How to Enroll in a DRIP Program

A dividend reinvestment plan has the well-deserved acronym of DRIP. When an investor utilizes a DRIP, the dividends earned on their stock investment will periodically “drip” into their stock portfolio. Instead of receiving monthly or quarterly checks for their dividend payments, the funds are reinvested into the original stock. If the payment doesn’t cover an even number of stocks, which it rarely does, a fraction of a stock is purchased.

If the investor does not need the dividend payment to cover expenses, a DRIP program is a pain-free way to build a more robust stock portfolio over time. Each time dividends are reinvested, the investor will receive increasingly larger dividend payments that will purchase slightly more stock during the next cycle. Most investors will find that their return on investment (ROI) dramatically increases as this process compounds their investment. A DRIP strategy can be a smart way to prepare for retirement. With a little planning, some investors may find that their periodic DRIP payments are large enough to provide a healthy income after they quit working.

If one is offered, the company or fund that represents the investment should be able to provide information on how to establish a DRIP. When a DRIP is set up directly with the company, it may be completely free or offered for a nominal fee. This allows the investor to bypass stock brokers and expensive commissions. A few companies will even discount the stock price when it is purchased through their DRIP program.

Once it is determined that the dividend stock’s parent company offers a DRIP program, the investor should verify that they are the shareholder of record. Sometimes, stock brokers will record their own name on stocks that they manage for their customers. If this is the case, instruct them to transfer the registration. The next step is to contact the company directly to request a DRIP application and a prospectus. If the stock’s parent company does not offer a DRIP program, many stock brokers can set up a similar plan to reinvest your dividend payments.

Applying for a DRIP plan is simple and easy, but the investor should be aware of the details of the company’s specific plan. Most companies do not charge anything, but there is a trend toward implementing DRIP plan fees. It is usually small, but it must be compared against the dividend payment to ensure that it doesn’t consume a high percentage of the funds. For example, a small portfolio that only receives a dividend payment of $10 each month would not be a good choice to include in a DRIP plan that charges a $5 fee for each monthly reinvestment

Big GE And It’s Big Dividend

One of America’s oldest and most prestigious companies has become an accidental high yielder. General Electric (GE) was founded by Thomas Edison back in 1892. The company has been a fixture on the Dow Jones Industrial Average since 1896. Today, the industrial conglomerate is a $165 billion dollar company with nearly $157 billion dollars in revenue.

GE has over 300,000 employees and is the second largest company in the United States. General Electric has its hand in just about every area of the U.S. economy. It is one of the most diversified companies in the world. General Electric owns GE Capital, GE Energy, GE Technology Infrastructure, GE Home & Business Solutions, and NBC Universal.

Despite its iconic status, the stock has been a terrible investment since CEO Jeff Immelt took over. The company became too big and bloated suffering through its worst performance ever. General Electric shares have declined 55% over the past 5 years. General Electric even cut its dividend last year for the first time since 1938. The dividend cut was prompted by a move to conserve cash and maintain its AAA credit rating. The company lost its AAA credit rating anyway and things were darkest at GE in the spring of 2009.

But things finally appear to be changing at GE. General Electric is seeking to become a much leaner company. The company has been making moves to divest itself of its industrial and consumer businesses over the past two years. The company is turning its focus towards energy and healthcare. GE is still awaiting regulatory approval of its sale of NBC Universal to Comcast Corporation. GE has also been cutting the size of GE Capital by selling off assets and reducing the unit’s leverage. The financial arm of GE almost brought about the company’s collapse during the crash of 2009.

GE has done an excellent job of writing down the bad loans in it portfolio and increasing its cash reserves. The company expects to have a $25 billion dollar war chest on hand by the end of the year. GE recently increased its dividend last month to 48 cents per share and the company is so flush with cash that it is re-instituting its $15 billion dollar share buyback campaign.

