Wednesday, September 11, 2013

Dividends & Income from Small Cap. Stocks

When I started writing about dividends and income, I wanted to be able to measure the results of my dividend machine strategy.   

To make this easier, I created a portfolio of dividend stocks by selecting one stock per week for fifty two weeks.   I used only the four dividend machine criteria noted here to pick the stocks.  

The portfolio is long only and I do no trading; I only hold these stocks.   You can see this portfolio by clicking on the 2011 DIVIDEND PORTFOLIO page at the top of this blog.                                                                                                                                                         .


I was curious to find out how well diversified a portfolio would evolve from implementing this strategy.  Would I end up with only big pharma. or utilities?   

The portfolio is not only big pharma or utilities.  I ended up with a well diversified portfolio by industry as well as by market capitalization. 

Today, I am looking at how the small capitalization stocks performed.   I define small capitalization stocks as those with a capitalization of less than one billion dollars.

Eight Small Caps Stocks from 2011. 

Two small caps, Harleysville Group (HGIC) and Met-Pro (MPR) were bought out.  HGIC was bought by Nationwide Insurance and produced a 91.88% gain in just four months.   The proceeds are included in the portfolio value.   MPR was bought by CECO Company and produced a 48.32% gain in twenty two months.    Proceeds from that sale are included in the portfolio value. 


Six other small cap stocks remain part of the 2011 DIVIDEND PORTFOLIO.  They are:  YORW, WHG, UTMD, MGRC, LDR, and ESP.   

Do they currently meet all four criteria to qualify as Dividend Machines?

The tables below present the dividend fundamentals of these six stocks.   



Landauer (LDR) is the only stock of concern.    It has increased debt and lower earnings.   While LDR continues to pay a healthy dividend, they have not increased the dividend for a while and that makes sense as LDR has negative earnings.     I do not buy or sell in this portfolio, but if I owned the stock, I would sell it for a tiny gain of 3.94%.    LDR is not exactly a total failure but it no longer qualifies as a dividend machine.

YORW, MGRC, and UTMD have significant price appreciation.   While the dividend has consistently increased for each company, the yield is less than three percent and therefore, I would not buy them now.    However, as you can see they are quality, small cap. companies.

WHG and ESP also have price appreciation but are dividend machines on every measure and I would consider adding to my position.

What does it mean for the ordinary investor?

As you save for retirement and begin to develop your own dividends and income portfolio, you have to decide how to invest.   This analysis illustrates that you do not have to have millions of dollars to invest to create a successful dividend portfolio.    You do not have to invest $10,000 or more every time you buy 100 shares of a stock.     You can find small cap stocks that perform well if you use a disciplined approach.    Even if it is not my approach, a disciplined investment strategy is the best way to attain your dividend and income goals;  otherwise, you are throwing darts at the market hoping to catch a company that will meet your income needs when you retire.

The Money Madam

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Wednesday, September 4, 2013

Dividends & Income - Microsoft

Microsoft tests investors:

How many times will Microsoft (MSFT) test even the most disciplined income investor (me?)   What are we to think of the Ballmer retirement, the Nokia acquisition, the PC market?     

These are factors you cannot ignore yet you have no control of any of these events.   You read one expert telling you all is well; you read another expert telling you to dump the stock; and you watch the tape waffle around $31.00.   And, still you have no control.  This is why you have to make your investment decisions based on another discipline.  The discipline I use is my Dividend Machine Strategy.

Dividend Machine Experiment:

My work with dividend machines could be called an experiment.   The 2011 and 2012 portfolios are set and now I can evaluate how the strategy worked.   In this blog I write about my personal buys and sells and covered calls, but once the blog’s portfolios are set, I do not trade.    Note that the 2013 portfolio is still in development.

Microsoft (MSFT) as a Dividend Machine:

Microsoft (MSFT) took a long time to show up as a dividend machine.   Not until October 7, 2012 did MSFT meet all four of my dividend machine criteria.   Click here to see the original post on MSFT.  That was about eleven months ago.    

I am dedicated to dividend and income investing because that is one of the ways I fund my life.   Therefore, any analysis of my dividend strategy work has to concentrate on how MSFT performed as an income stock.    Let’s take a look. 

Results from Eleven Months of owning MSFT:

During the past eleven months we bought 100 shares on October 8, 2012 @ $29.85; the dividend yield at that time was just above three percent.    We immediately sold a December Call.   In January when the price of MSFT fell to $26.74; the dividend yield at the time was 3.44%.   We immediately sold a March call.  Four dividends were received (November, 2012; February, 2013; May, 2013; and August, 2013.)  Each of the above calls expired.   The final trade to date is an October $35, 2013 call on all shares.

The table below presents the data on MSFT.   Income over eleven months = eight percent.   Capital gain over eleven months = thirteen percent.   Total return = over twenty percent.    



My take is that I will continue to hold MSFT.    If the stock price goes down and the dividend continues to go up MSFT, I could add to my position.   My favorite result would be it goes up enough that the call buyer takes my 200 shares at $35 which would add another eleven percent to my capital gain.  My worst case scenario is MSFT’s price goes down and they do not continue to increase the dividend.   Then I would sell!   Right now I’ll stick with it because I am a disciplined income 

The Money Madam
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