Dividends aren’t just for Warren Buffett and retirees. Dividends have the power to support your goals of becoming independently wealthy. Here are 3 reasons why. Words: 586

• Buy why dividends? You’re too young to be an income investor!
• Don’t you know growth stocks are better suited for young people?

[The truth of the matter, however, is] that dividends aren’t just for Warren Buffett and retirees. Dividends have the power to support your goals of becoming independently wealthy. Here are three reasons why:

1. Dividend paying companies usually have excess monies available

Ironically, when a company dishes out billions of dollars to investors annually in the form of dividends, you might consider they’re making too much money. In other words, their profits are so juicy that they’re free to distribute excess cash to one of their most prized possessions: you, the shareholder. Target (TGT), [for example,] has been paying dividends every single year since 1965 raising their dividend annually for nearly 45 years. Now that’s commitment.

2. Dividend paying companies are usually here to stay

Sure, there are a few exceptions, but for the most part companies with long, sustainable histories of paying dividends [such as] 3M (MMM) [for example]…are more reliable than younger companies… You can think of it this way: who would you trust to show up to work tomorrow? Walter, the 56 year old janitor who hasn’t missed a day in 30 years or Slater, the 22 year old hotshot lawyer who just graduated from an Ivy league and landed a job at the firm? Reliability is often a difficult thing to come by in this day and age.

3. Dividend paying companies often have an excellent risk/reward profile especially when dividends are re-invested

Not a day goes by where I don’t hear someone refer to the last ten years as “the lost decade.” Well excuse me if things didn’t go well for growth investors, but owners of quality, dividend-paying companies, such as Johnson and Johnson (JNJ) actually fared quite well. In addition to a capital appreciation of about 12% over the last ten years, JNJ managed to grow their dividend from $0.20 a share per quarter in 2002 to $0.57 a share per quarter in 2012. Not too shabby when you think about it.

Conclusion

Though not necessarily as “sexy” as growth investing, take a look at the world of dividend investing and make sure to keep an open mind. I did, and what can I say but that I’m hooked!

*http://seekingalpha.com/article/318998-why-at-28-i-m-going-with-dividends

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I invest in dividend paying stocks in order to generate a sufficient income stream that will meet and exceed my expenses in retirement. “Retirement” to me is the point where my dividend income exceeds my annual expenses by 1.5 times, which means that I no longer have to work for money. In order to get there I am following several simple, but crucial, principles [which I would like to share with you]. Words: 830

[I have identified] 248 stocks with histories of 10+ years of raising dividends…[and] ranked the yields and payout ratios of [each]…to create an average overall rank for each stock. [Here are the top 10 on the list.] Words: 325

So says Scott’s Investments (http://scottsinvestments.blogspot.com/)  in excerpts from an article* which Lorimer Wilson, editor of www.munKNEE.com  (It’s all about Money!), has further edited ([  ]), abridged (…) and  reformatted below  for the sake of clarity and brevity to ensure a fast and easy read. Please note that this paragraph must be included in any article re-posting to avoid copyright infringement.  The article goes on to say:

It would seem these days that, with bonds, CDs and money market funds paying less than the rate of inflation, serious consideration should be given to S&P 500 stocks that high dividend yields. The number are few (17) but when you take into account the dividends paid out relative to earnings, the extent and consistency of dividend growth over the years and trading at a relatively low price to earning ratio the choices only 2 make the cut. www.munKNEE.com; By: Lorimer Wilson; Words: 740

a) Dividend Yield
First let’s look at those stocks with high dividend yields. There are currently only 17 stocks with dividend yields of 5.7% or more which represents only 3.4% of the total number of stocks in the S&P 500. Of those only 11 have dividend yields of 6% or more. Below is the list of such stocks:
1. Frontier Communications Corp (FTR) 9.7%
2. Windstream Corporation (WIN) 8.9%
3. CenturyTel, Inc. (CTL) 8.1%
4. Pitney Bowes Inc. (PBI) 7.4%
5. Verizon Communications Inc. (VZ) 6.5%
6. Reynolds American, Inc. (RAI) 6.4%
7. AT&T Inc. (T) 6.4%
8. Altria Group, Inc. (MO) 6.2%
9. First Energy (FE) 6.1%
10. Health Care REIT, Inc. (HCN) 6.1%
11. Pepco Holdings, Inc. (POM) 6.1%
12. Progress Energy, Inc. (PGN) 5.9%
13. Cincinnati Financial Corporation (CINF) 5.9%
14. Ameren Corporation (AEE) 5.7%
15. Qwest Communications International Inc. (Q) 5.7%
16. Duke Energy Corporation (DUK) 5.7%
17. Lilly, Eli (LLY) 5.7%

