The Good News About Dividends That Will Surprise You

I run across a lot of charts and graphs daily -- it comes with the territory. Only a few of them really grab my attention. But I just found one that I had to share, particularly since it gets to the heart of our very purpose over at The Daily Paycheck.

I'll show you what I'm talking about in a moment, but I won't bury the lead...

If you're not taking advantage of dividend payers, you're missing out -- not only on the income, but serious long-term gains as well.

Don't believe me? Here's the proof...

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As you can see from the chart below, share price appreciation would have turned a $10,000 investment in the S&P 500 in 1960 into $460,095 by 2017. That's a handsome 45-fold return. But add reinvested dividends to the picture, and the same investment would have blossomed to $2.57 million, more than five times as much.

power of dividends chart

Source: Hartford Funds Management Group

In other words, reinvested dividends have accounted for 82% of the market's total returns over the past half-century. That remarkable statistic doesn't need any embellishment -- it speaks for itself. 

I'll say it again: If you're not investing in dividend stocks, then you're missing out on the market's strongest wealth-creating opportunities.

Dividends Are Great Again
The relative contribution of dividends has varied dramatically over the years. Back in the stagnant 1970s, quarterly distributions accounted for a hefty 73% of the market's return. But in the high-growth 1990s, they represented a much smaller 16%.

I remember that period well. I was a financial advisor at the time, and dividend stocks (and funds) were a tough sell. Many of my clients considered them a quaint relic in the dawn of a new Millennium. Why get excited about a modest 3% to 4% annual income stream? Tech stocks could do that in a single day.

Instead, I got orders to buy highfliers like JDS Uniphase, which rocketed past $1,200 per share in 1999. You may know the rest of the story. Like most others, it collapsed in the dot-com crash a year later and lost 99.9% of its value before rebranding. That was a painful lesson for many investors.

But we are once again in an era where dividends account for a meaningful chunk of the market's performance. And if there's one thing better than a steady paycheck every 90 days -- it's a growing one.

Dividend Raisers Crush The Market
Obviously, dividend hikes put more cash in our pockets almost immediately. We can see and measure the impact. Take for example one of our own holdings at The Daily Paycheck, Cisco Systems (Nasdaq: CSCO), whose quarterly payout just rose to $0.33 per share from $0.29. With a stake of 212 shares, that hike boosts our annual income by 14% to $280. 

But that might not even be the strongest argument for investing in these stocks.

As I've said before, a distribution increase sends a bullish message. After all, businesses don't lift their commitments if they're expecting earnings to falter. Higher dividends typically reflect an upbeat cash flow outlook, which often precedes a rising share price. So dividend raises not only boost our income, but they can also foreshadow potent capital gains.

How potent?

Well, we also have some good data on this subject courtesy of Ned Davis Research. Between 1972 and 2017, dividend-paying stocks outpaced non-payers with average annual returns of 9.25% vs. 2.61% for the non-payers. But a deeper look beneath the surface reveals a fascinating dichotomy.

The study separated all dividend payers into distinct groups: those raising payouts over the previous twelve months, those cutting or eliminating payouts, and those maintaining payouts with no change.
No surprise, dividend-cutters performed worst, and dividend-maintainers did better. But dividend-growers delivered market-crushing gains of 10.07% annually. That's about 230 basis points ahead of the S&P 500 -- with less volatility. 

To put a real-world example on this, we're up by about 73% on Cisco in less than two years. That's partially thanks to our dividend reinvestment, a crucial part of our strategy at The Daily Paycheck. But even without reinvesting dividends, the stock has returned 63% during that time, while the S&P 500 has gained just under 14%.

Closing Thoughts
I'm probably not telling you anything you didn't already know. Dividend hikes are good for investors; that isn't exactly an Earth-shattering revelation. Still, it's reassuring to attach cold-hard numbers to long-held beliefs.

By the way, like Cisco, my most recent Daily Paycheck recommendation has also been on the move, rallying more than 50% off its 2015 lows. Yet, the yield is still well above average at nearly 3%. And with an impressive streak of 62 straight annual dividend hikes under its belt, I expect this all-weather performer to shell out even more in the year ahead. If you'd like to join us and get the name of this pick, go here to get started.

