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No content published as part of the CAIM LLC blog constitutes a recommendation that any particular investment, security, portfolio of securities, transaction or investment strategy is suitable for any specific person. To the extent any of the content published as part of the blog may be deemed to be investment advice, such information is impersonal and may not necessarily meet the objectives or needs of any specific individual or account, or be suitable advice for any particular reader. Each reader agrees and acknowledges that any specific advice or investment discussed in the blog must be independently evaluated by the reader and his or her adviser in view of the reader's investment needs and objectives.

Dividends Moving Higher

August 12, 2010

 

Despite the dismal market this week, two of our companies announced dividend increases.

AFLAC (AFL) initiated a 7% hike increasing their dividend to $.30 a share. The stock now has a current yield of 2.4%. The company has also made a commitment to buy back stock. They may buy back as much as 3 million shares by the end of 2010 and plan to purchase 6 million shares in 2011.

Illinois Tool Works (ITW) announced a 105 dividend increase to$.34 per share. The stock has $2.55 in free cash flow per share and a current dividend yield of 3%.





Bond Holders Beware

August 6, 2010

 

Good news for International Business Machine (IBM), bad news for investors. On August 2nd, IBM sold $1.5 billion of 3 year debt at a 1% interest rate. This rate is a mere .3% higher than government debt with a 3 year maturity and 50% less than the dividend yield on the common stock.

The Wall Street Journal had a great article talking about IBM’s remarkable track record of being able to issue low rates on bonds right before the Federal Reserve raises rates (link to article: http://blogs.wsj.com/marketbeat/2010/08/05/is-big-blue-flashing-a-bond-warning/?mod=wsjcrmain).

Pretty smart for IBM. If they used the proceeds to buy back their own stock, they are borrowing at 1% to get 2% on their dividend so even if the stock went nowhere they are still ahead of the game. If their track record holds true, this is bad news for bond holders. Higher rates will mean losses for bond investors.
Our advice? Buy the stock with a 2% dividend yield and put it away for the next 5 years.





International Business Machine 2Q 2010 Earnings

July 21, 2010

 

This is a company we want to own for the long term and are buyers on weakness in price. Stock is down based on disappointing revenue number. Overall earnings slightly beat consensus. We expect the revenue number to be mixed over this sluggish period of economic growth. We are encouraged by the following positives:
1. Dividend has increased by 18%.
2. Europe and China did not slowdown.
3. Services were down in the 2Q but expect to ramp up in 3Q.
International Business Machine 2Q 2010 Earnings





2nd Quarter and Year-to-Date Performance

July 13, 2010

 

Since the beginning of the year we have been talking about having a bumpy stock market this year. Year to date, the S&P 500 is down 7.6% In the second quarter, we hit a pretty hard bump with the S&P 500 down 11.9%. The combination of health care reform, Greece (and the other PIIGS countries) and financial services reform sent people running from the stock market to the safety of treasuries. So much so, that the 10 year bond is now yielding 2.95% and the 2 year note is at .62%. Compare this to a 2.8% dividend yield on the Dow. We also had some hiccups in the weekly unemployment claims. It has always been our belief that the economic recovery would be driven by capital spending with a sluggish consumer. We still believe that to be true. Our philosophy of buying high quality large cap dividend paying stocks is even more appropriate in this environment. As long term investors we recognize that these stocks offer great value when compared to bonds and cash. The next few years we expect a slow growing economy and these stocks have the financial strength and flexibility to thrive in that environment.

CAIM LLC’s 2nd quarter performance was -9.66% versus -11.9% for the S&P 500. Year to date we are -4.16% versus -7.6% for the S&P 500. Our overall stock selection has been better than the market and we are continuing to hold a 6% average cash position.





Where’s the Faith?

June 30, 2010

 

It’s not in the equity markets, that’s for sure. Yesterday’s lack of confidence drove the 10 year bond yields to 2.96%. It’s hard to believe that anyone would lend the debt laden government money for that price.

22 names in our portfolio yield 3% or higher. All of these companies are high cash flow generators and have low levels of debt. You have to believe that 10 years from now that we, as a country have the determination to turn around this economic malaise. If that’s the case, these stocks are cheap and will reward investors over the long term. Let’s not forget that with all that cash on the balance sheet, some of it will be going to increase the dividend. Does anyone think the government will raise your interest payment on the 10 year bond?





Picking the “Best” Dividend Paying Stocks

June 11, 2010

 

Even in this volatile market, we believe dividend stocks are a far better option than government bonds, which have very little option to keep inflation at bay. Even during the onset of recession, as many as 300 of the 500 companies listed in the S&P 500 raised their dividend payouts.

One important investing criteria when evaluating dividend paying stocks is to invest in those companies that are easy to understand. and have a dividend payout ratio of 50% or less.





Bulk Up on Dividends

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?





Baby Boomer Investing 101

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.





Barron’s Article by Michael Santoli

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.





Reaching for Yield

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.





 
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