Monday, November 14, 2011

2011 Dividend Machines INCOME

CashImage by bfishadow via Flickr

                Income investors if you are looking for a new dividend machine for this week, note that I have completed profiling 52 dividend machines for 2011.   For the remainder of calendar 2011, I will analyze how we did with those 52 companies.  I will continue to opine and comment on covered call income and interest income opportunities.  I will start profiling 2012 dividend machines again in January, 2012.

       Collecting data on your investments is important and there are many sources.   I am constantly monitoring sites to help me find companies that meet our dividend machine criteria.  I use MSN's personal finance site, Yahoo's finance site is the best for maintaining a portfolio of dividend machines,  The Street's dividend calendar is helpful to find companies that are about to pay their dividend, provides good dividend history information.    Print publications like the weekend edition of the Wall Street Journal list the 1500 larges stocks with dividend yields.  Barron's provides the most comprehensive stock data in print.  Eventually, I always check the dividend data on the company's own web site.   Every company has an investor relations link with current dividend information as well as dividend history.,

      An important part of every action plan is to evaluate how things worked out.  Since I always harp on the idea that in order to create income from your investments you have to buy companies that pay income to you, I thought the first analysis of our 52, 2011 dividend machines would be the income they create.  So let's see how we did on basic dividend income.

Each of the 52 dividend machines paid at least a 3 percent dividend yield when they were profiled.    My analysis is based on buying 100 shares of each of the companies profiled.   These 5200 shares (52 stocks of 100 shares each) cost a total of $207,118.   The sum of the original dividend amount at the time each company was profiled is $8,300 annual income.   Using the cost basis of $207,118 the dividend yield of this portfolio of 52 dividend machines is 4 percent.

Receiving a four percent income is pretty good when you consider this portfolio is biased toward safe companies.  You have to compare the four percent with other opportunities to create investment income.  Safe, as they call them, investment grade corporate bonds pay about that amount.    However, that income is truly fixed.   You cannot expect the income to increase over time.  Moreover, bonds do not give you the opportunity to enhance your income with covered calls. Provided you paid only par or a discount for the bond, you should receive your principal when the bond matures.   This is not necessarily true for stocks.   Municipal bonds pay a touch more than four percent and have tax advantages.   Dividend income is taxed at 15 percent whereas, municipal bond income, in most cases is tax free.   For non qualified, non retirement portfolios, municipal bonds are still a good choice.   However, this analysis concentrates on the dividend income from 52 stocks selected using only four simple criteria.

I think we did pretty well.

As you know in addition to delivering at least a three percent dividend yield, we restrict our dividend machines to companies that have increased the dividend every year for at least the past five years.  Realizing that your expenses increase every year, you need your investment income to also increase and that is why I added the hurdle of annual dividend increases to our dividend machines. My next post on this analysis will concentrate on dividend increases.
Very Truly Yours,

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