The Run-Up in Altria Stock Isn’t Over Yet

Investors in Altria Group (NYSE:MO) enjoyed months of steady upside throughout much of last year, only to see the stock fall since November. But on Jan. 24, when the stock bottomed at $43.33 on the day, investors bottom-fishing appear to have started accumulating the stock, ahead of the dividend declaration.

Source: Peyri Herrera via Flickr (Modified)

Those not holding the stock have until March 22 to be a shareholder of record to earn an 80-cent quarterly dividend. So, what are the pros and cons of buying MO stock now after the stock’s 25% bounce from the bottom?

Dividend Income

The 6.05% dividend yield is a pro for holding Altria stock, especially when the payout ratio is 76% and grew 10.3% over the last five years. Even if political uncertainties questioning the sale of tobacco might damage future sales, the industry has a way of surviving such attacks. Despite Altria, British American Tobacco (NYSE:BTI) and Philip Morris (NYSE:PM) demonstrating its ability to continue on its business, Altria is diversifying its business. Very recently, it made a massive investment in a Canadian cannabis firm.

Indirect Exposure to Growth in Cannabis Market

Altria’s C$2.4 billion investment in Cronos Group Inc. (NASDAQ:CRON) gives shareholders an indirect equity exposure to the fast-growing cannabis market. Cronos said that the investment received would support its innovation in cannabinoid innovation. It also lets Cronos create differentiated products and brands of cannabinoid-based products for both the medical and recreational markets.

Altria paid a hefty price tag for gaining a quick entry into the cannabis market but it has to do so. If cannabis becomes a substitute for cigarettes or e-cigarettes, Altria would still benefit from the trend through its Cronos investment.

Investing in Juul

On Dec. 10, 2018, Altria shuttered its e-cigarette brands and took a charge of around $200 million. 10 days later, it announced a $12.8 billion investment in Juul, in an all-cash deal. Altria’s 35% stake is strategically similar to that of the Cronos deal. Instead of starting the business from scratch, it is investing in a popular and well-known product to broaden its business and to gain a partner.


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Risks in Altria’s Investments

Now for the cons of investing in Altria.

Altria already has a debt/equity of 1.74 times. And investing billions, essentially paying a generous premium in the hot market of both cannabis and e-cigs, comes with some risks. If these companies do not maintain their high growth rates, Altria may have to write-down its investments.

Competitors might follow suit by making similar investments, forcing Altria to do even more deals. Its cash balance will fall and the firm may need to raise debt to finance overpriced deals. By then, upset investors will be too late in voting out executives to change the company’s strategic direction of acquisition through growth.

Valuation

Altria is still trading at 20% below its yearly high. 9 of the Wall Street analysts have, on average, a ~10% upside price target at $58 a share (according to Tipranks). With the stock trading at around 14 times earnings, and a long-term EPS growth target of 7% to 9%, the stock’s PEG is as low as 1.55 times.

Over the last 9 years, from 2009 – 2018, Altria grew adjusted operating income by 5.1% while its adjusted OCI margins expanded by 13.3%. These strong historical numbers suggest that the company will continue to grow all of its businesses. Its big investments in e-cigs and cannabis may pay off in the long-run as these two markets expand.

Your Takeaway

Altria is actively embracing future opportunities for tobacco harm reduction. Its investment in Juul is evidence that it wants to sell products that do not make its customers unhealthy. With the e-vapor international opportunity at $6 billion in North America and $17 billion internationally, Altria cannot afford to be without an investment in Juul. It also needs to continue to offer innovative tobacco products. The combination of these product streams will diversify Altria’s income, which is net positive for its shareholders.

Altria stock is not yet back to the $60 – $65 range but it could get there this year if the company demonstrates steady earnings growth.

