Monday, February 28, 2011

Dividend Machine, Utah Medical Products symbol, UTMD

Every income investor looks for a company whose stated purpose is to increase income to its shareholders. Utah Medical Products is that kind of company. I like it enough to make it the fifteenth company in my fifty two dividend machines I will profile for income investors.

Thursday, February 24, 2011

Genuine Parts symbol, GPC. Be careful what you read.

Genuine Parts is one the dividend machines I profiled for income investors to include in the income producing part of their portfolios back in November, 2010. I was very disappointed today when I read in the Wall Street Journal that the dividend had been reduced; when in fact GPC increased our income from $.41 per share to $.45 per share this quarter. The Wall Street Journal accurately reported the change from $.41 to $.45 but placed the notice in the "reduced payout" list.

Wednesday, February 23, 2011


Over 35 years of investing and managing, one cannot help but find trends and rules that work every time.  These seven little rules are the foundation of conservative, safe, personal financial management.

Monday, February 21, 2011

Dividend Machine AT&T, symbol T

Dividend Machine AT&T, symbol T is number fourteen of the fifty-two companies I will profile for inclusion in your income investment portfolio. 

I think everyone knows that AT&T is a huge provider of telecom services. Everyone also knows that a lot of competition for telecom services exists and a lot of innovation affects how these stocks perform. However, few will complain about the income investors get from owning T.

Friday, February 18, 2011

Dividend Machines, can you live on three percent?

If you have one million dollars to invest, you invest all of it for income, and that income is three percent, you will have $30,000 to live on. $30,000 income is probably not going to be enough to live on for most income investors.

Dividend machines alone will not make your retirement. As an income investor, you need a cash flow strategy that includes more than just dividend machines. Some of your investments will be in instruments that provide less than 3 percent cash flow but will have more income possibilities. For instance, covered call income can produce ten percent income streams or sometimes even more.

Bunge, symbol BG is a good example of income potential. In a previous post, I talked about buying BG and the price at the time was about $66.75. Today BG is about $74 a share. BG pays a 1.75 percent dividend yield therefore BG qualifies as an income investment. The real income comes from selling covered calls. Today you could sell a covered call that expires in April. The strike price is $80 and the call income is $1.20 per share. When you combine the income from the call, the dividend, and the gain you will receive if the call buyer takes your stock at $80, your return is nearly 22 percent.

Income investors need to figure out how much income they need from the portion of their investment portfolio dedicated to investment income. Once that chore is accomplished a cash flow strategy is developed that will include companies that pay income to its investors in the form of dividends and have a chance to get covered call income. Work backwards from this calculation. What percent of your investments can be in safe dividend machines at 3 percent? What percent do you need from the rest to create the cash flow you need?

Real estate is another idea. While real estate is beyond the scope of this blog, you can learn a lesson from an experienced income investor. Invest in real estate that pays you more in income than it costs to operate the investment. So many investors made the mistake of getting into too much debt buying property that did not give a positive cash flow. Now they are underwater and have to decide to walk away or put more money into the property until prices recover enough to either sell the property or find tenants that will pay enough that the cash flow is positive.

It all comes back to one of my most important rules. Invest in something that creates investment income. Dividend machines are one piece of the picture but not the only piece. However, investing for income means just that. Every investment should produce cash flow.

Remember this very important rule.

Very Truly Yours,


Wednesday, February 16, 2011

Dividend Machines small cap versus large cap

Should income investors buy large cap or small cap companies or both? Income investors need income from many sources including buying stock in a company. Dividend machines are income investments that are publicly traded companies. We know the companies that we call dividend machines should earn more than they pay out in income and we know they should be solid companies. The question at hand for income investors is should we buy only large cap stocks or can we also buy small cap stocks to create income for the portion of our portfolios dedicated to creating income?

Monday, February 14, 2011

Dividend Machine Kimberly Clark

Kimberly Clark, symbol KMB, is a dividend machine that every income investor should consider as an investment dedicated to cash flow. KMB is number thirteen of fifty-two dividend machines I will profile over one year.

