Peace Dividends That Pay Dividends of Peace

The peace dividend is a political slogan purporting to describe the economic benefit of a decrease in defense spending. It is used primarily in discussions relating to the guns versus butter theory. The term was frequently used at the end of the Cold War in the early 1990’s, when many Western nations significantly cut military spending.
While economies do undergo a recession after the end of a major conflict as the economy is forced to adjust and retool, a "peace dividend" refers to a potential long-term benefit as budgets for defense spending are assumed to be at least partially redirected to social programs and/or economic growth. The existence of a peace dividend in real economies is still debated, but some research points to its reality.
During this season of the year when we profess to honor the Masters of Peace, we thought it would be refreshing to discuss dividends from companies that have little or nothing to do with war.
The fact that these companies pay dividends at all is, to our way of thinking, an act of peace. Maybe these companies believe that “…it is more blessed to give than to receive”. Perhaps they know it helps give their shareholders peace of mind when they receive part of the profits of the company?
First let’s talk about a company that pays a whopping 6% dividend. United Online (Nasdaq: UNTD). As you can learn from the profiles on our web site (just enter the symbol, press “get quote” and then click on the word “profile”) United Online is a provider of consumer Internet subscription services through a number of brands, including NetZero, Juno and Classmates Online.
The company’s subscription services include dial-up Internet access, social-networking, Voice-over-Internet Protocol (VoIP) telephony, personal Web-hosting, premium email, Internet security and online digital photo-sharing. Co. also provides advertising-supported versions of many of its services at no charge to consumers. As of Dec 31 2005, United Online had approximately 5.0 million pay accounts representing approximately 6.4 million total subscriptions, and approximately 17.6 million active accounts.
Do they do anything that supports the business of war? Not that we are aware of. Please go to their web site at http://www.untd.com/ and you will learn why they are growing and how they are able to pay such a generous dividend…6%...that’s awesome!!
UNTD is making money, and their forward PE/ ratio of a little over 12 makes Jim Cramer and his staff feel this is a cheap stock…undervalued. These are the smart people who brought the world PrivatePhone™.
What is PrivatePhone? ``We launched PrivatePhone primarily as a way for people to give out a phone number without compromising their privacy,'' said Matt Wisk, chief marketing officer at United Online. ``While many of our members do use it for that purpose, it has really morphed into a way for people to communicate by voice online. Bloggers are putting their PrivatePhone number on their blogs to allow readers to post voicemails instead of comments, people are adding it to their MySpace pages, and DJs, bands and other entertainment types are recording outgoing messages to tell their fans where they're playing or what they're up to. We took a look at what these members were doing to promote themselves online and came up with three new features to help them do it.''
The more we study about this company the more we see why they peacefully pay abundant dividends. We are a bit concerned that they have a plan for growth that will consecutively allow them to be so generous. Before you invest any of your money here better do your research and carefully examine their web site http://www.unitedonline.net.
Next, let’s look at a financial service company that has been increasing their dividends for 35 consecutive years and currently pays out at a 4.4% rate. US Bancorp (NYSE:USB).
Our CheckTheMarkets site had this to say about Minneapolis-based USB, “U.S. Bancorp is a multi-state financial services holding company. Co.'s banking and investment services are provided through a network of 2,419 banking offices mainly operating in 24 states in the Midwest and West.
The Company provides a range of financial services including lending and depository services. Co. also engages in credit card, merchant, and ATM processing, mortgage banking, insurance, trust and investment management, brokerage, and leasing activities principally in domestic markets. Co.'s non-banking subsidiaries primarily offer investment and insurance products to its customers within its markets and mutual fund processing services. At Dec 31 2005, Co. had assets of $209.47 billion.”
Recently the company updated this information. “U.S. Bancorp, with $217 billion in assets, is the 6th largest bank holding company in the United States. The company operates 2,467 banking offices and 4,943 ATMs in 24 states, and provides a comprehensive line of banking, brokerage, insurance, investment, mortgage, trust and payment services products to consumers, businesses and institutions. U.S. Bancorp is the parent company of U.S. Bank. Visit U.S. Bancorp on the web at www.usbank.com.”
They are trading at a 52-week high, partly because they just announced a generous 21% increase in their dividend rate.
Richard K. Davis, president and chief executive officer of U.S. Bancorp noted, "We are very proud of U.S. Bancorp's long history of paying a dividend, which provides our shareholders with an additional reward for investing in our company. Increasing the dividend by 21 percent is an important part of our strategy to continue our commitment to return at least 80 percent of our earnings to our shareholders through dividends and a stock repurchase program. We believe shifting the total payout to shareholders toward a higher mix of dividends is a more effective means to transfer the company's superior profitability directly to the shareholders. The decision to move to a greater proportion of dividends in no way diminishes the growth prospects of the company, since we will continue to retain 20 percent of earnings to support expected asset growth, capital expenditures and cash acquisitions. A higher dividend payout such as this is consistent with our strategy of low risk, dependable earnings and financial discipline."
The only war this company is supporting is the war against bad corporate leadership and stingy payouts. The USB “peace dividend” is reflected in the fact this company chooses to take the “high road” when it comes to how they take care of their shareholders.
We are also quite stoked about BB&T Corp. (NYSE:BBT), a Winston-Salem, NC based financial services and banking company. Check out their web site to learn more.
BB&T does well by their shareholders, as is witnessed by their dividend policies. The five-year compound growth rate for BB&T's quarterly dividend payment is 10.1 percent. BB&T has paid a cash dividend to shareholders every year since 1903. The corporation has increased its quarterly cash dividend payments for 35 consecutive years.
On Dec. 12th the board of Directors declared the 2007 first quarter dividend of $0.42 per share, a 10.5 percent increase over the $0.38 paid in the first quarter of 2006. The dividend will be paid Feb. 1 to shareholders of record as of Jan. 12.
BB&T operates more than 1,450 financial centers in the Carolinas, Virginia, Maryland, West Virginia, Kentucky, Tennessee, Georgia, Florida, Alabama, Indiana and Washington, D.C.
With $118.5 billion in assets, BB&T Corporation is the nation's 11th largest financial holding company. More information about BB&T Corporation is available at http://www.BBT.com.
“Peace dividends” make a lot of sense to us. Now all we have to do is invest in the companies with the best ones available. Look carefully and then invest with confidence.

