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Are You Looking for a
Great Dividend? Easy! Just Ask Uncle Sam
. . .
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Published:
May 11, 2009
The extensive reach of the U.S.
federal bureaucracy is felt nowhere
as acutely as in the financial
sector. Nothing is more regulated
than Wall Street. An alphabet soup
of federal agencies is charged with
ensuring the health of the nation's
financial system.
A big part of that is ensuring that
the stock market is fair, and that's
where the SEC comes in.
Now, you may be surprised to learn
that regulation of the stock market
is relatively new. The New York
Stock Exchange traces its roots to
the "Buttonwood Agreement," which
was signed May 17, 1792, when 24
stock brokers met under a buttonwood
(or sycamore) to create a stock
market. The SEC was established in
more than 140 years later, in 1934,
as part of Franklin Delano
Roosevelt's New Deal.
Many of the SEC's rules, in fact,
still date to the original 1934 act.
Brokers and financial advisers are
still tested on it, and on other
legislation passed the year before.
The 1933 act was designed to bolster
public confidence in the stock
market, which was badly shaken after
the 1929 crash that precipitated the
Great Depression.
Shedding a Light on Insider
Trades
The stock market was a very
different place in those days -- a
rough and tumble world where cunning
operators could make fortunes in
less than honorable ways, such as
when corporate directors would
"short" stock -- that is, bet that
the price would go down -- based on
knowledge that no one else had. Wall
Street lore is full of this.
But the SEC put a stop to that, and
today, company insiders like
officers and directors must disclose
any transactions involving their
companies' shares. If the CEO is
selling shares of the company, then
the public has a right to be
informed of that. The investors that
provide the capital companies need
have a right to a level playing
field.
Which brings me -- through two
centuries of history and thousands
of pages of regulations -- to my
point. The SEC is an absolute
treasure trove of information that
investors can profit from. The data
is so easy to find and so easy to
use that it should be part of every
investor's toolkit.
It works like this: Say you're an
officer of a public company and you
want to buy shares in your company.
Maybe you're confident in the
business and think the price is low.
Maybe you're just cashing in an
executive stock option that's part
of your compensation package. No
matter what the reason, an insider
shouldn't just pick up his phone and
call his broker. The first call
needs to be to a lawyer, who will
prepare a Form 4 filing that must be
filed within a very short window to
inform the public of the trade.
Those of you who have read this
newsletter for a while might now
that I am a fan of stock screens,
particularly the powerful screener
available through the Bloomberg
Professional Service. This tool is
based on the best financial database
in the world and allows investors to
search using hundreds of metrics,
some common, some very detailed. I
like to run tight screens: I don't
want to see 100 companies, I want to
see a half dozen or fewer. The more
specific the screen, the more it
tells you.
Recently, I wrote an article called
The Safest Dividend in the Dow,
where I walked investors through the
members of the blue-chip average to
find whose payout was the best --
not necessarily whose was largest,
but which company offered the most
dependable payout. This got me
interested in looking at very large
companies that pay very high
dividends. So I screened for U.S.
companies with a market cap higher
than $30 billion and a payout of
better than 6%.
There were four companies.
One of them really caught my eye --
Bristol Myers Squibb (NYSE: BMY).
The company has a market cap of
about $40 billion and pays a 6.3%
dividend, almost twice the S&P
average.
When I was an editor on the business
desk of the Star-Ledger, the largest
newspaper in New Jersey, one of our
strongest coverage areas was the
state's many large pharmaceutical
companies. The paper's two full-time
pharma reporters broke all kinds of
news about these important
corporations and the medicines they
make. And I came to have a lot of
respect for Bristol, which has
facilities all over the Garden State
and makes heart medicines like
Plavix, the psychiatric drug Abilify
and a host of life-saving cancer
drugs.
So, since the company met my screen
and was one with which I had some
familiarity, I was predisposed to
like the idea of buying some BMY
shares, which not only sport the
nice dividend but also seem
undervalued.
Using the Government's Light to
Profit
But let me come full circle and tell
you what I found at the SEC. Company
insiders are buying the stock, and
not just a little. In late April,
two insiders -- both executive vice
presidents -- bought a total of
$768,850 in stock. One of the
insiders, Hean-Marc Huet, is the
company's CFO. The other, Eliot
Sigal, is the head of research and
development.
Now, look, you can run all the
sophisticated models you want to
determine what stocks you want to
buy. But when the company's top
number cruncher and its head
researcher -- both pretty clear-eyed
folks, I'd imagine -- start buying
their own stock, it tells me
something. And this information is
brought to you, for free, by the
Uncle Sam's Securities and Exchange
Commission.
Even Better Ways to Profit From
the Government
The federal government's reach is
broad and extends to all sectors of
the economy. We all know that. And
we've all seen reports in the past
year that have told us about the
government's massive efforts to
stimulate the economy and lead us
out of the doldrums. Like many of
you, I have some suspicions about
how well or how quickly this plan
will work. But I don't have any
doubt that the $13 trillion
Washington has spent, lent or
committed to the bailout is going to
find its way into the pockets of
investors.
You've read a lot of news accounts
of what's happening with the
bailout, but you likely aren't
reading anything about how you can
benefit.
That's a shame, because the biggest
financial story of our lifetimes is
playing out right before our eyes.
Every time one of those public
dollars spent, a private profit is
being realized. If you'd like to
learn how to make sure you get your
fair share, I'd like to show you
how. Bristol's a great stock with a
great dividend. The SEC is a great
resource that's underused. But we're
just scratching the surface.
Click here for the full story.
Many happy returns,
-- Andy Obermueller
Chief Investment Strategist
Government-Driven Investing
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