What Was Your Best Investment This Year?

I just finished crunching the numbers in the my year-end portfolio analysis, and overall things went pretty well in 2010.  Aside from dividends, I purchased the bulk of my securities in the first half of this year, so with the latest market rally, almost everything is up (JNJ and being my biggest loser). 

My best performer of the year however, was that wonderful beverage company...

YTD, including reinvested dividends, Coca Cola has returned 21.86%! 

I'm still going to hold my position, reinvesting dividends and adding when the price drops (it's a bit pricey at the moment) but it's always fun to see some real returns, even if they are only short term. 

Who was your best performancer of the year?  What was your return?  I'm interested to hear about the successes of my fellow investors and bloggers! 

Have a great New Year's everyone!  To a Happy, Healthy, and Profitable 2011!

Free Retirement Planning E-Book Available

I recently came across a great opportunity to download a free e-book over at FiveCentNickel.  The book available is "Unveiling the Retirement Myth" by Jim C. Otar, a certified financial planner from Toronto.  It has garnered some good reviews over at Amazon, where it sells for $49.99.

I'm not entirely certain why this book is being offered for free, but I would recommend you take advantage of the offer.  The e-book can be found here

Don't forget to thank Nickel for this great find!

I Hope We Never Run Out of Beer: Supply and Demand for Non-Economists

I am not an economist.  In fact, in my four years of higher education, I never even took an economics class.  But I am an investor, and I am also a consumer.  In being so, I think it is important to understand the basic forces that explain and influence our economy. 

Over the next couple of months I will attempt to understand and explain these laws of economics in plain English.  If you enjoy reading this post, please subscribe to my RSS feed for regular updates.

Today, I’m starting with the most fundamental building block of an economy, Supply and Demand.

Weekly Links for 12.26.10

I hope everyone is having a safe and happy holiday season.  Here are my favorite articles from the last week

Exxon Mobil Stock Analysis by Matt @ Dividend Monk

Why I'm Short Netflix by Whitney Tilson @ Seeking Alpha

Best Dividend Stocks You Can Buy @ The Motley Fool

How To Get Paid Tweeting by Mark @ BuyLikeBuffett

Retiring At 65 Isn't Supposed To Be Easy @ The Oblivious Investor

10 Reasons to Be Cautious in 2011 by David Rosenberg @ The Big Picture

Calculating Free Cash Flow by Geoff @ Seeking Alpha

Unconventional Income From Uncommon Stocks @ Money Cone

Is SuperValu a Super Value? by Jacob @ Value Walk

10 Year End Tax Moves @ FivecentNickel

China Bails Out EU

In yet another show of China's economic strength, officials have publicly stated their willingness to bail out the troubled EU nations using their 2.7 trillion dollar overseas investment fund.

How to Wrap Christmas Presents on the Cheap

I'm what retailers call a "price insensitive" customer.  Aside from big ticket items, I rarely search for deals, and buying goods at a discount does not excite me.  I am a rather simple man, and save a large chunk of my income.  So buying deodorant for 15% off just doesn't seem that important to me. 

But my price insensitivity radically changes when it comes to wrapping paper.  Christmas wrapping paper is such a rip-off it drives me nuts.  $3 or more for a 7ft roll of paper?  Wrap one medium sized box and you've finished the roll!  Don't get me wrong, I do enjoy nicely wrapped presents sitting under the tree.  But I always thought there had to be a better way.

I've gone through a number of different methods to solve this problem, but have settled on one my girlfriend pioneered.  Instead of regular wrapping paper, we use 3M Dust Paper.

Dust paper is most commonly used in art and framing projects, and can be found in most art supply stores.  We buy a 30ft roll for about $4.  Not only is this 3x or more the amount of wrapping paper you can get, but it actually looks great on presents.  Add a little bit of ribbon (which we always save from year to year, since ribbon is also expensive) and you have a simple, attractively wrapped present that people find interesting and original. 

 

Do you have any interesting ways to wrap presents or save money during the holidays?  Let me know!

