Disciplined Approach to Investing

Recession Is Over: Economic Cycle Research Institute

2009-07-17T22:23:00.002-04:00

Anirvan Banerji, director of research for the Economic Cycle Research Institute, notes in a column today in RealMoney at TheStreet.com that the recession is now over. An excerpt from Anirvan Banerji's article:

When approaching a cyclical turning point in U.S. economic growth, the growth rate of the U.S. Long Leading Index (USLLI) typically turns first, followed by the growth rate of the Weekly Leading Index (WLI), growth in the U.S. Short Leading Index (USSLI) and growth in the U.S. Coincident Index (USCI). Notably, the levels of the USLLI, WLI and USSLI are all rising. In fact, the chart below shows that by May, USLLI growth (top line) had already surged to a four-year high. Meanwhile, WLI growth (second line) has spurted to a two-year high, having crossed into positive territory. Following in their footsteps, USSLI growth (third line) has shot up to a one-year high, though it's still in negative territory...

...But the sequential upswings in the leading indices aren't just about less negative growth -- we have pronounced, pervasive and persistent upswings in a succession of leading indices of economic revival, the most powerful possible predictor of a business cycle recovery. What's impressive here is the degree of unanimity within and across these leading indices, along with the classic sequence of advances in those indices. Such a combination of upturns doesn't happen unless an end to the recession is imminent.

If so, why is there such broad pessimism among analysts? The problem is a widespread inability to distinguish among leading, coincident and lagging indicators, along with the vast majority of economic indicators that don't fall neatly into any of those three categories. Thus, indicators are typically judged by their freshness, not their foresight. Because most market-moving numbers are coincident to short leading, while corporate guidance is often lagging, it's no surprise that analysts don't discern any convincing evidence of an economic upturn.

The arguments marshaled by standard-bearers of the pessimistic consensus hold little water. Usually, their "analysis" is based on gut feel, bolstered by any seemingly plausible argument that would support their case...

Recession Is Over

Source:

The Recession Is Over ($)
RealMoney at TheStreet.com
By: Anirvan Banerji
http://secure2.thestreet.com/cap/login/rm_mbp_sterman_rep.jsp?COID=012791&CPRODID=765&CPID=PRAA-0146&flowid=872c299bce&url=http%3A%2F%2Fwww.thestreet.com%2Fp%2Fmarkets%2Fmarketfeatures%2F10546339.html&isfallback

Bearish Sentiment and Market In Denial Phase

2009-07-16T21:32:00.001-04:00

Individual investor bullish sentiment moved fractionally higher as reported by the American Association of Individual Investors. The bullishness reading increased to 28.68% versus last week's reading of 27.91%. The bull/bear spread improved to -18% versus last week's level of -27%. The improvement came from bearish investors moving towards a more neutral stance.

As noted in an earlier post containing the Justin Mamis's sentiment cycle chart, is it likely the market is in the "denial" phase of the sentiment cycle?

S&P 500 Companies Increase Foreign Sales and Foreign Taxes Paid

2009-07-14T21:11:00.000-04:00

Standard & Poor's reports that companies in the 500 Index increased the percentage of sales outside of the U.S. to 47.9% in 2008 versus 45.8% in 2007. Downward pressure on the U.S. Dollar is likely if unrestrained deficit spending continues in the in the U.S. This weaker Dollar scenario would benefit companies that generate a large portion of their sales outside the U.S.

In addition to the increase in foreign sales, S&P "...determined that foreign income taxes increased $11.5 billion or 9.3%, while U.S. federal income taxes declined $43.9 billion or 29.1%, in fiscal 2008." This increase in foreign taxes paid is in spite of the fact the U.S. has a higher tax rate than most foreign countries. Congress should take note of this as more multinational companies are moving their domicile outside the U.S. due to unfavorable proposed corporate tax legislation rhetoric coming out of Washington, D.C.

