4 Ways to Improve Your Dividend Portfolio in 2012

It’s time to start planning your dividend portfolio moves for 2012. With a new year to consider, and new conditions in the market, it’s time to decide what you are going to do for a better dividend portfolio. Here are 4 ways to improve your dividend portfolio for 2012:

1. Re-Examine the Purpose of Your Portfolio

Now is a great time for self-reflection – and that includes reflection on your financial situation and your investments. Consider the purpose of your dividend portfolio. Are you still in growth mode, trying to put together a portfolio (with the help of DRIPs) that will provide you with income later? Or have you already shifted into position to receive income from your portfolio?

Figure out what you want to do with your dividend portfolio, and what you hope it will accomplish. Make sure that, in 2012, your investing moves are geared toward helping your dividend portfolio accomplish what you want it to do.

2. Look for Interesting New Additions

Strengthen your dividend portfolio with interesting new additions that help your fulfill the purpose of your portfolio. Look at the allocation in your portfolio, and determine if you could use a little more diversity. Then, look around for some fresh stocks to add. If you are looking for a little more solidity, start with the latest additions to the ranks of dividend aristocrats for ideas. Or, you can look at some of the latest high dividend growth stocks for some interesting options – if that’s what you feel your portfolio needs.

3. Drop Dividend Stocks that Aren’t Working for You Anymore

Honestly evaluate your portfolio. Sometimes, holding on to a loser, just because it used to be a winner, isn’t the best option. Take a look at the fundamentals, and determine whether that stock is serving the purpose of your dividend portfolio. Get rid of the stocks that aren’t working for you. Dividend cuts, management changes, and shrinking industries can all be signs that it’s time to get out. Your dividend portfolio’s performance will improve in 2012 if you can get rid of some of the dead weight.

4. Be Ready to Snap Up Great Deals

While 2011 ended on something of a high note, with signs of U.S. economic recovery, there is still a great deal of market volatility. Indeed, there is the potential for big losses in 2012 – depending on the way the cookie crumbles. Europe is still a mess, and there are whispers that China isn’t as solid as we’ve been led to believe. This is a recipe for stock market chaos later on. Keep with your current plan for your dividend portfolio, but try to arrange your finances so that you are able to jump on opportunities that may arise in 2012 for good bargains. You can bolster your dividend portfolio with cheap stocks if you are prepared for the possibility of a fire sale on equities at some point in the next year.

Retail Buybacks and Dividends in 2012? M, GPS, HD, KSS, SHLD

Are we likely to see more retail buybacks and dividends from the retail sector? With the economy showing signs of recovery, and with retail sales up recently (especially for the holidays) many companies are seeing plenty of cash right now. Some, like retail analyst Brian Sozzi, believe that this means that some of these retailers are ready to pay dividends and engage in stock buybacks.

While it looks as though Sears (SHLD) might be in trouble, with the announcement this week that it will close more than one hundred Sears and Kmart stores, other retailers are trying to find ways to get investors excited. And that means providing investors with some of that cash that is floating around on balance sheets. Some of the companies that might be interested in buybacks and dividends for the new year include:

  • Macy’s: M has done well this year, and Bloomingdale’s has been doing well online. With all that cash, Macy’s needs to decide what to do. And it could mean stock buy backs and dividends.
  • GAP: While no one is very excited about the GAP brand, GPS has other brands that are a little more popular, including Piper Lime, Old Navy and Banana Republic. However, Sozzi thinks that the only thing that will get people interested in GAP again will be a stock buyback for investors.
  • Home Depot: As more people start to feel optimistic about the economy, HD might see some more activity as home improvements start up again. However, stock buybacks might be in the future as HD reinvests some of its capital and gets ready for whatever comes next.
  • Kohl’s: KSS has been seeing improvement all year, and 2012 might be the time for better dividends to shareholders and stock buybacks. This holiday season has been good to the retailer, and that means cash.

What do you think 2012 holds for retailers? Is the economy on the mend? Or will retailers sink before they really have time to enjoy the improvements from 2011?

Merry Christmas: Payroll Tax Cut, T, CXS, ALSK and Nigerian Banks

It’s been an interesting week in this lead-up to Christmas. Overall, though, it’s been positive for the stock market. The Dow is up modestly today, and expected to end the week with gains. Many investors are already in holiday mode, and Congress decided to get into the spirit by extending the payroll tax cut another two months. (What happens as the two-month mark approaches and politicians wrangle over what to do next is another issue altogether.) The news has been generally positive for US economic data this week, with consumer sentiment rising and jobless claims falling.

