Value Investing News

There are winners and there are champions in every walk of life. The difference is subtle, but very real. A champion is driven for success and will not let anything stand in its way. Some dividend stocks can be classified as champions.

Archer Daniels Midland Company (NYSE: ADM) is scheduled to release its fiscal second quarter 2010 earnings before the opening bell on Tuesday, February 2, 2010. Analysts, on average, expect the company to report earnings of 72 cents a share on revenue of $16.54 billion.

The dividend aristocrats list includes companies which have increased dividends for over 25 years in a row. It is equally weighted and re-balanced once an year. Over the past 3,5 and 7 years the index of elite dividend stocks has managed to outperform the S&P 500 by 5%, 3.7% and 4.40% respectively.

Most companies use debt for a variety of reasons in their operations. It could be either short term or long-term obligations. If there’s anything the 2007-2009 financial crisis has taught us, it is that excessively leveraged companies could easily blow up after a chain of negative events. Thus it pays to know what the debt situation for a particular company you are investing in actually is.

I have selected several prominent dividend growth stocks, whose earnings and cash flows provide adequate coverage for their dividends:

Despite Avery Dennison's recent dividend cut,the dividend aristocrats index appears to be business as usual in 2009.The dividend aristocrats represent S&P 500 members which have consistently raised their dividends for more than 25 consecutive years. At the end of 2008, there were 52 constituents in the index.

Avery Dennison (AVY) just declared a quarterly dividend of 0.20/share, which represents a 50% decrease from last quarter’s payment of 0.41/share. The company reduced its dividend to support debt reduction efforts. The company also reported $0.56 in 2Q earnings per share, which didn’t provide sufficient coverage for the dividend.

As a dividend growth investor, my goal is to generate a rising stream of dividend income. Thus I would have to be selective not only about picking individual stocks, but also about selecting companies from a variety of industries, countries and size, in order to avoid a widespread implosion in overall dividend income.

Comfort in your investing process only comes from having been there before and experiencing the gains after coming out of a downturn. Today we have the opportunity to learn from the experiences of someone who has lived through many downturns and profited from it.

S&P 500, which is the benchmark against which most money managers track their performance, lost 11.67% in the first quarter of 2009. The S&P Dividend Aristocrats however underperformed the benchmark by almost 2% after losing 13.84% in the first quarter. Now if we add dividends to the picture the S&P 500 loss drops to 11.01% while the loss for Dividend Aristocrats decreases to 12.90%.

Overall investors have mainly been focusing on dividend cuts in 2009. Since most stocks that pay out dividends are cyclical in nature, they do not have the specific competitive advantages, which provide for a long and sustainable annual dividend increases over time.

The markets remained nervous last week as several companies such as State Street, Macy’s and Motorola cut or eliminated their dividend payments. Of those three, seasoned dividend investors should only be concerned with State Street’s dividend cut. During economic downturns it is normal for cyclical industries to cut or eliminate their dividends.

What if you don’t want to spend your retirement managing and worrying about your portfolio? Put it on Auto Pilot, specifically on a Dividend Investing Auto Pilot. Dividends from a quality, well-diversified portfolio are much more predictable than capital gains and best of all, they are passive.

I have included the best dividend stock for the long run. They come from many sectors and industries, and represent growing as well as maturing industries. The portfolio is not a recommendation to buy or sell any stocks, as it reflects my specific financial risk tolerance. Always do your own research before initiating a position in any financial instrument.

Archer Daniels Midland (ADM) procures, transports, stores, processes, and distributes agricultural products including corn, wheat, cocoa, soybeans, flour, ethanol and biodiesels. Whether in a recession or not, the demand for many of these staple items doesn't change by much if at all. ADM has a P/B just over 1.2, along with a P/E of 7, suggesting there could be some value here.