So, I’ll take Bill Gross’ recommendation one step further. Forget now. Dividend-paying stocks ALWAYS deserve a place in your portfolio.

Yet, in this market, it’s increasingly difficult to find reliable dividend stocks.

“This is going to be the worst [dividend-cutting year] in 50 years,” Howard Silverblatt, Senior Index Analyst at Standard & Poor’s, predicted in January. So far he’s right with industry titans like General Electric and Dow Chemical announcing cuts.

Keep in mind, Dow Chemical maintained or increased its dividend every year since 1912. That means conditions this year are worse for the company – at least on a cash flow basis – than during the Great Depression.

Against this backdrop, it’s understandable why many investors consider no dividend safe. But that’s a mistake. Fact is, countless companies will weather this storm with their dividend intact.

To find such companies I focus on the following six criteria and I recommend you do the same:

1. Simple business. The fewer the moving parts the fewer things that can go wrong and sap cash intended for dividend payments. Focus on companies doing one or two things that you can understand, as opposed to massive corporations with dozens of operating segments.
2. Steady demand. Given the Great Recession, the first thing we need to verify is demand for a company’s products. After all, a company needs a steady stream of cash coming in to afford to pay it out to shareholders. Stick to industries or sectors with recession-proof or recession-resistant demand (food, alcohol, tobacco, health care, etc.).
3. High cash balance. Cash IS king, especially when it comes to maintaining a dividend. Consider it insurance against any unexpected slowdowns. At a minimum, insist on enough cash to cover one quarter’s worth of dividends.
4. Minimal need for credit. Securing credit in this market is extremely difficult. Accordingly, I focus on companies that do not need to raise significant amounts of capital. Remember, too, when interest rates rise, so do interest payments for companies that rely on a significant amount of debt. So it’s also important to focus on companies with reasonable or low debt balances. This insures interest payments won’t sap money intended for us.
5. Cash flow positive. If a company’s not generating cash each quarter, the only way to pay a dividend is by borrowing or tapping into cash reserves. Such practices are not sustainable over the long term. Eventually, the dividend will be cut.
6. Earnings buffer. Insist on a dividend payout ratio (annual dividends/annual net income) of 80% or less. A company paying out 100% of earnings has no wiggle room in the event of a slowdown. If business suffers, so will the dividend.

Obviously not every stable dividend-paying stock will meet all these criteria. But the more criteria a stock fits, the more stable you can consider its dividend.

I followed these six criteria to unearth all the dividend stocks I’ve previously mentioned here -TEPPCO Partners (NYSE: TPP), Lorillard (NYSE: LO) and Windstream Corp. (NYSE:WIN).

Lorillard and Windstream remain attractive at current prices.

Next week, I’ll reveal another dividend-paying stock worth your consideration. But please note, in the days ahead my dividend-sleuthing prowess will change venues.

You see, because these columns are garnering so much interest, we’ve just decided to revamp the entire mid-month issue of The Oxford Club Communiqué. Going forward, each mid-month issue will be exclusively dedicated to dividend-paying stocks and other safe ways to generate an income.

So if you want a steady stream of stable dividend-paying stocks, you’ll have to join us. Go here to sign up today.

Source: 6 Steps for High-Yield Dividends

Hard to believe. But here’s the proof…

• In the first week of May, $4 billion found its way back into emerging markets funds – the eighth-largest weekly inflow on record, according to Merrill Lynch.
• And year-to-date the FTSE Renaissance IPO Composite Index is up 17.5%, torching the impressive 7.3% run-up by the Nasdaq.

If you ask me, that’s pretty convincing: Our appetite for risk is back. And the current rally could very well continue.

Of course, I know some of you feel otherwise. You’re afraid of a George Costanza shrinkage incident and would rather tiptoe back into equities. If that’s the case, let me share some information about the stock Lorillard, Inc. (NYSE: LO), because I’m convinced it will head higher no matter which direction the markets head next…

Uncovering Safe Investments In Any Market

The first and most important fundamental when trying to uncover safe investments in any market is demand. And as you might suspect, addictive products tend to enjoy the steadiest demand.

Take tobacco, for instance. Based on empirical evidence out of Citi Investment Research, the last two recessions “had no material effect on demand.”

