SUNDAY, JUNE 20, 2010 PERSONAL FINANCE


More than one reason to like companies that pay dividends


by Jeffrey R. Kosnett D


ividends are back, and their return couldn’t have come at a better time. Since the 1960s, cash payouts have accounted for


65 percent of the total return of Standard & Poor’s 500-stock index during sideways-moving markets. And though the rebound that followed the 2007-09 collapse remains in force, the stock market has mostly meandered since October. That could be the pattern over the next few years as well. And even if stocks fall apart (make that “when” stocks fall apart, as they will at some point), those that pay dividends will, as a group, almost certainly hold up better than those that don’t. So investing in committed dividend payers is a timely strategy if you want to own stocks for their growth potential but worry about another punishing market decline. This year, the 366 dividend-paying members of the S&P 500 are expected to hand out $206 billion in cash, up 5 percent from 2009. Already, 72 S&P 500 companies have announced dividend increases in 2010. The reason for this largess is plain:


Corporate America is flush with cash, and S&P 500 companies are sitting on $3.2 trillion. But executives are reluctant to make big capital expenditures, hire more people or raise pay and benefits substantially until they feel more confident about the economic recovery. And, like you, they’re earning next to nothing on their cash stashes. So managements are under pressure to put their cash to work. Some are using it to buy companies or hard assets, such as energy reserves; others are using it to pay down debt and buy back shares (buybacks reduce the number of shares outstanding, boosting earnings per share and, theoretically, supporting a stock’s price).


But Steve Schroll, manager of RiverSource Dividend Opportunity Fund, says cash distributions are a sure thing, while stock buybacks are “subject to a great deal of skepticism.” Companies might not repurchase as many shares as they say they will in their buyback


announcements. In 2008 and 2009, many companies suspended buybacks but continued to pay cash dividends. Identifying good dividend payers


involves more than just screening for stocks with high yields (annual dividend rate divided by share price). In fact, yields that are well above average may reflect a battered share price and signal that the market expects the company to slash, or even eliminate, its dividend.


Turbocharged growers One time-tested strategy is to look for companies with a history of regularly boosting dividends by at least 10 percent a year. Ideally, you want companies with stable businesses whose profit and cash flows are growing at least as fast as their dividends and that are not relying on debt to finance the payouts. Cardinal Health. This distributor of drugs and medical products is holding the line on debt and share repurchases while it regularly boosts dividends. CSX. The big eastern railroad pays out just one-third of its earnings as dividends, which have quadrupled since 2005. Competitor Norfolk Southern pays out half of its earnings, suggesting that CSX has more room to boost its payout. McDonald’s. With a market capitalization of $71 billion, it is the primo dividend raiser among ultra-large companies. Praxair. A producer of industrial


gases, Praxair may not be as cyclical as its product line suggests: About 20 percent of sales come from the health-care, food and beverage industries.


New to the cause A second strategy is to identify recent


converts to the religion of cash dividends —that is, companies that have just started paying or recently accelerated the growth of their payouts. Technology companies, which used to hold dividends in disdain for fear of seeming stodgy, are among the most prominent in this category. Activision Blizzard. In early 2010, the video-game maker declared its first cash dividend, at a rate of 15 cents per year. The move was something of a surprise,


Dividends matter: Why firms share the wealth


by Manuel Schiffres H ILLUSTRATION BY TIM GRAJEK


but watch for Activision to increase the payout as its business prospers. Intel. The semiconductor king has


$14 billion in cash and only $2 billion in debt. Intel, which handed out its first dividend in 1992, now pays at a rate of 64 cents a year with an above-average yield. Texas Instruments. Sounds a lot like


the Intel story: Another semiconductor company decides to turn on the cash spigot. TI has no long-term debt and $1.2 billion in cash on its balance sheet. Wal-Mart. The retailing behemoth is hardly new to dividends, first paying a nickel a share in 1974. Lately, though, Wal-Mart has stepped up the pace of its increases, nearly tripling the annual disbursement since 2004.


Juicy yielders The last approach is, of course, to find substantial companies that pay high dividends and have the wherewithal to maintain those payouts and maybe even raise them a little.


