This document discusses strategies for generating income from dividend stocks in uncertain markets. It provides details on Deschaine & Company's Equity Income Portfolio, which focuses on high-yield stocks with a history of growing dividends. The portfolio has outperformed the S&P 500 index since 2001 due to strong dividend income. Lower stock prices allow investors to accumulate more shares and build dividend income faster over the long run. Price volatility should be embraced as an opportunity rather than feared.

1. Helping You Navigate in an Uncertain Investment World
1st Quarter 2010
Volume 11 Issue 1
Inside this issue: High-Yield, Dividend Growth Investing—The Details
Front Seat-When it comes to
2 Sweating the details is how you win at investing in a long-term bear market.
Investing-it’s all about the Price
How We Win the Game
EIP Annual Returns
Now for something com-
4
5 O UR YEAR END 2009 ISSUE OF VIEWPOINT
generated a number of requests from readers
for details of how our EQUITY INCOME portfo-
lio is expected to make money over the next decade.
dividend income is available to provide ample income
for a comfortable retirement.
Veteran VIEWPOINT readers also know there’s
one other major reason for our excessive enthusiasm
6 This interest was probably driven, at least in part, by for dividends, and growing dividends at that, and that’s
pletely different the fact that we’ve added a number of new readers in the current economic and stock market environment.
the last year. For several reasons. Many of you folks As we’ve droned on constantly in these pages since
Doing Business With Us 6 have been kindly forwarding or sharing your VIEW- 2000, we believe future capital gains from stocks will
POINT with others for their reading enjoyment and for be difficult to come by as the stock market continues to
EIP High and Low Historical that we thank you. We’re always happy to have more unwind the valuation excesses of the 1982 to 2000 bull
7 readers. We’ve also obviously added a number of new market. And so far in the new millennium that has
Dividend Yields
clients since Matt and Jason joined the firm and for certainly been exactly the case. Consider that from
Budget Deficit Bomb Shell 8 that we are really thankful. And lastly, we’ve made a January 1, 2001, through December 31, 2009, the S&P
concerted effort to spread the word about VIEWPOINT, 500 index posted a negative return of 13.1% from capi-
figuring, if we’re going to take the time to write and tal and a 16.0% positive return from dividends. That a
publish this quarterly diatribe, we might just as well total return of 2.9% for the S&P over the last nine
promote it for the betterment of mankind. years, which works out to a whopping 0.3% annualized
In addition to discussing our investment strategy total return for the “stock market.” We expect similar
and process here each quarter, we direct inquires for results for the stock market to continue.
Deschaine & Company, L.L.C. additional information on our strategy, our investment Compare those results to our cumulative 9.6%
A REGISTERED INVESTMENT ADVISOR
philosophy and security selection process to our newly annual EIP results over the same nine year period. The
revised website at deschaineandcompany.com. As be- annual returns for the EIP since 2001 are shown at the
World Headquarters fore, the site includes all past issues of VIEWPOINT, top of page 5, along with Vanguard’s S&P 500 Index
128 South Fairway Drive along with a new section under “About Us,” entitled fund. We use the Vanguard fund in this instance be-
Belleville, Illinois 62223 “How We Do It,” which briefly describes a few of the cause it’s a real alternative to investing in our EIP, as
Phone: (618) 397-1002 more pertinent steps in our security selection process. apposed to the S&P 500 index.
mark@deschaineandcompany.com We encourage you to check out our new web site and The returns are broken down into their income
marnie@deschaineandcompany.com give us your unvarnished opinion. We’re committed to and capital components. When we launched the EIP,
making it a useful tool in providing information about our modest goals were to earn the portfolio’s expected
Maryville Office our investment methodology and process and any dividend yield, which initially was about 5.5%, while
Jason Loyd feedback will be most helpful in the endeavor. trying to protect the portfolio from any significant
(618) 288-2200 Back to the questions about our magic formula capital losses in the event the stock market took a “post
jason@deschaineandcompany.com for making money with the EQUITY INCOME Portfolio -bubble bath.” We did this primarily by holding extra
(EIP) strategy. As you know, our EIP focuses on creat- amounts of cash. Our average cash position since in-
Highland Office ing a diversified portfolio of high-yield stocks that have ception has been about 18%. At the time, we certainly
Matt Powers a history of growing their dividend. The primary ob- had no expectations that capital returns would be posi-
(618) 654-6262 jective of the portfolio is to generate a growing stream tive. Had we known, we certainly would’ve been more
matt@deschaineandcompany.com of dividend (and some modest amount of interest) income aggressive in investing cash and reinvesting dividends
We’re on the Web at: that initially we can deploy to buy more shares of divi- to take advantage of a rising stock market in 2003 to
dend stocks with the overall objective of building even 2007 and again last year. Instead, our large cash hold-
deschaineandcompany.com
more future income. Ultimately, the growing stream of
(Continued on page 4)

2. Page 2 1st Quarter 2010 Viewpoint
VIEW FROM THE FRONT SEAT by Mark J. Deschaine
When it Comes to Investing, It’s all About the Price
I NVESTORS ARE NOTORIOUS for undermining their own in-
vesting efforts by buying high and selling low. This is par-
ticularly true when it comes to buying and selling stocks, but
Not So When it comes to Pricing Stocks?
