Here at Notes we spend the best part of the day combing the little-known world of contrarian investing for money-making ideas the mainstream has overlooked.

We call it the underground, because the kind of market intelligence we dig up can’t be found in the mainstream press. And many of the ideas that circulate in this hidden world actually take advantage of mainstream manias and hysterias to bag big profits.

Small-cap expert Marc Lichtenfeld at The Smart Profits Report says the secret to this profit-income combo is to look for that rare flower: small-cap stocks that pay solid dividends. Now, most investors don’t look to small-caps for income potential. But although most small-caps recycle profits back into the company growth, a number of small-caps do pay dividends…

Owning dividend-paying stocks generates income and improves a portfolio’s return over the long-term.

However, it’s hard to find good small-cap companies that pay dividends. Smaller companies usually pour any excess cash back into the business to help it grow, rather than distributing it back to shareholders.

In fact, of more than 7,400 stocks with market caps under $1 billion, only 1,356 pay dividends. And if you want a meaningful dividend yield – let’s say 3% – the number decreases to less than 800.

I further whittled down the list to companies with high current ratios, low debt, and profit expectations to help ensure that dividends would continue to get paid.

I also stayed away from companies that paid a very high dividend. Companies with yields approaching 10% or higher may find those payouts unsustainable if business continues to be difficult.

Yes, if you want a higher potential reward, you do need to take on more risk. But buying stocks with sky-high dividends is riskier than those with solid but more sensible yields.

Readers should take note that the Nasdaq and Russell (small-cap indexes) have risen 58% and 67% from their lows. So it makes sense to take a more defensive position in small-caps right now. Marc has taken the pain out of choosing the right growth-income balance stocks with three rock-solid picks in this sector…

1. WD-40 Company (NASDAQ: WDFC): The company makes everyone’s favorite industrial lubricant – WD-40 – plus household cleaners and other products. Through the first nine months of its fiscal year, it generated $18 million in profits and boasts $36 million in cash versus $21 million in debt. Earnings per share are expected to grow 13% in fiscal 2010.

Current dividend yield: 3.4%

2. American Ecology Corporation (NASDAQ: ECOL): The firm handles America’s hazardous waste. Not a great business if you’re the guy with the rubber gloves moving barrels of the stuff. But not bad if you’re an investor – particularly a new one, given that the shares have endured a beating over the past year.

ECOL is profitable, has $24 million in cash and no debt. Over the first six months of 2009, it generated $17 million in cash from operations. So far it has paid out over $6 million in the form of dividends.

Current dividend yield: 4%

3. CDI Corporation (NYSE: CDI): The company provides engineering and information technology staffing services. With so many businesses cutting jobs, it’s had a tough time over the past year. But it’s still profitable, with earnings per share expected to nearly double next year. It has $77 million in cash, no debt and generated $10 million in cash from operations.

Current dividend yield 3.6%.

This has been a tough quarter for companies. Compared to last year’s second quarter, profit is down roughly 31 percent and revenue is down even more. Wall Street thought it was going to be even worse. So in one of the worst quarters ever, the market has rallied.

Investors learn all the wrong lessons from a rally like this. Nothing about it makes sense. The smallest companies are outgunning the biggest one. The most heavily shorted stocks are doing better than the least shorted stocks. The companies with the worst analyst ratings are outshining the ones with the best ratings. Everything about this rally is backwards.

Over the past 37 years – from 1972 to 2009 – these “best of breed” companies have made shareholders 2.3 times more money than the stock market as a whole. For every $100 you made from the stock market, you would have made $230 from these “best of breed” companies.

That’s not just slightly outperforming the market. That’s lapping the market and then some. And it’s even more impressive when you take into account everything this period covered. It’s been an eventful 37 years of embargoes, stagflation, a savings & loan crisis, an Asian economic crisis, a Russian national debt default, a near collapse of the Mexican peso, 9/11, two gulf wars, the bankruptcy of the Long-Term Capital Management hedge fund, the dotcom rise and fall, a bursting of the housing bubble, credit bubble and spending bubble. Forgive me if I’ve left some “minor stuff” out like the fall of the “Iron Curtain” and the rise of China.

Through all this, these companies gave their shareholders a steady and rising stream of revenue and a return that, as I’ve said, was more than 2.3 times what the markets gave. Who wouldn’t want that?

Everybody would. And that’s a big problem for all those mutual funds which don’t touch these companies … and for the hyper-active Wall Street press which makes a fuss over a dozen things every day but somehow misses the biggest story of all…

The existence of a class of companies which know how to put ever-increasing amounts of cash into the pockets of their shareholders, year in and year out, decade in and decade out.

Almost as bizarre as our junk rally are dividend-paying companies that can do no wrong. The ones strong enough and confident enough to raise dividends are going up in price. And the ones that are cutting dividends? Many of them are going up too.

Shareholders have recently been accepting smaller checks without protest and without selling their shares. They are evidently willing to take the hit today so the company can grow profits tomorrow. It’s easier to do when investors think that some kind of recovery is around the corner. If that recovery doesn’t materialize, these shareholders will be showing much less forgiveness to dividend cutters. I don’t want to own these companies when that happens.

If I were an investor in any of those companies, I’d sell my shares right away. The whole point of investing in the “best of breed” companies is that you get paid no matter what.