Apple relents on some nudity apps


Decision to block porn, sexual content ensures controversy isn’t over


by Kevin Kelleher


Apple, it turns out, didn’t rain on Bloomsday after all. Two days before the annual celebration of James Joyce and his novel “Ulys- ses,” Apple notified the creators of a Ulysses app that the unedited version could be resubmitted into the iTunes App Store. To recap, Apple had originally


asked the authors of Ulysses Seen to remove a cartoon image of a young goddess in the nude. Rob Berry and Josh Levitas created their adaptation as a Web comic but realized the iPad’s format would be ideal for it. They complied with Apple’s request and altered several other images they thought Apple might object to, es- sentially bringing Apple on as a silent editor for their labor of love. The news first appeared on the


would be nice if it ended happily here, with the unexpurgated con- tent restored. But I wonder whether that will happen. In making the decision to block porn and sexual content from apps on the iPhone and the iPad, Apple signed up for a long series of such controversies, and I really doubt whether this marks an end to the brushfires it will need to put out. Apple’s moves echo an- other instance of backpedaling, when the company banned and then allowed a political-satire app by Pulitzer Prize-winner Mark Fiore.


The Big Money is a financial news and analysis Web site from the Slate Group.


On one hand, those contro- versies are free public- ity for Apple. On the other, they are coming at a time when Apple is facing anger from de- velopers, frustration from consumers and in- vestigations from reg- ulators. It’s publicity


New Yorker’s Book Bench blog and was picked up by other sites, including TBM. It began to snow- ball as sites such as BoingBoing, Gizmodo and the New York Times picked up the story. Then Apple acknowledged it erred in censoring Ulysses Seen, as well as a second iPad app, a comic adap- tation of “The Importance of Be- ing Earnest,” which features im- ages of two men kissing. On Mon- day, Trudy Miller of Apple’s public relations department sent this e- mail: “We made a mistake. When the


art panel edits of the Ulysses Seen app and the graphic novel adap- tation of Oscar Wilde’s Impor- tance of Being Earnest app were brought to our attention, we of- fered the developers the opportu- nity to resubmit their original drawings and update their apps.” That was the outcome the cre-


ators of Ulysses Seen wanted all along. “We couldn’t have hoped for anything more,” said Chad Rutkowsky, an attorney and busi- ness manager for Throwaway Horse, which created Ulysses Seen. “This is the kind of rea- soned dialogue we hoped would happen. We’re thrilled to cel- ebrate Bloomsday with the full expression of the app.” Apple deserves credit for being


flexible here, by asking the devel- opers to resubmit their apps. It


that Apple could probably do without. That’s because this isn’t a black-and-white issue. In fact, the shades of grey involved are so fine that not even the high-resolution Retina Display of the iPhone 4 can sort them all out. Apple isn’t necessarily a good company or an evil one. Nudity isn’t necessarily obscene or necessarily welcome on all iPads. And media platforms always struggle with risque con- tent. On a medium such as the Web, porn is so readily available that a 5-year-old can find it. On broadcast TV, you’re fined hun- dreds of thousands of dollars for saying an obscenity. I’d argue that neither medium


is better than the other. Both fail at accounting for the subjectivity of what is appropriate content and what isn’t. Everyone knows porn when they see it. But media is structurally incapable of meet- ing varying consumer demand. Some don’t want to see porn, oth- ers do — and among those who do, some extreme forms are unac- ceptable.


I would bet that Steve Jobs un- derstood this back in February, when Apple kicked 5,000 apps out of the App Store for having what it deemed sexual content. But iPhones and iPads represent a new media format, one that publishers large and small have great hopes for, and Apple under- stands that porn can be as toxic to many mainstream customers as the threat of computer viruses. If Apple was going to block one, it had to block the other. Apple is a company, not a gov- ernment entity, and it’s free to


block whatever it wants in its re- tail store. The controversy lies in its execution of this goal. Apple decided to solve the problem by being abstract in the extreme. The iPhone developer agreement decrees that: Applications must not contain