GE is often compared with other financial companies due to the size of GE Capital. However, the market appears to be making a big mistake. GE is more than your typical finance company. The company has great growth opportunities domestically and internationally in the energy, healthcare, and industrial sectors. The conglomerate is investing heavily in renewable resources, turbine technology, appliances, and aircraft engines.

The stock now sells for $15 per share and is currently yielding 3.1%. The stock currently trades at 13.5 times this year’s earnings of $1.11. The company’s earnings declined 13.5% over the past 5 years. The good news is that earnings are expected to grow 10.5% over the next 5 years. Dividend Investors are getting a chance to buy an American classic at a bargain price.

General Mills Dividend – GIS

General Mills is a well known fixture in American business. The company is the sixth largest food manufacturer in the world and has been around since 1866. General Mills is responsible for the Cheerios, Pillsbury, Betty Crocker, Haagen-Daaz, Hamburger Helper, Bisquick, Green Giant, and Yoplait branda. That’s not even all of their brands! The company makes over 100 of the leading brands in the United States.

The company’s sales have been stable averaging over $14 billion dollars in sales the last 2 years. General Mills generated over $1 billion dollars in net income over the last three years. Sales have grown at a 9.6% clip the last 5 years. The company is on pace to go over $15 billion dollars in sales this year and $15.7 billion for next year. Earnings per share are projected to come in at $2.48 for this year and $2.71 for next year.

General Mills operates in a recession proof industry. People have to eat regardless of whether the economy is good or bad which is a huge competitive advantage in these turbulent economic times. Investors flock to defensive industries like these during market swoons. General Mills chief competitor is Kellogg Company in the breakfast goods and cereals industry. These two companies dominate the market. They are comparable in size, revenue, and net income. Kraft and ConAgra Foods are competitors in the baked goods industry.

General Mills is a highly levered company with $6.6 billion in debt and under $660 million in cash. The large amount of debt should not be a problem for General Mills however since the company generated over $2.1 billion in free cash flow last year. General Mills has more than enough money to service its debt. The company has a healthy operating margin of 17% and a profit margin of 10%.

Shares are currently selling for $33.50. The stock has been trading between $28.55 and $38.98 for the year. Shares currently trade at a price to earnings ratio of 13.5 times this year’s earnings and 12.2 times next year’s earnings. Both of these P/E’s are below the industry average of 14.7.

General Mills is an attractive buy due to its low valuation and solid dividend yield. The company is paying a $1.12 dividend to shareholders, which is a yield of 3.3%. This is higher than the 5 year historical average yield of 2.7%. The current dividend payout ratio is 45% which is slightly higher than the historical payout rate of 43%.

General Mills is a good stock for fixed income investors looking to add some income to their portfolio and value investors looking for a bargain stock. Investors should feel comfortable buying shares in the low $30’s.

Getting Paid With Paychex

You have almost certainly heard of Paychex (NASDAQ: PAYX). Paychex is the second largest payroll processing company in the United States. Paychex offers business process solutions to companies looking to outsource many human resource department functions. The company provides payroll functions, tax payment services, retirement benefits, human resource services, and health insurance. It’s a one stop shop for both small businesses and large companies. Paychex grew from a small company with a few employees into a Fortune 500 company with over 100 locations. Paychex now services over half a million business customers in the United States alone.

Paychex is an earnings juggernaut producing over $2 billion dollars in revenue each of the past three years. Paychex’s growth was affected by the struggling economy over the past few years. The payroll processing industry has been affected by the high unemployment rate and the bankruptcy of many businesses. Some businesses have scaled back on benefits in attempt at cost reduction. All of these factors lead to lower check volumes. The biggest competitor in the industry is ADP. ADP is the largest payroll processor in the industry with revenues over $8.8 billion dollars.

Despite all of these issues, Paychex still managed to have profitable sales growth. Growth came in at 3.2%. Paychex should benefit from an improving economic outlook. The unemployment rate may still be high but it is decreasing. Continued job creation will lead to more clients seeking payroll services. Paychex stands to benefit from any recovery in the job market and its bottom line should increase as well.

