“Drive-Thru Retirement Project: Monthly Dividends” Solved

By Travis Johnson, Stock Gumshoe, April 3, 2008

Whatever they’re paying the copywriters at Stansberry & Associates, it’s not enough. This stuff is pure gold! Drive-Thru Retirement … now that’s a good idea. I’ll take the Super Size Value Combo, please!

The latest ad from S&A is for a new service they’re providing, a monthly dividend tracking system of some kind, which essentially looks like a special report that you buy for $250, then periodic updates to their list of the best companies to buy, all of whom apparently pay monthly dividends.

The idea of getting a monthly dividend, instead of the more typical quarterly (or, for foreign firms, semiannual) dividends, clearly holds a lot of appeal for people. I don’t know if it’s just the satisfaction of getting that dividend check every month, or the convenience for people who actually live off their dividends, or if it’s the fact that these companies tend to be very dividend-focused, which is also usually an indication of shareholder-friendliness. Of course, the actual yield you get as a dividend is the really important thing, whether it’s annual, quarterly, or monthly, is what should be of preeminent importance — but there’s no denying the fact that lots of investors love monthly payments.

So essentially what’s being teased here is a service that will help you find the best companies that make monthly dividend payments, in order to help you build a portfolio of these high dividend companies. That’s obviously not for everyone, but clearly dividend payers (though not necessarily high yielding dividend payers) should be a significant portion of most peoples’ portfolios — if we’ve learned anything from the gyrations of the market, it should be that there is nothing new under the sun … and for the last century, a huge portion of the overall returns from the stock market have been thanks to dividends.

But the prominent tease is of one particular investment — the “Drive Thru Retirement Project” of John and Helen Scott. Here’s the story in a nutshell:

“In short, John and Helen Scott figured out a financial secret of the fast-food industry, which pays an absolute fortune over the long run. They started nearly 40 years ago, with a local Southern California restaurant you’ve almost certainly heard of: Taco Bell.

“Essentially, the deal went like this…

“Back then, Taco Bell was a young business. They were doing well, and wanted to build more stores. To expand, they needed cash.

“So the Scotts offered a simple proposition: In exchange for ownership of the Taco Bell building, the Scotts gave the Taco Bell owners the cash they needed.

“As part of the deal, the Taco Bell owners agreed to lease the building back from the Scotts for a period of 15+ years. And… get this… the Taco Bell owners agreed to pay for EVERY SINGLE BUILDING EXPENSE: maintenance… taxes… insurance… upkeep… plumbing… everything from changing a light bulb to repaving the parking lot.”

That’s just a net lease arrangement, which is not that unusual — and I don’t expect that the Scotts, whoever they are, invented it. But it certainly holds appeal for landlords, for obvious reasons. Not doing much management work on the building means you lose some opportunity to increase your profits, but it also means you have almost no expenses and the people who really care about how the building looks and works — the folks who are using it — are responsible for that upkeep. This kind of sale/leaseback arrangement is not that unusual today, it’s used across industries for all kinds of expensive capital goods and property, anything that companies need but that would prefer not to carry on their balance sheets.

The lessor, of course, gets a pretty good deal, too — if it’s a growing company, or a company that wants to grow, they get to sell their building but keep long term access to it, and they can use the money they got in the sale to expand elsewhere.

So … they focus on retail establishments, not just fast food joints but all kinds of “life maintenance” retail — grocery stores, pharmacies, etc. The company’s idea is that this keeps things simple and reduces risk, since there is always local demand for local services like food, medicine, and the other necessities of daily life.

The firm has delivered 453 consecutive monthly dividend payments, which, for the arithmetically challenged, is almost 38 years (just a couple months to go).

That’s enough to identify them, so let’s feed this data into the Thinkolator …

This “Drive Thru Retirement Project,” apparently having some relationship with John and Helen Scott, is …

Realty Income (O)

Cool ticker, huh? By the way, I just checked, and there is a security with the ticker “OOO” — but in a great lack of imagination, there is not yet an “OOH” or, on the Nasdaq, an “OOOH”. Too bad.

This company may sound familiar to Stock Gumshoe readers from way back — it has been a favorite of Tom Dyson, who runs the 12% Letter over at Stansberry & Associates, for quite some time, and I’ve noted it once or twice before.