Cash In On a Golden New Year Filled With Silver Linings

Everyone around the globe seems to be searching for a replacement for the US dollar as a currency that all nations can trust and bank on. The dollar for almost two decades has been considered a safe investment that would outperform virtually all paper-denominated symbols of value.
Today the “full faith and confidence” in American Greenbacks is receding about as fast as my hairline when I was 25 years old. That is mainly because there is nothing really backing the dollar except promises and a belief that the US economy can grow by leaps and bounds.
Right now too many foreign governments know about our huge deficits, the unprecedented debt that the average American lives with, and that the ultimate ATM machine, US housing, has begun to malfunction.
So what is the “smart money” beginning to do? Our sources tell us that the central banks of many nations around the world are cashing in their green pictures of dead US presidents and exchanging them for gold and silver.
Speaking of silver, we here at CheckTheMarkets.com want to join with a growing number of monetary realists who believe that silver will outperform gold in 2007 versus the US dollar. In other words, if gold is going up 10 % this year, than we will probably see silver increase 20% as measured against the greenback.
That being said, we think it is a prudent time to be investing in both silver and gold. If you agree, and you don’t own some of the physical metals, than by all means acquire some.
It isn’t hard to do, and we know of experts like David Young at Wexford Capital Management (http://www.goldsilverbullion.com/) who as far as we know has some of the brightest ideas and the best prices on gold and silver bullion (we recommend you speak with him about the US silver eagles and gold eagles). If you are inclined to buy in large quantities he can also tell you how to find safe storage for your bullion and coins.
For those of us who are also so inclined, you would be well-advised to consider buying the shares of those companies who are bringing the silver and gold out of the ground and selling it for luminous profits. These are the respected producers and purveyors of the precious metals who have perfected the science of “buying low and selling higher”.
Our family has taken a special interest in a gem of a company called Goldcorp (NYSE:GG), which says it is the lowest-cost senior gold producer with the best growth profile in the Americas. In the third week of December 2006 it forecasts its 2007 output at around 2.8 million ounces of gold at an anticipated cost of $150 per ounce.
That means if gold is selling for around $630 per ounce; it has the potential to reap a per-ounce profit of around $480. If you multiply that by 2.8 million ounces…are you sitting down...it could gross a staggering $1.344 billion dollars on its gold production alone.
It also has the capacity to mine a great deal of silver and copper. After its recent purchase of Glamis Gold which owned the properties and assets of the former Western Silver Company, Goldcorp has greatly increased its potential silver profits.
While gold production levels are rising fast, so are predicted cash costs. In the third quarter Goldcorp produced 431,800 ounces of gold at cash costs of only $84 an ounce net of byproduct credits (byproduct credits are figured at a conservative $10 per ounce for silver and a perhaps not so conservative $3 per pound for copper).
If silver prices remain high and surge higher, and copper prices rebound for current levels, then 2007 cash costs will be far lower, the company recently announced.
On Dec 8th, Merrill Lynch raised it price target on Goldcorp to $38, saying the company will be viewed as the “go-to” gold producer among senior gold companies now that its merger with Glamis is complete. GG shares closed on Friday, Dec. 22nd at $27.16 per share. Are we getting the hint?
Merrill analyst Michael Jalonen said his net asset value calculation for GG is up 11.1 percent to $12.60 from $11.35, due to rising mid-term gold and silver prices and long-term silver prices. He noted that Vancouver-based GG has above-average production growth, the lowest cash costs of its peers, and a stable geopolitical asset base. In addition, the company has “substantial” free cash flow generating ability [to produce and acquire], he wrote in a note to clients.
