What did you miss from the past week?

1. Updating My Dividend Watchlist @ MJTM.

2. Have You Put Your Chips On The Web Ecosystems Yet? @ IS.

3. Asset Allocation – Retirement Ready Part 2 @ The Passive Income Earner.

4. Portfolio in Action: Purchased Lorillard Shares @ DGSI.

5. Dividend Income Update – April 2013 @ Dividend Mantra.

6. Pay For College With Dividend Income @ Dividend Ladder.

7. hhgregg Management Rips Off Shareholders @ Barel Karsan.

8. The Most Common Excuses For Not Launching Destroyed @ SFN.

9. Nike, Inc. (NKE) Dividend Stock Analysis @ DGS.

10. Carnival of Personal Finance – Happy Days Are Here Again Edition!

It’s fun to see how a serious field like investing comes with these semi-astrological predictions…

There is an old saying telling investors to sell in May and come back in October. This is the result if you follow the “Sell in May and Go Away” along with “Buy back on Saint Crispin’s Day” which is in late October.

Some people can say it’s as good as fortune tellers’ stories but there is one thing that tickles me; there is some pretty strong data to support it! The most interesting graph I have found was produced by Walter J. Zimmermann Jr. from United-ICAP. It clearly shows that an investor that bought only from May 1^st to October 31^st (so doing the opposite of the old saying) loses money over the past 62 years of stock market history!

On the opposite hand, if you only buy from November 1^st and sell on April 30^th, the investor is making a fortune from 1950 to today. Somewhere in between, someone who’s fully invested no matter what is making money but definitely less than if they would follow this twisted rule:

Source: United-ICAP (pdf document)

Well, even if I don’t believe in technical analysis too much, I wonder how I could believe in this. It’s not like I will get rid of my entire portfolio today just to make sure I don’t lose money over the summer.

Losing on Dividend Growth

The deceiving part of those sell in May believers is that dividend payouts have been ignored in this comparison. I understand why as nobody has the time to track dividend payments over a period of 63 years. Nonetheless, I believe that the dividend investor will benefit from keeping his stocks throughout the years to receive its distributions.

There is also tax implications if you are trading in a non-registered account. However, this doesn’t apply to my personal situation for now.

It’s Not Always True

Just for fun, I’ve decided to pull out some non-scientific data post 2008. I looked at the S&P500 from May to October for 2009, 2010, 2011 and 2012 just for fun. Here’s what I found:

2009 +19.62%

2010 -0.29%

2011 -5.76%

2012 +0.63%

After 4 four years, I’ve cumulated a gain of +13% (total return not annualized). If you add a few dividend payments throughout those months, I would have been a clear loser to ignore these 6 months of the year. On the other hand, 2009 makes a huge difference in the calculation. Nonetheless, I’m pretty sure that the payment of dividends compensate for the loss in 2011 over the long run.

Technically, it is true that there is a lot more money to make from November to April but there are still some bucks lying on the floor for the summer months!

I’m Not Selling but I’m Stop Selling!

I won’t be selling any of my stocks over summer time. However, I’ll put a few stop sell instructions on specific stocks to make sure I cash out most of my profits. The best example in how to use this strategy is definitely on Seagate Technology (STX). After STX last quarterly results (last week), the stock jumped by more than 10% in 2 days. I’m currently showing a paper profit of 66% on this trade (not counting dividends!).

It is very tempting for me to close this trade now, and look for something else to buy. But I hate to leave money on the table and since the company continues to be traded with a very low P/E ratio and pays a juicy dividend, I want to keep riding the stock.

The best way for me to do it is to put a stop sell at $39. Since the stock is now trading around $41, this gives me some room to navigate. If the stock drops under $39, I’ll automatically sell the stock and cash in some nice profit. If it keeps going up, I won’t have to worry.

What about you? Are you selling, buying or holding in May?

