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It took me decades to "know thyself", but I finally figured out that I needed stocks that pay dividends, preferably rising dividends, in order for me to hang in there on the dips. I have not been able to locate a listing of stocks with rising dividends but am gradually beginning to compile a list of my own. The following stocks all raised their dividends through the Nixon (1973-1974), Reagan (1982), and Bush (1990) recessions.

The Fabulous Forties (number of years of rising dividends in parentheses): Proctor and Gamble (44), Genuine Parts (44), MMM (41), Old Kent Financial (41), Johnson and Johnson (40)

The Thrilling Thirties: Cinncinati Financial (39), Coca Cola (37), Tootsie Roll (34)(also give annual 3% stock dividends), J.P. Morgan (33), Pfizer (32), Philip Morris (32)

brucedoe
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brucedoe

You've given some interesting information here. Thanks for that.

However, I am interested in your statement, I finally figured out that I needed stocks that pay dividends, preferably rising dividends, in order for me to hang in there on the dips

It seems to me what is important is earnings, not dividends. Even if you are withdrawing funds, you need not depend on dividends. If the earnings and thus the stock price grows, then you should develop enough capital gains to use when the dips occur. More importantly, IMHO, you need earnings to keep ahead of inflation such as we had during the late 60's and in the 70's. Loss of purchasing power is far more likely than market dips.

So I'm interested in your thought process regarding dividends.

Chuck
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brucedoe,

I like your list of stocks; even if they are not all today's darlings, they clearly have staying power. Are you a buy and hold investor?

Rising dividends are a strong indicator of good cash flow. IMHO cash flow is a crucial factor in stock selection. Earnings are much easier to manipulate than cash flow. Sure, both are important, but cash is king.

I've never approached stock selection for a rising dividends screen, but it sure makes sense to me. Do you look at anything else, if so what?

Cheers,
GW

PS: Knowing yourself is the most important thing of all. Having the confidence to hold on in bad times makes all the difference.
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I agree, of course, that you have to have increased earnings to increase dividends at some point (though an occasional year is not bad). But in 1973-1974 I saw Control Data drop from $35/sh to $10/sh (I sold out at $25/sh) and BFI drop from $35/sh to $5/sh (among others) and my broker talked me out of selling it at $25/sh (and BFI had only one bad quarter). If I had held on for several years, I would have come out all right, but I couldn't stand the heat and evenually lost everything (my broker had me buying on the margin, something I surely will not do again). When you are in a bear market, stocks fall no matter how good the earnings, but dividends may keep rising and at least you get that much while you wait for a recovery (stocks dropped from a market capitalization of 78.1% of Gross Domestic Product in December of 1972 to 33.7% in September of 1974). There can be many false starts so you don't really know when the recovery really begins. If you keep buying and selling at a loss, you end up losing big. Note: today the market capitalization is about 150% of Gross Domestic Product, vastly more than ever before (it was 81.4% in August 1929, the previous high). It perhaps can go to 200%, who knows, but we are in a scary situation.

brucedoe
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My wife and I hold Genuine Parts, MMM, and Pfizer. We also have some of the "twinkling 20s" - REITS such as United Dominion (23 years) and Washinton Real Estate Investment Trust (28) plus First Virginia Bank (22), and RPM (26). RPM is also distinctive from going 52 years with consecutive earnings increases, a record that apparently is going to end because of restructuring costs. They produce things like Rust Oleum, DAP products, and Testers hobby products among many others. I do think they need to consolidate things.

Some of these don't go back before 1973-1974, but the recessions of Reagan and Bush were no picnic, and the inflation years of Ford and Carter were sweaty also.

brucedoe
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brucedoe,

I'd like to second GW - we like your thinking re: rising dividend stocks. An interesting screen I plan to spend more time looking into. It makes a lot of sense intuitively.

Though a company's earnings can grow faster or slower - or even go up and down, dividends - particularly from companies such as those you mention - rarely change to the downside. In fact, most companies paying dividends are EXTREMELY reluctant to reduce (let alone eliminate!) their dividends in soft times.

As an LTBH investor, I would think one would want to put these types of holdings into an IRA so that the dividend is not taxable currently, and keep those growing non-dividend paying stocks in the taxable accounts. Also, don't forget those DRIP's with those dividend-paying stocks!

One strong dividend payer we have held for some time and have been pleased with is FULT. Its a small Pennsylvania bank with a solid track record and in addition to its growing dividends (don't recall how many years straight) they have paid out a 10% stock dividend every year we've had it!

Thanks again for the idea!

Ken
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So long as a dividend paying stock does not lower its cash dividend when paying a stock dividend, you are getting a dividend increase (i.e., more income per year). A good example is Tootsie Roll, although I don't own any of this equity.