Just the opposite often occurs when it comes
to the stock market. When stock prices drop,
the maxim applies to just about any asset. There’s simply no investors see (or is it feel) the price drop and
argument about that. The historical evidence and countless it’s obvious from their usual reaction that
studies have shown conclusively and repeatedly that investors they don’t have a sense of what the business underlying the
are their own worst enemy when it comes to buying and selling stock is worth. If they did they probably wouldn’t sell the stock.
stocks, stock mutual funds or, as I said, just about any financial Typically, about all most investors know about the stocks
asset. The fact that most folks aren’t rich after 20 or 30 years of they own is the market price (notice I didn’t say market “value,”)
investing is testament to the fact that most investors are inca- has dropped and that tends to cause them to panic. As a result,
pable of emotionally handling the stock market’s often violent they usually do the only thing they feel they can do to prevent
volatility to their own wealth creating detriment. any further erosion of their portfolio, they sell. Compounding
What’s interesting about this quandary is that everyone their mistake, they often sell well after most of the price decline
understands the concept of a bargain and how to take advan- has already occurred; turning what is often a temporary market
tage of one in just about every other aspect of their financial price hiccup into a permanent capital loss.
affairs--except, it seems, when it comes to investing. As an ex- Back to my Corvette analogy,(2) if a hypothetical stock mar-
ample, if I were to put a brand new Corvette ZR1 that I just ket for Corvettes dropped the price of my Corvette to $90,000
won in a raffle on my front lawn and put a “For Sale” sign on it or even $50,000 and I know the car’s worth over $120,000 (and
for say, $100,000, I might get interest from a few knowledge- I didn’t need the cash really bad) then I’d be an idiot to sell the car
able Corvette aficionados to grasp that my asking price is rela- at either price because I know it’s really worth a lot more than
tively cheap compared to $120,000 or more a dealer might the prevailing price. So I’m not inclined to sell.
charge for a similarly equipped car. Because of the low initial
asking price, I’m sure to get interest in the car.(1)
Just for the sake of the discussion, let’s say I don’t get any All that Matters: Dividends and Prices
takers at my initial absurd $100,000 asking price so I lower my So what’s the point of this talk about the price of a hypothetical
price to say $90,000. At the new lower price, I’m sure to get Corvette? There are two actually. One, is the role dividends
play in owing stocks. When one of our stocks gets clobbered—
more interest from a growing pool of Corvette enthusiasts as
and they all do at one time or another—the dividend acts to
well as possibly some offers from a few regular folks simply
reassure us of the stock’s value. Because there is a tangible dol-
interested in buying a cool car at a more amenable price. The
lar value in the dividend to us, we’re less likely to panic and sell
point is, the new lower price is certainly going to attract more
a good stock after a price drop as long as we’re collecting a
potential buyers because of the growing disparity between my
growing dividend every quarter. We figure as long as the com-
asking price and the actual market value of the car. This, of
pany can continue to pay the dividend, we’ll own the stock re-
course, is the way pricing in an economic transaction is sup-
gardless of how badly the stock market beats up the stock price.
posed to work. The lower the asking price, the more interested po-
In fact, as we note endlessly in these pages, we’re inclined to
tential buyers become and the more potential buyers I attract.
take advantage of any unusually steep price drop to try to cap-
At this point, let’s pretend I’m suddenly desperate for cash
ture uncommonly high yields by adding to our position—again
and decide that $50,000 is what I need and I need it like yester-
as long as we believe the dividend is secure.
day. So I lower the Corvette’s asking price once again (remember
this is a loaded, top of the line 2010 ZR1, which retails for anywhere
between $120,000 and $130,000 depending on options etc.) Offering Now, About Prices
the car at the inconceivably low price of $50,000, I suspect will As for prices, one way to deal with the ever present price vola-
garner lots of buying interest and I’ll have the car sold about 10 tility is to ask yourself this question: “Over the next ten years,
minutes after I put the new sign out. are you a net buyer or are you a net seller of assets?” In other
The moral to this story is that the pool of potential buyers words, are you looking to buy as many shares of stocks as you
for my hypothetical Corvette grows each time I lower my ask- can over the next decade or are you more likely to be a net-
ing price because knowledgeable potential buyers understand seller of stocks to fund your retirement needs? Given that the
the relationship between the value of the car (the asset) and the life expectancy of the average American is now well into their
asking price relative to the “value” they’d get for their money. 80s, most of us should probably consider ourselves net buyers.
Each successive lower asking price attracts more potential buy- If you’re going to be buying stocks over the next ten years
ers, rather than scare them away, because buyers are able to the next question you should ask yourself is: “Do you want
make rational price verses value tradeoffs when comparing the stock prices to go up, stay flat, or go down?” Now, ask yourself
value of the car to my asking price. the question in the context of my Corvette price analogy.
(Continued on page 3)
1) This is before eBay, don’t you know. 2) Hey, I’ve got so much invested in the “Corvette analogy” I’ve got to play it out to its logical conclusion.

3. Deschaine & Company, L.L.C. Page 3
(Continued from page 2) same hypothetical stock. In each case the Of course, the astute members of our
To be a successful investor requires initial price is $25 per share. The stock readership, which is most of you, will note
that you fully embrace price volatility and pays an annual dividend of $1.00 per share that the respective portfolio values at the
use it to your advantage. Think of it this for a 4% dividend yield. Over the next ten end of the first ten year period more than
way: what choice do you have? The reality years the dividend grows at a nice makes up for less annual dividend income.
is that stock prices fluctuate, so rather healthy, but doable, rate of 10% a year. Ah, but that’s just in the first ten
than cower in the corner in fear, why not In our first example the stock price years. If we assume going forward each
embrace volatility and try to capture high fluctuates while it drops in half over a ten stock performs the same, or as in our ex-
yields when the stock market goes year period. The second example the stock ample, they each double over the second
through one of its many crazy periods. fluctuates 20% up or down each alternat- ten years, guess which stock wins then?
This next statement is so obvious to ing year but ends up even after ten years. The stock that declined over the first ten
me that I’m almost embarrassed to note it, And the last example the stock doubles years runs away from the other two in
but here goes anyway: Lower stock prices over the initial ten year period while, like both dividend income and market value by
help us achieve our investment objective the other two examples, fluctuating up the end of the second ten year period.
that much quicker. Higher stock prices and down along the way. That shouldn’t come as any surprise given
only really matter when we’re looking to that we were able to buy a whooping
sell assets—not when buying them. Short The Winner Is? 71,827 shares in the first example com-
of a stock market plunge which scares the As the table shows, when it comes to pared to 26,387 and 11,903 respectfully
pants off all investors, professionals and building a portfolio for dividend income, a for the other two.