Merry Christmas and Happy Holidays to all!  And may 2011 be your best investment year ever!

Illinois Tool Works Dividend Stock Analysis

Illinois Tool Works (NYSE: ITW) is a multinational manufacturer of a diversified range of industrial products and equipment.

The Company has approximately 840 operations in 57 countries, which are aggregated and organized into eight segments: Transportation, Industrial Packaging, Food Equipment, Power Systems and Electronics, Construction Products, Polymers and Fluids, Decorative Surfaces and All Other.

Weekly Links for 12.19.10

My favorite reads from this week.  Have a great weekend!

3 Major Dividend Toy Makers by Matt @ Dividend Monk

Using the P/E Ratio by Barbara Friedman @ BuylikeBuffett

INTELligent Investing...in INTC by Roger Vertes @ Benzinga

EU Questions Intel-McAfee Deal on Anti-trust Law @ Cnet

The Enterprenurial Investor by JWolinksy @ ValueWalk

SuperValu: A leveraged buy-out by Barel Karsan

A Dividend Play With Potential (SVU) by Mark Riddix

Temporary Tax Code Puts Nation in Bind by John McKinnon @ WSJ

4 High Dividend Stocks @ Fortune

Best Money Move During a Payroll Tax Holiday

Congress is getting close to a deal that would, among other things, create a one year payroll tax holiday for all workers.  This 2% tax break means that someone earning $70,000 could add about $1400 a year to their take home pay.

The government is hoping this money will be used to consume more goods and services, jump starting the economy.  But you're reading an investing blog, so you're probably more interested saving and investing this "free" money.  What is the best way to do so?  Tax advantaged accounts.

By taking home a larger paycheck without an increase in gross pay, your dollars are "cheaper" now than they were before.  The best way to juice returns on these dollars is to invest them in a 401(k), Traditional IRA, or Roth IRA.  In doing so, you win twice, once in your paycheck, and again in your deferred gains / taxes.

For example, say you invest that money in your 401(k).  Since contributions are from pre-tax dollars, you lower the taxable portion of your paycheck.  You will be paying less in taxes on a smaller amount of money!  

Another option is to contribute that money into a Roth IRA.  Roth contributions can be withdrawn tax free after age 59 1/2, and if you think taxes will be higher in the future (I hear a resounding yes...) you are using cheaper dollars now to buy more expensive dollars in retirement.

More important than how you save is simply that you do save.  You managed to live in 2010 on a budget 2% less than you'll be making in 2011.  It's free money.  Set up your accounts to invest it automatically, and you'll never miss it.

Bernie Madoff's Son Commits Suicide

Bernie Madoff, ponzi scheme extraordinaire, has lost his oldest son, Mark Madoff.  He was found hung in his Manhattan apartment Saturday morning.  He hung himself with his dog's leash while his 2 year son was in the apartment.

This is truly heart-wrenching.  Both of Madoff's sons claim to have had no knowledge of his scheme, but the multi-billion dollar scam he perpetrated has directly impacted their lives.  Since his arrest, both his sons and their wives have been sued by former clients seeking retribution for their losses.  Mark even got into a fist-fight on a New York street when he was accosted by a disgruntled former employee.

These poor guys have had their lives ruined by their father's dishonest conduct.  I send my heart out to Mark's mother, and hope that his soul finds solace.  And I hope Bernie rots in prison. 

Weekly Links for 12.12.10

Here are my favorite articles from this week.  Enjoy and have a great weekend!

Bar Stool Economics by The Biz of Life

Waste Management Stock Analysis by Dividend Growth Investor

Lowes Company Stock Analysis by Dividend Monk

A Good Mix of Yield and Growth by Dividends Value

BofA and it's misdeeds by Money Cone

How To Handle Company Stock Options by Retireby40

Royalty Trust: What is it? @ Wikipedia (I just learned what these are)

3 Reasons the Mortgage Tax Break isn't a Break @ Forbes

Better Than Buy and Hold: Using Options @ The MotleyFool

10 Really Simple Financial Lessons to Live By @ The MotleyFool

Bet the Opposite of the AAII @ The Wall Street Journal

Brown Forman Declares Special $1 Dividend

Brown-Forman, maker of such popular alcoholic beverages as Jack Daniels and Southern Comfort, recently declared a $1 special dividend payable to all shareholders on Dec. 28.

