Dividend Aristocrats Outperforming Through November

A preliminary review of the year to date performance of S&P's Dividend Aristocrats shows they are outperforming the major U.S. domestic indexes. Through the first eleven months of 2008, the Aristocrats have generated a capitalization weighted return of -22.4% versus a -39.0% return for the S&P500 Index. The return for the Dow Jones Industrial Average and the NASDAQ composite index is -33.4% and -42.1%, respectively.

The spreadsheet below details performance information for each ofthe Aristocrats. It shouldbe noted the Anheuser-Busch was removed from the S&P 500 Index as of November 18th due to it being acquired by InBev (INBVF).

Full Screen View

High Quality Dividend Stocks Near 52-Week Low

In an environment where the economy is going through a deleveraging process, investing in higher quality firms that rely on lower levels of debt can be beneficial from an operating perspective. Below is a small list of A+ rated companies with market caps greater than $5.0 billion and debt to cap less than 35%.

Company	Symbol	S&P Rank	Market Cap	Dividend Yield	Debt/Cap	% Above 52-week Low
Sysco Corp	SYY	A+	$13.4B	3.94%	31.9%	13.1%
Johnson & Johnson	JNJ	A+	$161.7B	3.16%	23.7%	12.5%
Pepsico	PEP	A+	$85.3B	3.10%	31.6%	14.0%
General Dynamics	GD	A+	$19.9B	2.79%	14.0%	8.1%
Stryker Corp.	SYK	A+	$15.6B	.86%	.4%	10.0%
Danaher	DHR	A+	$17.2B	.22%	21.0%	13.8%

Bear Market Recoveries: Returns Occur Early In New Cycle

Once a bear market cycle ends, a large portion of the returns in the next bull market occur early in the new bull market cycle.

Schwab Center for Financial Research, with data from Morningstar, Inc. (MORN) reviewed total monthly returns of the S&P 500 Index ($INX) from January 1926–September 2008. Cash is represented by total returns of the 30-day T-bill. The 15 historical bear markets analyzed are defined as periods with cumulative declines greater than 10% and durations of at least six months, and do not include the current market.

As the below table notes, a large portion of the bull market returns historically occur in the first year following the bear market.

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Given the recent market volatility, it is prudent to review ones overall asset allocation. During this review, one of the hardest temptations to overcome can be the desire to move more investment assets to cash. Certainly if funds are needed near term, cash needs to be set aside. Keep in mind though, large returns tend to occur in short bursts and early in the new bull cycle. In just the last five trading days, the S&P 500 Index is up 19.1%.

Source:

Ready for the Rebound? (PDF)
By:Bryan Olson, CFA
Charles Schwab & Co.
November 17, 2008
http://www.schwab.com/cms/P-727392.35/2008_11_SPC_Investing_Insights_newsletter.pdf?cmsid=P-727392

Gasoline Declines From Record High

The average price of a gallon of unleaded gasoline has declined over $2.00 during the course of the last 4+ months. As the below chart notes, we are approaching levels seen in September 2001.

• This decline in gasoline prices represents a savings of over $300 billion in gasoline costs for consumers. This is equivalent to a tax cut of the same amount.

• U.S. driving mileage is running 89 billion miles per year less now than it was a year ago. The price decline represents only a 1.3% decline in total U.S. oil use.

• The total decline in U.S. oil use is running roughly 5% according to the EIA. As a result, the difference between the 1.3% and 5% must be a result of less driving by individuals and/or less use by trucking companies.

(click to enlarge)

Source: Chart of the Day

Source:

Less Driving and Lower Gas Prices are Not the Important Factor
Energy Investment Strategies
By: Jim Kingsdale
November 21, 2008
http://www.energyinvestmentstrategies.com/2008/11/21/less-driving-and-lower-gas-prices-are-not-the-important-factor/

S&P 500 Stocks With Market Cap Less Than $1 Billion

As a follow up to my earlier post today on Liz Claiborne's (LIZ) upcoming removal from the S&P 500 Index on December 1, 2008, following is a list of stocks in the S&P 50 with market caps below $1 Billion. Are these stocks potential candidates to be removed from the Index?

Full Spreadsheet View (click)

Retail Out Of The S&P 500 Index

Yesterday, Standard & Poor's announced Liz Claiborne (LIZ) will be removed from the S&P 500 Index after the close of trading on December 1, 2008. Replacing Liz Claiborne is Dun & Bradstreet (DNB). Liz Claiborne drops down to the S&P Smallcap 600 Index.

Retail stocks have seen their market capitalization shrink due to an underperforming consumer. Is it possible other retail related stocks are at risk of being removed from the S&P 500 Index?

