A High Margin Dividend Paying Stock

The JM Smucker Company (SJM) has become a household name. Smucker is known for its fruit spread and jelly products around the world. Smucker has been an American fixture since 1897. The company sells jam, jelly, preserves, peanut butter, ice cream toppings, uncrustables, snack n waffles, coffee and specialty items. The company’s famous motto is recognizable worldwide. You have probably heard this saying as well “with a name like Smuckers, it has to be good”.

Smucker’s participates in the competitive packaged and processed goods industry. Smucker’s is one of the smallest players in an industry dominated by giants like Kraft Foods, Conagra Foods, and Nestle. Companies like Kraft are earnings giants that generate massive amounts of free cash flow. Smucker’s has sought to slowly grow its brand with its most recent acquisition being Folger’s coffee in 2008.

The Margins Are Good

The company has done a good job of doing more with less. Although Smucker has much smaller revenue and earnings numbers than its competitors, the company boasts the highest margins in the industry. Smucker’s operating margins were just shy of 19%, more than double the industry average. Gross margins were outstanding at nearly 40%. The company had $4.6 billion dollars in annual sales and $1 billion dollars in earnings. The company produced a gross profit of almost $1.8 billion dollars.

The company has a solid balance sheet with $535 million dollars in cash and $1.3 billion dollars in debt. Smucker’s has generated $545 million dollars in free cash flow over the past 12 months. Book value is pegged at $46.35 per share. Shares currently trade at 12.4 times next year’s earnings and 1.6 times sales. Smucker only trades at 1.3 times book value.

With a price to earnings ratio of 13.65, shares are trading right in line with the historical earnings growth rates. Earnings growth is expected to slow however with analysts forecasting growth at just 6.5% over the next five years. If the forecast is correct then the stock is not exactly cheap trading at two times PEG. Management must believe that the stock is cheap having instituted an aggressive buy back plan. Smucker’s has agreed to buy back 5 million shares of the company’s stock.

SJM Dividend

The stock has started to show up on the radar of income investors recently. Over the past year Smucker has developed into a dividend play. The company has been steadily increasing its dividend. Smucker just increased its dividend payout 10% last week. The company is now paying shareholders an annual dividend of $1.76 per share which is an effective yield of 2.85%. This is slightly higher than the 5 year average historical payout of 2.50%. The dividend is easily sustainable with the current payout representing just 35% of earning per share.

In my opinion, shares of Smucker are not a screaming buy but the stock is cheap compared to competitors. The company steadily produces earnings quarter after quarter and is slowly becoming an attractive dividend stock. Smucker’s is an attractive takeover target to larger companies in the industry.

Stable Cash Flow with Dividends

One of the reasons that people invest in dividend paying stocks is in order to create an increase in cash flow into the personal economy. Being able to do this is one of the advantages of dividend paying stocks. You need to be careful, though. When using dividend paying stocks as a source of stable income, it is important to choose solid investments that will provide cash flow that is fairly reliable.

Beware of High Payouts

The basic formula for dividend yield is Annual Dividends per Share/ Price per Share. The result is expressed as a percentage. So, let’s say that you are to get $0.80 each quarter. That amounts to $3.20 per share each year. Perhaps the stock is trading at $75 a share. You divide 3.2 by 75 to get 0.04267. Multiple by 100 to get your percentage: 4.27% is your dividend yield. High yields are attractive because the assumption is that you will get a bigger payout.

You have to be careful of high yields, though. A popular example from recent financial history is that in the early months of 2008, Lehman Brothers had a 13% dividend yield. Do you remember what happened to Lehman later that year? That’s right: The company collapsed and helped trigger a global financial crisis. A high dividend payout is likely to be unsustainable. Additionally, a high yield could indicate that the share price is plummeting. Take our example above. If the share price drops from $75 to $40, all of a sudden the dividend yield is 8% (3.2/ 40). The yield has gone up, but the company might actually be in trouble. And your payout hasn’t actually risen.

Choosing Modest Dividend Yields for Stable Cash Flow

When a company has a high dividend yield, it could mean that they are a start-up trying to attract money, or that they are in a position that is unsustainable. Either way, there is a good chance that your yield could drop in the near future, lowering your income. If you are trying to increase your cash flow, this can create a problem.

Instead of chasing high yields, look for companies that have a yield of between 3% and 6%. These companies are often solid, with a long history of paying dividends. Such companies, like Kellogg’s, Coca-Cola , Pfizer and Johnson & Johnson are reasonably stable companies that have paid dividends for years.

While a dividend cut is always possible, you can reduce the chances of experiencing one when you look for solid companies. While they may not be flashy, if you are looking for stable cash flow, companies with dividend yields between 3% and 6% might be a good bet.

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Washington Post Dividend – WPO

Despite the cutbacks and layoffs in the newspaper industry, there is still one newspaper company that has managed to remain popular in the sector. The Washington Post (WPO) has been around since 1877 and is the oldest newspaper in Washington D.C. The newspaper is very popular with Maryland, Virginia, and District of Columbia residents. The paper has trimmed its focus to politics and covering regional stories in its region.


