Monday, December 27, 2010

Johnson & Johnson Analysis

Johnson & Johnson is a member of the Dividend Aristocrat list, meaning they have paid and increased their divided for 25+ Years consecutively.  As a dividend investor - this is only phenomenal news as your cash flow stream from owning their stock has a consistency of getting yearly raises!

To start the analysis, I would like to look at their price: as of December 27th 2010 at 1:33 PM they are trading at $61.96.   Their 52 week high is $66.20, giving a 6.8% chance of appreciation on the pricing giving its most recent high.  Their low is just a tad over $56 over the prior 52 weeks.  Therefore, it is somewhere in between.  I believe with JNJ (Johnson & Johnson), price is not necessarily the most important thing as you invest for cash flow, and their cash flow always grows every year.  Basically, invest into JNJ for Cash flow, DRIP it and you will see a marvelous performance throughout the years of owning the stock.

Price to Earnings Ratio:  JNJ has a current 12.73 P/E ratio, well below the S&P average and according to Morning star it is below the 14 P/E for the industry average.  Therefore, JNJ's stock is relatively cheap to its earnings and is currently undervalued against the average of both the industry and S&P index.

Dividend Yield: My favorite part.  Their current dividend yield when trading at $61.96 is 3.49%.  I know, you may be thinking that is small and not an extremely large dividend yield, but I think it is just perfect.  You would be getting a greater payout than the current government treasury yield, which is what I always look for.  Also, as stated in the very first paragraph, JNJ has consistently paid an increasing dividend for over 25 years!!  This is the most important part, because not only are they constantly increasing their dividend every year, but their share price continually goes up, therefore keeping their dividend yield at lower levels.  In fact, their dividend yield growth rate is an astounding 14.58%!  Therefore, you get (on average) a 14.58% increase yearly to your dividend cash flow from JNJ.  How many jobs have you had that give you a 14.58 increase every year on average?

Payout Ratio:  Their dividend is $2.16 per year and their EPS is $4.87.  Therefore, 2.16/4.87 = 44.25%, a perfect payout ratio.  It falls right in between my preferred 40-60% payout ratio, showing that it keeps some earnings for growth but gives a nice portion in dividends.

Conclusion:  Johnson and Johnson is a great first stock to place in your portfolio.  They are one of the most consistent stocks giving their aristocrat status, their brand recognition and the soundness of the company.  They are a great stock to own for its cash flow as they have recorded past history of amazing returns on their stock price and once placed into a Dividend Reinvestment Plan account, you can increase your cash flow dramatically year after year.  At the given price, I would start a position in Johnson and Johnson based on their dividend growth alone.

-Lanny B.

Disclosure: I do not hold nor recommend anything.  This is actual data, analysis, however I base no investor recommendation.  However, I personally would add/start a position on this firm, however my direction is different from anyone else's.  Thank you for your understanding.

Sunday, December 26, 2010

Dividend Tax Rates Extended Through 2012

As you are all hopefully aware, the Bush Tax cuts will be extended another 2 years and also the amount employees pay into Social Security will be reduced to 4.2% from 6.2%, but our focus is on the Dividend Tax Rate extension.

Another reason why Dividend investing is a great way to fuel your investment portfolio is the tax treatment.  Qualified Dividends are taxed at 0% (aka non-federally taxed) when your income level is in the 10-15% tax bracket - hint to all of you low-income earners, college students : )   It then is maxed at 15% tax rates for all higher level brackets above the 15% income bracket.  What is a qualified dividend you ask:

In order to qualify:
1. The dividend must have been paid by an American company or a qualifying foreign company.
2. The dividends are not listed with the IRS as dividends that do not qualify.
3. The required dividend holding period has been met. (Compliments to

How great of a way for a beginner investor to have qualified dividends in their portfolio?  You could potentially pay 0 in taxes on these dividends as your portfolio grows due to a Dividend Reinvestment Plan!  All other Non-Qualified Dividends are taxed at your ordinary income tax levels.  The big goal is that 3rd requirement of holding period.  Therefore, the hold and reinvest dividends is key.

Dividend Investing Tax Rates will be extended through the 2012 Calendar year.  You can possibly use that extra 2% per paycheck if you an employee to invest into more dividend paying companies (Think before you spend that extra 2%; buy assets!)  Thus, Dividend Investing is still extremely tax efficient and is a great way to grow your portfolio.  However, these rates as of right now will go back to ordinary income levels for all dividend at the start of 2013; hopefully something changes by then.

I hope you all enjoyed the holidays, seeing family & friends and eating many deserts and delicious foods!  Market opens tomorrow - anyone making any end of the year tax moves?  Talk to you all soon!

-Lanny B

Monday, December 20, 2010

Bank of Montreal Analysis after their Downturn

Bank of Montreal (BMO on the NYSE) is a large financial institution that has recently undergone an acquisition of M&I Corporation, thus pushing their stock price down.  As a little side note - when a company acquires a company, typically (but not always) the acquirer's (BMO in this case) stock usually drops due to the possibility that the acquirer overpaid on acquiring the acquireee (M&I).