Following is a screen that details some consumer stocks in the S&P 500Index that have a market capitalization less than $5.0 billion.

Full Spreadsheet View (click)

Individual Investor Sentiment Improves

The American Association of Individual Investors reported investor bullish sentiment increased as of the period ending November 26, 2008. The bullishness level improved to 31.25% versus last week's level of 24.37%. The bull/bear spread narrowed to -14% versus -33% last week.

(click to enlarge)

Source: American Association of Individual Investors

McCormick & Co. And Becton Dickinson Increase Dividend

Both McCormick & Co. (MKC) and Becton Dickinson (BDX) announced increases in their quarterly dividends today.

McCormick & Co.

McCormick & Co. announced a 9.1% increase in the company's quarterly dividend.

• The new quarterly dividend increases to 24 cents per share versus 22 cents per share in the same period last year.

• The projected dividend payout ratio is approximately 41% based on November 2009 estimated earnings per share of $2.36. This payout compares favorably to the 5-year historical payout ratio of 41%.

• MKC carries an S&P Earnings & Dividend Quality Ranking of A+

Becton Dickinson

Becton Dickinson announced a 15.8% increase in the company's quarterly dividend.

• The new quarterly dividend increases to 33 cents per share versus 28.5 cents per share in the same period last year.

• The projected dividend payout ratio is approximately 27% based on September 2009 estimated earnings per share of $4.88. This payout compares favorably to the 5-year historical payout ratio of 26%.

• BDX carries an S&P Earnings & Dividend Quality Ranking of A and is one of S&P's Dividend Aristocrats.

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Investing Carnival For November 25, 2008: Ready For A Bounce?

Welcome to the November 25, 2008 edition of the investing carnival. There were a large number of submissions this week and I had to leave a few out in order to keep the carnival at a reasonable length. The articles were submitted over the course of last week. The tone of many of these articles seem to be predictive of the market bounce experienced the past two trading days.

Dividend Investing

Top dividend stocks with reasonable payout ratios (MagicDiligence - Optimizing Joel Greenblatts Value Stock Strategy)

Stock Analysis

A potentially huge reward with an asset play in Value Vision Media Inc (VVTV). (Old School Value)

An in depth analysis of Sysco Corp (SYY). (Dividends 4 Life)

Even Berkshire-Hathaway's (BRK/A) stock is suffering in this market. (Intelligent Speculator)

Is Baidu.com's recent decline a buying opportunity? (Intelligent Speculator)

Screening the Forbes Best Small Companies list for investment opportunities. (Old School Value)

Can Citigroup regain its footing? (Smart Money).

Smith & Wesson & Ruger-are they shooting blanks? (Tough Money Love » Hard Truth and Tough Love for Money Problems and Personal Finance)

The losers in the Volkswagen and Porsche merger battle. (My Simple Trading System)

Investing

A review of the book Investing for Dummies. Maybe a good read for all investors? (Living Almost Large)

Insight into performing fundamental stock research. (Finance-Information)

Financial issues impacting individuals beyond just the stock market. (KCLau's Money Tips)

A primer on the Price to Earnings ratio or P/E. (Investing School)

10 better investments than the market. (Learn The Stock Market And How to Trade)

More bold predictions from Jim Rogers. (Subprime Blogger)

Does one quarter of negative GDP growth equal a recession? (The Political and Financial Markets Commentator)

Inflation protection strategies for ones portfolio. (FIRE Finance)

Tips on staying afloat in this market. (Beating The Stock Market)

Reduce fund expenses with Vanguard Admiral shares. (Free Money Finance)

Investments for a depression like economy. (Zignals blog)

Advice on getting your investments back on track. (The Iconoclast Investor)

Investing through TreasuryDirect. (Wealth Junkies)

Is your 401(k) account safe. (The Digerati Life)

A review of the best asset allocation on a historical basis. (Ripe Trade)

When analyzing a company, read the footnotes in the financial statement. (Value Investing and Entrepreneurship by Qovax)

The importance of choosing the right asset allocation. (The Sun’s Financial Diary)

Value Investing

Obama's energy plan may benefit these stocks. (The Green Investing Blog)

Alternative Investments

Don't fall for stock option "get rich quick" schemes. (Michael James on Money)

Wealth Accumulation

10 steps to building ones wealth. (Money Blue Book)

Tips on saving money by reducing household expenses. (Money Blog)

If one consolidates their debt, they need to cut their expenses too. (Finance Tips 101)

That concludes this edition. Submit your blog article to the next edition of investing carnival using the carnival submission form. Past posts and future hosts can be found on our blog carnival index page.