Competition

The main competitors to the post are the New York Times, Gannett, and News Corp. Rupert Murdoch’s News Corp is the largest company in the sector but not the fastest growing. The Post has the highest quarterly revenue growth last quarter at 7.3%. The New York Times and Gannett both had no revenue growth and News Corp’s growth was tepid at just 3%. The Post exceeds the industry average in revenue, margins, and earnings per share.

Earnings and Valuation

Last year, the Post earned $30.50 per share. Gross margins were high at 58% and operating margins came in at 10.5%. Revenue was just south of $5 billion dollars and net income came in at $272 million dollars. Return on assets was 6.3% and return on equity was 9.7%. Those are healthy numbers for any newspaper company.

The stock looks cheap trading at 14 times earnings and 0.6 times earnings growth. The industry average is 17 times earnings growth and 1 times earnings. Shares trade at 1.3 times book value and 0.7 times sales. The company is projecting earnings growth of nearly 30% over the 5 years due to the loss of many competitors in the industry. The paper has trimmed costs by closing many of its national bureaus.

Financial Standing

Unlike its competitors, the Post is one of the only newspapers in good financial shape. Many newspaper companies like the New York Times have massive long term debt burdens that have hindered their growth. A large number of newspapers have gone through bankruptcy over the past 2 years. The Washington Post has nearly $1 billion dollars in cash and just $400 million in debt on its balance sheet. That’s an outstanding ration in any industry. The company generates nearly $700 million dollars in free cash flow.

Shareholders of the Washington Post have to be smiling to the bank as the company just increased its dividend payout. The newspaper company upped its quarterly payout from $2.25 per share to $2.35 per share. That’s a solid increase of about 4% over last year’s dividend amount. The current dividend payout is just 29% of earnings and the stock’s yield is 50% higher than the historical yield. Shares are currently yielding 2.20% and there is still upside potential.

The Washington Post’s shares even look cheap to management. Management has approved a plan to buy back 750,000 shares. That’s a tidy sum of money for a company whose share price is north of $400.

3 Advantages to Investing in Dividend Stocks

Dividend investors know that there are some very real advantages to investing in dividend stocks. Here are 3 advantages to investing in dividend stocks:

1. You Can Earn Passive Income

One of the main reasons that people invest in dividend stocks is to earn passive income. Dividend payments come at regular intervals, and are in addition to what you might have gained in the stock price. Because you receive a regular dividend payment, it can be used as income. All you have to do is buy the stock and sit back.

It is even possible to set up an automatic withdrawal that will help you buy shares in dividend paying investments on a regular basis. As the number of shares you own increases, so will your income. Eventually you can stop investing in the shares and just sit back and enjoy the passive income.

2. Your Money is Usually (But Not Always) Safe

There is no way to guarantee that your money is safe when you invest it; there is always the chance of loss. However, many dividend companies – especially those that have been around for a while – are solid companies with staying power. When a company is paying out a dividend, it often means that it is in a good position to share its profits with shareholders.

When you invest in a dividend paying company, not only are you receiving a regular source of income, but there is also a chance that your principal will be protected. At the very least, there is a good chance that the company in question will ride out economic problems, recovering eventually.

3. You Can Boost Your Capital Gains

Instead of taking regular dividend payments, some companies allow you the chance to reinvest your dividend earnings. So, instead of getting cash now, your earnings are automatically used buy more stock in the company. This can boost your capital gains down the road, since you are essentially receiving free stock. If the price of the stock increases, the fact that you have more shares will benefit you, boosting your gains. These types of dividend investments are known as DRIPs (dividend reinvestment plans).

The main drawback to dividend investing is that the company can reduce its dividends in times of economic trouble, or for other reasons. Even so, for many investors making use of high yield dividend stocks is a wise choice. It allows them the chance to cultivate another income stream – or boost their gains – with an investment in a company that is likely to survive.

3M Has Been Rewarding Shareholders For Over 50 Years

3M (MMM) has been in existence over 109 years. The company is one of the largest diversified multinational corporations with a market cap of $62 billion dollars. 3M is largely known for its office supplies, tape adhesives, dental products, medical products, electronics, optical equipment, fire protection and safety products. If it’s a manufactured product, chances are that 3M makes it. The company is based in St. Paul, Minnesota.


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.

Dividend News – ALX, CVS, CLB, IP

Dividend Stocks In The News For The Week Of January 15th, 2011.

Real estate investment trust Alexander’s Inc.

ALX raised its dividend from $2.50 per share to $3.00 per share. The stock had an annual dividend payout of $10.00 and an effective yield of 2.50% before the increase. The new payout is $12.00 per share and a yield of 2.9%. Alexander’s dividend will be paid out on February 22nd to shareholders of record on January 28th.


CVS

One of the country’s largest drugstore chains is bumping its dividend up after a solid year of earnings. CVS Caremark (CVS) raised its dividend from its previous payout from 35 cents per share to 50 cents per share. The dividend yield is increasing from 1.00% to 1.42%. While the yield may still be low, that is a substantial increase over the previous dividend. The dividend is payable on February 2nd to shareholders of record on January 21st.

