Download Equity Income and Dividend Growth Strategies

Equity Income and Dividend Growth Strategies
603 N Indian River Drive, Suite 300, Fort Pierce, FL 34950
www.melvillewealthmanagement.com
772-460-2500
1
WHY CONSIDER EQUITY INCOME SOLUTIONS AND DIVIDEND
GROWTH EQUITIES
• Dividends have historically been an excellent wealth creator
• Going back to 1960, 79.5% of the total return of the S&P 500 index can be
attributed to reinvested dividends and the power of compounding
• Current income streams available are higher than 10 year treasury
• Income generation has the ability to increase over time versus traditional
bonds
• Provides inflation protection
• Dividend Equity Characteristics
• Historically less volatile relative to other equities
• Strong balance sheets and hard to “fake” cash payments to shareholders
• Demand for income from investments increasing from aging population,
pensions and endowments with few available alternatives
• Ability to globally diversify using familiar names >40% of S&P 500 revenue is
generated overseas
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DIVIDENDS AS A WEALTH CREATOR
Over time, dividends have historically provided a powerful contribution to total return
The Power of Dividends and Compounding: Growth of $10,000
(1/1960 - 12/2011)
$1,200,000
$1,070,191
$1,000,000
S&P 500 Total Return (With Dividends)
S&P 500 Price Only (No Dividends)
$800,000
80% of return
attributed to
dividends and
compounding
$600,000
$400,000
$216,415
$200,000
$0
1960
3
1965
1970
1975
1980
1985
1990
1995
2000
2005
2010
DIVIDENDS AS A WEALTH CREATOR
’66 high to ’82 low:
-1.18% Price
+4.66% Price + Div
’00-date: 11 yrs
’09 Credit Crisis:
mid-pattern low
(6469) to next
peak: ?/?
’66-’83: 17 yrs
’29-’55- 26 yrs
’74 Nixon resigns:
mid-pattern low to next
peak: 19 yrs/ 17x gain
’42 WWII:
mid-pattern low to next
peak: 24 yrs/ 10x gain
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Fact Set; Morgan Keegan Equity Strategy
DIVIDEND ATTRACTIVE FOR INCOME VS. TRADITIONAL BONDS
Why Dividends Now?
S&P 500 Stock Dividends Versus 10 Year Treasury Yields
(1953 – 2010)
18
16
14
12
10
8
6
4
2
0
5
Apr-09
Apr-05
Apr-01
Apr-97
Apr-93
Apr-89
Apr-85
Apr-81
Apr-77
Apr-73
Apr-69
Apr-65
Apr-61
Apr-57
Apr-53
10 Year
Treasury Yield
S&P 500
Dividend Yield
Yield Comparisons
(As of 12/31/2011)
3Mo Libor
0.58%
3Mo Treasury
0.02%
2-year Treasury
0.25%
10-year Treasury
1.89%
10-year TIPS
-0.07%
S&P 500 Div. Yield* 2.22%
*As of 12/31/11
INFLATION PROTECTION
Dividend growth equities offer ability to increase income over time vs. traditional bonds
41 YEAR HISTORY OF INCOME, INFLATION, AND S&P 500 DIVIDENDS
Average
Income1
Consumer
Price
Inflation2
S&P 5003 Per
Share
Dividend
1967=100
1970
$11,773
116
$3.13
2008
$80,535
644
$28.58
Pct. Increase
584%
455%
813%
1Census Bureau: Table H-1. Average of Income Limits for Each Fifth and Lower limit of Top 5 Percent of All Households: 1967 to 2008
2 Bureau
of Labor Statistics: All items: 1967=100
and Poor’s 500 Index: An index of 500 stocks chosen by market size, liquidity and industry grouping, among other factors.
The S&P 500 is designed to be a leading indicator of U.S. equities and is meant to reflect the risk/return characteristics of the large
cap universe.
