1. Dividend Portfolio Strategy

2. What is more powerful than Compound Interest?
Compound Dividends!
“Compound Dividends are like compound interest on steroids, figuratively speaking”
“Good dividend stocks’ yield, tends to stay within a given range, so if dividends are increasing each year, the only way to keep a consistent yield is for the price of the stock to go up.”
Source: Dividendvalue.com

3. Historical Comparison:
Dividend Paying Stocks Total Return
1928 to 2009 *
Non-Dividend Paying Stocks Total Return
1928 to 2009 **
10.8% %
8.28%
* Represents 5th and 4th quintiles respectively
**Compound Annual Return
Source: Grant’s Interest Rate Observer (October 2010)

4. Picture this Assuming Buy & Hold over the entire period:
If your family had bought $100 worth of quintile-four dividend stocks in 1928, you would have had a portfolio value worth $713,370 in 2009.
If your family, on the other hand, had bought non-dividend paying stocks in 1928, you would have had a portfolio value worth $58,127 in 2009.
Source: Grant’s Interest Rate Observer (October 2010)

5. The General Pros of Paying Dividends
1.Dividends may appeal to investors who desire stable cash flow but do not want to incur the transaction costs from periodically selling shares of stocks.
2.Behavioral finance argues that investors with limited self-control can meet current consumption needs with high-dividend stocks while adhering to the policy of never dipping into principal.
3. Managers, acting on behalf of the stockholders, can pay dividends in order to keep cash from bondholders.
4.The board of directors, acting on behalf of the stockholders, can use dividends in order to reduce cash available to spendthrift managers.
6.Dividends have long been a signal to investors. A constant dividend assures investors the company is doing well, and views future potential to be equally as sound.
7.The dividend approach gives a greater opportunity to beat inflation, over time, than a bond-only portfolio.
Ross,Westerfield,Jaffe (2008) Corporate Finance

6. Dividends and Taxes
Favorable tax treatment recently has hedged dividend returns.
For most of the last 80 years, dividends have been taxed at the individual marginal income tax rate. *
*Tax facts 2009 Addition
Source: Grant’s Interest Rate Observer (October 2010)

7. Process of Capital Allocation
Dividend paying stocks will often help an individual hold onto a stock that he/she may come to believe they over paid for when originally bought.
EXAMPLE:
March 1999 – Bought Abbott Labs at $46.59
March 2009 – The shares were quoted at $46.89
A 30-cent gain in share price
The above happened during a period when Abbott raised sales and earnings by 135%. This halved the PE ratio from 28 to 14.
Nearly everything that could go wrong did go wrong during this period.
Source: Grant’s Interest Rate Observer (October 2010)

8. Abbott Example Continuation…
DON’T FORGET THE DIVIDENDS!
Abbott continued to pay Dividends…
In 1999, the dividend was 66 cents a share
In 2009, the dividend had gone to $1.48 a share
If you had reinvested the dividend, you would have earned 25.7% over the 10-year period.
The S&P500 had no gain over this time period.
On November 1st, 2010, Abbott stock was worth $ a share
Source: Grant’s Interest Rate Observer (October 2010)
"Investing in dividend stocks is one of the top strategies to survive market instability"
Lawrence Carrel, journalist of The Wall Street Journal

9. Building a Portfolio for Income:
In July 2004, Microsoft had a cash hoard of nearly $60 billion. It used cash to:
Increase the annual dividend $.32 per share
Repurchase about $30 billion of the company’s stock over the next 4 years
Make a special dividend payment of $3 per share to shareholders
With 10 billion shares outstanding – the special dividend payment totaled $32.6 billion – the largest corporate cash disbursement in history!
The total dividends paid by all the companies in the S&P500 for the year totaled $213.6 billion – Special dividend represented about 15% of all dividends paid by 500 of the largest companies of the year!
When the dividend was sent to investors in December, personal income in the United States rose 3.7%. Without dividend, personal income only rose .3%.
This special dividend payment accounted for over 3% of all personal income in the U.S. for the month of December, 2004!
Ross,Westerfield,Jaffe (2008) Corporate Finance

10. Dividend Portfolio Strategy
Goal:
To concentrate on higher current dividend yields that have also a history of annual dividend increases in order to increase portfolio performance while reducing risk
Reason:
Tangible confirmation of management’s confidence in future earnings growth
Generation of higher levels of income over a long period of time if reinvesting dividends

11. Screening Methodology
Objective: To apply quantitative criteria to the wide universe of dividend stocks in order to narrow it down to few companies. This will allow us to concentrate on a more promising group of dividend stocks, our high probability dividend stocks!

