COP, XOM, WIN, CTL : Bright Dividend Spots in a Volatile Market

Once again, we’re seeing a rather volatile week on the stock market. Stocks are moving up and down, with very little hope that we will see an end to the volatility anytime soon. However, dividends are, again, providing something of a bright spot for investors. Interestingly, oil giants ConocoPhillips and Exxon are providing some safe haven — at least in dividends — in a volatile energy market. Telecoms are also attracting positive attention. Windstream and CenturyLink are both offering some solid dividends in a time of growth and expansion in the mobile telecom market.

Oil prices have fallen recently, even dropping below $80 a barrel at one point. Uncertainty about global economic recovery, means that demand for oil may not be increasing anytime soon, and that has some oil stocks (and investors) a little worried. However, COP and XOM don’t seem too terribly concerned — at least they are confident enough to continue offering solid dividends. XOM has a 2.6% yield, and COP weighs in at 4.1%. Both, even with the oil market volatility, had great 2nd quarter earnings, and quarter 3 shouldn’t be too bad. In any case, profits are expected.

With many people ditching their landlines, it is little surprise that mobile telecoms are seeing increased success. However, some of these telecoms are lagging a little and might be poised to grow. If you are looking for some high yielding dividend stocks, with potential for future growth, WIN and CTL might not be bad choices. Both offer data services and other telecom wireless services, and CTL owns Qwest, which is working to expand its product offerings as landline demand shrinks. WIN has a solid yield of about 8%, while CTL comes in at 8.5%. Both of these are attractive yields.

In uncertain times, when savings yields are low and people are looking for reliable income, it makes sense to consider dividend stocks; they represent bright spots in the market.

Roundup: A Little Help?

All of us need a little help sometimes. Whether it’s moving, or whether it’s learning how to manage your money, a little insight can go a long way. If you are looking for a little help with your investing, and in seeing what’s next, here are some things to consider from some great bloggers:

  1. Backgammon and the Stock Market: Dividend Ninja thought he was pretty good at Backgammon — until he found it was more difficult than expected to beat on his smart phone. And, that sort of wake up call can come to those who think they have the stock market figured out.
  2. 6 Reasons Why You Should Panic and 1 Reason Why You Should Keep Investing: Sure, some of the news is frightening. But The Dividend Guy knows that there is one over-arching reason to keep investing.
  3. When Saving Money Costs You More: Dividend Mantra points out that penny pinching won’t always improve your quality of life. Consider that sometimes it’s a good idea to pay a little bit more.
  4. Conjure up big savings without sacrificing your quality of life: You can save big money and keep up your quality of life. Monevator has some great ideas for making sure your budget lines up with your values.
  5. How Do You Feel About A Buffett Tax?: Billionaire investor Warren Buffett thinks that the rich need to pay a little bit more in taxes. Buy Like Buffett takes a look at how revenue might be increased if billionaires weren’t in the 15% tax bracket.
  6. A Request for Vanguard (or Fidelity, or Schwab…): Oblivious Investor would like to see brokerages offer a rebalancing service. This should go beyond target date funds, and be a true rebalancing service.
  7. Introducing the Dividend Growth Index: Over at Dividend Monk, you can see a list of companies that some of the best dividend bloggers put together. Use this index as you look for some great options for your portfolio.

Choosing Dividends: A look at the fundamentals

When choosing a dividend stock, there are plenty of things to consider. Indeed, you want to carefully consider different aspects of a stock before adding it your dividend portfolio. So, while you are considering dividend yield, and P/E ratios, don’t forget, too, to consider the fundamentals of a company.

Looking at the Big Picture

It’s true that at dividend can say a lot about a company. However, a company can also have a lot to say about how likely the dividends are to remain stable, see increases, or see cuts (or elimination). Look at the big picture for a company, it’s fundamentals, to get an idea of what might be coming next for its dividends.

Fundamental analysis, when you are looking at a stock, is about more than just how the stock performs day to day. The technical aspects of the ups and downs in short-term price action don’t really figure in to fundamental analysis. Instead, the idea is to take a look at items that are likely to affect the overall stock performance over time.

