Since this is our first AAII Dividend Investing monthly newsletter, we begin with an explanation of what this is and how it differs from the weekly updates.

We will use this longer report to provide more in-depth analysis of the DI portfolio and the stocks we hold in it. Whereas the weekly updates are intended to keep you current on the latest developments impacting the portfolio, the monthly newsletter gives you more insight into our stock and portfolio management decisions.

The monthly newsletter complements the information on the AAII Divi-dend Investing website. Any new portfolio alerts will be listed on page 2. No alerts for the portfolio have been issued so far. Our goal is to limit trans-actions, though the actual number will depend on how each company and the economy evolve. On page 3, you will find a listing of the current port-folio holdings. On page 6, you will find comprehensive information about the stocks’ dividends, including the annual cash amount you can expect to receive over the next 12 months and the months in which dividends are paid. On page 7, we show many of the fundamental criteria we pay atten-tion to. The most current information will always be available on the DI website, but we are including it here because we believe there is value and convenience to having the information compiled in a single document.

DI Portfolio PerformanceAs shown on page 4, the DI tracking portfolio had a total return of 2.6%

last month, trailing our benchmark, the Dow Jones U.S. Index ETF (IYY). This return consists of a 2.5% rise in stock prices (unrealized capital gains) and an income return of 0.1% (dividends received). The tracking portfolio’s benchmark had a total return of 4.1% last month, which was entirely attrib-utable to capital gains. Because we have a dividend investing emphasis, our expectation is that the tracking portfolio will lag the benchmark during bull-ish market periods, but decline less during periods of market turbulence. Over time, we expect dividend income to have an increasing (and positive) impact on the portfolio’s long-term performance.

We are using a real brokerage account to track the DI portfolio. The ac-count was funded with $100,000 and the performance we report factors in all transaction costs, including brokerage commissions and bid/ask spreads. Any dividend payments we receive are temporarily allocated to cash. Over the short term, this creates a slight drag on our returns because, as you know, interest rates are painfully low from the standpoint of a saver. (If you are borrower, the low interest rates are a good thing.) We’ll get back to our plans for our cash in a moment.

AAII Dividend Investing is produced by AAII. “The American Association of Individual Investors is an independent nonprofit corporation formed in 1978 for the purpose of assisting individuals in becoming effective managers of their own assets through programs of education, information and research.”

In This Issue

DI TablesPortfolio Alerts This Month 2Portfolio Holdings 3Performance of DI Portfolio 4Recent Earnings Announcements 5Dividend Payments 6Dividend Analysis 7

In-Depth Stock ReportsABM Industries, Inc. (ABM) 8

This business services company is a dividend stalwart with a focus on generating free cash flow.

Chesapeake Utilities (CPK) 10This utility trades at a discount to its historical average valuation.

DI Article 12Don’t Get Burned Reaching for Yield

The best returns don’t come from the highest-yielding stocks. Discover which range of yields make sense in today’s market.

Next Publication Date: April 6, 2012

March 2012Volume I Issue I

www.AAIIDividendInvesting.com

TM

2 March2012

The tracking portfolio was created on January 3, 2012. Stocks were purchased on January 3 and Janu-ary 4, with the exception of Vectren Corp. (VVC). We originally purchased PPL Corp. (PPL), but we chose to exclude it from the portfolio before the launch of DI. PPL ended its streak of raising the dividend payment on a consecutive annual basis. This is why you see PPL listed on the transac-tions page of the DI website (www.aaiidividendinvesting.com/portfolio/transactions.cfm).

We created the tracking portfolio at the start of January in order to fully build the website and to test our ana-lytical tools. Though doing so prior to the launch of DI results in a differ-ence between the short-term returns the tracking portfolio realizes and the performance you realize, we believe that this difference will become mini-mal over the long term. Though we could have reset our performance to the mid-February launch date of the

DI service, we thought that full trans-parency regarding when the tracking portfolio was launched and reporting its actual performance was the best strategy.

The total return for the DI tracking portfolio since its inception is 5.2%. This gain consists of a 5.0% apprecia-tion in stock prices (unrealized capital gains) and an income return of 0.2% (dividends received). This compares to a 7.6% return for our benchmark. All of the benchmark’s gains are from capital appreciation.

The underlying index for IYY is the Dow Jones U.S. index. This index is designed to represent 95% of the U.S. market and is capitalization weighted. IYY currently holds 1,340 securities and has nearly $600 billion in total assets. It currently yields 1.7%.

The stocks held in our tracking port-folio have an average yield of 3.0%. V.F. Corp. (VFC) has the lowest yield in the group, with a current yield of 2.0%. It is one of our best-performing

holdings, however, with a capital gain of 12.2% since purchase. We are following a total return approach and would be inclined to continue holding VFC should its yield fall slightly below the benchmark’s yield if we thought the stock remained attractive other-wise. Rest assured that we will sell any stock whose yield falls significant-ly below the benchmark’s yield.

The benchmark’s yield is also a consideration when a stock is added to the portfolio. We will not consider any stock whose yield is not in excess of the benchmark.

Our portfolio’s performance has been boosted by double-digit year-to-date total returns in seven stocks: Waddell & Reed Financial (WDR), Microsoft Corp. (MSFT), Illinois Tool Works (ITW), Eaton Corp. (ETN), United Technologies (UTX), V.F. Corp. and Target Corp. (TGT). WDR’s profits are helped by the performance of the stock markets, with rising prices increasing demand for their mutual

Portfolio Alerts This Month

Published monthly by the American Association of Individual Investors 625 N. Michigan Ave., Chicago, IL 60611, 312-280-0170, www.aaii.com. Annual DI subscription, $149.

AAII Dividend Investing™ (DI) is not a registered investment adviser or a broker/dealer. This report is issued solely for informational purposes and should not be construed as an offer to sell or the solicitation of an offer to buy securities.

The opinions and analyses included herein are based on sources believed to be reliable and written in good faith, but no representation or warranty, expressed or implied, is made as to their accuracy, completeness, timeliness, or correctness. Neither we nor our information providers shall be liable for any errors or inaccuracies,

regardless of cause, or the lack of timeliness of, or any delay or interruptions in, the transmission thereof to the users. All information contained in this report should be independently verified with the companies mentioned.

© American Association of Individual Investors, 2012. AAII Dividend Investing is a trademark and service mark of the American Association of Individual Investors—All rights reserved. This publication may not be reproduced in whole or in part by any means without prior written consent.

“The American Association of Individual Investors is an independent nonprofit corporation formed in 1978 for the purpose of assisting individuals in becoming effective managers of their own assets through programs of education, information and research.”

Printed in the U.S.A.

March Portfolio Additions:

ecirP tsetaL)rekciT( ynapmoCDividend

Yield Sector: Industryno portfolio additions for MarchPortfolio Deletions Since Last Monthly Issue:

Portfolio Stock Total Index TotalAddition Return Since Return Since

Date Price Alert Date Purchase Purchaseno portfolio deletionsCompany (Ticker)

Portfolio Deletion Alert

March2012 3

AAII DIvIDeND INvesTINg

funds. Shares of MSFT have been boosted by optimism about the company’s new operating system, Windows 8. A combination of good earnings reports and signs of an improving economy helped ITW, ETN, UTX, VFC and TGT.

