Tuesday, May 21, 2013

Dividend Increase: VOD

Vodafone Group (VOD) is increasing its "final" dividend (the second semi-annual dividend for 2013) by 7.0%, from 6.47 to 6.92 pence per ordinary share (news release). At the current exchange rate (£1 = $1.52), share conversion (1 ADS = 10 ordinary shares), and ADS charge ($0.02 per ADS), my 125 shares of VOD should provide me with a final dividend of about $129, to be paid sometime in August.

Vodafone also announced that the £2.1 billion dividend payment to be received in June 2013 from Verizon Wireless (45% of which is owned by Vodafone) will be "retained in the business," so there will be no special dividend to shareholders this year. In addition, the company "aims at least to maintain the ordinary dividend per share at current levels." Is this a hint that shareholders may not see much of a dividend increase next year?

The company's operating results continue to be dragged down by Europe and it is unclear when the situation there will improve. Verizon Wireless continues to do very well, but there is uncertainty about the regularity of future dividend payments and whether Verizon (VZ) will make a bid for Vodafone's stake (which has an estimated value of $90-100 billion with no premium factored in). I plan to continue holding VOD and wait to see what happens with the rumors swirling around Verizon Wireless.

Saturday, May 18, 2013


Many investors are familiar with Morningstar, a research firm that provides information and analysis on stocks, bonds, mutual funds, and other investments. I often visit their website when performing due diligence on stocks because it provides a lot of useful information, such as nicely organized historical data about companies. Morningstar gives ratings of a company's growth, profitability, and credit, as well as an overall rating (from 1 to 5 stars) based on a proprietary system for determining fair value and projecting returns. All this information is available for free on their website.

Morningstar also has a Premium program that gives subscribers access to extra information about companies, detailed analyst reports, a comprehensive stock screener, and a few other features. A Premium Membership costs well over $100 per year, with the exact amount depending on the length of the subscription. As a small-time investor who aims to minimize expenses, I try to perform my due diligence through the exclusive use of free resources, so I do not subscribe to the Premium program.

However, about two months ago I discovered that I can get free online access to Morningstar's Premium features through my local public library. I just log into my account on my library's website, go to their list of online databases, and visit Morningstar from there. Some extra information about companies shows up when I visit their Morningstar pages, I get complete access to downloadable analyst reports (besides fundamental data, they also include commentary and bullish/bearish points about a company), and I can use the stock screener (which allows me to filter by star rating, economic moat, 5-year dividend growth rate, and dozens of other criteria). All these features nicely augment my approach to due diligence.

The point of this post is to recommend that others check to see whether their public libraries provide free access to Morningstar's Premium features. In my case, the Morningstar link is buried a few levels deep on my library's website and easy to miss, which is why I never noticed it until I spent some time exploring the website in depth a while ago. I wish I had stumbled upon this resource back when I started investing, but at least I know about it now.

As a final note, public libraries also have other investing resources. The vast majority of the investing books I read (and review on this blog) are from my library. The branch closest to where I live has a print copy of the Value Line investment survey, which provides nice one-page summaries about companies. On a few occasions I have spent an hour or two perusing the Value Line reports when searching for potential future investments. My library also has the latest issues of the Wall Street Journal, Barron's, and various financial magazines (Forbes, Fortune, Kiplinger's, Money, etc.). Thus, the public library can be an excellent place for free investing research.

Thursday, May 16, 2013

Book Review: The Vigilant Investor

The Vigilant Investor (2011) by Pat Huddleston

This book deals with various kinds of financial fraud and was written by a former SEC enforcer who currently heads an agency that investigates such matters. Drawing upon his personal experiences as an investigator, the author explains how different investment scams work (e.g., Ponzi schemes, offering frauds, pump-and-dumps, etc.) and provides details about the con artists behind them, giving many enlightening real-world examples. He also discusses how unscrupulous and reckless financial advisors can mismanage the money of vulnerable people (e.g., the elderly and the sick) by churning their accounts and steering them toward bad investments. At the end of each chapter he lists several tips for due diligence that can help people become vigilant investors by recognizing (and avoiding) various scams and fraudsters. Overall, the book provides an informative look into a dark and dangerous area of the financial world.

Even though the author talks a bit about the science of financial decision-making and why people fall prey to investment fraud, a recurring thought in my mind as I read the book was that many of the scams and con artists could have been avoided if the victims had just a basic understanding of investing and used some common sense. For example, the long-term compounded annual return of stocks has typically been around 8-10%, but the return from one year to the next can be quite variable and even negative at times. If an investor knew only that information, then he should be extremely suspicious when someone approaches him with a stock investment scheme that guarantees a market-beating return with no risk of loss. If it sounds too good to be true, then it usually is. Of course, some frauds are more difficult to detect than others, but a modicum of due diligence should raise some red flags. If people educate themselves and approach a potential investment (and the individual touting it) with caution and skepticism, then they should be able to drastically reduce the probability that they will be victims of fraud.

Note: I read this book in May 2013.

Thursday, May 9, 2013

Flexible Dividend Reinvestment Coming To Scottrade

Today I learned that Scottrade (the discount brokerage I use) will soon be introducing a unique dividend reinvestment program. Many other brokerages already provide the option for automatic and commission-free reinvestment of dividends back into the stocks that paid them. Scottrade will provide more flexibility by allowing automatic but selective dividend reinvestment: dividends can be reinvested into stocks other than the stocks that paid them. Here is an overview of the program from Scottrade's website:
Scottrade will soon offer a commission-free flexible dividend reinvestment program that will allow you to invest dividends from most dividend-paying stocks or exchange-traded funds that you own into most stocks or ETFs.

