Review by Brian Jacques, February 15, 2009

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Dividend Investor - Morningstar

I started to subscribe to the Dividend Investor newsletter in November 2007. At the time, I had been a subscriber to the Motley Fool Stock Advisor for a year, but as I had continued to do more research, I had decided that I wanted to shift my focus to dividend investing. I had enjoyed the Morningstar site in general before for their free content so I thought I would give the Dividend Investor newsletter a try.

Dividend Investor is one of a couple of newsletters that Morningstar offers and is edited by Josh Peters, one of their staff members. I believe it currently retails for around $149 for a year (though don’t quote me on that), but was $99 when I signed up for it (guess newsletters aren’t affected by the general deflationary trend in the economy!). The newsletter has two portfolios (Dividend Bulder and Dividend Harvest). The Dividend Builder focuses on lower yielding stocks that tend to grow their dividends over time, while the Harvest has higher yielding stocks with lower growth rates (generally yields are 8% or higher). The two portfolios combined probably have about 30 or so stocks with the Builder having a slightly higher number of stocks.

The newsletter is run as a real-money portfolio so new additions are only announced either when a stock is sold or enough money has accumulated via dividends to make a new purchase. There isn’t a lot of turnover as Josh tends to stick with a stock as long as the dividends continue to come in.

However, this “buy and hold” philosophy has led to some terrible picks over the past year or so. Now, granted, I did start to subscribe to this newsletter during the worst bear market of the last 60 years, so I plan to give the service sometime to play out and let the dividend compounding strategy work. When I first started to subscribe, Josh did have a high percentage (about 30%) in financials. Now, I suppose that over the past couple of decades, building a dividend strategy based partly on financials would have worked out okay. But this caused some serious pain during the last year. Josh has subsequently lessend his exposure to the financial sector by selling a number of his banks (BAC, LYG, etc). Also, he made some other picks that got killed such as over-leveraged REITs and a couple of specialty financial companies (go look at some charts for ALD and MMA.PK).

Dividend Investor’s Harvest portfolio has a number of MLPs in it, so if someone is interested in investing in these, I would recommend that they understand the intricacies and tax implications. A MLP guide is given out as part of the subscription which does a good job of explaining how MLPs function.

Each newsletter gives some updates on the Builder and Harvest portfolio, along with general market commentary, and some expanded reviews of companies already in the portfolio or companies Josh is considering adding. A watch list of future possible purchases is listed in each issue for some additional investment ideas. Also, Morningstar stock ratings (the one to five star system and economic moats) are included for each stock mentioned in the newsletter. These ratings are normally premium content that you can access via an additional subscription at Morningstar. Weekly Friday updates also go out via e-mail.

Overall, I like Morningstar with the free content it provides and also their approach to using intrinsic analysis, economic moats, and margins of safety. As previously stated, I probably started this subscription at the worst possible time so I plan to continue for a while. At the very least, it does provide some good ideas for high quality dividend paying companies (amongst some other less than great recs), which should provide a nice starting point for some future research. Overall, the two portfolios lost less than the S&P 500 last year, so you still would have come out better than buying an index fund. Hopefully, this newsletters’ picks will provide a consistent dividend stream over the long haul and some of the problems that plagued it during the last year won’t be repeated.