Norfolk Southern Corp. (NSC) has been the portfolio’s worst performer, falling 6.5% since purchase. Declin-ing coal shipments have hurt rail-road companies overall. The entire transport sector has been a notable weak spot for the market, something that has caught the eye of chartists. Full-year earnings estimates have been trimmed by approximately nine cents over the past month, but this is a small revision as the company is projected to earn $5.89 per share this year. It should also be noted that at 12 times trailing earnings and yielding 2.7%, NSC trades at a discount rela-tive to its historical average valua-

tions.Several of the companies in the

portfolio are impacted by weather trends, so we are keeping one eye on the weather map. As you know, this has generally been a mild winter. Though most people would rather not deal with subfreezing tempera-tures and heavy snowfall, winter weather does help drive energy usage and sales of warm clothing. Utilities, including Chesapeake Utili-ties (CPK), have seen their revenues adversely impacted. V.F. Corp. was able to overcome the drag of warmer temperatures on its North Face unit, though we can only wonder what profits might have looked like if more snow had hit the ground.

We cannot do anything about the weather, much less forecast it. But the weather does affect everything from energy consumption (which can impact how many carloads of coal

Norfolk Southern ships) to how much shoveling and snow-plowing work ABM Industries (ABM) does. What we can do as shareholders, and thereby business owners, is to take a long-term view of the business and cash flow. As long as a company continues to look attractive, shows the ability to continue growing earnings and increases its dividend, our inclination is to look past short-term factors.

Allocating Dividends PaidAs previously stated, we are allocat-

ing our dividend payments to cash. When a change to the portfolio is an-nounced, we will combine the portfo-lio’s cash allocation with the proceeds from the stock being sold to fund the purchase of a new stock. (We are lim-iting the portfolio to 24 stocks.) This strategy does slightly hurt returns in the short term, but it also aids with portfolio rebalancing and avoids the

DI Pur- Latest Februarychase viD/niaGecirP

Ticker Company Date Price Price (2/29/12) (Loss) Stock Index Yield IndustryABM ABM Industries, Inc. 12/31/11 $20.48 $20.89 $22.70 4.6% 8.7% 7.6% 2.6% Business ServicesAFL AFLAC Incorporated 12/31/11 $43.26 $45.04 $47.25 (2.0%) 5.6% 7.6% 2.8% Insurance (Accident & Health)T AT&T Inc. 12/31/11 $30.24 $30.48 $30.59 4.0% 1.9% 7.6% 5.8% Communications ServicesCPK Chesapeake Utilities 12/31/11 $43.35 $43.48 $41.07 (4.5%) (5.5%) 7.6% 3.4% Natural Gas UtilitiesCVX Chevron Corporation 12/31/11 $106.40 $110.91 $109.12 5.8% (0.9%) 7.6% 3.0% Oil & Gas - IntegratedETN Eaton Corporation 12/31/11 $43.53 $45.52 $52.19 6.4% 15.4% 7.6% 2.9% Electronic Instrmts & ControlsEMR Emerson Electric Co. 12/31/11 $46.59 $48.13 $50.31 (2.1%) 5.3% 7.6% 3.2% Scientific & Technical InstrmtsGD General Dynamics 12/31/11 $66.41 $68.28 $73.23 5.9% 8.0% 7.6% 2.6% Aerospace and DefenseGPC Genuine Parts Co. 12/31/11 $61.20 $61.63 $62.68 (1.7%) 1.7% 7.6% 3.2% Auto & Truck PartsITW Illinois Tool Works 12/31/11 $46.71 $48.18 $55.69 5.0% 15.6% 7.6% 2.6% Auto & Truck PartsINTC Intel Corporation 12/31/11 $24.25 $24.70 $26.88 1.7% 9.7% 7.6% 3.1% SemiconductorsMCD McDonald's Corp. 12/31/11 $100.33 $99.19 $99.28 0.2% 0.8% 7.6% 2.8% RestaurantsMDT Medtronic, Inc. 12/31/11 $38.25 $38.89 $38.12 (1.2%) (1.4%) 7.6% 2.5% Medical Equipment & SuppliesMCHP Microchip Technology 12/31/11 $36.63 $35.92 $36.07 (2.2%) 1.4% 7.6% 3.9% SemiconductorsMSFT Microsoft Corp. 12/31/11 $25.96 $26.94 $31.74 7.5% 18.6% 7.6% 2.5% Software & ProgrammingNSC Norfolk Southern Corp. 12/31/11 $72.86 $74.18 $68.90 (4.6%) (6.5%) 7.6% 2.7% RailroadsPEP PepsiCo, Inc. 12/31/11 $66.35 $66.66 $62.94 (4.2%) (4.8%) 7.6% 3.3% Beverages (Non-Alcoholic)TGT Target Corporation 12/31/11 $51.22 $51.28 $56.69 11.6% 11.2% 7.6% 2.1% Retail (Specialty Non-Apparel)UTX United Technologies 12/31/11 $73.09 $74.97 $83.87 7.0% 12.5% 7.6% 2.3% Aerospace and DefenseVFC V.F. Corporation 12/31/11 $126.99 $130.20 $146.05 11.1% 12.2% 7.6% 2.0% Apparel/AccessoriesVVC Vectren Corporation 2/7/12 $29.55 $29.36 $29.22 2.2% 0.7% 1.0% 4.8% Natural Gas UtilitiesWDR Waddell & Reed Fin'l 12/31/11 $24.77 $25.36 $31.56 15.0% 24.4% 7.6% 3.2% Investment ServicesWMT Wal-Mart Stores, Inc. 12/31/11 $59.76 $60.56 $59.08 (3.7%) (2.4%) 7.6% 2.7% Retail (Department & Discount)WEC Wisconsin Energy Corp. 12/31/11 $34.96 $34.68 $34.08 0.2% (0.9%) 7.6% 3.5% Electric UtilitiesData as of 2/29/2012. Sources: AAII Stock Investor Pro, Thomson Reuters, I/B/E/S and company releases.

Portfolio AlertTotal Return

Since Purchase

Portfolio Holdings

4 March2012

Performance

Dividend Yield %7.1%0.3

TotalReturn

IncomeReturn

CapitalGain/(Loss)

TotalReturn

IncomeReturn

CapitalGain/(Loss)

February 2.6% 0.1% 2.5% 4.1% 0.0% 4.1%2012 YTD 5.2% 0.2% 5.0% 7.6% 0.0% 7.6%From Inception 5.2% 0.2% 5.0% 7.6% 0.0% 7.6%Performance as of 2/29/2012.

Dow Jones U.S. Index (IYY)Dividend Investing Portfolio*

*The AAII Dividend Investing portfolio started on January 3, 2012. The portfolio is run as if managed by a subscriber and includes delays in reaction time to portfolio alerts, actual commissions and bid-ask spreads.