The analyst stressed what we believe, that “The merger of Goldcorp and Glamis Gold in late 2006 vaulted Goldcorp to the forefront of global gold producers.” “The new Goldcorp has growing gold production, very low cash costs, solid earnings generating ability, large reserve/resource base, strong balance sheet and an entrepreneurial management team."
Times have been great for silver this year, which under the right circumstances can act like gold on steroids. And it’s doing this right now. With oil prices stabilizing and the dollar weakening--powerful tailwinds at precious metals’ backs--silver is beginning to significantly outperform gold.
This summer, I favored buying the iShares Silver Trust (AMEX: SLV) after the sharp correction that commenced in May at an entry price of $102. Has capitalization on that move passed other investors by? I don’t think so. I’m looking for that exchange traded fund (ETF) to trade to $200 by mid-2007 with a possible $10 to $20 downside from current levels.
The iShares Silver Trust has 10 ounces of silver per share; you have to multiply the price of silver by 10 to get to the ETF price. This is the opposite of the streetTRACKS Gold (NYSE: GLD), where the price of gold is divided by 10.
Silver prices are currently around $13; it’s not out of the question if they trade up to their 1980 high near $50 (but that would take time and a lot of patience). Obviously, this would have a significant effect on the ETF price.
Some of the best-run silver miners happen to be based in Canada. One such company is Pan American Silver Corp (Nasdaq: PAAS) led by Ross Beaty. Even though the company is based in Vancouver, British Columbia, all of its mines and reserves are in Latin America and the US, making it truly Pan American. That’s OK; all large mining conglomerates are global in nature. Pan American aims to be the largest pure silver miner in the world while delivering the lowest possible mining cost in order to achieve better leverage to the price of silver bullion.
In 2005, Pan American produced about 12.5 million ounces of silver from six producing mines in three countries and is on track to produce approximately 14 million ounces in 2006. Because there are more mines under construction, Pan American expects to become the largest primary silver producer in the world, reaching 25 million ounces per year by 2009.
There’s also an interesting Canada-based royalty company, Silver Wheaton Corp (NYSE: SLW), that has no mining operations but holds long-term contracts to sell the silver of existing mines. It buys silver at $3.90 and sells it for $13.
Before you ask why anyone in his right mind would sell silver to Silver Wheaton at $3.90, do some reading on the company on its Web site; it’s a remarkable story. The sellers of the silver take cash and shares of Silver Wheaton for their bullion. Because they're shareholders, they get heavily compensated for the low silver price they receive. It’s a way to magnify fringe silver operations of otherwise primary gold mining companies.
Finally, no article on mining stocks is complete without mentioning Barrick Gold (NYSE: ABX), the biggest precious metals miner in the world after the completion of a recent merger. For many years, Barrick was hated by precious metals enthusiasts (it probably still is) for its hedging strategy--selling bullion forward to manage volatility of revenues. Barrick was very smart to do so in the 1996-00 period when prices went down every year and less smart since 2000 as prices have been rising.
There are credible signs that this hedge book is unwinding and the leverage to the gold price of Barrick Gold is increasing. Recent mergers (like Placer Dome) are helping change the culture at Barrick. The stock's best days have yet to come; plus, the shares are the least volatile of the whole group, making them perfect for long-term conservative investors who seek exposure to precious metals prices.
There’s an excellent chance that a year from now we will look back on the shares of the company’s mentioned above—as well as the price of silver and gold—and say to ourselves, “The end of 2006 was a golden chance to cash in our dollars for silver and gold and make some serious capital gains!” Let’s not just talk about it. Let’s do it!!