A number of companies have declared special dividends this month, in an effort to avoid any tax increases that may pass in 2011.  With piles of extra cash sitting on their balance sheets, I think a special dividend is a great way to reward shareholders during the holiday season.

Do you know any other companies that are rewarding shareholders with a special dividend? 

Microsoft Dividend Stock Analysis

 Every where I turn, I see an article condemning or praising Microsoft.  At 26.87, some say it is the dividend play of a lifetime.  Others feel it is a relic, a tech Goliath that has been beaten down by the likes of Apple and Google. 

I decided to take a look myself, so here is my analysis of Microsoft...

Weekly Links for 12.3.10

Some great articles this weekend!  Enjoy

Dividend Yield: Is Telefonica a Play?  by The Passive Income Earner

7 Stocks with Great Balance Sheets by Dividend Monk

ONEOK Analysis by Dividend Growth Investor


3 Unconventional Investment Moves by Invest it Wisely


Microsoft Stock Analysis by Barel Karsan

Pepsi Co. Analysis by Dividends Value

Buy A House Without a Mortgage by First Gen American (this is an old article but I just found it and really liked it)

Acme United Dividend Stock Analysis

Acme United Corporation (AMEX: ACU) is a supplier of cutting, measuring and safety products to the school, home, office, hardware and industrial markets. 

Obama Wants Federal Pay Freeze

President Obama is calling for a two year federal employee pay freeze, which is estimated to save the country 60 billion dollars over the next decade.  60 billion dollars is not going to save the US from our future debt problems, but what is significant here is the precedent that is being set. 

Consolidated Edison Dividend Stock Analysis

Consolidated Edison (NYSE: ED) is the holding company of three related businesses. Consolidated Edison Company of New York, which supplies electricity, natural gas, and steam to customers in New York City and WestChester...

Bear With Me...

I wanted to apologize for the lack of posts, as I've had a lot on my plate lately.  First...

Stock Splits and You

Companies often initiate a stock split when the stock price has had a significant run-up.  By splitting the stock, a company can increase liquidity, while not altering their market cap or diluting it's shares. The object is usually to make the stock more affordable to small-time investors and encourage trading.

In this post we'll see how over time stock splits can substantially increase your wealth. 

Cintas Dividend Stock Analysis

Cintas (NASDAQ: CTAS) provides highly specialized products and services to businesses of all types throughout the United States, Latin America, Europe and Asia.

The Company operates in four segments: (1) Rental Uniforms and Ancillary Products (2) Uniform Direct Sales (3) First Aid, Safety and Fire Protection Services, and (4) Document Management Services. As of May 31, 2010, the Company provided products and services to approximately 800,000 businesses.

Sonoco Dividend Stock Analysis

Sonoco Products Company (NYSE: SON) is a manufacturer of industrial and consumer packaging products and a provider of packaging services with 312 locations in 35 countries. 

The company was founded in 1899 and operates in six segments: Global Rigid, Global Flexible, Global Services, Global Plastics, Industrial Converted, and Primary Materials. The Company serves two markets: consumer and industrial.  It provides packaging solutions to many of the world's most recognized brands.

3M Dividend Stock Analysis

3M Company (NYSE: MMM) is a diversified technology company with a global presence in industrial and transportation; health care; consumer and office; safety, security and protection services; display and graphics, and electro and communications. 

3M operates in six business segments: Industrial and Transportation; Health Care; Consumer and Office; Safety, Security and Protection Services; Display and Graphics; and Electro and Communications.

Abbott Labs Dividend Stock Analysis

Overview

Abbott labs (NYSE: ABT) is a global, diversified healthcare company.  The company divides its operations into three categories; pharmacuticals, nutritional products, and medical devices and diagnostics.  It employs over 80,000 people, and markets its products in more than 130 countries. 