Dividend Investing Portfolio Dow Jones U.S. Index (IYY)

Growth of $100,000

AAII Dividend Invesng Por�olio

Performance of DI Portfolio

ownership of fractional shares.As a subscriber, you can choose to

follow our strategy, or automatically reinvest the dividends into your cur-rent holdings, or withdraw the divi-dends. The DI User’s Guide provides more information on strategies for handling dividend payments (www.aaiidividendinvesting.com/resources/guide.cfm).

Upcoming DividendsThe Dividend Payments table on

page 6 lists the current dividend dates for all our holdings. You will notice there are 14 companies paying a dividend this month; the dates are shown in boldface. We also bold the ex-dividend dates of companies for this month. You still have time to pur-chase Chesapeake Utilities and Illinois Tool Works prior to their ex-dividend

dates of March 13 and March 28, respectively.

DI Portfolio NewsTop-Performing Stocks During February

Waddell & Reed Financial (WDR) was the strongest-performing stock in the AAII Dividend Investing portfolio during February, with a 15.0% gain. Waddell & Reed is a money manager and financial planner with $83.7 bil-lion in assets under management. Its Waddell & Reed mutual funds and investment products are sold through the Waddell & Reed Advisors chan-nel, while its Ivy Funds are distrib-uted through advisers. Waddell & Reed also serves institutional clients, managing pension funds and endow-ments. The rising stock market has dramatically improved money flowing into WDR equity products and has helped to boost the stock price.

Target Corp.’s (TGT) positive earn-ings surprise on February 23, 2012, helped to move the stock price up 11.6% during the month. For the fourth quarter, Target reported earn-ings of $981 million, or $1.45 per share, down from $1.04 billion in earnings a year ago. Total revenue rose 3% to $21.29 billion, ahead of the consensus estimate of $21.21 billion. On a conference call, Target chairman and CEO Gregg W. Stein-hafel said that same-store sales were running ahead of the original compa-ny growth forecast for the first fiscal quarter. Also during the conference call, incoming CFO John Mulligan said that an increase in the annual dividend was likely later this year and that the company was planning on $1.5 billion more in share repur-chases in 2012 following $1.9 billion in share repurchases in 2011.

V.F. Corp. (VFC) reported fourth-

March2012 5

AAII DIvIDeND INvesTINg

Recent earnings AnnouncementsDate Reported Expected Surprise

Ticker Company Reported Earnings Earnings %ABM ABM Industries, Inc. Mar 5 $0.22 $0.22 0.0%CPK Chesapeake Utilities Mar 6 $0.83 $0.76 9.2%EMR Emerson Electric Co. Feb 7 $0.50 $0.51 (1.0%)GPC Genuine Parts Co. Feb 21 $0.86 $0.83 3.6%MDT Medtronic, Inc. Feb 21 $0.84 $0.84 (0.1%)MCHP Microchip Technology Feb 2 $0.42 $0.42 1.0%PEP PepsiCo, Inc. Feb 9 $1.15 $1.13 2.2%TGT Target Corporation Feb 23 $1.43 $1.40 2.1%VFC V.F. Corporation Feb 16 $2.32 $2.31 0.7%VVC Vectren Corporation Feb 15 $0.56 $0.57 (2.3%)WMT Wal-Mart Stores, Inc. Feb 21 $1.44 $1.46 (1.0%)WEC Wisconsin Energy Corp. Feb 2 $0.49 $0.48 2.3%Data as of 3/7/2012. Sources: I/B/E/S and company releases.

quarter adjusted earnings of $2.32 per share, up 30% for the year-ago period and topping the consensus estimate of $2.31 per share. Rev-enues were $2.126 billion, up 37% from the $2.910 billion reported in the fourth quarter of 2010. The an-nouncement came on February 16, 2012, and helped to push the stock price up 11.1% during the month. The growth of the company’s North Face and Timberland brands in for-eign markets such as China overcame an unusually warm and dry winter in the U.S. Looking forward, V.F. Corp. signaled that it was ready to pursue additional acquisitions, but warned investors that it was unlikely to make an acquisition the size of Timber-land over the next year. V.F. Corp.’s board of directors also declared a quarterly cash dividend of $0.72 per share, payable on March 19, 2012, to shareholders of record as of the close of business on March 9, 2012. The quarterly dividend is unchanged from the prior quarter.

Microsoft Corp. (MSFT) shares showed above-average price strength during February as investors started to anticipate the release of Windows 8 this summer or fall. Shares of Mi-crosoft gained 7.5% during February. Microsoft released Windows 8 for public trial on Wednesday, February 29, 2012. The operating system is compatible with both tablets and PCs and represents a dramatic interface change for users.

United Technologies’ (UTX) solid fourth-quarter report on January 25, 2012, helped to propel the stock price up 7.0% during February. Fourth-quarter earnings per share came in at $1.47, up 12% and slightly better than consensus estimates. Looking ahead, United Technologies is confident that it will deliver on its previously issued 2012 earnings guid-

ance of $5.80 to $6.00 per share (up 6% to 9%), excluding its recent acqui-sition of Goodrich. The firm’s sales, excluding Goodrich, are expected to hit $60 billion.

Weakest-Performing Stocks During February

Norfolk Southern Corp. (NSC) shares declined 4.6% during February over concerns about declining coal shipments. Bloomberg reports that analysts are cutting first- and second-quarter earnings estimates for rail companies, as coal shipments are tracking well below levels of last year. Lower natural gas prices are pushing utilities to favor the use of natural gas over coal for the generation of electricity.

Chesapeake Utilities (CPK) shares fell 4.5% during February as investors showed concern over moderate win-ter weather impacting energy usage. The share price rebounded in March after the company posted quar-terly results that beat the consensus estimate. On February 29, 2012, CPK’s board of directors of declared a quarterly cash dividend of $0.345 per common share. The dividend is payable April 5, 2012, to all share-

holders of record as of March 15, 2012. Chesapeake Utilities is profiled on pages 10 and 11 of this monthly issue.

PepsiCo, Inc. (PEP) had a positive earnings surprise when it reported fourth-quarter results on February 9, 2012, but its plans to enhance future growth underwhelmed inves-tors. PepsiCo announced a series of strategic investment and productivity initiatives that keep its portfolio of food and beverage products inte-grated. Some investors were expect-ing PepsiCo to jettison some of its slower-growing products. Instead, the company plans to increase advertis-ing and marketing support behind its global brands by $500 million to $600 million in 2012, with particular focus on North America. Going forward, it expects to maintain or increase that rate of support as a percentage of revenues. PepsiCo hopes that a multi-year productivity program will gener-ate $1.5 billion of incremental cost savings by 2014 through a reorganiza-tion that includes a reduction in force of about 8,700 employees, about 3% of its global workforce. PepsiCo also signaled a desire to increase returns to shareholders in the form of higher