Big Profits from a Surprising Strategy

It’s impressive to see a publicly traded company that sells computers and computer-related hardware shining like a newly-minted gold coin.

During a time when the competition like Dell (Nasdaq: DELL) and Apple (Nasdaq: AAPL) seem to be breaking sales records, a little-known company called Systemax (NYSE: SYX) is making its mark.
The stock is up 41% of the past 30 days, and, are you sitting down? Its one year return is a dazzling 166% plus! What is Systemax doing and what is its future?
Systemax, Inc. operates as a direct marketer of personal desktop computers, notebook computers, computer related products, and industrial products in North America and Europe. It also assembles personal computers and sells them under Systemax, Tiger, and Ultra brands, as well as markets and sells computers manufactured by other companies.
The company offers a range of computer related products, including laser printer toner cartridges and ink jet printer cartridges; recordable disks and magnetic tape cartridges; peripherals that include hard disks, CD-ROM and DVD drives, printers, and scanners; memory upgrades; data communication and networking equipment; monitors; digital cameras; plasma TVs; and packaged software.
Systemax offers various industrial products, including storage equipment, such as metal shelving, bins, and lockers; light material handling equipment that include hand carts and hand trucks; furniture, small office machines, and related supplies; and consumable industrial products, such as first aid items, safety items, protective clothing, and OSHA compliance items.
It serves business customers and individual consumers, including large businesses, small and midsized businesses, educational organizations, and government entities. Systemax markets its products through direct mail catalogs, e-commerce Internet sites, and personalized relationship marketing. The company was incorporated in 1995 and is headquartered in Port Washington, NY.
The Company's multi-faceted marketing plan features Internet, relationship marketing, and inbound catalog sales. Through these channels Systemax offers over 40,000 products to its two million customers. Systemax PCs are touted as "The Perfect PC" for the educated buyer who wants name brand components, warranty and service without paying for massive amounts of advertising.
They target mid-range and major corporate accounts, small office/home office customers, value added resellers, software & internet developers, and networking professionals. These customers are reached via frequent catalog mailings, account relationship marketing, easy to use internet sites, and a variety of promotions.
Distribution is made simple by their growing network of regional distribution centers in North America and Europe. You would do well to visit their web site and discover what a successful business model they have created. The address is as you would suspect: http://www.systemax.com/.
Recently Systemax announced that third-quarter net income more than tripled. Revenue grew by more than 18% to over $575 million. After the glowing third-quarter results were announced the stock jumped almost 20% in one session.
The stock has a market cap of over $565 million dollars and is selling at around 18x earnings. It has backed off its 52 week high and was recently selling for a little over $16 per share. Apparently there is no coverage by brokerage firms or by analysts.
The CEO Richard Leeds and his family are rumored to be major shareholders. It is always nice when some of the biggest individual shareholders are the officers and directors of a company. If they start selling shares usually the alarm bells go off on Wall Street. Yet when they quietly accumulate millions of dollars worth of stock very few will take notice.
If you look at Systemax’s Section-16 insider filing, which just happen to be loaded onto their web site, you can’t help noticing that CEO Leeds holds at least 5 million shares. Rumor has it he and his kin own at least 10% of the company stock, and when the price leaped recently, we have no evidence that he sold any. Do he and his advisors know something we ought to know? We would like to know the answer to that question.
The company is growing its internet sales at a brisk pace. The CEO recently stated in a press release that the internet accounted for 34% of their sales. As internet usage and subscribers worldwide explodes over the next 10 years, can you imagine what might happen to their sales?
There is always a lot that can go wrong with a company and there has been more than one rising star that has sabotaged their own efforts. But this company seems to have some street-smart directors who know how to “sell-sell-sell”…and I’m speaking about their products and not their own shares!
Systemax has been expanding their product offerings and reaching markets in Europe, which just happens to be one of the biggest customer-bases in the world. Their Chief Financial Officer, Steve Goldschein noted that “… the Company’s overall financial condition remains solid as evidenced by its strong cash position and short-term borrowings only in certain European operations.”
Mr. Goldschein noted, “Our efforts to improve the timeliness and accuracy of our financial reporting both by adding personnel and strengthening our systems and procedures are continuing.” The rumor-mill expects the company to report their full year results on time at the end of March 2007.
Let’s keep an eye on this Fortune 1000 company. Any sell-offs of the shares which might drive the price down below the $15 level would be seen by some as a tantalizing buying opportunity.
All we can tell you for sure is that this company says it is making money on selling computers and plans to invest in its own growth. Considering Mr. Leeds impressive stock position, we’d be inclined to believe them.