And this is a situation where they haven’t dramatically overpromised — Realty Income is really a monthly dividend payer, they really have paid a dividend for almost 38 years and grown the dividend very dramatically over that long timeframe (though they’ve only been a public REIT for about 14 years — they ran a series of real estate partnerships before that), and they are extremely focused, from top management down, on being an income company. Their goal is to grow the dividend, pure and simple. So that’s certainly something many folks appreciate.

In some ways, this is probably a very effective way of doing what local folks in cities across the country have done for generations when they build up a little bit of family wealth — buy a little strip mall center or other commercial real estate and slowly grow the net income that you get from that center. And as you might imagine with such a situation, it’s not a way to get rich quick — it’s a way to commit your capital in a way that maximizes your income and, hopefully, continues to grow and provide income for future generations. Realty Income yields about 6% a year at the current price, but do keep in mind that it’s a REIT so this is a dividend that’s likely to be taxed as income, not eligible for the lower 15% dividend tax.

A quick look at the corporate website will tell you quite quickly that this is a company that has investors in mind — it’s clearly geared to individual investors, and they’ve even registered the name “The Monthly Dividend Company” to make clear what their purpose is. They do a pretty good job of explaining themselves, so I won’t recap all of it for you.

I have nothing particularly bad to say about this company — they are widely seen as a low-risk, capital-protecting, yield-producing company that is focused on individual investors. That doesn’t mean that this is the best time to buy the shares, or that this type of investment is for everyone, of course. It also doesn’t mean that there’s no risk — they try to stay balanced, but from time to time they make pretty big acquisitions (a few years ago they bought a huge number of CVS locations, for example) that give them outsize exposure to a particular company’s fortunes. They claim to be very careful about managing this risk and trying to rediversify after such large transactions, and they research their tenants carefully, but no one is perfect or perfectly prescient.

The shares have been fairly volatile in the past year or so, trading between $20 and $30, but are now right in the middle of that range at about $25. Institutional interest has grown signficantly in the last few years, from probably 20% or so up to the current level above 40%, so I have no idea whether that contributes to the volatility. My assumption is that most of the income-oriented individual investors in this one just buy and hold and are unlikely to trade in and out very often, but perhaps that assumption is wrong.

They have raised the dividend religiously, bumping it up every quarter for the last 12 years, though usually by very tiny amounts each time. In terms of historic valuation, the shares look a little bit cheaper than they have been for much of the past five years, but not dramatically so. Analysts are not crazy about the firm, and they’ve gotten a few downgrades in recent months, but that seems to be largely because analyst expectations for the net lease industry are pretty low.

Realty Income is reliant to some degree on the financial markets — they carry a line of credit that allows them to buy properties, but they then try to quickly sell common or preferred stock or bonds to finance acquisitions for the long term, so they do carry about $1.5 billion of debt — not particularly a lot, that’s a debt/equity ratio of about 1. The debt level is similar to near-peer Kimco which focuses on similar kinds of properties to some degree, but much, much lower than the big shopping center/regional mall owners like Simon Property Group or General Growth Properties. And as they issue stock they technically dilute ownership, but usually it’s just because they’ve bought more properties so it’s rarely dilutive to earnings for long, if at all. Given the turmoil in financial markets, it would be foolish to say that there’s no risk here, though this type and level of risk wouldn’t worry me too much (keep in mind that I might be very different than you).

As to the Scotts — to tell the truth, I’m not sure if they exist or not, or whether this is a pseudonym or if John and Helen Scott are just early players in the company’s history in some way. It doesn’t particularly matter, the other clues are right on target for these folks, and it’s a fairly unique company.

There is, by the way, a growing and similar company in Canada that coincidentally carries the Scott name — Scott’s REIT (SRQ in Toronto) is much smaller and more focused, owning as they do almost nothing but fast food restaurant buildings, but they also pay a monthly dividend and try to grow that dividend. Might be worth a look if you’re interested in this concept — the dividend is higher, closer to 10%, but they are also a bit riskier because of the lack of diversification (they essentially hold real estate that’s tied to just one company, a large franchise owner that runs fast food restaurants across Canada). Maybe there’s some connection between these Scotts and the Scotts teased by Stansberry’s folks in this ad, maybe not.

So … I know a few of my readers hold shares in this one, and others have at least looked at it. What do you think?

