I fully agree with, and share your philosophy of dividend investing. However, in all honesty, which of you would have predicted, two years ago, that DOW or GE or AA or PFE or BAC would slash their dividends? These are all companies that many (myself included) have invested in specifically for their once-stable dividend growth.
To get a handle on the scale of the decimation, here are a few examples of what's been happening:
(a) DOW increased their dividend in Spring 2007, and now it's been slashed back to its 1988 level.
(b) GE last increased their dividend in Fall 2007. Now it is back to its 1999 level.
(c) AA last increased their dividend in early 2007. Now it is back to its 1978 level (nominal! remember what a buck bought in '78?).
(d) AEP's dividend, slashed in 2002, then steadily increased since, until now it has regained its 1970 level (nominal !!!)
(e) NWL's dividend was slashed twice in the past six months, and is now at its 1989 level.
(f) IP's dividend was just slashed to return to its 1970 level.
(g) WY's dividend was just slashed, back to its 1988 level.
These are but a few examples. Adjust for inflation, and the picture gets uglier. While some stellar names mentioned in this article have increased their dividend, they are the exception, not the rule for 2008/2009, and the dividend slashing party may be just beginning. Additionally, there is no guarantee that some of these very companies will also cut when they find that their yields are much higher than their peers.
Yes, dividend investing is the way to go, but dividend cutting has gained momentum to an unprecedented extent in 2008/2009, and the title of this article would lead you to believe otherwise.
On May 18 09:50 AM David Van Knapp wrote:
> I second the comment by George Edwards. An attentive dividend investor > is not invested in the whole S&P 500, nor even in just the dividend-paying > stocks of the S&P 500. Instead, he or she is invested in the > best dividend-paying stocks, whether or not they are in the S&P > 500, including foreign stocks. > > Dividend-growth investing is a strategy that must be executed carefully > over many years. Across-the-board one-year snapshot statistics on > S&P 500 dividends are interesting, but not very relevant to the > attentive dividend investor. The best dividend stocks must be ferretted > out through stock-by-stock research. One quality of the "best" is > that they raise their dividends annually. Companies only do that > if they can afford to. So companies that are in financial difficulty > cannot qualify as "best," because their dividends are in peril, even > if they have raised them for many years consecutively.
To complete the picture, one should note that when dividends are cut, it is usually by 60%-100% of their previous level, but when they are increased, it is usually by 3%-8%. These annual increases, when they follow a drastic cut, imply that it may well take decades for slashed dividends to return to their former nominal level, let alone their former inflation-adjusted level.
It would have been informative had you tallied the total cuts in $ and the total increases in $ for the S&P500 this year. You would have found that total cuts greatly exceed total increases, and would have titled your article "Dividends Decimated by Recession", in the interest of truth and clarity.
The wholesale decimation of dividends is another reason that equities are unlikely to recover to their former bubblesphere valuations for a very long time.
Preview from Europe: Swine Flu, Stress Tests and Green Shoots [View article]
The video of the new model homes being destroyed is shocking. This should be illegal, as it is a true destruction of real value, not just virtual value represented by numbers on a bank's balance sheet. There is a law against "malicious destruction of property", and it should be enforced even if the malicious destroyer owns it.
Would be far better to sell it at pennies on the dollar than to destroy real wealth, which historically only happens in wars.
S&P 500 Watch: March 'Winners' Are Actually the Biggest Losers [View article]
Thanks for an informative analysis. When the market was near its lows I had argued that sound stocks were by no means "cheap"; and that the low SP500 was more due to some of its constituents being demolished, rather than due to its good companies becoming "cheap". This was just an observation, now bolstered by your excellent analysis, which says that the demolished ones have stirred back to life in the ER, boosting the SP500.
I still maintain that at current levels stocks are not "cheap" except relative to the bubble era. Dividends are being slashed at astonsihing rates, and historically, companies which drastically cut dividends have restored them slowly, if at all. Thus, I expect SP500 dividends will not climb back to 2007 levels for many years, and this suggests to me that stocks will be worth less than they were in 2007 for many years as well.
Jim Rogers on the Economy - Bearish on Stocks and Government [View article]
You state " Let's say we're at 100 right now and letting everyone fail takes us to 25 (made up numbers, just for the sake of an example). Let's say after that we grow 10% annually (an awesome growth rate). It would take us over 14 years to get back to where we are."
I'd suggest that letting the failures fail would take us down to 80-85, not 25!