b) Payout Ratio
Please keep in mind, however, that dividends are paid from earnings and, as such, should be a modest percentage of earnings. This relationship is known as the payout ratio and is calculated by dividing the dividend by the company’s net income. The payout should be less than 60% for nearly all stocks except qualifing utilities, publically traded partnerships, and real estate investment trusts. On that basis only 2 of the above stocks qualify with dividend payout ratios as follows:
1. Lilly, Eli (LLY) 50.7%
2. First Energy (FE) 56.4%

c) Dividend Growth
The next questions you should ask yourself are related to dividend growth and specifically:
a) has the company has failed to raise its dividend for one year and
b) has the company cuts its dividend in the past year or, to put it in other terms
c) has the company’s dividend grown year after year for the past 5 years.

For the conservative dividend investor failure of a company to raise its dividend is a red flag unless such a failure is related to spending in order to have greater revenues in the future while dividend cuts are seen as the kiss of death for the price of the company’s stock. Below are the above 2 companies according to their 5 Year Dividend Growth Rate:
1. FirstEnergy (FE) 8.0%
2. Lilly, Eli (LLY) 6.2%

d) Price to Earnings Ratio
Last but not least is each stock’s price to earnings (P/E) ratio. A ratio above 15:1 suggests that the stock is overpriced unless it is a major growth stock while a ratio below 5:1 would suggest the the stock is underpriced for some apparent reason. At both extremes further review should be undertaken to understand the situation better to help you make truly informed decisions as to whether they should be purchased or not. The P/E ratios for the above 2 companies are as follows:
1. FirstEnergy (FE) 11.1%
2. Lilly, Eli (LLY) 8.5%

Conclusion
There you have it! Out of 17 stocks with substantial dividend yields only 2 stocks – FirstEnergy and Eli Lilly – have payout ratios that suggest that the dividends are not in jeopardy, have dividends that continue to grow consistently over time and prices relative to their earnings that suggest that the stocks are not over-priced at their current levels.

Disclosure:
The above analyses do not preclude that there are certain aspects of their financial situation, management or business plans that might hamper their earnings growth over the years to come. As such, and you have heard it all too often before, you must do your own extensive due diligence before making any buying decision and I urge you to do just that. Please look at the analyses in this article as giving you a head start in your own due diligence and not as a recommendation to buy. For the record I do not own either of said stocks as I have my monies deployed elsewhere to achieve different objectives than generating high yields.

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I’m almost certain that — no matter what you and I think about it — overall tax rates are going to continue creeping higher in the years ahead so I strongly urge you to consider taking advantage of every legal means you can to shelter your wealth and watch it grow with as little interference from Uncle Sam as you can. Words: 1035

In further edited excerpts from the original article* Nilus Mattive (www.moneyandmarkets.com/) goes on to say:

Three Cheers For These Four Ways to Pay Less Taxes

#1. 401(k) plans
Most employers offer these retirement accounts, and they’re a great way to keep money away from Uncle Sam. That’s because whatever you contribute is taken out of your pre-tax earnings. Not only does that mean you are deferring taxes on the amount contributed, but you also might be bumping yourself into an overall lower tax bracket.

For 2010, most people can put away as much as $16,500 – and if you’re over age 50 you may be eligible to contribute an additional $5,500 in catch-up money!

Meanwhile, your investments grow tax-free until you cash out during retirement. Add in the fact that many companies are willing to match some of your contributions and you can see why I think 401(k) participation is a complete no-brainer.

I would also note that self-employed folks should take a serious look at a special class of these accounts, called Solo 401(k)s. They carry MUCH higher contribution limits (as high as $49,000 for high earners under age 50).