The Power of Generating Power

Recently my family and I became shareholders of Dynegy Inc. (NYSE: DYN) in a surprising way. We had been shareholders years ago and had suffered losses when Dynegy experienced legal problems and the stock price plunged. This was followed by a class action lawsuit that we had participated in. Many moons had passed and we kept wondering if anything would ever come from the lawsuit. Then recently we received a check in the mail followed by a stock certificate for a small number of DYN shares. So, since I was again a shareholder I wanted to learn more about this company with its tainted past.

Dynegy, Inc., through its subsidiaries, engages in the production and sale of electric energy, capacity, and ancillary services. It generates electricity by burning coal, natural gas, or oil. As of November 13, 2006, the company owned and leased 20 plants of power generation facilities with 12,000 megawatts. It sells electric energy, capacity, and ancillary services primarily through bilateral negotiated contracts with third parties and into regional central markets; and through structured wholesale over-the-counter markets and directly to end-use customers.

It also seems interesting to me that Chevron (NYSE:CVX) is the largest shareholder of DYN stock with a position of 97 million shares as of September 15, 2006. On that date DYN entered into a unique arrangement. It agreed to merge with LS Power Group, a privately held power plant investor. LS Power, a subsidiary of LS Power Equity Partners, owns and/or operates more than 10,000 MW of generating capacity in operation or under development across the United States and markets energy commodities. The transaction is subject to shareholder approval and is all necessary conditions are satisfied it will close in early 2007.

Back in early November the company gave some guidance on earnings. It reported a loss of $69 million, or 14 cents a share, vs. a profit of $23 million, or 6 cents a share, a year earlier. The results include one-time charges totaling $98 million for asset impairment, a debt exchange and litigation settlement. The most notable item -- a $61 million after-tax charge -- relates to a write-down of Dynegy's Bluegrass peaking plant because of "recent changes in the market that placed economic constraints on the facility," the company said. Revenue fell to $581 million from last year's $770 million as the company's power generation business was hurt by lower volumes and softer pricing. The Midwest, where Dynegy was able to raise prices, helped to counter declines in other regions. For 2006, Dynegy widened its loss outlook to a range of $305 million to $325 million from $215 million to $260 million.

Weeden & Co. analyst Matthew Conlan said he was disappointed with the results, but stood by his hold rating and $7 a share price target on the stock. "I believe US power demand will continue to grow alongside US economic expansion, and Dynegy will be a significant beneficiary of increased utilization of the currently over-built power generation capacity," he said.

Now if the merger with LS Power goes through Dynegy believes it will position the combined company with a diverse platform that presents near-term, medium-term and long-term options for delivering value to shareholders. See their website for details at www.dynegy.com/. The company claims that Chevron is planning to vote all their shares in favor of the transaction.