Repurchase Cutbacks Spotlight Who's Healthy and Who's Not [View article]
Share buybacks inflate the value of options held by insiders disproportionately to their effect on the value of the stock.
If an honest board wants to return surplus money to shareholders it should be in the form of dividends. Alternatively, the board should increase the strike price of options in the event of a share buyback to reflect the lower number of shares outstanding. This way, the value returned to all shareholders including management is the same per share, rather than favoring option holders at the expense of the other shareholders.
Dividends Survive Despite Recession [View article]
I fully agree with, and share your philosophy of dividend investing. However, in all honesty, which of you would have predicted, two years ago, that DOW or GE or AA or PFE or BAC would slash their dividends? These are all companies that many (myself included) have invested in specifically for their once-stable dividend growth.
To get a handle on the scale of the decimation, here are a few examples of what's been happening:
(a) DOW increased their dividend in Spring 2007, and now it's been slashed back to its 1988 level.
(b) GE last increased their dividend in Fall 2007. Now it is back to its 1999 level.
(c) AA last increased their dividend in early 2007. Now it is back to its 1978 level (nominal! remember what a buck bought in '78?).
(d) AEP's dividend, slashed in 2002, then steadily increased since, until now it has regained its 1970 level (nominal !!!)
(e) NWL's dividend was slashed twice in the past six months, and is now at its 1989 level.
(f) IP's dividend was just slashed to return to its 1970 level.
(g) WY's dividend was just slashed, back to its 1988 level.
These are but a few examples. Adjust for inflation, and the picture gets uglier. While some stellar names mentioned in this article have increased their dividend, they are the exception, not the rule for 2008/2009, and the dividend slashing party may be just beginning. Additionally, there is no guarantee that some of these very companies will also cut when they find that their yields are much higher than their peers.
Yes, dividend investing is the way to go, but dividend cutting has gained momentum to an unprecedented extent in 2008/2009, and the title of this article would lead you to believe otherwise.
On May 18 09:50 AM David Van Knapp wrote:
> I second the comment by George Edwards. An attentive dividend investor
> is not invested in the whole S&P 500, nor even in just the dividend-paying
> stocks of the S&P 500. Instead, he or she is invested in the
> best dividend-paying stocks, whether or not they are in the S&P
> 500, including foreign stocks.
>
> Dividend-growth investing is a strategy that must be executed carefully
> over many years. Across-the-board one-year snapshot statistics on
> S&P 500 dividends are interesting, but not very relevant to the
> attentive dividend investor. The best dividend stocks must be ferretted
> out through stock-by-stock research. One quality of the "best" is
> that they raise their dividends annually. Companies only do that
> if they can afford to. So companies that are in financial difficulty
> cannot qualify as "best," because their dividends are in peril, even
> if they have raised them for many years consecutively.
Dividends Survive Despite Recession [View article]
To complete the picture, one should note that when dividends are cut, it is usually by 60%-100% of their previous level, but when they are increased, it is usually by 3%-8%. These annual increases, when they follow a drastic cut, imply that it may well take decades for slashed dividends to return to their former nominal level, let alone their former inflation-adjusted level.
It would have been informative had you tallied the total cuts in $ and the total increases in $ for the S&P500 this year. You would have found that total cuts greatly exceed total increases, and would have titled your article "Dividends Decimated by Recession", in the interest of truth and clarity.
The wholesale decimation of dividends is another reason that equities are unlikely to recover to their former bubblesphere valuations for a very long time.
Preview from Europe: Swine Flu, Stress Tests and Green Shoots [View article]
Would be far better to sell it at pennies on the dollar than to destroy real wealth, which historically only happens in wars.
S&P 500 Watch: March 'Winners' Are Actually the Biggest Losers [View article]
I still maintain that at current levels stocks are not "cheap" except relative to the bubble era. Dividends are being slashed at astonsihing rates, and historically, companies which drastically cut dividends have restored them slowly, if at all. Thus, I expect SP500 dividends will not climb back to 2007 levels for many years, and this suggests to me that stocks will be worth less than they were in 2007 for many years as well.
Jim Rogers on the Economy - Bearish on Stocks and Government [View article]
I'd suggest that letting the failures fail would take us down to 80-85, not 25!
Repurchase Cutbacks Spotlight Who's Healthy and Who's Not [View article]
If an honest board wants to return surplus money to shareholders it should be in the form of dividends. Alternatively, the board should increase the strike price of options in the event of a share buyback to reflect the lower number of shares outstanding. This way, the value returned to all shareholders including management is the same per share, rather than favoring option holders at the expense of the other shareholders.