any obscene, pornographic, of- fensive or defamatory content or materials of any kind (text, graph- ics, images, photographs, etc.), or other content or materials that in Apple’s reasonable judgment may be found objectionable by iPhone or iPod touch users. What is Apple to make of the


fact that many longtime custom- ers like me find the capricious censorship of quality content to be itself obscene? The vague lan- guage in the developer agreement is a convenient, quick fix to a complex problem, a solution that only breeds more and more prob- lems as time goes on. When Apple blocked those 5,000 apps, I wrote: “There are two problems with an inconsistent and arbitrary porn-blocking policy. Actual porn always finds a way around it; and the harder you try to block it, the more you end up censoring con- tent that isn’t porn at all. . . . Ap-


ple is so successful in 2010 that it has become many things. Add to that list one more thing: arbiter of porn on the mobile Web.” Since then, we’ve seen how difficult it is for Apple to blaze a trail through this thorny foliage. Revered clas- sics like “Ulysses” and “The Importance of Being Earnest” are adapted as iPad apps, and those adaptations are cen- sored. Apple responds by re- considering the apps. Then more apps are blocked in ways that seem unjust and Orwellian, and Apple adapts again. It is a slow, hamfisted process that causes headaches for everyone involved. The other issue — one that has not been in the news lately but will be — is how poorly iPhones and iPads filter out porn. An- droid’s open nature allows users to download porn apps from un- official app stores as well as through mobile browsers. And yet how often do you hear com- plaints about porn on Android phones (that is, beyond those made by Steve Jobs)? Google has its share of controversies, but this isn’t one.


AT&T. The phone giant is benefiting from its position as the exclusive wireless carrier for Apple’s iPhone. The dividend has been erratic over the past decade, as has the share price, but the yield is nearly 7 percent, an awfully high figure in today’s low-interest-rate world. Eli Lilly. A classic representative of Big Pharma, Lilly sports a higher yield and a lower price-earnings ratio than its peers. We prefer other drug companies for growth potential, but Lilly’s yield is appealing in its own right. Exelon. No dividend roundup would be complete without a traditional utility. Exelon produces plenty of cash flow to cover its dividend, and, as the nation’s largest operator of nuclear power plants, it should benefit from renewed interest in the technology, which doesn’t generate carbon emissions. Utility stocks have performed sluggishly during the current bull market, so many of them offer good value. —Kiplinger’s Personal Finance


ere’s a look at the benefits of investing in companies that share the wealth through the experience of Procter &


Gamble. They’re a big chunk of your profits: Although Standard & Poor’s 500-stock index yields just 2 percent, dividends have historically accounted for 43 percent of the U.S. stock market’s long-term return of nearly 10 percent annualized. P&G’s yield is 3.2 percent. They can grow: P&G, which has


raised its payout 53 years in a row, is one of 42 dividend aristocrats that have lifted their dividends for at least the past 25 consecutive years. Over that period, P&G’s dividend has climbed an average of 10 percent a year. They help protect earnings from the IRS: The current top federal tax rate on qualified dividends is 15 percent (if you’re in the 10 and 15 percent brackets, you pay no tax on qualified dividends). Dividend-paying stocks shimmy


less: Dividend-paying stocks are usually less volatile than nonpayers. One way of measuring volatility is beta, which indicates how closely a stock tracks a particular index. A stock with a beta of 1 tends to follow the S&P 500 index closely. The stocks stay afloat in rough


markets: Dividend payers usually do better than nonpayers when the stock market tanks. In 2008, stocks that paid dividends lost an average of 39 percent on a total-return basis, while those of nonpayers tumbled 45.4 percent. Including dividends, P&G shares lost 15.8 percent in 2008.


More from Kiplinger Go to www.kiplinger.com for more


analysis.


KLMNO


G3


The creators of Ulysses Seen, an adaptation of the James Joyce classic, covered up nudity in one panel after Apple objected. This image, provided by Apple, shows the iPhone 4.


PHOTO ILLUSTRATION


Flash). And Apple pre-in- stalls the Safari app on ev- ery Web-ready product it sells. By positioning itself as the porn-free gateway to the mobile Web, Ap- ple is setting itself up for protests from anti-porn crusaders. As a result of Apple’s decision to wade into the porn morass, it’s quite possible that the company could end up being seen as both as an opponent to free speech


and an purveyor of porn. Not an easy trick to pull off.


