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401(k) Fund Spotlight: Dodge & Cox Stock Fund

Summary Dodge & Cox Stock Fund’s top holdings are a reflection of its nostalgic value approach. Dodge & Cox Stock Fund’s “long term” approach faces “near term” risks from technological disruptions. Dodge & Cox Stock Fund’s low yield is a major shortcoming for a large cap fund in the current market environment. I select funds on behalf of my investment advisory clients in many different defined contribution plans, namely 401(k)s and 403(b)s. I have looked at a lot of different funds over the years. 401(k) Fund Spotlight is an article series that focuses on one particular fund at a time that is widely offered to Americans in their 401(k) plans. 401(k)s are now the foundational retirement savings vehicle for many Americans. They should be maximized to the fullest extent. A detailed understanding of fund options is a worthwhile endeavor. To get the most out of this article it is helpful to understand my approach to investing in 401(k)s . I strive to write these articles for the benefit of the novice and professional. Please comment if you have a question. I always try to give substantive responses. Dodge & Cox Stock Fund The Dodge & Cox Stock Fund (MUTF: DODGX ) is a large capitalization (“cap”) growth and income fund that tends to lean towards the value camp. It has only one share class, the simplicity of which is refreshing in this day and age. The fund is a giant. With $60 billion in assets, it is the second largest large cap value fund out there. The median market cap of the fund’s 64 holdings is $48 billion. I like the fact that, despite its size, the fund still remains relatively concentrated versus its benchmark, the S&P 500 index and its 500 holdings. It does stray a little overseas. 10% of the fund’s holdings are in dollar-denominated foreign stocks (as of June 30, 2015). DODGX is managed by the Dodge & Cox Investment Policy Committee , which has an average tenure of 27 years. These managers have consistently stayed true to their long term value approach. This is evidenced by the fund’s measly annual turnover of 17%. I do not particularly care for most of the fund’s largest holdings, but I at least give them credit for actually being stock pickers and not just index huggers. Interestingly, I think the fund’s ten largest holdings somewhat reflect the firm’s nostalgic approach. Here they are as of June 30, 2015: Ten Largest Holdings Fund Allocation Capital One Financial Corp (NYSE: COF ) 4.2% Wells Fargo & Co. (NYSE: WFC ) 4.0% Hewlett-Packard Co. (NYSE: HPQ ) 3.6% Microsoft Corp (NASDAQ: MSFT ) 3.6% Time Warner Cable, Inc. (NYSE: TWC ) 3.4% Time Warner, Inc. (NYSE: TWX ) 3.3% Novartis AG ( Switzerland ) (NYSE: NVS ) 3.2% Charles Schwab Corp (NYSE: SCHW ) 3.2% Bank of America Corp (NYSE: BAC ) 3.0% Comcast Corp (NASDAQ: CMCSA ) 2.7% DODGX has a lot riding on the future success of traditional media, computing, and finance. However, given the fund’s large cap value focus this is not a surprise. I am not an expert on these industries, but from a real world standpoint, I am skeptical. I am a 38 year old business owner who will never use a Microsoft product again and I would like an alternative to overpriced Comcast cable internet as soon as possible. My family also does not have cable television. The “long term” approach to these investments could become precarious, if they run into serious “near term” technological disruptions that younger generations will not hesitate to use. Where Are The Dividends? I find no compelling reason to choose DODGX over the standard, lower fee S&P 500 index fund offering available in most 401(k) plans. The fund’s .52% expense ratio is not overbearing, but I am dismayed by its paltry 1.30% dividend yield. Given the fund’s historical performance versus the S&P 500 index, I would rather just own the index with its higher 2.1% yield. According to a DODGX fund report , the 10-year annualized total return, as of July 31, 2015, was 6.94% versus 7.73% for the S&P 500 Index. The long term value approach of the fund has failed to shine over this longer period. Conclusion Based on my forecast for a lackluster stock market over the next 6 years, dividends will be a critical part of investor returns. If possible, 401(k) investors should consider bypassing DODGX for a higher yielding S&P 500 index fund. To me, high dividend yields and “value” tend to go hand and hand. Investing Disclosure 401(k) Spotlight articles focus on the specific attributes of mutual funds that are widely available to Americans within employer provided defined contribution plans. Fund recommendations are general in nature and not geared towards any specific reader. Fund positioning should be considered as part of a comprehensive asset allocation strategy, based upon the financial situation, investment objectives, and particular needs of the investor. Readers are encouraged to obtain experienced, professional advice. Important Regulatory Disclosures I am a Registered Investment Advisor in the State of Pennsylvania. I screen electronic communications from prospective clients in other states to ensure that I do not communicate directly with any prospect in another state where I have not met the registration requirements or do not have an applicable exemption. Positive comments made regarding this article should not be construed by readers to be an endorsement of my abilities to act as an investment adviser. Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. (More…) I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Dividend Growth Stock Overview: Connecticut Water Service, Inc.