P.S. There were several other monthly dividend payers briefly teased in this ad — if there’s a lot of interest I’ll try to track them down. I expect that many of them will be trusts, REITs or publicly traded partnerships, with probably a fair proportion of North-of-the-border firms since Canadians particularly having a tradition of income stocks that pay monthly dividends, but I haven’t checked them out yet.


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44 Comments on "“Drive-Thru Retirement Project: Monthly Dividends” Solved"

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VM
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VM
April 3, 2008 5:12 pm

Gumshoe, thanks for the sleuthing!

Dividends4Life
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April 3, 2008 6:08 pm

I currently have a position in O, but I am not adding to that position based on their current valuation.

One interesting note about O is that they usually have the most entertaining annual report that I receive. Last years report’s theme was a board game to retirement and actually included a fold out board game.

Best Wishes,
D4L

TSmith
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TSmith
April 4, 2008 12:33 am

Dividends4Life,

As a longtime investor in Canadian oil and gas trusts, I have been looking at other income stocks to invest in and I wanted to ask you what your top 5 income stocks are you like?

Regards,

TSmith

Bruce
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Bruce
April 4, 2008 9:36 am

A major risk factor for O is that their largest single tenant (Buffets) is teetering on the edge of bankruptcy. If they file, O will take a significant hit.

Bruce

Gravity Switch
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April 4, 2008 9:50 am
Thanks Bruce. It’s true that the Buffets chain is a significant client, though they believe it won’t be a big hit (you may take that with a grain of salt if you like). O owns about 2,200 properties overall, here’s a quote from the 10-K about Buffets: “Realty Income owns 116 properties and Crest owns three properties, all leased to subsidiaries of Buffets, Inc. (Buffets) and guaranteed by Buffets. Buffets is a subsidiary of Buffets Holding, Inc. (“Buffets Holdings”). On January 22, 2008, Buffets Holdings, together with each of its subsidiaries, filed voluntary petitions for reorganization under Chapter 11 of… Read more »
A Ghuman
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A Ghuman
April 4, 2008 9:57 am

Any thoughts/analysis on Kimco? The company seems a little bigger (and has done better over the last 5 years, though with more volatility, more institutional investors, and less of a dividend focus). What is their track record on dividends/raising dividends?

Shawn
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Shawn
April 4, 2008 10:06 am

Scott’s is a canadian REIT. Scott’s pays 7.08 cents a month. They pay out 97% of their free cash. Based on the current price of 6.04, that is a 15% dividend. However, two years ago it was at 10+ and it has been a pretty steady down ride since then. This may be a result of the dividend which is nearly two thirds return of capital. The dividend hasn’t changed but if you invested with US dollars you have noticed a big improvement.

On Yahoo the symbol is srq-un.to or soref.pk .

Gravity Switch
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April 4, 2008 10:16 am

Thanks Shawn — appreciate the comments on Scott’s, you clearly looked more closely than I did. The combination of return of capital and a single dominant client makes this one much riskier, thus the huge dividend. Not necessarily bad, but riskier, in my opinion.

Massey
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Massey
April 4, 2008 10:17 am

I’ve received a half dozen ‘Drive thru’ teasers from Stansberry in the last 2 days.
Great job, Gumshoe!

Gravity Switch
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April 4, 2008 10:24 am
And Ghuman, I have only ever heard good things about Kimco — their yield is very low for a REIT right now (just under 4%) because people like them a lot and they’re pretty big and stable, but they do grow the dividend nicely. Though similar to O in some ways, they are much more entwined with insititutional investors and they aren’t just a net leaser — they’ve also done development on their own. Kimco primarily owns shopping centers, while O primarily owns single tenant properties. Kimco’s share price has certainly done much better over the past several years, I… Read more »
MKochanowski
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MKochanowski
April 4, 2008 11:37 am

Great sleuthing! I would very much be interested in the other monthly dividends mentioned in the teaser. I’m always looking for good dividend stocks to add to my portfolio.

investorgirl
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investorgirl
April 4, 2008 11:43 am

I just put srq into mey scottrade trade area, and it shows a div of 0.489 not monthly but quarterly, and not 7.08 per month a listed above. Would like clarification please.

investorgirl
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investorgirl
April 4, 2008 11:50 am
I forgot to mention I think probably the reason for the taco bell idea, could we assume that the scotts or a relative or business partner owned and leased back the building to taco bell so they could write off the rent as a business expense either way. I have BIF it is a monthly dividend payer. It is cheap and has consistently paid dividends, and if you get in soon, they are going to have another 1 for 3 ownership deal. The release of info has been made, the date is unsettled as of my knowlege today.
Questionit
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Questionit
April 4, 2008 12:04 pm

StockGumshoe I have receintly found your site, good work. I have been receiving information from ‘Money and Markets.com’ they deal mainly in ETF’s. One service is ETF options to which they claim have out paced all other options types (stocks). Can you shed any light on this service?

