Historically, value investing has proven to produce superior returns relative to those of alternative investment approaches. Yet, when it comes to value investing in small-cap stocks, very few fund managers can beat the admirable record of the investment veteran Chuck Royce. With some 51 years of investment experience, Royce has been a pioneer of small-cap investing. His investing approach to quality companies is centered on three things: “a strong balance sheet, a record of success as a business, and the potential for a profitable future”. Royce’s equity investments are carefully selected for a “long-term investment horizon with a focus on reducing volatility”. His investment targets are usually stocks of companies with strong returns on capital that trade... Read more
Utilities as a sector have been the biggest laggards so far this year, posting a 10% total return for the year through September 30, 2013. Rising yields on government bonds, symbolizing the prevalent fear of rising interest rates in the near term, are partly to blame for that lackluster performance. However, despite their weak performance relative to other sectors, utility stocks may look appealing for dividend investors in a still-volatile macroeconomic environment. Generally, utility stocks pay competitive dividend yields and are considered the least sensitive to economic cycles. Hence, they are viewed as defensive plays with lower volatility of returns than broad market benchmarks. For this reason, high-quality, high-yielding utility stocks should still be researched as potential... Read more
In principle, corporate insiders accumulate stock in their own companies when they are upbeat about their companies’ outlooks. In some instances, their insider stock purchases are a demonstration of commitment to enhancing shareholder value in the business entities in which they personally hold large stakes. Given that corporate insiders have an intimate knowledge of their own companies and competitors, their stock trades can be strong signals to general investors about the expected direction of a company’s stock price. Insider trades have tended to beat broad benchmarks over time. Some research suggests that carefully mimicking insider trades can enhance total returns by between 10% and 15% per year. Still, although there is potential to generate excess returns copying... Read more
Corporate balance sheets are flush with cash, as the share of cash holdings in total corporate assets sits at record-high levels. This is prompting shareholders to demand from companies a more shareholder-friendly capital deployment, including investor demands for higher dividends. Many companies are responding to these calls, returning increasing amounts of their cash flow to shareholders in the form of dividends and share buybacks. This is making dividend growth appealing, a reason many investors are chasing dividend growth stocks, which are trading at their biggest discount to dividend yield stocks in over two decades, according to Goldman Sachs’ citing Bank of America Merrill Lynch Global Research.
Indeed, the appeal of dividend growth stocks is supported by research... Read more
When it comes to boosting dividends consistently year after year, only a few stocks can take pride in having an admirable record of at least 10% annualized dividend growth, on average, for 10 years at minimum. With sufficient earnings power and robust cash flow, a select group of companies has been able to reward its shareholders with double-digit dividend increases, on average, for more than a whole decade. Stocks of these companies represent good starting points in research of proven dividend growth investments.
Focusing specifically at this particular category of dividend growers, Goldman Sachs has constructed a multiclass mutual fund, Rising Dividend Growth Fund, which invests in stocks of companies that have increased their dividends by 10% per year, on average, for at... Read more
Dividend growth is one of the major driving forces behind the real stock market appreciation over time. For income investors, it is also relevant for preserving the long-term purchasing power, as increases in dividend payouts help offset inflation. There are many companies increasing their dividends from time to time; however, some do it consistently year after year, reflecting their strong earnings power and cash flow generation capacity. In the universe of international dividend payers, there is a select group of industrial American Depositary Receipts, Global Depositary Receipts, and non-US common or ordinary stocks that have demonstrated consistency in dividend growth. As the industrial sector may receive an impetus for growth from the reaccelerating global economies, industrial... Read more
Some Canadian dividend-paying stocks, including a few that pay rich dividend yields, have seen a pull-back in recent months. Indeed, while the pullback reflects the flagging appeal of dividend stocks in general amid a surge in Treasury yields, there are still some fundamentally-sound dividend payers that offer highly competitive yields. Morningstar Canada Dividend Target 30 Index, comprising of 30 Canada-based dividend-paying stocks, provides a glimpse at a carefully selected set of fundamentally-strong Canadian companies with attractive dividend characteristics. Some index members offer yields in excess of 4.0%.
Morningstar picks index members using proprietary CPMS methodology to screen for dividend-paying equities with favorable fundamental factors that are used in index... Read more
Popular valuation metrics focus on price-to-earnings ratios. However, a stock’s relative value can also be measured by comparing its price per share to its book value per share, whereby the book value is represented as the company’s net worth (the difference between the company’s assets and liabilities). Stocks that trade below book values theoretically may be priced below their liquidation values, which may signify a discount to the companies’ net worth. While the universe of such stocks is not so large, there are a few dividend-paying stocks boasting low levels of long-term debt relative to equity and trading below book value.
The following table features the main profiles and dividend characteristics of three dividend-paying stocks with low levels... Read more
Legendary investor Warren Buffett has popularized investing based on investment principles that emphasize economic moats. In his own words, his investment targets have been companies with “long-term competitive advantage (“an enduring moat”) in a stable industry”. A “wide moat” represents a sustainable competitive advantage or a barrier that protects a company from its competitors. Having a wide economic moat can mean that the company is able to sustain strong profit margins despite its competition, which gives it capacity to earn excess profits. Hence, companies with wide moats generally tend to have strong returns on invested capital.
Applying a proprietary methodology to identify companies with sustainable competitive advantages (i.e. wide... Read more
Free cash flow represents cash from operations available to shareholders after capital expenditures have been subtracted. This measure of a company's profitability has been referred to as owner earnings. In fact, free cash flow is a more precise measure of a company's operating success than earnings (net income), given that standard earnings may be distorted through the use of accruals, depreciation, and by capitalizing expenditures. In this sense, a free cash flow yield, representing a company's free cash flow per share divided by its stock price per share, may be viewed as a fundamental indicator of the company's valuation. Asset manager Manning & Napier says that “as free cash flow yield is a measure of price relative to a fundamental indication of value, it... Read more