Paychex has been able to withstand the poor economy due to its great balance sheet. The company’s balance sheet is one of the best in the industry. Paychex has $366 million dollars and cash and no long term debt obligations. The payroll company generated $610 million dollars in free cash flow this year. Paychex is able to generate interest income in the mid teens off of money held for clients.

Shares currently trade just south of $26. Analysts are looking for earnings of $1.37 this year and $1.48 next year. That would place a price to earnings ratio of 19 on the stock for this year and 17.5 for next year. Both are higher than the industry average. Earnings are expected to rebound with the company growing at an 11% rate over the next 5 years. The earnings growth drivers will be human resource services and investment income. Payroll processing growth is expected to be flat for the near future.

Paychex currently has one of the best yields in the market for a blue chip company. The stock is yielding 4.77%. The dividend payout rate is alarmingly high at 83% of next yea’s earnings. However, the company should be able to sustain it due to the company’s balance sheet and expected earnings growth. Shares may not be cheap based on its P/E and book value but income seeking investors may find the shares worth buying for the juicy dividend.

What do you think about Paychex?

Real Estate Investment Trusts

If you are looking for extra income from your investments, take a look at real estate investment trusts. Real estate investment trusts (REIT’s) are known for offering some of the biggest dividends around. REIT’s invest directly in residential or commercial real estate and receive special tax considerations from the government. In exchange for lower taxes, REIT’s are required by law to pay out 90% of their earnings in the form of a dividend to investors.

Let’s take a look at a relatively new REIT by the name of Chimera Investment Corp (CIM). Chimera is a spinoff of Annaly Capital Management. The company became its own entity in 2007. Chimera is a REIT that invests heavily in mortgage backed securities. Mortgage backed securities are claims on the future cash flows of mortgage loans.

If you have watched television over the last few years, you know the difficulties that the housing market is having. Mortgage backed securities are at the center of this mess.
Individuals are struggling to make their mortgage payments and homes are being foreclosed on nationwide. As a result of this home prices are dropping and loans are being defaulted on.

Despite the troubles in the housing market, Chimera has weathered the storm admirably. After two years of negative earnings, Chimera returned to profitability in 2009. The company has managed to grow earnings nearly 300% over the past 5 years. Revenue jumped over 500% last quarter. Earnings are expected to grow 8% over the next 5 years. These are excellent numbers for a company that operates in the real estate market which has been in the doldrums since 2006.

The good news is that things appear to be returning to normal in the securitization market. The Federal Reserve had been purchasing mortgage backed securities to help lower mortgage rates and prop up the housing market. The Fed has stopped purchasing these securities and now the market appears to be getting healthier on its own.

The future looks bright for the mortgage lending business. Although loan volume may be down in the future, loan quality will be much higher due to increased governmental regulations. Liar loans and no doc loans will soon be a thing of the past. This should help reduce the default rate on loan securities. MBS ratings should actually mean something in the future.

At just $3.71, Chimera trades at 1.07 times book value. Chimera is currently yielding an incredible 18.5%. The dividend payout appears sustainable. Chimera is expected to earn 75 cents for the full year and will pay out 68 cents in distributions. This is a 91% dividend payout rate to shareholders. At juts 5 times earnings, Chimera is a nice bargain for value investors.

Dividend Aristocrats – Income Investing

Standard and Poor’s (S&P) analyzes their top-performing blue-chip stocks each year to provide a list of S&P 500 Dividend Aristocrat stocks. To qualify for this list (See safe dividend list), the company must be part of the S&P 500 and have dividends that have consistently increased for at least the last twenty-five years. As of June 30, 2010, the S&P 500’s Dividend Aristocrat Index has a one year return of 23.02%.

