Wednesday, October 31, 2007

Vectren Corp. Announces A 3.2% Dividend Increase

Vectren Corp. (VVC) announced the company will increase its fourth quarter dividend 3.2%. The new quarterly dividend increases to 32.5 cents per share versus 31.5% per share in the same quarter last year. This is the 48th consecutive year the company has increased its annual dividend. The projected payout ratio will be approximately 68% based on estimated 2008 earnings of $1.90. The 5-year historical payout ratio is approximately 69%.

Vectren Corporation is an energy holding company headquartered in Evansville, Indiana. Vectren's energy delivery subsidiaries provide gas and/or electricity to more than one million customers in adjoining service territories that cover nearly two-thirds of Indiana and west central Ohio. Vectren's nonutility subsidiaries and affiliates currently offer energy- related products and services to customers throughout the Midwest and Southeast. These include gas marketing and related services; coal production and sales; and energy infrastructure services.

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Vectren dividend analysis table October 31, 2007
Vectren stock chart October 31, 2007

Monday, October 29, 2007

Dogs Of The Dow Lagging Dow Jones Industrial Average

The Dogs of the Dow continue to lag the performance of the Dow Jones Industrial Average Index as of October 29, 2007. A large part of the underperformance is attributable to the weaker performing financial dogs, Citigroup (C) and JP Morgan (JPM). Additionally, the underperforming pharmaceutical sector stock, Pfizer (PFE), is pulling down the 2007 Dogs of the Dow performance as well.

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dogs of the dow performance October 29, 2007

Thursday, October 25, 2007

The Halloween Indicator

The Chart of the Day website has an interesting chart detailing the performance of the S&P 500 index from October 31st through the end of April. Since 1950 most of the gains achieved by the S&P 500 Index were generated in the November through April period. As Chart of the Day notes, "there are some noteworthy periods in which the Halloween indicator didn't produce (i.e. 1973-74 & 2000-01), the overall out performance is compelling."

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Another Large Decline In Bullish Sentiment

Today, the American Association of Individual Investors reported another large decline in investor bullishness. The bullish sentiment reading of 31.25% is the lowest level reported since the July 20, 2006 reading of 23.85%. Is it possible the market is setting itself up for a year end rally? The Fed meets next week and is likely to lower the Fed Funds rate again, mutual fund window dressing will be completed by the end of the month, and the market has gone through a corrective phase over the last several weeks.

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bullish investor sentiment chart October 25, 2007
investor sentiment table October 25, 2007

Wednesday, October 24, 2007

Eaton Vance Corp. Increases Dividend 25%

Today, Eaton Vance (EV) announced a 25% increase in the company's quarterly cash dividend. The new quarterly dividend increases to 15 cents per share versus 12 cents per share in the same period last year. The estimated payout ratio for 2008 is approximately 29% based on estimated year end (10/2008) earnings of $2.08. This is essentially in line with the 5-year historical payout ratio of approximately 27%.

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Eaton Vance dividend analysis October 24, 2007
Eaton Vance 10-year historical dividend growth table
Eaton Vance stock chart October 24, 2007

Income Oriented Stock Investments Attractive To Senior Investors

Today, Eaton Vance released a survey of financial advisors and senior investors. The survey revealed several interesting findings:
  • ...most seniors now favor a heavy allocation to equities.
  • Over half of seniors express a high level of confidence in the stock market (53% are bullish).
  • A vast majority of seniors (77%) are comfortable with current asset allocations despite recent volatility.
Interestingly, seniors were ask how their view on dividend oriented investments would change if the 15% tax rate on dividends is allowed to expire.
  • Only one in three (34%) senior investors says the reduced tax rate on dividends affected how they have structured their portfolio.
  • If the dividend tax cut is repealed, more than half of investors say they will not adjust their portfolios. Only one in five (18%) says they will invest less in dividend-payers.
Eaton Vance 2007 Polls of Financial Advisors and Senior Investors Unveil Significant Findings (pdf)
Eaton Vance Corp.
Jeanette Harrison-Sullivan
October 24, 2007

Sunday, October 21, 2007

Is It Time To Invest In Sin Stocks?

After the technology bubble burst in early 2000, it turned out sin stocks tended to hold up better than the overall market. Certainly, these types of stocks are not candidates for socially responsible portfolios. Some of the below information came from the first chapter, Why Vice Is Nice (pdf), from the book by Caroline Waxler titled, Stocking Up on Sin: How to Crush the Market with Vice-Based Investing. The performance for several of the "sin industries" from June 2000 - June 2003 are noted below. A chart of the latest 3-month return for similar sectors is also provided:

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One way to gain exposure to sin stocks is via the Vice Mutual Fund (VICEX). Note, this fund does contain a relatively high expense ratio of 1.75%.