Such steady demand bodes well for Lorillard, Inc. – the third-largest cigarette manufacturer in the United States. But the reason I’m bullish on this stock extends beyond its steady demand characteristics.

You see, the stock’s also a perennial takeover target. And when a company is bought out, shareholders average a 43.5% to 53.7% gain overnight, according to FactSet MergerStat, LLC.

Five Reasons Why Lorillard Will Smoke the Markets

Here’s why Lorillard is a strong buy for us (and potential suitors):

• Market leadership. Its Newport brand owns the menthol category, with 35% market share. For the past 17 years this number has risen, despite formidable attempts by competitors to invade the space.

• Margin leadership. Gross margins check-in north of 45%, easily the highest among domestic tobacco companies. It’s estimated Lorillard banked an operating profit of 76 cents per pack last year, compared to 59 cents and 45 cents for competitors Altria and Reynolds.

• Growth. Newport was the only major U.S. brand to grow last year, posting a 3% rise in volumes, while the industry contracted an average of 3%.

• Valuation. At 11.6 times forward earnings, the company’s a bargain, especially since any suitor would get a hefty instant rebate. Lorillard’s sitting on $1.5 billion in cash and no debt. Even management knows a bargain when it sees one. It just got authorization to buy back up to $250 million worth of stock.

• The trend is our friend. Consolidation is well underway in the tobacco industry. And the one-product focus (Newport accounts for 94% of Lorillard’s revenues), clean balance sheet and solid growth make Lorillard the most attractive target. It would be a cinch to integrate and would be immediately accretive to earnings.

As you might expect, potential suitors abound. Reynolds tops the list. But Philip Morris, Imperial Tobacco and Japan Tobacco are also in the mix.

In the end, a corporate takeover war could erupt, pushing our profit potential even higher.

As Analysts Raise Their Overblown Concerns About Lorillard…

Other analysts raise two concerns about owning the stock – litigation risk and regulation by the FDA. But they’re overblown.

• On the litigation front, it’s already baked into prices for all tobacco stocks. Plus, the number of lawsuits is declining rapidly. And actual settlement amounts end up being way less than the headlines suggest. On appeal, the average settlement is cut by 99.6%.
• As for the FDA, it appears likely that Congress will grant it regulatory authority over the tobacco industry. The fear is they will ultimately ban menthol cigarettes, as they are the product of choice for new (and young) smokers.

But don’t count on it.

No research exists proving menthol cigarettes are more harmful. More importantly, the government makes too much money off of cigarette taxes to even consider it at a time like this.

Get Paid to Own Lorillard on June 12

In the end, even without a takeover, the Lorillard’s worth owning:

• It’s cheap,
• It sports a rare cash-rich, debt-free balance sheet,
• And it enjoys reliable demand and steady growth.

The 5.4% dividend yield doesn’t hurt either. (If you buy Lorillard shares today, you will be entitled to the next dividend payment of $0.92 per share on June 12.) Nor does the fact that tobacco companies within in the S&P 500 index have outperformed the index every year since 2000.

So even if this rally really revs up, this conservative pick should perform even better, especially if it receives a takeover offer, as I expect.

Good investing,

Louis Basenese

Source: Lorillard, Inc. (NYSE: LO): Five Reasons This Stock Will Smoke The Markets

This from Investor’s Daily Edge:

So, for what it’s worth, here are my predictions for 2009, please adjust the time frame as necessary.

The bailouts will work. The banking/credit crisis will ease in early 2009, and with it businesses should be able to start borrowing again.  Once the money flows open up we should see some relief from the recession.

Ford (NYSE:F) will survive, I’m not sure about General Motors (NYSE:GM). Chrysler has been dead for a long time. The future of autos is electric and hybrids, not minivans or trucks. This should not be news to anyone except GM and Chrysler.

The market will rebound to the range of about 10,000 to 11,000. Any significant move above these levels will be a function of how well the next administration handles their responsibilities in the early months of 2009. There are very real concerns.

We have elected the most inexperienced candidate, ever. This, during a time when what we need is wisdom, real down home, paid your dues, learned the hard way wisdom. What we have is a person with zero experience that many feel is a leader who can offer change. This may work.

It will work only if he makes all the right moves between January and June. If he makes any serious stumbles, or what are perceived to be serious stumbles, he will lose what is already a skeptical, beaten up American people, and that could be disastrous.