This company’s history of not being “shareholder friendly” has me worried. Rumor has it they pay their CEO a shocking salary of $2.7 million a year, and the company has been loosing money. I’ll probably keep the shares we were given just to see what happens if the merger is approved and completed. But this company, even though it is in a lucrative business, has to start posting profits and an improved financial outlook before I’ll be buying any more shares.

An apparent contrast to the Dynegy legacy is Exelon Corp. (NYSE:EXC). Exelon operates as a utility holding company in the United States. The company, through its subsidiary, Commonwealth Edison Company, engages in the purchase, transmission, distribution, and sale of electricity to residential, commercial, industrial, and wholesale customers in northern Illinois. Through it’s other subsidiary, PECO Energy Company, the company engages in the purchase, transmission, distribution, and sale of electricity and natural gas to residential, commercial, and industrial customers in southeastern Pennsylvania. In addition, the company operates electric generating facilities and a wholesale energy marketing business, as well as retail sales business of other generation projects. Exelon distributes electricity to approximately 5.2 million customers in northern Illinois and Pennsylvania; and natural gas to approximately 470,000 customers in southeastern Pennsylvania. The company was founded in 1887 and is headquartered in Chicago, Illinois. As far as I know this company has glowing track record, but do your own due diligence before you invest and check out their website at www.exeloncorp.com/.

It pays a nice little dividend of around 2.6%. It is selling close to its 52 week high and its price-to-earnings ratio going forward is around 13 times next year’s projected earnings. Recently we read that Exelon and Ameren Corp. (NYSE:AEE) avoided an Illinois electricity rate freeze and the state government will consider next year whether to pass phased-in hikes or a freeze. The two utilities had sharply criticized the proposed three-year extension of a law that locked in retail power prices at 1997 levels, warning that the measure could drive their Illinois utility units into bankruptcy. Thus are the complications of owning a utility and power generation business and why I won’t invest too much money in any one utility, even if they do pay a nice dividend and have good corporate leadership.

If you want the benefits of owning power companies but don’t want to nibble on shares of individual utilities, you might want to consider the Exchange-Traded Fund (ETF) appropriately called “Utilities Select Sector SPDR” (NYSE:XLU). It pays a lovely 3% dividend and has averaged a 21% return over the past 3 years. Now as we all know, past performance doesn’t mean much concerning how it will perform in the future, but if you want to invest in power utilities and the business of providing electricity and natural gas to the consuming public, this seems like a prudent way to spread your risk and seek worthwhile returns. More power to you!

Keep It Successfully Simple

We recently received the latest edition of Extreme Value written by Dan Ferris. It was entitled "Why you can (and should) put your entire portfolio into Microsoft (Nasdaq:MSFT), Home Depot (NYSE:HD), St. Joe (NYSE:JOE) and Wal-Mart (NYSE:WMT)". It blew us away when he emphatically stated, "...if I had a billion dollars, I'd put it all into the four stocks we'll be covering this month." Yes, we would recommend you become a subscriber. Just go to www.stansberryresearch.com or call 888-261-2693. This jolted us into the train of thought of how simplified and care-free our investment portfolios would be if we took Dan's advice. We would have to add an equal proportion of Goldcorp (NYSE:GG) and Silver Wheaton (NYSE:SLW) to feel complete, but that would only be a stock portfolio of six companies. "Boring" you say? Well, maybe so but it would sure give us a lot of extra time to pursue the many other activities and interests that we somehow never seem to have enough time for these days. How valuable is a refreshing nap each day? How precious is the time spent enjoying the company of our dearest relatives and friends? Keeping life and our investments "successfully simple" has so many advantages that we couldn't begin to describe them all.
One of the advantages, and a big one it is, is that it allows us to concentrate our investment dollars in the shares of the companies and the sectors with the most upside potential over the next 5 or 6 years. As Jim Cramer likes to remind us all, we are always better off investing in the "Best of Breed" companies. The greatest stock investor of all time, Warren "Keep-It-Simple" Buffett, built his billionaire empire on this very premise. If you look at the main holdings of his "Super-Holding-Company", Berkshire Hathaway (NYSE:BRKA, BRKB) you see how Buffett practices what he preaches. You will see about 5 to 10 holdings where the vast majority of the investment money is concentrated. These carefully chosen positions which have been held for a long, long time are the main reasons the class A shares recently hit an all-time high of $110,000 per share!
The other big benefit of concentrating our investment dollars in the best companies we know of is that it allows us the time and possibility to monitor these companies very carefully, day after day. As Dan wrote so poignantly on this topic,”When I want to check on how my investment is doing, I don't check the quote. I check the financials, the annual report, call or email the company, etc. I only check the quote periodically if I'm thinking about buying more." We must confess that this sounds really wise, and you might know if you read all the sections of our website www.CheckTheMarkets.com that we created an investing technology with the acronym of WISE, which stands for "Wise Investing, Simple and Experienced". This approach really speaks to our technology, and reminds us powerfully of how Bill Gates, Warren Buffett, George Soros and Jim Rogers became incredibly wealthy.
Now the big question is not whether this approach is worth following. The big question is, "Are we WILLING to follow the simplicity and focused investing that this approach exemplifies?" After reading Dan's latest issue and looking back over our many years of over-diversifying and "piddling around" with a list of stocks way too long to keep up with, we are really tempted to answer "YES,YES, YES, we are willing to keep our investments successfully simple!" At least we think we are willing. What's your opinion on this topic? Do we all have the conviction and self-discipline to do this?