#2. Individual retirement accounts (IRAs)
Whether you have access to a 401(k) or not, you can also contribute to an individual retirement account every year. The only provisions: You must have earned income and it must fall within a certain threshold (see the table in the original article* for the details).

For both 2009 and 2010, investors can contribute up to $5,000 annually to their IRA accounts. If you’re at least 50 years old, you can also take advantage of a special catch-up provision and stash away another $1,000.

Just note that you cannot max out both a regular and a Roth IRA in the same tax year. Your total contributions to all IRA accounts (not counting rollovers and such) must fall within the ranges I just cited.

Which is the better choice — a Roth or a regular IRA? Only you can decide based on your eligibility, age, goals, etc. but I will say that the Roth IRA has a few advantages including no required withdrawals, no age restrictions, and no more taxation of any money earned in the account … EVER!

#3. Coverdell Education Savings Accounts
If you have a child or grandchild you’d like to help out, this type of account is a nice little tax-shelter for them. You can put in $2,000 every year for the minor’s education (up until their 18th birthday).

Coverdells operate much like Roth IRAs (they were formerly known as Education IRAs). As long as later withdrawals go to qualified education expenses, your original contributions and any investment returns are not taxed.

The beneficiary of the account has until age 30 to use the funds. After that point, they must either withdraw the money and pay taxes plus a 10 percent penalty or roll the funds into a new Coverdell account for another beneficiary.

#4. 529 Plans
Again, these are great for parents, grandparents, or anyone else looking to help put a child through college. Like Coverdell accounts, they allow contributions to grow tax deferred. Plus, distributions will be tax free as long as they go to qualified education costs (in this case, it’s only post-secondary education purposes).

In addition, depending on the plan, the future student is not the only one who reaps tax benefits … the contributor can too! 529 plans are sponsored by individual states and some will allow residents to write-off the money they put into a plan against their income taxes. Considering that some 529s accept as much as $300,000 in contributions over the life of the account, your tax benefits can be extremely significant.

Dividends
Also remember that dividends will still get you a major tax break through 2010! Most dividend payments continue to get taxed at a much lower rate than other investment earnings because of the Jobs and Growth Tax Relief Reconciliation Act of 2003.

For most people, the tax rate on qualified dividends is now just 15 percent. Investors in a lower income bracket actually pay no tax on their dividend income and both these advantages will remain in place at least through this year.

The advantage of this tax break to a taxable income portfolio can be considerable. Say you have $100,000 invested in dividend-paying stocks with an average yield of 4 percent. That’s $4,000 in dividend income every year. If those payouts were taxed at your ordinary income rate, you could end up giving back as much as $1,400 in taxes (based on the highest bracket of 35 percent). In contrast, under the lower rate, you would owe only $600. That’s an additional $800 in your pocket! Based on our country’s current fiscal condition, I won’t guarantee that this unique advantage will continue beyond this year.

I’m almost certain that — no matter what you and I think about it — overall tax rates are going to continue creeping higher in the years ahead so I strongly urge you to consider taking advantage of every legal means you can to shelter your wealth and watch it grow with as little interference from Uncle Sam as you can.

*http://www.moneyandmarkets.com/three-cheers-for-tax-shelters-38730?FIELD9=1 (Money and Markets is a free daily investment newsletter from Martin D. Weiss and Weiss Research analysts offering the latest investing news and financial insights for the stock market, including tips and advice on investing in gold, energy and oil. To view archives or subscribe, visit http://www.moneyandmarkets.com.)

Editor’s Note:
- The above article consists of reformatted edited excerpts from the original for the sake of brevity, clarity and to ensure a fast and easy read. The author’s views and conclusions are unaltered.
- Permission to reprint in whole or in part is gladly granted, provided full credit is given.
- Sign up to receive every article posted via Twitter, Facebook, RSS feed or our Weekly Newsletter.
- Submit a comment. Share your views on the subject with all our readers.
- Buy the book below from Amazon. It’s pertinent to this article and inexpensive too.