There are a few bits of interesting dividend news from the past week as well:

  • AT&T (T) has been the “Top Dividend Stock of the Dow” by Dividend Channel. With a dividend yield of 5.9%, and what Dividend Channel considers an attractive valuation, it is no surprise that the company has been named for that honor. Even after things fell through with T-Mobile, AT&T is still a telecom giant.
  • CreXus Investment Corp (CSX) is announcing that it will pay another quarterly dividend on January 26, 2012. The REIT giant has been increasing dividends since March of 2010, boosting its yield. There are, however, questions about the sustainability of the CSX dividend.
  • Alaska Communications Inc. (ALSK) announced a dividend cut on the news that a new competitor is coming in, and that it is receiving less from the government subsidy that helps support rural wireless access. The news of the dividend cut has sent ALSK tumbling on the stock market.
  • Nigerian banks are getting a lot of attention lately for their generous dividends. Nigeria’s stock market has taken a pounding this year, and banking stocks have been leading something of a rebound in this last quarter. The benchmark index is still likely to end the year lower, but the losses have been greatly pared by the performance of banks, which are expected to pay great dividends in 2012.

Hopefully, you are enjoying the holiday season. Wishing you a very Merry Christmas!

Is That Dividend Stock Undervalued?

One of the rules of stock investing is that you want to buy a stock at a good price. It’s important to make sure that you are getting a good deal. If you pay too much for a dividend stock – or any stock – it could come back to haunt you, especially if the value doesn’t appreciate as you would expect. An undervalued stock, though, can make a great addition to your portfolio.

An undervalued stock is one that has a price that is considered low as compared to its intrinsic value. This means that a stock might considered “worth” $50 a share, but that, on the market, it is priced at $30 a share. The stock is undervalued, since, if you take into account the possibility of future cash flow, and the growth of the company, it should be priced higher.

Unfortunately, it can be difficult to determine whether or not a dividend stock is undervalued. Just having a low price isn’t enough to say that a stock is undervalued. There are plenty of low-priced stocks that “deserve” those prices. They might be declining in value due to any number of issues, none of them related to the fact that the business is a solid one with good future potential. Buying a low-priced stock just because it is cheap can be one way to see losses down the road. A poor stock choice will continue to lose value, now matter how “bargain” the price appears now.

How Can You Tell if a Stock is Undervalued?

As with most subjects related to investing, there is no sure-fire way to ensure that you are purchasing an undervalued stock vs. a cheap stock. However, there are some clues that, combined, can help you figure out if a stock is undervalued:

  • P/E ratio: The price to earnings ratio is a popular measure of stock value. The lower the number is, the better the valuation. So, a stock with a P/E ratio of 5 is better than one with a value of 10. However, you have to dig a little deeper. Why is the P/E ratio so favorable? If the P/E ratio comes as a result of a decline in profitability, or if it is realized through capital gains profits, the stock may not be undervalued after all.
  • Good credit rating: While ratings agencies do have their weaknesses, a credit rating can be an indication of the financial health of a company. A company with a good credit rating, and/or low debt levels, could be undervalued.
  • Stable earnings history: Many “boring” companies don’t always get the credit they deserve as solid investments. As a result, they might be priced lower than their value would suggest they should be. Look at the trailing three-year earnings, and whether they have risen, on average, over the last 10 years.
  • Dividend payouts: You can also look at dividend payouts. Have they been steady over time? If so, it could be an indication of a strong company that is undervalued.

There is no way to guarantee that you are getting the best possible value when you invest in any dividend stock. But you can do your homework and increase the likelihood that you will buy an undervalued stock.

Bank Dividend News: BAC, CMA, CHCO, STD

It’s been a somewhat choppy week for trading, but earlier losses are being pared on the week, and there is general optimism. Zynga (ZNGA) raised $1 billion with its IPO, and shares are trading higher right now. The social gaming giant (creator of FarmVille), is doing reasonably well, and some think that the ZNGA offering could be the warm-up act for a Facebook IPO sometime in the second quarter of 2012.

In the meantime, though, there is plenty of dividend news to be had, especially in ter:ms of bank dividends. Many people are watching banks closely, wondering when they will feel comfortable enough to begin raising dividends again. For now, here is a  look at some of the bank dividend news:

  • Bank of America (BAC): Of course, BAC is still awaiting approval to begin paying dividends. Government regulators still aren’t ready to allow the embattled company to pay dividends on common stock, but preferred shares have been paying dividends. Directors at BAC just authorized the payment of a regular quarterly dividend, of $18.125 per share, on Series L shares.
  • Comerica (CMA): Comerica shares have been heavily discounted, and the lender continues to try to buoy them up. The company has been engaging in buybacks, and dividend payouts. CMA is expected to pass bank stress tests in January, and its efforts to pay out 50% of net income in dividends and buybacks are well under way.
  • City Holding Company (CHCO): The multi-bank holding company, and parent of City National Bank, has announced a dividend increase of 2.9%, bringing the quarterly dividend up to 35 cents a share from the previous 34 cents a share.
  • Banco Santander SA (STD): The large Spanish bank has been struggling, and it’s no surprise with the difficulties facing Spain and the eurozone. STD increasingly relies on its Latin American business, rather than the business in Spain. Right now, STD is contemplating a dividend cut in order to keep more of its cash.