Dividends are Sweet...Sweeter Than Interest

At the end of each month I enjoy looking at the interest I have earned from my Fidelity Government Reserves Money Market Fund, currently with a yield of around 5%. Automatically reinvested back into more shares of the fund, the interest compounds and grows so satisfactorily. Then my bubble is slightly burst when I realize that I will be paying ordinary income taxes on this monthly payout. Depending upon your tax bracket and annual income that means we will be paying between 20 and 35% federal income taxes and in most states between 5 and 10% in income taxes. Thus the yield is now reduced by a sickening average of around 30%. This means that 5% yield now drops down to an after-tax rate of only 3.5%. The same reality hits our CDs, our bank accounts and even our bonds and our bond funds. Darn, it just isn’t fair, especially when there are no chances for capital gains and the buying power of the dollar is dropping each year!
But instead of moaning and groaning about all this, I will be moving more and more of our personal monies to dividend paying stocks that we believe are fairly priced. Most common stocks in the U.S. will pay what the tax code calls “qualified dividends” and by tax law if you hold the stock long enough you will be taxed a maximum of 15% on your dividends. We should all check with our tax advisors and financial advisors to get the details and make sure that the dividend-paying stocks we might buy qualify to be taxed at this significantly lower rate.

We get excited when we see publicly-traded companies whose stock is under-valued. We get almost deliriously happy when that stock has an S&P Dividend and Earnings Quality rating of A- or better, an outstanding record of long-term dividend growth, a price-to-earnings ratio of 18 or less and a payout ratio of 50% or less, debt off 50% or less and a dividend yield of 1.5% or more. These criteria will narrow down the candidates from the universe of common stocks.

Right now we are focused on 4 companies who meet these standards. McDonald’s (NYSE:MCD), Eaton Vance (NYSE: EV), Citigroup (NYSE:C) and Home Depot (NYSE:HD). MCD, with a 2.4% dividend yield is an example of a company with rising dividends and little known intrinsic value. Its dividend has been rising at more than a 30% clip per year, almost twice as fast as the stock price. Analysts say that the dividend yield on MCD, which historically has been around 1.5% or lower, is high now because of the negative sentiment that Wall Street has toward this largely undervalued stock.

With an annual dividend of $1 per share, the stock would have to rise above the $65 per share price in order to revert to its historical dividend yield. Currently trading below $43 per share we can see that the dividend alone has the potential to increase the share price. With their real estate holdings (MCD has one of the finest portfolios of commercial property in the world) and their history for raising their dividend payout each year, it is no wonder that some analysts believe that MCD’s price could double in the next 5 years.

