Essential to Preserve Capital in Dividend Investing

701183_moneyAs dividend investors, while it is important to focus on dividends, it is also equally important to monitor the risk of capital erosion over a period of time. Dividend growth and intermediate sustainability is good, but it is less likely to be a substitute for significant loss of capital. Pfizer and GE are examples of capital erosion. These two companies were not only able to sustain their dividends but kept with their growth in last decade. However, the value of individual’s holding kept eroding over the last decade or so. For example:

    • PFE was trading around $43 per share from 1999 to 2002. In last couple of years, it has been trading around $16. At the same time, it has paid cumulative dividends of only $8.22 per share.
    • GE was trading around $40 per share from 1999 to 2002. In last couple of years, it has been trading around $18. At the same time, it has paid cumulative dividends on only $9.00 per share.


    In recent days, four companies viz. BP, Johnson & Johnson, and Procter & Gamble, and Toyota Motors are (were) getting quite a bit of attention in news media. Rarely a day goes by when their woes, or management response to product issues, are not discussed in the financial media or general TV news channels. Three of these four corporations also happen to the good dividend paying companies. continue reading rest of the article….

    Clarcor and ConAgra can Sustain Dividends

    growthThere are companies out there that are continuing to increase dividends for their shareholders. While dividend increase is good, it is more critical to make sure we understand that companies can sustain their dividends. Following are two companies that recently announced their quarterly results and increased dividends.


    Clarcor Inc. (CLC): It is a diversified marketer and manufacturer of mobile and industrial filtration products and consumer and industrial packaging products.

    • It is a dividend achiever has paid growing dividends for last 22 years. Most recent dividend increase of 8.3% was in October 2009.
    • The 3Q09 earning per share was $0.42 (vs. $0.50 in 3Q08).
    • The key highlight was improving operating profits and net earnings for fiscal year 2009.
    • The cash flow improved to $93million for first nine months (from $79million)
    • The 2009 earnings is expected to be $1.30 to $1.40.
    • Yearly dividend of $0.39/share appears to be well covered with earnings.
    • This payout ratio is at 30% and current dividend yield is 1.30%


    ConAgra Foods Inc., (CAG): It is one of the largest US packaged food processors with $11.6 billion in revenues.

    • It has been paying dividends for more 25 years but not growing dividends. It has cut and/or suspended its dividends in these years. Most recent dividend increase of 5% was in September 2009.
    • The 1Q10 earning per share was $0.37 (vs. $0.23 in 1Q09).
    • The key aspects were significant increase in earnings and operating profits. It appears this increase is a combination of share buybacks and reduced operating costs.
    • The yearly dividend of $0.80/share appears to be covered with expected earnings of $1.70/share for year 2010.
    • The payout ratio is approx. 47% and current dividend yield is 3.8%.


    At a high level and in the context of stocks screening, CLC and CAG demonstrate ability to cover and sustain their dividends.

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