Let’s jump right into the links:

1. Spotting the Red Flags of Investment @ The Passive Income Earner.

2. Will You Sell And Go Away? @ Dividend Ladder.

3. Notable Dividend Increases: April 2013 @ DGSI.

4. PepsiCo, IBM and 7 Other Dividend Stocks Raising Their Payouts @ DGS.

5. Freedom Fund Update – May 2013 @ Dividend Mantra.

6. The Pros And Cons Of Living In A Smaller Home @ Retire by 40.

7. Alco-Stores: Large Shareholder Disappears @ Barel Karsan.

8. Facebook (FB), Still A Good Buy At These Levels? @ IS.

9. Carnival of Financial Camaraderie.

10. Carnival of Personal Finance #408 – Disney World Edition.

At the beginning of each month, I make a recap of the dividend yield and ex dividend date of the TSX 60. In addition to this recap, I’ve decided to cover briefly the result of my Best 2013 Dividend Stock Book. This book includes 30 stocks analysis (20 US and 10 CDN) for only $2.99. So far, my results are:

20 US Dividend Stocks: +20.03% (can you beat that?)

10 CDN Dividend Stocks: + 6.11%

If you want to read more, just continue pass the TSX 60 Dividend Yield & Ex-Dividend Date chart…

TSX 60 Dividend Yield & Ex-Dividend Date

Best 2013 Dividend Stocks Results

At the beginning of the year, I’ve made a list of Best dividend stocks for 2013 (click on the link to get my metrics and to see the list). Out of this exhaustive list, I’ve pulled out 30 stocks to be my “favorite” picks among those lists. Those are not stock recommendations and I strongly suggest you do your own analysis and read financial statements. This book is simply a compilation of my own stock analysis for 30 stocks being either held in my portfolio or being on my watch list.

I’ve broken down the result per market:

Best 2013 US Dividend Stocks Results

In the middle of February, I wrote an article about 35 dividend stocks on fire. Those were the most profitable stocks after 5 weeks of trading in 2013. Out of the top 35, I had 5 stocks from my own selection:

Seagate Technology (STX)

CA inc. (CA)

Safeway (SWY)

Mattel (MAT)

Heinz (HNZ)

Now, after 4 months, I have 13 stocks showing stock growth over 20% without counting dividend. While my benchmark continued its progression, my portfolio simply boomed.

The average portfolio is showing an amazing return of 20.03% that is 12.14% over my benchmark (VIG with 12.14%). Oh! Did I mention that my portfolio also produce 0.90% more in dividend yield than VIG? .

What’s interesting is that I now have 9 stocks out of 20 with a dividend yield under 3%. When I first built this portfolio during the Holidays, I only had Abbott showing lower than 3%. This means that the current dividend yield “suffered” from the stock appreciation. However, the dividend yield based on the original cost of purchase is still way above 3%.

If you want to learn more about those companies, you should buy my book for only $2.99:

Best 2013 Canadian Dividend Stocks Results

I’m quite satisfied with my Canadian picks as well. I was struggling to beat my index (XDV with 3.35% so far this year) for the first three months. After April, I have now 6 stocks out of 10 beating the index. CTY and NA are still struggling but their high dividend helps a lot. Telus continues to seek higher summits after splitting not so long ago.

How about your portfolio this year? Are you as happy as I am?

Disclaimer: I hold shares of NA, T (Telus), CVX, INTC, JNJ, STX

I don’t want to waste my time, do you?

What I like about dividend growth investing is that it turns out to be a super effective methodology and doesn’t take much time. You have to be sure to check out financial statements and take some time to think about the company’s business model. It’s not like investing was like picking an ice cream flavor during a hot summer day. It still requires some thinking. However, there is a way to cut corners and get directly to the point. Here are the four key ratios you need to look at before doing anything else.

Dividend Payout Ratios

The dividend payout ratio is probably one of the most important metrics for a dividend investor. Let’s keep it simple: if the dividend payout ratio is too high, the company can’t increase its dividend. Dividend growth investors are looking for a distribution that will be increased year after year. Here’s my mojo with regards to dividend payout ratio:

#1 Ignore any dividend payout ratio over 100%. You don’t want to pick a company paying more than its profits in dividends. This is completely ridiculous. It’s like clearing $2,000 per month with your pay check and contracting a monthly mortgage payment of $2,100.

#2 Calculate your dividend payout ratio yourself (click here to read why). There are several ways to calculate this simple ratio. It’s important you get your head around this crucial number.

#3 Spend little time on stocks with a ratio between 80% and 100%. Unless they show solid future growth, they will eventually fall in the 100%+ payout ratio category.

#4 Concentrate on stocks with a ratio under 80%. Ideally under 70% but hey, an investor has the right to take a few chances! Nonetheless, almost all my stocks show a payout ratio under 70%. This is why I can truly be assured of a sustainable dividend payout over time.