amateur alike, investors should wish for steadily declining stock price helps build There you have it, price volatility at
periodic and orderly selloffs in stock dividend income significantly compared to it most constructive. The next time the
prices so we can systematically buy as the other two alternatives. Annual divi- stock market drops try to look at it like an
many shares as possible. dend income in year ten in the declining neighbor putting a 2010 Corvette ZR1 for
If you really have to measure some- stock price example grows to $29,638, sale on his lawn at a ridiculously low price
thing, why not measure how many shares, compared to $21,819 in the flat stock relative to its true value, and use the op-
or in the case of your mutual fund, how price example and $17,148 in the stock portunity to take advantage of his
many units you own. Success in invest- price doubling example. “mispricing” to snap up a bargain.
ing is really about accumulating as Our declining stock price is the win- If you really must buy high and sell
many shares or units for as little ner when it comes to generating dividend low, buy stocks when their dividend yields
money as possible. income because, obviously, we’re able to are high and sell them when their dividend
The table below demonstrates the buy a sizable number of additional shares yields are low.
benefits of price volatility. The example compared to the other two options, espe- That is, after all, what we’re try to do
shows three stock price options of the cially the stock doubling option. here at Deschaine & Company.
Share price drops in half over first 10 years Share price is flat over first 10 years Share price doubles over first 10 Years
Share # Of Annual Market Share # Of Annual Market Share # Of Annual Market
Year Price Shares Income Value Price Shares Income Value Price Shares Income Value
1 $ 18.75 4,234 $ 4,658 $ 79,400 $ 20.00 4,220 $ 4,642 $ 84,400 $ 22.50 4,195 $ 4,615 $ 94,400
2 23.44 4,453 5,388 104,373 26.00 4,416 5,343 114,826 28.13 4,376 5,295 123,076
3 17.58 4,790 6,376 84,207 20.80 4,699 6,254 97,739 25.31 4,606 6,130 116,593
4 24.61 5,075 7,431 124,904 27.04 4,953 7,252 133,940 31.64 4,819 7,055 152,485
5 14.77 5,629 9,065 83,116 20.28 5,346 8,611 108,433 28.48 5,091 8,200 144,998
6 20.67 6,111 10,826 126,335 26.36 5,706 10,108 150,435 37.02 5,335 9,452 197,518
7 12.40 7,071 13,780 87,711 19.77 6,268 12,215 123,945 33.32 5,647 11,005 188,164
8 17.36 7,944 17,030 137,954 25.70 6,791 14,557 174,566 43.31 5,927 12,705 256,719
9 10.42 9,742 22,972 101,505 19.28 7,621 17,971 146,938 38.98 6,285 14,821 245,023
10 15.00 11,427 29,638 171,438 25.00 8,412 21,819 210,347 50.01 6,611 17,148 330,668
11 16.05 13,458 38,397 216,041 26.75 9,309 26,561 249,073 53.51 6,964 19,869 372,679
12 17.18 15,917 49,954 273,401 28.63 10,330 32,420 295,726 57.26 7,345 23,054 420,623
13 18.38 18,906 65,271 347,489 30.63 11,494 39,681 352,089 61.27 7,759 26,788 475,426
14 19.67 22,557 85,663 443,612 32.78 12,826 48,707 420,385 65.56 8,209 31,174 538,173
15 21.04 27,035 112,935 568,894 35.07 14,353 59,959 503,390 70.15 8,698 36,334 610,137
16 22.52 32,553 149,582 732,946 37.52 16,111 74,032 604,583 75.06 9,230 42,414 692,815
17 24.09 39,383 199,061 948,793 40.15 18,139 91,686 728,339 80.31 9,811 49,592 787,967
18 25.78 47,877 266,196 1,234,176 42.96 20,487 113,907 880,178 85.93 10,446 58,080 897,676
19 27.58 58,493 357,743 1,613,385 45.97 23,212 141,968 1,067,089 91.95 11,141 68,138 1,024,402
20 29.51 71,827 483,221 2,119,840 49.19 26,387 177,523 1,297,950 98.38 11,903 80,077 1,171,063
PUBLISHER: MARK J. DESCHAINE EDITOR: JOHN H. DESCHAINE CONTRIBUTING EDITOR: TOM O’HARA STAFF CONTRIBUTORS: MATT POWERS, JASON LOYD COPY EDITOR: MARNIE E. DESCHAINE TECHNICAL ADVISOR: Joseph M. Deschaine. VIEWPOINT is a
complementary publication of Deschaine & Company, L.L.C. a registered investment advisor in Belleville, Illinois. This information has been prepared from sources deemed reliable, but its accuracy is not guaranteed. It should not be assumed that any
securities discussed will be profitable or will equal past performance, or is it an offer to buy or sell any security mentioned. Deschaine & Company and/or one or more of its clients, employees, family or friends may have a position in the securities dis-
cussed herein. © 2010. All rights reserved. Reproduction of this publication is strictly forbidden without written consent from Deschaine & Company. This issue was published on April 20, 2009. If you would like to receive a complementary copy each
quarterly, simply send us your address and the preferred method of delivery: snail-mail or email, to: 128 South Fairway Drive, Belleville, IL 62223 Or email us at mdeschaine@charter.net and we would be happy to add you to one of our mailing lists.

4. Page 4 1st Quarter 2010 Viewpoint
HOW WE WIN THE STOCK MARKET GAME Over The Next Decade
D&C EIP S&P 500
Our Strategy Compared to the S&P 500 Index As of 2/28/2010 Strategy Index
1) Own high yield stocks: Current Dividend Yield 6.20% 1.80%
9-Year Annualized
2) With a history of dividend growth: Dividend Growth Rate (1)
15.04% 1.96%
Expected Dividend Yield over
3) Capture higher yields as stock prices decline: the next decade (2)
6.20% — 10.00% 2.10% — 6.00%
4) Buy high yield stocks when their current
Take advantage of price volatility to capture exceptional dividend yields.
yield > their 5-year average yield:
5) Match the S&P in capital returns: Zero Returns from Capital 0.0% 0.0%
6) Reinvest all dividend and interest income in
Maximize the power of money to compound.
a timely manner to build future income:
1) The history of the Equity Income Portfolio Strategy. *2) As stock prices decline over the next decade as we anticipate, we expect yields on the S&P to rise to 6.0% or better.
