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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