3 Standard
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INFLATION PROTECTION
The last decade dividend growth was 3.55 times higher than CPI
Dow Jones Industrial Average (DJIA): The DJIA is a price‐weighted average of 30 actively traded blue chip stocks, representing between 15 percent to 20 percent of the market value of all NYSE stocks. Prepared and
published by Dow Jones & Company, it is the oldest and most widely quoted of all the market indicators
Recession Periods - United States
Cpi-U All Items U.S. City Average Sa 1982-84=100 - United States
220
1999-2009: DJIA Dividends climb 103%
1999-2009: CPI: 29%
12/31/09$297.14
share;
2.85%
12/31/99
$146.36/share;
1.27%
220
210
200
200
190
190
180
180
170
Courtesy: Fact Set
1982 = 100
210
12/31/99:
$168.80
'00
7
12/31/09:
$217.22
170
Courtesy: Fact Set
'01
'02
'03
'04
'05
'06
'07
'08
'09
POTENTIAL DIVIDEND GROWTH VS. TRADITIONAL BONDS
Cash on corporate balance sheets at all time high
Real Level of Cash on Corporate Balance Sheets at Record Levels
(Adjusted for Inflation)
$2,000
$1,800
$1,600
Federal Reserve Board Nonfarm Nonfinancial Corporate Business
Total Liquid Assets, Flow of Funds (in Billions)
$1,400
$1,200
$1,000
$800
$600
$400
$200
$0
1945
1955
1965
Data Source: Federal Reserve, 10/11. Numbers are adjusted for inflation.
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1975
1985
1995
2005
POTENTIAL DIVIDEND GROWTH VS TRADITIONAL BONDS
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POTENTIAL DIVIDEND GROWTH VS. TRADITIONAL BONDS
Payout Ratios have room to increase
S&P 500
Dividend
Per share
S&P 500
Annual
EPS
Payout
Ratio
Dec-70
3.13
5.51
56.81%
Dec-75
3.68
7.71
47.73%
Dec-80
6.2
14.98
41.39%
Dec-85
7.89
15.69
50.29%
Dec-90
12.12
21.61
56.09%
Dec-95
13.7
35.38
38.72%
Dec-00
15.85
54.19
29.25%
Dec-05
22.48
72.53
30.99%
Dec-10
22.83
83.33
27.40%
Year
Source: Bloomberg; Morgan Keegan Equity Strategy Group
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DIVIDEND GROWERS OFFER OPTIMAL RISK/REWARD:
ESPECIALLY IN A VOLATILE MARKET
Returns & Volatility
Return of S&P Index1 Stocks by Dividend Policy:
(January 1972-December 2011)
1.22
8.59%
Return
Return
7.01%
6.90%
1.35%
-0.88%
Dividend Dividend No Change Equal- Dividend Dividend
Growers & Payers in Dividend Weighted
NonCutters &
Initiators
Policy
S&P 500
Payers Eliminators
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Volatility
9.38%
Volatility of S&P Index1 Stocks by Dividend Policy:
(January 1972-December 2011, as shown by beta)
0.87
0.94
1.00
1.29
1.00
Dividend Dividend No Change Equal- Dividend Dividend
Growers & Payers in Dividend Weighted Cutters &
NonInitiators
Policy
S&P 500 Eliminators Payers
DIVIDEND GROWERS OFFER OPTIMAL RISK/REWARD
BETTER THAN JUST PLAIN OLD HIGH DIVIDENDS
Why growers are better than just plain old high dividends.