As that happens we expect the dividend yield on our universe of stocks to rise from 6.2% to 10.0% or better over the same period locking in annual dividend yields of 10% or
better on an all stock portfolio.
(Continued from page 1) of the EIP strategy for their potential contribu- discuss in a moment.
tion to the portfolio’s total return and then as- 3) Capture higher yields as prices decline: As
ings was not warranted by our equity returns to sess the probability of actually earning the re- we discussed at length in last quarter, we believe
the detriment of the EIP’s total returns. But turns we expect over the coming decade. the current bear market cycle remains firmly
anticipating short-term moves in the stock mar- 1) Own high yield stocks: This, of course, is intact and we expect stock prices to worm their
ket have never been our forte, (nor anyone else’s the biggie, contributing 6% (or better) annually to way lower (and conversely, dividend yields to wiggle
that we know of, for the matter) and such moves our total and accounting for more than 60% of their way higher) over the next ten years. That’s
are only blatantly obvious with the exacting our total expected return over the next ten the bad news. The good news is this will allow
focus of 20/20 hindsight. At the same time, we years. At today’s prices, we can construct a port- us to capture higher dividend yields until yields
should point out that cash returns over the last folio of income stocks with a current dividend for the market reach or exceed 6%. Since our EI
nine years have handily beat the S&P 500 so, all yield of about 6.0%. (The portfolio shown on page portfolio has a current yield that’s three times
in all, cash was not such a bad place to be. 7.) We believe the likelihood of actually earning the market to begin with, (6.2% compared to 1.8%
Then again, in our defense, at least our more than 6% from the dividend yield over the for the S&P 500) we expect to add stocks to the
“error” was one of omission and that about all next ten years is excellent. Why? Because the portfolio with dividend yields of 7, 8, 9, and yes
holding too much cash really did was shave a majority of the stocks in our portfolio will not even 10% by the time the market’s dividend
few percentage points off the EIP’s otherwise only pay us their current dividend, but they’re yield reaches 6%. How can we be so certain?
good performance—as opposed to actually in- likely to raise their dividends over the next ten Because that’s been the case at the bottom of
curring real capital losses. Not that we’re happy years at close to double digit annual rates. That every previous bear market in history. We see
leaving extra returns on the table, mind you. being the case, we’re about as certain as we can no reason this time will be any different.
Being the greedy capitalists that we are, it pains be that we’ll earn at least 6% from the dividend 4) Be disciplined when buying. Using our
us too because we made the very same mistakes component over the next ten years. tried an true buying criteria we expect to add an
with our own personal portfolios. Since we man- 2) History of dividend growth: After dividend additional 1% to our annual returns over time.
age our own money the same as we do for cli- yield, this is the most important variable to our 5) Match the S&P in capital returns: Had we
ents using the EIP strategy we feel the error of ultimate success. We expect to add an additional known when we launched the EIP strategy in
our ways directly and right along with you. We 2.5% in annual return from dividend increases December 2000, that capital returns for the
like to think our personal commitment to the over the next decade. To achieve this objective, stock market the coming decade would, in fact,
EIP strategy buys us some street “cred” with we estimate the EI portfolio will need to raise its be flat, that would’ve been just fine with us. At
clients and has to count for something, right?(5) dividend at least 7.5% a year. We’re comfortable the time, we were anticipating a much worse
The table at the top of this page is a break- the EIP can achieve that level of annual dividend possible outcome for capital returns than break-
down of the EIP’s 10-year return objectives. As growth, particularly when we consider that even—and through the market bottom in 2003,
you can see, there’s more to the EIP strategy since inception the portfolio’s dividends have it certainly looked that way. As we now know,
than simply buying high-yield stocks and wait- grown more than 15% a year. If anything, our capital returns have been almost exactly flat
ing for the mailman to drop off our quarterly expectations here are somewhat conservative
dividend checks. Let’s examine each component regarding dividend growth for reasons we’ll (Continued on page 5)
5) At least we hope it does. Then again, maybe not.

5. Deschaine & Company, L.L.C. Page 5
OUR EQUITY INCOME Portfolio: Gross Annual by Capital and Income Returns 2000-2009
EQUITY INCOME PORTFOLIO 2009 2008 2007 2006 2005 2004 2003 2002 2001 Annualized
Capital Return 10.5 - 32.4 - 6.1 16.3 - 1.2 20.2 29.1 1.5 14.6 3.4%
Income Return 6.2 7.5 6.4 6.0 5.8 4.6 5.2 6.5 7.1 6.1%
Equity “Only” Total Return* 18.2 - 23.7 0.3 22.3 4.6 24.8 34.3 8.0 21.7 9.6%
EIP Total Portfolio Return** 10.2 - 17.5 1.1 19.6 3.9 19.7 19.8 7.2 16.3 8.1%
VANGUARD S&P 500 INDEX FUND 2009 2008 2007 2006 2005 2004 2003 2002 2001 Annualized
Capital Return 23.6 - 38.5 3.5 13.6 2.9 8.7 26.5 - 23.4 - 13.1 - 2.6%
Income Return 2.9 1.5 1.9 2.0 1.8 2.0 2.0 1.2 1.1 1.9%
Total Vanguard S&P Index Return 26.5 - 37.0 5.4 15.6 4.7 10.7 28.5 - 22.2 - 12.0 - 0.6%
*Represents Equity “Only” returns for periods shown. ** Equity Income Total Return included cash holdings.