Stocking Up on Sin: How to Crush the Market with Vice-Based Investing
John Wiley & Sons, Inc.
By: Caroline Waxler
February 2004,descCd-tableOfContents.html

Friday, October 19, 2007

Dividend Aristocrats Outperform In Market Downdraft

Standard & Poor's Dividend Aristocrats managed to outperform the the major domestic market indexes today. The outperformance against the S&P 500 Index was small (one basis point) but it was outperformance nonetheless. The strongest performing index on a year to date basis is the Nasdaq index with a total return of 12.8%. The table below details the performance for each aristocrat holding.

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dividend aristocrat performance October 19 2007

Thursday, October 18, 2007

Large Decline In Bullish Sentiment

This week's sentiment survey from the American Association of Individual Investors reported a decline of over twelve percentage points in investor bullishness. The level of bullishness fell to 41.96% from the prior week's bullishness level of 54.64%. The 8-period moving average for the bullishness level remained unchanged at 44%.

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Investor sentiment table October 18, 2007

Tuesday, October 16, 2007

Northern Trust Increases Dividend 12%

Today, Northern Trust (NTRS) announced a 12% increase in its quarterly dividend. The new quarterly dividend increases to 28 cents per share versus 25 cents per share in the same quarter last year. The projected payout ratio is approximately 32% based on estimated 2007 earnings of $3.53. It should be noted that Northern Trust had a stretch where the company did not increase its dividend for eight straight quarters as noted below.

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Northern Trust Dividend History
Northern Trust Dividend Table Octber 2007
Northern Trust Stock Chart October 2007

Monday, October 15, 2007

The Importance Of Understanding Market Movements

Recently, William O'Neil (founder of Investor's Business Daily) wrote an article that appeared as a featured article for the American Association of Individual Investors. The article is titled, The Big Picture: How To Decipher What The Market Is Saying.

The article notes:
  • To be a successful investor, you can't just buy a good stock. You have to buy the very best stocks at the very best time. And it's not enough for you to simply study the stock itself, you also need to analyze the market conditions in which it is trading.
  • Successful investing isn't about following pundits' predictions or analysts' estimates or going by how you feel. It is about studying the market itself.
The article is broken down into four categories:
  • The Market is as the Market Does
    • Listening to opinions about the market is one of the riskiest things you can do as an individual investor. You want facts, not personal opinions. If there's one lesson most learned from the 2000 three year bear market, it's that arguing with the facts and simply hoping for the best is the easiest way to lose your shirt.
  • The Interplay of Price and Volume
    • Throughout history, the best way to determine the market's health and direction has been to view the daily price and volume action of the three major indexes: the Dow, the S&P 500 and the Nasdaq. Volume bursts in these key indexes show where mutual funds and other institutional investors, the biggest driver of stock prices, are moving. Relying on the primary market indexes and studying their daily price and volume interplay is one of the best possible methods for analyzing the market's behavior and determining its overall direction and health.
  • Market Leaders
    • Remember that history shows three out of four stocks follow market downtrends. When you see the best and the strongest stocks unraveling one after the other on heavier-than-average volume, that's telling you something about the market. Your job is not to figure out why it's happening, but to recognize that it's happening, and know what you need to do about it.
  • What to do Today
    • Track the averages and watch the behavior of the better-quality growth stocks with excellent institutional sponsorship, and you should be able to stay in phase with the market.
    • Be patient and stay objective in your market and stock analysis. Don't let anyone's opinions or predictions blind you to the facts. Keep your emotions from getting in the way of sound decisions, and keep to the facts.
The article contains a more in depth discussion of each topic. Additionally, the table below contains a summary of some of the indicators and factors to observe.

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stock market trend indicators
The Big Picture: How to Decipher What the Market Is Saying
American Association of Individual Investors
By: William J. O'Neil

Sunday, October 14, 2007

Stocks With Potentially High Returns From The Dividend Discount Model Output

One of the links on my "links list" contains the site This site was established by Duke Realty Corporation (DRE) with the assistance of Jeffrey D. Fisher, Ph.D. Dr. Fisher is a professor of Finance and Real Estate and Director of the Center for Real Estate Studies at the Indiana University Kelley School of Business.

The site contains a list of stocks with potentially high expected returns.
The top performers list noted below were selected using the following criteria.
  • the current dividend yield must be greater than 4%.
  • the dividend growth for the previous 5 years must be greater than 3% per year.
  • the consensus earnings estimate for the next fiscal year must be at least 25 percent more than the current dividend.
  • the stock's expected return must be at least 10%.
  • the company's market capitalization must be at least $2.5 billion.
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Thursday, October 11, 2007

A Spike In Bullish Sentiment

Over the course of the last five weeks, the bullish sentiment reading as reported by the American Association of Individual Investor has increased from 38.38% to this week's bullish reading of 54.64%. During this same time period, the S&P 500 Index has increased 6.13%. It really isn't too surprising that we are now seeing some profit taking in the equity markets. Since August of this year, the market has pretty much moved in a straight line to higher levels.