Essentially, only two sectors saw a decline in the foreign sales component: energy & utilities. For the information technology sector, foreign sales in 2008 were basically flat compared to 2007.

Source:

S&P: Foreign Sales by U.S. Companies Continue to Rise (PDF)
Standard & Poor's
By: David Guarino and Howard Silverblatt
July 14, 2009
http://www2.standardandpoors.com/spf/pdf/index/20090714_SP500-FGN-SALES-2008_PR.pdf

Economic Indicators That May Signal A Bottom In The Economy

2009-07-12T21:52:00.000-04:00

As important as it may seem to review technical stock market data, an investor should also review technical economic data. The goal is to review the economic data in order to spot potential turning points in the overall economy.

A recent article in Kiplinger's Personal Finance magazine outlined six economic indicators worth reviewing that might help an investor determine the bottom in the economy. When three of the below six indicators turn in a more favorable direction, an economic recovery is likely unfolding.

Jobless Claims

Look for a four-week moving average hitting 550,000 and continuing to decline would signal that companies have stopped slashing jobs.

Source: Federal Reserve Bank of St. Louis

Durable Goods Orders

A two- or three-month uptrend in orders -- excluding defense, aircraft and other transportation equipment -- would presage an expanding economy.

Source: Federal Reserve Bank of St. Louis

Retail Sales

Two to three straight months of increasing sales would mean consumers have more money in their pockets and are willing to spend it.

Source: Federal Reserve Bank of St. Louis

Existing Home Sales

Two or three consecutive months of growth would be a sign that investors and would-be homeowners are back in the market.

(Chart Courtesy of Calculated Risk)
Data Source: National Association of Realtors

Consumer Confidence

An index in the 60s would suggest that consumers will be less tightfisted.

Data Source: Consumer Confidence Board

Interest Rate Spread

A narrowing of the gap to about one-half of a percentage point would signal improving health in the banking sector.

Source: Bloomberg

One last point to keep in mind is the market tends to be leading indicator. As a result, once a number of the data points become more favorable, the market may move higher in advance of the economic data confirming a stronger or improving economy. I wrote a post on March 9th that touched on the lagging nature of the consumer confidence data.

Source:

How To Spot The Bottom
Kiplinger's Personal Finance
July 2009
http://www.kiplinger.com/magazine/archives/2009/07/how-to-spot-the-bottom.html

Market Short Term Oversold

2009-07-12T09:29:00.000-04:00

From a pure technical perspective, the market does appear to be oversold on a short term basis. The percentage of S&P 500 Index stocks trading above their 50 day moving average has fallen to 26.6%. This is down from nearly 90% in early May. In looking at a longer term moving average, 57.2% remain above the 200 day moving average--down from over 70% in mid June.

Investor Bearish Sentiment Increases

2009-07-09T23:31:00.000-04:00

In the investor sentiment survey reported today by the American Association of Individual Investors, individual investor bearish sentiment increased to 54.65% versus last week's reading of 44.59%.

The average bearishness level going back to July 1987 is 30% with a standard deviation of 10%; therefore, this week's bearishness reading is over 2 S.D. from its average. As a result of this increased bearishness, the bull/bear spread came in at -27%. During the first week of March, the bearishness reading was as high as 70.27% and the bull/bear spread equaled -51%.

A Green Shoot That Is Not Less Bad But Actually Good

2009-07-08T20:32:00.000-04:00

Many data points have been cited as green shoots since they are simply "less bad". For example, if earnings continue to decline, but at a lower rate, this has been cited as a positive or green shoot. Well, one data point that is actually positive is the New Orders minus Inventories (NO-I) data point. Argus Research notes:

During June, the NO-I jumped to a reading of 18.4, bringing the second-quarter average sharply into positive territory (at 16.7).

Source: Argus Research & Charles Schwab ($)

The New Orders minus Inventory Index...has offered the most-promising indication of an economic trough.
This barometer accurately identified the troughs in 1990-91 and 2001 recessions.

