Diary of a Dividend Diva: LLY, STX, CA, IP, INTC, ETN

 | Feb 01, 2012 | 10:30 AM EST
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Dividend traders, fasten your seatbelts! There is a deluge of dividends on the way, as is typical for this time of the quarter. Companies report earnings and declare dividends in the first month after the quarter ends, and the dividends go ex- the next month. As we look over the menu of juicy dividends on the way, now is a good time to exercise some discipline in the dividends we play, as that will help us to achieve better results.

A substantial number of quite large payouts, which I define at 1% or more, are on the way. However, as we look closer we notice the payouts are in sectors I generally consider unattractive from a trading perspective. Recall that we are trying to balance the size of a payout with how long we have to hold the stock -- the shorter the holding period, the better, as the strategy is all about capital utilization. Once a stock goes ex-, your capital is no longer earning income, and the sooner you move on to the next stock, the higher your income will be. The challenge is that some sectors are owned for the dividend, and the stocks trade fairly efficiently. Once they drop, they will take some time to return to your buy price, so you can get out. The longer you wait, the less income you can collect.

Take a look at some of the largest upcoming dividends. Most are in yield sectors, such as utilities or financials, which are red flags for us. As tempting as New York Community Bancorp (NYB) looks as it pays nearly 2%, my experience is that you will be stuck in it for quite some time. Similarly, Linn Energy (LINE) and all the utilities are waiting to trap you for weeks at a time, negating the benefit of the large dividend. By the way, I never play the limited partnerships, either. They are owned for the dividend, and the taxes become quite difficult when you get tons of K-1s at year-end.


Next Two-Week Dividends Sorted by Size
Source: Factsheet


In contrast, names in which investors care more about growth and less about the income are great candidates, and that is where I am concentrating my efforts now. In the next couple weeks, I am playing Eli Lilly (), Seagate (STX), CA (CA), International Paper (IP), Intel (INTC), and Eaton (ETN). These names have the right mix of large enough dividend to matter, but no so large it trades efficiently. There are some good companies down in the smaller ranks, but below 0.5%, you simply need too much activity to accumulate reasonable income, so I avoid those names.

I would also like to highlight Seagate as being attractive on many levels. Besides the great payout, it has earnings momentum and it is trading at 3x forward earnings. This is the ultimate combination of income, value and growth and I will continue to hold this name even after the dividend arrives.

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