Value Investing News

The most important dividend events of the past week included news that have regulators warned financial companies to restrict dividend increases and stock buybacks for the near future. According to Reuters, executives from Goldman Sachs (GS) and JP Morgan Chase (JPM) have had talks with regulators about returning more cash to shareholders.

The S&P 500 Dividend Aristocrats is the most prestigious list of dividend stocks. It is designed to measure the performance of S&P 500 stocks that have followed a policy of consistently increasing dividends every year for at least 25 consecutive years.

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.

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.

The dividend aristocrats index has had five dividend cuts so far this year. Because of the way that the index is rebalanced, the dividend cutters will remain a part of the elite basket of S&P 500 companies which have consistently raised their dividends for over 25 consecutive years.

One of my main objectives as a dividend growth investor is to seek investments which have a strong business model that throws out enough cash flow that could support consistent dividend increases.

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.

Yesterday, the board of State Street (STT) announced that they would be cutting the quarterly dividend from $0.24/share to $0.01/share. STT joined the ranks of other financial institutions such as Bank of America (BAC) and Citigroup (C) with in this move to bolster liquidity. After reading this announcement I immediately sold all of my STT holdings.

TARP allows the United States Department of the Treasury to purchase nonliquid, difficult to value assets from banks and other financial institutions. TARP also allow the Treasury to purchase whole loans and make direct equity investments in banks themselves.

There were several dividend aristocrats that recently announced no increase in their payments to shareholders, which could endanger their dividend status.

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.

Most investors were scared from the severe drops in global stock markets last week, caused by the freezing of the debt markets and the global recession fears which the tightening of the credit markets might cause. Most stocks have suffered double digit percentage losses since the start of the year, even after yesterdays record rally. It’s no place to panic however.

The typical dividend aristocrat is a mature company with wide moat that has weathered the storms of many boom and bust cycles while continuing to increase dividend payments to shareholders. These companies as well as the dividend champions are the cornerstone to my dividend strategy.