Richard E. Lowman
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Richard E. Lowman
April 4, 2008 12:09 pm

Still wondering if doublingstocks.com is a scam???

Desertspeaks
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Desertspeaks
April 4, 2008 12:21 pm

One of several large oil companies in Canada are under a similar trust, paying monthly dividends. My present favorite is Harvest Energy (HTE) paying approx. 17.5%!

Richard E. Lowman
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Richard E. Lowman
April 4, 2008 1:12 pm

Thanks Gumshoe your archives answered my questions about doublingstocks.com Looks like others also believe it is a scam. Maybe I can get my 47.00 bach thru ClickBank. Live and Learn.
Richard

Gravity Switch
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April 4, 2008 1:35 pm

Investorgirl, that BIF is one odd bird — a closed end fund that holds a lot of Berkshire Hathaway and has a huge payout, but almost no current income. Interesting article on them from TheStreet.com here:

http://biz.yahoo.com/ts/070511/10356250.html?.v=1

Gaucho
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Gaucho
April 4, 2008 1:50 pm

I got my $47.00 back thru ClickBank. I called and they gave me credit on my credit card…

Cocoon
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Cocoon
April 4, 2008 2:07 pm

FWIW…some Blackrock funds pay monthly.
I’m familiar with rule of 72s, which is based on an annual interest rate, what does a monthly payout result in the doubling of the principle?
My math. books are long gone.
Thanks Gshoo.

TommyMac
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TommyMac
April 4, 2008 2:45 pm

Rule of 72: dividing 72 by the rate of return will give you the number of years to double the investment, e.g., if rate of return = 10%, an investment doubles in 7.2 years. This doesn’t work quite the same way for an income or dividend earnings scenario due to the compounding on the earnings, but it is a reasonable approximation.

Lory Mikulcik
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Lory Mikulcik
April 4, 2008 3:27 pm

After steady reading all this info. I’m learning more & more about investing and who the scam artists are..
Thanks for all the tips! My financial advisor is shaking his head in disbelief.

Curtis
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Curtis
April 4, 2008 4:28 pm

Doublingstocks.com is a scam and ClickBank did not refund me, I feel they are a scam too!!!!!!!!!!!! Doublingstocks needs to be shut down!!!!!!!

Peter Deacey
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Peter Deacey
April 4, 2008 8:23 pm

Anybody had a look at “Access to inside info. at
certain banks,by secret pass code”? last post
1 day ago.
Can this be legal?

Hal Harding
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Hal Harding
April 4, 2008 10:09 pm
Here is a copy of an email I got today. Would you please take a look at it? I really enjoy your input on the various stocks out there. Thank you! This Is My Huge New Pick!‏ From: jasonmfuller13@aol.com Sent: Fri 4/04/08 7:19 PM To: jasonmfuller@hotmail.com Hello everyone, Today I am releasing a stock that could very well end up being the biggest winner we’ve had this year so far. In fact, I’m confident that we are likely to see my new stock pick become one of our biggest winners of the decade! Yes, that’s how serious I am about… Read more »
ChiTom
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ChiTom
April 4, 2008 11:36 pm

Monthly dividend-paying stock list at: http://www.stockpickr.com/problog/499/

Found it referenced in another weblog once– have yet to really explore it.

Great blog! Thanks.

sneem77
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April 5, 2008 2:10 am

This was so interesting and so were the comments. Have never heard of BIF but am intrigued.

Thanks Great Gumshoe

Dividends4Life
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April 5, 2008 10:29 am

> I wanted to ask you what your top 5 income
> stocks are you like?

Tsmith: That is something that changes over time and based on how you define it. but I will take a stab at it as of now:

1. ACAS high growing yield.
2. AFL low yield, strong div growth
3. GE moderate growing yield
4. RY moderate growing yield
5. JNJ low yield, strong div growth

Here is a link to all my holdings D4L Holdings.