6 March2012

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viDelbayaPetaDdiaPynapmoCrekciT Yield Invest PlanABM ABM Industries, Inc. 2, 5, 8, 11 Tue Apr 3, 2012 Mon May 7, 2012 $0.1450 $0.58 2.5% -- --AFL AFLAC Incorporated 3, 6, 9, 12 Mon Feb 13, 2012 Thu Mar 1, 2012 $0.3300 $1.32 2.9% Yes YesT AT&T Inc. 2, 5, 8, 11 Fri Jan 6, 2012 Wed Feb 1, 2012 $0.4400 � $1.76 5.7% Yes YesCPK Chesapeake Utilities 1, 4, 7, 10 Tue Mar 13, 2012 Thu Apr 5, 2012 $0.3450 $1.38 3.4% Yes YesCVX Chevron Corporation 3, 6, 9, 12 Wed Feb 15, 2012 Mon Mar 12, 2012 $0.8100 $3.24 3.0% Yes YesETN Eaton Corporation 2, 5, 8, 11 Thu Feb 2, 2012 Fri Feb 24, 2012 $0.3800 � $1.52 3.1% Yes YesEMR Emerson Electric Co. 3, 6, 9, 12 Wed Feb 15, 2012 Fri Mar 9, 2012 $0.4000 $1.60 3.3% Yes YesGD General Dynamics 2, 5, 8, 11 Wed Jan 18, 2012 Fri Feb 10, 2012 $0.4700 $1.88 2.7% -- --GPC Genuine Parts Co. 1, 4, 7, 10 Wed Mar 7, 2012 Mon Apr 2, 2012 $0.4950 � $1.98 3.2% -- YesITW Illinois Tool Works 1, 4, 7, 10 Wed Mar 28, 2012 Tue Apr 10, 2012 $0.3600 $1.44 2.7% -- YesINTC Intel Corporation 3, 6, 9, 12 Fri Feb 3, 2012 Thu Mar 1, 2012 $0.2100 $0.84 3.2% Yes YesMCD McDonald's Corp. 3, 6, 9, 12 Tue Feb 28, 2012 Thu Mar 15, 2012 $0.7000 $2.80 2.8% Yes YesMDT Medtronic, Inc. 1, 4, 7, 10 Wed Apr 4, 2012 Fri Apr 27, 2012 $0.2425 $0.97 2.6% Yes YesMCHP Microchip Technology 3, 6, 9, 12 Thu Feb 16, 2012 Tue Mar 6, 2012 $0.3490 � $1.40 4.0% -- --MSFT Microsoft Corp. 3, 6, 9, 12 Tue Feb 14, 2012 Thu Mar 8, 2012 $0.2000 $0.80 2.5% Yes YesNSC Norfolk Southern Corp. 3, 6, 9, 12 Wed Feb 1, 2012 Sat Mar 10, 2012 $0.4700 � $1.88 2.9% Yes YesPEP PepsiCo, Inc. 1, 3, 6, 9 Wed Feb 29, 2012 Fri Mar 30, 2012 $0.5150 $2.06 3.3% Yes YesTGT Target Corporation 3, 6, 9, 12 Mon Feb 13, 2012 Sat Mar 10, 2012 $0.3000 $1.20 2.1% Yes YesUTX United Technologies 3, 6, 9, 12 Wed Feb 15, 2012 Sat Mar 10, 2012 $0.4800 $1.92 2.4% Yes YesVFC V.F. Corporation 3, 6, 9, 12 Wed Mar 7, 2012 Mon Mar 19, 2012 $0.7200 $2.88 2.0% -- YesVVC Vectren Corporation 3, 6, 9, 12 Mon Feb 13, 2012 Thu Mar 1, 2012 $0.3500 $1.40 4.8% Yes YesWDR Waddell & Reed Fin'l 2, 5, 7, 11 Thu Dec 29, 2011 Wed Feb 1, 2012 $0.2500 � $1.00 3.3% -- --WMT Wal-Mart Stores, Inc. 1, 4, 6, 9 Thu Mar 8, 2012 Wed Apr 4, 2012 $0.3975 � $1.59 2.7% Yes YesWEC Wisconsin Energy Corp. 3, 6, 9, 12 Fri Feb 10, 2012 Thu Mar 1, 2012 $0.3000 � $1.20 3.5% Yes Yes

� .htnom siht gnirud snoitca dnedivid etacidni setad dloB.retrauq roirp morf desaercni dnedivid ylretrauQ� Quarterly dividend decreased from prior quarter. Sources: AAII Stock Investor Pro, Thomson Reuters, I/B/E/S and company releases.

Data as of 3/6/2012.

AmountPayment

Quarterly Dividend Payment

Dividend Payments

dividends and share repurchases in 2012. Shares of PepsiCo declined 4.2% during February.

Wal-Mart Stores, Inc. (WMT) reported fourth-quarter results that disappointed investors on February 21, 2012. Heavy discounting to at-tract shoppers hurt earnings during the quarter. Same-store sales—sales at stores open at least one year—rose 1.5% during the quarter, its best growth rate in nine quarters. Wal-Mart reinforced its message of lower everyday prices to its customers.

On March 1, 2012, Wal-Mart’s board of directors approved an an-nual dividend of $1.59 per share, an

8.9% increase from the prior fiscal year. The dividend will be paid in four quarterly installments of $0.3975 per share. Wal-Mart has increased its dividend every year since the first declared dividend of $0.05 per share in March 1974.

subscriber QuestionsQ: What time period is used to

calculate the earnings growth figure on the Fundamentals table of the DI website (www.aaiidividendinvesting.com/portfolio) that is labeled EPS Growth Est Y0 to Y1?

A: The EPS Growth Est Y0 to Y1 shows the difference in earnings projections for the current fiscal year (Y0) and the next fiscal year (Y1). For a company operating on a traditional calendar year of January to December, Y0 currently designates 2012 and Y1 designates 2013. For example, Aflac Inc. (AFL) is projected to earn $6.65 in 2012 (Y0) and $7.087 in 2013 (Y1). The 6.6% estimated growth rate displayed in the Funda-mentals table is calculated by dividing the difference between the 2013 and the 2012 forecasts by the 2012 forecast. Mathematically, the formula is ($7.087 – $6.65) ÷ $6.65 = 6.6%. ▪

March2012 7

AAII DIvIDeND INvesTINg

Ann’l Ind Div: The total dollar amount of cash dividends forecast to be paid over the next 12 months.Consecutive Years Div Raised: The number of current years the company has continuously increased the annual dollar amount of the dividend.Date Payable: The date a company will distribute (or has distributed) the most recent quarterly dividend.DI Purchase Price: The average cost basis per share of the stocks purchased for the real DI tracking portfolio. The average cost basis includes any commissions incurred for the purchase and is adjusted for stock splits and spin-offs, if appropriate.Direct Invest: Denotes companies that offer a direct investment program, which allows investors to buy their initial shares directly from a company, without having to go to through a broker. Div Growth Rate (5 Yr): The compound annual percentage change in dividends per share over the past five years. Positive numbers show an increase in the dollar amount of dividends paid.Div Yield (or Current Dividend Yield): Projected dividend payments for the next 12 months divided by the current stock price. This number shows, in percentage form, how much income can be expected relative to the current stock price. Dividend Yield—1 Year Ago: The stock’s dividend yield (dividends divided by price) from one year ago.

