A LITTLE OLD SCHOOL INVESTING

I told you that a big Microsoft dividend was coming.

Microsoft may be the first of the technology companies to step up to the plate, but I have a suspicion they will not be the last. Currently, there are numerous technology companies sitting on a record amount of cash. In the most recent quarter, S&P 500 companies had 12% of their total assets in cash or short-term investments. According to the Investors Business Daily technology companies had an average of 30% of total assets in cash or short-term investments. This presents a unique opportunity for technology companies:

First, is the ability to finance their own expansion, research and development.

Second, is to increase shareholder value through stock buybacks and dividend payouts.

Here is a newsflash; whether you like it or not the senseless valuation/capital gains days of the late 90’s are over. Companies that survived the technology boom are slowly becoming the dividend paying blue chips that they sneered at a few years ago. Investors must come to grips with this “Old School” investment paradigm or risk trading themselves into a hole. The stock market has shown an average return of 7% a year since the late 1800’s, what most people fail to realize is that the bulk of that return was due to dividend payouts. The markets are going “Old School,” is your portfolio?

Stock prices for dividend paying companies in the S&P 500 index are up 4.2% this year through the middle of July, while non-dividend paying stocks are down 5%. We believe more companies are expected to increase and initiate dividends. Of the 860 companies in the S&P 1500 index that pay dividends, 488 have increased their quarterly payout by a median 11% this year. In the first six months of the year, 895 companies out of 7,000 tracked by the S&P increased their dividends. In 2002 and 2003 the numbers were 747 and 788 respectively.

Historically, in periods where the markets are flat to down (which is what we expect for a considerable period) dividends rise considerably. If your portfolio is not balanced with dividend bearing securities we strongly suggest a change of direction. If you need help in putting an “Old School” portfolio together don’t be afraid to ask. I promise we won’t haze you too bad.