Home Depot (NYSE:HD) has many of the same desirable aspects that we see in MCD. After recently raising its dividend by 50% and with a historical yield of around 1%, the current 2.3% yield and P/E ratio of 13 indicates that this stock has a long way to go on the upside in the years ahead. Many analysts feel that Home Depot fits the profile of a rock-solid investment that every educated investor would want to have in their portfolio. If you are computer-savvy we would encourage you to check the web sites for each of these outstanding payers of dividends to see why they are both great companies and great investments.
Although it doesn’t meet all the criteria of the companies mentioned above, we also really like Emerson Electric (NYSE:EMR). With the expectations for around 15% earnings growth and only trading at 15 times next year’s earnings, this enduring company grabs our attention. With its 2.5% dividend yield, I have to take my handkerchief out of my pocket because I begin to drool. With the tax laws truly favoring income from dividends, we would all be wise to consider those stocks and companies who are generous in that department. “How sweet it is,” as Jackie Gleason used to say.

Stocks To Be Thankful For and More

This is an excellent time of year to “take stock” of all we are grateful for in the stock market right now. Having just returned from the New Orleans Investment Conference I’m especially thrilled to report that I was able to meet and chat with some of my favorite investment “gurus”. When you are in the same room with such legendary folks as Mary Anne and Pamela Aden (who publish The Aden Forecast), Bill Bonner (of Agora Publishing and The Daily Reckoning), Doug Casey (who publishes the International Speculator, the Energy Speculator and the Casey Gold Report) and the three main “gurus” of the Oxford Club (Alexander Green, Lou Bass and Mark Skousen) one almost feels a sense of destiny. It was heartwarming to see the conference rooms filled with enthusiastic investors and passionate presenters. If you’ve never attended this renowned New Orleans event please, please plan on attending next year. The great investment ideas and insights you will receive will pay for your trip many times over.
What a year it has been for us personally. We’ve taken profits several times on the ups and downs of both the energy and precious metals stocks. Today we banked profits on good old Silver Standard Resources (Nasdaq: SSRI) and watched our other holdings make some sweet progress. Don’t you wish you were on the long side of Boeing (NYSE:BA) the past 10 months. Today’s 52 week high for the stock made some members of my family smile. Heavens to Betsy, it would have been hard not to make money in the stock market even if all you owned were some of the “boring” stocks like Verizon (NYSE:VZ), AT&T (NYSE:T) and Microsoft (Nasdaq: MSFT) or a little known star called Plains Exploration and Production Company (NYSE:PXP).
Getting back to the Oxford Club, their investment director Alexander Green has had some outstanding results from such companies as Celgene (Nasdaq: CELG), China Life Insurance (NYSE:LFC) and Equity Office Properties (NYSE:EOP). I’m telling you, as a long time club member I have been very impressed at how knowledgeable and prescient Alex and his protégé Lou Bass have been. If I were you I’d been looking into becoming a member of the Chairman’s Circle so you could participate in all the Oxford Club’s impressive trading services. These people are good and they are nice people as well. I think of Alexander Green as one of the best investment editors in the business today.
It is said that it isn’t just what you know that matters but also who you know. If you subscribe to and regularly read some of the most successful newsletters like Dan Ferris’ Extreme Value or Dan Amoss’ Strategic Investment you know what I mean. These are just two of the almost 20 newsletters we subscribe to and read regularly, and that is why we are filled with good investment ideas and capital gains.
It would have been unlikely we would have heard of such companies as Kennametal (NYSE: KMT) which has been very profitable for us in just a short time. Kennametal, Inc. engages in the development manufacture, and distribution of tooling, engineered components, and advanced materials consumed in production processes. Listening to the great ideas of the great investors of our day can be like going to bed early and arising early….it makes one healthy, wealthy and wise. Well, I’m not too sure about the healthy part, but it’s bound to contribute to your personal wisdom and wealth. How else would you or I have ever known about National Oilwell Varco (NYSE:NOV) a leading supplier of capital equipment and services to the worldwide onshore and offshore drilling rig fleet.
The happiest people I’ve ever known were folks who were grateful for all that this human life has to offer. They are grateful for their losses and what they have learned from them and they are grateful for their winners. They stop and smell the roses, and seem to remember how fortunate they are to have friends, family, sunshine and five amazing senses. They are the people who are always telling you that their glass is half full and sometimes more than half. Like my late mentor Harry Browne, they are thrilled with gratitude for every liberty and freedom we all so often take for granted. What a great time of year to be thankful for this amazing journey called life. Enjoy!!