Building Passive Income

If you’re building a stock portfolio that will provide you with passive income, you can generally depend on these high-performing dividend stocks to continue paying monthly or quarterly payments. Not only can you depend on the checks to keep coming, you can also expect them to increase each year. This feature makes the Dividend Aristocrat stocks a good way to protect your investment from inflation. In addition to the dividend payments, the price of these stocks remains stable compared to other options. Over time, the dividends will pay for your initial investment, and you will still have the original stock available for sale if the need arises.

Build Your Portfolio by Reinvesting the Dividends

If the stock you are adding to your investment portfolio offers a reinvestment plan, and you don’t need the passive income for living expenses, it would be a smart idea to take advantage of the offer. As your dividend payments are reinvested in the original stock, your number of shares will increase each quarter. Because this doesn’t require an out-of-pocket investment, it’s a painless way to build your asset base. If you decide that your dividends have grown to the point that they could pay for your living expenses, and you would like to stop working, you can opt out of the plan and live the good life courtesy of your high-paying Dividend Aristocrats.

Feel Secure with Stocks that are Household Names

You may have never heard the term Dividend Aristocrats, but you will certainly have heard of the companies that make up this S&P index. In 2010, almost fifty well-known companies are included in the S&P 500 Dividend Aristocrat Index.

We created the safe dividend list for our top dividend members. In that list we show all of the dividend aristocrats and we include our top dividend data and ratings.

A Great Dividend Yielding Limited Partnership

The best two places to look for great dividend yields are in REIT’s and limited partnerships. REIT’s are real estate investment trusts that are required by law to pay out 90% of earnings to all shareholders. Limited partnerships are business organizations that have general and limited partners who are entitled to a share of the partnership’s cash flow. As a limited partner, you are entitled to a portion of the firm’s cash but are not responsible for its liabilities.

Let’s take a look at one such limited partnership that is currently paying a great dividend.

The current stock market decline has created an incredibly high yielding stock in the infrastructure industry. Brookfield Infrastructure Partners (BIP) is a limited partnership that owns infrastructure assets in the energy, timberlands, and transportation sectors. The company has operations in North America, China, Europe, South America, and Australasia. Brookfield Infrastructure was spun off from Brookfield Asset Management in 2008.

Brookfield manages a portfolio of very attractive infrastructure assets. Brookfield started out with a major the majority of its portfolio in timber. The company now owns large positions in the railroad industry, coal mining, and natural gas. The company even has stakes in parking lots and transmission lines. These are very defensive sectors that tend to hold up well during market swoons.

Brookfield Infrastructure is a small cap stock with a market cap of just $1 billion dollars. In a market with volatile price swings day in and day out, Brookfield is a solid stable growth play. Growth is expected at 6% for the next 5 years. The most attractive part about Brookfield is the generous dividend yield. At just $16 a share, the stock is currently yielding a ridiculous 6.8%.

The 6.8% yield is higher than anything that you will find in the bond market. Ten year treasuries are currently yielding under 3% and AAA corporate bonds are paying less than Brookfield’s yield. Brookfield is an attractive investment because the partnership distributes 60 to 70% of funds back to investors. The company’s goal is to increase their dividend payout 3 to 7% per year.

energy Brookfield is only covered by one Wall Street analyst. Small cap stocks with little analyst attention have the potential to outperform the market as a whole. When a stock is only covered by a few analysts, it has a greater potential to outperform analyst expectations.

Not only are you getting an incredible yield, but you are also getting the potential for capital appreciation with Brookfield’s infrastructure portfolio. Infrastructure assets tend to perform very well during times of economic growth and inflation. Brookfield is in a prime position to benefit from any global economic recovery. The company estimates that overall spending in the infrastructure industry will be at least $370 billion a year through 2010.With the huge amount of fiscal stimulus by nations worldwide, it’s only a matter of time before inflation returns to the market place.

While the market has been subject to wild price swings over the next few months, you can park your money in Brookfield Infrastructure L.P. reap a high dividend and rest safely at night.