Master Limited Partnerships (MLPs) combine the tax benefits of a limited partnership with the liquidity of common stock – but at a price. Words: 740

In further edited excerpts from the original article* David I. Templeton (http://disciplinedinvesting.blogspot.com/) goes on to say:

MLPs are a product of the U.S. Tax Reform Act of 1986 and the U.S. Revenue Act of 1987 which define which companies are eligible to structure their operations as MLPs. To qualify, a firm must earn 90% of its income through activities or interest and dividend payments relating to natural resources, such as petroleum and natural gas extraction and transportation. Certain real estate operations may also qualify as MLPs. Like other limited partnerships, MLPs pay no income tax, instead the liability is passed to the unit holders, MLPs’ name for shareholders.

Distributions are Tax Free
Instead of dividends, MLPs pay quarterly required distributions (QRD), based on the stated amount in the contract between the unit holders and the general partner. These distributions are not taxed when they are received. They are treated as a return of capital, thus reducing the cost basis of the investment. MLPs are extremely tax efficient.

Tax Efficiency at a Price
Tax efficiency comes with a price. Once a year, each investor receives a K-1 statement providing details of the unit holder’s share of the partnership’s net income. K-1s can be quite large (I’ve had some up 30-40 pages) and complex for those without a tax background. Unit holders will record items such as their pro-rata share of the MLP’s depreciation, state taxes, etc. on their individual tax form. In addition to the tax burden, MLPs require more bookkeeping to track their basis. Each year the share basis is adjusted down by the amount of cash distributions and also adjusted by the unit holders allocation of net income.

Below are some MLPs that have a history of increasing their unit distributions each year:
1. Enterprise Products Partners LP (EPD) – Yield: 6.60%
EPD is an integrated provider of natural gas and natural gas liquids services, including processing, fractionation, storage, transportation and terminalling. Years of distribution growth: 11

2. TC PipeLines LP (TCLP) – Yield: 7.80%
TCLP has interests in three interstate natural gas pipelines, including a 46.5% stake in Great Lakes Gas Transmission LP. Years of distribution growth: 11

4. Suburban Propane Partners LP (SPH) – Yield: 7.10%
SPH markets propane gas and other refined fuels to residential, commercial, industrial, and agricultural customers. Years of distribution growth: 11

5. Buckeye Partners LP (BPL) – Yield: 6.40%
BPL is one of the largest independent U.S. pipeline common carriers of refined petroleum products, with over 5,400 miles of pipeline. Years of distribution growth: 15

One way to avoid some of the tax headaches is to own MLPs via funds. The funds deal with the K-1s and issue 1099s to shareholders of the fund. This too comes with a price. Note the management expense ratios (MERs) of the MLP funds below:

6. Fiduciary-Claymore MLP Opportunity (FMO) – Yield 7.01%
Fiduciary/Claymore MLP Opportunity Fund is a closed ended equity mutual fund launched by Claymore Securities, Inc. It is co-managed by Claymore Advisors, LLC and Fiduciary Asset Management, LLC. Total Assets: $444.3 million; MER: 2.92%

7. Tortoise Energy Capital Corporation (TYY) – Yield: 6.43%
Tortoise Energy Capital Corp. is a close-ended equity mutual fund launched and managed by Tortoise Capital Advisors L.L.C. It invests in the public equity markets of the United States. Total Assets: $22.6 million; MER: 3.92%

8. Tortoise North American Energy Corporation (TYN) – Yield: 6.30%
Tortoise North American Energy Corporation is a close-ended equity mutual fund launched and advised by Tortoise Capital Advisors, L.L.C. The fund primarily invests in the public equity markets of North America. Total Assets: $148.9 billion; MER: 3.21%

MLPs provide excellent yields and are a tax efficient way to invest, but you must prepared to deal with their quirky characteristics.

*http://dividendsvalue.com/6067/increasing-dividend-yield-part-v-mlps/ (Disciplined Approach to Investing is primarily a blog focusing on the dividend growth investing discipline to provide investors with insight into a disciplined investing approach that should create wealth over time.)