Government Debt Has Consequences

2009-07-07T23:28:00.000-04:00

Morgan Stanley's Richard Berner noted in a recent research report, America's Fiscal Train Wreck, that the U.S. budget deficit and resultant debt issuance will have negative economic implications over the long run. In the report Berner estimates:

...federal deficits will likely average as much as 6% of GDP through 2019, contributing to a jump in debt held by the public to as high as 82% of GDP by then - a doubling over the next decade. Worse, barring aggressive policy actions, deficits and debt will rise even more sharply thereafter as entitlement spending accelerates relative to GDP. Keeping entitlement promises would require unsustainable borrowing, taxes or both, severely testing the credibility of our policies and hurting our long-term ability to finance investment and sustain growth.
the federal deficit has ballooned to US$1.8 trillion or 13% of GDP in fiscal 2009. But the bulk of the threat is structural: The fiscal stimulus package included spending increases with minimal bang for the buck, leaving more debt than growth.
most important, by 2019 the full force of rising entitlement outlays and debt service will begin to hit the budget. No rosy growth scenario will provide sufficient resources to meet all the claims on future federal revenue. And while tax hikes or a broader tax base will likely be part of the solution, the real cure is to curb the growth of entitlement spending.
in 2010, some 100 million Americans will be enrolled in Medicare, Medicaid and SCHIP (the State Children's Health Insurance Program), and outlays amount to 5% of GDP. Longer term, Medicare enrollment will rise significantly as the population ages. More importantly, future per capita cost growth for both programs is well in excess of per capita GDP, meaning that outlays for these three programs will double to 10% of GDP by 2035 and nearly double again by 2080. Translated into budget outcomes, according to CBO, these programs will account for virtually all of the likely growth in primary federal spending - total spending less interest on debt held by the public - in relation to GDP, and thus all the likely expansion of the deficit and debt. In contrast, social security cost increases will play a relatively minor supporting role.

The full research report can be read below.
Americas Fiscal Train Wreck

Investors and the public should give serious thought about the real benefit additional entitlement programs, i.e., government health care. The long term negative economic consequences are likely significant.

Dividend Increase Stocks Harder To Uncover

2009-07-07T20:16:00.000-04:00

If dividend increasing stocks were fish in a pond, the catch would be harder to come by. For the first six months of 2009, 65 companies in the S&P 500 Index either cut or suspended their dividend payment. This compares to 20 for the same period in 2008 and 4 in 2007. Increases feel nearly 50% to 86 increases versus 158 increases for the first six months of 2008.

Consumer Staples now account for largest dividend cash payments at 17.0%; financials once over 30% and now represent 9.3% of the dividend cash payments.

The top 26 issues account for 50.0% of the dividends with the first financial issue being Wells Fargo (WFC) at #41.

Data Source: Standard & Poor's (PDF)

Competive Edge Stocks

2009-07-04T15:03:00.002-04:00

One source of a wide variety of stock screens is the American Association of Individual Investors website. Access to the screens does require a membership in the organization.

From time to time the AAII Journal will feature screens the editor believes might be of interest to its readership. In the July issue of the AAII Journal, the featured screen focuses on: Stocks With a Competitive Edge. According to the article, the thinking behind this featured screen is:

"Earnings are dependent on the ability of a company to convert sales into profits. Converting a large and growing proportion of sales into earnings often points to firms that have a competitive advantage, due to brand-name loyalty, a limited niche, or even patent protection. The First Cut this issue screens for companies turning a larger percentage of sales into gross profits, operating profits and net profits."

Highlights of the screening criteria are:

Gross profit margin: calculated by dividing gross income (sales less the cost of goods sold) by sales. It reflects the firm’s basic pricing decisions and its material costs.
Operating profit margin: calculated by dividing operating income by sales. Operating income represents income generated after all costs except interest, taxes, and non-operating items. The operating margin reflects the relationship between sales and management-controlled costs (the cost of goods sold, as well as operating costs including selling, administrative and general expenses; research and development expenses; and depreciation).
Net profit margin: calculated by dividing net income by sales. It indicates how well management has been able to turn sales into earnings available for shareholders.