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On the Bespoke Investment Group site, an interesting observation is made noting there may have been a large hedge fund or mutual fund needing to unload some equity holdings. Bespoke provides intra-day charts for both Apple (AAPL) and Research in Motion (RIMM).

Wednesday, October 10, 2007

Bottom Fishing For Aristocrats

The following table details the ten S&P Dividend Aristocrats with the worst performance on a year to date basis. Half of the stocks on this list are in the financial sector. Simply because a company is on this list, it does not necessarily mean the stock is worth catching.

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worst performing dividend aristocrats YTD October 10, 2007

Monday, October 08, 2007

Stocks Trading Above 50 Day Moving Average

One technical indicator worth watching is the number of stocks trading above their 50-day moving average. This is not a perfect timing indicator, but it does provide some insight into how broad based the market advance has been since August.

As noted in the first chart below, over 80% of the stocks in the S&P 500 are trading above their 50-day moving average. On a standalone basis this indicator would not be a sufficient reason to eliminate equity exposure. As the second chart of the S&P 500 Index details, stocks ran for an extended period of time (September to December 2006) even though a large percentage of S&P stocks were above their 50-day MA.

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Data for other indices can be viewed at The moving average indicator for the NYSE is $NYA50R and for the Nasdaq the indicator is $NAA50R.

Rising Dividends Have Greater Impact On Increasing Share Price Than Stock Buybacks

A research study by Morgan Stanley earlier this year concluded "if the purpose of a buyback is to boost a company’s share price, returning cash to shareholders through raising the dividend is a far more effective method." Since 1997 the study noted:
  • the average share price rise of companies that have been consistently increasing their payout has been 12.7 per cent a year, outstripping the 10.3% gain achieved by the wider market.
  • the average performance of companies that have pursued share buybacks was only 8.2%.
  • the only years in which buybacks helped share prices to outperform were 1997, 2001 and 2002, when fierce bear markets were running.
  • shares in companies with top-quartile dividend growth rose by 20% a year.
  • top-quartile buyback programs – companies that bought back the most shares relative to their stock market value – could manage only a 12% advance.
The reports summary noted "the stock market rewards companies that grow their dividends strongly, while, other than in falling markets, they appear, on average, to penalize those that conduct buybacks."

Share Buybacks are in Vogue, but keep an Eye on the Dividend
By: Nick Hasell
May 19, 2007

Sunday, October 07, 2007

Greenspan's View of Dividends Versus Stock Buybacks

Alan Greenspan recently conducted an interview at Bloomberg LP in London. One of the topics Greenspan discussed was the issue of a company returning cash to shareholders via stock buybacks. One can surmise that he also believes a company will initiate buybacks when internal investment opportunities are lower than the "...average rate of return in the corporate structure."

An excerpt from the interview:
Just as importantly is the evidence of the very large swing towards the boards of directors essentially giving back part of corporate cash flow. You can see it obviously not only in dividends, but most importantly in share buybacks and the huge amount of cash that's going back to common shareholders as a result of M&A deals closing.

Cash goes back when you don't have a use for it that is creating a rate of return superior to the average rate of return in the corporate structure (emphasis added). I mean, I served on a lot of boards for a lot of years, and it was fairly universal that you had to indicate to the directors for authorization to get a capital out- rate project going, that the rate of return on a new project was higher than the average rate of existing facilities. If it wasn't, you gave the cash back to the shareholders. So looking at the extraordinary increase in the cash flow back to shareholders, it strikes me that there is an inordinately large proportion of companies who believe that the only places that they can use their monies is either capital investments abroad - and that's actually increasing, but it's still not a big deal - or cash back - cash back to shareholders.

It also implies, if you're not getting rates of return, that the rate of innovation is slowing down. After this big surge we've had, it's not unusual to expect the rates will get some slowing down, and it's the slowdown in the rate of innovation which leads with a lag to a slowdown in the rate of productivity growth, which in turn creates an upward pressure on unit costs, which is a necessary condition for the existence of some form of stagflation.
In my view, these buybacks are a short term commitment by the firm. On the other hand, growing dividends are a longer term commitment on the part of a company and could signal brighter business prospects going forward.