12. Top 25 Dividend Stocks Stock Universe Popular List Current List
Screen Based List
Master List (250 stocks)
Scoring Process
Top 25 Dividend Stocks

13. Screening Process TOP 25 DIVIDEND STOCKS STOCK UNIVERSE
Scoring Process
TOP 25 DIVIDEND STOCKS
STOCK UNIVERSE
Master List
Dividend
Yield
High Div & Growth
DRPs High
Growth
Yield &
Profitability
Screen Based List

14. Description of the Screens
DRPs High Yield Screen: DRPs companies with high relative yields, reasonable dividend payout ratios and high growth
Dividend Growth: Looking for stable companies that are in the maturity stage of their life cycle, above-average dividend growth rates.
Dividend Yield: Screen that looks for undervalued stocks using the dividend-yield approach (companies with secure dividends – example: specifying a maximum level of dividend payout ratio of less than 50%)
High Div&Growth: Screen that focuses on high-quality growth stocks that have higher dividends and lower price volatility
Dividend Yield & Profitability: Screen that looks for companies with increasing profitability and reasonable dividend yield
Current List: List that comes from our experienced advisors.
Note for the Dividend Yield screen: filter for companies with dividends that are secure. Including a criterion that specifies a maximum level of dividend payout ratio (dividends divided by earnings) of less than 50% to seek companies that are not paying out more than half their earnings in the form of dividends.

15. *The formulas have been altered to protect Proprietary Information
Dividend Screens*
*The formulas have been altered to protect Proprietary Information

16. Screen 1: DRPs with High Yield
Provides DRP plan
Yield >= 3
Dividend 12m >= Dividend Y1
Dividend Y1> Dividend Y2
Dividend Y2>Dividend Y3
Dividend Y3 > Dividend Y4
Dividend Y4>Dividend Y5
Dividend Y5>Dividend Y6
Dividend Y6>Dividend Y7
Dividend Gr. 5Y> Industry Div-Gr. 5Y
Yield > Yield-Avg. 5 Y
Payout ratio 12 <= 60%
EPS-Gr. 5 Yr >= Industry EPS-Gr.5Y
ADR/ADS Stock is false

17. Screen 1: DRPs with High Yield
FIELD
OPERATOR
COMPARE TO:
STOCKS
Provides DRP Plan
is True
1097
Yield
>= 3
1619
Dividend 12M
Dividend Y1
9024
>
Dividend Y2
1648
Dividend Y3
1345
Dividend Y4
1112
Dividend Y5
1591
Dividend Y6
1869
Dividend Y7
1806
Dividend-Growth 5yr
Industry Dividend-Growth 5yr
1233
Yield-Average 5 years
764
Payout ratio 12m
<= 60
3736
EPS-Growth 5yr
Industry EPS-Growth 5yr
4334
ADR/ADS Stock
is False
9357
As of 1st Quarter 2017, 2 companies passed the screen!
4th QUARTER, 2016
SYMBOL
SECTOR
 COMPANY NAME 1
NJR
Utilities
New Jersey Resources Corp 2
WEC
Utilites
Wisconsin Energy Corp

18. Master List Top 250 Dividend Stocks
Screen Based
Current List
Stock Universe
Master List
Top 250 Dividend Stocks

19. TOP 25 DIVIDEND STOCKS Scoring Process Criteria for scoring:
Consistent Growth
Increasing Profitability
Good Financial Health
High Dividend Yield
TOP 25 DIVIDEND STOCKS
Master List
Top 250 Dividend Stocks
Scoring Process
Look for consistent rather than high growth: Companies that are in a high-growth trajectory usually need all the cash for business expansion and thus cannot afford to dole out huge dividend payments.

20. Capital Asset Pricing Model (CAPM)
A model that describes the relationship between risk and expected return and that is used in the pricing of risky securities.
General idea behind CAPM: investors need to be compensated in two ways: time value of money and risk.
The time value of money is represented by the risk-free (rf) rate in the formula and compensates the investors for placing money in any investment over a period of time.
The risk is represented by beta and calculates the amount of compensation the investor needs for taking on additional risk (risk premium)
The CAPM says that the expected return of a security or a portfolio equals the rate on a risk-free security plus a risk premium.
Investopedia, March 2013