Yes, if you can concetrate these in an IRA or 401k, it is best to do so to reduce taxes. But many of us retirees live off of dividends to some extent so you have to decide.

brucedoe
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The Fabulous Forties (number of years of rising dividends in parentheses): Proctor and Gamble (44), Genuine Parts (44), MMM (41), Old Kent Financial (41), Johnson and Johnson (40)

The Thrilling Thirties: Cinncinati Financial (39), Coca Cola (37), Tootsie Roll (34)(also give annual 3% stock dividends), J.P. Morgan (33), Pfizer (32), Philip Morris (32)


Really interesting info. It would be interesting to find out the total gains of each of these stocks over the same time period (ie, div + appreciation).

I know of one retired couple who have been living on the dividends from solid companies like these, and over 30 years of retirement, their income has increased almost every year, and the value of the underlying stocks have risen much faster than inflation. This is a very simple retirement scheme. No yearly rebalancing required.

-rkm
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The big problem with living off dividends from companies that frequently raise their dividend is that usually the yield is low compared to what you can earn in fixed income investments. Most are solid growth companies so they have capital gains potential. Also it is difficult to move into them slowly. The income is taxable. So if you buy in while you are still working, the tax bite can be severe.

However, if you have enough for diversification and the payments cover your expenses, yes, you do have inflation protection. It can be a good strategy. There is the risk that some may falter in time, so diversification is an important aspect.
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brucedoe: "It took me decades to "know thyself", but I finally figured out that I needed stocks that pay dividends, preferably rising dividends, in order for me to hang in there on the dips. I have not been able to locate a listing of stocks with rising dividends but am gradually beginning to compile a list of my own. The following stocks all raised their dividends through the Nixon (1973-1974), Reagan (1982), and Bush (1990) recessions.

The Fabulous Forties (number of years of rising dividends in parentheses): Proctor and Gamble (44), Genuine Parts (44), MMM (41), Old Kent Financial (41), Johnson and Johnson (40)

The Thrilling Thirties: Cinncinati Financial (39), Coca Cola (37), Tootsie Roll (34)(also give annual 3% stock dividends), J.P. Morgan (33), Pfizer (32), Philip Morris (32)"


Obviously, you know yourself better than any poster on this board would, but what other screens do you use in addition to rising dividends. I ask because I have finally figured out how to articulate my concern.

Having enough money to pay dividends, and rising ones at that, is just another competing use for limited corporate funds. I would not want to see dividends paid by shortchanging operations, including R&D, or by borrowing money, or more likely, not paying back expensive existing debt in order to have funds available to pay the dividend. IOW, I am looking for the next BRK or Microsoft.

Divdends are also taxed as income and do not receive the benefit of capital gains. Thus a stock whose yield is comprised of dividend payment and appreciation generally needs to yield more than one whose yield is all apprecition in order to give the same after tax return.

For example, assume 33% marginal bracket, 10% yield comprised of 3% dividend and 7% appreciation; one-third of 3% is 2% after tax, and assuming stock is sold, (1-20%) of 7% is 5.6% for a total 7.6% after tax. Now compare with 10% yield, no dividend and sale after one year (1-20%) of 10% is 8% after tax or .4% more. If stock is held longer, the spread will only increase beecause tax on divends is due annually but capital gains is due only when stock is sold, but I am too lazy to construct the spreadsheet.

I am thankful for the list, though.

Just my $0.02. Regards, JAFO




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I don't know the exact figures on how the rising dividend stocks have performed but our Genuine Parts stock has nearly doubled from stock splits since 1992 and Pfizer is up about a factor of 5 even though we have sold some of this stock in the interim for travel. They aren't doing so well at the moment but the dividends still keep rising. I might say that I think the core holding of everyone should be a S&P500 fund. Our 401k plans are such that we don't have the Vanguard 500 fund but that would be the one of choice.

brucedoe
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You are right that some rising dividend companies can falter with time. A good example that I hold is BRE REIT that after 17 years of increased dividends stopped increasing while they converted to an apartment REIT. They seemed like a good company, however, and people need to live somewhere even in a recession so the dividend let me hang in there and now they have resumed raising dividends again after several years. Their stock price is good, I think. Anything below $25/sh seems good to me. You might want to check it out.

brucedoe
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This is a retirement board so maybe some of us are looking at different things. But investors have become too used to rising stock prices, I think. We are in uncharted territory now. The total value of stocks is now 150% of the Gross Domestic Product, something that has never been seen before. In August of 1929, it was 81.4% (the previous record) and in December of 1972 it was 78.1%. By September of 1974 it was 33.7% and in July of 1982 it was only 33.3%. I lived through that with good companies like BFI and Control Data and lost my shirt (though if I had hung in there, I probably would have come out all right, but I couldn't stand the heat). This has undoubtedly colored my view. Perhaps the stock market capitalization can get to 200%, who knows, but the situation is scary. I'm not sure I have a decade left to wait for the market to recover. I want the protection of increased dividends by good companies with a chance of equity appreciation too.

brucedoe
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