7/27/08

Review: Dividends4Life

A Great Resource for Dividend Minded Investors

I happened upon a great blog that I'd like to share: Dividends4Life, whose author is "Dedicated to the process of identifying superior dividend investments."

On Dividends4Life, you'll find rigorous analysis of dividend paying stocks, a tools section chock full of useful Excel spreadsheets and links, commentary on dividend paying stocks, as well as an ongoing record of the author's progress toward his goal of having an annual dividend income of $110,000 by 2027. He's getting over $4,000 a year now. The way he is going, I'm sure he'll reach his goal.

Stock analysis on the site is pretty much all quantitative, and the tools are mostly geared toward this end. The author uses an easy to follow format, where he provides a company description, a fair value calculation, dividend data, a comparison of the stock in question to what you'd earn with a money market account, and a conclusion as to whether the stock is a good buy based on the above factors. This is very useful, even if you have a more qualitative approach like me.

If you're interested in a dividend paying stock, you may want to visit Dividends4Life to see if the site has analysis on it. It can be a great second opinion.

The author of Dividends4Life measures his progress by yield on cost, which I think is very sensible. Paper capital gains and loses don't concern the author as much as poor dividend performance. Since earnings and dividends are connected, great dividend performance ultimately comes out to great share price performance, as I wrote previously.

Yield on cost, for those unfamiliar with the term, is just what it sounds like. It's the dividend yield on the original price for which you bought the stock. For example, suppose you bought stock XYZ for $100 a share ten years ago. Let's say it paid an annual dividend of $3 a share then and now pays an annual dividend of $8 a share. Today your yield on cost is 8% while it was 3% when you bought the stock. Holding a dividend paying stock, one that raises its dividend frequently, for a long time can get you a tremendously high yield on cost. For example, if you bought Pepsi in 1980, your yield on cost today would be around 135%. Reinvesting your dividends also drives up your yield on cost. Dividends4Life is well aware of this, and advocates dividend reinvestment.

The commentary on Dividends4Life is superb, just like all the other content. In a very clear way the author discusses company news, his investing process, and various other things. It is always informative.

We have some differences. For instance, while Dividend4Life's stock analysis is mostly quantitative, I prefer to focus more on macro events and trends, and, in particular, how the company in question will be able to grow in the future. Also, he seems to hold his stocks until the dividends are cut, while I usually run away when there's a sign the dividend is in jeopardy or the qualitative picture starts deteriorating.

So, for example, had I owned Bank of America, I'd probably have sold it already (possibly at a loss). Dividends4Life continues to own it. He may turn out to be correct, but I think the company's growth prospects aren't very good. If I were to own a bank stock, I'd go with Wells Fargo or US Bancorp (Dividends4Life owns US Bancorp) as they seem least affected by the credit crisis and are picking up market share while their competitors struggle to raise capital.

But we've got some similarities too. We both like GE, JNJ, O, and PEP (he owns all four, I own the former two) and he's got the same blog template theme as me.

If you like my blog and dividend paying stocks, you'll love Dividends4Life. Just don't get so enthralled in it that you won't have time to come back for the occasional visit here.