The company has been around for over 120 years, and has increased it’s dividend every year for the past 37.  It has paid 344 consecutive quarters of dividends since 1924.

Pharmaceuticals account for the majority of sales, while the rest of the categories are about equally split for the remaining sales.  About half the sales are in the US, the other half are from the rest of the world.

Abbott Labs holds many top spots, including drugs like Humira (let’s not exam any patent ending issues at the moment) and Synthroid, as well as nutritional supplements like Myoplex and Similac, they are the worlds leading producer of coronary stents, and are the #1 blood screening company.

Stock Analysis

Abbott Labs has tried hard to return value to it’s shareholders, especially in this “lost decade” the US has been in since 2000.  The stock price has fluctuated by stayed nearby $50 for most of this time, hitting a high of 61.09 in 2007 and a low of 29.80 in 2001.  Even during the recession we find ourselves in, Abbott has done a good job increasing numbers across the board, and staying in positive cash flow. 

 
Dividends

Dividend Growth	CAGR
10 year	8.85%
5 year	9.82%
1 year	11.11%

Payout Ratios	2009	10 yr Avg.
EPS	43%	62%
Cash	40.14%	47.04%

Abbott Labs has been growing dividends at an accelerating pace, reaching into the low double-digits.  The dividends are well covered by cashflow, and a 37 year track record of increases.

Income Statement

Revenue Growth	CAGR
10 year	9.27%
5 year	8.33%
1 year	4.19%

EPS Growth	CAGR
10 year	8.35%
5 year	14.33%
1 year	21.78%

ABT has been buying back shares with 1566 (in millions) in 2000 and 1552 by 2010.  

Cash Flow

Free Cash Flow	CAGR
10 year	12.83%
5 year	12.66%
1year	8.39%

FCF Per Share	CAGR
10 year	12.94%
5 year	12.42%
1 year	8.39%

Margins have decreased slightly over the years, but they are still in an acceptable range.

Balance Sheet

 

Balance Sheet Ratios	2009	10 yr Avg.
Current Ratio	1.79	1.43
Lg T Debt / Equity	0.49	0.39
Tot Debt / Equity	0.71	0.55
Debt / Total Capital	41.50%	34.01%
Cash Return / Tot Capital	15.80%	15.88%

Shareholder equity has increased by 11.4% annually over the past decade.

Stock Price

Current Price	52.84
P/E	14.32
Est Forward P/E	12.70
Div Yield	3.03%

Conclusion

Overall, I feel that Abbott Labs is a good buy at this price.  The stock is trading below my target p/e of 15 (historical stock market average), and is yielding over 3%.  The dividend is covered, and has grown for an extended period of time at a decent clip, which has been accelerating.

Healthcare will always be big business, and has been one of the best returning sectors in the past 50 years.  Abbott labs has its hand in a large international market, including all the emerging markets with a growing middle class that will soon want access to the healthcare more developed countries have come to depend on.  ABT is a huge company, and economies of scale would make it hard for anyone to step in, especially since medical technology takes a huge research budget, and pharmaceuticals need years of research and testing before they make it to market.  While patents do expire, drugs are cash cows for the years they are on patent.

I do not currently hold any stock in ABT, but if it stays in this price range and I have the funds I will initiate a position.  You can see all of my holdings under the Current Portfolio Holdings Tab.

 

History Lesson #1: Wall Street

In the past few years, “Wall Street” has come to represent the excesses and evils of a capitalist system.

When one hears the term, images of fat-cat bankers, hot-shot traders, and billionaire hedge-fund mangers come to mind. But the most important financial street in the world had some humble beginnings as nothing more than a wooden fence.

In the 17th century, what is now Wall Street was then the northern boundary of the New Amsterdam Dutch settlement.  In order to keep out the encroaching British colonists, as well as defend against Native American threats, the Dutch decided to build a barrier.

At first, it was nothing more than a simple picket and plank fence.  But soon that was sufficient, and a reinforced 12 foot wall was erected with the help of the Dutch West India Company, led by Peter Stuyvesant.

