Tuesday, December 27, 2011

2011 Dividend Machine and CAPITAL PRESERVATION

2011 Dividend Machine – Capital Preservation
            Do income investors have to sacrifice capital preservation for income?  I will answer this question by looking at our fifty two, 2011 Dividend Machine companies in terms of their stock price. 

            Capital preservation is a strategy used by people who no longer work on the theory that they have to hold onto their money because there is no time to make more money or to save more money.    Mine is an income theory, but like all investors, even those who it seems have ice in their veins and do not mind the ups and downs of investing, I do not like to lose money either.

            Maintaining your capital and earning income was a lot easier when bonds were the preferred income instrument.  Provided that you bought bonds at par or at a discount, you were pretty sure you would get your principal returned when the bond matured or was called at par or better.  Moreover, during the time when interest rates were increasing, and you spread out your bond maturities, known as laddering, you could reap increased income.

            But times have changed and interest rates are so low and therefore bond prices so high that bonds are not very attractive.  That leads the income investor to equity income.  Equity income is perceived as a more volatile trade.   This Dividend Machine project served to guide all us income investors to reliable, ever increasing income.  I always tried to stay calm as markets moved up and down.  I arbitrarily picked December 23, 2011 as the date to use to evaluate how our fifty two Dividend Machine stocks performed.  So here it is!

            If you bought 100 shares of each of these fifty two companies at approximately the price at which they were profiled, you would have invested about $207,118.  If you sold them all at the close on December 23, 2011 your companies would have fetched $223,794.  The dollar gain of $16,676 is an 8.05% increase in capital.  When you add together the 4 % yield and the 8% gain a return of 12% is not bad capital preservation.

            The worst performer was Pitney Bowes (PBI) with a capital loss of 15.77%.  However, at the close on Friday, PBI pays a might 8%.  Can they keep it up?  We’ll see.

            The best performer was Harleysville Group (HGIC) with a capital gain of 88.3%.  This was the result of another company buying HGIC.  

            Four companies, Thompson Reuters (TRI), Legget and Platt (LEG), Hasbro (HAS) and Espey (ESP) lost around 7.5% each.   Eighteen companies performed at plus or minus 5%.  Ten companies gained between 5% and 10%.  Nine companies gained between 10% and 15%.  Six companies gained between 15% and 20%.  And, four companies gained greater than 20%.

            Things can change quickly but all in all, this 2011 Dividend Machine project delivered a nice return.  Not all is good news and I will use these analyses to help guide our 2012 Dividend Machine project.  I hope you will stick with me and continue to read this blog.

Very Truly Yours,