Everybody is cutting costs, the strong and weak companies alike. But not all dividend companies are cutting their dividends. Just slightly more than half are these days. It pays to invest in the dividend hikers, not so with the cutters. Let other investors be forced to rely on a recovery to reverse their portfolio losses.

You should be and can be making money even if the economy remains weak. As long as there are “best of breed” companies still raising their dividends, there’s no reason why you should sacrifice your pay “for the good of the company.”

The scary thing (for us and the Fed) is that low-interest rates aren’t speeding up the recovery. People aren’t willing to borrow. And banks aren’t willing to lend. The amount of money floating around the economy is pretty stagnant. The Fed should be pretty discouraged. They have $2 trillion on their balance sheet. And all they have to show for it are some banks which should have gone under but are instead giving its employees million-dollar bonuses.

Dividend companies are getting a little respect again. They may even have become the “new fad” according to the UK’s Telegraph. Here’s the money quote…

Few professional investors are banking on a return to the super-charged capital gains we have seen from equities in the past. Rather, the new fad is for companies capable of delivering reliable sources of income. Historically, dividends have been responsible for more than half the return on equities. In the more risk-averse environment which is the new norm it may be rather more than that.

But why be satisfied with just a “reliable source of income” when you could get income which is both reliable and growing. Perhaps the Telegraph doesn’t realize that with “best of breed” companies, you can have your cake and eat it too. But the Telegraph isn’t the only newspaper or media outlet that doesn’t “get it.”

Nobody is talking about these companies providing reliable revenue to shareholders for decades (yes, I said decades) and increasing their dividends at rates of 25-40 percent every year. Yes, I said 25-40 percent every year.

Do the math. A company raising its cash payments to you by 25 percent every year will double the money it pays you every three years! If you’re getting $10,000 in cash every year from a company now, in six years you’ll be getting $40,000.

These aren’t junk bonds. They’re not risky derivatives. They don’t depend on a bull market. These payments come from some of the safest and strongest companies in the market. When companies provide rising cash payments for decades and generate plenty of cash with above average profit margins, they qualify for “best of breed” status.

Actually, some people out there do “get it.” One of them is Hersh Cohen. He has managed the Legg Mason Partners Appreciation fund for the past 30 years. Over these three decades, his fund has done better than the S&P 500, the dividend-company benchmark index and the average return for large-capitalization stock funds. Cohen, who holds a doctorate in psychology, says he focuses on companies with “superior balance sheets and rising dividends.”

Cohen says his academic training helps him when the market goes to extremes. During such times he likes to go against the flow, cutting back when the market is euphoric and increasing his bets when others panic “and stuff is being given away.”

I’m not a fan of mutual funds. I think they’re terrible instruments, trapping investors into very narrow styles of investment long past the time when those styles made a buck. And I don’t think mutual fund managers are the sharpest tools in the investment shed. So when I see an exception, I try to point him out. Cohen is an exception.

If you’re interested in doubling your money every three years with very little risk, there’s only one way to do it. Invest in “best of breed” companies.

To your investing success,
Andrew

Source: Why ‘Best of Breed’ Investing Is No Passing Fad

Cash Flow Is Key… When it comes to evaluating the safety of a dividend, the first thing we need to verify – given the current economic slowdown – is demand for a company’s products. After all, a company needs to generate a steady stream of cash in order to keep paying its shareholders.

But this dividend stock is ideally suited to weather the economic mess and is well capable of bolstering your income.

Look no further than Philip Morris International, Inc. (NYSE: PM).

Repeat Business… No Matter What The Economy Is Doing

I’m going to give you 10 reasons why Philip Morris’s dividend-paying capability is so solid.

And given that consistent business is so crucial to a company’s cash flow generation, it’s no surprise to see that the first three reasons all focus on the firm’s rock-solid demand…

1. Recessions Don’t Matter: As you might suspect, addictive products tend to enjoy the steadiest demand. In fact, based on empirical evidence from Citi Investment Research, the last two recessions “had no material effect on [cigarette] demand.” This recession should be no different.

2. Population Growth Offsets Higher Taxes: Obviously, demand is not inelastic. Consumers are sensitive to price changes. And as the world’s governments contend with sagging economies, they continue to hike cigarette taxes in order to meet budget obligations.

The World Health Organization estimates for every 10% increase in price, demand slips by 4% in mature markets and by 8% in developing markets. However, when you factor in population growth, the impact is almost cut in half. More importantly, Philip Morris’ highest margin markets (accounting for 60% of revenues) come from the less impacted mature markets. In other words, the company’s profits are extremely durable.

3. Emerging Markets: The WHO estimates that 80% of the world’s 1.3 billion smokers live in developing countries. And sales in emerging markets are increasing modestly, compared to declining volumes in developed markets.

Philip Morris is uniquely positioned to capture the lion’s share of this growth. It operates in 160 countries and derives over 60% of its sales from emerging markets. It also owns seven of the leading 15 international brands, including the hands-down leader, Marlboro.

So it’s no surprise that total volumes increased a steady 2.5% in 2008. And total sales, net of excise taxes, increased by 12.7% to $25.7 billion. As management acknowledges, there’s no mistaking that, “This strong performance was driven by emerging markets.”

Now how about that cash?