As of this writing, the author did not hold a position in any of the aforemen

Kroger shares plunge 10% after earnings, revenue miss

Kroger shares plunged 11 percent before the markets opened Thursday after the grocer reported quarterly earnings and revenue that fell short of analysts' expectations.

Here's what the company reported compared with what Wall Street was expecting, based on average analyst estimates compiled by Refinitiv:

Earnings per share: 48 cents, adjusted, vs. 52 cents expectedRevenue: $28.09 billion vs. $28.38 billion expected

The grocer reported fiscal fourth-quarter net income of $259 million, or 32 cents per share, down from $854 million, or 96 cents per share, a year earlier.

After adjusting its earnings to exclude expenses from its pension plan, a derivatives loss and other items, Kroger earned 48 cents per share, missing the 52 cents per share expected by analysts surveyed by Refinitiv.

Net sales during the quarter ended Feb. 2 dropped 9.5 percent to $28.09 billion, falling short of expectations of $28.38 billion. However, excluding fuel, an extra week in 2017, the convenience store divestiture and a merger with meal kit company Home Chef, sales increased by 1.6 percent.

Outgoing CFO Michael Schlotman said on CNBC's "Squawk Box" that the roughly 10-cent drop in gas prices compared to the same time last year accounted for the majority of the quarter's revenue decline.

Sales at stores open for at least five quarters, excluding fuel, grew by 1.9 percent.

The grocer grew digital sales by 58 percent during fiscal 2018 and expanded its pickup or delivery programs to reach 91 percent of its customers, all part of its efforts to compete with retail giants Walmart and Amazon. During the fourth quarter, the company opened more warehouses for the division.

"We're very bullish on our digital business," Schlotman said on CNBC.

Looking to fiscal 2019, the grocer is targeting same-store sales sales growth, excluding fuel, of between 2 and 2.25 percent. It expects to earn between $2.15 to $2.25 per share for the full year, a more pessimistic range than expected by analysts. Wall Street was forecasting the company to earn $2.26 per share this year.

While consumer packaged goods companies like Hershey and Procter & Gamble have been hiking prices, Schlotman said that Kroger has been able to negotiate the cost of goods.

Why Chico's FAS Stock Took a Hit Wednesday

What happened

Shares of Chico's FAS (NYSE:CHS) fell on Wednesday, declining as much as 11.2% but finishing the trading day down 10.3%.

The stock's decline followed Chico's fourth-quarter earnings report, which featured better-than-expected sales and adjusted earnings per share but also included a weak outlook for first-quarter revenue and comparable sales.

A chalkboard sketch of a chart showing a stock price falling

Image source: Getty Images.

So what

Chico's reported sales of $524.7 million, down from $587.8 million in the year-ago quarter but higher than analysts' average forecast of $516.4 million. Chico's non-GAAP fourth-quarter loss per share was $0.07, narrower than analysts' consensus estimate for a loss of $0.09.

Consolidated comparable sales were down 3.8%, driven by a lower transaction count and a decrease in average dollar sale. Comparable sales for the company's namesake brand took a particularly hard hit, falling 7.9% during the quarter.

Chico's first-quarter revenue guidance likely disappointed. Management said it expected a mid- to high-single-digit percentage year-over-year decline in both net sales and comparable sales in Q1, "reflecting softer sales throughout the month of February." Analysts were expecting first-quarter revenue to decline 5% year over year.

Now what

Management said lower sales and investments in its omnichannel programs will likely weigh on profitability, leading to a gross margin headwind in its first quarter. Management guided for a 300 to 400 basis-point year-over-year decline in its gross margin during the period.

Zacks: Brokerages Anticipate Zogenix, Inc. (ZGNX) to Announce -$0.92 Earnings Per Share

Equities research analysts expect Zogenix, Inc. (NASDAQ:ZGNX) to post ($0.92) earnings per share (EPS) for the current quarter, Zacks Investment Research reports. Zero analysts have made estimates for Zogenix’s earnings, with estimates ranging from ($1.23) to ($0.63). Zogenix reported earnings per share of ($0.87) in the same quarter last year, which would indicate a negative year-over-year growth rate of 5.7%. The firm is expected to report its next quarterly earnings results on Tuesday, March 5th.

