Some highlights from Barron’s:

When it comes to picking stocks, quality trumps timing, says Clare Hart, the lead manager of JPMorgan Equity Income (OIEIX).

“With a quality company, a lot of times people will say, ‘That’s interesting, but I don’t know what the catalyst is — how are you going to make money on the stock?’ ” notes Hart. Her perspective: Just invest. With quality companies, it’s worth the wait for the earnings to come. And based on her fund’s performance, Hart seems to know what she’s talking about. Over the past three years, $2.7 billion-asset JPMorgan Equity Income has returned an annualized 15.61%. That’s tops among U.S.-registered, domestic equity-income funds, according to Lipper.

In the financial sector, Hart likes banking outfits, such as M&T Bank, (MTB), U.S. Bancorp (USB), and Cullen Frost Bankers (CFR). Those institutions are rooted in the mundane business of retail- and small-business lending. But right now, their bread-and-butter businesses look good alongside those of financial companies that have their fingers in riskier areas, Hart says. “These guys are not in business lines that might disappear,” she says.

From MarketWatch

Health-care stocks appeal to Andrea Williams, who manages the Royal London European Income Fund. Among her favorites: Roche Holding AG (SWL:CH:ROG) (OTN:RHHBY) and Novartis AG (NYSE:NVS) (SWL:CH:NOVN) . Those companies have dividend yields of around 4% to 4.5%, she said. Sanofi SA (NYSE:SNY) (EPA:FR:SAN) and Novo Nordisk are also stocks she holds.

Industrial companies with a global reach are also on the radar. “We’re concerned about Europe, but not that overly concerned about the rest of the world,” Williams said. Siemens SA (NYSE:SI) (FRA:DE:SIE) and Schneider Electric SA (EPA:FR:SU) are examples.

From an excellent research piece by Tweedy Brown:

• Over the long term, the return from dividends has been a significant contributor to the
total returns produced by equity securities.
• There is an abundance of empirical evidence which suggests that portfolios consisting of
higher dividend yielding securities produce returns that are attractive relative to loweryielding portfolios and to overall stock market returns over long measurement periods.
• Stocks with high and apparent sustainable dividend yields that are competitive with high
quality bond yields may be more resistant to a decline in price than lower-yielding
securities because the stock is in effect “yield supported”. The reinvestment of dividends
during stock market declines has also been shown to lessen the time necessary to recoup
portfolio losses.
• The ability to pay cash dividends is a positive factor in assessing the underlying health of a
company and the quality of its earnings. This is particularly pertinent in light of the
complexity of corporate accounting and numerous recent examples of “earnings
management”, including occasionally fraudulent earnings manipulation.
• For years and years, U.S. tax policy disadvantaged dividends, applying high ordinary
income tax rates to the dividends paid to investors. This changed with the enactment of
the 2003 Jobs and Growth Tax Relief Reconciliation Act. For individuals, qualified
dividends are now taxed at the same favorable rates as long-term capital gains (15%).

From WSJ:

“We are near another all time high for total return, even as stocks remain 10.2% off their all time high. We need a 0.14% total return to set a new record, which includes today’s dividends adding .02%. Dividend stocks are still hot, but investors should be looking long-term, not for the moment. Indicated dividend rate up 13.0% from 12/30/2011, 2012 payment estimated to be an all time high. Given the timing of the increases, unless issues decrease their dividends (in which case don’t worry about dividends -> means everything is going down) 2013 already has a +3% payment increase built in.”

…this is a good point but it underscores the importance of not just seeking out good dividend-paying stocks…but good dividend growing stocks. THAT is where the real money is made over time.

For now, I’m a firm believer of investing full-bore into mREITs which amounts to basically nothing more than a carry trade…which I can stomach because “helicopter Ben” is determined to keep short rates low “until 2014″ (which means cheap money for these guys to buy mortgages).  The second that gig is up, however, and it’s straight into long-term, dividend growing blue chips (think PG, JNJ, etc) and MLPs.

Until then…happy investing.

A good article from MarketWatch:

“Mortgage REITs operate in much the same manner as leveraged bond funds, borrowing at lower short-term rates to invest in higher-yielding, longer-term securities. The product of this arbitrage constitutes most of the total return to investors, especially when the yield curve is steep.”

..which is why we like them so much right now…”Helicopter Ben” is guaranteeing short-term rates stay low through 2014 (i.e. cheap borrowing for mREITs).

