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An Important Measure of Leverage for Dividend-Growth and Income-Oriented Shareholders, One That Is Dividend-Adjusted

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As more and more investors rely on company dividends for income, dividends, in our view, have become more debt-like commitments in nature, especially from the perspective of dividend-growth or income-oriented shareholders. Years ago, we rolled out a measure of financial leverage that considers both the company’s debt and the present value of its future expected cash dividend obligations, which, in the eyes of die-hard dividend-growth or income-oriented shareholders, may be implicitly assumed to be debt-like commitments in substance. We think this leverage ratio can be used in conjunction with the Dividend Cushion ratio to gain additional insight into the dividend-paying financial health of an entity. Note: There is often great confusion with respect to published measures of financial leverage, and … Read more

You Already Own Whatever Your Investment Will Pay You in Dividends

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“Business owners across the world know that their business is not more or less valuable because they paid themselves a higher distribution this quarter.” – Brian Nelson, CFA Image Source: Images Money Stocks are generally valued on the present value of all their future free cash flows, which already include future dividend payments. A company’s dividend policy may impact an investor’s eagerness to pay a higher price for shares on the basis of a higher yield, but the dividend is a symptom of future free cash flows (and therefore intrinsic value), not a driver behind it. where A (t) is an Enterprise Free Cash Flow (1) at year t,                 B (0) is a Total Debt at time 0,                 … Read more

3 Substantial Benefits of Dividend Growth Investing

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Dear members: There are three primary benefits of a well-executed dividend growth strategy, one that is carried out with prudence and care and one that pays careful attention to the intrinsic value of the stock and its critical cash-based components. Albert Einstein is reported to have called compound interest the “eighth wonder of the world,” but dividend growth investing has the potential to offer long-term investors so much more! Let’s explain. 1) Reinvested Dividends Compound Over Time Over the past decade, I have grown to appreciate the compounding dynamics of reinvested dividends on appreciating stocks even more than historical studies have revealed. The strategy of dividend growth investing not only benefits from the reinvestment of dividends into the purchase of … Read more

How the Payment of a Dividend Impacts Intrinsic Value Estimation

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  “Dividends are a transfer of cash to the shareholders that the shareholders already owned.” By Brian Nelson, CFA Many investors use the strategy of dividend growth investing as a means to generate increasing income in their retirement portfolios to stay ahead of inflation, or as a means to grow an income stream in the decades before retirement. Though we think such a strategy has tremendous merit, we think it’s important for readers to understand the mechanics of how a cash dividend payment impacts the valuation (intrinsic worth) of a company. How the Payment of a Dividend Impacts Valuation (Intrinsic Worth) In this article, let’s walk through the valuation adjustments we perform when a company pays a dividend to hammer … Read more

Walking Through the Calculation of the Dividend Cushion Ratio

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A cow for her milk, A hen for her eggs, And a stock, by heck, For her dividends. An orchard for fruit, Bees for their honey, And stocks, besides, For their dividends. – John Burr Williams, “The Theory of Investment Value” (1938) Executive Summary: We believe the Dividend Cushion ratio is one of the most helpful tools an income or dividend growth investor can use in conjunction with qualitative dividend analysis. The ratio is one-of-a-kind in that it is both free-cash-flow based, considers balance sheet health, and is forward looking. Since its development in 2012, we estimate its efficacy at ~90% in helping to forewarn readers of impending dividend cuts. For companies where Valuentum reports are available, the Dividend Cushion ratio can be found in a stock’s Dividend … Read more

ICYMI — Dividend Growth Strategies Struggle

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Image: A large cap growth ETF (orange) has significantly outperformed an ETF tied to a dividend growth strategy, the SPDR S&P Dividend ETF (SDY), which mirrors the total return performance of the S&P High Yield Dividend Aristocrats Index. — By Brian Nelson, CFA — To no surprise to many members, several dividend growth strategies have faced tremendous pressure during 2020. The Journal recently wrote a piece on the topic, but from our perspective, the problem with many dividend growth strategies is that they tend to be balance-sheet agnostic and pay little attention to traditional free cash flow expectations, focusing only on the yield itself, sometimes dismissing future fundamentals in favor of historical growth trends and the inferior EPS-based dividend payout ratio. — In many dividend-targeted … Read more

Brace for More Volatility

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Image shown: The S&P 500 ETF (SPY) since August of last year. The markets have broken through key support levels, and now support has become resistance. Volatility remains heightened since the low-vol ETN blew up in February. This article is the introduction to both the Dividend Growth Newsletter and High Yield Dividend Newsletter, both of which will be released today due to the holiday January 1. By Brian Nelson, CFA Markets are facing big pressure on the trading session January 3. There’s more to the story than rising interest rates. There’s more to the story than the US-China trade war. There’s more to the story than concerns about the political environment. Price-agnostic (indexing and quant) trading, as I outline in … Read more

The Dividend Dilemma

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One of the core tenets of the Valuentum process not only rests in the all-important price vs. value consideration (see Valuentum’s Brian Nelson talk about that here), but also in “letting winners run.” At first read, these two items appear to be at odds with each other. For example, we preach about getting stocks at a bargain, but yet, we don’t sell holdings when they start to move beyond our estimate of their fair value. What gives? At the Valuentum core, we prefer an entry point that corresponds to the time when shares have substantial valuation and pricing support (i.e. they have high Valuentum Buying Index ratings), and we prefer an exit point when shares have little valuation and pricing … Read more

Dividend Increases for the Week Ending August 1

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Below we provide a list of firms that raised their dividends during the week ending August 1. The dividend reports of covered firms on this list will be updated shortly with the new information. To access the dividend reports please use the ‘Symbol’ search box in the website header. Firms Raising Their Dividends This Week Acme United (ACU): now $0.09 per share quarterly dividend, was $0.08. Alliance Resource Partners (ARLP): now $0.625 per share quarterly distribution, was $0.611. CBOE (CBOE): now $0.21 per share quarterly dividend, was $0.18. CorEnergy (CORR): now $0.13 per share quarterly dividend, was $0.129. Crane (CR): now $0.33 share quarterly dividend, was $0.30. Healthcare Trust of America (HTA): now $0.145 per share quarterly dividend, was $0.14375. Host … Read more

Dividend Increases/Decreases for the Week May 6

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Below we provide a list of firms that raised their dividends during the week ending May 6. The dividend reports of covered firms on this list will be updated shortly with the new information. To access our dividend reports use the ‘Symbol’ search box in our website header. Firms Raising Their Dividends This Week      American Financial (AFG): now $8.00 per share special dividend, was $0.56. Amerigo Resources (ARREF): now CAD 0.03 per share quarterly dividend. Arbor Realty Trust (ABR): now $0.38 per share quarterly dividend, was $0.37. Arc Resources (AETUF): Now CAD 0.12 per share quarterly dividend, was CAD 0.10. Barrick Gold (GOLD): now $0.20 per share quarterly dividend, was $0.10. Baxter (BAX): now $0.29 per share quarterly dividend, was … Read more