If Cash Is King, Philip Morris Rules

Beyond steady demand, we also need to verify that cash isn’t being misspent and thus jeopardizing the dividend payment. The next three reasons pertain to Philip Morris’ ability to pay its dividend indefinitely…

4. Ample Free Cash Flow: In 2008, Philip Morris generated $6.8 billion in free cash flow, thanks to solid sales growth, supply-chain optimization and other cost-cutting initiatives. That was a year-over-year increase of 52.7%. Best of all, this figure should keep climbing, as the company is only about halfway through its three-year, $1.5 billion cost-reduction program.

5. A Solid Cash Buffer: With $2.4 billion in the bank, Philip Morris is sitting on enough cash to cover two quarters worth of dividends.

6. Minimal Litigation And Regulation Risk: The 2008 spin-off from Altria eliminated the legal and regulatory risks facing domestic operations. In other words, we don’t have to worry about the possibility of any adverse judgments that would require Philip Morris to pay enormous settlements and hinder its ability to pay short and intermediate-term dividends. Same goes for newly passed legislation, which grants the FDA regulatory control over the industry.

7. Credit Is No Concern: The bulk of the company’s debt was issued before the credit markets soured. And because it’s well laddered at “attractive interest rates,” there’s no concern about interest costs skyrocketing and cutting into dividend payments, due to untimely refinancing. Should any emergencies arise, the company can tap into its $6 billion in unused bank credit lines.

8. The Payout Ratio Is Conservative: Even after increasing the dividend by 17.4% in August (to $0.54 per quarter), Philip Morris still only paying out 61% of profits. So profits would need to drop dramatically in order to pose an immediate threat to the current payout. The low ratio also leaves plenty of room to increase the dividend.

Now for the final two reasons why Philip Morris’ dividend is solid…

Management Strength And A Currency Boost

The final two reasons the company’s dividend is safe pertain to management and market predictions. Because they’re subjective, they’re not significant on a stand-alone basis. But they do contribute positively to the overall outlook for the stock…

9. Management Pedigree And Commitment: Remember, Philip Morris spun off from Altria, which had increased its dividend in 39 out of the last 41 years. That history and “commitment to reward our shareholders generously” is ingrained in Philip Morris’ management. And as the CFO reveals, if maintaining that commitment “means that the payout ratio overshoots 65% [occasionally], so be it.”

10. Currency Tailwinds: A strong dollar hurts results because Philip Morris is based in the United States, yet records almost all of its sales in foreign markets. However, many experts (including yours truly) believe the dollar is doomed, which will only magnify the company’s profitability.

A Solid Dividend… And 14% Earnings Growth To Boot

In the end, the fundamentals above prove the most important thing to income-seeking investors: The dividend is safe.

They also point to the prospects for steady share appreciation. After all, the stock is trading cheaply at just 12 times earnings. Management also expects to increase earnings by 14% next year.

As CFO Hermann Waldemer explains, “We have excellent momentum going into 2009. Our market shares are growing overall… And our share growth is accelerating [too].”

And this is the reason to buy before the company reports its quarterly earnings on July 23: Because we’ll get proof. If we wait for the results, I’m afraid the shares will get away from us and diminish the yield.

At current prices, Philip Morris pays a reliable 5% with strong prospects for stock appreciation, too. So don’t miss out.
Good investing,
Louis Basenese

Source :  Philip Morris: 10 Reasons To Buy This Dividend Stock Before Next Thursday

Editors Note: This article appears as a guest editorial by Louis Basenese, Advisory Panelist, Investment U.

Investors believe they’ve seen enough evidence that the U.S. economy may be bottoming out to ignite one of the strongest stock-market rallies in years. After closing at a 12-year low on March 9, the Standard & Poor’s 500 Index has soared 32%. The  Dow Jones Industrial Average has zoomed more than 27%, and the tech-laden Nasdaq Composite Index has rocketed 34%.

In a March 15 interview on the CBS show, “60 Minutes,” U.S. Federal Reserve Chairman Ben S. Bernanke said the United States escaped a repeat of the 1930s Great Depression. The economic downturn would hit bottom this year, with an actual recovery starting in 2010.

“And I think as those green shoots begin to appear in different markets, and as some confidence begins to come back, that will begin the positive dynamic that brings our economy back,” Bernanke told viewers.

But now those “different markets” appear to be sending some troubling signals.

Green Shoots Yield to Red Ink

Last week, Mexico reported that its economy contracted at an annualized rate of 21.5% in the first quarter. The report followed equally dismal reports from Japan, Germany and the United States. Japan – the world’s second largest economy – said its gross domestic product (GDP) contracted at a 15.2% clip, its worst performance since 1955. Germany’s economy shrank at a 14.4% annualized pace, its worst showing since 1970.

In fact, Europe as a whole stumbled in the first quarter, as economic activity in the 16-nation Eurozone fell the most in 13 years. The Eurozone’s economy contracted by 2.5% in the three months that ended March 31.

At home, the U.S. economy contracted by a 6.3% annual rate, with the U.S. Federal Reserve predicting “a gradual recovery” that starts in the second half of this year.

If uncertainty continues to be the watchword, how should investors position themselves?