* image at beginning of post courtesy of CNN Money

Donaldson Co. Increases Dividend 4.5%

Last week Donaldson Co. (DCI) announced a 4.5% increase in the company's December quarterly dividend to 11.5 cents per share. The new dividend compares to 11 cents per share paid in the same quarter last year. The projected payout ratio, based on estimated earnings of $2.27 for the year ending July 2009, is in line with the 5-year historical payout ratio of 20%. DCI is one of the companies in the S&P 1500 that has increased its dividend for at least 10-years. The company carries an S&P Earnings & Dividend Quality Ranking of A+.

(click table/chart for larger image)

Don't Overreach For Dividend Yield

(I originally posted this article on The DIV-Net website on November 16, 2008)

The recent decline in equity prices and near record low interest rates, have enticed stock investors to focus on higher yielding dividend paying stocks. One must keep in mind though, a stock's dividend yield is not the same as comparing yields on certificates of deposit.

"After all, if one invests primarily for current income, it might seem logical that stocks with the highest yields would be best. The popularity of the “Dogs of the Dow” approach would seem to support that assumption. However, the Dow Dogs approach is designed to beat major averages through price appreciation; the high yield under that approach is merely an indicator of possible undervaluation."

The stocks that trade at higher yields tend to be the ones that are at the highest risk of a dividend cut. Ideally, stocks with lower yields and the ones that grow the dividend on a regular basis tend to be the type of stock that outperforms the market over the long run.

This year's performance of the high dividend yield approach of the Dogs of the Dow strategy offers some evidence that a high yield approach does not always mean higher total return. The year to date return as of November 21, 2008 for the Dow Dogs equals -50.0% versus the return on the Dow Jones Index of -39.3%.

The dividend-discount model is based on the assumption that dividends ultimately drive share price. If a firm doubles its dividend over a certain time, its stock price should also double if interest rates do not change.

Thus, the percentage rate of dividend growth drives and equals the expected rate of increase in share price. From that equivalence, we can derive this formula for expected percentage total return:

Expected Total Return =
Expected Dividend Growth Rate +
Current Dividend Yield

One event that is occurring with companies and the overall economy is the process of deleveraging. In this environment investors should likely look to invest in those firms that have lower debt levels. The risk of only investing in low debt level firms is when the market/economy improves, leverage can actually enhance a company's earnings, resulting in better performance in a somewhat leveraged company. For those interested, this leverage factor enhances ROE through the equity multiplier as detailed in the Dupont Model.

A few financial measures useful for dividend oriented investors to review are:

• Common shareholder’s equity as a percentage of total capital
• Short-term debt as a percentage of total debt (or of total capital)
• Dividend payout ratio
• Dividend growth rate
• Frequency of dividend increases
  
• Price-to-book-value ratio

There is no perfect model to use when evaluating dividend paying firms. However, watching the trend in the above factors, like payout ratio, frequency of dividend increase, etc., can provide clues into when a company might be anticipating earnings weakness in the future. Don't simply get trapped buying the highest yielding stocks, then suffer through a dividend cut. Company's that cut their dividend tend to see a contraction in the company's stock price.

Source:

Equity Income Investing: Beware of Yield Overreaching ($)
AAII Journal
By: Donald Cassidy
May 1999
http://www.aaii.com/includes/DisplayArticle.cfm?Article_Id=822

Sysco Increases Dividend 9%

On Wednesday Sysco (SYY) announced it will increase its first quarter 2009 quarterly dividend by 9.09%. The new quarterly dividend increase to 25 cents per share versus 23 cents per share in the same quarter last year. A detailed analysis of Sysco can be found at the Dividends4Life website.

(click chart for larger image)

Nike's Dividend Sprints Higher

Nike (NKE) announced the company's January 2009 dividend is increasing 8.7%. The new quarterly dividend of 25 cents per share is 2 cents higher than the 23 cents per share paid in the same period last year. The projected dividend payout ratio will equal 25% based on May 2009 year end earnings of $3.99. The 5-year historical average payout ratio equals 19%. Nike carries an A+ S&P Earnings and Dividend Quality Ranking.

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Historical Stock Market Corrections

The Chart of the Day detailed prior stock market corrections going back to 1900 for the Dow Jones Industrial Average. Corrections are defined as those that decline more than 15%. As the below chart notes, this correction is the fourth worst correction since 1900; however the length or duration of the correction is below the average of prior corrections.

Source: Chart of the Day

• Since 1900, the Dow has undergone a major correction 26 times or one major correction every 4.2 years.

• Of the 26 major stock market correction since 1900, the current stock market correction currently ranks as the fourth largest in magnitude (only the corrections beginning in 1906, 1929, and 1937 were greater) and is the most severe stock market correction of the post-World War II era.