The last 2 official trading days Bank of Montreal (BMO) has plunged from $61.66 on Thursday December 16th to $55.58 as of market close on December 20th.  This marks a 9.86% decline in their stock price, thus raising their dividend yield.  Their dividend per share is $2.80 per year and they have a 26.9% annualized dividend growth rate!  Using my basic tools, I will analyze Bank of Montreal.

Payout Ratio:  Their dividend per year, as stated, was $2.80/year per share.  Their Earnings Per Share (EPS) is at $4.94.  Thus: 2.80/4.94 = 56.68%, which falls in between my 40 and 60% preferred payout ratios.

P/E Ratio: Since they trade at $55.58 and their earnings per share is $4.94, the Price to Earnings ratio is - 55.58/4.94 = 11.25 P/E ratio.  This falls well below my preference for an under 15 P/E ratio.  This is also below the industry average, according to, of 14.8.

Current Dividend Yield: Their current dividend yield, when trading at $55.58, is 4.98%.  This is higher than the S&P Average and higher than my preference for an above 3.5%.

Conclusion: They are solid when compared to the industry, they offer a higher yield than the S&P average and offer one of the highest in the financial service areas.  They have recently gone on sale due to the plunge of 9.86% and have payout ratio within my range.  They are a large company with a market capitalization of over 30 billion.  I personally would create a position in this company, as their dividend yield is favorable, they are an extremely large company with a similar amount of customers, have always paid a consistent dividend, have a high annualized dividend growth rate and the possibility for appreciate is there.  This is my basic analysis when seeing if a stock fits my portfolio, given the need for a financial institution.  Thank you for reading, please feel free to leave a comment or message below!

-Lanny B.

Disclosure: I do not hold nor recommend anything.  This is actual data, analysis, however I base no investor recommendation.  However, I personally would add/start a position on this firm, however my direction is different from anyone else's.  Thank you for your understanding.

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Sunday, December 19, 2010

You Can Always Upgrade


Another great benefit to being a dividend investor is the ability to upgrade your cash flow from your holdings.  How does one "upgrade your cash flow"?  I will begin my lecture...

First, when I purchase a stock for its dividend cash flow, I will typically buy it when it is undervalued/cheap compared to its historical share prices, its industry and top competitors.  Therefore, I hope to get the prime time for the dividend cash flow.  As we know, dividend yield is calculated as this: Dividend Per Share/ Price Per Share.  Therefore, if you get $1.00 per year in Dividends and the price is $10 per share, you are yielding 10% off your stock.  If the stock jumps to $20 per share, you only yield 5%.  This segways into my next step.

So you have bought that great, consistently paying dividend-stock at a special undervalued price.  Now when that price per share starts to rise, the yield/interest is in reverse - it lowers (all else remaining constant, such as dividend payment).  In the meantime, you have noticed another great/sound company that has always paid a strong, consistent dividend that has had their stock hit due to an external factor the company couldn't control.  Therefore, their share price drops and their yield rises.  In fact, their yield now is higher than your price-appreciated stock you currently hold.

Therefore, you have a few options when it comes to dividend investing.  If you have extra cash to invest, you can obviously place it into that new company that you do not current own yet.  If you do not have access to extra funds, you therefore can do this: Sell your stock that you held, which had risen in share price thus has a lower yield.  Then, you can purchase the new company who has had their stock hit and now has a higher dividend yield, thus would provide you more cash flow.  This, in my book, is upgrading your cash flow.  An explanation of the benefits...

The benefits:  You have taken advantage of the stock appreciation from your first purchase.  Therefore, say the stock price you bought in with $1000 was at $10 per share, owning 100 shares that each produce $1 in dividends per year; thus giving you a $100 per year cash flow.  Then, the price jumped to $20, displaying a $2000 market value investment, still owning 100 shares, still having that $100 cash flow.  In the meantime XYZ corporation has had their stock plummet from $20 per share to $10 per share, with each share providing a $1 per year cash dividend.  Therefore, you sell your 100 shares for $2,000.00 (of course brokerage fees and either LT/ST capital gain taxes play in effect) and simultaneously buy XYZ Corporation stock for $10 per share.  This gives you 200 shares at $10 per share and increases your cash flow to $200 per year.  That is a 100 percent return/increase to your cash flow.

Now that is called Upgrading Your Cash Flow.  It does take guts, timing and investor preference to take these actions.  Please consult yourself, your advisers and any other sources of information before making a decision to do such an action as stated above.  I hope that this article has helped explain some techniques that are used in the market that one can possibly take advantage of.  Thanks for your attention and feel free to comment or message if you have any questions.

-Lanny B.

Disclosure: I do not recommend anything that you do not feel comfortable with, as this is your sole decision.  This is actual data, analysis, however I base no investor recommendation.  My direction is different from anyone else's.  Thank you for your understanding.