Yet it’s often pointed out that the Safari browser on iPhones and iPads calls up porn from many Web sites (unless they use


— The Big Money


Kevin Kelleher is a writer living in the San Francisco Bay area.


CRIMINAL JUSTICE INVESTIGATE YOUR LEADERSHIP OPPORTUNITIES.


Your teachers will be experienced members of police departments, the judiciary, the military and security management. And your bachelor’s or master’s degree or certificate from University of Maryland University College (UMUC) will prepare you for leadership roles in law enforcement, counterterrorism or private security. Program areas include paralegal studies, investigational forensics, and leadership and management.


Enroll now. Copyright © 2010 University of Maryland University College


• On-the-job experience may earn you credit toward your bachelor’s degree through our Prior Learning program


• Scholarships, loans and an interest-free monthly payment plan available


•No SAT, GRE or GMAT required 800-888-UMUC • umuc.edu/above


Page 1  |  Page 2  |  Page 3  |  Page 4  |  Page 5  |  Page 6  |  Page 7  |  Page 8  |  Page 9  |  Page 10  |  Page 11  |  Page 12  |  Page 13  |  Page 14  |  Page 15  |  Page 16  |  Page 17  |  Page 18  |  Page 19  |  Page 20  |  Page 21  |  Page 22  |  Page 23  |  Page 24  |  Page 25  |  Page 26  |  Page 27  |  Page 28  |  Page 29  |  Page 30  |  Page 31  |  Page 32  |  Page 33  |  Page 34  |  Page 35  |  Page 36  |  Page 37  |  Page 38  |  Page 39  |  Page 40  |  Page 41  |  Page 42  |  Page 43  |  Page 44  |  Page 45  |  Page 46  |  Page 47  |  Page 48  |  Page 49  |  Page 50  |  Page 51  |  Page 52  |  Page 53  |  Page 54  |  Page 55  |  Page 56  |  Page 57  |  Page 58  |  Page 59  |  Page 60  |  Page 61  |  Page 62  |  Page 63  |  Page 64  |  Page 65  |  Page 66  |  Page 67  |  Page 68  |  Page 69  |  Page 70  |  Page 71  |  Page 72  |  Page 73  |  Page 74  |  Page 75  |  Page 76  |  Page 77  |  Page 78  |  Page 79  |  Page 80  |  Page 81  |  Page 82  |  Page 83  |  Page 84  |  Page 85  |  Page 86  |  Page 87  |  Page 88  |  Page 89  |  Page 90  |  Page 91  |  Page 92  |  Page 93  |  Page 94  |  Page 95  |  Page 96  |  Page 97  |  Page 98  |  Page 99  |  Page 100  |  Page 101  |  Page 102  |  Page 103  |  Page 104  |  Page 105  |  Page 106  |  Page 107  |  Page 108  |  Page 109  |  Page 110  |  Page 111  |  Page 112  |  Page 113  |  Page 114  |  Page 115  |  Page 116  |  Page 117  |  Page 118  |  Page 119  |  Page 120  |  Page 121  |  Page 122  |  Page 123  |  Page 124  |  Page 125  |  Page 126  |  Page 127  |  Page 128  |  Page 129  |  Page 130  |  Page 131  |  Page 132  |  Page 133  |  Page 134  |  Page 135  |  Page 136  |  Page 137  |  Page 138  |  Page 139  |  Page 140  |  Page 141  |  Page 142  |  Page 143  |  Page 144  |  Page 145  |  Page 146  |  Page 147  |  Page 148  |  Page 149  |  Page 150  |  Page 151  |  Page 152  |  Page 153  |  Page 154  |  Page 155  |  Page 156  |  Page 157  |  Page 158  |  Page 159  |  Page 160  |  Page 161  |  Page 162  |  Page 163  |  Page 164  |  Page 165  |  Page 166  |  Page 167  |  Page 168  |  Page 169  |  Page 170