5 Year Average: The stock’s average dividend yield over the past five years.DRIP Plan: Denotes companies that offer a dividend reinvestment plan, which allows shareholders use cash dividends to acquire additional shares of stocks, including partial amounts. Est EPS Growth Rate (3-5 Yr): The forecast annual growth rate in earnings per share for the next three to five years.Ex-Dividend Date: The date used by the exchanges to determine who owns shares of a company. This is two trading days before the record date. Investors must purchase shares prior to the ex-dividend date to receive the dividend.First Year Dividend Paid: The first year a company paid its dividend. If a dividend was suspended, the date is the first year the dividend was reinstated.Free-Cash-to-Div Ratio: A company’s free cash flow divided by dividends paid for the past 12 months. Free cash flow is cash flow from operating activities less capital expenditures. A measure of a company’s ability to both pay dividends and increase its cash balance. Ratios above 1.0 indicate that free cash flow exceeds the amount of dividends paid.Liab to Assets: Total liabilities divided by total assets. A measure of balance sheet strength, lower percentages signal a lower proportionate amount of debt.

-eerF-cesnoCtsE-hsaCevitutsriFviDSPE

htworGhtworGE/P Year Years Flow- Liab MarketRatio 1 Yr 5 Yr Rate Rate Div Div 12 5 Yr to-Div to Cap

Ticker (TTM) Current Ago Avg (3-5 Yr) (5 Yr) Paid Raised Month Avg Ratio Assets (Mil)ABM 17.9 2.6% 2.6% 2.5% 4.2% 4.9% 1965 46 39% 47% 4.62 58% $1,205AFL 10.8 2.8% 2.1% 2.3% 10.2% 17.5% 1973 28 29% 28% 18.93 89% $21,991T 46.6 5.8% 6.1% 5.5% 3.7% 5.1% 1984 28 258% na 1.42 61% $183,021CPK 14.7 3.4% 3.3% 3.8% 12.0% 2.8% 1960 7 48% 59% 0.50 64% $385CVX 8.1 3.0% 3.0% 3.3% 4.4% 9.0% 1912 24 23% 30% 2.39 42% $216,695ETN 12.4 2.9% 2.5% 2.9% 12.1% 12.9% 1923 3 34% 43% 1.50 58% $17,160EMR 15.6 3.2% 2.4% 2.8% 11.9% 9.2% 1947 55 45% 45% 2.41 57% $36,891GD 10.2 2.6% 2.5% 2.3% 7.9% 15.4% 1979 14 27% 24% 4.11 62% $25,923GPC 17.4 3.2% 3.4% 3.8% 8.1% 5.9% 1948 56 50% 54% 1.86 53% $9,779ITW 13.2 2.6% 2.6% 2.7% 11.6% 13.3% 1933 40 33% 42% 2.37 44% $26,850INTC 11.1 3.1% 3.6% 2.9% 11.6% 14.3% 1992 8 32% 46% 2.58 35% $134,467MCD 19.0 2.8% 3.3% 3.1% 9.9% 20.4% 1976 35 48% 52% 1.69 56% $101,346MDT 12.1 2.5% 2.4% 1.8% 6.4% 18.2% 1977 34 30% 29% 3.65 46% $40,008MCHP 18.5 3.9% 3.8% 4.3% 12.1% 19.2% 2003 8 70% 84% 1.37 36% $6,857MSFT 11.4 2.5% 2.7% 1.9% 8.0% 12.8% 2003 1 26% 26% 4.42 43% $269,134NSC 12.1 2.7% 2.5% 2.4% 16.5% 19.5% 1901 10 30% 33% 1.93 65% $22,483PEP 15.5 3.3% 3.2% 2.8% 6.2% 11.8% 1952 39 50% 47% 1.77 72% $98,197TGT 13.2 2.1% 2.2% 1.6% 11.1% 20.1% 1967 40 27% 21% 1.38 66% $37,876UTX 14.8 2.3% 2.2% 2.3% 10.9% 12.9% 1936 17 34% 32% 3.38 64% $76,945VFC 18.2 2.0% 2.7% 3.1% 12.8% 6.1% 1941 39 32% 44% 2.89 51% $16,287VVC 16.7 4.8% 5.3% 5.3% 5.0% 2.5% 1946 52 80% 78% 0.84 70% $2,402WDR 14.6 3.2% 2.0% 2.8% 13.5% 5.9% 1998 2 39% 51% 1.81 50% $2,709WMT 13.0 2.7% 2.8% 2.2% 9.1% 16.9% 1974 38 32% 29% 2.15 63% $202,091WEC 15.6 3.5% 3.5% 2.8% 6.0% 17.7% 1939 9 46% 40% 0.68 71% $7,886Data as of 2/29/2012. Sources: AAII Stock Investor Pro, Thomson Reuters, I/B/E/S and company releases.

oitaR tuoyaPdleiY dnediviD

Dividend Analysis

Definitions of Terms Used in Tables

Market Cap (Mil): A measure of company size, this is the current share price multiplied by the number of shares outstanding, expressed in millions of dollars.Months Dividends Paid: The calendar months the company has typically paid dividends to shareholders (1 = January, 2 = February, 3 = March, etc.).Payment Amount: The dollar amount of the current quarterly dividend payment. An up arrow () indicates that the dividend is higher than that paid last quarter. If no arrow is displayed, the dividend has not changed from the prior quarter.Payout Ratio—12 Month: The percentage of earnings paid out as dividends over the latest 12-month period. 5 Year Average: The average payout ratio for the previous five years. A payout ratio of 100% means the dollar amount of dividends paid equals the dollar amount of profits earned.P/E Ratio (TTM): The price-earnings ratio (price divided by earnings) based on reported earnings per share for the previous 12 months (trailing 12 months). Total Return Since Purchase—Stock: The change in a stock’s price plus the value of all dividends received during the holding period divided by the commission-adjusted purchase price. Index: The total return of the benchmark index since the stock was added to the DI tracking portfolio, expressed as a percentage.

8 March2012

ABM Industries is a classic “boring” company that generates cash flow and rewards its shareholders with increasing dividend payments. The company also uses its excess cash flow to expand through acquisition in the highly fragment janitorial services industry and move into higher growth and margin business segments.

Why Own ABMABM Industries started out as window-washing firm in

San Francisco in 1909 with a single employee. Today, ABM employs around 100,000 employees and serves thou-sands of customers in four primary segments: janitorial services, facility solutions, parking and shuttle services, and security services.

ABM is the largest national janitorial services company. Just over half of ABM’s revenue and 70% of 2012 first quarter’s operating profit came from this business seg-ment. ABM has long-standing service contracts with its cli-ents, and the business tends to offer very stable and pre-dictable earnings and cash flow in the janitorial segment. However, operating margins tend to be low: It was 5% in the first quarter of 2012. An extra work day in a reporting period has material impact on expenses and profits.

ABM Industries is using cash flow from its janitorial segment to expand into higher-growth areas such as engineering services, which now makes up around 22% of revenue. Engineering services extend beyond cleaning and deal with building maintenance and operations. An

energy unit was recently started to help clients reduce energy consumption and operating costs. The engineering and security segments also now allow ABM to bundle its services into a single integrated facilities services contract. Integrated facilities management services are common in Europe but just starting to catch on in the U.S.

