May 21, 2010
Boomers should buy dividend paying stocks to stay ahead of inflation. As stock prices rise over time, compared to a bond, high quality dividend paying stocks also have the ability to increase dividends (yield) over time, versus a bond which has a fixed interest rate and can be called. Even in a down market, investors will collect a stream of income from the equities, so why not get paid while you wait?
May 19, 2010
The CAIM Mock Portfolio Taste Test. We recently completed our first ever recommended mock portfolio for baby boomers. Our survey reveals that our value oriented portfolio is cheaper and less risky than a traditional “growth” portfolio, and pays dividends, which are compounded as stock prices appreciate. Conclusion: Dividend stocks taste better for Baby Boomers than less appealing expensive growth stock peers.
May 17, 2010
Barron’s article by Michael Santoli, this weekend further, supports our thesis that cash rich, dividend paying stocks should be the investment of choice for baby boomers and any individual who wants to achieve positive long term equity returns with low volatility. The article states that “corporate America is prepared to return cash to investors and to accelerate the spending, hiring, investing and acquiring that most companies curtailed stress and deep uncertainty of the financial crisis and the 2007-2009 economic contraction.” On the list of returning cash to investors is dividend increases. The article also mentions two of our favorite stocks, Intel (INTC) and International Business Machine (IBM). Our screens (CAIM LLC) have produced stocks with an average cash flow per share of $4.89, 30% debt and a dividend payout of 42%.
High quality U.S. companies are ready to come out of safety mode and regroup for growth. We are urging baby boomers to take advantage of this trend while these companies are attractively valued. These companies will be the life blood of boomer’s portfolios as they will need to out pace inflation and receive a stream of income from their investments.
May 13, 2010
As we mentioned last Friday we viewed the correction in the market as a buying opportunity. One of the hardest hit sectors in the correction were the consumer discretionary stocks. As a result, we established a position in Genuine Parts Co. (GPC).
Why we like this company:
1. High quality dividend paying stock. 3.8% yield, 16% debt to total capital, strong cash flow.
2. 55% of the company is leverage to the auto parts segment. With the median vehicle age in the U.S. over nine years old, we believe there will be sufficient demand for GPC’s products (GPC owns NAPA warehouse distribution centers)
3. Strong cash flow has the opportunity to be used for dividend increases, share repurchases, modest acquisitions.
May 7, 2010
The best way to describe yesterday’s market is to liken it to hitting a major air pocket when flying. As we all know, they are not fun and they certainly can shake your sense of security. Market continues its slide this morning, even on the heels of a decent jobs report.
To put things in perspective, the Dow is now 20% off its highs and 63% above the low. This is a good time to remind ourselves that stocks do not move up in a straight line. We do not suggest that we can predict the market with any accuracy. Market timing is often a losing game. What we do is look for high quality dividend paying companies that have the ability to increase the dividend over time. We are using today as a buying opportunity for those stocks we like for the long term. In particular, we are adding to names like IBM, INTC, CVX, DOW.
May 3, 2010
Barron’s this weekend had a great article about JNJ. JNJ is one of our top 5 holdings. As the article says, this stock may not have been as “peppy” as the rest of the market, but there are several standouts about this high quality company:
1. Improvement in eps growth over the next few years.
2. Strong drug and medical device pipeline.
3. Solid balance sheet (low debt, strong cash flow)
4. 3.3% dividend yield.
Stock is trading below a market multiple because of past drug patent expirations, concerns over health care reform and sluggish results in consumer products. We agree with Barron’s that this is all about to turn around. Let’s not forget, next year we enter into several potential headwinds that could slow this market down (higher taxes, higher interest rates, lack of employment). You want to keep your portfolio diversified amongst different sectors.
Just to keep things in perspective, here’s a plug for the value of long-term investing. Below are the rates of return for JNJ versus the S&P 500 over several time periods.
2 years: JNJ -5% S&P -16%
10 years: JNJ +56% S&P -18%
20 years: JNJ +808% S&P +259%