(Continued from page 4) higher stock prices. Why do we think that? Be- burger-helper in retirement.
since 2000, with a couple of significant dips and cause it eventually always does.
rebounds along the way. While the overall mar- Here’s a couple of additional obvious, but What if Dividends Don’t Grow?
ket’s capital returns are flat, the EIP has provided never the less, powerful reminders on the subject Given our less then optimistic outlook for the
annual capital returns of 3.4% over its first nine of growing your money: economy, how likely are companies to raise their
years. For that we are both grateful and frankly Keep fees, commissions and taxes low: As dividends in the coming decade? That’s a reason-
a little flabbergasted. Ben Franklin said, “A penny saved, is a penny able question to ask, so we’ll make a reasonable
6) Dividend Reinvestment: Through the earned.” That timeless advice applies in these effort to answer it. Our snapshot answer—pretty
process of reinvesting dividends, we expect to tough economic times more than ever. By watch- likely, actually. Even though we expect the econ-
add an extra .50% to 1.0% to the bottom line ing expenses and minimizing portfolio turnover, omy to make a slow and laborious recovery by
return (a half of a percent a year in additional an- we expect to keep total portfolio expenses below historical standards, significantly underperform-
nual return) from timing dividend re-investments one and a half percent annually (excluding taxes). ing past recoveries in the process, we do expect
when the market swoons and when individual Boost compounding by reinvesting as much better than average growth in dividend payouts
stocks are priced at particularly attractive yields. investment income as possible: For clients that and consistent increases across the board for
With discipline, we think this goal could also don’t need income and are able to re-invest all of several reasons.
prove to be conservative. the portfolio’s investment income you can expect First, we have to concede, most companies
will earn an additional one to two percent annu- have done a pretty good job of lowering their
Looking at Our Ten Year Outlook ally from the miracle of compounding by rein- overhead and operating expenses and, as a result,
Looking ahead over the next ten years, our out- vesting all your dividend income. How much their profits and discretionary cash flows are up
look for capital returns for the stock market re- additional return depends on how much of the significantly in the last year or so (partly justifying
mains negative. We alert readers that they income you’re able to sock away and re-invest. the stock market’s recent performance). Corporate
should remain cautious regarding stock prices in The more the better. managers did a good job of getting ahead of their
general and be prepared to see significant price Additional Savings: Socking extra money cost curve entering the economic downturn. The
volatility. Basically, we’re anticipating a replay of away each year, even in modest amounts, can silver lining in the painful decision to lay off more
the last ten years. have a huge impact on your long-term returns. than six million workers is that most of the cost
So what’s our plan to deal with all this un- During these tough times, scrimping and saving savings go directly to the bottom line and show
certainty? Our plan, of course, is to do what every extra dollar can help enormously, particu- up almost immediately in higher discretionary
we’ve been doing since 2000, which is to manage larly when you keep in mind that the extra cash flows. So while the top line for many indus-
client equity portfolios to maximize compound- money can be used to capture nice dividend tries are not growing and we don’t expected
ing through stocks with a high dividend yield, yields in our EIP over the next decade. Our sug- them to grow much over the next few years, we
exceptional dividend growth, and do all we can gestion for the next decade is simple: save, save, do expect cash flows to continue to improve with
to take advantage of the many dips to reinvest and save some more. companies generating extra free cash that’ll be
dividends. And like the last ten years, we’ll let the There you have it. A detailed account of our available to boost dividends.
capital return chips fall where they may. At the plan to make money in a declining stock market Second, through the cost cutting process,
same time however, we have reason to believe (or, if you prefer, a rising dividend yield market) over and because there are few viable investment op-
that if the EI portfolio’s dividends do, in fact, the next ten years. When it comes to investing, portunities for most companies to invest their
grow 10% a year at some point the stock market paying meticulous attention to the details can
will recognize that and reward our stocks with mean the difference between eating steak or ham- (Continued on page 6)

6. Page 6 1st Quarter 2010 Viewpoint
(Continued from page 5) dends as companies generate higher revenues fact that Obama-care, at 2,407 pages and count-
excess cash in the slow economy, companies have and higher cash flows giving a boost to the pros- ing, was one of the largest bills ever shuttled
accumulated record amounts of cash on their pects for future dividend payments. through Congress guarantees that the unin-
balance sheets. Managers have done a good job tended consequences, whatever they eventually
of hoarding cash in these tough times which is Now for Something Completely Different turn out to be, will be huge and will likely come
exactly the right thing to do. Among the stats to Creating a 20th Century Health Care System from straight out of left field.
support this argument is the percentage of corpo- Now that the monumental monstrosity known as Yet, of all the possible negative ramifica-
rate cash to total assets for the non-financial S&P “Obama-care” has been shoved down our collec- tions of this hideous bill that we could conjure up,
500. The ratio has surged in the past 12 months tive throats, we’d be remiss if we didn’t devote at probably the most devastating is the fact that
to a 35-year high of 9.7%. The increase is broad- least a paragraph or two of commentary on its essentially what Obama and the Democrats in
based and includes all industry sectors with the passage and some of the possible economic and Congress have done is permanently relegate our
exception, as noted of the financial sector. social implications. After much thought, and deep health care system to the inefficiencies of govern-
So far the extra cash hasn’t caused manag- political and economic analysis, about all we can ment bureaucrats and in the process effectively
ers to do any of the foolish things managers tend say for sure is this; we have no idea what the kill any possibilities for future advancement in
to do when they find themselves with too much impact this massive meddling into one sixth of health care treatments. And at a time when we
cash: like buy back stock at over-inflated prices the U.S. economy will have on the availability, believe we’re on the verge of many extraordinary
like they did in 2006 and 2007, make ill- quality or cost of health care or the health insur- new discoveries in health sciences. It’s a shame,
conceived and over-priced acquisition, invest in ance that pays for most of it. And don’t kid your- but we’re likely to never know what amazing
new businesses or projects that do not generate a self, no one else does either. There’s not a person new discoveries and cures this ill-advised bill
high enough internal rate of return to justify the on the planet who can tell you, with any degree forever derailed, stifled, killed.
investment. Given our outlook for the economy, of certainty what the eventual effect this piece of If you’re a supporter of the bill, you’d point
we don’t expect companies to have any compel- dreadful legislation will have on the health care to its benefits: poor adults will get Medicaid; low-
ling reasons to expand their businesses, so we see system, our economy overall, or society at large. income families will get federal subsidies to buy
above average growth in dividend payouts as one But we do know this: it’s not likely to be good. insurance; small businesses may get tax credits;
way to placate investors during a period of un- How do we know that? Oh, a couple of thousand young adults will get to stay on their parent’s
derperforming stock prices. years of government meddling tells us so. health plan until they’re 26, seniors will get addi-
For all of the aforementioned reasons, we What we can also say, with a high degree of tional prescription drug coverage; and people
expect dividend payments to rebound and grow certainty is that the ever-present “unintended with pre-existing medical conditions can’t be
at acceptable annual rates over the next decade. If consequences” of government meddling go up denied or dropped from coverage.
the economy grows faster than we now expect, exponentially with each additional line of verbi-
that’s only likely to improve the outlook for divi- age in any legislation. That being the case, the (Continued on page 8)
portfolios you are free to go about your daily life no longer having to sweat
Doing Business With Us the day to day management and monitoring of your investment portfolio.
