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Dividends Still Don’t Lie
03/29/2010 11:54 am EST
Kelley Wright, managing editor of Investment Quality Trends, explains why you can take dividend-paying companies to the bank.
MoneyShow.com: Kelley, you've written a new book called
Dividends Still Don't Lie. Can you tell us a little bit about this
concept and what it means for investors?
Kelley Wright: Dividends tell you if a company is actually making money or not because you cannot pay dividends from that which you do not have. Dividends give us a measurement of value. They let us know if the price is high, low, or somewhere in between, and dividends are a very good indicator of future price appreciation. Once a dividend is raised, the price of a stock eventually goes up to recognize that extra value to the shareholder.
The dividend is a tangible return on your investment. It is evident every quarter. You know your company is making money. You know you are making money. You are not speculating with your capital. So, for those who do not want to go that route, we say go with God. We are a little bit more conservative, we are more value-conscious, and the dividend means everything to us.
Q: Now, do you look for companies that steadily increase their dividends over
period of years?
A: That is a great, great indicator of a well-run, well-managed company. A rising dividend trend will tell us more about a company than all the balance sheets, all the cash flow statements in the world.
The thing about dividends is they either get paid or they do not. There is not much subterfuge that is involved with a dividend. The company sends you a check every quarter or they do not. So, a rising dividend trend just shows us some competency that something we are very, very comfortable with is competency over long period of time.
Q Now, can you tell us quickly about one stock that you think is a very good
example of a good dividend-paying stock that people should look at?
A: One that people might be familiar with is this little company called McDonald's (NYSE: MCD).
In about 2002, they had gone through a rocky period for the company, but they made a commitment to their shareholders to change some things in the restaurants with their menus and the way they do business, but they also made a commitment to their shareholders in their dividend. They raised it significantly.
In early 2003, the dividend was about 20 to 21 cents a share. Today it is $2.20 a share. That is not a very long period of time. So, when we started buying McDonald's in 2003 at $15, later in the year at $19, and systematically along the way, we have a very significant run up in our capital appreciation because it is trading in the $60s, but the dividend that we bought at 19 and 20 cents, which is now at $2.20, that is serious money.
Q: Should people still be looking at it now?
A: Interestingly, even though it is in the $60s, because they have raised their dividend so much, McDonald's on a dividend yield basis still exhibits tremendous historically good value.
Q: Do you own this stock, either personally or professionally?
A: Yes. We own it as a firm. Our clients own it in their portfolios, and a little fund that we run, we are long MCD
Q: Thank you.
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