Sunday, October 20, 2013

DIVIDENDS & INCOME - Dividend Stock Failures

Income investors are rational people.

We don’t expect home runs; we expect to grow our income and hope our principle keeps up with inflation.

Yet everyone wants to evaluate the risks of their strategy.    With that in mind, this post concentrates on stocks selected with my Dividend Machine Strategy that have not met my expectations.  This analysis also reveals which stocks we should sell, hold, or buy.


We have nearly three years of experience with dividend machines.  These three portfolios have done well as you can see in this table.  


Let’s look at the losers.   This will help to determine the risk of using this strategy.   


What is a Dividend Machine Loser?  I would consider an investment a failure in this order of events.

  • Worst Event - Company goes out of business
  • Next - Company cuts the dividend
  • Next - Company does not increase the dividend
  • Finally - Company continues to pay but stock price sinks for capital loss.

Not one stock in any of these three portfolios has gone out of business.  One company, Pitney Bowes (PBI) cut the dividend in half and the stock suffered mightily.  This was the worst performing stock selected using my Dividend Machine Strategy.  PBI’s loss is 10%.

Three companies have not increased the dividend in at least five quarters.  Every company is expected to increase the dividend at least every four quarter. These three stocks are Landauer (LDR); Communication Systems (JCS); and Intel (INTC.) 

These three companies have one thing in common; their earnings are stalled.   Beyond that each story is different.

  • LDR has decreasing earnings and increasing debt and I would sell it now at a profit of 9.25%.

  • JCS is not demonstrating the ability grow but their over 5% dividend yield and virtually no debt could make an income investor stick with them for a while, however, their earnings are very weak.

  • INTC sports a 3.76% yield. Some think INTC will grow again and will stick with them; others may find another investment that pays more income.  I am sticking with INTC because it also provides covered call income opportunities and I will add on dips.

Note that Watsco (WSO) may look as if the dividend was cut, but it paid two years of dividends early.   Abbott (ABT) provided the ABBV spin off and may look on the portfolio as a dividend cut.  This is also true of Conoco Phillips (COP) which provided the PSX spin off.   


Twelve stocks have capital losses.  These companies are listed in this table.

Should we buy, sell or hold?   

Are any of them still dividend machines?  


  • Pitney Bowes (PBI), any company that cuts the dividend is out of our realm.   

  • Diebold (DBD), Communications Systems (JCS) and Williams Partners (WPZ) are companies where earnings are less than dividends and no income investor should be in a stock like that.


  • Intel (INTC) trades with enough volatility and the company has enough potential to hold it because you can sell covered calls to boost your income.

  • Southern Company (SO) is a hold.  Their strategy is rocky but their earnings keep up with the dividend. 

  • AstraZeneca (AZN) and BCE (BCE) are foreign companies and the dividends are a little erratic.  They have consistently increased the dividend and if that continues, I will hold unless something fundamental changes.

  • Sysco (SYY) remains a dividend machine but I am watching to make sure they increase the dividend the next quarter.


Three companies are still Dividend Machines as measured by my four criteria and I would by definition add to them.  They are:  

  • New Jersey Resources (NJR) current yield 3.73%; 
  • Consolidated Edison (ED) current yield 4.33%; and
  • Darden Restaurants (DRI.) current yield 4.23%.  

Regarding DRI, the covered call opportunities on DRI are frequent.  I like to buy DRI less than $50 then sell calls.  However, even at Friday’s closing price of $52 it is a solid Dividend Machine.

These are the Dividend Machine Stocks I will add to over the next few days because they are cheap. 


The Dividend Machine Strategy produced one major loser and twelve disappointments that continue to pay income.   Only you can decide if this level of risk is worth taking on when you use this type of strategy.

The Money Madam