If you’re a Stocktwits subscriber you’ve noticed that there are very few times when you don’t see something mentioned about Apple. The stream is filled with everything Apple. Not only is that true of Stocktwits but also of the all financial media. Apple is normally the “apple” of everybody’s eye but recently, following a good but not great quarter, they’ve become the subject of not so great press.

The Cash

The bad press comes from the fact that many think Apple has too much cash sitting around. With $81.5 billion in cash reserves, not only does Apple have more in reserve than the United States Treasury but also it could easily purchase many of the companies that we consider untouchable. Normally a company with a lot of cash is considered healthy and there’s no doubt that Apple is financially sound but shareholders have a problem with this.

First, $81.5 in cash is a lot of money to be sitting in a bank account. This claim by some uninformed investors isn’t quite true because in Apple’s 10-K filing it says that the $81.5 billion is in “cash, cash equivalents and marketable securities.” At least investors can feel good about the fact that Apple has invested a significant portion of their cash. Still, that’s not the main problem that has investors upset.

What To Do

Why does Apple need all of this cash? Apple is a public company and if they have all of this extra money, how about return it to shareholders or make a few acquisitions? First, let’s look at the acquisitions. It’s difficult to game Apple on this since their pipeline of products tends to stay secretive but there are plenty of small cap tech companies who are making some pretty slick products. Siri, the flagship feature of the new IPhone 4S, was an acquisition. Apple is clearly not opposed to using the cash to acquire technology.

Return To Shareholders

Now, how about return the money to shareholders? That could happen in two ways: A share buyback or a dividend. A share buyback would be difficult because $54 billion or nearly 2/3rds of that cash is overseas. Apple would have to bring that money back to the United States, pay the 35% corporate tax and then use it to buy back shares. There’s no good reason for this to happen.

An Apple Dividend

A dividend would seem like a better way to return some excess money. A dividend would be a much lower payout giving Apple the flexibility to pay it with funds in America. The problem with a dividend is that Apple enjoys the distinction of being the growth stock to have. When you think of growth you think of Apple. Paying a dividend would put them in the ranks of a Microsoft who has seen anemic growth for years. Surely, Apple still wants to be viewed as a growth company because that’s what they are.

If I were a betting man, I would say that Apple will most likely hold on to the cash for quite a while but when they do decide to put it to work, it will probably be in the form of a dividend but don’t expect that any time soon.

EDR, MDT, HIFS, and AI

This week, it’s all about finance and money with Education Realty Trust, Arlington Asset Investment Corp. and Hingham Institution For Savings all announced higher dividends. Medtronic also announced an increase to its dividend. The news is somewhat encouraging.

Education Realty Trust (EDR) is a REIT that specializes in college housing. The company increased its dividend by 40%. This comes after quite a few decreases in the dividend payout. For shareholders, this is a welcome change.

Arlington Asset Investment Corp (AI) invests in assets related to mortgages for the most part. However, it is not a REIT. This is the third increase the company has offered since February 2010, when AI re-instituted its dividend, after getting rid of it after the mortgage market crash. While the increase is welcome, concerns about the housing market could keep dividend increases relatively modest, like the most recent announcement of a 17% boost.

Hingham Institution For Savings (HIFS) is a savings bank that has been offering cash to shareholders in the form of dividends since 1994. The company has been fairly consistent in raising dividends, but these raises are quite smal, including the recent announcement of an increase of 4.2%. HIFS paid a special dividend in January, and that’s something to watch for in the future (although it can’t be counted on).

Medtronic (MDT) has increased its dividends each year for 34 years; this recent increase, though, is the smallest increase in more than 25 years. Medtronic has been doing reasonably well, and the company is expected to see an increase in profits as the Baby Boomers age. However, this is not enough to give shareholders a dividend hike of more than 7.8%.

Long Term Dividend Investing

When it comes to long term investing, you don’t need a large amount of capital to start; dollar cost averaging works well. The important thing is to be consistent, regularly investing money. For long term dividend investing, it is also a good idea to take advantage of DRIPs. These plans will automatically reinvest your dividends so that you buy more shares of the stock. You essentially get these shares for free. These can grow your portfolio, helping you when it comes time to sell later on, for retirement or college or some other goal. You will have more shares, presumably at higher values.

If you want to use the investments for retirement, you can hold them in a tax-advantaged retirement account. That way you can avoid paying taxes on your dividend earnings until you withdraw from the account.

Short Term Dividend Investing

If you want to use the money in the short term, such as building up an income stream from dividend payments, you need to take a little different approach. If you want immediate income, you will need have a large chunk of cash to start. A large amount of capital is required to generate the payments that can result in immediate income.