21. Expected Return on Dividend Portfolio
As of:
2/1/2017
RANK #
TICKER
COMPANY
Growth Score
Yield Score
Dividend Yield
TOTAL SCORE
Beta
Rf* Rm
CAPM 1
LAZ
Lazard Ltd
89.00
3.70
77.10
1.92
0.49
0.6975
0.8883 2 VZ
Verizon Communications Inc.
91.00
4.30
76.06
0.40
0.5730 3 T
AT&T Inc.
92.00
4.60
75.78
0.37
0.5668 4
ORI
Old Republic International Cor
90.00
3.90
75.64
1.16
0.7307 5
RAI
Reynolds American, Inc.
87.00
3.30
75.08
0.36
0.5647 6
GSK
GlaxoSmithKline plc (ADR)
94.00
5.40
74.24
0.89
0.6746 7
KKR
KKR & Co. L.P.
4.20
73.44
1.64
0.8302 8
VLO
Valero Energy Corporation
88.00
3.50
73.42
1.43
0.7867 9
INTC
Intel Corporation
84.00
2.90
73.15
1.06
0.7099 10
MCY
Mercury General Corporation
4.10
72.79
0.45
0.5834 11
CSCO
Cisco Systems, Inc.
3.40
72.71
1.38
0.7763 12
ENB
Enbridge Inc (USA)
71.15
0.60
0.6145 13
ABBV
AbbVie Inc
70.76
1.59
0.8199 14 IP
International Paper Co
70.42
1.57
0.8157 15 KO
The Coca-Cola Co
70.26
0.66
0.6269 16
RDS.B
Royal Dutch Shell plc (ADR)
96.00
6.90
69.93
1.08
0.7141 17
IBM
International Business Machine
69.67
0.97
0.6912 18
WFC
Wells Fargo & Co
2.80
69.17
0.99
0.6954 19 GM
General Motors Company
4.40
69.08
1.40
0.7805 20 PG
Procter & Gamble Co
86.00
3.20
68.69
0.59
0.6124 21
WMT
Wal-Mart Stores, Inc.
85.00
67.63
0.10
0.5107 22 CS
Credit Suisse Group AG (ADR)
93.00
5.00
66.69 23
JPM
JPMorgan Chase & Co.
79.00
2.20
1.54
0.8095 24
MSFT
Microsoft Corporation
82.00
2.50
64.54
1.13
0.7244 25 GE
General Electric Company
3.00
63.25
1.20
0.7390 Rf
Current Portfolio Yield:
3.772
1.04
0.7063%
Per Month
Treasury Bill Rate - 4 weeks
CAPM of Portfolio
8.81%
Annualized
Current Portfolio Yield
3.77%
* Growth and Yield Score based on 1Q/2017 Screening
Expected return of the Portfolio
12.59%

22. Dividend Scoring Q1 2017

23. Dividend Scoring Based on Fundamental Data In-Depth Dividend Analysis:
Dividend Yield
Dividend Growth
Margin of Safety
Dividend Valuation
Based on a combination of dividend strategies
Provides Ex-Dividend date

24. Dividend Analysis
Yield Growth: Combination of dividend yield and dividend growth rate analysis. High value on this category indicates stocks with above average yield and long-term growth.
Dividend Analysis: In-depth analysis of dividend stocks considering payout ratio, P/E ratio, earnings yield and dividend yield.
Dividend Growth: Concentrates on sustainable growth rate, the maximum growth rate that a firm can sustain without having to increase financial leverage.
Strong Dividend Valuation: Focuses on strong dividend stocks: a record of dividend increases over time.
Margin of Safety: Determines the margin of safety of the stock based on dividend valuation approach.

25. Importance of Ex-Dividend Date
Investment term related to the payment of dividend.
Defined by the IRS as “the first date following the declaration of a dividend on which the buyer of a stock is not entitled to receive the next dividend payment.“
Theoretically, the closer to the ex-dividend date, the higher the stock price. On the ex-dividend date the stock will drop the amount by the dividend amount.

26. Dividend Strategy Long-term Strategy.
Looking for strong financial quality firms:
Growth
Profitability
Financial Health
Relative Strength
Involves a cyclical rotation of the dividend strategies
Combinations of the dividend strategies will reduce risk.

27. Dividend Buy Signals

28. Dividend Sell Signals Sell signals will be based on:
Dividend picking process
News on fundamentals
Drastic drop of dividend

29. BigFoot Investments (a DBA of Lee Johnson Capital Management) does not promise, guarantee or imply that you will improve your operation, or increase your revenues. As with any business, earnings potential and successful or unsuccessful use of BigFoot Investments’ products and materials will widely vary among our customers depending on many factors, including but not limited to, the customer’s finances, knowledge and skill set, creativity, motivation, level of effort, individual expertise and as such we do not guarantee your success or income level. The information conveyed by BigFoot Investments, as well as the information otherwise conveyed in these materials is intended to provide you with basic instruction regarding your business or operation. BigFoot Investments does not guarantee any results or returns based on the information you receive. Past performance or examples of other’s performance is no indication or guarantee of your anticipated future results, and individual results may vary. We are not responsible for any success or failure of your business if you implement the information you receive from us. We provide a tool that you can use to try to improve the operations of your business. All information contained or received through the use of our materials is provided “as is” without warranty of any kind. We hereby disclaim all warranties with regard to the information contained in our materials including without limitation all expenses, statutory and implied warranties of merchantability and fitness for a particular purpose.