A couple weeks ago Ray Link made the compelling case for buying dividend stocks.   With the downturn in prices, his case could be stronger than ever right now, and his 80/20 plan is a pretty safe way to approach the market.  Dividend stocks will also help you sleep a bit more soundly in these wild financial times, as their volatility is 1/3rd less than non-dividend stocks.  Another benefit – large companies that pay dividends tend to increase the dividends over time – so your investment has the potential to keep up with inflation. 

If you have a longer time horizon, and only a modicum of faith in many of the biggest corporations in the world, you could make the case for assembling a basket of high dividend stocks from major companies trading fall below their value, as an alternative to buying corporate bonds.   Dividends paid by S&P 500 companies have grown at a compounded rate of 3.2% per year over the last 25 years.   One approach would  be to find stocks of really healthy companies that have a lot of cash, good market prospectus, but are trading at low multiples.

For instance, take a look at the following companies:

• AT&T (T) is one alternative way to play the success of the Apple iPhone (though it is AT&T’s service that mainly takes the heat).  But the fact remains that this is an American corporate fixture, with a market value of over $150 billion dollars.  The stock recently closed at around $24 a share – a little above its 52 week low.  That puts it with a PE ratio of just over 12 – but the best part – it pays a dividend of 6.92%
• Kimberly Clark (KMB) is in the unexciting business of paper products, but I bet many of you used Pampers, and Kimberly napkins, towels and paper plates last weekend.  It trades at a little over $60.  It also has a PE ratio of around 13.5, and pays a dividend of 4.3%.
• Excelon (EXC) is a power company, and we all need power.  It trades at around $38 – midway between its 52 week high and low, with an PE ratio of 9.15 and a great dividend of 5.54%.

In addition, you could look at other high dividend reasonably priced stocks like Eli Lilly (LLY) - PE of 8.6 and pays a 5.8% yield, Pitney Bowes (PBI)- PE of 11.4 and pays a 6.1% yield, McDonalds (MCD) – PE of 15.6 and 3.4% yield, Intel (INTC) – PE of 17.6 and pays a 3% yield, and if you you are so inclined, even a few of the evil corporations like Exxon and Conoco pay well.

All of these companies are financially rock solid, and have a good market prospectus.  If you were to buy five to ten of them with the intention of holding them for a 5-10 year time horizon as an alternative to buying similar time-horizon bonds, you would enjoy equivalent returns via the dividend, but the high probability of a big upside in price.  Sure, there could be a BP Oil in the bunch – but in that case you would not want to hold BP bonds anyway.  It is hard to imagine that companies of this quality will not at least hold their value over 5-10 years.

One caveat….if Congress does not extend the tax cuts this year, dividends will be taxed in 2011 at ordinary income tax rates – as high as 39.6% – which would put a big damper in this plan.

The ideal password combines letters and numerals, and has at least eight digits and letters.  And here is an interesting statistic from National Public Radio’s science department; a hacker utilizing a readily available program can figure out a four letter code in about  1 1/2 minutes.  It would take them the equivalent of 200 years to decode an eight letter password.

Hmmm. Well, maybe the fact that our oceans are filling with oil because those assigned to protect us were snorting coke and doing the nasty with the oil industry should cause us to reconsider the commitment of our government to consumer safety.  The fact that we are in a massive recession-0n-the-verge-of-depression because we allowed big banks free reign to do anything they want might be a warning about being watchful. Perhaps all of us have to exercise a little of our own vigilance in case there is corruption in the ranks; just in case TMobile and Verizon are hosting crack and sex parties for ranking members of the FCC.

So I don’t want to spread fear and rumors, but…..  I could not help but notice that lately there are a lot of questions about cell phone safety being publicized.  In a recent article on the subject, a reporter for GQ revealed the following:

75% of studies undertaken by independent researchers have determined there is a correlation between cell phone use and serious health risk.

However, in studies financed by the cell phone industry, only 25% of studies found cell phones to be harmful.  These are the studies that most government officials choose to utilize.

So, depending who financed the study, there is somewhere between in a one in four to a three out of four chance that yakking incestantly on your phone might ultimately result in you getting chemo pumped into your brain to get rid of that pesky tumor.  Somehow those odds are a little alarming to me.  OK, I might have been really irritated the other night when the guy at the table next to me in the restaurant talked loudly on his cell phone during dinner, but I really did not wish cancer on him.

I am not a big cell phone talker, but I do spend a lot of my day with my iPhone clipped to my belt so I have easy access to my music and a variety of Aps I use, and it occured to me that having a microwave receiver a few inches from one of my favorite and most useful parts of my body might not be a good idea.

And perhaps the bigger issue that disturbs me (and not to sound like an anti-government wacko), but I really don’t trust that those paid from our tax dollars really have our best interests at heart. 

We have to all understand and accept that big corporations are soul-less.  They live to profit without any consideration for our and our planet’s general health. They are not people; they are bank accounts and financial infrastructure.  They are not incentivized to be publically responsible, unless there is profit in that position. And they particularly thrive during periods of deregulation. They can buy politicians and bureacrats, and sway public opinion by massively manipulating the media, and that is precisely why we need strong regulations to control many industries that can have major impact on the health of society and our planet.