Staying on the sideline may appear safe, but it’s actually been proven through research to be a risky strategy. For instance, after looking at S&P 500 returns between 1993 and 2007, Davis Advisors Funds found that investors who remained invested and didn’t try and “time” the market ended up being much better off than investors who moved in and out of the market – often missing strong days in the market, as a result, says Wellcap Partners Managing Partner Alan Schram.

Investors who remained invested received an average annualized return of 10.5%. But investors who missed just the best 30 trading days over this stretch saw that return drop all the way down to 2.2%. And the more strong days an investor missed, the worse the returns got, Schram says.

Here’s a summary of the results of that study, looking at the investor’s action and the average annual returns that resulted:

• Stayed the course: 10.5%.
• Missed the 10 best days: 7.1%.
• Missed the 30 best days: 2.2%.
• Missed the best 60 days: (-3.2%).
• Missed the best 90 days: (-7.4%).

Nevertheless, there’s still about $8 trillion sitting on the sidelines – enough to create a sustainable market really should the “green shoots” grow into a full-fledged recovery.

Are Income Stocks the Antidote in a Sick Economy?

OK, so it pays to stay invested – but invested in what? And what if the hoped-for recovery ends up getting blunted? After all, those “green shoots” could easily wither on the vine.

According to Money Morning Contributing Editor Martin Hutchinson, seeking out stocks with high – but sustainable – dividend yields is the perfect strategy for an imperfect market.

Stocks with high-dividend yields are one part of a two-element investing strategy that Hutchinson says can create “permanent wealth” for investors who are willing to follow it through. Gold is the other key part.

Income From Dividends: One Pathway to Permanent Wealth

Dividend payouts are a way that a company’s leadership can signal its confidence in the future, Hutchinson says. A company has to have profits and – just as important – cash flow to finance the quarterly payouts, so a company that is maintaining a high yield is basically letting its investors know that it’s upbeat about its future.

Management is “basically saying to you that we’ll be able to keep paying this going forward,” which is a bullish sign, Hutchinson says.

Income is a key component of any investment strategy.

“Dividends create wealth in two ways. First, they provide cash flow that you can either use for living expenses or to reinvest: That means there’s no more having to sell shares, often at a depressed price, to meet your monthly bills, or to finance a vacation or home remodeling,” Hutchinson says. “Second, if you buy shares with high dividend yields, there’s a good chance that the market will eventually notice the superior [dividend] payouts, and revalue the shares so that their dividend yield is back down around the market’s average. For a dividend yield to go down in this manner, the stock price has to go up. Once that happens, you have received dividends and capital gains.”

While dividends provide income stability, gold provides a hedge against the inflationary pressures that are virtually certain to emanate from the massive amounts of money that the federal bailout and stimulus plans are injecting into the U.S. economy.

The recent surge in the prices of both gold and oil are proof that the markets expect inflation to escalate.

“Gold and gold-based investment – such as gold-mining companies – are an important part of a permanent-wealth-investment strategy because of gold’s historic function as a store of value that is impervious to inflation. At the moment, when inflation is low but there is a big danger of it rising, gold investments are an essential protection for permanent wealth investors,” Hutchinson says.

Source: As Key Global Markets Stumble, Gold and Dividend Stocks May Keep Investors on Course

Asia, unlike major Western markets, already suffered from an economic depression in 1997-1998 as country after country was sucked into a massive currency and debt crisis smashed into the region.

Asia’s quick response to the crisis – mainly thanks to China – combined with easy credit financing from the West helped to lessen the severity and duration of the blow.

Currently, the FTSE Asia-Pacific Large-Cap Index (excluding Japan) yields 3.8% while the Tokyo Nikkei yields 2.7%. Both sectors yield more than local government bond markets.

The S&P 500 Index currently yields 3% or slightly below the yield on benchmark ten-year Treasury bonds.

Amazingly, Japanese stocks barely yielded 1% for years until the Nikkei began to hemorrhage starting in 2004. Since then, many Japanese large and small-cap companies have boosted dividends over the last five years, including share buybacks.

Some world-class companies in Japan continue to pay attractive dividends, including Canon (3.4%), Nintendo (5.5%), Nippon Oil (3.6%) and Takeda Pharmaceuticals (4.8%).

What’s truly amazing is how for many decades the United States continued to raise dividend payouts while emerging markets paid little or nothing to shareholders. Now that trend is changing amid the worst credit deflation in 75 years…as banks and other companies chop or eliminate dividends to conserve cash.

Dividends in the MSCI Asia Pacific Index are derived from companies in 14 countries with the top ten dividend-paying stocks accounting for about 20% of total dividends paid. In contrast, the top ten dividend stocks in the S&P 500 Index accounted for almost 33% of all dividends paid by that index in 2007.

According to research compiled by the Matthews Asia Pacific Equity Income Fund, between 2002 and 2007 dividends paid by the constituents in the MSCI Asia Pacific Index grew at a compounded annualized rate of 24% compared with 10% for the S&P 500 Index. That trend is accelerating since 2008 as Asian stocks maintain or boost payouts while American companies reduce or eliminate them altogether.

At some point in the future, it’s inevitable that currencies in Asia will be revalued vis-à-vis the American dollar. That makes dividend investing in the Pacific even more compelling as the total return equation grows more rewarding for long-term investors.