Net income has increased during each of the past four years. Last year, net income totaled $69 million, versus $64 million in 2010. Revenue increased from $3.496 bil-lion in 2010 to $4.247 billion in 2011. Operating cash flow increased from $150 million in 2010 to $160 million in 2011. Operating cash flow has grown steadily over the last five years.

Dividend AnalysisABM yields 2.6%. The median yield for the business ser-

vices industry is zero. The current dividend yield matches the 2.6% yield one year ago and is slightly above the 2.5% average yield over the last five years. The company’s dividend looks to be secure. ABM’s payout ratio of 38.6% is low. The company has generated free cash flow on a post-dividend basis for six consecutive years. Its current pre-dividend cash flow covers the dividend payment 4.6 times. The company has the financial ability to increase its payout ratio and divert more cash to the dividend pay-ment. Brokerage analysts are projecting profits to grow 13.6% next year.

ABM Industries paid its first dividend in 1965 and has increased its annual dividend payment every year then. In December 2011, it announced a 4% dividend increase.

RisksABM operates in a competitive industry with high labor

costs relative to sales. It has built its growth around stra-tegic acquisitions in a highly fragmented industry. Acquisi-tions have been accretive to earnings and rely on finding the right companies at the right prices.

ABM is investing in services such as its energy efficiency initiative and engineering services that hold promise, but have yet to perform.

An economy that slows down can hurt ABM’s bottom line, but an economy that heats up and drives up labor costs can hurt profits if the costs can not be passed on to customers. A number of tax incentives aimed at increas-ing employment expired at the end of 2011, boosting the company payroll taxes. Its latest large acquisition exposed the company to federal business and its nuances.

ABM Industries, Inc. (ABM)

Bullish Factors• Purchase of engineering services firm offers growth

into higher margin business and integrated facilities management services

• Increased dividend every year since first offering dividend in 1965

• Generates consistent and strong positive free cash flow

Bearish Factors• Janitorial services industry operates with low profit

margins• Deterioration in economic conditions could reduce

revenue and profits• Growth through acquisition carries risk of

integration and need for disciplined pricing

March2012 9

AAII DIvIDeND INvesTINg

Addition Alert Date: 12/31/2011Price at Alert: $20.48 Risk Index: 1.80Market Cap (Million): $1,205Avg Daily Dollar Volume (Million): $8.0Primary Sector: ServicesPrimary Industry: Business Services

Indicated Annual Dividend: $0.58 Multiples Current 10/2011 10/2010 10/2009 10/2008 10/2007Dividend Yield: 2.5% Dividend Yield (%) 2.6 2.5 2.4 3.0 2.5 1.9Dividend Paid Since: 1965 Earnings Yield (%) 5.6 5.7 5.3 6.1 5.2 4.0Number of Years of Div Increases: 46 Price/Earnings 17.7 17.5 18.8 16.3 19.2 25.1Direct Invest Option: No Price/Book Value 1.5 1.5 1.6 1.3 1.6 2.1DRIP Plan: No 5.03.03.03.03.03.0selaS/ecirP

7002/018002/019002/010102/011102/01tnerruCsoitaRtnuomAelbayaPetaD viD-xEderalceD$0.1450 Payout Ratio (%) 38.6 43.4 43.9 49.1 55.6 45.3$0.1450 Free Cash Flow to Div 4.6 4.6 4.5 4.6 1.4 1.4$0.1400 Gross Margin (%) 11.0 11.0 10.3 10.5 11.0 10.2$0.1400 Operating Margin (%) 2.8 2.8 3.1 2.6 2.7 2.9

Net Margin (%) 1.8 1.6 1.8 1.6 1.3 1.9Rel Strgth 1.93.72.80.99.80.01)%( EOR

Rank 8.44.35.32.40.40.4)%( AOR2.27.18.18.17.17.1)%( oitaR tnerruC%33keeW 49.541.958.453.257.757.75)%( stessA ot seitilibaiL%14keeW 315.27.22.23.25.22.2revonruT tessA%86keeW 62

%44keeW 25 Financial Statements TTM 10/2011 10/2010 10/2009 10/2008 10/2007raeY 5 htworG Sales ($M) 4,247 4,247 3,496 3,482 3,624 2,706

672993763263664664)M$( emocnI ssorG%9.4sdnediviD62111113292)M$( noitaicerpeD%9.9selaS

Net Income (6.0%) Unusual/Extra ($M) 0 0 0 2 0 0EPS Basic (7.5%) Operating Income ($M) 118 118 109 91 100 77EPS Dil Cont (5.7%) Interest Expense ($M) 20 16 5 6 15 1

Pretax Income ($M) 106 106 104 85 84 77SUE Score Net Income ($M) 77 69 64 54 45 52

0.00 Operating Cash Flow ($M) 160 160 150 141 68 540.60 Investing Cash Flow ($M) (307) (307) (88) (38) (422) (55)

Annual Financing Cash Flow ($M) 134 134 (57) (96) 232 710/2013 Capital Expenditures ($M) 22 22 24 19 34 20

4 Net Cash Flow ($M) (13) (13) 5 7 (121) 7$1.62 EPS Basic ($) 1.29 1.29 1.23 1.06 0.90 1.06$1.62 EPS Diluted Cont ($) 1.27 1.27 1.21 1.07 1.03 1.00$1.63 Dividends/Share ($) 0.56 0.56 0.54 0.52 0.50 0.48

Free Cash Flow/Share ($) 2.59 2.60 2.42 2.38 0.68 0.6910/2011 7/2011 4/2011 1/2011 Total 6317243937272)M$( hsaC

$0.34 $0.35 $0.42 $0.16 $1.27 Goodwill/Intangibles ($M) 880 880 660 607 598 259$0.40 $0.16 $0.41 $0.24 $1.21 Total Assets ($M) 1,880 1,880 1,549 1,521 1,576 1,121

Long-Term Debt ($M) 300 300 141 173 230 010/2011 7/2011 4/2011 1/2011 Total Total Liabilities ($M) 1,084 1,084 810 834 932 515$20.28 $20.23 $39.44 $19.48 $99.42 Book Value/Share ($) 14.92 14.98 14.18 13.37 12.75 12.24$17.17 $16.66 $33.23 $16.79 $83.86 Avg Shares Outst'g (M) 53.3 53.1 52.1 51.4 50.5 49.5

Sources: AAII Stock Investor Pro, Thomson Reuters and I/B/E/S. Data as of 3/6/2012.Financial statement data, ratios and valuation data were compiled before ABM's first-quarter results were released.

May 7, 2012Feb 5, 2012Nov 7, 2012

Mar 5, 2012Dec 13, 2011Sep 8, 2011 Oct 4, 2011

Jan 3, 2012Apr 3, 2012

ABM Industries provides facilities management services. The janitorial segment offers floor cleaning and finishing, window washing, furniture polishing, carpet cleaning, and other building cleaning services. Its engineering segment provides mechanicalengineering and technical services and solutions for infrastructure systems, including maintenance, retro-commissioning, mechanical retrofits and upgrades, electrical service, and energy audits. The parking segment operates parking lots and garages. The security segment offers security services and consulting services to commercial, industrial, retail, and residential facilities.