Summary CTWS provides water service to 123,000 customers in Connecticut and Maine. The water and wastewater utility segment provides over 90% of its income. The company has increased dividends since 1970. Over the last two decades, CTWS has grown its dividend at less than 2% annually. CTWS has a payout ratio of 55%, and the stock currently yields 3%. About Connecticut Water Service Connecticut Water Service, Inc. (NASDAQ: CTWS ) provides water utility services to over 123,000 customers across portions of Connecticut and Maine. The company employs 265 people and is headquartered in southeastern Connecticut. The company has 5 wholly owned subsidiaries, two of which cover Connecticut Water’s regulated utility business. The Connecticut Water Company and The Maine Water Company serve a population of about 400,000 people in their respective service areas. The Connecticut Water Company is the company’s original business, while The Maine Water Company was formerly Aqua America’s Aqua Maine subsidiary. The subsidiary was acquired at the beginning of 2012 for $35.6 million. Connecticut Water Services’ business is organized into three segments: Water Activities, Real Estate Transactions, and Services and Rentals. The Water Activities segment covers Connecticut Water’s regulated companies’ activities; the segment includes 2,100 miles of water mains, and a reservoir storage capacity of 9.4 billion gallons. The segment’s 239 active wells and 25 surface water sources is capable of supplying 176 million gallons per day. This segment provided 93% of Connecticut Water’s total net income in 2014. The Real Estate Transactions segment is responsible for disposing of Connecticut Water’s real estate holdings when they no longer serve the company’s needs. The company will sell or donate for income tax benefits the real estate holdings. This segment’s contribution to the total company’s net income is negligible; in 2014, this segment earned $50,000. The Services and Rentals segment provides contracted services to other water and wastewater utilities, like operating facilities under contract. This segment is also responsible for marketing and operating the optional service line protection program offered by Connecticut Water, which covers the cost of repairs to a broken water service line. At the end of 2014, 20,000 customers had signed up for the program in Connecticut and 2,000 had signed up in Maine. In general, this segment provides 7 – 10% of the company’s total net income; it was 7% in 2014. In 2014, Connecticut Water earned a total of $21.3 million on $94.0 million in revenues, numbers that were up 16.7% and 2.8%, respectively. The large increase in income was due an authorized increase in water rates and a reduction in income taxes. Earnings per share were up commensurately by 16.1% to $1.95. With the current annualized dividend of $1.07, the company’s current payout ratio is 54.9%. The company’s book value increased by 5% to $18.83 at the end of 2014. The company’s debt stayed flat year-over-year; the company has a debt-to-equity ratio of 84%. The company has authorized a stock repurchase program that allows for the purchase of up to 10% of the company’s total outstanding shares. The company has not purchased any shares under the program and stated in its 2014 10-K filing that it has no plans to do so. The company is a member of the Russell 2000 index and trades under the ticker symbol CTWS. Dividend and Stock Split History (click to enlarge) Connecticut Water Service has compounded dividends at about 2.7% since 2010. Connecticut Water has increased dividends since 1970. The company regularly announces increases in mid-August, with the stock going ex-dividend at the end of August. In August 2015, Connecticut Water announced a 3.9% increase in its dividend to an annualized rate of $1.07 per share. Connecticut Water should announce its 46th annual dividend increase in August 2016. Connecticut Water has grown its dividend extremely slowly over its history. For the last 20 years, the company has increased the year-over-year quarterly dividend by no more than a penny, resulting in a 5-year dividend growth rate of 2.68%. Longer term, the dividend growth rates are even slower, with 10-year and 20-year dividend growth rates of 2.20% and 1.72%, respectively. The company has split its stock twice, both times 3-for-2. The most recent stock split occurred in September 2001. Prior to that, Connecticut Water split its stock in September 1998. For each share purchased prior to September 1998, you would now have 2.25 shares of Connecticut Water stock. Over the 5 years ending on December 31, 2014, Connecticut Water Service stock appreciated at an annualized rate of 11.28%, from a split-adjusted $20.97 to $35.78. This underperformed the 13.0% compounded return of the S&P 500 and the 14.0% compounded return of the Russell 2000 Small Cap indices over the same period. Direct Purchase and Dividend Reinvestment Plans Connecticut Water Service has both direct purchase and dividend reinvestment plans. You must already be an investor in Connecticut Water Service to participate in the plans. The minimum amount for the direct purchase plan is $25. The dividend reinvestment plan allows for partial reinvestment of dividends. The plans’ fee structures are somewhat favorable for investors, with the company picking up all costs on stock purchases. However, when you sell your shares you’ll pay a sales commission of $15. In addition, if you withdraw from the dividend reinvestment plan completely, you will pay a termination fee of $35. All fees will be deducted from the stock sales proceeds. Helpful Links Connecticut Water Service’s Investor Relations Website Current quote and financial summary for Connecticut Water Service (finviz.com) Information on the direct purchase and dividend reinvestment plans for Connecticut Water Service Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. (More…) I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