Source:  Increasing Dividends, Higher Total Return Mean Asian Equities Might Be Worth a Look

This from Mike:

If the global financial crisis has taught investors one thing, it’s that now is not the time to gamble with your money or your prosperity.

More companies have been bought, bailed out or bankrupted since this financial crisis began than most of us have seen in our lifetimes. And even as Wall Street’s dominoes keep falling, no one can be sure if the worst is over.

From here on – recession or not – targeting dividend stocks is one of the few strategies that will deliver income safely and efficiently.

In theory, dividends should prop up an investor’s portfolio during uncertain periods, or in market downturns. That’s because even if a company’s stock price falls, executives do all they can to maintain the firm’s dividend payout. That’s part of the reason that, over time, dividends have accounted for a major portion of investors’ total returns.

“Dividends are a nice anchor in a turbulent market,” said Judith Saryan, manager of Eaton Vance Dividend Builder Fund (EVTMX), FoxBusiness last year.

Or anytime. In fact, over the last 100 years, 40% of a stock’s total return is from dividends. That’s not surprising. According to a study by Ned Davis Research Inc.,  dividend-paying Standard & Poor’s 500 stocks rose by an average of 9.4% a year between 1972 and June of last year, well ahead of non-dividend-paying stocks, which rose by only 1.8% annually during the same period.

“Dividends are a sign of quality,” said Todd Ahlsten, manager of Parnassus Equity Income (PRBLX), said in an interview last year. “They force management to look at cash flow and how it invests in its business.”

But not all dividends are created equal. As losses mount, Standard & Poor’s 500 heavyweights have been putting their dividends on the chopping block, cutting or outright eliminating them for an indefinite time period.

And these aren’t fringe companies and chump change we’re talking about…

General Motors Corp. (GM), Ford Motor Corp. (F), Sprint Nextel Corp. (S), MBIA Inc. (MBI) – their dividends are gone.

And Citigroup Inc. (C), Bank of America Corp. (BAC), Fifth Third Bancorp (FITB) reduced their dividends to a mere penny. Fannie Mae (FNM) lowered its to 5 cents in August and hasn’t paid one since.

Nor does the list end there.

Just yesterday (Thursday), in fact, motorcycle icon Harley Davidson Inc. (HOG) slashed its dividend 70%, the first such reduction since 1993. The move was aimed at conserving cash, but sent Harley’s shares down 8%. in a move that was aimed at conserving cash. And the Dow Chemical Co. (DOW)– facing credit-market uncertainty, lower product demand and legal problems related to a failed joint venture – yesterday cut its dividend 64%, the first such move in the company’s 112-year history.

But there are still hundreds of companies holding their ground in the global financial crisis.

These firms understand that continued growth and success depends on a large body of investors. And to keep them on board the companies must maintain – and hopefully increase – their dividend payouts.

DRIPS Aren’t Dropping

With the stock market’s wrenching decline, many company’s shares are trading at bargain levels. A company that’s been able to maintain its dividend usually represents a better value to its shareholders.

In the reverse situation, where stock values soar, dividend yields fall, meaning income investors have to settle for lower returns.

So, with stocks down and yields high, income investors should consider starting or stepping up dividend reinvestment plans (DRIPS).

In DRIPS, the dividends investors would normally receive as cash are reinvested back into the stock under their name. To start, investors often don’t even need as much as the price of a full company share.

For example, if you invest $20 in a stock that trades for $100 per share, the DRIP will buy you one-fifth of a share of that stock. The dividend is reinvested accordingly, as well.

Over time, money is reinvested back into the stock, giving you more shares. And with more shares, the more dividend income you’ll receive.

Among other advantages, although there is usually a nominal transaction cost involved, the DRIPS’ automatic reinvestments allow investors to skip full-blown brokerage fees, which aren’t conducive to such small purchases.

Among the cons, most DRIPs require investors to be registered shareholders, which entails a little more paperwork than being a regular, or beneficial, shareholder. To enroll in a DRIP plan, investors must buy shares through a transfer agent. The process can take up to eight weeks before your account is opened and fully registered.

Some DRIP companies also have maximum amounts you can invest and hold in their stock. And they vary by time periods – monthly, quarterly, annually and lifetime.

For the public companies that offer the dividend plans, DRIPs provide a stable base of long-term shareholders. And often, these value-minded investors tend to buy more when share prices are down, as opposed to short-term traders, who are apt to bail out on a price decline.

For example, 71% of chemical company RPM Inc.’s (RPM) shareholders are enrolled in its DRIP. And more than 64% of Aflac Inc.’s (AFL) shareholders are enrolled in its DRIP, according to DRIP Central.

More than 1,600 public companies and American Depository Receipts (ADRs) have DRIPs, offering a wide choice of industry and market preference to potential investors.

But with so many to choose from, targeting the best ones can be a challenge without a broker helping you.

The Best DRIPs are…

The best DRIPs are from companies that have a high-yield and a track record of increasing their dividends.

In addition to RPM and Aflac, here are a few DRIP companies to keep your eye on. Not only have they hung onto their dividends in the worst financial crisis since the Great Depression, some have increased their payouts.

• Coca-Cola Co. (KO): There’s a reason “Coke” is the second most recognizable word in the world. The world’s biggest beverage-maker recently beat fourth-quarter earnings expectations, largely due to its ability to cut costs and promote demand with a rotating file of products. The company kicks out a 38-cent dividend every quarter. At its current share price of around $44.30, that’s a 3.45% yield. If that’s not enough, know that Warren Buffet owns 8.6% of the company.