Some of the factors to consider when you are looking at the fundamentals include:

  • Management: Who is in charge of the company? Are the top people capable? Do they make good decisions? Has the company management been relatively stable and consistent over time? A look at the way a company is managed can be quite telling.
  • Profits/earnings: Take a look at a company’s profits and earnings. This doesn’t need to be a full on analysis; simply look at the trends, and whether the company has been able to maintain decent profits over time.
  • Growth potential: Does the future look reasonably bright? What’s the company’s potential for growth? In some cases, even if the growth potential for a company is relatively weak, the fact that it will see steady growth (even if it is small) can be a bonus. Take a look at where the company appears headed over time.
  • Balance sheet: Also, take a look at the way the company handles its cash flow. How much money is coming in? Can the company handle its debt load? A company whose balance sheet requires constant adjustments, and that seems to show a growing debt load might be a bad call.

Why it Matters to Dividend Investing

These fundamentals can be useful in choosing dividend stocks, since they offer insight in how well a company is likely to hold up over time. Those companies expected to thrive are more likely to continue to raise dividends over time, consistently. A company in trouble, though, may need to slash or eliminate dividends. If your fundamental analysis of a company shows that it could be struggling soon, it may not be the best idea to invest. After all, if you are looking for stable cash flow from your dividends, a company with poor fundamentals may not be the way to go.

Before you decide on a course of action, make sure that you will be getting what you need from the dividend stock. Make sure the fundamentals are strong.

During a Rough Week, The Good News is the Dividend Hikes: MCD, LMT, MSFT, O

It’s been an interesting — and rough — week. More lip service has been paid to helping Greece and the euro zone, but it’s been mostly talk, with no action agreed upon. Time is running out for Greece, with Greek banks being downgraded, even as euro zone officials insist that a default won’t be allowed to happen.

On top of that, the FOMC concluded its most recent two-day meeting, and at the end of it Ben Bernanke announced the beginning of Operation Twist, an effort to “twist” $400 billion in short-term debt into longer-term debt. This marks the beginnings of QE3 in an attempt to help the economy. The results of this have been a bit of a bloodbath in global markets, although it looks like, so far today, the U.S. stock market is trying to find some positivity.

And, for dividend investors, there is a great deal of positivity to be had. Several companies raised their dividends:

  • MCD: The fast food giant, McDonald’s, has been seeing some solid cash flow. Even though the company took a bit of a hit during the recession, the balance sheet remained fairly solid, and now MCD is ready to increase its dividend to 70 cents per share, bringing the yield to 3.3%.
  • LMT: Lockheed Martin is doing just fine, too. Indeed, the company just announced that it will boost its dividend to an even dollar per share. This represents an increase of 33% and brings the yield to 5.5%
  • MSFT: You know what Microsoft does. And, as MSFT continues to develop its computer products, and dominate in some areas of software, there is room for growth. The new quarterly dividend for MSFT is 20 cents per share, and the new yield is 3%.
  • O: Realty Income Corporation is all about commercial retail properties. This real estate company is still seeing decent cash flow — in spite of all the difficulties in the real estate market. O is boosting its monthly dividend to $0.145 per share, and bringing its yield to 5.1%.

The Canadian Telecoms

The Canadian Telecommunication companies such as Bell (BCE-N), Rogers (RCI-N), Telus (TU-N), and Shaw (SJR-N), are exceptional dividend paying stocks. As a U.S. investor, you can take part in four of Canada’s largest communication companies which will pay you a generous dividend yield. More importantly, you can buy these top Canadian companies without having to worry about foreign content rules, since they are all traded on the NYSE.

These are established and large cap companies, and for the most part are well managed. BCE and Shaw Communications however have accumulated more debt throughout 2010 to 2011, in large part due to acquisitions and service upgrades, among other reasons. Telus is the exception, with lower debt and a reasonable dividend payout ratio, and in my opinion the best of the Canadian telecoms to invest in.

Why Buy Canadian Telecoms?

If you aren’t investing in Canadian Telecoms, then you may want to consider them, even with their higher debt. These giant blue-chips are hybrids between technology and communication companies, and therein lay their strength and economic-moat. They are really utilities which actually own, maintain, and operate the communication infrastructure throughout Canada.

They make their money through cell-phone sales, cellular contracts, internet service providing, and basic telephone or cable services. Since these companies already have the infrastructure in place, and maintain it, the profit is in each subscriber – and a hefty profit it is. Canadians’ have learned to love but hate their telecoms, with their high fees and less than stellar customer service. But at the end of the day (like banks) people are left with little choice but to use them.