Choosing Dividend Growth Stocks

One of the ways that you can prepare for the future, and build your wealth, is to invest in dividend stocks. Not only do dividend stocks provide you with the chance to enjoy capital appreciation, but you can also receive regular dividend income.

Dividend growth stocks can add even more to your portfolio. These are stocks that have the ability to grow in the future, and continue to grow their dividends. You can start with some of the dividend aristocrats, and see which are likely to continue to provide growth in dividends and in value.  Dividend growth stocks can offer you the chance to build wealth and income.

How to Pick Dividend Growth Stocks

 
As you decide which stocks to include in your portfolio, you should look at your options, as well as your goals. While you want your dividend stocks to reflect your future needs and desires, you also want to make sure that you are getting a good deal.

One thing you can do to calculate stock valuation is to use the dividend growth model. Before investing in a stock, it can help to have an idea of whether it is a good deal. Is it inexpensive for its expectations? Is it likely to grow enough in the future to justify its current valuation? Looking for an undervalued dividend stock can be a good move.

You can also look at some of the fundamentals of the company. Is the business model stable? Does the company manage the company in way that is likely to ensure that growth can be sustainable? Some of the best choices for a dividend growth portfolio are a bit boring: Mature companies with a history of paying dividends – and raising them. Sound balance sheets can also be good indicators that a dividend stock is a good choice.

Selling Your Dividend Growth Stock

 
When you buy a dividend growth stock, remember that you do so in an effort to hold on to something that will provide you with value now and in the future. That means that dumping it at the first sign of market trouble isn’t the best choice. The decision to sell a stock should not be taken lightly.

Before selling, consider your goals. Long-term, is the stock still likely to do well? If so, it might be worth it to hold on to the stock for a little bit longer, wait for it to recover. Plenty of great companies see their stock prices fall during a crash; that just means it’s a good time to get good deals. Instead of selling as a knee-jerk reaction to the markets, consider selling only if something changes fundamentally about the stock.

European Union Looks for New Rules, and GE, F, ABT Dividend News

It’s been a busy week in Europe. And now European leaders have announced a new agreement meant to bolster the stability of the entire region. European Union countries are looking to become more fiscally integrated by sharing the same stringent budget requirements, and possibly even paving the way for the ECB to be more involved in monetary financing.

All of the 17 countries using the euro have signed on, and many of the remaining countries not using the euro have also accepted. Britain, however, is leading the very, very few that have no interest in submitting their budgets for EU approval. Additionally, UK leaders are concerned about what some of the new rules would mean for the City of London, one of the world’s financial hubs.

So, for now, it looks as though the EU could be split along new lines, beyond those of eurozone and non-eurozone. The news hasn’t perturbed markets, though. Right now investors are focused on the strength it is likely to mean for countries at this moment — even though the current agreement is fuzzy on how the current crisis could be fixed, and more focused on preventing problems in the future.

Dividend News: GE, F, ABT

Companies continue to try to attract investors by putting cash to work in the form of dividends:

  • GE: In it’s fourth dividend payout increase since 2010, General Electric is raising its quarterly dividend from 15 cents a share to 17 cents a share.
  • F: After five years of no dividend, Ford is announcing that it will start paying again at the end of 2012 Quarter 1. The new dividend will be five cents a share.
  • ABT: One of the longest-running members of the Dividend Aristocrat club, Abbott Laboratories has increased its dividend every year for the last 39 years. The company has been paying a dividend since 1924. ABT will pay its 352nd consecutive dividend in February 2012.

Roundup: Something a Little Different

Everything seems a little off-kilter during the holiday season. Everyone seems to do something a little different this time of year. And bloggers are no different! Here are a few posts from around the investing blogosphere:

  1. BeatingTheIndex 2011 Holiday Giveaway: Want to win some cash or helpful investing books? Enter the giveaway over at BeatingTheIndex. A lot of great prizes offered.
  2. Kylie Ofiu Book Review and Giveaway: Aussie blogger wrote a book, and Canadian blogger Dividend Ninja reviewed it! A great look at ways you can make money every single day.
  3. Let the Day Trading Begin…: Dividend Partisan has decided to join the ranks of day traders. Is he still looking for quality dividend stocks? Definitely. But this is a new strategy he’s employing as part of his overall plan.
  4. When To Sell A Dividend Growth Stock: Sometimes, knowing when to sell is as important as knowing when to buy. Dividend Mantra takes a look at how to decide if you should unload a little bit, and how you can do it right.
  5. Do You Have What It Takes To Be A Dividend Investor?: The Dividend Guy takes a look at what you need to know in order to be a successful dividend investor. The post features a quiz that you can take to help you determine your readiness as a dividend investor.
  6. Greg Speicher’s 100 Ways To Beat the Market #13, #14 And #15: Value Walk addresses some of the ways you can beat the market. An interesting look at some of the strategies you can employe to improve your performance, and even beat the market.
  7. International Business Machines (IBM) Dividend Stock Analysis: At Dividend Monk, you can take a look at what’s going on at IBM. Is it a good value? Will it make you money? A look at what to expect if you add IBM to your dividend portfolio.

Should You Borrow to Invest in Dividend Stocks?

A number of dividend investors become somewhat impatient when building an income portfolio. And with fairly good reason. After all, building a solid income portfolio takes patience and time. In some cases, it might desirable to buy a large amount of stock in a dividend paying company because the price is low, or because you are hoping to kick start matters.

In such cases, some investors decide to borrow in order to invest. While this can be a good strategy – especially in an environment where interest rates are low – it’s important to be aware of the risks.

Advantages of Borrowing to Invest

Recently, The Dividend Guy wrote a post about using leverage to fund your investment purchases. It’s an interesting post about how you can borrow money to be able to make a move right now on solid stocks. You can boost your income portfolio, plus get good deals that are likely to appreciate in the future, providing you with bigger capital gains down the road.

Borrowing means that you don’t have to have the capital sitting in your bank account right now in order to purchase stocks. Plus, with interest rates so low right now, you can borrow at a low rate. Hopefully, your income from dividends, plus the appreciation of the stock, will result in returns that more than make up for the low interest you are paying on the loan. When you use leverage, in many cases you can boost your returns since you aren’t using your own money to make money.

Risks of Borrowing to Invest

Of course, there are risks associated with borrowing to invest. The biggest risk is that your decision will backfire, leading you to magnify your losses. If the stock crashes, you still owe the money, plus interest.

Even if the stock doesn’t crash, it might not gain as much as you expected. As a result, your gains can be reduced by the combination of inflation, taxes, and the interest you pay on the loan. So, even if you don’t lose big time, you could still find yourself without as much as you had imagined. There is a chance that you might have been better off using dollar cost averaging to slowly build a portfolio without paying interest on a loan.

Bottom Line

Leverage can help you magnify your gains – but it also magnifies losses. Before you decide to borrow to invest, consider the investments you want to make, and whether or not you are likely to see returns that will make up for the interest you pay on your loan. If you choose carefully, and get a low-rate loan, you should be able to maximize your investments. Make sure, though, that you will be able to handle the payments, and that you can absorb any losses that do come along.

Dividend Increases: GGG, WFC, DAKT, WEC

Once again, it’s been a wild week on the stock market. This week, though, it’s been wild in the positive direction, with the Dow gaining almost 500 points in one day. Optimism has returned, driven by record sales on Black Friday and Cyber Monday. U.S. consumers appear ready to spend again, and the holiday shopping season is a good time for them to show it.

In addition to good news (for now) on the stock market, some companies have announced dividend increases:

  • Graco Inc (GGG) announced today that is is going to increase its quarterly dividend. This is not the baby products company, which is private. Graco Inc. designs and manufactures equipment related to fluid materials. The dividend increase is of 7.1%, bringing the quarterly dividend up to 22.5 cents a share. The new dividend is payable February 1, 2012, to shareholders of record on January 17, 2012. Right now, GGG is higher, trading at $42.74 a share.
  • Wells Fargo (WFC): Wells Fargo isn’t exactly raising dividends right now. However, the bank does want to raise it. In fact, the bank plans to ask regulators if it can increase the dividend, along with the stress test results it is handing in. Even though the banking sector is still struggling somewhat, many banks want to attract shareholders with better dividends. Right now WFC is trading higher at $26.28 a share.
  • Daktronics Inc. (DAKT) has effectively doubled its semi-annual payout, bringing it to 11 cents a share. The company, which makes scoreboards, also announced a special dividend of 40 cents a share in an effort to increase shareholder value and attract investors. DAKT is up to $9.87 a share.
  • Wisconsin Energy Corp. (WEC) is boosting its dividend from 26 cents a share to 30 cents a share. The company is forecasting record earnings for 2011, and planning to share some of that with shareholders of record on February 14, 2012, for payout on March 1. WEC is higher a little lower today, trading at $33.08 a share.