Dividend Opportunities from the Recent Pullback

Jeremy Glaser: For Morningstar.com I’m Jeremy Glaser. The market has been
shaky recently as renewed fears about European debt and some less than –
economic data has made investors a little bit nervous again. I’m here with
Josh Peters Editor of Morningstar Dividend Investor to take a look at what
the impact of this potential correction could have on income portfolios
Hey Josh thanks for taking the time.

Josh Peters: Good to be here Jeremy.

Jeremy: So are you concerned at all about you know this renewed volatility in the
market place?

Josh: Actually I’m kind of relieved. I mean you look back to the end of August I
mean the market have been going up in a straight line and you know
nothing like that is going to last forever and you know for you know the
short term trader I mean arising markets certainly gives you an
opportunity to score some quick gains but for the long term investor who
perhaps is adding additional money overtime or even just reinvesting his
or her dividends you know higher prices are not necessarily going to
improve your long run result.

You know the way I like to think of it you know it calls back to some
studies that Jeremy Siegel had done showed that 97% of the total long turn
return from stocks had come from real return after inflation. It comes from
reinvesting dividends. The lower a stock price is when you have the
opportunity to put new money in or reinvest dividends the more shares
that money will buy the more dividends they will earn and the more
compounding it will get over time so you know I’m frankly happy to see
the market take a little breather.

Jeremy: Do you have any concerns that companies that maybe were on the cusp of
racing dividends are going to hold back on some of those dividend raises
that they think the economies un shaky ground?

Josh: Well the economy has been on unshaky ground. There’s not a lot of
uncertainty now for some time and you know it’s certainly going back into
2008 and what you’ve seen is that the companies that have both have the
means to raise their dividends and long standing practices that they want
to do that and their going to go ahead and do it as long as they have the
means. You know those companies have continued to raise their dividends
you know they’re not you know any shocking names you know
laboratories Johnson & Johnson and General Mills.

You know you count on these companies and you come to for you in
tough times and by in large they have. I don’t expect that to change, you
know its’ more the company’s that are kind of at the margins you know th
that might be considering you know brand new dividends if they’re not
paying them at all or perhaps moving to more aggressive payout ratio for a
very low level you know this is the kind of environment where a company
that’s already not all that interested in paying dividends. You know it’s
just if nothing else one more excuse to delay it.

So ‘m not expecting a big change you know in dividend trends across the
market that has a result of this uncertainty. It’s been with us for a while.
It’s going to continue.

Jeremy: So now that we’ve had a bit of a pull back do you think that it’s acquitted
on the opportunities for long term dividends investors?

Josh: Not a whole lot I mean we probably need to see the market pull back
another 5 maybe 10% before you would start seeing you know a number
of stocks moving in to what I think are viable prices. You know my policy
is I really only want to invest if I can have some margin of safety you
know some room to be wrong on the long term outlook for the dividend’s
growth potential principally without you know winding up with a sub par
return or even a permanent impairment of my capital.

Now the last couple of weeks it wasn’t been really hard to find I mean the
number of stucks out of the 34 that are in the dividend investor model
portfolios had shrunk to 5 you know and some days it was only 4. Now
that was starting to get just a little bit longer you know as the market
comes down you have some of the names that were on the bubble or
maybe moving now just to the other side of the fence kind of mixed
analogies.

But I think that if you’re thinking in terms of putting new money to work
you know you might want think in terms of solely or maybe you know this
type of environment you know you can start to look at some of the names
you know that I think have been achieved for a while a Johnson &
Johnson and Abbot labs you know I think to outstanding names in the
healthcare field getting very little credit from investors for their ability to
grow over the long term but they’ve been cheap for quite some time.

You know if we see the market continue to trade down I think you know
maybe we will find some opportunities and some other higher yield
sectors you know utilities and business continue to like most pipeline
master limited partnerships but they need to come in quite a bit before
they’re really going to present those sort of margins of safety.

Jeremy: So continue to keep an eye out on the market and if we see more of this
downward trend could be some great opportunity some day.

Josh: Yeah it’s going to take a while but remember you know if you’re a lot
really a long term investor and you’re interested primarily in dividends
you know falling price scan really be your friend.

Jeremy: Josh thanks for your take today.

Josh: Thank you.

Jeremy: For Morningstar.com I’m Jeremy Glaser.