However, if you have time to build up to an income stream, you can create a plan to build up your dividend portfolio. If you are looking to be able to have a good income stream in seven to 10 years, you can use a strategy similar to dollar cost averaging to build your portfolio over time. You will see your income stream from dividends grow. You can use DRIPs at the beginning to get more shares faster. As you get closer to when you expect to take advantage of your dividend income stream, you can stop using the DRIP strategy, and enjoy the advantages of having more shares – and larger dividend payments.

Dividend stocks can offer a number of opportunities for diverse time frames. Consider your goals, and carefully plan a strategy that can help you take best advantage of dividend stocks.

Intel reported great earnings yesterday and had a big pop in their stock price. Their results have a lot of people questioning the PC slowdown and wondering if companies are starting to reinvest in their infrastructure to refresh old PCs and servers. After a few years of making due and pushing out normal PC refresh cycles to cut costs there is a good chance that companies are looking to make hardware changes.

Depending on which report you read, Windows 7 only makes up 33% of the PC market share. XP is very close to that at about 32%. That is a big change from the end of 2010 where Windows 7 only made up 22% of market share. Windows 7 is on the rise. If the demand in increases, so will the stock price of Intel and Mr. Softy. Microsoft still owns over 80% of the PC market, Apple has less than 15%.

Intel is more exciting to me than Microsoft though because they are moving hard into the mobile space with their chips for smartphones and tablets. As this mashable article states, the mobile chip market is dominated by ARM but Intel expects to make big moves with their Medfield processor for mobile devices in the next 12 months.

Intel – INTC

Intel’s CEO said on CNBC yesterday that they are a growth company again with 20% gains in revenue each year for the last 2 years. While the American market is mature they are seeing a lot of growth internationally. What will happen if the American market comes alive and Intel is able to take market share from ARM in mobile devices? It could be off to the races for Intel.

Intel has increased its dividend for 7 straight years and has a 3 year dividend growth rate of 12.25%. The payout ratio is a very low 32% and it has a P/E ratio just under 10, which is much lower than AMD’s P/E of almost 14 or of Texas Instruments at 13. The dividend yield is 3.3%. Their returns over the last year are the only thing keeping it out of our top 100 dividend list. That might change soon.

The pop after the earnings report yesterday could start a new trend on the one year chart.

Microsoft – MSFT

Microsoft has fat pockets with a cash/share ratio of 4.24 and dividend yield at almost 2.5%. Their payout ratio is only 25% and their 5 and 3 year dividend growth rates are about the same at around 11.5%. They have a lot of cash and the dividend looks safe but is the stock going to go up? It’s hard to say for sure, but if the PC refresh season is upon us there is a good chance it will.

So many companies avoided Vista, but Windows 7 is no Vista. Also, many of those old PCs that are running XP are just that, old. It makes sense to me that even where people are happy with XP they are coming due for a hardware refresh soon and when they do replace those old PCs they won’t be putting XP on them.

Here is a one year chart for Mr. Softy. Notice the improving support levels. The bottoms just keep getting higher as the year progresses.

Dividend Aristocrats Index

Interestingly, dividend aristocrats are those listed on a special index. This index, published by Standard and Poor’s is called the Dividend Aristocrats Index. The main characteristic of this list is that those listed on it have consistently increased stocks over the course of the last 25 years. You are not going to find dividend stocks with yields in the double digits. In fact, you’ll be hard pressed to find very many dividend aristocrats with yields above 4% (although they do exist).

Historically, this index has outperformed the S&P 500. A lot of it likely has to do with the solid business models that many companies on the index have, as well as the fact that these businesses often feature safe business decisions. Also, you might notice that the list contains insurance conglomerates, health care products companies and consumer products.

Letting Dividend Aristocrats Guide You

If you look over the dividend aristocrats list, you might discover that it’s kind of a boring list. However, you will also notice that some of these companies have been paying out dividends for decades. Coca-Cola has increased its dividend every year for the last 48 years.

The aristocrats can offer some insight into which stocks are likely to weather a recession. Even though these stocks might see setbacks in stock price, along with every other company, during a stock market crash or a recession, these companies are also likely to recover. So they might be good choices when the market is down – and you can get more shares for less.

If you are building an income portfolio using dividend stocks, dividend aristocrats can be attractive if you are looking for a source of income that is relatively stable. While dividends are not guaranteed, there is nevertheless a good chance that your dividends will remain the same (and very likely head higher) if you invest in dividend aristocrats.

Getting Started

If you want to invest in dividend aristocrats, it’s fairly easy to get started. Many of these stocks have programs that allow you to use dollar cost averaging to buy portions of shares. For those without a large chunk of capital to use, this can be very helpful. You can start out slow, and gradually build up your portfolio.