Simply Put Our fee is a percentage of the market value of your account and not
By Matt Powers commission driven so we’re not pushed to get you to buy or sell securities
Vice President & Portfolio Manager as with a broker. So there’s no incentive on our part to do or recommend
any action that’s not in your best interest to grow your account or that is
J ASON AND I'VE HAD THE OPPORTUNITY TO work on several differ- expected to meet your long-term investment objectives. The benefit of a
ent sides of the investment industry including a large wire-house, fee based arrangement is that if we succeed at growing your portfolio, both
regional brokerage firm, independent investment firm, and our cur- you and our firm benefit. Of course, the flip side is also true that if our per-
rent home: Deschaine & Company. As you know Deschaine & Company was formance isn’t good, our fee adjusts accordingly. But either way, the firm and
originally founded as a Registered Investment Advisor (RIA) and operates you are on the same side of the issue. We’re not compensated in any other
in that same manner today. way, so the only way we’re able to make more as an advisor is if the client’s
What is a Registered Investment Advisor and why should you hire one portfolio value grows. It’s as simple and straightforward and as mutually
to manage your money? Those are two of the more common questions we beneficial as it could possibly be.
hear when talking to prospective clients. Now that you've gained a better understanding of how an RIA oper-
Let’s start by defining what exactly is a Registered Investment Advi- ates, why should you choose our firm? Well, that’s easy. We have a well
sor. In many ways, an RIA is the equivalent of an you managing your own defined investment process which has a track record of documented supe-
account (Schwab, TD Ameritrade, Scottrade, etc.), and then you come to rior historical performance. Our firm delivers an institutional style (pension
realize that it takes a great deal of time and significant effort to research funds, Foundations, etc.) process of money management to individual inves-
and successfully oversee a growing pool of investments, so you decide it’s tors. Furthermore, clients meet with the people directly responsible for
probably better to look to someone who has the time do it right. daily management of their accounts—the portfolio managers.
In a very real sense hiring an RIA is really nothing more than giving Last, all client portfolios are managed by our team of portfolio manag-
Deschaine & Company the authority over your accounts allowing us to man- ers to ensure there’s always someone available to meet with to discuss your
age your investments for you. We set up your account at a broker/ account. Just one more reason to engage a registered investment advisor,
custodian, like the ones listed above. Once we assume management of your oh and Deschaine & Company at that. MTP

7. Year End 2009 Viewpoint Page 7
EQUITY INCOME Portfolio 5, 10, & 20 Year End High and Low Dividend Yields EQUITY INCOME
Company Name Ticker Price $ Dividend Div Yield 5-Yr High 5-Yr Low 10-Yr High 10-Yr Low 20-Yr High 20-Yr Low Portfolio
Abbott Laboratories ABT 52.91 1.76 3.33% 2.89% 2.26% 2.89% 1.47% 2.89% 1.20%
1st Quarter 2010 Update
Alliance Bernstein Global High Inc AWF 14.45 1.20 8.30% 18.70% 7.11% 18.70% 7.11% 24.98% 4.73%
T
Altria Group Inc MO 20.93 1.40 6.69% 5.63% 3.87% 6.02% 3.87% 8.00% 1.87%
Aqua America Inc WTR 18.00 0.58 3.22% 3.14% 1.46% 3.14% 1.46% 8.27% 1.46%
HE EQUITY INCOME
Arthur J Gallagher & Co. AJG 25.40 1.28 5.04% 5.69% 3.53% 5.69% 1.40% 5.69% 1.40%
Portfolio current holdings
AT&T Inc. T 26.38 1.68 6.37% 5.85% 3.42% 5.85% 2.10% 5.85% 0.85% as of March 31, 2010 are shown
B&G Foods, Inc. Class A BGS 10.18 0.68 6.68% 15.70% 6.25% 15.70% 6.25% 15.70% 6.25% on the table to the left. Also
Black Hills Corporation BKH 31.30 1.44 4.60% 5.33% 3.11% 5.33% 2.41% 6.18% 2.41% shown is the 5, 10, and 20 year
BP PLC ADS BP 59.48 3.36 5.65% 7.25% 3.26% 7.25% 2.10% 9.27% 0.00% average high and low dividend
Bristol-Myers Squibb Co. BMY 25.81 1.28 4.96% 5.33% 4.22% 5.33% 1.33% 5.33% 1.17% yield for each of the holdings.
CenturyTel Inc. CTL 36.20 2.90 8.01% 6.00% 3.39% 6.00% 3.39% 10.10% 2.22% We’re showing the high and low
Chevron Corp CVX 81.32 2.72 3.34% 3.45% 2.42% 4.21% 2.42% 4.75% 2.42% yields because we thought that it
Clorox Company CLX 64.81 2.00 3.09% 3.15% 1.81% 3.15% 1.81% 3.68% 1.16% was interesting and informative.
Coca-Cola Company KO 55.32 1.76 3.18% 3.36% 2.22% 3.36% 1.12% 3.36% 0.84% While most investors con-
Colgate-Palmolive Co CL 84.15 2.12 2.52% 2.28% 1.80% 2.28% 0.98% 2.44% 0.91% sider the average dividend yield
Computer Programs & Systems CPSI 39.67 1.44 3.63% 6.33% 2.12% 6.33% 0.00% 6.33% 0.00% to be relatively modest as well as
ConocoPhillips COP 56.64 2.20 3.88% 3.74% 1.86% 3.74% 1.86% 4.67% 1.86%
relatively stable, the data on the
Consolidated Edison, Inc. ED 44.63 2.38 5.33% 6.01% 4.75% 6.01% 4.75% 7.77% 4.01%
table suggests otherwise.