All he really has to do is to be able to explain what he is doing and why, and make us believe it’s good. Not perfect, but at least good.

The confidence of the American people is so badly damaged that we can’t survive another first six months of a new presidency like the last candidate that promised to change Washington, Jimmy Carter. Can’t remember what it was like? Read the editorials in the NY Times for the period of January 1977 to October 1977. Ouch!!

On the other hand, Obama may be able to pull the same smoke and mirror act he did in the campaign. It’s up to the press to let him continue to get away with it. I think they will. If so we may be in for a surge in confidence and better times. And confidence is what we need to get the show on the road. The press however is very fickle, and Mr. Obama may find himself on the other end of that information juggernaut that gave him the presidency.

Everything the government can do is being done to help us through this mess. The success we see in 2009 will be a function of whether the people of this country can get out the funk we are in, start spending and start looking a little further down the road than tomorrow. Pushing them out of the funk has fallen on the shoulders of the new president. It may be the finest hour of any president since FDR. Let’s hope.

Where to make the most money in ‘09: beaten up, high quality, dividend-paying stocks [like General Electric (NYSE:GE), Bristol Myers Squibb (NYSE:BMY), Verizon (NYSE:VZ), AT&T (NYSE:T), Lorillard (NYSE:LO) and Altria (NYSE:MO) etc.)].

Also, corporate bonds at a discount, look at banking, aluminum and other metals, consumer goods, tobacco, insurance, just stay in the short maturities, three years or less and investment grade only. This is not the time to be in junk bonds.

As promised here are two bond ideas. As I tell everyone in The Bond Trader, no matter how good these look to you, don’t load up on them. You should have 10 to 20 bonds in your portfolio not one or two with high coupons.

The first is a pure income play. It is about a ten-month maturity with a yield of 7.35. It is perfect if you want to get a good return on money you don’t know what to do with right now. It’s a Goldman Sachs bond of 10/1/2009, cusip 38141GAD6.

The second is what I call a total return bond, at a discount and a good coupon. The total return is about 22.2%. It is an Alcoa bond of 1/15/12. The coupon is 6 percent and you should be able to buy it around 94. The cusip is 013817AF8.

A return of 7.35 percent for the income folks and 22.2 percent for the total return folks, Merry Christmas.

Source: A Few Freebies To Get 2009 Off To A Good Start

“The combination of Altria and UST creates the premier tobacco company in the United States with leading brands in cigarettes, smokeless tobacco and machine-made large cigars,” Michael E. Szymanczyk, Altria’s chairman and chief executive, said yesterday (Monday) in a statement.

It’s a smart move for Altria, which has had little success with its own Marlboro-branded smokeless tobacco products. Smokeless tobacco accounts for $3.7 billion in sales annually. It is the fastest growing segment of the tobacco industry.

UST manufactures the two most popular brands of smokeless tobacco for adult users. According to data from the U.S. Center for Disease Control, Skoal has a 28% market share and Copenhagen has a 22% share. Together, they make up half of the U.S. market.

Meanwhile, demand for cigarettes has been on the decline in the United States, dropping 3.5% this year. Higher state taxes have boosted the price of cigarettes and are taking a toll on demand.

“Altria is buying two tremendous brands in Skoal and Copenhagen, which it can drop quite profitably into its own distribution network,” Thomas Russo, who manages more than $3 billion at Gardner Russo & Gardner, told Bloomberg News.

Altria predicts the consolidation will generate an estimated $250 million in annual savings by 2011.

This deal mirrors a similar purchase by Altria’s chief rival, Reynolds American Inc. (RAI), which purchased the second-largest maker of smokeless tobacco, Conwood Sales Co. LLC for $3.5 billion in 2006.

Altria’s purchase of UST could put pressure on Reynolds to make a bid for Lorillard Inc. (LO), another major American tobacco company, The New York Times reported.

Investors “are sniffing out the next deal in tobacco,” Matthew Kaufler of Clover Capital Management in Rochester, New York told Bloomberg after rumors of Altria’s interest in UST were reported late last week. “I would expect Lorillard to be next.”

Source: Altria Group’s $11.4 Billion Purchase of UST Could Spark More Tobacco Takeovers