The city grew, and in 1699 the British tore down the wall.  But the name was kept, and what was once "de Waal Straat" was corrupted into the now infamous Wall Street.

Over the years, Wall Street became a bustling commercial thoroughfare, as it joined the banks of the East River with those of the Hudson in the west.  The street was lined with shops and warehouses, and Federal Hall, our first national capital building, was built there.  George Washington was inaugurated on the steps.

At the end of the street was a Buttonwood tree, where the cities leading merchants, investors, and speculators would gather to trade informally.  In 1792, in an effort to eliminate the power of auctioneers, 24 of these men formalized their activities with what is now called the “Buttonwood Agreement.”  This contract set trading fees and restricted members to trade only within themselves.  This group would grow into what is now the New York Stock Exchange.

Weekend Reads for 10.31.2010

Blog Articles

Dividend Growth Investor Analyzes Sysco here

Dividend Monk Analyzes Kimberly Clark here

Dividends Value does his weekly dividend power rankings here

Mark from Buy Like Buffett shows us how to make money in a downturn here

Mainstream Media

Why it’s never to early to start a Roth IRA here

Why history says stocks are cheap here

Five off-beat ways to generate 10% yields  here

Enjoy and have a great weekend!

Why Altria May be a Better Buy than PMI

If you were lucky enough to own Altria before the 2008 split into two companies, you were rewarded with 1 share of Philip Morris International for every share of Altria you owned.  If not, you are left with a decision:  do you invest in the domestic operations of Altria or the international operations of PMI? 

Jim Cramer of Mad Money says invest in Altria for a value play, PMI for a growth.  But which stock will provide the best total return?  I think it may be Altria. 

Shareholder return is a combination of dividends and earnings growth.  The market prices both into stocks.  The ones with the best returns are not the fastest growers, but those that grow faster than expected.  Investors are expecting PMI to grow like gangbusters in the emerging markets, and it may.  But if that growth is priced into the stock, and it does not exceed the optimistic expectations of 10% EPS growth, its returns will lag.

Altria on the other hand, is basically DOA.  Investors expect it to slowly implode as litigations costs, heavy government regulation, and decreases in the smoking population continue.  This investor fear may lead to superior returns. 

One day, litigation will stop.  You could sue in the 1980’s and 90’s because you smoked for 40 years and “no one” told you it would cause cancer.  But now we all know, and one day that argument will no longer hold water. 

Government regulation will persist, but cigarette companies generate too much revenue, and the government will continue to work with them and their lobbyist. 

Yes, less people smoke in the US than 50 years ago.  But, with litigation worries, government red tape, and a complete ban on advertising, no one is interested in getting into the cigarette business.  This means Altria has relatively few competitors in the US, and that’s not going to change.  The world market is wide open, and PMI will see increased competition as these markets develop.

People have smoked for hundreds of years, and I doubt they are going to stop anytime soon.  Someone has to make and sell cigarettes in the US, and Altria does it better than anyone else.  No investors want to touch the stock or the industry.  If that’s not contrarians investing, I don’t know what is. 

Disclosure:  I do not own any shares of MO or PM.  You can see my holdings under the Current Portfolio Holdings tab

3 Tables Every Dividend Investor Must Know

I just finished reading Jeremy Siegel’s 2005 book, “The Future for Investors.”  The book was an interesting and informative look at how the aging of the population in the developed world (baby boomers in particular) will affect the future of investing.  I picked it up at the local library, and would recommend you do the same. 

In the book were three very important charts for dividend growth investors.  The first chart is the “Break Even” chart.  This chart shows how many years it will take for a stock with a dividend yield of x (x axis), and a price decline of y (y axis), to recoup the initial investment.