Jun 7, 2011

Mar 5, 2012Dec 13, 2011

Jul 5, 2011

(3%)2%16%(15%)

StockGain

Aug 1, 2012

Rel StrgthIndex0.950.930.990.83

3 YearTTM3.7%21.5%6.7%4.9%5.0%

3.8%5.4%14.7%12.7%7.2%

EPS$0.22$0.37

% Surp0.0%3.4%

$1.43$1.46

Quarterly4/2012

5$0.30

Annual10/2012

5$1.43Current

Month AgoThree Mos. Ago

$0.30$0.30

Est Surprise

EPS Estimates# of Estimates

EPS (Qtr)

Year Ago

Year Ago

TTM

TTMSales/Sh (Qtr)

0%

1%

2%

3%

4%

5%

6%

7%

8%

9%

10%

Mar 2007 Mar 2008 Mar 2009 Mar 2010 Mar 2011

Div

iden

d Yi

eld

$0

$5

$10

$15

$20

$25

$30

$35

Share PriceABM $22.79 ($26.88 - $17.29)

10 March2012

Chesapeake Utilities (CPK)Though valuations of many utilities are elevated, Chesa-

peake Utilities (CPK) trades at a discount to its historical average price-earnings ratio. The company’s recent earn-ings report showed that its expansion strategy has helped drive earnings higher and generate free cash flow.

Why Own CPKCPK distributes natural gas to residential, commercial

and industrial customers in Delaware and Maryland. Thanks in part to a 2009 acquisition, the company also distributes natural gas and electricity to residential, indus-trial and commercial customers in Florida. CPK operates a natural gas pipeline that runs from Pennsylvania to Dela-ware and Maryland. Combined, these are the company’s regulated business units.

CPK also operates unregulated units that provide natural gas and distribute propane. The regulated energy divisions account for 61% of revenues and the unregulated energy divisions account for 36% of revenues. A small portion of revenues are derived from other sources.

We like the fact that Chesapeake Utilities has some diversification in its business model. Though the company is concentrated in a few geographic markets, this risk is offset by the inclusion of two other utilities in the DI portfolio: Vectren Corp. (VVC) and Wisconsin Energy Corp. (WEC). CPK’s natural gas distribution units give it a path to growth, since each pipeline expansion opens up opportu-nities in new markets.

Net income has increased during each of the past five years. Last year, net income totaled $27 million, versus

$26 million in 2010. (The financial data on page 11 was compiled before fourth-quarter earnings were announced on Tuesday, March 6.) This increase occurred despite a decline in total revenues. The adverse impact of unsea-sonably warm weather was offset by higher gross profits from the natural gas distribution units and higher retail margins for propane gas.

CPK has generated free cash flow on a post-dividend ba-sis for three consecutive years, which is very unusual for a utility company. Most utilities do not produce enough cash flow from operating activities to cover their capital expenditures and dividends. Chesapeake Utilities does.

The stock also adds diversification benefits to the DI portfolio because of its size. CPK is the smallest company in the portfolio with a market cap (shares outstanding times the per share price) of $385 million. Including com-panies of varying size in a portfolio helps to decrease the overall risk.

Dividend AnalysisChesapeake Utilities yields 3.4%. This is below the utility

sector median of 3.7% and the natural gas utility median of 4.0%, but the company’s dividend looks to be more secure. CPK’s payout ratio of 47.7% is below the sector and industry averages of 59.5% and 64.8%, respectively. Furthermore, as noted above, the company generates free cash flow.

CPK has increased its dividend for seven consecutive years. It last announced a dividend increase in May 2011, so we’ll be keeping our eyes open in early May for a sign that the streak will be extended to an eighth year.

RisksChanges in energy use are a risk for any utility company,

including Chesapeake Utilities. Weather conditions caused revenues to drop last year, and it seems likely that first-quarter revenues will be affected by the ongoing warm winter temperatures. Demand for natural gas and pro-pane gas will impact this company’s earnings.

Chesapeake’s executives want to continue expanding their pipelines. Though the intent of such projects is to grow future earnings, there is always a risk that the actual payoff will be less than forecast.

Valuations for the utility sector overall are above their historical averages. Though CPK remains attractively valued, its price may lag if the market sentiment starts viewing utility stocks overall as being too pricey.

Bullish Factors• P/E of 14.4 below the industry norm• Generates positive free cash flow, unlike most

utilities• Expanding the natural gas pipelines

Bearish Factors• Utility sector trading at a premium valuation

relative to its historical average• Weather patterns and changes in energy

consumption can adversely impact revenues• Dividend yield is below industry norm

March2012 11

AAII DIvIDeND INvesTINg

Addition Alert Date: 12/31/2011Price at Alert: $43.35 Risk Index: 1.00Market Cap (Million): $385.0Avg Daily Dollar Volume (Million): $1.8Primary Sector: UtilitiesPrimary Industry: Natural Gas Utilities

Indicated Annual Dividend: $1.38 Multiples Current 12/2010 12/2009 12/2008 12/2007 12/2006Dividend Yield: 3.4% Dividend Yield (%) 3.4 3.3 3.6 4.2 4.2 3.6Dividend Paid Since: 1960 Earnings Yield (%) 6.9 6.8 6.1 6.9 6.8 5.4Number of Years of Div Increases: 7 Price/Earnings 14.4 14.7 16.3 14.4 14.6 18.5Direct Invest Option: Yes Price/Book Value 1.6 1.7 1.2 1.6 1.6 1.8DRIP Plan: Yes 9.07.07.00.19.09.0selaS/ecirP

6002/217002/218002/219002/210102/21tnerruCsoitaRtnuomAelbayaPetaD viD-xEderalceD$0.3450 Payout Ratio (%) 47.7 47.6 57.6 60.5 60.2 66.7$0.3450 Free Cash Flow to Div 0.5 1.3 2.1 (0.3) (0.7) (2.7)$0.3450 Gross Margin (%) 39.8 19.7 20.2 15.5 16.6 15.8$0.3450 Operating Margin (%) 12.1 12.1 12.6 9.7 10.9 10.1

Net Margin (%) 6.2 6.1 5.9 4.7 5.1 4.5Rel Strgth 7.014.112.116.90.214.11)%( EOR

Rank 4.37.35.32.31.40.4)%( AOR9.08.09.07.07.08.0)%( oitaR tnerruC%32keeW 48.567.861.869.563.669.36)%( stessA ot seitilibaiL%62keeW 317.07.08.05.07.07.0revonruT tessA%84keeW 62

%85keeW 25 Financial Statements TTM 12/2010 12/2009 12/2008 12/2007 12/2006raeY 5 htworG 132852192962824234)M$( selaS

7334544548271)M$( emocnI ssorG%8.2sdnediviD899211202)M$( noitaicerpeD%2.31selaS

)M$( artxE/lausunU%0.02emocnI teN 1 1 2 1 0 0328282432525)M$( emocnI gnitarepO%0.9cisaB SPE

