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- By David Zeiler, Associate Editor, Money Morning
- March 5, 2013
Few among us haven't dreamed of sudden riches - the financial windfall of a big legal settlement, an unexpected inheritance, a winning lottery ticket, or, for the young and athletically gifted, a lucrative contract with a major professional sports franchise.
But it turns out that few are prepared for a financial windfall when it comes their way.
Nowhere is this more obvious than with big sports stars.
Despite the proliferation of multimillion-dollar contracts, an astonishing number of professional athletes are forced to declare bankruptcy within a few years of hanging up their jerseys.
In the National Football League, for example, where the average salary is $1.9 million, 78% of former players are in bankruptcy within five years of retirement. That figure is 60% for former National Basketball Association players, who earn an average of $5.5 million a year as players.
How can people so generously compensated go broke so quickly?
Part of it has to do with youth, but many of the mistakes athletes make with the financial windfall of a professional sports salary also are made by regular people who suddenly come into large sums of money.
There's a lot we all can learn from their mistakes. When it comes to financial windfalls, it's best to know what to expect ahead of time so you can put the money to work for you instead of squandering it.
"Every single day, people come into large sums of money, whether it's a thousand dollars or a million, and without proper planning, funds quickly disappear," writes Jim Wang in U.S. News and World Report. "Just look at the horrible stories you often hear of lottery winners, and you'll have enough evidence that everyone needs a little preparation, even if you don't expect to get a windfall."
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7 Dividend Stocks with 50 Years of Increasing Payouts
- Money Morning Staff reports-- March 1, 2013
As Money Morning Executive Editor Steve Christ told us this week, finding solid dividend stocks in different sectors is a key to finding financial freedom, thanks to compounding.
"This compounding effect arises when your dividend yield is added to the principal. From that moment on, the interest begins to earn interest on itself," explained Christ. "Over the long haul, that process can add up to a small fortune - even with very modest investments. All it takes is time."
How do you find theses reliable dividend payers?
For starters, consider dividend stocks that have a history of raising their payout. Dividend.com recently compiled a list of stocks that have hiked their dividends for at least 25 years.
To take it a step further, we compared that list to Standard & Poor's "Dividend Aristocrats" - large-cap, blue-chip companies that have increased dividends for at least 20 consecutive years.
Some of the "Aristocrats" have hiked their payouts for much longer than that, like these seven, which have done so for at least 50 years:
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This Time-Tested Strategy Could Be Your Winning Lottery Ticket
- By Steve Christ, Executive Editor, Money Morning
- March 1, 2013
Every time I talk to my nephew Sam, I realize youth really is wasted on the young.
Fresh out of college, what my brother's son knows about the real world couldn't fill a thimble.
At age 22, he just doesn't know what he doesn't know yet. He's brash, idealistic, a bit hardheaded, and ends up making a lot of rookie mistakes - especially when it comes to the stock market.
Like most novice investors, he'd much rather chase the latest big momentum stock than actually work to build true wealth over time.
When I try to nudge him toward a portfolio of solid dividend-paying stocks, all he really wants to talk about are the "hot stocks," or what I call "the flavors of the month."
Even after he got absolutely roasted last year buying Groupon (NASDAQ: GRPN) shares, he still couldn't wait to load up on Facebook (Nasdaq:FB) when it debuted.
And since Facebook's astronomical P/E ratio couldn't stop him, I figured I probably couldn't either.
I just hope that after a while, some of these hard lessons will finally begin to sink in.
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Stocks to Buy: Three Small Cap Stocks for Safety & Dividend Growth
- By Don Miller, Contributing Writer, Money Morning
- February 27, 2013
Here's how to get rich in stocks: Buy elite businesses at a good price and let the dividends compound over the years. That's the safe, steady road to building true wealth.
The key is in selecting the right stocks to buy.
However, most investors starved for solid dividend-payers often overlook one of the safest and most lucrative sectors - small cap dividend stocks.
Instead they focus on large cap businesses like Wal-Mart Stores Inc. (NYSE: WMT) or McDonald's Corp. (NYSE: MCD).
But therein lies the problem--everybody knows they are great companies. That alone can drive their share prices to dizzying heights.
So investors who limit their choices to the big blue chips can end up paying too much-while missing out on another category of stocks that could make them even more money.
In short, they miss the quality small-cap dividend-payers. Here's why that is a big mistake for most investors.
Small Cap Stocks to Buy
Small-cap stocks can be an individual investor's best friend.
In the period between 1927 and 2009, small-cap value stocks returned 14.9% per year.