Canadian Stocks with Dividends

Like any other dividend paying investment, investors will often choose to add Canadian dividend stocks to their portfolio to take advantage of regular cash payments from the underlying asset in addition to any appreciation they might see when they decide to sell their shares. Many Canadian stocks are offered by extremely stable companies including the large Canadian banks. These enterprises offer stable returns on your investment that have historically kept a few points ahead of the current inflation rate.

High Yields Are Attractive

You may also find international stocks pay a rate much higher than the more stable companies. If a stock’s current dividend rate is over 10%, it may still be a good item to add to your portfolio. However, you must recognize that it will carry more risk, and your investments should be diversified accordingly to minimize any potential losses. For a few examples of high paying Canadian dividend stocks, the Yellow Pages Income Fund was showing an 18.11% dividend yield, and the Penn West Energy Trust was reported to have a 15.37% dividend yield.

Canadian Dividend Stocks Could Pay For Themselves

If you’re interested in investing your money in one of these stocks, you should consider one of the Canadian dividend stocks that have been dubbed a dividend aristocrat by Standard and Poor’s. While many investors may be familiar with the American companies that are on this list, they may not have noticed that it includes a few Canadian stocks as well. To be added to the aristocrat stock list, a company must have weathered bad times, as well as flourished in good times, without cutting dividend payments to their shareholders. If you hold these stocks for a few years, you can see that your initial investment could be repaid well before you decide to sell your shares. The following list shows a few of these smart investment choices:

• Bank of Nova Scotia (BNS) – dividend yield of 4.2% with a one-year return of 32.4%
• Toronto-Dominion (TD) – dividend yield of 3.5% with a one-year return of 38.3%
• Enbridge (ENB) – dividend yield of 3.7% with a one-year return of 31.1%

Canadian Dividend Stocks Are Traded On The New York Stock Exchange

If you currently invest in US stocks, it’s just as convenient to purchase Canadian dividend stocks. It makes sense that these investment options would be traded on the Canadian Stock Exchange in Toronto (TMX), but many are also available on the New York Stock Exchange. You should be able to purchase selected Canadian dividend stocks in the same manner that you invest in any major US stock.

The following Canadian dividend stocks are traded on the New York Stock Exchange and have shown stable rates of return in recent years:

• Bank of Montreal (BMO) with a yield of 4.32%
• BCE Inc (BCE) with a yield of 5.63%
• Canadian Imperial Bank of Commerce (CM) with a yield of 4.57%
• Sun Life Financial Inc (SLF) with a yield of 4.59%
• TELUS Corporation (TC) with a yield of 5.20%
• TransCanada Corporation (TRP) with a yield of 4.29%

Regular Dividend Payments Can Grow Your Portfolio

Many people are attracted to Canadian dividend stocks because of their high dividend yield when compared to other investment options. These stocks continue to offer a monthly or quarterly payback on your initial investment that helps increase your return while offsetting your losses due to inflation. If you also enroll in any available DRIP plans, the benefit will quickly compound as your number of shares grows with every dividend payment.

Tax Implications

Don’t forget that while dividends are given preferential tax treatment in most cases, they are still considered taxable income. The Canadian government will impose a 15% non-resident withholding tax on these dividend payments, but you can recoup a portion of this cost by filing for a foreign tax credit on your yearly tax return. Depending on your individual situation, the US income tax on these dividends may vary, but it will generally amount to a tax of 15% or less.

Dividend Income Strategy

When you invest in dividend-paying stocks or mutual funds, you will receive a periodic dividend payment in the form of cash or additional shares. While many dividend investors use this income for living expenses or a special purchase, the best option is to reinvest the dividend income to grow your portfolio.