The 30 companies passing the First Cut are domestic exchanged-listed companies with positive sales growth coupled with gross, operating and net margins above their five-year averages and also showing improvement over the previous year. A partial list of the firms with the highest annual growth in sales over the last five years are noted below.

The full list of competitive edge stocks can be viewed on AAII's website.

Source:

Stocks With a Competitive Edge ($)
AAII Journal
By: John Bajkowski
July 2009
http://www.aaii.com/includes/DisplayArticle.cfm?Article_Id=3755

Where Are We In The Market Cycle?

2009-07-04T12:46:00.001-04:00

From a technical perspective could the market be following the path of past sentiment cycles? The below sentiment cycle chart was first published in 1991 by technical analyst Justin Mamis in a book titled, The Nature of Risk. In looking at the below chart, it appears the current market pattern is following the pattern outlined in Mamis' chart.

(click charts to enlarge)

The market's recent advance from the early March low appears to follow the sentiment cycle's "wall of worry" advance. The next phase would then be the investor's "aversion" portion of the cycle. Consolidating some of the gains achieved since the March low would be healthy.

Although the market has had a strong recovery off the March low, since the beginning of the year, the market has essentially traded sideways.

From a longer term perspective, the market has a long way to go to reach its earlier high.

(click to enlarge)

From an economic perspective, I could cite a number of factors that would support a bullish case for the market and I could cite an equal number of bearish factors. One statistic that sticks out like a sore thumb is the continued increase in the jobless data.

Source: Federal Reserve Bank of St. Louis

Source: Chart of the Day

Initial claims have exceeded 600M for 22 straight weeks. Historically, the consumer has represented 70% of the U.S. economy and unless there is some job creation, this 70% stat is not going to hold. What then will stimulate economic growth?

House Closer To Proposing Tax On Stock Trades?

2009-07-01T18:20:00.002-04:00

Could it be the U.S. House of Representatives is getting closer to proposing taxes on stock trades? Below is a screen shot from my Sitemeter account detailing a search earlier today. that came from the U.S. House of Representatives. The search phrase was "taxing stock trades." The search landed on one of my earlier articles, Congress Proposing Transaction Tax On Stock Trades, written in early March.

(click to enlarge)

Investor Sentiment, Cash and the Market

2009-06-30T22:29:00.000-04:00

As noted in some of my prior blog posts, I frequently review various sentiment indicators. At extreme levels, these indicators can highlight turning points in the market. In addition to investor bullish versus bearish sentiment, another indicator gaining quite a bit of attention lately is investor cash levels. I noted in a post over the weekend that money market fund assets remain at a fairly high level.

The American Association of Individual Investors (AAII) surveys its members on a monthly basis regarding investor asset allocation. These investors indicated they had 42% of their investments allocated to cash in December 2008. In the most recent survey (May 2009) investors indicated they had 35% of assets invested in the cash portion of their allocation. AAII's asset allocation survey goes back to 1987 and the average cash level since the survey began is 25%. Investors continue to be overweight cash versus the historical average.

The below chart graphs the cash allocation (red line), the S&P 500 Index (green line) and the 3-period moving average of the Bull/Bear Spread (white line). Given the various sentiment indicators, it does appear investors are still skeptical of the market's current level. From a contrarian perspective then, sentiment would indicate the market could continue to grind higher.

(click to enlarge)

The sentiment data can be difficult to evaluate. The Technical Take website has a different view of the sentiment data that is worth reading as well.

What is missing in all of the data to this point are truly positive factors and not simply less negative. One potentially positive data point could be company earnings reports in the second half of the year. The market tends to trade on expectations and companies will certainly have an easier time achieving earnings growth compared to the year earlier reported results.