Meanwhile, returns on large-cap value stocks averaged roughly 3% less per year.
So why do these small frys outperform their larger cousins?
First of all, their small size makes them fly under the radar of many institutional investors.
What's more, mutual funds and pension funds have billions to invest, making it nearly impossible to buy and sell small stocks without having a huge influence on the price. As a result, a fund manager may find himself chasing a stock higher as he tries to take a meaningful position simply because he's the only big buyer.
Second, because the big fish tend to attract the big bucks, small caps are often ignored by Wall Street analysts. Most analysts simply aren't about to spend precious hours researching a company that no one follows.
So "in-the-know investors" buying small cap dividend payers face a lot less competition and can pick up shares at a good price.
Plus, many of these small cap dividend machines actually have a lot in common with their big brethren.
Like many large-cap, dividend-paying stocks, these companies generate tons of cash flow, have great brand names and wide competitive moats in their respective industries.
More importantly, they also have a history of dividend growth. They just happen to be much smaller than giants like Coke (NYSE: KO)and Procter & Gamble (NYSE: PG).
The bottom line: Investors who are willing to accept a slightly higher degree of risk should consider investing in small-cap value stocks that pay dividends.
Three Small Cap Dividend Machines
With that in mind, here are three small caps that are members of the Russell Global Small Cap Dividend Achievers Index. To qualify they must have raised their dividends annually for more than 10 years and meet minimum cash volumes.
In short, these are companies that throw off plenty of cash and safe dividends.
They include:
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Two Dividend Stocks to Buy for Increasing Payouts
- Money Morning Staff reports-- February 21, 2013
Following a banner year for dividend stocks in 2012, 2013 is delivering more of the same as an increasing number of companies are either initiating cash dividends or boosting existing payouts.
From Feb. 1 to Feb. 8, at least 15 companies increased their cash dividends. That list included familiar names such as Dow component 3M Co. (NYSE: MMM), Allstate Corp. (NYSE: ALL) and Archer Daniels Midland Co. (NYSE: ADM), a new addition to Warren Buffett's Berkshire Hathaway Inc. (NYSE: BRK.A, BRK.B) equity portfolio.
It was more of the same when 14 companies raised their payouts in the week ending Feb. 15. That list includes Comcast Corp. (Nasdaq: CMCSA), PepsiCo Inc. (NYSE: PEP) and United Parcel Service Inc. (NYSE: UPS).
With all these familiar blue chips delivering ever-increasing dividends, it is not surprising that some stocks of the same caliber go overlooked by investors. Here are a couple of those unheralded names investors on the hunt for dividend stocks should become more familiar with.
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10 Dividend Stocks to Buy Now
- By Diane Alter, Contributing Writer, Money Morning
- February 12, 2013
Near-zero interest rates have lots of savers clamoring for yield and plunging into dividend stocks.
Compared with paltry yields on a bevy of bonds, dividend stocks - especially those with the potential of capital appreciation - have become progressively more attractive to income-seeking investors.
Now's a good time to hunt for dividend stocks, as more companies increase payouts. Dividend payments grew sharply in Q4 2012, with 1,262 dividend increases reported, a 94.5% gain over the 649 increases in Q4 2011, according to S&P Dow Jones Indices.
And rich dividend payments are expected to continue among companies flush with cash since
they have curtailed expansion and investment amid growing global uncertainty.
In fact, more than 5,000 analyst estimates compiled by Bloomberg News forecast that companies in the MSCI World Index will boost payments by 3.8% to a combined $39.43 a share this year, up from a low of $29.58 in 2009.
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Dividend Stocks to Buy Now: The Only New "Aristocrat" Worth a Bet
- By Don Miller, Contributing Writer, Money Morning
- February 4, 2013
Weary investors scouring the landscape to find decent dividend stocks to buy should take a hard look at the latest list of Dividend Aristocrats.
The S&P 500 Dividend Aristocrat Index measures the performance of companies in the S&P 500 Index with amarket value of at least $ 3 billion that have increased dividends for at least 25 consecutive years.
In 2013, only 54 companies, approximately 11% of companies in the S&P 500, made the cut.
Actually, it's no surprise this group of dividend stocks is tiny.
Think about it.
These companies have raised dividends for the last 25 years - a period of time that included the Great Recession, numerous oil price shocks, at least two major market meltdowns and wars in Iraq and Afghanistan.
If they can steadily raise their dividends in the face of that kind of adversity, you can be pretty confident they're going to be around for awhile.