While it’s a very competitive sector, telecoms are more stable then tech only oriented companies. It really doesn’t matter whether the iphone, blackberry or android phone prevails. And it doesn’t even matter if the iPad wins over a Samsung tablet. Since the telecoms own the infrastructure, they simply provide access to wireless services, and sell end users cellular contracts with the latest phones or devices. It’s a win for telecoms regardless of what new hot product is out.

How Wide is the Moat?

The economic moat for these Canadian telecoms is extraordinary. Canadians pay some of the highest cell phone fees in the world!  Obviously that’s bad for Canadian consumers, but translates into profit for shareholders.  Many people believe the CRTC (Canadian Radio-television and Telecommunications Commission) governs the cell phone industry in Canada, but they do not. The cell phone industry in Canada is largely unregulated. As a result the big players (Telus, Bell, and Rogers) have pretty well locked down any competition and charged whatever prices they see fit.

Even with the smaller players such as Wind Mobile entering the stage, and undermining the cellular pricing market, the big three telecoms have held their ground. The reason is simple, the big three telecoms in Canada aren’t just cell-phone providers. They are diversified and well established communication companies with huge capital and resources available to undermine their competition.

How Resilient are the Telecoms?

During the recent market correction at the beginning of August, the Canadian telecoms performed remarkably well compared to other sectors. Looking at the beta of these companies, the answer becomes obvious. Any beta value below 1.0 means the company is less volatile than market index it is a part of. Therefore for most investors, a lower beta is preferable. As compared to the NYSE, Bell (BCE-N) has a beta of 0.771, Rogers (RCI-N) has a beta of 0.679, Telus (TU-N) has a beta of 0.453, and Shaw (SJR-N) has a beta of 0.597. These telecoms have a low volatility with a good dividend yield.

Bell Communications (BCE-N)

Bell (BCE Inc.) is Canada’s largest communications company, with over 30.17 billion in assets. BCE provides cellular service, both satellite and cable television, internet service, and of course phone landline services.  BCE currently trades at US $38.80 per share, has a PE Ratio of 15.11, and a debt-to-equity ratio of 101.31. The dividend yield is currently a very generous 5.4%, but the dividend payout ratio (DPR) of 80.93% is high for a big blue chip.

According to a recent Globe & Mail article, BCE has raised its quarterly dividend six times (a cumulative 41 per cent) since the fourth quarter of 2008. While most Canadians are enamoured with their biggest telecom, I have not purchased BCE because of the high DPR and high debt load, both increasing since the start of the year.  Nonetheless, BCE is a favourite among Canadian dividend investors.

Rogers Communications (RCI-N)

In second place for market cap among the Canadian telecoms, is Rogers Communications with a market capitalization of 20.73 billion. Rogers is Canada’s largest provider of wireless services, and also owns Fido (previously Microcell Communications). Rogers also provides cable TV, internet, and phone services. The company also provides broadcasting services, magazines, and sports entertainment. Rogers currently trades at US $37.93 per share, has a PE Ratio of 14.54, but with a very high debt to equity ratio of 266.01. The dividend yield is 3.80% with a dividend payout ratio of 54.78%.

Telus Communications (TU-N)

Telus Communications is Canada’s third largest telecom with a market capitalization of 15.98 billion. Like its competitors, Telus provides internet, phone, and provisions an extensive wireless service across most of Canada. It currently trades at US $49.25 per share, has a PE Ratio of 14.33, a debt-to-equity ratio of 88.94, and a dividend yield of 4.50%. The dividend payout ratio for Telus is 64.5%. In my opinion the solid DPR and lower debt, make Telus a preferable investment in Canadian telecoms, as compared to BCE and Rogers.

Shaw Communications (SJR-N)

Shaw Communications provides telephone, Internet, and television services as services primarily in British Columbia and Alberta (we use Shaw at home). Shaw has come under heavy criticism for its $69 million-dollar pension to former CEO Jim Shaw, its purchase of CanWest Global, and its family run board that leaves shareholders without voting rights.  It is one of the smaller telecoms with a market cap of 9.37 billion. It currently trades at US $21.52 per share, has a higher PE Ratio of 18.81, and a higher dividend payout ratio of 80.7%. It also has a higher debt to equity ratio of 166.7. Shaw is a monthly dividend payer, and with a yield of 4.30%, makes an interesting investment for income oriented versus growth oriented investors.