Editor’s Note:
- The above article consists of reformatted edited excerpts from the original for the sake of brevity, clarity and to ensure a fast and easy read. The author’s views and conclusions are unaltered.
- Permission to reprint in whole or in part is gladly granted, provided full credit is given.
- Sign up to receive every article posted via Twitter, Facebook, RSS feed or our Weekly Newsletter.
- Submit a comment. Share your views on the subject with all our readers.
- Buy the book below from Amazon. It’s pertinent to this article and inexpensive too.

Many dividend investors automatically ignore high yielding dividend stocks because they assume that such high yields are too good to be true but there is much more to evaluating a dividend stock than just looking at its yield. Intelligent investors will look not only at a stock’s yield, but also at its payout ratio or the ratio of dividend payments to net earnings. Words: 606

In further edited excerpts from the original article* eChristian Investing (www.eDividendStocks.com) goes on to say:

The average yield of dividend stocks in the Dow Jones index is now 2.9%. The S&P 500 sports 15 stocks with dividend yields above 6%. Those are pretty attractive yields for income investors, given that a money market account currently offers less than a 1% return.

A high dividend payout ratio is typically a warning sign that the current dividend level is unsustainable but below are details on 5 dividend stocks that have impressively high yields but also have very deceiving payout ratios in that they have sufficient free cash flow to maintain such dividend payment levels.

1. Qwest Communications (Q)
Qwest offers dividend investors an impressive 6.9% dividend yield. Wall Street expects that net earnings will decline by 10% this year, pushing the stock’s dividend payout ratio to 94%. However, the company generated nearly $2 billion in free cash flow in 2009 and has very impressive EBITDA margins (36% in the fourth quarter). With a manageable dividend/free cash flow ratio, Qwest should be able to maintain their dividend payout despite Wall Street’s expectations of further revenue declines in 2010 and 2011.

2. Frontier Communications (FTR)
Frontier Communications is the highest yielding stock in the S&P 500 with an amazing 13.7% dividend yield. The telecom stock is in the midst of acquiring assets from Verizon (VZ) in an $8.6 billion deal. The dividend reduction along with the Verizon transaction will significantly improve their dividend payout ratio from their current 175% level, but will still offer investors an amazing 10% dividend yield.

3. Windstream (WIN)
Windstream is the second highest yielding dividend stock in the S&P 500 with a 9.6% dividend yield. While the company’s annual dividend payout of $1.00 per share exceeds their anticipated net earnings of $.85 per share, the telecom stock is only expected to pay out 55% of their free cash flow in 2010. Wall Street also expects the stock to grow earnings in both 2010 and 2011.

4. Paychex (PAYX)
Paychex currently offers investors a respectable 4% dividend yield, but at the same time they are using 93% of their net earnings to fund their dividend payment. However, Wall Street expects the company’s earnings to grow by 8% in 2011. Though the labor markets are still a long way from full recovery, investors are recognizing that the Paychex outlook is much brighter than it was just a few quarters ago.

5. Verizon (VZ)
While Verizon may be the second highest yielding dividend stock in the Dow Jones index, declining earnings in 2010 could put pressure on the company’s high dividend. However, given the company’s strong dividend history we believe a dividend cut is unlikely from Verizon – despite a dividend payout ratio that is now above 80%. A costly marketing battle with AT&T (T) could prevent Verizon from increasing their dividend this year, but the chances of a dividend cut are slim.

When evaluating dividend stocks, free cash flow is often a much better measure to look at than net earnings. Without looking at a company’s cash flow, you can often be ignoring great dividend stocks. A high dividend payout ratio certainly shouldn’t preclude you from doing further analysis on a great dividend opportunity.

*http://seekingalpha.com/article/192523-five-quality-dividend-stocks-despite-high-payout-ratios?source=article_sb_popular

Editor’s Note:
- The above article consists of reformatted edited excerpts from the original for the sake of brevity, clarity and to ensure a fast and easy read. The author’s views and conclusions are unaltered.
- Permission to reprint in whole or in part is gladly granted, provided full credit is given.
- Sign up to receive every article posted via Twitter, Facebook, RSS feed or our Weekly Newsletter.
- Submit a comment. Share your views on the subject with all our readers.
- Buy the book below from Amazon. It’s pertinent to this article and inexpensive too.