Investor Cash Levels Remain High

2009-06-27T10:06:00.000-04:00

Investors continue to hold high levels of cash relative to the value of the market. The below charts graphs cash as a percent of the Wilshire 5000 ($DWC). A part of the increased percentage level of cash can be attributable to the decline in the market's value.

Source: Charles Schwab & Co.

Interestingly, the increased cash levels are being controlled within institutional money market funds.

Source: Investment Company Institute (pdf)

Going back to January 2008 the Investment Company Institute reports total cash in money market funds has increased 17.39%. Individual money market fund assets over this same time period are essentially unchanged while institutional money market fund assets are up 28.46%

Bullish Investor Sentiment Falls To Near March Levels

2009-06-25T08:24:00.000-04:00

Today's sentiment survey released by the American Association of Individual Investors saw bullish sentiment fall to 28%. The bull/bear spread came in at -20.80. The 28% level is the lowest since March 12th when the reading was reported at 27.64%. The bearish sentiment level is 48.80% and reached a high of 70.27% for the week of March 5th.

Dividend Growers Beyond Just Large Cap Stocks

2009-06-23T22:06:00.000-04:00

Standard & Poor's evaluated companies in the S&P 1500 as of June 15, 2009 that had the following characteristics.

paid increasing annual cash dividends for the past ten years

2009 estimated coverage and 2010 ratio of at least 2-to-1 (based on street estimates divided by the current 12 month indicated dividend rate)

As S&P notes, and I strongly concur, this is not a buy list, but a starting point for investors who are interested in dividend growth stocks. Undoubtedly, the current economic environment has negatively impacted a number of companies and their dividend practices.

Full View

Source:
Standard & Poor's (.xls)

Stock Buybacks At 2003 Level

2009-06-23T18:12:00.000-04:00

Preliminary buyback results for the first quarter of 2009 show S&P 500 companies repurchased $30.78 billion of their company's stock. This level of buyback activity was last reached in June of 2003 when companies repurchased $28.36 billion. This June 2003 level marked the low point for buyback activity until the level reached this quarter.

(click to enlarge)

Howard Silverblatt, Senior Index Analyst for Standard & Poor's notes:

"Buybacks are off 82% from their peak during the third quarter of 2007 when S&P 500 companies spent $172 billion on share repurchases.

...a closer look at the data reveals two more telling stories. The first is that Exxon Mobil represented over a quarter of the buybacks that took place during the first quarter. The second is that 83 of the issues that repurchased shares during the fourth quarter of 2008 did not participate in a stock buyback program during the first quarter of 2009."

Source:

S&P 500 Stock Buybacks Rereat 73% in the First
Quarter; Lowest Since Second Quarter of 2003
Standard & Poor's
By: Howard Silverblatt
June 18, 2009
http://www.mcgraw-hill.com/releases/sandp/20090618.shtml

Quality Outperforms In Down Market

2009-06-20T19:39:00.000-04:00

In an update on the performance of stocks based on their quality ranking, Standard & Poor's shows the higher quality rated stocks outperform in down markets. The short term downside to the outperformance in down markets is the highest quality stocks tend to lag the market when the market moves rapidly higher like the market performance since March 9, 2009.

As the below table notes, for the 12-months ending June 12, 2009, the A+, A and A- rated stocks have far outpaced the stocks rated B+ and lower.

(click to enlarge)

However, year to date in 2009, the lowest rated stocks in the S&P 500 Index have generated the higher return. At the end of the day though, what harms an investor's total return the most is the size of the loss incurred in down markets. Generally, if an investor loses less when the market contracts, they have a better chance of outperforming in the long run due to the fact they have more capital at work when the market recovers.

The below table notes the return an investor needs in order to recover losses at various rates of return.

