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Latest shares news and updates

Money Matters - Simplified

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This DVD Is Getting Interesting

You don't need to browse the shelves of your local Blockbuster (NYSE: BBI) to check out its latest drawn-out saga. There's a pretty good battle brewing in the DVD rental chain's boardroom. An activist shareholder is waging a proxy battle to win a director's seat, and the conflict's starting to get ugly.

3 Stocks Breaking Out

Volatile markets seem to be the norm these days, as stocks gyrate through ups and downs on a daily basis. But sometimes buyout news and other short-term forces can send individual stocks soaring by 10%, 25%, even 50% -- even on the market's worst days.

Big Oil Deals Kick Off the Week

Hot on the heels of last week's huge oil sands IPO, two significant deals in the U.S. oil patch made headlines this morning.

Mosaic Makes the Correct Market Call

When we last checked in on Mosaic (NYSE: MOS), the company was striking a positive tone on its outlook for phosphate and potash fertilizers in 2010. PotashCorp (NYSE: POT) undercut that sunny stance a few weeks later, as it issued some meager earnings guidance.

Is Fast Food Slowing Down?

Are American consumers retracting even further? When the Great Recession began, consumers were trading down -- sales of private-label brands increased, vacations were postponed or pared back, and of course, fast-food chains became more popular as Americans opted for value meals over sit-down restaurants.

3 Stocks That Are Automatic Wealth Machines

When you invested that grand, you would have had just 29 shares at the price of $34.50. Hardly enough to get on with, right? Well, today, through splits and spinoffs, you would have:

  • 700 shares of Altria.
  • Nearly 500 shares of Kraft.
  • 700 shares of Philip Morris International.

Total value? Just shy of $62,000. Better yet, you'd have earned a total of $30,000 in dividends as a result of that original $1,000 investment.

What if you had reinvested those dividends? Instead of nearly 1,900 shares across three companies worth a total of $62,000, you'd have more than 7,100 shares of three companies worth a whopping $235,000. That includes more than $82,000 in dividend payments -- nearly three times the income received by those who chose not to reinvest dividends.

But here's the really sweet part. Today, without having to sell a single share, you'd be receiving nearly $12,000 in income -- every year.

Now that's what I call a wealth machine.

Yeah, right!
All right, I know what you're thinking. "That is such a blatant example of data mining! Nobody did that!" Well, as it happens, my grandmother did. Not with Altria, but with ExxonMobil (NYSE: XOM).

She bought shares of Exxon back in the early 1960s and reinvested her dividends. By the time my grandfather was ready to retire some 30 years later, they were able to buy two lots of land and build their retirement home on one of them -- paying cash on the barrelhead just from that one investment.

In other words, Altria is by no means the only example in which reinvesting dividends could have made you rich over the years.

Want further proof?

Professor Jeremy Siegel of the Wharton School of Business has shown that the 100 highest-yielding stocks of the S&P 500 outperformed the overall index by three percentage points per year. Now a three-point advantage may not sound like much, but over 10 years, that meant more than $900 more received for every $1,000 invested.

Wealth machines
Now before you can say, "Where am I going to find companies that even come close to what happened way back then?" let's look at what makes a "wealth machine."

I call Altria and ExxonMobil wealth machines not because they were great companies (although they were) or because they paid a dividend -- after all, not every dividend payer can be called a wealth machine -- but because they consistently raised their dividends. And they were able to do that because they performed consistently well.

What may surprise you is that research by Robert Arnott of Research Affiliates and Clifford Asness of AQR Capital Management has shown that companies with higher dividend payout ratios -- the amount of the dividend compared to net income -- tend to have higher real earnings growth in the following 10-year period. In other words, they're better-run companies. And we already know what earnings growth means for a company as far as price goes.

So that's what to look for: companies that consistently raise dividends over time. Now let's look at some numbers.

Would you believe me if I told you that 20% of the companies currently in the S&P 500 have increased their dividend by 10% or more per year over the past 10 years? It's true. In fact, fully 104 companies have done so.

That list includes such familiar names as Wal-Mart Stores (NYSE: WMT), at 24.7% per year over the past decade, and PepsiCo (NYSE: PEP), growing dividends at a slower, but still healthy, 12.7% per year.

Here are three other wealth machines -- and what you would have today if you had invested in them 10 years ago, reinvesting all dividends.

Company

Average Annual
Dividend Increase

Result of Investing $1,000

CAGR,
Including  Dividends

XTO Energy (NYSE: XTO)

46.1%

$69,900

52.9%

Occidental Petroleum (NYSE: OXY)

18.0%

$13,000

29.3%

Nike (NYSE: NKE)

15.6%

$5,540

18.7%

Source: Capital IQ, a division of Standard & Poor's.
CAGR = compounded annual growth rate.

An 18.7%-per-year return comes close to rivaling Warren Buffett's performance -- and you don't even have to be as smart as he is. All you have to be is smart enough to invest in well-run companies with a history of paying dividends and increasing those payments over time.

© 2010 UCLICK L.L.C.

7 Great American Stocks on Sale

Where the stock market will be tomorrow, next week, or even next year is anyone's guess. And considering the enormous size of the global financial markets and all of their moving parts -- including the new ones coming out of Washington -- such prognostication is about as futile as trying to boil the ocean.

Wynn Resorts reports narrowing loss, rising revenue in Q4

Driven by strong results at its gambling enclave in Macau, Las Vegas-based Casino Operator Wynn Resorts Ltd has reported a drop in its net loss for the fourth quarter ended Dec. 31.

7 Great American Stocks on Sale

Where the stock market will be tomorrow, next week, or even next year is anyone's guess. And considering the enormous size of the global financial markets and all of their moving parts -- including the new ones coming out of Washington -- such prognostication is about as futile as trying to boil the ocean.

A Better Way to Buy Buffett?

Warren Buffett has a track record that's the envy of the investing world. So if you had a chance to own shares of his company at a discount, wouldn't you jump at the chance?


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