On average, analysts expect that Zogenix will report full year earnings of ($3.75) per share for the current year, with EPS estimates ranging from ($4.30) to ($2.81). For the next financial year, analysts anticipate that the company will post earnings of ($2.22) per share, with EPS estimates ranging from ($4.24) to ($0.39). Zacks Investment Research’s EPS calculations are an average based on a survey of sell-side research analysts that follow Zogenix.

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Several analysts have recently commented on the company. Zacks Investment Research downgraded Zogenix from a “buy” rating to a “hold” rating in a research note on Saturday, November 17th. BidaskClub raised Zogenix from a “hold” rating to a “buy” rating in a research note on Wednesday, January 9th. Mizuho reissued a “buy” rating and issued a $69.00 price objective on shares of Zogenix in a research note on Thursday, December 6th. Piper Jaffray Companies assumed coverage on Zogenix in a research note on Monday, November 5th. They issued an “overweight” rating for the company. Finally, Leerink Swann assumed coverage on Zogenix in a research note on Monday, November 12th. They issued an “outperform” rating and a $60.00 price objective for the company. One investment analyst has rated the stock with a hold rating, eleven have issued a buy rating and one has issued a strong buy rating to the company. Zogenix has an average rating of “Buy” and an average price target of $70.00.

In other news, Director Cam L. Garner sold 5,625 shares of the company’s stock in a transaction that occurred on Wednesday, February 27th. The stock was sold at an average price of $50.00, for a total value of $281,250.00. Following the completion of the transaction, the director now directly owns 4,756 shares of the company’s stock, valued at $237,800. The transaction was disclosed in a filing with the SEC, which is accessible through this hyperlink. Also, Director Cam L. Garner sold 12,405 shares of the company’s stock in a transaction that occurred on Tuesday, February 12th. The shares were sold at an average price of $46.85, for a total value of $581,174.25. Following the completion of the transaction, the director now directly owns 218 shares of the company’s stock, valued at $10,213.30. The disclosure for this sale can be found here. Over the last ninety days, insiders sold 143,593 shares of company stock valued at $6,516,009. 4.60% of the stock is currently owned by corporate insiders.

Several hedge funds have recently added to or reduced their stakes in ZGNX. Zurcher Kantonalbank Zurich Cantonalbank grew its holdings in shares of Zogenix by 20.2% in the fourth quarter. Zurcher Kantonalbank Zurich Cantonalbank now owns 2,956 shares of the company’s stock valued at $108,000 after acquiring an additional 496 shares in the last quarter. SG Americas Securities LLC bought a new position in shares of Zogenix in the third quarter valued at approximately $109,000. FNY Investment Advisers LLC grew its holdings in Zogenix by 3,900.0% during the third quarter. FNY Investment Advisers LLC now owns 3,000 shares of the company’s stock valued at $148,000 after purchasing an additional 2,925 shares during the period. Great West Life Assurance Co. Can grew its holdings in Zogenix by 44.9% during the fourth quarter. Great West Life Assurance Co. Can now owns 5,382 shares of the company’s stock valued at $189,000 after purchasing an additional 1,668 shares during the period. Finally, Prudential Financial Inc. bought a new position in Zogenix during the third quarter valued at $219,000.

Shares of Zogenix stock traded up $0.61 on Tuesday, hitting $52.60. The company had a trading volume of 294,372 shares, compared to its average volume of 447,590. The company has a market cap of $2.05 billion, a PE ratio of -16.28 and a beta of 2.05. Zogenix has a 1 year low of $33.43 and a 1 year high of $62.75.

Zogenix Company Profile

Zogenix, Inc, a pharmaceutical company, develops and commercializes therapies for the treatment of central nervous system disorders in the United States. Its lead product candidate is the ZX008, a low-dose fenfluramine, which is in Phase III clinical trials for the treatment of seizures associated with Dravet syndrome.