Historical Outperformance From Dividend-Growing Stocks
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DIVIDEND GROWERS OFFER OPTIMAL RISK/REWARD
High… But Not Highest
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DIVIDEND INCREASES MAY COME FROM UNEXPECTED AREAS
Bloomberg Semiconductor Index: Quarterly data 3/06 – 9/11
140
8
$7.56
7
120
6
100
Dividend Per share
80
5
4
60
40
20
Payout Ratio
$3.20
3
2
26%
19%
Bloomberg and Raymond James Equity Strategy
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9/1/2011
6/1/2011
3/1/2011
12/1/2010
9/1/2010
6/1/2010
3/1/2010
12/1/2009
9/1/2009
6/1/2009
3/1/2009
12/1/2008
9/1/2008
6/1/2008
3/1/2008
12/1/2007
9/1/2007
6/1/2007
3/1/2007
12/1/2006
9/1/2006
6/1/2006
0
3/1/2006
0
1
PAYOUT RATIOS AND CASH LEVELS: RAYMOND JAMES
CUSTOMIZED INDICES
1
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Raymond James Financial Services: Why Cash Hoards Are Destroying Equity Value In Tech (Year 2) ; Tavis McCourt Companies in each sector include: Technology – ADI, BRCM, NSM, TXN, BMC, CA, CSC,
GOOG, MSFT, ORCL, A, AAPL, CSCO, GLW, DELL, EMC, HPQ, IBM, JNPR,MOT, QCOM, GRMN, NOK, INTC, STM, TSM, ERIC, RIMM, ORCL, ADBE, AMD, ALU, MU, SNDK, NVDA,
FSLR, ALTR Telecom Services – T, CTL, VZ, WIN Utilities – EXC, PCG, PEG, ED, AEE Consumer Products – NKE, COH, VFC, RL, KO, MO, GPS, EL, TGT, ANF Industrials – ITW, TYC, HON,
CAT, DE, CBE, GE, UTX, BWA, JCI
IMPLEMENTING A HYPOTHETICAL DIVIDEND STRATEGY
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DISCLOSURE
Data provided by Raymond James Asset Management Services. Information contained in this presentation was received from sources believed to be reliable, but accuracy is not
guaranteed.
This material is for informational purposes only and should not be used or construed as a recommendation regarding any security outside of a managed account.
Investing involves risk, including possible loss of principal invested. Past performance does not guarantee future results. There is no assurance that any investment strategy will be
successful or that any securities transaction, holdings, sectors or allocations discussed will be profitable. It should not be assumed that any investment recommendation or decisions made
in the future will be profitable or will equal any investment performance discussed herein.
Please note that all indices are unmanaged and investors cannot invest directly in an index. An investor who purchases an investment product that attempts to mimic the performance of
an index will incur expenses that would reduce returns. Past performance is not indicative of future results. The performance noted in this presentation does not include fees and costs,
which would reduce an investor's returns. The S&P 500 is an unmanaged index of 500 widely held stocks. The Dow Jones Industrial Average is an unmanaged index of 30 widely held
securities.
Fixed income securities are subject to interest rate risk. Generally, when interest rates rise, bond prices fall, and vice versa. Specific-sector investing can be subject to different and greater
risks than more diversified investments.
The Consumer Price Index (CPI) is a measure of inflation.
Investing in small-cap and mid-cap stocks generally involves greater risks, and, therefore, may not be appropriate for every investor. International investing also involves special risks,
including currency fluctuations, different financial accounting standards, and possible political and economic volatility.
U.S. government bonds and Treasury bills are guaranteed by the U.S. government and, if held to maturity, offer a fixed rate of return and guaranteed principal value. U.S. government
bonds are issued and guaranteed as to the timely payment of principal and interest by the federal government. Treasury bills are certificates reflecting short-term (less than one year)
obligations of the U.S. government.
Diversification does not guarantee a profit nor protect against loss. Dividends are not guaranteed and will fluctuate.
The London InterBank Offered Rate, or LIBOR, is the average interest rate at which a select group of large, reputable banks that participate in the London interbank money market can
borrow unsecured funds from other banks. Enterprise Value (EV) is a measure of a company’s value, often used as an alternative to straightforward market capitalization. Enterprise
value is calculated as market cap plus debt, minority interest and preferred shares, minus total cash and cash equivalents. Payout Ratio is the amount of earnings paid out in dividends to
shareholders. Raymond James & Associates, Inc., makes a market in TRMK.
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Theresa DeBello
Branch Operations Manager
772-460-2500
Toll-Free: 800-445-4767
[email protected]
www.MelvilleWealthManagement.com
Charlotte Gabrich
Operations Specialist
772-460-2500
Toll-Free: 800-445-4767
[email protected]
www.MelvilleWealthManagement.com
Holly Kramer
Client Service Associate
772-460-2500
Toll-Free: 800-445-4767
[email protected]
www.MelvilleWealthManagement.com
Brooke Sparks
Client Service Associate
772-460-2500
Toll-Free: 800-445-4767
[email protected]
www.MelvilleWealthManagement.com
Raymond James & Associates, Inc., member New York Stock Exchange/SIPC
© 2012 Raymond James & Associates, Inc. member New York Stock Exchange/SIPC