1. BONDS OR DIVIDENDS?

2. Why Have Investor’s Historically Preferred Bonds?
Traditionally known as a “safe investment”
Typically less volatile than stocks
Offer regular interest payments
Have first priority in any liquidation
The Safer Alternative to Bonds. Jim Royal (September, 2011)

3. Is There Risk With Bonds?
Types of risks associated with bonds:
Interest rate risk, reinvestment risk, inflation risk, credit/default risk, rating downgrades and liquidity risk.
The Safer Alternative to Bonds. Jim Royal (September, 2011)

4. Trends in Bonds Current trends within the bond environment:
Low interest rates: Interest rates below the level of inflation, making investors lose purchasing power as bonds decline in value when rates rise again.
100-year bonds: Although these bonds offer higher interest rates, there is principal and business risk.
Weak bond covenants: Bond investors may accept weaker lending terms.
The Safer Alternative to Bonds. Jim Royal (September, 2011)

5. YIELD OF S&P500 STOCKS vs. 10-YEAR TREASURY YIELD
Source: AAII, February 2017

6. An Investor in Dividend Stocks or Bonds Will Have To Deal With Principle Fluctuations In Either Investment… So, In This Interest Rate Environment, Which Would You Rather Own, Dividend Stocks or Bonds? **In Both Cases, The Investor Has To Hold The Investment To Get The Yield.

7. Average Dividend Yield from Indices, as of February 2017
Index
Aggregate Value of Index Components
Aggregate Dividends
Dividend Yield (%)
[S&P and Nasdaq in millions.
[Next four quarters]
[Aggregate Dividends divided by Aggregate Value]
Dow Jones in units.]
 S&P
19,615,
423,
2.16
[Floating Capitalization Weighted: stock price and per-share dividend are multiplied by the number of floating shares and then scaled to millions.]
 Nasdaq 100
7,098,
89,
1.26
[Modified Cap. Weighted: stock price and per-share dividend are multiplied by the Nasdaq weight factors and then scaled to millions.]
 Dow Jones 2,
75.155
2.59
[Price Weighted: Sum of prices and dividends of stocks in the DJIA index.
(N.B. Divide stock price sum by the DJIA divisor to get the index value.) ]
Indexarb.com, January 31st, 2017

8. 10-Year Treasury Yield
2.47
Yahoo! February 1st, 2017

9. Historical Comparison: Top 25 Dividend Stocks Q4-2016 vs
Historical Comparison: Top 25 Dividend Stocks Q vs. 10-Year Treasury Yield
3.88
1.57
Source: Yahoo.com

10. TOP 25 DIVIDEND PORTFOLIO PERFORMANCE - % RETURN
Source: Yahoo Finance

11. TOP 25 DIVIDEND PORTFOLIO PERFORMANCE Initial Investment: $100,000
Source: Yahoo Finance

12. What about Corporate Bonds?
Nominal yields on Treasuries and corporate bonds have dropped since recession
Maturity timeline required
In inflationary environment, bonds tend to do poorly.
Bond interest is taxed as high as 35% rate
DIVIDEND STOCKS
Dividend yields of high quality equities have risen
Companies with strong balance sheet and stable earnings will sustain in an economic downturn
Equities will hold up much better in an inflationary environment
Current tax rate for qualified dividends is 15% or 0%
Potential for capital growth
Advantage of possibly raising current yields over time
Seeking Alpha, June 2011

13. Average dividend yield of the same corporate borrowers is 4.03%
Average yield-to-maturity for bonds= 3.52%, despite having an average coupon of 6.42%
Average dividend yield of the same corporate borrowers is 4.03%
Seeking Alpha, June 2011

14. Key in a Dividend Strategy
Search for companies with strong fundamentals
Select stocks with stable dividend yield and growth
Unlike the bonds that are difficult to price, stocks are much easier to price
Underlying stock offers growth potential
Reinvest the dividends
Quarterly screening process for quality dividend stocks
Combination of high/low dividend yield, high/low dividend growth, and payout ratio

15. Expected Return on Dividend Portfolio
As of:
1/1/2017
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
1.91
0.44
0.6961
0.9292 2 VZ
Verizon Communications Inc.
91.00
4.30
76.06
0.39
0.5399 3 T
AT&T Inc.
92.00
4.60
75.78
0.36
0.5322 4
ORI
Old Republic International Cor
90.00
3.90
75.64
1.15
0.7345 5
RAI
Reynolds American, Inc.
87.00
3.30
75.08 6
GSK
GlaxoSmithKline plc (ADR)
94.00
5.40
74.24
0.89
0.6679 7
KKR
KKR & Co. L.P.
4.20
73.44
1.65
0.8626 8
VLO
Valero Energy Corporation
88.00
3.50
73.42
1.42
0.8037 9
INTC
Intel Corporation
84.00
2.90
73.15
1.05
0.7089 10
MCY
Mercury General Corporation
4.10
72.79
0.5527 11
CSCO
Cisco Systems, Inc.
3.40
72.71
1.38
0.7934 12
ENB
Enbridge Inc (USA)
71.15
0.60
0.5937 13
ABBV
AbbVie Inc
70.76
1.59
0.8472 14 IP
International Paper Co
70.42
1.56
0.8395 15 KO
The Coca-Cola Co
70.26
0.65
0.6065 16
RDS.B
Royal Dutch Shell plc (ADR)
96.00
6.90
69.93
1.07
0.7140 17
IBM
International Business Machine
69.67
0.96
0.6859 18
WFC
Wells Fargo & Co
2.80
69.17
0.99
0.6935 19 GM
General Motors Company
4.40
69.08
1.40
0.7986 20 PG
Procter & Gamble Co
86.00
3.20
68.69
0.59
0.5911 21
WMT
Wal-Mart Stores, Inc.
85.00
67.63
0.10
0.4656 22 CS
Credit Suisse Group AG (ADR)
93.00
5.00
66.69
1.58
0.8447 23
JPM
JPMorgan Chase & Co.
79.00
2.20
1.53
0.8318 24
MSFT
Microsoft Corporation
82.00
2.50
64.54
1.13
0.7294 25 GE
General Electric Company
3.00
63.25
1.20
0.7473 Rf
Current Portfolio Yield:
3.772
1.04
0.7058%
Per Month
Treasury Bill Rate - 4 weeks
12/30/2016
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
12.58%

16. 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, October 2013

17. No strategy can guarantee profit or protect against a loss.
Past performance is not indicative
of future results.

18. 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.