Are You Looking for a Great Dividend? Easy! Just Ask Uncle Sam . . .

     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, is it is called, 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 confidant 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 screeners, 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 who's 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.








 

U.S. Treasury yields have been rising steadily over the last month and a half. The yield on the 10-Year is currently 3.16%, up +25.9% since March 18th.

-- GDO Research Staff

So far this year, 70 companies in the Standard & Poor's 500 Index have either started paying dividends or raised the cash payments they already make to their shareholders. That compares with 59 S&P 500 companies that have trimmed or eliminated dividends over the same period, according to S&P.

--New York Times

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