Source:

A Quest for Quality ($)
Sam Stovall, Chief Investment Strategist
Standard & Poor's, The Outlook
June 24, 2009
http://www.outlook.standardandpoors.com/NASApp/NetAdvantage/i/displayStovallsSectorWatchEditorial.do?&context=IndustryFocus&docId=14325863

Medtronic Increases Dividend 9%

2009-06-18T21:03:00.000-04:00

Medtronic (MDT) announced a 9.33% increase in the company's quarterly dividend. The new quarterly dividend increases to 20.5 cents per share versus 18.75 cents per share in the same quarter last year. The payout ratio increases slightly to 26% based on estimated April 2010 fiscal year end earnings of $3.13. The company's 5-year average payout ratio is approximately 24%. The company maintains an S&P Earnings & Dividend Quality Ranking of A-.

Investor Bullish Sentiment Declines

2009-06-18T19:49:00.000-04:00

This week's sentiment survey from the American Association of Individual Investors saw bullish sentiment decline to 33.33% versus last week's reading of 39.25%. Additionally, the week before last saw the bullish sentiment come in at 47.56%. In addition to the bullishness level declining, the bull/bear spread is -13% versus +11% two weeks ago.

The sentiment survey is a contrarian indicator, thus the lower the bullishness reading, the more likely the market could move higher if looking at the indicator in a vacuum. The below chart graphs the S&P 500 Index versus the bull/bear spread.

(click to enlarge)

Data Source: American Association of Individual Investors

Tobin's "q" Remains Below 1.0

2009-06-17T19:32:00.000-04:00

Argus Research estimated the "q" value for first quarter 2009 based on flow of funds data from the Federal Reserve. In Q1 the "q" ratio is estimated at .64.

Argus notes:

‘Q’ is defined as the ratio of the market value of a firm to the replacement cost of its assets – in this case, we are estimating those figures for the entire industry. According to Nobel Laureate James Tobin, the ratio of total stock market value to the stock market’s net worth (corporate net worth) is a reliable indicator of market valuation. When the stock market trades at a ‘discount’ to the replacement cost of its assets, the market is inexpensive. This discount possesses ‘q’ ratios that are less than 1.0. Conversely, when ‘q’ exceeds 1.0, the market trades at a premium to its replacement cost. The run-up from 1996-2000 had ‘q’ approaching the unthinkable value of 2.0. Encouragingly, the most recent (QI 09) level of 0.64 is the lowest since QII 91 – quite discounted. The long-term average (since 1952) for Tobin’s ‘q’ is 0.75.

Source:

Tobin’s ‘q’ at 0.64 in Q1 ($)
Argus Research
June 16, 2009
http://www.argusresearch.com/

Recession Longest Since Depression

2009-06-13T08:42:00.002-04:00

The 18-month duration of this recession is the longest since the depression that began in 1929.

Source: Chart of the Day

In order to lessen the depth of this recession and to get the economy back on a growth track, effective policies out of Washington are critical. One time stimulus checks to individuals historically do not have a longer term positive economic impact. The reason being consumer behavior remains unchanged since they understand this type of stimulus is a one time payment and not an ongoing benefit to their cash flow.

In January of this year, The Heritage Foundation noted in a report, Economic Recovery: How Best to End the Recession:

Much of official Washington is focused on a big stimulus plan based predominantly on increased spending, possibly including an expanded infrastructure program plus aid to the states and to low-income families. Whatever the merits of these programs on other policy grounds might be, they would not stimulate--and indeed are likely to weaken--the economy in the near term.

The American economy does not rise and fall with the level of aggregate demand or deficit spending. Further, government cannot simply pump up total demand through deficit spending. The deficit for 2009 is already projected to exceed $1 trillion, so if deficit spending were effective, the economy should already be poised to take off.

Yet the economy is contracting despite these unprecedented deficits because government spending in excess of tax revenues will be financed by borrowing from the private sector, which deprives the private sector of a like amount of purchasing power. In short, deficit-financed government spending goes up and private spending goes down, changing the composition of demand but not the total (emphasis added).

