google, explains its stock split. Also, what the company is doing to maintain the passion of a startup, with CNBC's Jon Fortt. David Garrity, GVA Research, also weighs in on some of the highlights from the call.

Google announced plans to give investors a stock dividend on Thursday, as the search giant reported first quarter that met Wall Street estimates.

Google said its board of directors has approved a dividend of stock to existing shareholders that it calls a 2-for-1 stock split, preserving its corporate and control structure.

The announcement came as Google co-founder Larry Page completed a year after his return as chief executive.

Shares of Google, which finished Thursday's regular session at $651.01, rose to $655 in after-hours trading.

Net revenue, excluding fees paid to partner websites, totaled $8.14 billion in the three months ended March 31, compared with $6.54 billion in the year-ago period and analysts' average estimate of $8.15 billion according to Thomson Reuters I/B/E/S.

Net income was $2.89 billion, or $8.75 per share, compared with $1.80 billion, or $5.51 a share, in the year-ago period when Google took a $500 million charge to settle a government probe into its advertising practices.

Since taking the reins one year ago, Page has cut back on extraneous projects, launched a social networking service to challenge Facebook, and signed a $12.5 billion deal to acquire smartphone maker Motorola Mobility Inc.

Breaking down the details of Google's earnings announcement and the board's decision to approve a 2-for-1 stock split, with Herman Leung, Susquehanna Financial group analyst; David Garrity, GVA Research principal; and CNBC's Maria Bartiromo and Jon For...

Copyright 2011 Thomson Reuters.

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