Knowledge is Power: Buyback Mirage, Damagers of Capitalism, Cartels Edition

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Thought of the day: By how many billions of dollars retail shareholders will be wealthy if legalized looting by fat cats is outlawed?

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Photo Courtesy of: Andrej Ciesielski

For more awesome photos of Andrej visit his site.

Dividend Growing Stocks Outperform Dividend Payers

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Companies that grow dividends year-after-year tend to outperform based on total returns those that just pay dividends. One of the reason for this outperformance is due to the effect of compounding. When additional shares are purchased with dividends reinvested every year, over many years the returns are amplified.

The following chart illustrates the above theory:

Click to enlarge

Dividend Growers Outperform-NEW

Source: How to pick dividend stocks, Fidelity Investments

So instead of focusing on stocks with high dividend yields, investors must pick dividend growers for a long-term portfolio.

The S&P 500 Dividend Aristocrats Index measures the performance of S&P 500 companies that have increased dividends every year for the past 25 consecutive years. The top constituents of this aristocrats index are listed below with their current yields:

1.Company: Grainger W.W. Inc (GWW)
Current Dividend Yield: 2.04%
Sector: Industrials

2.Company: Cincinnati Financial Corp (CINF)
Current Dividend Yield: 2.95%
Sector: Insurance

3.Company: Illinois Tool Works Inc (ITW)
Current Dividend Yield: 2.15%
Sector: Industrials

4.Company: McCormick & Co (MKC)
Current Dividend Yield: 1.79%
Sector: Consumer Staples

5.Company: Dover Corp (DOV)
Current Dividend Yield: 2.59%
Sector: Industrials

6.Company:  Leggett & Platt (LEG)
Current Dividend Yield: 2.72%
Sector: Consumer Discretionary

7.Company:  Emerson Electric Co (EMR)
Current Dividend Yield: 3.48%
Sector: Industrials

8.Company: Genuine Parts Co (GPC)
Current Dividend Yield: 2.69%
Sector: Consumer Discretionary

9.Company: Target Corp (TGT)
Current Dividend Yield: 2.75%
Sector: Retail

10.Company: 3M Co (MMM)
Current Dividend Yield: 2.70%
Sector: Industrials

Note: Dividend yields noted above are as of Mar 24, 2016. Data is known to be accurate from sources used.Please use your own due diligence before making any investment decisions.

Disclosure; No Positions

Why Portfolio Diversification Is Important

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Diversification in a portfolio is an important strategy for long-term success. A well-built portfolio should not be concentrated heavily on a single stock or asset class or sector. Rather a portfolio should hold various assets such as growth stocks, dividend stocks, domestic stocks, foreign stocks, commodities, ETFs, closed-end funds, bonds, etc.

Holding a diversified group of assets cushions a portfolio during rough market conditions and also provides stable and consistent returns when markets overshoot.

The following table shows the benefits of a diversified portfolio:

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Diversity_Quilt_new_02b

Source: Why Global Diversification Matters by Anthony Davidow, Charles Schwab

Why hold a diversified portfolio?

  • More than half of the revenue from S&P 500 firms come from outside the U.S.
  • The market capitalization of stocks trading overseas is higher than the market cap of US stocks.
  • Thousands of stocks trade on foreign markets offering a diverse pool of stocks to choose from.

Emerging and Frontier Markets vs. Rest of the World

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Emerging and Frontier markets are relatively big in terms of factors such as population, land, total number of listed companies, etc. However based on market capitalization of equity markets they account for less than 50% of the global total market capitalization. This is because equities in these markets permanently trade at a discount to equities in the developed world.

a) Emerging markets vs. Rest of the World:

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Emerging Markets Size

b) Frontier markets vs. Rest of the World:

Frontier Markets Size

Source: Emerging Markets 2016 Outlook, Franklin Templeton and

Frontier Markets in Focus: 2016 and Beyond, Franklin Templeton

Frontier markets have a long way to go to graduate to emerging markets. Frontier economies include countries like Bangladesh, Vietnam, Iran, Jamaica, Slovakia, etc.

Key takeaway:

For investors in developed world, majority of their portfolio assets should be in developed stocks and only a small amount should be allocated to emerging and frontier stocks. For most investors, frontier markets are best avoided.

Related ETFs:

  • iShares MSCI Emerging Markets ETF (EEM)
  • Vanguard MSCI Emerging Markets ETF (VWO)
  • Market Vectors Africa Index ETF (AFK)
  • Market Vectors Gulf States ETF (MES)
  • PowerShares MENA Frontier Countries ETF (PMNA)
  • iShares MSCI Frontier 100 ETF (FM)

Disclosure: No Positions

Dividend Withholding Tax Rates By Country 2016

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*** UPDATE:  For the latest Dividend Withholding Tax Rates click : Dividend Withholding Tax Rates By Country 2017

When investing in overseas stocks investors have to pay withholding taxes on dividends paid out by a foreign company. Usually this tax is held by the country when dividends are sent out to non-resident investors. US investors can lose a big chunk of the dividends to this taxes depending on the tax rate imposed by the country of dividend origin. For example, Switzerland has a high withholding tax rate at 35% but a country like Singapore does not deduct any taxes at all for dividends paid to foreign investors by Singapore-based firms.

Just like other taxes, the dividend withholding tax rates also change sometime every year. So here is a simple and easy table that shows the Dividend Withholding Tax Rates By Country for 2016:

NOTE: These rates are standard rates and do not include lower rates which may be available due to tax treaties between countries or other reasons. For example, one can get lower tax rates for Canada by filing special forms with Canada. Details here.

Click to enlarge

Dividend Withholding Tax Rates for 2016

Source:  S&P Dow Jones Indices LLC

*** UPDATE:  For the latest Dividend Withholding Tax Rates click : Dividend Withholding Tax Rates By Country 2017

Another source: Dividend Withholding Tax Table for 2016, NYSE

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