Focusing on demand in this way is like focusing on the sound of one hand clapping. The other hand is supply, and that is where the economic action really is. There are normal processes that launch a recovery and drive an economy. These processes involve individuals and businesses responding to opportunities and incentives. When they respond, these individuals and businesses produce more goods and services valued in the marketplace, simultaneously increasing production, demand, and income. An effective stimulus policy recognizes these economic processes and seeks to accelerate them. Lower marginal tax rates stimulate the economy because they improve the incentives facing individuals and businesses to work, invest, take risks, and seize opportunities.

Additionally, policies coming out of Washington that focus on increasing taxes will most certainly extend the length and depth of this recession. As much as health care may need some adjustments, initiating a government program that includes tax increases, will not stimulate economic and/or employment growth. This was tried in the 1929 recession and was a significant factor that pushed that economy into the Great Depression.

Alex Tabarrok at Marginal Revolution notes:

During the Great Depression federal expenditures increased tremendously but so did taxes. Thus, the reason spending was not stimulative was not that spending wasn't tried it's that taxes were also raised to prohibitive levels. But don't take my word for it. Read Cary Brown (JSTOR).

Source: Greg Mankiw

So, one important factor policy makers need to keep in mind is stimulative initiatives need to be directed at consumers and these policies must result in a perceived permanent increase in ones income. Simply raising taxes only moves the spending out of the private sector into the public sector with no net increase to economic demand.

Target Corp. Increases Dividend 6%

2009-06-11T22:59:00.000-04:00

Today Target (TGT) announced a 6.25% increase in the company's quarterly dividend. The new quarterly dividend increases to 17 cents per share versus 16 cents per share in the same period a year ago. The projected dividend payout ratio is 24% based the January 2010 earnings per share estimate of $2.85. This compares to the 5-year average payout ratio of 13%. Lastly, Target carries an S&P Earnings & Dividend Quality Ranking of A+.

(click to enlarge table/chart)

S&P Initiates Pan Asia Dividend Aristocrats

2009-06-07T12:11:00.001-04:00

About a month and a half ago, S&P announced the introduction of a Pan Asia Dividend Aristocrats Index. A couple of key factors that will be evaluated in constructing the index:

The S&P Pan Asia Dividend Aristocrats Index is designed to measure the performance of Asia Pacific companies that have followed a managed dividend policy of consistently increasing dividends every year for at least 7 consecutive years. The index is weighted by dividend yield with caps on single stock concentration.
The Aristocrats index had a higher return and lower volatility compared to the S&P Pan Asia BMI over the past 7 years of back-tested history.
Index yields have been in the range of 2.8% to 5.1%, about 100 to 150 basis points above the market yield.
The S&P Pan Asia Dividend Aristocrats Class of 2009 includes 31 companies across 8 sectors and 7 countries. They have both growth and income characteristics.

The dividend contribution to total return of approximately 30 for the Pan Asia Aristocrats is not too different from the S&P 500 Aristocrats.

From a sector concentration perspective, consumer discretionary stocks represent 27% of the Pan Asia Aristocrats Index.

The 31 companies that will initially comprise the Pan Asia Aristocrats universe are:

File View

Source:

Introducing the S&P Pan Asia Dividend Aristocrats (PDF)
Standard & Poor's
By: Liyu Zeng, CFA and Dave Guarino
April 2009
http://www2.standardandpoors.com/spf/pdf/index/SP_Pan_Asia_Aristocrats_White_Paper.pdf

Evaluating Dividend Sustainability

2009-06-06T12:55:00.001-04:00

Below is a table of factors one can use to evaluate the potential sustainability of a company's dividend. These factors should be compared on a trend basis over time as well as compared to the industry in which the company operates.

Source:

Dividend Safety Signs and Warning Flags ($)
American Association of Individual Investors
By: Maria Crawford Scott, Editor, AAII Journal
June 2009
http://www.aaii.com/includes/DisplayArticle.cfm?Article_Id=3728