• Intel Corp. (INTL): Intel is the market leader among chipmakers, dominating its competition by continually being the first to the market with the best product. It pays a 14-cent dividend every quarter, which at its current stock price represents a 4.07% yield.

• The Hershey Co. (HSY): The Pennsylvania-based candy and food maker has been a recession stalwart. It began paying dividends in 1930 – meaning it’s been making the quarterly payouts longer than most companies have even been around – and has been increasing them for 32 consecutive years, according to The Money Paper. Right now, its 30-cent quarterly dividend represents a yield of 3.32%. With its stock hovering a few dollars above its 52-week low, many of its DRIP investors are probably loaded up on Hershey shares like Halloween candy.

• Microsoft Corp. (MSFT): Microsoft is the largest software producer in the world, and has a firm grip on that title. The slowing demand for computers and computer software has taken a toll on Microsoft, but the projection of the industry and Microsoft’s dominance makes it one of the most stable tech stocks out there. Its current dividend yield is 2.72% on its shares, which kick out a 13-cent dividend every quarter.

• Exxon Mobil Corp. (XOM): Like the above companies, Exxon doesn’t need much of an introduction. The oil giant is one of the world’s largest companies, having paid investors dividends since 1882. Its 2.13% yield isn’t the highest in this small group of companies, but Exxon’s share price is one of the most stable.

If that’s not enough, here’s an extensive list of DRIP companies, and their minimum and maximum investment requirement.

It also details how much dividend income a company pays, how often, how long its paid dividends and whether it increased its dividend over time.

Editor’s Note: This is the latest installment of a new series that will explore ways for investors to recover from the U.S. financial crisis.

Source: For Dividend-Seekers, Financial Crisis Means it’s Time to Dip Into DRIPs

This from Sovereign Society:

“This aging stock bull market is looking increasingly like a scarred prizefighter after winning too many championships. Indeed, the market is looking increasingly fragile, bruised and battered since the bear market low in October 2002.”

In January 2008 I made the above observation about stocks as the market was coming undone. Of course, almost a year later the stock market has collapsed with stocks likely to post their worst calendar year of performance since 1931. Over $10 trillion dollars of global stock market values have been wiped-out in 2008.

So is it time to start looking at stocks again? Despite several bottoms over the last 14 months, can we expect stocks to finally form a meaningful rally? From their lows on November 20, stocks have now gained 10%.

Indicators Flash “Buy”

Many market indicators I track are flashing “Buy” since late November. These include high institutional and hedge fund cash levels, extremely bearish investment advisor sentiment readings, big dividend yields for many global markets in excess of benchmark ten-year government bond yields, and a rash of hedge fund closures and failures.

Also, individual investors have been dumping stock funds like crazy since July with record net outflows over the last five months and the VIX Index (CBOE Volatility Index) remaining highly elevated amid total fear in the market.

Stock market valuations, though not dirt-cheap are certainly looking far more attractive compared to just 12 months ago.
Valuations and dividend yields, which can typically point to either an over-extended or undervalued market, now show fair value for U.S. stocks and high value for European, Asian and emerging market equities following even bigger declines for these markets.

Stocks in Europe yield 5.9% and in Japan the TOPIX (the country’s broadest stock index) pays a 3% dividend…the highest in more than 28 years. Indeed, compared to stocks, government bonds are richly valued and pay the lowest yields in years and in some cases, decades.

Explosive Bear Market Rally Coming

I’m certainly not bullish by any means. The long-term implications of mass government intervention, widespread regulation and control of several important industries (including finance) won’t encourage bold risk-taking for a long time. Credit markets are grudgingly healing, banks largely won’t lend and TARP and TALF-sponsored government programs are taking too long to filter through the economy.

There is absolutely nothing in the cards to suggest a new bull market is on the horizon.

But like the 1930s, the stock market can post a major short-term reversal and shock the bears with big double or even triple-digit gains. It’s hard to say what might trigger a major reversal. Obama’s inauguration in January, lower LIBOR and inter-bank lending rates or possibly a weaker Japanese yen might offer such a catalyst.

The last credit crisis of this magnitude occurred in the 1930s. Judging by trends during that tumultuous era, stocks can indeed post some huge gains even in a bear market. For example, from its lowest point in June 1932, the Dow Jones Industrials surged more than 162% twelve months later. But by 1937, the Dow began crashing again, plummeting 55% and losing another 28% in 1938 before finally bottoming in 1942.

After crashing more than 45% off the October 2007 all-time highs, U.S. stocks might be attempting to finally muster a bottom. Any rally, however significant, should be viewed in the context of a secular bear market; the badly shattered economy is in no condition to build on a sustainable long-term rally like the 1990s or 1980s.

New Market Leadership: Go for Credit

Ahead of the upcoming bear market rally investors will have to find new leadership. It’s highly unlikely that energy stocks or emerging markets will lead any recovery, however short-lived. Instead of riding a frantically erratic stock market that continues to trade at near-record volatility levels, I would encourage investors to begin accumulating long-term positions in busted credit markets.

The epicentre of this financial crash lies in the distressed credit market – and that’s where investors should focus their buying strategies. Income is vital right now.