CPFL Energy Inc. CPL 61.58 4.58 7.44% 12.83% 4.31% 12.83% 0.00% 12.83% 0.00%
1.83 4.50% 3.08% 4.70% 3.08% 7.08% 1.56%
Thanks to the ever present
Dominion Resources Inc. D 41.28 4.43%
DuPont de Nemours & Co. DD 39.37 1.64 4.17% 6.48% 3.04% 6.48% 2.85% 6.48% 1.59%
market volatility, even the most
Elbit Systems Ltd. ESLT 63.89 1.44 2.25% 2.80% 1.09% 7.73% 0.43% 7.73% 0.43%
stable and modest dividend
Energy Transfer Partners LP ETP 48.83 3.58 7.32% 11.12% 3.55% 11.12% 3.55% 11.12% 3.55% yields can see a significant move-
ENI S.p.A. E 47.08 2.00 4.26% 7.60% 4.51% 7.60% 1.83% 7.60% 1.83% ment between their high and low
EV Energy Partners, Units EVEP 32.37 3.02 9.33% 18.20% 0.00% 18.20% 0.00% 18.20% 0.00% yield over time. Consider Do-
Federated Investors Inc FII 26.76 0.96 3.59% 21.76% 1.55% 21.76% 0.48% 21.76% 0.42% minion Resources for example, a
General Mills Inc. GIS 70.31 1.96 2.79% 2.72% 2.40% 2.72% 2.11% 3.98% 1.57% large, conservative electric util-
Genuine Parts Company GPC 42.92 1.64 3.82% 4.19% 2.79% 4.19% 2.71% 4.19% 1.41% ity. Its dividend yield over the
Gladstone Capital GLAD 7.38 0.84 11.38% 19.04% 6.92% 19.04% 4.92% 19.04% 4.92% last 20 years ranged from a low
Glaxo Smithkline ADS GSK 39.38 2.29 5.83% 5.90% 3.05% 5.90% 2.21% 5.90% 0.00% of 1.56% to a high of 7.08%.
H.J. Heinz Company HNZ 46.31 1.68 3.63% 4.23% 2.89% 4.93% 2.85% 4.93% 1.69% The difference in total
HCP HCP 28.35 1.84 6.49% 6.57% 4.62% 9.84% 4.52% 11.64% 4.52% return between buying Domin-
Health Care REIT Inc HCN 43.25 2.72 6.29% 7.26% 5.10% 14.37% 5.10% 14.37% 5.10%
ion when it’s yield exceeded 7%
Hershey Co. HSY 36.43 1.19 3.27% 3.43% 1.68% 3.43% 1.50% 3.43% 0.55%
and when it’s dividend yield is
Integrys Energy Group TEG 48.34 2.72 5.63% 6.48% 4.05% 6.48% 4.05% 7.96% 4.05%
below 2%, over the last 20 years
Johnson & Johnson JNJ 66.03 1.96 2.97% 3.00% 2.12% 3.00% 1.18% 3.00% 1.16%
Kimberly-Clark Corp. KMB 62.15 2.64 4.25% 4.30% 2.83% 4.30% 1.51% 4.30% 1.51%
over the last 20 years, needless
Kraft Foods Inc KFT 30.79 1.16 3.77% 4.27% 2.63% 4.27% 0.38% 4.27% 0.38%
to say, is huge.
Main Street Capital Corp MAIN 16.01 1.50 9.37% 14.59% 2.36% 14.59% 2.36% 14.59% 2.36% Our job is to buy when
Maxim Integrated Products MXIM 20.58 0.80 3.89% 6.79% 1.17% 6.79% 0.06% 6.79% 0.06% yields are closer to their highs
Mercury General MCY 38.22 2.36 6.17% 5.93% 2.95% 5.93% 2.19% 5.93% 1.05% and refrain from buying when
Microchip Technology Inc MCHP 29.88 1.36 4.56% 6.79% 1.40% 6.79% 0.08% 6.79% 0.08% they’re closer to their lows. It’s
Middlesex Water Co. MSEX 17.50 0.72 4.11% 4.08% 2.74% 4.08% 2.73% 8.14% 2.73% not rocket science, its just re-
MLP & Strategic Equity Fund MTP 17.70 0.84 4.75% 25.89% 5.78% 25.89% 5.78% 25.89% 5.78% quires patience and discipline.
Norfolk Southern Corp NSC 59.39 1.36 2.29% 2.59% 1.07% 6.01% 0.99% 6.01% 0.99% The EIP was up 3.74% in
Paychex, Inc. PAYX 31.08 1.24 3.99% 4.64% 1.44% 4.64% 0.56% 4.64% 0.53% total return while the equity
PepsiCo, Inc. PEP 66.12 1.80 2.72% 2.92% 1.66% 2.92% 1.11% 2.92% 0.64% holdings were up 5.03%, com-
Philip Morris Intl PM 51.35 2.32 4.52% 4.60% 4.57% 4.60% 4.57% 4.60% 4.57% pared to the S&P 500 up 5.39%.
