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Strategies & Market Trends : Value Investing -- Ignore unavailable to you. Want to Upgrade?

To: Grommit who wrote (49790)	10/17/2012 3:10:05 PM
From: Dan Meleney	Respond to of 78752

Utilities. My first ever stock purchase was a utility. Low risk, low growth, and I bought just enough that my dividends were entirely untaxed. But I can't imagine paying anywhere near a 15 PE for a low growth utility now, especially for my value portfolio.

To: Grommit who wrote (49790)	10/18/2012 1:04:02 AM
From: Spekulatius	2 Recommendations Read Replies (1) \| Respond to of 78752

>> I think that most investors only see that the DIVIDEND is 3.8% and is safe based on $1.38 DIVIDEND and $2.30 EPS. Many div seekers do not care about PE (in error). That view is the norm on the SI div thread.<< I believe that many dividend investors are oversimplifying. They (rightly)place a large emphasis on past dividend rates, but don't seem to care if coverage ratios have decreased or in some cases, the dividends and share buybacks have partly financed by debt. I think PEP is an example that had a great dividend growth rate in the past ( easy to do, since they started at a very small base) but now are stretching the limits in terms of coverage (~50%) where I think they have to easy on the stock buybacks. This is particularly true, since they acquired their bottles , which increased their debt load and also their Capex requirements, without achieving much in terms of synergies as far as i can tell. The dividend crowd does not seem to mind any of this, they look at the past record and seem willing to extend this is in the future, notwithstanding the fact that all these things imply much slower growth rate going forward. In the long run, the earning growth rates determines the dividend growth rate.