“But we’ve seen the yield curve grow flatter over the past year, beginning with the Fed’s Operation Twist initiative, commenced in September 2011.

Thus has the particular art endemic to arbitrage been especially apparent, as some mREIT managements have more deftly navigated the flattening curve than others. And that disparate performance can certainly be seen in the underlying metrics.”

…the author goes on to say that he is long AGNC, CYS and NLY.

We are long AGNC, NLY and TWO.

From Barron’s:

Spectrum Brands Sets $1 Special Dividend

Spectrum Brands Holdings, Inc. (SPB) said it’s initiating a $0.25 per share quarterly common stock dividend starting in fiscal 2013 – expected to be paid in March, June, September and December each year – and declared a one-time special dividend of $1.00 per share to be paid on Sept. 18 to shareholders as of Aug. 27.

For those of you who aren’t aware…SPB is under the control of hedge fund honcho Phil Falcone via his fund Harbinger Partners:

Despite getting in on the subprime trade early (like John Paulson, Michael Burry and some others) and earning investors multiples on their cash in ’07…Phil Falcone has NOT done right by investors since then.  Harbinger’s returns have languished since then, the fund has gated (prevented investors from getting their money back), Phil borrowed over $100M from the fund to pay his personal taxes (for which he’s now being investigated & sued) and he went on to make a HUGE bet on Light Squared (a spectrum play) that has killed him this year.  He’s already stuck investors who want to get out of his fund into shares of HRG (of which Harbinger owns over 80% of the stock) and he’s out to try and IPO another “blank check” vehicle .

We won’t beat a dead horse here but suffice it to say…there are much better dividend stocks to be had elsewhere…

The DividendGrowthInvestor.com has an excellent post about the power of compounding dividends:

“Anne Scheiber, who turned a $5,000 investment in 1944 into $22 million by the time of her death at the age of 101 in 1995. Anne Scheiber worked as an IRS auditor for 23 years, never earning more than $3150/year. The one important lesson she learned auditing tax returns was that the surest way to become rich in America is by accumulating stocks. She accumulated stocks in brand name companies she understood and then reinvested dividends for decades. She never sold, in order to avoid paying taxes and commissions. She also never sold even during the 1972-1974 bear market as well as the 1987 market crash because she had high conviction in her stocks picks. She also held a diversified portfolio of almost 100 individual securities in brand names such as Coca-Cola (KO), PepsiCo (PEP), Bristol-Myers (BMY), Schering Plough (acquired by Pfizer in 2009). She read annual reports with the same inquisitive mind she audited tax returns during her tenure at the IRS and also attended annual shareholders meetings. Anne Scheiber did her own research on stocks, and was focusing her attention on strong franchises which have the opportunity to increase earnings and pay higher dividends over time.”

…another example is:

“Grace Groner, who turned a small $180 investment in 1935 into $7 million by the time of her death in 2010. Ms Groner, who worked as a secretary at Abbott Laboratories for 43 years invested $180 in 3 shares of Abbott Laboratories (ABT) in 1935. She then simply reinvested the dividends for the next 75 years. She never sold, but just held on to her shares.

Start now folks!

For a few years now, “dividend investing” has become part of everyone’s investing lexicon.  The zero interest rate environment created by the Fed coupled with the “new normal” of slow growth, high unemployment and lower expected real return on assets has virtually forced every Baby-boomer in America to start buying anything that would pay a yield greater than 0.1%.  As a result, most dividend stocks have been bid up to unreasonable levels.  As the chart below (from Mike Goldstein at Empirical Research) shows, the average P/E ratio of dividend paying stocks is now the highest it’s been for several decades:

As we’ve pointed out previously…dividend investors need to tread carefully in this environment…unlike the “good ‘ol days” of 2008 when dividend stocks were out of favor because people were still enamoured with the go-go growth plays (like the ’90′s)…the world has changed and the good old dividend stalwarts of yesterday that have (and will) continue to raise their dividend for decades to come are now the hottest talk of the cocktail parties.

So where can you still find a fantastic yield in a sector that hasn’t been bid up by the masses?  One of my favorites are mortgage REITs.  Real estate still scares alot of people and the wounds are fresh…as a result, most of these names (including my favorite dividend stock) are yielding 14% currently and will continue to do so as long as the Fed keeps interest rates this low (which they’ve indicated will now last “through 2014″).

Other than that, look to energy for safe, sustainable yields.

Happy investing!