The entire spectrum of non-Treasury securities has been crushed since September, including investment-grade corporate bonds, convertible bonds, mortgage-backed agency debt and TIPs or Treasury-Inflation-Protected Securities. Emerging market bonds, municipal bonds and junk debt or high-yield bonds have been slammed even harder. But they should still be avoided as defaults, failed auctions and currency issues plague these credits.

But several other areas of credit look highly compelling.

Investment-grade bonds, for example, plunged to their lowest levels since 1981 in September and yield 8.38%, according to the Barclays Capital U.S. Corporate Index.

I don’t know about you, but a 7-8% yield today looks mighty appealing. And looking back at the bear market rallies of the 30’s, it’s clear that most investors won’t get off the bus before equities begin crashing again. Despite the seemingly terrific trading opportunity in stocks, it’s still just too volatile out there.

High-grade corporate debt at least offers the investor a combination of above-average income, the spectre of capital gains at these low prices and in some cases, implicit government guarantees on bank debt and agency bonds, which still yield about 5.5% or more compared to expensive Treasuries.

Nobody can claim that corporate bonds, agency debt or convertible bonds have truly bottomed after more than 16 months of utter panic and several crashes. Yet as value investors, this is precisely the time to start purchasing these distressed securities.

Doing so will at least allow conservative investors to ride out a harsh cycle, instead of buying the top during a bear market rally and getting burned as stocks crash lower. Best of all, those juicy yields and bombed-out prices should eventually translate into impressive double-digit gains for investors…regardless of where stocks trade.

Source: Focus on Busted Credits and High Income in 2009

More from David at The Sovereign Society:

Dividend-paying stocks used to offer a way to “play it safe.” Especially during bear markets, the regular paychecks could help “soften the blow.” But not anymore.  The truth is; dividend investors are getting hammered.

The Wall Street Journal calculated that 36 companies in the Standard & Poor’s 500-stock index have cut or suspended dividends this year, removing $33.3 billion from investors’ pockets.

And of the 7,000 or so publicly traded companies that report dividend information to the S&P, 138 decreased their dividends during the third quarter… a 15-fold increase from the same period last year.

And since these floodgates have been flung wide-open, many more companies will now join the trend and feel it’s alright to cut their dividends. Remember, stock dividends are not contractually guaranteed. So with a wave of a CEO’s hand, they can disappear.

The Secret of “Guaranteed Dividends”

But today I’m going to teach you how you could get those same companies to “guarantee” to pay you a dividend. And not just 4% or 5%… but 10%, 15% even 30%.

Better yet these “dividends” will be paid to you not quarterly or semi-annually but monthly. Cash will be delivered to your account on the same day every month, month after month… “Guaranteed”.

What I’m talking about are Structured Investments and specifically a widely used product in the financial industry known as Reverse Convertible Notes.

For those of you not familiar with Reverse Convertible Notes (RCN’s), they’ve been around for years. Widely used in Europe but usually offered to only the wealthiest of U.S. investors, RCN’s are now finally available to the retail investor.

Reverse Convertible Notes are securities that offer individuals a predictable, steady stream of income. They pay a high coupon – much higher than the return you would receive on fixed income securities.

Here’s an example…

Let us suppose you like General Electric (NYSE:GE). The stock is currently trading at about $15.00 per share, which you think is a steal. Even if the stock market drops further and pulls GE down with it, you’re OK with a $15 purchase price plus its 8.2% dividend yield.

But what if I told you I could get you a better deal on GE? I can offer you a “cash dividend yield” of 19.3%… and if the stock falls all the way back to $9.75… you could care less. You didn’t own the shares anyway.

Well that’s the power of Reverse Convertible Notes.

Here’s another great example:

Goldcorp (GG) – You want yield, you need cash every month and you’re a gold bug. We’ll there’s an RCN currently being offered that will pay you a 20.80% annualized cash “dividend check” for the next three months. Worst case… you’ll own the shares of Goldcorp at this incredibly depressed price and still get the dividend.

That’s pretty much a win-win deal if you ask me.

The Disclaimer

Now before you get excited and rush out to buy the first RCN you can get your hands on, I must tell you that these products can sometimes be complicated. You have to be careful with your issuers, and I’ve seen a 60-page prospectus on a single RCN before. So you always want to do your homework, and – most of all – make sure you get some good advice on which of these RCNs is the best investment for you.

For example, it’s taken me a solid 14 months of research to get to the bottom of this little-known income-boosting market. But it’s starting to pay off. Just last week, I found a way to squeeze a fat 10% return out of Wal-Mart – without buying a single share of stock. And that’s the lowest return I’ve encountered so far!

And if you want to be able to capture this kind of profit without all the time and energy leafing through prospectuses and talking to brokers, then I’ve got something for you. It’s called Accelerated Income, and it’s a service that I started to make the whole process easier on you the investor.

In Accelerated Income I tell you about some of the best values in the marketplace and how you can get them. I cut through all the finance-speak and tell you about the product’s advantages and disadvantages in plain English. Despite their best efforts, these investments aren’t rocket science… and they don’t have to seem like it.

Source: Don’t Get Burned by Wall Street’s “Cut-and-Run” Routine

This from InvestmentU:

Structured products are securities that are sold as an opportunity to enjoy substantial gains with full principal protection.