The program will be different from a traditional dividend reinvestment program (DRIP), which requires you to reinvest dividends back into the securities that paid the dividends. In the Scottrade program, dividends will accumulate into a pool of funds that you can use to purchase shares of almost any stock or ETF. The choice is yours.

The Scottrade program will provide significant flexibility and is designed to let you tailor your dividend reinvestment tactics to your overall investment strategy.
In a previous post I discussed why I choose to do selective dividend reinvestment by combining my dividends with new capital. I also wrote a Seeking Alpha article showing how the selective method can boost long-term dividend income compared with the traditional automatic method. The nice thing about Scottrade's program is that it would allow me to do selective dividend reinvestment when I do not have new capital to invest, as is the case right now. It would be particularly advantageous for my Roth IRA, where there is a cap on how much new capital I can add each year. I welcome this innovation and I look forward to learning more details about the program when it becomes available.

Wednesday, May 8, 2013

Book Review: The Little Book That Still Beats the Market

The Little Book That Still Beats the Market (2010) by Joel Greenblatt

This book is a slightly updated version of the author's 2005 book, with a new introduction and afterword. The core idea presented in the book is a "magic formula" for investing, which involves finding stocks that are highly ranked based on a combination of earnings yield and return on invested capital. The rationale behind these criteria is that a high return on invested capital is a sign of good management and a high earnings yield is a sign of a bargain-priced stock. The combination purportedly allows investors to identify well-run companies whose stocks are trading at bargain prices. Backtesting of an investment strategy based on the magic formula revealed that it handily outperformed the broader stock market for many years. It is an interesting approach that might be a useful supplement to one's investing strategy, but it might also give some readers the mistaken impression that successful investing can be achieved simply by applying the magic formula, without regard for other important quantitative and qualitative data about a company.

Note: I read this book in April 2013.

Thursday, May 2, 2013

Monthly Review: April 2013

At the beginning of April I visited the city where I will be moving this summer so that I could find a place to live. I managed to find a great apartment with a reasonable rent and a lot of amenities. The rent is slightly higher than where I currently live, but my new place will provide a higher-quality living experience, which is something I have desired.

Not much happened in terms of investing activity in April because I have temporarily suspended new capital investment, as discussed in a previous post. However, considering the limited selection of attractively valued dividend growth stocks out there right now, I feel a bit relieved that I don't have to make any buying decisions for a while. That said, here is a review of what happened in April:

Dividends: I received a total of $184.97 in dividends from the following stocks:
  • CNI: $7.19
  • GPC: $26.88
  • ITW: $15.20
  • KO: $16.80
  • MDT: $14.30
  • NVS: $55.20
  • PM: $42.50
  • UNP: $6.90
This represents a 9.4% increase compared with the same month a year ago. I expected only a modest increase because most of the stocks I have purchased over the past several months do not pay dividends on a Jan-Apr-Jul-Oct schedule. Thus, most of the year-over-year increase reflects organic growth from dividend increases. My year-to-date dividend total is now $660.91 and my forward 12-month dividend total is $2,412.60.

Dividend Increases: I was pleased to see dividend increases announced for four stocks (click on each stock to see my post about the increase):
  • PG: 7.0% increase, $7.92 more in annual dividend income
  • KMI: 2.7%, $3.60
  • CVX: 11.1%, $8.00
  • JNJ: 8.2%, $7.00
I am satisfied with all these dividend increases. In the case of KMI, it was the second increase in 2013, bringing its overall increase for the year up to 5.6%. Thus far this year, there have been dividend increases for 17 of the 28 stocks in my portfolio. The mean increase has been 9.6%.

Savings: This month I saved $1,510 (51.9%) of my net job income, which is essentially identical to what I saved in the previous month. The number excludes selected expenses associated with my apartment-seeking trip that will be reimbursed by my new employer. It also excludes the tax refund I received at the beginning of the month and my Q1 income from Seeking Alpha. Thus far this year, my mean monthly savings has been $1,464 (50.3%).

Transactions: None

Portfolio: My portfolio (taxable account and Roth IRA together) currently consists of 28 stocks and has a market value of $84,861.32 (including cash), which is a 3.2% increase over last month's value. As in March, I did not add any new capital in April, so the increase is completely due to capital gains and dividends. Interestingly, I noticed that I have an unrealized capital gain on every single stock in my portfolio.

Seeking Alpha: This month I published one new article on the investing website Seeking Alpha: I was stunned to see the article get over 20,000 page views, which is more than any of my previous articles. I earned $253.02 from page views in April, which is my highest monthly total yet. My year-to-date total is $686.97, which already matches my year-end total of $686.81 for 2012! It is great to earn this kind of income from occasional investment writing.

Looking Ahead: In May I will see a larger year-over-year increase in dividends than I did in April. I am anticipating announcements of dividend increases from only INTC and VOD; the latter should be announcing its second semi-annual dividend for 2013. My savings rate will probably be similar to what it has been in recent months. I do not anticipate making any stock transactions, unless the market rally continues and one of my stocks gets extremely overvalued. A few stocks I hold are already moderately overvalued, but not to the extent where I feel I need to take any action. Thus, I will likely remain on the sidelines and just continue monitoring earnings reports and other events.