Form 1040, Line 9

There is a space for you to fill in your dividend earnings on the front side of your Form 1040, on Line 9. This income will affect your adjusted gross income (AGI). It’s important to keep track of this income. Luckily, it should be reported to you on the 1099-DIV statements you should receive from each company reporting dividends.

As you report your dividends, you will notice that there is a Line 9a and a Line 9b. Your ordinary dividends belong on Line 9a. It is important to note that all dividends are considered “ordinary.” Line 9b is for qualified dividends. These dividends are those that are taxed at the long-term capital gains rate, rather than being taxed as regular income. This can help you lower your tax liability.

You can figure out whether or not your dividends are qualified by checking your 1099-DIV. Ordinary dividends are listed in box 1a, and qualified dividends are listed in box 1b. Add up the totals from each of your 1099-DIV forms and put the totals in the appropriate lines on your tax form.

Schedule B

Realize, too, that you will have to file a Schedule B with your Form 1040 if you receive more than $1,500 in dividend income. Once you reach this point, you will need to detail your dividend earnings.

You should note that your interest earnings are also reported on Schedule B if they exceed $1,500. You don not total interest earnings with dividend earnings. It is important to make this distinction. You only have to fill out the Schedule B if one or the other is at least $1,500. This means that if you have $1,400 in dividend earnings and $350 in interest earnings, you will have no need to file a Schedule B. The total of the two may exceed $1,500, but since you don’t have to add them together, and neither of them reach the threshold, there is no reason to file a Schedule B.

As always, if you have questions about what you should file, and how you should report your earnings, it is a good idea to talk to a tax professional.

Competition

3M competes against a number of major heavyweights in the diversified machinery industry. The companies biggest competitors are Avery Dennison, DuPont, and Johnson & Johnson. The barriers to entry in this industry are extremely high because the industry is capital intensive. Industrial production requires massive amounts of cash. Despite all of the governmental regulations and high operating costs, 3M has managed to find success in the industry.

Financials

3M is in great financial shape. 3M’s revenue numbers are only dwarfed by Johnson & Johnson and DuPont. The company had the second highest net income at $3 billion dollars. The company has $5.8 billion in cash compared with $5.7 billion in cash. 3M has generated $4.6 billon dollars in free cash flows. That is a remarkable string on consistency considering that the company has earned over $4 billion dollars in free cash flow from operating activities the past four years.

Quarterly earnings were up 15.6% and quarterly revenue growth came in at 11%. Earnings are projected to grow at a double digit rate over the next 5 years after being in the single digits for the previous five. Margins were high with operating margins at 22% and a profit margin of 15%. Return on equity was close to 30% and return on assets was just below 13%.

Valuation

The stock looks a little overvalued at nearly $90 a share. 3M earned $5.67 per share last year and is expected to earn $6.12 per share for 2011. Shares trade at 15 times earnings and 1.3 times the projected earnings growth. New investors would need to pay 4 times book value and 2.4 times last year’s sales. That’s a little pricey even for a company of 3M’s stature.

Dividends

3M is a very attractive stock to dividend investors. The company is currently paying a dividend of $2.10 per share which equates to a 2.4% yield. This will likely increase over the next year since the company has a remarkable streak of 52 consecutive years of dividend increases. That is one of the best dividend payment histories that you will find anywhere.

The current dividend yield is slightly below the 5 year annual yield of 2.60%. The payout rate is just 37% which is great for dividend investors because it is not even close to the company’s earnings per share. 3M has been increasing its dividend for over 50 years and there’s no reason to believe that this streak will not continue for another fifty.

Competition

Johnson & Johnson has the benefit of competing in several different sectors. The company makes products that consumers need during economic booms and troughs. Johnson & Johnson has many competitors since the company competes in so many different sectors. Its chief competitors in the consumer staple sector are Proctor & Gamble, Unilver, and Kimberly Clark. In the healthcare sector, J&J’s competitors are Eli Lily, Abbott Labs, and Novartis.

King Of Industry

Johnson & Johnson is the industry king with revenues of over $62 billion dollar and a net profit approaching $14 billion dollars. This is the very definition of a cash cow with nearly $18 billion dollars in free cash flow this year alone. The firm has a fantastic balance sheet with $22 billion dollars in cash and just $12 billion dollars in debt. J&J has $8 per share in cash alone. It’s rare that you find a company with nearly twice as much cash as debt on its balance sheet.