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Earnings History and Estimates for Zogenix (NASDAQ:ZGNX)

Girard Partners LTD. Has $325,000 Position in iShares MSCI Emerging Markets ETF (EEM)

Girard Partners LTD. increased its position in shares of iShares MSCI Emerging Markets ETF (NYSEARCA:EEM) by 754.9% in the fourth quarter, according to its most recent disclosure with the Securities & Exchange Commission. The fund owned 8,327 shares of the exchange traded fund’s stock after buying an additional 7,353 shares during the period. Girard Partners LTD.’s holdings in iShares MSCI Emerging Markets ETF were worth $325,000 at the end of the most recent reporting period.

A number of other hedge funds and other institutional investors have also recently made changes to their positions in EEM. BlackRock Inc. raised its stake in iShares MSCI Emerging Markets ETF by 27.9% during the fourth quarter. BlackRock Inc. now owns 49,815,127 shares of the exchange traded fund’s stock worth $1,945,779,000 after buying an additional 10,867,577 shares during the last quarter. Matthew Goff Investment Advisor LLC raised its stake in iShares MSCI Emerging Markets ETF by 5,151.0% during the third quarter. Matthew Goff Investment Advisor LLC now owns 10,516,638 shares of the exchange traded fund’s stock worth $200,279,000 after buying an additional 10,316,359 shares during the last quarter. FMR LLC grew its holdings in iShares MSCI Emerging Markets ETF by 108.1% in the third quarter. FMR LLC now owns 16,815,580 shares of the exchange traded fund’s stock worth $721,724,000 after purchasing an additional 8,735,196 shares during the period. NWI Management LP acquired a new stake in iShares MSCI Emerging Markets ETF in the third quarter worth $194,857,000. Finally, Cartica Management LLC grew its holdings in iShares MSCI Emerging Markets ETF by 302.0% in the third quarter. Cartica Management LLC now owns 4,824,000 shares of the exchange traded fund’s stock worth $207,046,000 after purchasing an additional 3,624,000 shares during the period.

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NYSEARCA:EEM traded up $0.27 during trading hours on Friday, reaching $42.71. The company had a trading volume of 993,727 shares, compared to its average volume of 77,537,188. iShares MSCI Emerging Markets ETF has a twelve month low of $37.58 and a twelve month high of $50.18.

COPYRIGHT VIOLATION WARNING: “Girard Partners LTD. Has $325,000 Position in iShares MSCI Emerging Markets ETF (EEM)” was published by Ticker Report and is owned by of Ticker Report. If you are accessing this piece on another domain, it was stolen and republished in violation of US & international copyright & trademark laws. The original version of this piece can be read at https://www.tickerreport.com/banking-finance/4189731/girard-partners-ltd-has-325000-position-in-ishares-msci-emerging-markets-etf-eem.html.

iShares MSCI Emerging Markets ETF Company Profile

iShares MSCI Emerging Markets ETF, formerly iShares MSCI Emerging Markets Index Fund (the Fund), seeks investment results that correspond generally to the price and yield performance of publicly traded equity securities in global emerging markets, as measured by the MSCI Emerging Markets Index (the Index).

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Institutional Ownership by Quarter for iShares MSCI Emerging Markets ETF (NYSEARCA:EEM)

3 Ways I'm Teaching My First-Grader About Money

You'll often hear that kids' minds are like sponges -- they just soak everything up. That's why I'm making an effort to teach my first-grader about money. Granted, he's a little young to understand complex concepts like compounding, but he does understand the idea of saving money for important things versus spending it freely. He also knows very well that money doesn't, in fact, grow on trees, but rather, is earned as the result of hard work. Here are a few specific ways I'm conveying these and other important lessons.

1. Giving my son an allowance

My son gets $2 a week, provided he helps out around the house, does his homework without complaining, and generally behaves. Now you might argue that in giving an allowance, I'm teaching him that money is something he's entitled to, but in reality, he's well aware that his weekly $2 is the result of an effort on his part. My son also knows that he's too young to go out and get an actual job, and so for now, this is his only opportunity to earn money of his own.