So if there is somewhere between a 25% and a 75% chance that cell phones could lead to major health issues down the road, I want to make sure that there is an unbiased public agency protecting us,  just as I am willing to pay taxes to make sure experts are minding the corporate hen house when it comes to protecting our environment, our food supply, our transportation system, and all the other integral aspects of society.

Like many of us he is suffering investor fatigue.  When 100 to 300 plus point swings on the Dow become the norm instead of the exception, it’s no wonder that many investors are getting tired and just giving up.

Unfortunately investing in the stock market isn’t rational.  There is no reason that so many great companies are trading so far below their value, and the rational side of me wants to be a buyer.  I suspect that if I relax and take the long perspective I would buy great companies at very attractive valuations and not worry about it.  But in the short term I worry about investor fatigue; that my 50 year old and older friends will say “enough is enough” and continue to pull out their money on the upside bumps, which could mean a very long recovery, and really long periods of bumpiness, with more people giving up and dropping out. 

Our major corporations are flush with cash.  There are a multitude of problems to be solved that could be big business for smart companies.  While we are a long way from economic health, things are improving.  But all that is naught for the market if we’re too tired to invest.

Britney Spears has announced that she wants to be frozen after her death.  After reading that Walt Disney had himself freeze dried, the pop icon forked over $350,000 to the Alcor Life Extension Foundation in the hope that future generations will be able to enjoy her song and dance stylings as much as we have for the last decade, perhaps in the Britney “Oops, I’m Doing It Again” concert tour in 2180.

The Case For Stocks

by Ray Link

If you’ve been primarily in stocks the last decade, on average you’ve lost 20% of your investment, so not surprisingly many have thrown in the towel on equities and put it all in highly liquid, safe bank accounts and money market funds. The problem is that money markets are paying near zero. While I like cash, liquidity and safety as much as anyone, it makes almost no sense to stash the bulk of your financial assets in such low yielding investments.

Here is an alternative strategy that gives you reasonable returns with limited downside. I call it the “80/20 dividend yield program.” Let’s assume you have $100,000 and it is currently in a money market earning .25% (it is probably earning less) and that rate increases .5% per year so that after 5 years the fund is earning 2.25%. Over that 5 year period you would earn $6,395. An alternative for a conservative investor is a 5-year certificate of deposit which can still be bought with a 3% yield (Ally Bank, State Farm Bank and others offer this rate) and that would give you a total return of $15,927, over twice as much!

For even better yields, take 80% of the $100,000 and invest in a 5-year certificate of deposit at 3% and place the other 20% in high quality, dividend yielding stocks. The stocks I like are large, well capitalized, U.S. companies with international footprints that have a long history of paying and increasing dividends over time. Some examples are Campbell Soup, Chevron, Coca Cola, Heinz, Johnson & Johnson, Kraft, Intel, and Merck. All have a dividend yield of at least 3%. Investing just $20,000 in stocks such as these and $80,000 in a 3% CD gives you the same return before gains/losses on the stocks as investing in just the CD and markedly better than a money market. In addition the dividend income is currently taxed at a low 15% maximum rate versus 35% maximum rate on interest. Now comes the really good news. For you to have the same return as the money market fund the stocks would have to lose 47% over the 5 years. Put another way, unless you think stocks will lose at least 47% or if you think short-term rates will rise very rapidly, you should strongly consider some dividend stocks in your portfolio. On the plus side, if those same stocks go up 20% over the 5 years, which is very plausible, your total return is over $19,700 and the dividends are taxed at a lower rate and the gain would be long-term capital rates which are much lower than the rates on interest.

Consult your investment and tax advisors and ask them if the 80/20 program is a good fit for you.

Ray Link is a CPA and holds an MBA from the Wharton School. He is EVP/CFO of FEI Company (NASDAQ: FEIC), a world leader in tools for nanotechnology. He is also on the Board of Directors and Audit Committee for Cascade Microtech (NASDAQ: CSCD).

• In 2003 if you had chosen to invest  the price of an Apple Powerbook ($3339) on Apple stock instead of buying the computer, your stock would now be worth approximately $120,000!  Your Powerbook, on the other hand, would be worth, well, not so much.
• In 2004 if you had chosen to buy Apple stock instead of buying that iPod mini for $240, your stock would now be worth $6103.

Of course, if we had all just bought stock instead of Apple products, these numbers would look a lot different.

Another advantage of the photo – if taken correctly you have a shot of the cars parked around you – and their license numbers –  in case you come home to a side-swipped car.

Overall, the average production budget for a thirty second commercial (not including agency mark-ups or any other kind of agency commission – which would normally add roughly another 20%) was $302,000.  This does also not include any kind of celebrity talent.  Budgets also vary tremendously based on the product catagory.  For instance, the average budget for a car commercial was $426,000, while office equipment and computer commercials were significantly less at $231,000.   As we might expect, beer commercials top the list with average budgets of $781,000.