Pinnacle West Capital PNW 37.49 2.10 5.60% 6.54% 3.99% 6.54% 2.99% 6.54% 0.89%
Pitney Bowes Inc. PBI 24.94 1.46 5.85% 6.33% 2.77% 6.33% 2.64% 6.33% 0.64%
Plum Creek Timber Co. PCL 40.23 1.68 4.18% 4.84% 3.65% 10.05% 3.65% 14.53% 3.65% Market Summary 1st Qrt 10
Procter & Gamble Co. PG 63.22 1.76 2.78% 2.84% 1.85% 2.84% 1.72% 2.84% 1.11% Annual Returns 1st Qrt
Progress Energy Inc PGN 39.02 2.48 6.36% 6.17% 4.93% 6.17% 4.19% 6.57% 4.12%
QWest Communications Q 5.32 0.32 6.02% 8.79% 7.60% 8.79% 7.60% 8.79% 7.60%
US MARKETS 5.84
Realty Income Corp O 31.51 1.72 5.46% 7.18% 5.19% 8.78% 4.91% 12.85% 4.91% GLOBAL EX-US 1.77
Reynolds American Inc RAI 54.17 3.60 6.65% 8.43% 4.01% 8.43% 4.01% 8.43% 4.01%
DEV MRKTS EX-US 1.08
Southern Company SO 34.09 1.75 5.13% 5.20% 4.12% 5.29% 4.12% 12.55% 4.12%
UIL Holdings Corp UIL 29.21 1.73 5.92% 6.26% 4.10% 8.26% 4.10% 9.27% 4.10% EMERGING MRKTS 0.73
Unilever PLC ADR UL 29.70 1.09 3.66% 5.63% 2.64% 5.63% 2.33% 5.63% 1.49% CORE BONDS 1.50
Verizon Communications, Inc. VZ 29.73 1.90 6.39% 2.41% 2.36% 2.41% 2.36% 2.41% 2.36%
LT COMMODITY -4.38
Wayside Technology Group WSTG 9.01 0.60 6.66% 8.57% 3.51% 8.57% 2.84% 8.57% 2.84%
Zenith National Insurance ZNT 38.37 2.00 5.21% 8.06% 1.90% 8.06% 1.90% 8.06% 1.90% Source: Morningstar Q4 2009 Market Com-
mentary
6.98% 3.21% 7.46% 2.59% 8.30% 2.15%

8. Deschaine & Company, L.L.C.
Deschaine & Company, L.L.C.
Page 8
A REGISTERED INVESTMENT ADVISOR
128 South Fairway Drive
Belleville, IL 62223
deschaineandcompany.com
Yep, We’re Open for Business
Jason Loyd
Vice President & Portfolio Manager
F INDING AND HIRING an investment advisor
can be more excruciating than going in for a
root-canal. After all, you’re turning over control of
your hard earned money to someone who isn’t
you. And let’s be honest, no matter how little
experience or time you have to manage your
money, you’re still the only one you really trust to
handle your money. Right? (Continued from page 6) wise. From where we sit, about all government
We understand that. That’s one of the While no one is against any of these things, the has ever done to anything it touches is suck the
800 pound gorilla in the room is how are we, the life out of it. We see no reason to believe a gov-
founding tenets of the firm, to manage money as
taxpayer, going to pay for all of this? Here’s how: ernment run healthcare system will be any differ-
if it were our own money—because, well, it is.
the “wealthy” will pay higher income taxes, busi- ent. Now that the health care fiasco has been let
We think that’s what makes us unique.
nesses with 50 or more employees will have to loose upon the land, what’s next: “Cap and Tax,
Unlike most businesses ,where getting big is the insure them or pay a penalty. Individuals will immigration reform, financial market reform, a
primary objective, ours is to focus on doing one have to get insurance or pay a fine. Insurance Value Added Tax? The list goes on and on.
thing well—managing the money. We figure that if premiums will rise for anyone who already has
we do that well, our clients will win, we’ll win, and
the business will take care of itself.
health insurance, and seniors with Medicare Budget Deficit Bomb Shell
Advantage could lose those plans or pay more to “Government is the problem.”
So everything we do here at Deschaine & keep them. Throw in the fact that the Bush tax
Company starts and ends with the process of — Ronald Reagan
cuts expire at the end of the year which will push For more than 20 years, the political left and the
managing money. That’s also why we are so the Medicare tax on capital gains to 23.8% in antiquated media types assailed President
obsessed with minimizing fees, commissions, 2010. Dividends currently taxed at 15% will be Reagan for running federal budget deficits “as far
and taxes. We don’t like paying them any more taxed at ordinary income tax-rates, with the top as the eye can see,” during his presidency. Well,
than you do. Besides, a penny saved is a penny rate scheduled to rise to 39.6% (from 35%). This after February’s Federal budget report from the
earned, as someone famously once said. means that the tax on dividends could go as high White House, we’re confident Reagan’s critics
At the same time, we’ll be the first to admit as 43% when the new Medicare tax jumps in can now move on and put the new label of
that a firm our size is probably not for everybody. 2013. Obama has proposed a top dividend tax budget “buster” where it squarely belongs, on
Some people are just more comfortable with a rate of 20% (is he capitulating to economic reality?), Obama and the Democratic controlled Congress.
large behemoth. And hey, that’s okay with us. But so if Congress goes along, the top rate on divi- The White House quietly announced, and
we know there are plenty of folks out there that dends would only rise to 23.8% in 2012. by that we mean very quietly late on a Friday
are looking for a little more than the status quo. So, regardless of how you feel about the bill, afternoon, that the budget deficit for the month
And guess what? We think that’s us! the fact is that taxes, fees and insurance rates are of February was a record $221 billion dollars.
Our door is always open; and we will be going to go up, and in most cases, by a lot. Does Again, in case you missed it—the budget deficit
delighted to help you in any way we can. We start any of that sound like it’ll be good for job crea- for the MONTH of February was a record $221
by doing a comprehensive review of your current tion at a time when the economy is struggling to billion. That’s more red ink than Reagan man-
portfolio. In the review, we’ll examine your invest- recover from the deepest recession in post Great aged to accumulate in the whole year of 1986, the
ment holdings, overall asset allocation and as- Depression history? Does any of that sound like worst deficit year of his administration.
sess whether they’re consistent with your goals it’ll give the stock market reason to move higher To put the respective deficit numbers into
and objectives. We’ll also review fees and other over the next five, ten years? perspective, it took our country 169 years to
costs as well as the historical performance of your We wish we had some reason to believe the accumulate $221 billion in total debt from run-
investments. When we’re done we’ll provide you claims made by the supporters of this govern- ning deficits, Reagan took a whole year while the
with a detailed report including specific recom- ment takeover of the healthcare industry. That Obama administration managed to do it in the
the federal government will bring operating shortest month of the year. Now that’s a deficit
mendations. And, you can rest assured, we won’t
efficiencies, innovation and cost containment to and budget record to be proud of—sort of.
pull any punches.
the health care system, as one example. But the As always, thanks for reading. MJD
When you think we can help, feel free give
overwhelming historical evidence tells us other-
us a call at (618) 397-1002. JML