)M$( esnepxE tseretnI%6.8tnoC liD SPE 9 9 7 6 7 6Pretax Income ($) 44 43 27 22 22 18

SUE Score Net Income ($) 27 26 16 14 13 11(2.00) Operating Cash Flow ($M) 59 61 46 29 26 30(1.00) Investing Cash Flow ($M) (53) (49) (23) (31) (31) (49)Annual Financing Cash Flow ($M) (7) (13) (21) 2 4 2112/2013 Capital Expenditures ($M) 53 45 27 31 31 49

3 Net Cash Flow ($M) (1) (1) 1 (1) (2) 2$3.08 EPS Basic ($) 2.81 2.75 2.17 2.00 1.96 1.74$3.08 EPS Diluted Cont ($) 2.79 2.73 2.15 1.98 1.94 1.76$3.12 Dividends/Share ($) 1.34 1.31 1.25 1.21 1.18 1.16

Free Cash Flow/Share ($) 0.67 1.65 2.63 (0.34) (0.83) (3.08)9/2011 6/2011 3/2011 12/2010 Total Cash ($M) 2 2 3 2 3 5$0.25 $0.37 $1.43 $0.74 $2.79 Goodwill/Intangibles ($M) 39 39 38 1 1 1$0.17 $0.35 $1.47 $0.71 $2.70 Total Assets ($M) 658 671 616 386 382 325

Long-Term Debt ($M) 117 90 99 86 63 719/2011 6/2011 3/2011 12/2010 Total Total Liabilities ($M) 420 445 406 263 262 214$8.43 $9.08 $15.37 $12.38 $45.26 Book Value/Share ($) 24.83 23.87 28.69 18.07 17.74 18.43$8.06 $8.46 $16.27 $10.59 $43.38 Avg Shares Outst'g (M) 9.56 9.47 7.31 6.81 6.74 6.03

Sources: AAII Stock Investor Pro, Thomson Reuters and I/B/E/S. Data as of 3/6/2012.

Apr 5, 2012Jan 5, 2012Oct 5, 2011

Feb 29, 2012Nov 2, 2011Aug 3, 2011 Sep 13, 2011

Dec 13, 2011Mar 13, 2012

Utility engaged in various energy and other businesses. Operatingsegments include regulated energy, unregulated energy and other. Regulated energy businesses provides natural gas distribution in Delaware, Maryland and Florida; natural gas and electric distribution in Florida through Florida Public Utilities; and natural gas transmission operations on the Delmarva Peninsula and Florida through Eastern Shore Natural Gas and Peninsula Pipeline. Its unregulated businesses include natural gas marketing operations through Peninsula Energy Services; propane distribution operations through Sharp Energy, Sharpgas, and Flo-Gas; and propane wholesale through Xeron.

May 4, 2011

Mar 6, 2012Nov 3, 2011

Jun 13, 2011

(7%)(5%)2%(1%)

StockGain

Jun 15, 2011

Rel StrgthIndex0.910.870.870.96

3 YearTTM3.1%7.5%6.4%3.7%3.3%

3.5%18.3%25.5%12.0%12.1%

EPS$0.83$0.18

% Surp9.9%

(18.2%)

$2.94$2.96

Quarterly3/2012

4$1.48

Annual12/2012

4$2.94Current

Month AgoThree Mos. Ago

$1.48$1.48

Est Surprise

EPS Estimates# of Estimates

EPS (Qtr)

Year Ago

Year Ago

TTM

TTMSales/Sh (Qtr)

0%

1%

2%

3%

4%

5%

6%

7%

8%

9%

10%

Mar 2007 Mar 2008 Mar 2009 Mar 2010 Mar 2011

Div

iden

d Yi

eld

$0

$5

$10

$15

$20

$25

$30

$35

$40

$45

$50

Share Price

Financial statement data, ratios and valuation data were compiled before CPK's fourth-quarter results were released.

CPK $41.02 ($44.53 - $36.00)

12 March2012

“Icarus, my son, I charge you to keep at a moderate height, for if you fly too low the damp will clog your wings, and if too high, the heat will melt them. Keep near me, and you will be safe.”

Investors are well served to follow the lesson from the famous Greek myth of Daedalus and Icarus. Too often our fear keeps us out of the stock market when values are abundant, only to rush into stocks when we feel confi-dent.

The same principle holds true for factors used to select stocks. If you have been told that stocks with below-aver-age price-earnings ratios are potentially attractive invest-ments, then you might jump to the conclusion that stocks with extremely low price-earnings ratios should be even better prospects. If growth leads to higher future earn-ings, why not seek out the highest expected growth for highest potential capital appreciation? Or if dividend yield is desired, why not seek out the highest yield possible? Studies show that the best returns do not normally come from stocks with extreme values. Stocks with extremely high expected growth tend to underperform because the market has bid up their share prices too high for a growth rate that is not sustainable. Stocks with extremely low price-earnings ratios normally deserve their low valua-tions because of poor future prospects and high future uncertainty. Most importantly for us, the best returns do not usually come from the highest-yielding stocks. Instead, they come from stocks with above-average, but not extreme, yields.

Credit Suisse Quantitative Equity Research studied the performance of dividend-yielding stocks in the large-cap S&P 500 index from 1980 through 2008. It ranked the com-

panies from lowest to highest dividend yielding and classi-fied the stocks into deciles, portfolios of 50 stocks each. These equally weighted decile portfolios were created and rebal-anced based upon dividend yields as of each month end. Figure 1 below shows the cumu-lative returns of some of these portfolios. Over this time period, stocks with higher yields outperformed low-yielding stocks. However, the highest-yielding group (decile 10) was not the best-performing portfolio. The decile 10 group underperformed deciles 6 through 9, but outperformed deciles 5 and below. Higher dividends helped to create portfolios that outperformed the market, but the best performance came from building portfolios just below the top 10%. Portfolios constructed with stocks in the 8th and 9th deciles had the best cumulative performance.

We used Stock Investor Pro, AAII’s stock screening and analysis service, to determine the dividend yield ranges, by decile, for stocks in the S&P 500 index. The yield ranges for these deciles are presented in Table 1. S&P 500 stocks with yields of 4% or higher made the 10th decile, while 105 stocks with no dividend payments were lumped into

the lowest 20% group. S&P 500 stocks with yields above 4.0% tended to be utilities, drug compa-nies, and tobacco firms. Technol-ogy, biotech, and specialty retail dominated the group of stocks not paying any dividend. The Credit Suisse research indicates that in today’s market, stocks with yields between 2.5% and 4.0% should be the primary focus for creating a dividend-oriented stock port-folio, a segment that includes companies from a diverse range of industries. ▪

Don’t get Burned Reaching for Yield

Figure 1. Dividend Yield Decile Performance

Table 1. S&P 500 Dividend Yield DecilesDecile Range of Divdend Yields 10 Greater than 4.0% 9 3.0% to 4.0% 8 2.5% to 3.0% 7 2.1% to 2.5% 6 1.7% to 2.1% 5 1.3% to 1.7% 4 0.8% to 1.3% 3 0.01% to 0.8% 1 & 2 No DividendSources: AAII’s Stock Investor Pro,Thomson Reuters.