They're the kind of companies that consistently deliver the goods, having outperformed the rest of the S&P 500 on a regular basis. The Aristocrats returned 4.59% annually over the last five years, while the group as a whole produced a negative 0.25% return for the period.
These are businesses with strong balance sheets, healthy earnings and cash flow generation that can help you protect your portfolio - regardless of the market's direction.
But not every Aristocrat is worthy of your hard earned dollars.
Some drop by the wayside. Others are increasing their dividend by draining capital from their business.
Here's what to look for when choosing the best dividend stocks to buy.
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Dividend-Paying Stocks to Buy: High Yield from an Unexpected Sector
- Tim Melvin, Contributing Writer
Until recently you rarely if ever heard technology mentioned as a good sector to search for dividend-paying stocks to buy.
Technology companies for decades have eschewed paying dividends to shareholders - to grow, you had to spend money. They plowed their annual profits back into the company, spending on research and development or acquiring smaller tech companies that improved their product offerings.
Only the largest tech companies like International Business Machines Corp. (NYSE: IBM) ever paid meaningful dividends to their shareholders. If a tech stock paid a dividend, investors would take it as a sign that the company had matured and was no longer a growth stock with meaningful opportunities for appreciation.
In fact, a dividend declaration by a technology company could often lead to a sizable stock decline.
But those days have changed.
How Tech Companies Evolved Into Dividend-Paying Stocks
Tech stopped shunning dividends in the 1990s when tech stocks went through a boom phase.
That's because institutional investors have mandates that prevent them from buying anything other than dividend-paying stocks, and they felt they were missing the action in the technology and Internet sector. They began to pressure tech stocks to pay a small dividend so they too could participate in the runaway rally.
Since then we have seen many of the tech giants initiate regular dividend payments to their shareholders. They were never intended to be significant but things have changed dramatically in the last decade.
Today many of these tech giants have seen their stock prices decline as their cash balances increased. They have raised the dividend to the point that tech stocks can now be a meaningful addition to income portfolios - especially for pre-retirement investors looking for income streams that will still be healthy 10 years from now.
Here are a couple examples of some of the best sources of yield in tech.
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Here's Why The Fiscal Cliff Deal is Great News For Dividend Stocks
I wish I had a nickel for every scary story I read about dividend stocks and the fiscal cliff over the last four months.
I heard so many, I could probably take the rest of the year off.
Of course, a funny thing happened on the way to this great apocalypse: dividend stocks are not only alive and well, but stronger than ever.
As I wrote a few weeks ago, the Fiscal Cliff fears surrounding income stocks were completely overblown.
And now that a budget agreement has been reached and the tax treatment of dividends is locked in, all of this doom-and-gloom can now be finally put to rest.
With a deal in place, dividends will be taxed as favorably for investors as capital gains. For lower income folks, qualified dividends continue to be taxed at 15%.
It only changes for investors who have met the government's latest definition of "rich."
For those with incomes above $400,000 ($450,000 for a married couple) there is quite a substantial increase in the tax rate on qualified dividends. It rises from 15% to 23.8%, including the 3.8% investment income surcharge in the Obamacare legislation.
However, the capital gains tax in this bracket will rise by the same amount, while interest income will be taxed at 43.4% (39.6% income tax plus the 3.8% Obamacare surcharge.)
That means the relative advantage of qualified dividends over interest income will be preserved, along with the parity between dividend and capital gains tax rates.
So for most dividend investors, very little about their investments has changed.
The difference is that these new rates are permanent - there's no 10-year horizon, as there was with the previous 15% dividend tax rate. So investment planning just got a bit easier.
The bottom line is that with the fiscal cliff deal, there are now three good reasons why dividend stocks are irresistible.
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Dividend-Paying Stocks: Some of the Best Bets for 2013
- By Todd Shriber, Contributing Writer, Money Morning
Investors who shy away from dividend-paying stocks next year because of higher taxes will miss some of the best income sources of 2013.
Plus, there's a good chance many investors will miss the biggest dividend tax hit.
U.S. President Barack Obama, who earlier had suggested raising the dividend tax on those earning $250,000 or more, now says he wants to increase the tax on those earning $400,000 or more. Republicans have suggested raising the dividend tax on those earning $1 million or more.
Many investors wouldn't be affected by either proposal: Among Americans who receive qualified dividends - those taxed as capital gains, not regular income - 48% make less than $250,000 a year.
And there are some stocks that will be relatively immune to the fiscal cliff tax effects.
For those who will keep their money in dividends, we've highlighted some of the best picks among dividend-paying stocks for 2013, as well as some you'll want to avoid.
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