	1%	2%	3%	4%	5%	6%	7%	8%	9%	10%
10%	95.8	48.4	32.6	24.7	20	16.8	14.5	12.9	11.5	10.5
20%	90.3	45.6	30.8	23.3	18.9	15.9	13.8	12.2	10.9	9.9
30%	84.2	42.6	28.8	21.8	17.7	14.9	12.9	11.4	10.3	9.3
40%	77.6	39.3	26.6	20.2	16.3	13.8	12	10.6	9.5	8.7
50%	70.4	35.7	24.1	18.4	14.9	12.6	10.9	9.7	8.7	8
60%	62.2	31.6	21.4	16.3	13.3	11.2	9.8	8.7	7.8	7.2
70%	52.7	26.9	18.3	14	11.4	9.7	8.5	7.6	6.8	6.3
80%	41.4	21.3	14.6	11.2	9.2	7.9	6.9	6.2	5.6	5.2

So if for example you buy stock XYZ with a 5% yield, and the price declines by 50%, it will take 14.9 years until the reinvested dividends buy back enough shares to offset the price decrease.  As you can see, the higher the yield, and the larger the price decrease, the faster you break even.

This second chart is called the “Return Accelerator.”  It shows the average annual return investors will receive if the previously mentioned stock returns to its original share price.

	1%	2%	3%	4%	5%	6%	7%	8%	9%	10%
10%	10.12%	10.24%	10.36%	10.47%	10.58%	10.69%	10.80%	10.91%	11.01%	11.11%
20%	10.27%	10.54%	10.80%	11.06%	11.31%	11.56%	11.80%	12.04%	12.27%	12.50%
30%	10.47%	10.92%	11.37%	11.81%	12.24%	12.67%	13.08%	13.49%	13.89%	14.29%
40%	10.73%	11.44%	12.14%	12.82%	13.49%	14.15%	14.80%	15.43%	16.06%	16.67%
50%	11.09%	12.16%	13.20%	14.23%	15.24%	16.23%	17.20%	18.15%	19.08%	20.00%
60%	11.63%	13.24%	14.81%	16.35%	17.86%	19.34%	20.79%	22.22%	23.62%	25.00%
70%	12.54%	15.03%	17.48%	19.87%	22.22%	24.53%	26.79%	29.01%	31.19%	33.33%
80%	14.36%	18.63%	22.82%	26.92%	30.95%	34.91%	38.79%	42.59%	46.33%	50.00%

So, assuming we have held on to stock XYZ for 14.9 years, it now returns to its original price.  The average annual return over those 14.9 years is 15.24%. 

These charts are very powerful.  They show the power of reinvesting dividends over time, one of the most powerful investment available. These charts show why the past decade has been good to dividend investors.  As prices have been stagnant, investors have been accumulating more shares at better prices.  Once we hit the next boom cycle, they will see some great returns. 

This last chart is just for motivational purposes.  Siegel analyzed the original S&P 500 members and charted their returns from 1957-2003.  These are the top performers, and the accumulation of $1000 invested in 1957 with dividends reinvested. 

Rank	2003 Name	Accumulation of $1000	Annual Return
1	Phillip Morris	4,626,402	19.75%
2	Abbot Labs	1,281,335	16.51%
3	Bristol-Myers Squibb	1,209,445	16.36%
4	Tootise Roll Ind.	1,090,955	16.11%
5	Pfizer	1,054,823	16.03%
6	Coca Cola	1,051,646	16.02%
7	Merck	1,003,410	15.90%
8	PepsiCo	866,068	15.54%
9	Colgate Palmolive	761,163	15.22%
10	Crane	736,796	15.14%
11	H.J. Heinz	635,988	14.78%
12	Wrigley	603,877	14.65%
13	Fortune Brands	580,025	14.55%
14	Kroger	546,793	14.41%
15	Schering Plough	537,050	14.36%
16	Procter and Gamble	513,752	14.26%
17	Hershey	507,001	14.22%
18	Wyeth	461,186	13.99%
19	Royal Dutch Petroleum	398,837	13.64%
20	General Mills	388,425	13.58%

Use these charts as tools to help you along your path.  When prices of a good company sink, tell yourself you're buying more shares at a cheaper price and magnifying your returns.  Be patient, and imagine your bank account after 40+ years of investing wisely, very similar to those amounts above…