Big Drop In Investor Sentiment

Just a quick note regarding the American Association of Individual Investors' sentiment report released this morning. Individual investor bullish sentiment feel to 24.37% versus last week's reading of 38.33%. The bull/bear spread came in at -32.77% compared to last week's level of -4.17%. Along with my post on the investor sentiment cycle yesterday and this data point, maybe this serves as some confirmation that we are in the discouragement phase of the sentiment cycle.

Where Are We In The Investor Sentiment Cycle?

It is often said that the market is driven by fear and greed. These emotional influences tend to create the peaks and valleys that are all to typical in the stock market cycle. At the end of the day though, fundamental stock and economic factors will determine the long run performance of the market. However, in these stress periods, it is important to try and determine where the investor is emotionally in terms of market sentiment.

In a recent comment by Charles Kirk of The Kirk Report, he felt the market has entered the discouragement phase. As the below chart notes, the discouragement phase comes after the capitulation phase and begins the market bottoming process.

Source: Invivo Analytics

The Invivo Analytics site contains a full discussion of The Investor Sentiment Cycle.

As the below chart of the weekly performance of the S&P 500 Index notes, most of this years loss has occurred in the last eight weeks.

(click for larger image)

Could this eight week decline of nearly 35% be an indication the market has gone through the panic phase? If so, maybe the market goes through a bottoming process (discouragement phase) over the next several weeks. It would certainly be nice to see this play out and have the market start climbing that "wall of worry".

John Hussman's View Of The Market

John Hussman's weekly commentary, he notes the market is at a point where he can "begin" to take on some equity risk. He notes though:

"That's not to say that I believe stocks have “hit their lows.” We always have to allow for the market to move significantly and unexpectedly, and there is plausible downside risk from here. Our activity as investors is not to try to identify tops and bottoms – it is to constantly align our exposure to risk in proportion to the return that we can expect from that risk, given prevailing evidence."

He still has the equity in the company's Strategic Growth Fund (HSGFX) hedged 70-80%.

The commentary, The Stock Market is Not in "Uncharted Territory" begins:

One of the fallacies about the recent financial turbulence is that the markets are in “uncharted territory” and that there are no historical precedents for the volatility, panic, or economic uncertainty that we've observed. To make statements like this is to admit that one has not examined historical evidence prior to the 1990's. The fact is that we've observed similar panics throughout market history. This decline has been deeper and more rapid than most, but that is largely a reflection of the rich valuation and overbought condition that characterized the market in 2007 (see the July 16, 2007 comment A Who's Who of Awful Times to Invest).

The entire commentary is a worthwhile read.

Source:

The Stock Market is Not in "Uncharted Territory"
Hussman Funds
By: John P. Hussman, Ph.D.
November 17, 2008
http://www.hussmanfunds.com/wmc/wmc081117.htm

Lancaster Colony Increases Dividend

Today, Lancaster Colony (LANC) announced the company's December quarterly dividend is increasing 1.8% to 28.5 cents per share. This is a half cent increase over the 28 cent quarterly dividend paid in the same quarter last year. The estimated payout ratio equals 56% based on June 2009 estimated earnings of $2.03. The 5-year average payout ratio is approximately 50%. and the company has an S&P Earnings & Dividend Quality Ranking of B.

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Spam: The New Economic Indicator

The New York Times recently reported that Hormel Foods Corporation (HRL) plant that produces Spam has been operating at a furious pace to keep up with the demand for its inexpensive Spam products. Workers at the plant have been told to expect the pace to continue and will only have Thanksgiving Day and Christmas Day off in the coming months.

Through war and recession, Americans have turned to the glistening canned product from Hormel as a way to save money while still putting something that resembles meat on the table. Now, in a sign of the times, it is happening again, and Hormel is cranking out as much Spam as its workers can produce.

When the demand for Spam falls, maybe this will be a sign of better economic times ahead.

Source:

Spam Turns Serious and Hormel Turns Out More
The New York Times
By: Andrew Martin
November 14, 2008
http://www.nytimes.com/2008/11/15/business/15spam.html?_r=1&partner=rss&emc=rss&oref=slogin

BetterInvesting's Most Active Stocks: November 15, 2008

BetterInvesting allows its members to indicate which stocks are attracting interest among club members. For the period ending November 15, 2008, 183 transactions were reported by members as attracting the most interest. The small sample of investors indicates Walgreen (WAG) is being sold rather than accumulated.

(click for larger image)

Source: BetterInvesting

Stocks mentioned above:

General Electric (GE)
Walgreen (WAG)
Johnson & Johnson (JNJ)
Pepsico (PEP)
Cognizant Technolgy Solutions (CTSH)
Pfizer (PFE)
Fastenal (FAST)
Caterpillar (CAT)
BP PLC (BP)
Intel (INTC)