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Strategies & Market Trends : Dividend investing for retirement

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To: tyc:> who wrote (6549)	11/21/2010 1:45:43 PM
From: chowder	Read Replies (2) of 34328

Re: TRI ... >>> Should I welcome the lower price of dividend growth ? <<< This isn't for me to say. I don't know what your objective was at the time of the purchase. Without knowing that, any advice I provide could be counter to what you are trying to achieve. I can provide some parameters on what my objectives are though. When I say Buy and Hold, it doesn't mean Buy and Forget! I will Hold as long as the equity continues to meet my objectives. One of my objectives is to buy companies who RAISE THEIR DIVIDEND EVERY YEAR. If a company has a yield of 4% or more, I will keep it and monitor to decide if it stays in the portfolio or not. I removed KFT from my portfolio this year because it had gone more than two years without raising the dividend ... and the CEO said a dividend increase in the near future was not a priority as taking down debt was. ... That qualified KFT for removal. I had capital gains with KFT too and still replaced it. ... I replaced it with KMB which had a higher yield and continues to raise the dividend. If one of my companies lowers ... or discontinues the dividend ... they are subject for removal. BP discontinued the dividend. I sold it and replaced it with RDS.b ... There are no exceptions in my portfolio for a company that discontinues their dividend. ... I did however, keep BP in my 25 year old son's portfolio. He has a lot of time for BP to recover. I received shares of FTR in a merger agreement with VZ. FTR immediately lowered the dividend. FTR went from a 12% yield to an 8% yield. The CEO said that FTR will maintain the new dividend for at least two years and then hopes to start raising it again. She said FTR expects to be a high yielding company going forward. So, I bought some shares to add to those I inherited from VZ and this week I plan on purchasing more. Another objective I have when purchasing a "dividend growth" stock is that I want the total dividend return to be 10% or more. By this I mean ... when you add the current yield to the 5 year compounded annual growth rate on the dividend, I want the total to be 10% or more. Examples: PG has a yield of 2.9% and a 5 year CAGR of 11.59%. ... Total Return is 14.49%. CL may have a low yield of 2.6%, but it has a 5 year CAGR of 12.86%. ... Total Return is 15.46%. MCD has a yield of 2.8% and a 5 year CAGR of 32.09%. ... Total Return is an astronomical 34.89%. I don't expect that growth rate to continue, so I'll monitor future dividend growth rates. I do expect the dividend increases to remain above 10% though. All of these companies qualify for Buy and Hold in my portfolio. There are some exceptions though. ... Aren't there always? I own PGN which has a yield of 5.7% and a 5 year CAGR of 1.0% ... Total Return is a measly 6.7%. I keep PGN though because the dividend is safe and my yield on cost is north of 6%. Their earnings exceed the dividend. So in my situation, anything yielding over 6% is considered a "yield play" and I'm willing to hold even without dividend growth as long as I continue to surround it with other "dividend growth" stocks. Then you must monitor the payout ratio. Other than MLP's and REIT's which are structured differently than other companies, you can't have a payout ratio in excess of 100% and continue to pay the dividend without taking on more debt and not growing the company. PGN has a payout ratio of 81%. TRI has a payout ratio of 112%. I wouldn't purchase TRI for my portfolio due to the high payout ratio. Earnings can't cover the dividend. Something has to give. The dividend gets lowered or discontinued or the company has no growth prospects which may mean why share price keeps dropping. Does TRI turn things around? I don't know. Should you continue to hold? I don't know that either without knowing your objectives. Based on my objectives as outlined above, it would qualify for removal. If you work with TRI and it's part of your 401K package and the company is matching with shares, then you may not have much of a choice but to hold.

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