“I have no idea what you are talking about!” If that is your expression when you [listen to the commentators and] look at figures and terms scrolling on CNBC or any other business or finance news channel, this article is specifically designed to suit your needs. Words: 753

In further edited excerpts from the original article* by www.financialculture.com says:

Let’s find out:
Open
The opening time to trade in American stock markets is 9.30 am EST and closing is 4.00 pm EST. The market is operative from Monday to Friday, closed on bank holidays and weekends. The price of any given stock at 9.30 am EST is known as an opening price or generally termed as ‘Open’. Trading is also done in ‘pre-market’ hours i.e. from 8.00 am to 9.30 am EST and ‘after hours’ i.e. from 4.00 pm to 6.30 pm EST. The ‘open’ price is generally affected by these two trading sessions.

Prior Day’s Close
- the price of any given stock at 4.00 pm EST i.e. closing period. However, it’s not necessary that the price of a stock mentioned as ‘prior day’s close’ would be same as next day’s ‘open’ because the ‘after hours’ and pre-market’ sessions is operative in between.

High
- the highest price of any given stock in that particular given trading day.

Low
- the lowest price of any given stock in that particular given trading day.

Volume
- the quantity of shares of a specific given stock traded in any given day. It is an important piece of information noted by traders and investors because if the number mentioned in volume is quite high, it becomes easy to buy and sell shares and the prices are bound to fluctuate. However, if the number of volume is low, it becomes quite difficult to get or sell a stock at the price comfortable to you.

Average Volume
- the average of the quantity of shares traded of a specific stock during a long period, generally 365 days (or a year). Comparing this number with the ‘Volume’ of a stock at any specific day gives you vital information about the company. If the number is much higher than the ‘average volume’ then some significant information is or about to be revealed.

Market Cap or Market Capitalization
- the number of outstanding shares multiplied by the stock price. There are 3 categories under which the listed companies are divided: large cap, mid cap, and small cap. A company is considered as a large cap when the above calculation gets an amount between $10 and $200 billion. It is mid cap when between $2 and $10 billion, and small cap when it is between $2 billion and $500 million.

52 Week High
- the highest price reached by a specific stock anytime in the past 52 weeks.

52 Week Low
- the lowest price reached by a specific stock anytime in past 52 weeks.

Earning Per Share or EPS
- the company’s annual profit divided by the quantity of outstanding shares.

P/E or Price Earnings Ratio
- the prevailing stock price of a specific stock divided by the annual earnings of a share in the last 12 months. Price to Earning ratio can be used to compare the worth of like stocks, depending on the growth level.

FP/E or Forward Price to Earning Ratio
- the future P/E, specifically subsequent financial year, of any specific stock.

Beta
- a tool used to measure how volatile a stock is compared to the ups and downs of the market. Generally the figure of beta for any stock varies between 0 and 2 (excluding 2). If the volatility of the stock is in sync with the market, beta is 1. If volatility is more, beta is more than 1. If volatility is less than the market fluctuations, beta is less than 1. For instance, if the beta of stock ‘Z’ is 1.2 then the volatility of the stock is 20% more than the volatility of the market.

Dividend
- the part of the company’s profit that is distributed among the shareholders.

Yield
- the percentage of the annual amount a shareholder receives over the price he paid to buy the stock (stock price).

Shares and Shareholders
- [the piece of ownership of a company owned by a 'shareholder'.]

% Institutionally Owned
- the portion of quantity of shares owned by various financial institutions (mutual funds, insurance companies, pension funds, etc.).

[Now you know.] Read this article a couple of times and then watch CNBC tomorrow to test yourself on how much you remember.

http://www.financialculture.com/i-have-no-idea-what-you-are-talking-about/

Editor’s Note:
- The above article consists of reformatted edited excerpts from the original for the sake of brevity, clarity and to ensure a fast and easy read. The author’s views and conclusions are unaltered.
- Permission to reprint in whole or in part is gladly granted, provided full credit is given.
- Sign up to receive every article posted via Twitter, Facebook, RSS feed or our Weekly Newsletter.
- Submit a comment. Share your views on the subject with all our readers.
- Buy the book below from Amazon. It’s pertinent to this article and inexpensive too.