Gain From Market Correction Via Inverse ETFs

Though the U.S. stock market rode past the nagging Greek debt drama in July, occasional sell-offs in China and severely low oil prices this year, it lost steam in recent sessions. A wavering Chinese economy and the consequent burst of Chinese stock bubbles on the one hand and dimmed chances of the Fed’s sooner-than-expected policy tightening on the other flared up global growth worries and led the markets go into a tailspin. In China, trading has been rocky for long. The Chinese policy makers devalued the currency yuan by 2% presumably to maintain export competitiveness, on August 11. While this hinted at a deepening economic crisis, the release of the flash Chinese manufacturing data (for August) which indicated a six-and-a-half year low number was the final nail in the coffin. Though China sought to restrain the rout by allowed the pension funds to invest about $97 billion in the market, there was no relief in store. Uncertainty in China and lack of precision by the Fed on policy tightening timeline roiled the market momentum and ravaged most risky asset classes. Most importantly, oil prices slipped below $40/barrel on concerns over reduced demand. All these wrecked havoc on global equities and commodities. As per Bank of America Merrill Lynch, equity outflows touched a 15-week high . U.S. Stock-Index futures recorded the deepest weekly plunge in four years in the week ended August 21, 2015. The S&P 500 index is now down 7.6% from its May high and Dow Jones Industrial Average plummeted about 10.3% since it hit a high in May thanks mainly to a freefall in oil prices. NASDAQ Composite also slipped 10% from this year’s high touched in July. Persuaded by the Chinese market carnage, Asian stocks approached a three-year low, commodity prices dived to a 16-year low, while credit risk in Asia rose to the highest level since March 2014. Emerging market equity funds witnessed a flight of capital worth over $6 billion and remained in red for seven straight weeks. Equity market correction this time looks graver as the sentiment has turned more bearish of late due to heightened uncertainty and a slew of negative news in Europe and Japan too. Japan’s Q2 GDP data was downbeat while an imminent snap election in Greece, the epicenter of the Euro zone debt crisis, has increased the risk of volatility in the coming days. Notably, the CBOE Volatility Index (VIX), a fear gauge which measures investor perception of the market’s risk, added over 27% in the last five trading sessions (as of August 21, 2015). While there are several options available in the inverse equity ETFs space, we have highlighted five ETFs that are widely spread across geographies and sectors. These products provided handsome returns over the trailing five-days and one-month period and are expected to continue doing so, especially if the current bearishness persists in the months ahead. ProShares Short Dow 30 ETF (NYSEARCA: DOG ) This product seeks to deliver inverse exposure to the daily performance of the Dow Jones Industrial Average, which includes the 30 blue chip companies. The fund has managed $311 million in its asset base while charging 95 bps in fees and expenses. Volume is moderate as it exchanges more than 700,000 shares per day on average. DOG gained over 5.8% over the past one week and 7.8% in the last one-month frame (as of August 21, 2015). ProShares Short QQQ ETF (NYSEARCA: PSQ ) The fund looks to track the inverse of the day performance of 100 largest domestic and international non-financial companies listed on the tech-heavy NASDAQ. This $277 million-product charges 95 bps in fees and added 7.5% in the last five trading sessions and 9.4% in the last one month (as of August 21, 2015). ProShares Short S&P 500 ETF (NYSEARCA: SH ) This fund provides inverse exposure to the daily performance of the S&P 500 index. It is the most popular and liquid ETF in the inverse equity space with AUM of nearly $1.7 billion and average daily volume of around 3.6 million shares. The fund charges 90 bps in annual fees and added nearly 5.3% in the last five trading sessions and 6.7% in the last one month (as of August 21, 2015). ProShares Short MSCI Emerging Markets ETF (NYSEARCA: EUM ) Since the recent upheaval was global, a look at the emerging markets is warranted. The product seeks to track the opposite of the daily performance of the MSCI Emerging Markets Index. This $461.4-million product trades at volumes of 600,000 shares a day and charges 95 bps in fees. EUM was up 6.7% in the last five days and 15.5% in the last one month. Direxion Daily CSI 300 China A Share Bear 1X Shares (NYSEARCA: CHAD ) As China was the root cause of this massacre, the region offers immense scope to gain via inverses equity ETFs. Having debuted in June 2015, CHAD seeks daily investment results of 100% of the inverse of the performance of the CSI 300 Index. The index is market cap weighted and comprises the largest and most liquid stocks in the Chinese A-share market. Barely a few days old, the fund has already amassed over $320 million in assets. The fund charges 95 bps in fees and was up about 16% in the last five days. Over the last one month, the fund added over 15%. Link to the original post on Zacks.com