Core Labs

CLB provides core and fluid analysis for oil and gas companies. The company recently announced a major dividend increase that has to have shareholders smiling. The company’s dividend is increasing from 24 cents per share to a payment of $1.00 per share. This is 12% higher than the total dividend payout in 2010, which included a special dividend paid out to shareholders. The new dividend will be paid out on February 25th to shareholders of record as of January 25th.

International Paper

IP is a paper and packaging company with operations around the globe. The company just hiked its dividend 50% to 75 cents per share. The previous dividend payout was 50 cents per share for the year. Shareholders of record on February 15th will receive the dividend on March 15th.

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Build Passive Income with Dividend Stocks

Passive income is the Holy Grail of many who fall into the category of “financially savvy.” Indeed, the ability to maximize money – without having to do a great deal of additional active work – is a concept that most people can cherish. One of the ways that you can cultivate a passive income stream is to make use of dividend stocks.


Use Dividend Stocks to Create a Passive Income Stream

In order to create a passive income stream with high yield stocks, you will need to make sure that the money is coming directly to you, rather than being reinvested.

You can have the money sent to you in the form of a check, or directly deposited into a bank account. The idea is to continue building up your holdings so that your dividends increase, eventually providing you with regular income – without you having to do extra work. There are two main ways you can build up your dividend stock holdings:

1. Lump sum

If you have a fairly large chunk of capital, you can buy a large number of shares in a company that pays dividends to stockholders. This money sits there, possibly earning a return if the share prices increases, and you get the added bonus of receiving a regular dividend payment. There is nothing else you need to do.

2. Dollar cost averaging

Perhaps you don’t have enough capital to buy a large amount of shares. In this case, you can build your holdings gradually. Put in what you can each month, and you will gradually increase your shares in the dividend paying company. After a while, you will notice your dividend checks getting bigger. Eventually, you will have a large enough portfolio to support a steady income stream, and you can stop investing new money if you want.

Remember, though, that you need to keep a few things in mind. You will have to pay taxes on your dividend earnings, so make sure you understand how you will be taxed. Additionally, companies can change the dividends they pay out, so your income can be reduced if a company lowers its pay out. Remember, too, that you could lose money if the price of the stock you are holding tanks. Most companies that offer dividends, though, are fairly stable.

In the end, dividend stocks can be a good way to cultivate a passive income stream that can keep offering you returns for years. No need to do extra work.

Johnson & Johnson Is Still The Cream Of The Crop

If you have ever been to a grocery store then you have seen the name Johnson & Johnson. With a market cap of over $170 billion dollars, Johnson & Johnson is one of the largest manufacturing companies in the United States. Johnson & Johnson make pharmaceutical products, health care products, consumer staples and medical devices. You name it and Johnson & Johnson make it. The company is famous for its lotions, shampoos, soaps, aspirin, bandages, and beauty products.

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.

Make $1000 A Month With These Dividend Stocks

Generating monthly income is a top priority for everyone. Most of our expenses recur monthly and we need monthly income to keep things going. One of the most attractive features of dividend-paying stocks is that they pay you cash. But most dividend stocks pay out their dividend on a quarterly basis. Wouldn’t it be great to get paid monthly instead of quarterly?

Well you can. There are over 100 stocks that pay dividends monthly and many of them have high yields.


It takes money to make money with dividend stocks. We picked three of those stocks that would provide you with $1,000 a month income with less than $100,000 invested. We put together an example of the number of shares and the amount you would have to invest in each of the three companies to total $1k in dividends per month.

1. Pioneer High Income Trust – PHT

Pioneer high income trust has a dividend yield of 10.6% and pays out 100% of its income. Their dividend growth rate is on the decline but they have be consistently paying their dividend and they have a high yield. They are well below their 5 year dividend average of 12.9%.

Last Price: 15.54
Shares: 2250
Value of Shares: $34,965
Monthly Dividend Paid: $309.38

2. Pimco High Income Fund – PHK

The Pimco High Income Fund has a big yield at 11.3%. This is also below their 5 year average of 14.7% and their latest payout ratio is 129%. So there is a little risk here of the dividend being reduced or of the stock being sold off a little. They have been paying their dividend consistently though for 7 years.

Last Price: 12.89
Shares: 2510
Value of Shares: $32,353
Monthly Dividend Paid: $305.71

3. Alpine Global Dynamic Dividend – AGD

We saved the best for last. Alpine has a huge yield at 14.8% and their payout ratio is only 73%. They are actually above their 5 year dividend yield average indicating that the stock might be slightly undervalued. Another item to watch with the Alpine global dynamic dividend fund is that their monthly payments are not always the same. They tend to jump around from month to month at somewhere between $.06, $.11 and $.13 per share. We will use an average to calculate our numbers below.

Last Price: 7.81
Shares: 4000
Value of Shares: $31,240
Monthly Dividend Paid: $385

Adding it up

In total we have $385 + $305.71 + $309.38 = $1000.09 per month. To reach this level of dividend payouts we had to invest a total of $98,558.90.