Dale
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Dale
April 5, 2008 1:47 pm

Know anything about Bakken basin oil companies being pushed by Energy And Capital –Brian Hicks?

Marty
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Marty
April 5, 2008 5:31 pm

thanks man!!! i was very close to paying for the info. you saved me some coin. THANKS AGAIN.

Steve
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Steve
April 5, 2008 10:01 pm

Hi Gumshoe!!
Always great info. Wondering why nobody–anywhere–is mentioning AOD as not only a great stock for monthly divs., but if you are watching pps volatility, you could be picking up shares at nicely reduced prices ($15’s), then watch as they appreciate as well. I have found that buying AOD on the dips, and allowing those divis. to be automatically reinvested, has been one of the best investment decisions that I have made–thanks to you.

Margie Cooper
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April 5, 2008 11:26 pm

Have you read S&A’s latest? Dr. George Huang has uncovered a glitch .. “A gaping hole in the system that lets you legally know when the biggest trades of the year will be triggered… weeks before they happen…” They want $1,200 for a years subscription. I have fallen for so many of these things at a much lesser price, maybe that is my problem.. but I would like to know if this is indeed possible.
I really enjoy this website and have gained a lot of understanding and knowledge from reading it and all the wonderful posts.Thank you

Cocoon
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Cocoon
April 6, 2008 1:44 pm

Mar, I too have read S$A on this tease, I hope the Great G-shoo will opine.
Thanks.

Gukdorak
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Gukdorak
April 7, 2008 3:34 pm
I am one of the contributors on the board that’s extremely bullish on Realty Income. Part of it is management’s track record which is exemplary and its transparency when it comes to its business. I like their stringent underwriting process for instance even when one of their tenants goes through bankruptcy preceding such as Buffets the effect on their bottom line is minimal. Realty Income only bought the most profitable locations which are the ones likely to be kept open when reorganization occurs. I believe that the probability that Realty Income will suffer grievously due to the Buffets situation is… Read more »
Gukdorak
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Gukdorak
April 7, 2008 3:39 pm

Just wanted to add anyone who wants to dig more into Realty Income instead of taking the word of a stranger on the internet thier 2007 FS are online at http://www.realtyincome.com/investing/2008-annual-docs.html

iggyboo
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April 7, 2008 4:57 pm

Thanks gumshoe … I was wondering about this 12% newsletter and have been tempted to subscribe. And yes, I would be very interested in hearing about the other monthly dividend opps teased by S&A. Your reviews and reports are fantastic, please keep up the good work!

HXH
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HXH
April 7, 2008 7:17 pm

Great info everyone, well appreciated!

Kay
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Kay
April 8, 2008 5:41 am
Responding to Hal Harding who wrote asking opinion reg jasonmfuller pump of Tecton (TTNC.ob). Jon Lebed (lebed.biz) just started pumping it this weekend. Have had reasonable luck playing his picks, but take profits soon and run. Here is the fluff: I decided to rush out with an alert this evening about a company I discovered the other day called Tecton Corporation (TTNC). It is beginning to trade huge volume and I believe it could be about to break out and become a huge momentum play! Due to concerns about Global Warming… there is a huge push right now towards nuclear… Read more »
Texrails
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Texrails
April 16, 2008 8:34 am

Would normally taxable dividends be tax exempt if holdings are through a Roth IRA?

Gravity Switch
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April 16, 2008 9:02 am

Tex, I’m not a tax advisor but yes – divs (and cap gains) in IRAs of any kind are not taxed directly.

Texrails
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Texrails
April 16, 2008 10:28 am

Thank you so much. I really appreciate your site.
The checks in the mail….really..LOL.
I, also, would be interested in tracking down some of the other monthly dividend payouts teased by S&A.

Thanks, again.

olivia
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June 3, 2008 11:37 pm

have you found anything about the secret currency that the rich get richer from what is that the secret currency that they dont want you to know about is this for real and can you make a lot of money form it?

olivia
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June 3, 2008 11:38 pm

this secret currency is from the s&A

monthlydividendstocks
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June 24, 2009 3:34 pm

Check out my current and updated list of high yield monthly dividend paying stocks and other securities at http://www.monthly-dividend-stocks.com

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