Use Dividend Income to Increase Your Portfolio

A DRIP, or dividend reinvestment plan, is a simple way to reinvest those monthly or quarterly payments. The company or fund that you are investing in should be able to set this up at your request. Instead of sending you a check when it’s time for them to make their dividend payment, they will reinvest the amount in the same stock or fund that paid the dividend. If your dividend is not enough to purchase a whole share or an even number of shares, you’ll receive a partial share.

dividend income If you decide to take advantage of a DRIP, you’ll soon find that your ROI (return on investment) rate will show a vast improvement. You will be compounding your investment by purchasing additional shares which means that each dividend reinvestment will be slightly larger with each passing DRIP cycle.

In some cases, a DRIP may not be available. You can still take advantage of reinvestment options to increase your ROI on your own. While it will take a little more effort on your part, or your portfolio manager’s part, you can use the dividend payments to purchase more of the same stock or invest in different investment vehicles.

Dividend Income Funds Provide an Easy Diversification Option

Some people don’t have the time to analyze the stock market, while others don’t have confidence in their ability to make a smart choice. Regardless of the reason, many people choose to invest in a dividend income fund. This type of investment vehicle does all of the work for you by using professional market analysts to choose a variety of dividend paying stocks to make sure the fund is diversified to reduce the overall risk.

You might choose a dividend income fund for the guaranteed monthly payout. While some funds pay out only the dividends earned during the payment cycle, other funds state that they will pay a certain amount each month. If the fund does not make enough in dividend payments to cover the distribution amount, a portion of the principal will be included. The principal could be a gain earned on a stock that has increased in value or it could be from a stock sold at a loss.

Dividend and Income Taxes

Even if you reinvest your dividend payments, you must still report the amount on your yearly income tax returns. They will be taxed either as ordinary income or as qualified dividends. To be considered qualified, you “must have held the stock for more than 60 days during the 121-day period that begins 60 days before the ex-dividend date” according to the IRS publication 550. If your regular income tax rate is 25% or more, your qualified dividend payments will be taxed at 15%. Otherwise, your qualified dividend income tax rate will only be 5%.

Wall Street Reform – What To Expect

The much anticipated and highly debated Wall Street reform bill has finally made its way into the final stretch, as Wall Street saw an exceptional week of trading. The reform has increased confidence abroad from foreign investors and governments, who have criticized the United States for lack of action on financial reform, and has eased many concerns regarding the accountability of the specific entities that had contributed to the recent financial crisis. The Wall Street reform places more focus on stability than on profit, and on protecting the consumer more than the financial institution.

Banks are required to have higher reserve funds to be able to account for any crisis, and credit rating agencies will be held more accountable for risky lending. A new consumer regulator will be added to the Federal Reserve, and this regulator will have the ability to oversee the Fed, which has been under fire for all of the ill-informed and audacious lending that has contributed to the financial melt down on Wall Street. The Federal Reserve scored a win, being able to retain its power to supervise all banks, when original plans were to strip the Fed of all its powers and make it a last resort for lending. Instead, the addition of the Consumer Financial Protection Bureau will keep the Federal Reserve regulated and in check.

This reform offers much more long term stability at the sacrifice of windfall profits for the financial giants. Financial giants such as Goldman Sachs would be prohibited from proprietary investing and would be limited in their investments in hedge funds and private equity funds. Banks would be under greater regulation regarding credit cards and mortgages, but would retain their ability to invest in foreign exchange rate and interest swaps, which are known to contribute most to their growth.

The market has had a great week that was much better than anticipated due to the fact that the bill was becoming finalized and foreign confidence was on the rise as Europeans and Canadians regained confidence in the ability of the United States to regulate Wall Street, which was the epicenter of the financial crisis that sent ripples into foreign economies as well as our own. Consumers are able to place more confidence in the financial sector as well, knowing that the reform will offer them much more protection than they had ever been afforded in the past. The Wall Street reform bill is expected to pass and be signed into law by President Barack Obama before the July 4th recess. This will be known as another key domestic policy win for the President, with congressional elections fast approaching.