Dividend Growth

Dividend growth must be positive over 5 years. Why am I using a 5 year history instead of last year’s metric? Because I’m a long term investor. I don’t care if there was a dividend boost last year, I want to see annualized dividend growth over the last five years. I will obviously check yearly dividend payouts to make sure the positive growth isn’t coming from only one or two years. If I can find a stock increasing its dividend each year, then I’ve found a winner. If I can explain why a company didn’t increase its dividend for a specific period (e.g. banks in 2008-2009), I will consider the stock.

If the dividend payout ratio is under 80% and the stock keeps paying more money, we have the start of a good stock pick. But there is more…

Earnings Per Share Growth

Earnings, if there is one thing that matters when you are in business, it’s to make money, right? Similar to my criteria on dividend growth, I’m seeking stocks with a positive EPS growth over the past five years. I will also look at EPS year by year to see the trend.

Steadily increasing earnings means the company is always making more profits than last year. Combined with a low payout ratio and a positive dividend growth; we now have a company looking to reward its investors year after year. This is what I’m looking for.

Sales Growth

Wait! I’ve added a fourth ratio; sales growth. What if a company increase its dividend each year and maintain a relatively low dividend payout ratio. This obviously means that earnings are also increasing. But what if sales are stagnating or, worse, decreasing? EPS growth means the company makes more profit but it doesn’t always continue to grow its market. This is why it’s important to look at positive sales growth.

If sales are up and earnings are up too, the company is in awesome shape and on its way to a healthy & increasing dividend.

That’s it? Really?

I told you that investing wasn’t like eating ice cream. I don’t think you can literally pull out your stock screener, enter these 4 metrics, close your eyes and pick any stock showing up on your screen. These four key ratios should be at the center of your investing process to find solid dividend stocks to start your research.

However, following my stock analysis template and the 15 things I look at a stock before making a trade, there is a lot more to consider. On the other hand, I believe that any stock not meeting these minimum requirements will not fit well in my portfolio.

Do you have any key metrics you follow each time you are about to buy a stock? What are they?

1. Why I Love Dividend Growth Investing @ Dividend Mantra.

2. Genuine Parts Company (GPC) Dividend Stock Analysis @ DGS.

3. Is Google or Amazon The New 21st Century Conglomerate? @ IS.

4. PepsiCo – Dividend Fact Sheet @ Dividend Engineering.

5. EZCorp As Pie @ Barel Karsan.

6. When to sell my dividend stocks? @ DGI.

7. Should you help your aging parents financially? @ Retire by 40.

8. March 2013 Dividend Income Update @ My Own Advisor.

9. Timing the Market vs. Buy and Hold @ MDJ.

10. High Yield Stocks Raising Dividends @ Dividend Ladder.

What could be the best scenario for a dividend investor?

When I think about dividend investing, I think about the possibility of receiving a dividend payout forever. After all, the “perfect dividend stock” is paying a distribution quarterly and show the possibility of increasing this payment year after year.  I went on doing some research based on a few data inspiring sustainable dividend over time.

Which Ratios Lead to Safe Dividend Payouts?

From a stock screener, I’ve pulled out the following metrics:

Dividend yield over 3%

Dividend payout ratio under 70%

P/E ratio under 20

5yr Earnings per share growth over 10%

5yr Sales growth over 10%

Return on Equity over 10%

I’m guessing that a stock showing low payout ratio, low P/E ratio but with high EPS, sales and ROE growth would be a strong candidate to be in any dividend investor portfolio. I’ve pulled off 17 stocks from this search. Here’s the list and data details at the bottom. Tell me what you think; I’m curious to hear your thoughts about those stocks…

Intersections Inc.  (INTX) 8.52% Dividend Yield. Intersections provide protection against identify theft or fraud. It also helps consumers to track their credit report and protect personal information. Note the stock is on a slump due to significantly negative revenue guidance (-15%) as new regulations restraint financial services companies marketing its products.

H&Q Healthcare Investors (HQH) 6.95% Dividend Yield.  HQH is a closed-end management investment company who invests mainly in biotechs, medical devices and pharmaceuticals. The stock is up by more than 30% for the past 12 months.

Alliance Resource Partners LP (ARLP) 6.72% Dividend Yield.  Alliance Resource is a producer and marketer of coal products in the USA. The company is believed to beat analysts’ estimates for net earnings but be short on gross revenues.