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Monday, December 13, 2010

Dividend Increases

Today, Pfizer increased its Dividend payout by 11%.  This brings its dividend per share, per quarter to 20 cents.  The reason this excites me is because I hold it in my portfolio and it stems a new lesson that I would like to talk about: Dividend Payout Increases

As we all know, there are two ways we can get a return from stock that we own - Dividends and Capital Appreciation (though you would have to sell your stock to even feel the benefit).  How would you like a cash flow stream from a company's stock that you own, to give you raises every year?  That is basically why I tend to hold Dividend paying Company's stock in my portfolio.  It just makes sense...

For Example: Say if you did own Pfizer and your Dividends normally received from them was $1,000 per year.  Now, from their new dividend increase, you receive $1,110 per year, a nice little $110 raise.  How much work did you have to do for that dividend raise?  Well, if your a small shareholder - besides the research and checking on the company every now and again you really haven't done much work for it.  Also, if you continue to reinvest those dividends, you are now putting more back into your portfolio and owning more of these dividend-paying and dividend-increasing shares; thus adding more to your cash flow.  Another tid-bit, typically when a firm increases their dividend payout - the share price will raise by the annual raise: Example - Pfizer increased their Dividend by 8 cents annually, therefore share price should increase by 8 cents at least (as of market close today 12/13/10 Pfizer finished up 17 cents for a 1% gain).  Therefore, you receive capital appreciate as well from an increase in dividend payout, which fulfills both shareholder returns.

Lessons Described Here: Dividend Paying and Dividend Increasing Companies will further add and grow your cash flow, effortlessly (Less research and keeping up to date with company) growing your portfolios value and possibly raising the value per share in terms of stock price.  The key terminology in the business world is Cash Flow, because that is what primarily determines the value of an asset.  I suggest doing research and finding those great dividend paying company's that annually/frequently increase their dividend payouts.

Disclosure: I do not hold nor recommend anything.  This is actual data, analysis, however I base no investor recommendation.  My position is LONG PFE.  Thank you for your understanding.

Wednesday, December 1, 2010

To Begin a Dividend Portfolio...

To Begin that Cash Flowing Dividend Portfolio - A great way to start is through a Dividend Aristocrat that is paying a higher yield than the S&P is on average, which is currently 1.85% and has a lower Price to Earnings Ratio (P/E: Which can show undervaluation if low, low among competitors and industry) than the S&P average, which current mean is 16.38.  

What is a Dividend Aristocrat? - "Companies that have had an increase in dividends for 25 consecutive years." Thanks to for that : )

What a better way to start a portfolio than with a company that has always paid a dividend, and not only that, but has INCREASED their payments for 25 years +.

Here is a list of a few companies that have had astounding presence in the world, have a yield larger than the S&P500 average yield and also produce an extremely phenomenal (above 10%) growth rate in their dividend yield

Johnson and Johnson (JNJ): Current Yield: 3.50%; Dividend Growth Rate Annualized: 14.58%; Dividend Payout Ratio: 44.35%; Price/Earnings: 12.82.  If you would have invested $1,000.00 on 12/1/1985:

Investment Date:Original Shares:Original Value:Current Shares:Current Value:Percent Return:
Dec 1, 198520$ 1,000.00534$ 32,887.963,188.80%

Source: JNJ Investor Relations

Abbott Laboratories (ABT): (Actually just did a huge investor analysis on this company along with 2 big competitors!) Current Yield: 3.80%; Dividend Growth Rate Annualized: 12.89%; Dividend Payout Ratio: 58.09%; Price/Earnings: 15.85
If You would have invested $1,000.00 on 11/30/1990 (As far as their Investors page allowed) Source: Abbott Investors: 
Date Requested11/30/90
Closing Price$10.25
Split Adjustment Factor4.2562:1
Shares Today975.64
Investment Value$45,864.76
Percent Change358.65

Cincinnati Financial (CINF): Current Yield: 5.30%; Dividend Growth Rate Annualized: 9.80%; Dividend Payout Ratio: 52.63%; Price/Earnings: 10.13; If you would have invested $1,000.00 on 11/29/1985.  Sources: CINF Investors:
Date Requested11/29/1985
Closing Price$5.10
Shares Today1,959.32
Investment Value$60,366.67
Percent Change503.6

WOW!  The power of compounding and starting early pays off tremendously, especially in evidence from these 3 company's above.  These 3 are just some great examples that show undervaluation compared to the S&P 500 as a whole, a greater dividend yield than the market on average and also shows how consistent their dividend growths have been for over 25 years.  The reason I display these to possibly start a portfolio, is because they have extreme history on consistency and helps to possibly lower investor risk.  If you are looking for cash flow to build up over time, these dividend paying firms have proven their ability to do so.  Like I said, if you have one of these stocks in a DRIP (Dividend Reinvestment Plan), you will reap the benefits.  I hope you enjoyed this article and please do not hesitate to contact me and/or comment below.

-Lanny B.

Disclosure: I do not hold nor recommend anything.  This is actual data, analysis, however I base no investor recommendation.  However, I personally would add/start a position on these firms, however my direction is different from anyone else's.  Thank you for your understanding.
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