Fundamentals

Quarterly earnings are up 2.2% from the previous year. Revenue growth was down slightly at 0.70% last quarter. That’s not significant enough to be concerned about. Over the past 5 years Johnson & Johnson has been able to grow earnings at a stable 7% clip. That’s right in line with future earnings projections of 6%. Margins were excellent with the company sporting a 26% operating margin and a 21% profit margin. Return on equity was high at 25% and return on equity was average at 10%.

Shares currently trade at 12.5 times next year’s earnings. That’s two times the projected earnings growth. The stocks trades at 3 times book value and 2.7 times sales. That’s expensive for the pharmaceuticals industry but cheap for the consumer staples sector. The stock normally trades at a premium valuation because of its safety and steady growth potential.

Johnson & Johnson is attractive to fixed income investors because of its great credit rating and outstanding dividend. Johnson & Johnson has increased its cash dividend for 48 consecutive years. The company is currently paying a $2.16 dividend which is a 3.40% yield. This is much higher than the 5 year historical yield of 2.60%. The dividend is easily sustainable with a dividend payout rate of 42%. The chances are very good that Johnson & Johnson will be increasing its dividend against this year for the 49th consecutive year.

Public Storage’s primary competition is Amerco, U-Store-It Trust, and Sovran Self Storage. Public Storage is the largest company in the industry with a market cap four times the combined market cap of its competitors. The company was able to become the industry leader by acquiring competitors like Shurgard Storage Centers in the past. The company has been able to exceed the operating performance of competitors with its high margins.

Gross margins were outstanding coming in at nearly 68%. This is well above the industry average of 59%. Operating margins were excellent at 44% which is 11 points higher that the average for other facilities managers. While margins are great, revenue was down to $1.52 billion dollars that year. That’s a decline of 6.4% from its total of $1.62 billion dollars the previous year. The company has been able to grow earnings at a 6.5% clip over the past five years.

Earnings growth is expected to slow over the next few years coming in at 3.3%.The company’s revenue stream is almost entirely derived from the renting of storage facilities. The company’s goal is to have a facility utilization of 100%. Public Storage has done a great job of cutting costs during the recent recession and puffing up its cash hoard.

Shares of Public Storage currently trade for $100 a share and the company’s EPS for the current year is $4.75. That’s places a price to earnings multiple of 21 on the stock. That does appear pretty pricey for a company with such low growth. Most industry competitors trade at a similar multiple but offer twice the future potential growth of Public Storage.

So, why are investors forking over cash to pay for the price premium? One reason is that investors are willing to pay more money to own best of breed in the industry. Public Storage has the best balance sheet in the industry with over $500 million dollars in debt and $500 million dollars in cash. Most of its competitors have minimal cash and heavy debt burdens on their balance sheet.

The second reason is the solid dividend yield. Public Storage recently raised its dividend so that the annual dividend paid is $3.20 per share. That’s a 3.20% yield. That is pretty attractive in an industry in which most companies cannot afford to pay cash back to shareholders. The current yield is slightly higher than the 5 year average of 2.60%. The current dividend payout is 67% of this year’s earnings.
I expect the dividend to keep growing over the next few years as Public Storage continues to grow earnings as the economy continues to recovery and demand for storage space rises.

AT&T (T)

AT&T (T) may be losing its exclusivity agreement with Apple next year but the company had some good news for investors recently. AT&T has agreed to increase its dividend effective immediately. The Board of Directors approved a 2.4% increase in the company’s quarterly dividend. The quarterly dividend will be rising from 42 cents to 43 cents a share which will increase the annual dividend from $1.68 to $1.72 cents a share. That’s a 5.9% yield.

American Capital Agency (AGNC)

Real estate investment trust American Capital Agency (AGNC) just declared a fourth quarter dividend of $1.40 per share to investors of record December 31^st.  The company has been increasing its payout as earnings have surged over the past year. American Capital has a $5.60 annual dividend and a lofty 18.8% dividend yield. The payouts should continue rolling in with AGNC receiving an endorsement from Credit Suisse.

Dominion Resources (D)

Energy producer and transporter Dominion Resources (D) recently increased its dividend payout so that its new dividend would represent a greater share of corporate earnings. Dominion increased its payout ratio from 55% to a maximum of 65 %. The 7.7% dividend increase raised the annual dividend from $1.83 per share to $1.97/share. The stock is currently in high yield territory with a 4.30% yield.
Investment links from around the web

Investing Posts

You can learn a lot about investing by searching the financial blogosphere. There are a number of great sites that deal with investing from all sorts of angles. Here are a couple of sites that are offering great reads for the current week.

Index Investors

500 Index Fund takes a look at the Top 10 S&P 500 Index Funds.

Diversification

Money Ning explains the importance of Asset Allocation.

Market Trading

The Skilled Investor explains the pitfalls of Stock Market Timing.