Young boy holding pencil smiling, looking up at smiling woman next to him

IMAGE SOURCE: GETTY IMAGES.

At the same, giving him his weekly $2 means he knows not to ask me for money he has himself. For example, the kids at my son's school have the opportunity to buy snacks at the cafeteria. If my son wants one, he can use his allowance. If he's hesitant to spend his money on something as meaningless as an ice cream bar, he doesn't do it and instead saves that money for something more important. In other words, it's a good exercise in self-control, which is not a bad lesson to impart at a young age.

2. Banking my son's money and having him write checks to take withdrawals against it

I'm not big on stockpiling cash, since there's always the potential to lose it. This especially holds true when you're dealing with a first-grader with a tendency to pile up his dollar bills for sport and then return said money to his piggy bank without making sure a few stray dollars didn't somehow land on the floor, under his bed, or behind his bookshelf.

That's why I take my son's money away at $50 increments. I don't keep it for myself, though; I put it in a bank account so that it's there for him. At the same time, my son has an old checkbook that he can use to take withdrawals from that account. Basically, he writes a check out for the amount he wants and what he wants it for, and I get him the money. I then rip up the check, since it's not linked to an actual account, but this way, he understands how bank accounts work, and that his money is still his, even if he can't physically see or count it.

3. Being stingy with windfalls

Every so often, my son will get a little bonus money on top of his allowance. Usually, it's a little extra cash I give him for being super awesome (such as the time he cleaned his sisters' room to help me out when it clearly wasn't his responsibility), or money for milestones such as losing a tooth.

But if I'm being honest, I'm not particularly generous when it comes to those windfalls. Most of the time, we're talking about an extra dollar, or maybe $5 in the case of a tooth. (In fact, when I heard that the going rate for a lost tooth was somewhere in the ballpark of $10 to $20, I think I gasped in disbelief.) The reason? I don't want my son to expect windfalls and count on them, because in life, you don't always get large handouts. Rather, I prefer to focus on giving my son opportunities to earn extra money so that he values it more. (Besides, he doesn't believe in the tooth fairy anyway.)

You might think I'm crazy to be teaching my first-grader about money at a time when he's only first learning to add and subtract. But in reality, my hope is that by instilling certain lessons when he's young, he'll learn to be responsible with money and appreciate its value. And that makes it more than worth the time I'm putting in.

NEXT Financial Group Inc Grows Holdings in Vanguard High Dividend Yield ETF (VYM)

NEXT Financial Group Inc raised its position in Vanguard High Dividend Yield ETF (NYSEARCA:VYM) by 913.7% during the 4th quarter, HoldingsChannel reports. The fund owned 16,899 shares of the company’s stock after buying an additional 15,232 shares during the quarter. NEXT Financial Group Inc’s holdings in Vanguard High Dividend Yield ETF were worth $1,318,000 as of its most recent SEC filing.

Other hedge funds and other institutional investors have also recently added to or reduced their stakes in the company. Fusion Family Wealth LLC lifted its stake in Vanguard High Dividend Yield ETF by 521.0% in the 4th quarter. Fusion Family Wealth LLC now owns 385 shares of the company’s stock valued at $30,000 after acquiring an additional 323 shares in the last quarter. Lindbrook Capital LLC bought a new stake in Vanguard High Dividend Yield ETF in the 4th quarter valued at approximately $48,000. Oppenheimer Asset Management Inc. bought a new stake in Vanguard High Dividend Yield ETF in the 4th quarter valued at approximately $74,000. Cascade Investment Advisors Inc. bought a new stake in Vanguard High Dividend Yield ETF in the 4th quarter valued at approximately $78,000. Finally, Capital Investment Advisory Services LLC bought a new stake in Vanguard High Dividend Yield ETF in the 4th quarter valued at approximately $82,000.

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NYSEARCA VYM opened at $85.87 on Friday. Vanguard High Dividend Yield ETF has a 52 week low of $73.18 and a 52 week high of $89.47.

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Institutional Ownership by Quarter for Vanguard High Dividend Yield ETF (NYSEARCA:VYM)