RF Industries Ltd.  (RFIL) 6.55% Dividend Yield. RF industries is specialized in coaxial and speciality cables. It designs, markets, manufactures interconnect products. The stock exploded by 72% for the past 12 months.

Eaton Vance Short Duration Diversified Income Fund (EVG ) 6.28% Dividend Yield. Eaton Vance is another closed-end management investment company. It seeks high level of income with a dividend yield over 6% at the moment. The fund invests in several different sectors.

Main Street Capital Corporation (MAIN) 6.06% Dividend Yield. Main is an investment firm providing debt and equity financing to companies with annual revenues between 10M$ and 100M$. The stock has beaten the analyst estimates for the past 5 quarters.

TAL International Group, Inc. (TAL) 6.00% Dividend Yield. Tal International lease and trade containers and chassis. We can expect this company to continue its growth along with the economy.

Icahn Enterprises, L.P. (IEP) 5.72% Dividend Yield. IEP is a diversified holding company. It was in the center of RIM acquisition early in 2012. Despite its 5yr metrics, the stock is down 13% for the past 12 months.

Newmont Mining Corp.  (NEM) 5.03% Dividend Yield. Newmont is a gold producer known to be the first company to determine their dividend payout according to an underlying asset (e.g. the price of gold). Since gold price is on a slump this gold producer follows the trend.

Cal-Maine Foods, Inc. (CALM) 4.07% Dividend Yield. Cal-Main produces eggs in the USA. Its activities range from production, grading, packaging, marketing and distributing eggs across the states. Following other food related stocks, CALM is up by 19% for the past 12 months.

Quality Systems Inc. (QSII) 3.83% Dividend Yield. Quality Systems develops and markets healthcare information system. While the 5yr stats are great, a deeper look into recent financial results would be required. The stock is down 56% for the past 12 months and has produced results under analysts’ estimates for the last three quarters.

The Female Health Company (FHCO) 3.71% Dividend Yield. Female Health produces and markets FC2 female condom. This condom is effective against pregnancy and also sexually transmitted infections. The stock is on fire (+40% over 12 months) after great Q4 results and shares repurchase program.

Coffee Holding Co.Inc. (JVA) 3.65% Dividend Yield. Coffee holding is… obviously a coffee roaster and dealer in the USA. They sell private-label along with branded coffee labels. The stock has been recently disappointing with a drop of 28% during the current bull market.

Questcor Pharmaceuticals, Inc. (QCOR) 3.63% Dividend Yield. Questcor is a biopharmaceutical company specialized in treatment of autoimmune and inflammatory disorders. As it’s the case with many pharmaceuticals, Questcor is dependent of its products performance.  In November 2012, its top selling drug would face serious competition from Cerium pharmaceuticals. The stock is down 32% for the past 12 months.

FutureFuel Corp. (FF) 3.52% Dividend Yield. FutureFuel produces chemical and biofuels. It’s definitely a great industry for the… future .

Homeowners Choice, Inc. (HCI) 3.48% Dividend Yield. Homeowners is another holding company specialized in property and casualty insurance business. The company seems to continue on a uptrend as it has beaten analysts estimates for the past 5 quarters.

Sunoco Logistics Partners L.P. (SXL) 3.47% Dividend Yield. Sunoco Logistics manage an important portfolio of pipelines. This is definitely a hot sector at the moment and the stock has boomed by 63% for the past 12 months.

As you can see, a few metrics and a stock filter is not enough to make sure you have found a great dividend growth stocks. If you hold or research any of those companies, please let us know!

Disclaimer: I do not hold any stocks mentioned in this article. Further analysis is required before trading.

1. Procter & Gamble (PG) Delivers a Dividend Boost to Investors @ DGI.

2. Reaching for the 15% Tax Bracket @ Retire by 40.

3. Solving the Ridley @ Barel Karsan.

4. 3 Ways to Hedge Your Portfolio Gains @ The College Investor.

5. Reaching Critical Mass @ Dividend Engineering.

6. New Currency Unhedged ETFs from iShares @ Canadian Capitalist.

7. 8 Dividend Stocks Growing Future Yield @ DGS.

8. Are You Ready For The Next Market Crash? @ IS.

9. Dividend Income – April 2013 @ The Passive Income Earner.

10. Carnival of Personal Finance: It’s Tax Time! Edition.