Roundup: Learning Curve

We all have a learning curve to go through, in life and with money. As you learn more about money, and work to improve your ability to build wealth, you can get a little help along the way. Here are some great articles from around the blogosphere, addressing different points on the learning curve:

  1. Dividend Dad How I Show The Importance of Money To My 6 Year Old Son: The Dividend Guy offers a great look at teaching children the importance of money. This is a great process to help kids learn.
  2. What Happened to the Income Trusts? Part – 1: Dividend Ninja takes a look at income trusts. You remember those? Whatever happened to them? A great overview of where investing is headed.
  3. Seth Klarman’s Top 5 Dividends: If you want a look at some of the best dividends, Dividend Monk offers a peek at what guru Seth Klarman has. And don’t forget to check out the holdings of other greats in this series.
  4. Why A Low Payout Ratio Is Important: As you begin dividend investing, it’s important to make sure that you understand the implications of payout ratio. Dividend Mantra explains that sometimes a stock with a low payout ratio is the way to go.
  5. Are Roth Accounts Overrated?: Many people like Roth retirement accounts. Even though you pay taxes now, you don’t have to pay taxes on your earnings. However, Oblivious Investor takes a look at the possibility that they might be overrated.
  6. Saving Your Money Vs Investing It: Are you concerned about your money? Should you build up savings, or invest? Buy Like Buffett takes a look at saving and investing, and helps you figure out what might work best for you.
  7. Financial goals: Sticking to the plan when the funk comes to visit: Monevator points out that you can’t just abandon your plans when something unexpected happens. Stick to the plan, even when you might feel a little out of sorts.

Dividend Hikes: HBNC, TXN, KR

It’s been a rather choppy week on the stock market, with wild swings in either direction. However, that isn’t stopping dividends from rising. In an uncertain climate, dividends seem to becoming increasingly popular, since the represent a source of relatively stable income. And some companies are still raising dividends. This week, Horizon Bancorp, Texas Instruments and Kroger all announced dividend hikes:

  • Horizon Bancorp (HBNC) is raising its dividend from 17 cents to 18 cents. HBNC has been showing solid growth over the past few years, and the company is ready to increase its dividend. This brings the yield to 2.72%.
  • Texas Instruments (TXN) is adding an increase of 31%, bringing its dividend to 17 cents from 13 cents. Even though TXN recently reported a decrease in expectations for earnings, the company still decided to raise its dividend — for the eighth year in a row.
  • Kroger (KR) announced a divided increase of 10%, to 11.5 cents per share. On top of that, the company is planning a stock buyback of $1 billion. Kroger continues to show solid performance, as evidenced by the way the company continues to pay out to shareholders through buybacks and dividends.

It is also worth noting that other companies announced their dividend payouts this week as well, even though not all of them increased their payouts. IBC announced a cash dividend of 19 cents a share. IBC is a company that takes things with a wait and see approach, usually announcing dividends semiannually.

Bank of America also released its dividend on on Series L Preferred Stock. The dividend is $18.125. Of course, BAC can’t pay a dividend on its common stock right now; the company is being prohibited from doing so by federal regulators. BAC has complained in the past about the restriction, claiming it makes it difficult to attract new investors — especially since many financial companies have begun paying dividends again, and even raising them.

Roundup: Looking for Opportunity

Successful investing is all about identifying opportunities, and then seizing them. You need to be on top of the opportunities in the market, and the opportunities available to you. Here are a few great posts from the last week or so that can help you find opportunities all around you:

  1. Strong Standard and Poor’s 500 Earnings plus Weak Stock Values equals Opportunity: Are you ready for what’s next? The latest developments in the stock market, and earnings news, are combining to offer some great opportunities, according to Chuck at ValueWalk.com.
  2. 20 Non-Financial Common Stocks Yielding Over 4%: Looking for higher yields? Opportunities are out there. The Dividend Pig takes a look at some solid, high yielding stocks you can add to your portfolio.
  3. Stocks With Great Dividend Yields: Mark at Buy Like Buffett also has some great dividend picks. Here are a few of his choices for solid dividend yields; ideas for expanding your portfolio.
  4. How to invest in an IPO: Monevator takes a look at IPOs — and the opportunities they offer. Do you want to take advantage of an initial public offering? Here are some tips on how to do it right.
  5. Investing Strategy with Transfer Agents: Are you trying to figure out a good investing strategy? If you use transfer agents, The Passive Income Earner has some solid advice for you.
  6. Should I Use Options?: One of the great questions out there is the question of options. Mike at Oblivious Investor breaks down options, and looks at the pros and cons of making them part of your investing strategy. Before you invest in options, read this post.
  7. Career in Crisis, What Now?: You can turn a career crisis into an opportunity. While Mich at Beating the Index hasn’t lost the job yet, it’s time to take proactive steps. A great post detailing what you should do before you lose a job — so that you are ready if a new opportunity crops up.

Using Income Funds for Diversity and Revenue

One of the ways that you can build up your investment portfolio is to look into income funds. Income funds provide you an opportunity to build a revenue stream, as well as add a little instant diversity to your portfolio.

What Are Income Funds?

Income funds are fairly straightforward. They represent a collection of investments that provide income. These can include dividend paying stocks, bonds and other investments that provide income. Many people find income funds attractive because it provides them with a source of income, while at the same time providing some sort of diversity. Many income funds look to dividend aristocrats and “safer” bonds like Treasuries when choosing what to include in an income fund.

It is important to note that most income funds are not going to show a lot of growth. They are not constructed to provide you with high earnings, but are instead meant to provide steady income. If you are looking for get rich quick investments, income funds usually aren’t the way to go. Instead, these funds are created to provide as stable a cash flow as possible.

Using Income Funds to Your Advantage

There are two main ways that you can use income funds to your advantage:

  1. Create a source of income: The first, obviously, is to create a source of income for you. You can build up your investments in income funds over time, so that you eventually have enough shares to warrant larger payouts. Many people nearing retirement put a chunk of their nest egg into income funds in order to receive a regular payout – even as the value of the investment theoretically increases.
  2. Reinvest dividends to build wealth: Another option is to reinvest your earnings in order to build wealth. Many income funds are set up so that proceeds you receive are automatically used to buy more shares. This means that you are basically getting free shares. This can increase what you own at a much quicker pace. This way, when you decide to start receiving payouts rather than reinvesting, you own more shares and receive more. Additionally, this can be a way to build the number of shares you have so that you get more if you decide to sell your investment later.

If you follow the reinvestment route, you can improve your retirement nest egg by keeping your fund in a qualified retirement account. You can receive a tax advantage by combining your income fund with your retirement account. It’s a great way to build your nest egg while reducing the amount of wealth eroded by taxes.

Bad News for Stock Markets Makes Good Dividends Easier to Spot

The big news this week has been a series of losing days on the stock market. U.S. stocks have been retreating on uncertainty related to what’s happening in the euro zone, as well as what’s next for the U.S. economy. With Nobel laureate economist Paul Krugman predicting that the chances of a global recession are at 50% right now, and with investors fairly certain that more political gridlock is on the way over President Barack Obama’s latest jobs plan, there isn’t a lot of hope to go around. The markets dislike uncertainty, and right now, everything seems fairly uncertain.

However, in terms of dividends, the disappointing stock market performances of the past week actually provide some positive news: It’s easier to spot good dividend yields. Indeed, thanks to dropping stocks, the Wall Street Journal reports that about 25% of the S&P 500 pay dividend yields of more than 3%. Now is a great time to do a little bargain hunting for great deals on slow growers. Some of the possible choices for significant gains — when you include dividends reinvested — include:

  • Chevron (CVX): Returns of almost 200% with dividends reinvested.
  • Consolidated Edison (ED): Returns of about 128% with dividends reinvested.
  • Altria (MO): Returns of more than 300% with dividends reinvested.

The Wall Street Journal points out that that these are gains over the last 10 years, and they have more than outpaced returns of the S&P 500 with dividends reinvested. The point is that now, with the stock market struggling, you can more easily spot higher yields — and pick the stocks up at bargains.

It will be interesting to see what happens next. Volatility is likely to continue, but there are ways to reduce your risk. Looking for solid dividend stocks can be one way to improve the chances that you avoid some of the worst of the issues related stock market volatility, and now might just be your chance.