For example, an underwriter might offer investors the upside potential of the S&P 500 – or a substantial percentage of that upside – over a certain period of time (say, five years) while guaranteeing no less than full value of the initial investment at maturity, even if the index goes down.

(Or, instead of the S&P 500, the investment might be linked to Asian currencies, or commodities, or something else.)

How can you offer all or most of the upside of a risky investment with a principal guarantee? Well, in the early days, Wall Street would take U.S. government zero coupon bonds – which sell at a discount and pay zero interest, but gradually compound in value until they mature at $1,000 – and combine them with index options.

So, for instance, if you invested $100,000 – and investors tended to bet large since their principal was guaranteed by Uncle Sam – $80,000 might go into zero coupon bonds and most of the rest into S&P 500 call options.

Most of the rest? Well, there were Wall Street fees that had to be covered, of course.

Nothing was wrong with these early investments, really. But they were nothing more than a gimmick. You could buy the zero coupon bonds and options yourself and achieve the same thing, saving yourself the fees that Wall Street imposed when it created these products.

Unfortunately, something happened along the way that changed the game completely. Yields on government bonds came down. And the cost of buying index options went up, especially in bull markets.

Yields on U.S. Treasuries just weren’t high enough to make this game work anymore. So instead of investing most of the money in U.S. government bonds, Wall Street firms substituted their own unsecured debt instead. This was disclosed in the prospectus, of course. And it seemed like no big deal as long as these Wall Street giants remained healthy.

But they didn’t.

Structured Products Are An Investor’s Nightmare

Investors who bought structured products from Lehman Brothers, for example, are today standing in line alongside the firm’s other creditors.

These “principal-guaranteed” securities are now selling for 10 cents on the dollar, according to SecondMarket, Inc., a specialist in illiquid assets.

SecondMarket says it has already heard from investors holding more than $2 billion worth of Lehman structured products.

The firm estimates that small investors bought $34 billion of these products through October of this year alone. This surpasses the more than $33.5 billion that were bought last year.

(In truth, of course, these products are sold, not bought. No one wakes up and says “I think I’ll invest in a structured investment product today.”)

Last week The Wall Street Journal told the story of Charles Brooks, a physician in Allentown, PA:

• He put a significant sum in two Lehman structured products because he liked the idea of having some exposure to market gains along with protection from losses.
• Today he says these “protected” assets are worth approximately seven cents on the dollar. Sixty-five years old, he is now delaying his retirement planning.
• And he is angry at Wall Street. “There’s no end to things they can invent that seem to me little more than a gamble for the enjoyment of the inventors,” he says.

I don’t fault Dr. Brooks for believing that a note guaranteed by Lehman Brothers was pretty safe. Ninety-nine percent of investors would have made the same assumption 12 months ago.

Structured Products Are A Wall Street Gimmick

The shame, really, is that by buying these structured products, he was sold a Wall Street gimmick. There is nothing magical about these products that offer huge upside potential with a principal guarantee.

After all, I could take $100,000 from you, put the vast majority of it in U.S. government zero coupon bonds and use the balance to play roulette at the Bellagio for five years. If I win, you would get back a lot more than $100,000.

And if I lost everything, which of course I would, I could still guarantee the full return of your hundred grand when bonds mature.

Like I said, gimmick.

There are two lessons here for every investor:

The first is as old as investing itself: If it sounds too good to be true, it probably is.

Number two, however, is just as important. Whenever you hear that an investment, an insurance policy, an interest payment, a stock dividend, or a particular return is guaranteed, be sure to ask the next question: By whom?

Source: Structured Products: Another “Safe Investment” Bites the Dust

This from Today’s Financial News:

Income investors have little to cheer about these days, with profits plunging and dividends getting slashed, but there are some glimmers of hope.

When a long-term stalwart Blue Chip like General Electric (NYSE:GE) steps out its corporate front door and tells investors to plan on their dividend payments throughout the next year, investors pay attention. When that $0.31 per quarter dividend leads to a yield of over 10%, smart investors call their brokers and grab some shares.

Instead of seeing their holding increase in value today, GE shareholders are seeing a 7% decline so far today [Thursday]. It marks one of the greatest buying opportunities you will see in your lifetime. Shares have not been this cheap in over a decade.

GE is one of the strongest, most stable companies in America. Yes, its financial arm has gotten it into some hot water, but let’s not forget this a mega-conglomerate we are talking about.

The company has more than enough bullets in its holster to see its way through a strong recession. GE is about far more than finance. It is well positioned in strong industries like healthcare, energy development and water filtration.

But even if Wall Street continues to focus solely on GE’s finance business, it will soon learn the error of its ways. Just yesterday, the FDIC gave the company a shot at significantly lowering its borrowing costs by backing $139 billion of its debt. It is a move that assures GE will not permanently falter due to the temporary credit crisis.

GE’s revenues will fall over the next few quarters and profitability will suffer, but investors that buy now will not care one bit as they are cashing those hefty dividend checks.

Strong companies like this do not pay huge dividends often. Take this opportunity to lock in the income stream while you still can. As soon as sentiment turns around, you can bet investors will be lined up to get their hands on shares of this great American company.

Source: Income investing: Dividend opportunities during a recession