TAKING STOCK: Stock recommendations

Dear Mr. Berko:

We got into the market in January of 2004, when the market was 10,400, and held our positions throughout the crash of 2009 when the market fell to 7,400. We were really scared. But we held as the market moved back up, and we cashed out in October of 2010 when the market was 11,000, figuring it would crash again back to 7400, at which time we figured we would put everything back into stocks. Our losses were not catastrophic; they hurt, but we managed to salvage over $260,000 in a money market fund. But the market didn't fall; it kept going higher. Then in February of this year, when the market rose above 13,000 we figured it wasn't going to fall, so we put $170,000 back into the market. Now we have some big losses. We should have known better, and even though the market looks like it is going to fall again, we learned our lesson and will stay put. But if the market does fall again, and we think it will, we want to own dividend stocks and buy them cheaply. We want to buy dividend stocks we can keep for years, so when we are in our mid 60s (we're both 35), the dividends will give us good income. Please recommend some issues that you think will have good dividend growth that we can buy cheaply when the market crashes again.

R.R. in Erie, Penn.

Dear RR:

My father, probably the wisest man I have ever known, once told me that the likelihood of a market decline is inversely related to the size of your cash position.

Microsoft (MSFT-$29.50) was a real hot stock when it came public in early 1986 at $21. Due to intense demand, MSFT traded over 3.5 million shares, closing at $27.75, certainly better than Facebook. Consider MSFT. My sister did, but she waited until mid 2003 and bought 100 shares at $25 after it had split nine times. She figured MSFT, which had split 2 for 1 seven times (1987, 1990, 1994, 1996, 1998, 1999 and 2003) and 3 for 2 (1991 and 1992), would continue its splitting ways. Her reasoning made as much sense as putting earmuffs on a goldfish. MSFT hasn't done didly squat since she bought it. But in 2003, MSFT paid its first dividend of 8 cents, which has been raised tenfold to 80 cents this year. Now MSFT watchers believe that annually improving revenues and profits are an embedded certainty, so a dividend growth of 10 percent annually for the foreseeable future appears reasonable. Bill and Steve own nearly a billion shares of MSFT, and as their families become older, they would prefer higher dividends to support family trusts, cousins, second cousins, distant cousins and various charities. And this year's 80-cent dividend is likely to be 95 cents in 2013. In 35 years, with annual dividend growth at just 7 percent and reinvested quarterly, a single share purchased at $28 could pay $19 in dividends.

Another compelling dividend issue could be Walmart (WMT-$69), which came public in 1971 with an IPO or 300,000 shares at $16.50 and declared its first dividend of a nickel in 1974. WMT had nine splits between 1971 and 1999, and the original 100 shares have multiplied to 204,800, worth over $130 million. WMT still considers itself a fast-growth business; however, after 50 years, it has become a mature company with a strategy to reward shareholders by becoming a cash cow. The Walton Family controls roughly half of the company's 3.5 billion shares through various trusts and foundation. Last year, the Family took home $2.5 billion in dividends. The Family is getting larger, and a newfound profligacy among the younger generation and their progeny suggest a compelling need for dividend growth in the years to come. WMT, with 4,400 U.S. stores and 5,600 stores across 26 countries, has an indelible footprint on the planet like Coca-Cola, McDonald's or Procter & Gamble, and their dividend growth over the past 50 years has been awesome. The current $1.59 dividend is expected to be raised a pittance to $1.68 in 2013, but dividend growth in subsequent years should be impressive.

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Please address your financial questions to Malcolm Berko, P.O. Box 8303, Largo, FL 33775 or e-mail him at mjberko@yahoo.com. Visit Creators Syndicate website at www.creators.com.

© 2012 Creators Syndicate Inc.

Published: Wed, Jul 18, 2012

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