Myth Bustin' #1

Myth #1: Companies that pay a dividend misallocate funds that could be used to generate new revenue. The lack of new revenue will keep the stocks price low over the short and long term.


This is the most fascinating myth that exists about dividend paying companies. The theory seemingly makes sense yet after cursory examination, the truth will out. Look at the 1-year performance of these select Mergent Dividend Achievers:

  1. Badger Meter (BMI) 96%
  2. Caterpillar (CAT) 66%
  3. Berkley (BER) 53%
  4. Aqua America (WTR) 59%
  5. Archer-Daniel-Midlands (ADM) 70%
  6. Franklin Resources (BEN) 52%
  7. Fuller (FUL) 55%
  8. Granite Construction (GVA) 92%
  9. Harleysville Group (HGIC) 50%
  10. Helemerich & Payne (HP) 114%
  11. La-Z-Boy (LZB) 67%
  12. Legg Mason (LG) 90%
  13. Martin Marietta (MLM) 70%
  14. McGrath (MGRC) 54%
  15. Meridian Biosciences (VIVO) 172%
  16. Nordson (NDSN) 52%
  17. Nucor (NUE) 92%
  18. Raven Industries (RAVN) 93%
  19. Questar (STR) 63%
  20. AO Smith (AOS) 80%
  21. State Auto Financial (STFC) 56%
  22. Schulman (SHLM) 60%
  23. SWS Group (SWS) 65%
  24. Tennant Co. (TNC) 58%
  25. Vulcan Materials (VLM) 53%
  26. West Pharma Services (WST) 60%


This list is for 1-year performance from Feb. 7, 2005 to Feb. 6, 2006. This does not include the dividend that was paid by these companies over this 1 year period.

As you’ll notice companies with 10%, 20%, 30% and 40% returns were not included. However, if they were included during this time frame I would have had to add 219 companies to this list. If anyone were to complain about receiving only 10% percent in one year with significantly reduced risk then investing in stocks may not be the place to be.



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    • at Monday, February 06, 2006

    Feb. 6th: Talbots and Vulcan Materials

    Biggest percentage decliner of the day: Talbots (TLB)

    Talbots fell 3.41% on the confirmation that they would acquire apparel retailer J. Jill Group. TLB will pay over $24 per share for J. Jill Group. Sometimes the best way to gauge the quality of a buyout offer is how the purchase is conducted. In this case the purchase of J. Jill was an all cash offer. Cash offers are far superior to stock & cash and debt offers. All cash offers represents the acquiring company's confidence after having done the necessary due diligence.

    TLB has increased it's dividend 10 consecutive years in a row at an annualized compounded rate of 16.83%. TLB also has a tangible book value of $8.82 per share. Although TLB is within striking distance of it's 52 week low there is the likelihood that the stock could fall to the support level of $20 per share as the integration of J. Jill takes place.



    Biggest percentage gainer of the day: Vulcan Materials (VMC)

    Vulcan traded up 7.95% on a stronger earnings report Feb 1st and a proposed takeover today of Lafarge North America Inc. by France's Lafarge Group. All companies are in the concrete business.
    VMC has increased it’s dividend every year for 12 consecutive years in a row. VMC also has a tangible book value of $13.65 per share. Morningstar indicates that this company is fairly priced at $72 per share; well below the current trading price of $80.42.

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    • at Monday, February 06, 2006