Three investments for income

As you know, three investments are the sources of our cash flow; dividend machines, bond interest and covered calls.   KMB's role is as a dividend machine. Income investors may want to consider buying KMB debt to receive interest income from a solid company and I would too, but KMB issues almost no debt.   Moreover, it is very rare to find a call option with enough income to risk losing KMB's income potential.

Select a company with a solid balance sheet

One of an income investor's goal is to select a solid company with a good balance sheet and KMB fits that bill. KMB's debt to equity (D/E) ratio at the end of 2010 was a mere .90 this is a good company for income investors. 

Select a Company that increases dividends

Income investors also like to select investments that have a long history of increasing the dividend income to the shareholders. After all, we invest in companies that pay us, not in companies that are solid but do not pay income. Growth investments are not the investments for the portion of our investment portfolio dedicated to investment income. Growth is icing on the cake for income investors. We certainly do not want to invest in a company that pays a dividend but is in a dying industry so careful research is necessary.

Pick one company per week

I hope to provide you with a bit of a short cut in your income investment research by profiling one company every week that you may want to include as part of your cash flow strategy.

KMB Dividend Machine Fundamentals

Let us look more carefully at Kimberly Clark.    KMB is a personal care, health and hygiene company. You know of and use many of KMB's products. Kimberly earns $4.45 per share and the income to investors is $2.80 per share.  The annualized dividend yield is 4.8% based on the closing price of $65.06.

If you own KMB before March 2, 2011, you will receive a quarterly dividend of $.70. KMB's income growth to you, the income investor, has been almost 8 percent per year. 

Through thick and thin, KMB provides the income investor with ever-increasing dividends. In addition, you invest in a solid company with global sales. 

Very Truly Yours,


Sunday, February 13, 2011

How to eliminate bad companies.

Income investors need income that is reliable.  We cannot afford to invest in a company that pays income but is not a solid company.  Income investors are wise to to do a little well defined research.  Income investors can  eliminate 90% of  bad companies. How to do that?   Know what you want to know. Keep it simple. Spend a minimum of time with this very simple first screen.

  1. EPS – Earnings per share has to be a positive number because this is how to measure if a company makes money.
  2. Dividend – The amount paid out has to be less than the EPS or earnings per share.
  3. Dividend growth – The most recent dividend should be greater than it was a year ago.
  4. D/E ratio - Debt to equity ratio is one measure of financial stability. The less the debt, the less the risk and the D/E ratio should be low.
Income investors need to find dividend machines.  For a company to be considered a dividend machine we require they pay at least a three percent dividend yield as income to us and have increased that investment income every year for at least five years.

Use this simple screen to help you become a better income investor.

Very Truly Yours,

Friday, February 11, 2011

Income Investor First Steps

First step for new (young) investors: understand that investing means you can be a lender or you can buy an ownership position in something. This blog post will concentrate on being a lender.

Wednesday, February 9, 2011

Earnings per share, a simple way to measure if a company makes money.

Learn how to measure if a company makes money. Every income investor who follows my cash flow strategy knows that one of your first steps is to determine if the entity to whom you are lending money or in which you want to make an investment makes money.

Monday, February 7, 2011

Dividend Machine Lockheed Martin, symbol LMT

Lockheed Martin is an aerospace and defense contractor that has consistently been the income investor's friend. Lockheed is the twelfth stock of fifty two that I will profile over one year.

Extra Dividends

Lockheed Martin paid extra dividends when things were going well and continued to increase the dividend when things were not going so well in such as in 2009.

LMT Dividend Machine Fundamentals

Fundamentally, this very large company earns $7.97 per share and pays you $3.00 per share per year based on the most recently declared dividend. 

 If you own LMT February 25, 2011, you will receive a quarterly dividend of $.75 per share on March 25, 2011. The dividend yield at the closing price on Friday, February 04, 2011  of  $81.52 is 3.71%.   LMT has a D/E (debt to equity) ratio of 1.35.

LMT is best of breed in its industry. It is a good fit for income investors. Consider LMT in the context of our unstable world.

Very Truly Yours,


Friday, February 4, 2011

Definition of an income investor.

Who is an income investor? Are you an income investor? Should you become an income investor?

An income investor is one who uses some or all of their investments to create income in the form of dividends, interest, and capital gains.