THIS IS NOT INVESTMENT ADVICE. THIS IS A PERSONAL REFLECTION ON INVESTING. RELY ON NOTHING STATED HEREIN
I bought some more Altria (MO) on a dip today following its quarterly reporting, which met Wall Street's expectations. I paid $25.30 which yields a 6.1% dividend. When I first purchased it in May, 2010, I paid $21.40 primarily for its then 6% dividend. Little did I expect it to rise 19% and to raise its dividend. I added more MO in August (up 14%) and in September (up 7%). The dividend on the original investment is now well above 7%. Note that these are all "qualified" dividends. MO is a great stock even it is "sinful". It has the dominant brand favored by a loyal, if not addicted clientele (Marlboro), the ability to raise prices, no need for capital expenditures, enough cash to buy strategic competitors ( US Tobacco--No. 1 in smokeless), and the stated purpose of returning as much money as possible to shareholders at a 6% or better clip. Its biggest threats are a slowly declining customer base and of course litigation. The latter was mitigated with infamous global settlement with the states in 1998 requiring big tobacco to pay $200 over 25 years or until 2023. These very states now rely heavily on that income stream to meet their annual budgets and some have even floated bonds secured by those payments. BRILLIANT. Moreover, private litigants have not fared well. Juries just do not have much sympathy for those that smoke. I also own Reynolds (RAI), but do not like it as well.
My experiences with MO gave me confidence to invest in other high yielding, "dying" businesses. My favorite is the legacy telephone land line businesses of Frontier (FTR), Windstream (WIN) and CenturyTel (CTL). Each faces a steady decline in users who continue to migrate to wireless, but each continues to acquire smaller competitors thus effecting cost efficiencies, and each is stingy with capital expenditures. I bought WIN in May, 2010 solely for its qualified, double digit dividend only to see it rise 18%. I bought more in June (up 12%), again in August (up 10%) and again in September (even). At its current price of $12.66 it pays an 8% dividend. Against the advice of the pundits, I bought Frontier (FTR) in June for its dividend, again, only to see it rise 21%. I bought more in September (up 8%). It still currently pays over 8% in dividends. Due to other telecom plays, I resisted buying CTL until recently and then succumbed to its 7+% dividend. I even bought some Alaska Communications (ALSK) today when its share price and 8.5%dividend held up following some slightly disappointing quarterly numbers. WIN, CTL and FTR report quarterly results next week, and if they hold up (which they will because of the inherent dividend increase if the share price is hammered), I will buy more.
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