Greenspan Says Chances of Recession have "Risen"
October 3, 2007

Friday, October 05, 2007

Dividend Growth Investing From The Perspective Of A Mutual Fund Manager published an article advising readers how to gain access to a no-load mutual fund that is managed by the same manager that manages a nearly identical loaded fund. In the No-Load Clone article the load fund referenced is Cohen & Steers Dividend Value Fund (DVFAX) versus the no-load Harbor Large Cap Value (HILVX). Both funds are managed by the highly respected dividend growth manager, Rick Helm.

Some dividend growth highlights from the article:
  • When Ned Davis Research calculated the returns of stocks in Standard & Poor's 500-stock index from January 1972 through August 2007, dividend growers won hands down. This group of stocks returned an annualized 10.9%, good enough to produce a 40-fold gain over the span. The S&P 500, by comparison, returned an annualized 8.5% during the same period; non-dividend payers earned a pathetic 2.4% annualized.
  • Here's why Helms likes companies that raise their dividends consistently. He says it demonstrates management's confidence in the company's business model and future cash flows and signals confidence in the outlook.
  • Unlike share buy-backs, which may be one-time events, steady growth in dividend distributions encourages companies to be more careful with their cash and shows commitment to shareholders. After all, you need to generate steady cash flows to fund a quarterly dividend commitment. "There's a great deal of information being communicated by companies when they raise their dividends," says Seattle-based Helm.
  • He uses a three-step process to fill his portfolio, which currently holds 80 stocks. First, he identifies what he considers the highest-quality companies, with the soundest business models, in each sector.
  • Then he analyzes these companies for their dividend profiles. He not only seeks steady dividend growth, but also prefers companies with relatively low payout ratios (dividends as a percentage of earnings; companies with low payout ratios have plenty of room to boost dividends) that are reinvesting enough money to expand their businesses. For instance, a company that yields 10% but grows only 1% a year would not make the cut. An ideal investment might be a company that has completed an aggressive capital-investment program and is scaling back capital expenditures, which is likely to generate more-abundant cash flow.
  • One reason a dividend-growth strategy performs over the long term is that companies of quality and consistency tend to hold up well in bear markets. "Our strategy has done well in down, choppy and rising markets," says Helm. However, he says, the strategy will lag in "frothy markets, where quality doesn't hold up."

A No-Load Clone of a Top-Notch Fund
By: Andrew Tanzer
October 4, 2007

Thursday, October 04, 2007

RPM International Raises Dividend 8.6%

For the 34th consecutive year RPM International (RPM) increased its quarterly dividend. The company increased the quarterly dividend 8.6% to 19 cents per share versus 17.5 cents per share in the same period last year. Based on RPM's May 2008 year end estimated earnings of $1.69, the payout ratio is approximately 45%. The company's annual earnings results have been volatile with the dividend exceeding earnings in 2000, 2003 and 2006. Except for the May 2006 results, cash flow did cover the dividend payment.

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RPM dividend analysis table October 2007
RPM stock chart October 2007

Investor Bullish Sentiment Continues To Move Higher: October 4, 2007

Investor sentiment as surveyed by the American Association of Individual Investors reported another increase in investor bullishness for the period ending October 4, 2007. Investor bullishness increased to 51.81% versus last week's 49.37%. The 8-period moving average continues to move higher as well, but remains in a longer term downtrend as detailed on the chart below. The bull/bear spread widened to 26 versus last week's spread of 15 and the spread in the period ending 9/20/2007 equaling 8.

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Wednesday, October 03, 2007

Fewer Companies Increase Dividends In Third Quarter

Today, Standard and Poor's reported fewer companies increased their dividend in the third quarter of 2007. S&P reported 439 companies out of approximately 7,000 that report dividend information to S&P's Dividend Record increased their dividend in the third quarter. This compares to 475 that increased their dividend in the same quarter last year--a 7.6% decline.

Howard Silverblatt, Senior Index Analyst at Standard & Poor’s notes:
"The decline in dividend growth continued into the third quarter as fewer companies are making a forward commitment to dividends. Standard & Poor’s believes that the explosion in corporate buyback activity is the primary contributor to the slower pace in dividend growth."
In an earlier post I detailed the dividend/buyback issue and provide a chart from the post below:

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Dividend Growth Continues to Slow; S&P Attributes Deceleration to Increased Corporate Buyback Activity
Standard & Poor's
By: Howard Silverblatt & David R. Guarino
October 3, 2007

Tuesday, October 02, 2007

Dividend Payers versus Non Payers Performance: September 28, 2007

For the month of September 2007, the non payers widened the performance gap versus the dividend payers by approximately 30 basis points (or .30%). One factor contributing to the payers trailing performance has to do with payers having more of a concentration in the financial and health care sectors. Both of these sectors have been under performing sectors relative to the overall S&P 500 index this year.

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