Value Investing News

The latest 10-K filing by KINDER MORGAN, INC.

Back in late 2008 I was invited to participate in a stock picking competition, where the goal was to pick the best stocks for 2009. The picks that I selected were Kinder Morgan (O), Realty Income (O), Con Edison (ED) and Philip Morris International (PM).

It was only a few months ago that many experts declared dividend investing dead, after almost all financial companies in the US cut or eliminated their distributions to shareholders. In recent months there has been a slow but steady trend of many companies showing their confidence in the economic rebound by raising distributions.

Most dividend investors are influenced by the current yield when they enter a particular stock investment. Dividend growth investors are no different either. It is hard to blame either of these groups, as there is no point in a company that strongly raises its dividend payments, yet it might take up to two decades for the yield on cost to reach any meaningful level.

Most novice dividend investors typically are under the impression that successful dividend investing entails finding and purchasing the highest yielding stocks. This strategy is flawed, because it does not take into account the sustainability of the dividend. A company, which yields 20%, might generate a much lower yield on cost over time.

Back at the end of 2008, I was invited to participate in a stock picking competition by selecting 4 stocks. At the time I simply included the highest yielding stocks in my portfolio – Con Edison (ED), Realty Income (O), Phillip Morris International (PM) and Kinder Morgan (KMP).

Reinvested dividends have contributed most all of the stock markets total returns over large periods of time. Some dividend investors automatically reinvest their distributions over time, which leads to compounding of their interest. Others do not re-invest automatically and instead wait for distributions to accumulate before adding onto existing positions or initiating new ones.

The companies I selected were representative of four high yielding sectors- real estate,energy transportation,utilities and tobacco.Despite the high yields, the dividend payments seemed sustainable enough even during the financial meltdown.The average yield on the four stocks mentioned below is 6.88%.The riskiest stock of the four seems to be Realty Income,since real estate is one of the hardest h

Master Limited Partnerships are very good investment vehicles for individuals looking for high current dividend income. There are some tax issues with reporting MLP income in a taxable account, which led me to explore investing in MLPs through an IRA or ROTH IRA account.

There are two types of partners in a Master Limited Partnership structure, a general partner and limited partners.

Back in December 2008 several US and Canadian Bloggers provided four of their best stock picks for 2009. The rules of the stock-picking contest do not allow actively trading stocks. The performance of the individual bloggers’ picks is reviewed every quarter.

Master Limited Partnerships are limited by US Code to only apply to enterprises that engage in certain businesses, mostly pertaining to the use of natural resources, such as petroleum and natural gas extraction and transportation. They combine the tax advantages of a partnership and higher dividend yields with the day to day tradability of common stocks.

One would think that a tough credit environment, bank failures, and news of big corporations laying off thousands of employees every day most companies would conserve cash in preparation for the second round of the financial Armageddon that pundits forecast. Not all companies are cutting dividends however.

Most investors who are close to or in retirement look for dividend stocks as a source of their retirement income. I believe that this is a great investment strategy, as long as these investors don’t chase high-yielding stocks. With the average market yields at 3%, stocks that yield more than 10% should not be automatically embraced in ones income portfolio, but examined more closely than usual.

MLPs are not like regular corporations and do not get taxed on income. Instead they tend to return most of their income (typically 85 to 90%) to investors or partners through quarterly distributions. This shifts the tax responsibility to the partners, who are taxed at their ordinary income rates.