1. Oppenheimer Asset Management Inc. 200 Park Avenue New York, NY 10166 Tel: 800-221-5588 Fax: 212-667-4959
INVESTMENT STRATEGY and RESEARCH
A division of Oppenheimer Asset Management Inc.
Brian G. Belski
Chief Investment Strategist
(212) 667-5961
brian.belski@opco.com
Nicholas Roccanova, CFA
Senior Investment Strategist
(212) 667-5960
nicholas.roccanova@opco.com
Mira Borisova, CFA
Investment Strategist
(212) 667-6364
mira.borisova@opco.com
INVESTMENT STRATEGY US Strategy Weekly
Dividends are Always a Worthwhile Strategy
Investors keen to talk the talk, but are not walking the
dividend walk
With all that the market has endured, it seems that a majority of client
conversations we have include some sort of dialogue regarding dividend paying
stocks. Despite this apparent level of interest, investors appear to be focusing
elsewhere as dividend strategies have struggled year-to-date. We continue to be
surprised by this underperformance given the nature of our recent client
conversations, but more important, since historical evidence suggests that this is
the right type of environment for dividend investing.
Dividend investing works longer term, but especially during
volatile markets
Our work shows that, during periods where market volatility is higher than normal
and total returns are below average, dividend-paying stocks outperform non-
paying stocks by more than 16% since 1980. This compares to an average
underperformance of 5.6% for these stocks in all years since 1980.
Income accounts for large portions of long-term performance
Dividend income has accounted for nearly one-third of the annualized total return
of the S&P 500 since the 1970s. As a result, we believe that investors who
choose not to include these stocks within portfolios are putting themselves at a
significant performance disadvantage.
Identifying dividend opportunities
By focusing solely on high current dividend yields investors could be missing
potential recovery and/or dividend growth opportunities. That’s not to mention
that high dividend yields by themselves are sometimes a signal that trouble may
be on the horizon. Thus, our process focuses not only on growth in dividend
payouts, but also on cash levels and earnings growth, as we have found that
trends in these factors make dividend yields more believable.
Sectors best positioned to increase dividends
We believe the sectors most likely to increase dividend payments are the ones
with the combination of highest cash levels, lowest expected long-term EPS
growth relative to 2011 EPS expectations and relatively low current dividend
payout rates. Based on our analysis, it appears that Discretionary, Energy,
Industrials and Technology best fit these criteria.
November 29, 2010
US Strategy – Recommended S&P 500 Sector
Weightings
Sector Opinion %Weight
Consumer Discretionary OW 12%
Consumer Staples MW 11%
Energy MW 11%
Financials MW 15%
Health Care MW 11.5%
Industrials OW 12%
Information Technology OW 20%
Materials MW 3.5%
Telecom Services UW 2%
Utilities UW 2%
Source: Oppenheimer Asset Management Investment Strategy
Group
Key: Opinion: Investment Strategy Sector Opinion.
UW: Underweight
MW: Market Weight
OW: Overweight
Major Market Index Performance – Year to Date
0
5
10
15
20
SPX INDU COMP RUT SVX SGX
Source: Oppenheimer Asset Management Investment Strategy Group
Prices as of 11/26/10

2. 2
Dividends are always a worthwhile strategy
By now readers of our reports are very familiar with our preferential stance
toward dividend-paying stocks. In fact, we began highlighting this preference
during the summer of 2009 as the market started to experience some volatility
following its initial burst off the cyclical price trough in March 2009 (see US
Strategy Weekly, “Dividend Consistency Matters,” dated July 13, 2009). The
reason being is that dividend strategies tend to benefit portfolio performance
during periods of market uncertainty, according to our analysis. For instance,
dividends help to offset potential principal losses by providing a steady stream of
income. In addition, companies that have a consistent dividend track record tend
to be less volatile than those without one. However, as market volatility quickly
subsided following the summer of 2009 we found it difficult to convince investors
that a dividend focus was a worthwhile strategy, in our view.
This year has been a different story. With all that the market has endured, it
seems that every client conversation we have includes some sort of dividend-
paying stock discussion. Despite this apparent level of interest, investors appear
to be focusing elsewhere as dividend strategies have struggled year-to-date. As
Chart 1 illustrates, the total return of all S&P 500 companies that pay a dividend
is 7.8% compared to 11.6% for non-dividend payers and 8.6% for the overall
index. We continue to be surprised by this underperformance given the nature of
our recent client conversations, but more important, since historical evidence
suggests that this is the right type of environment for dividend investing. For
instance, we found that in years where market volatility is higher than normal and
total returns are below average dividend-paying stocks outperform non-paying
stocks by more than 16% since 1980. This compares to an average
underperformance of 5.6% for these stocks in all years since 1980.
Remember income accounts for a large part of long-term
performance
True, dividend strategies tend to work best during periods of heightened market
volatility, but they are also very important for any investor with a long-term focus.
For instance, dividend income has accounted for about one-third of the
annualized total return of the S&P 500 since the 1970s. Thus, we believe that
investors who choose not to include these stocks within portfolios are putting
themselves at a significant performance disadvantage. Therefore, we continue to
recommend that investors dedicate a healthy portion of their equity portfolio
toward dividend-paying stocks.
Chart 1: Dividends Are An Important Part Of Long Term Equity Returns
0
1,000
2,000
3,000
4,000
5,000
6,000
1/70 1/74 1/78 1/82 1/86 1/90 1/94 1/98 1/02 1/06 1/10
S&P 500 Total Return Index S&P 500 Price Index
Compounded Annual Growth
S&P 500 Total Return: 10.1%
S&P 500 Price Return: 6.7%
Source: OAM Investment Strategy Group.
We continue to recommend that
investors devote a healthy portion of
their equity portfolios toward
dividend-paying stocks…
…since our analysis suggests that
this is the right market environment
for these strategies.
However, dividend investing is a
proven long term strategy.
INVESTMENT STRATEGY

3. 3
Indentifying dividend opportunities
Identifying successful investment opportunities is always a challenging task, but
as we discuss below, we believe that several current market factors make
identifying attractive dividend opportunities a little easier.
Dividend focus should combine yield, growth and quality characteristics
While dividend yield is a primary factor in considering dividend opportunities, we
believe it is important for investors to consider other factors as well. By focusing
solely on high current dividend yields investors could be missing potential
recovery and/or dividend growth opportunities. That’s not to mention that high
dividend yields by themselves are sometimes a signal that trouble may be on the
horizon (e.g., dividend cuts). For a more complete analysis, we focus not only on
growth in dividend payouts, but also on cash levels and earnings growth, as we
have found that trends in these factors make dividend yields more believable.
Our work shows that this strategy tends to produce superior risk adjusted returns.
To illustrate this point, we considered the following portfolios and compared their
historical performance trends to the overall market, all dividend payers and non-
dividend payers:
1. High quality dividend yield – stocks with dividend yields greater than the
market and S&P quality rating of A- or better;
2. Consistent dividend growth – companies that have increased dividend
payment in each of the prior ten years; and
3. High quality dividend yield and growth – a combination of #1 and #2.
As you can see from Chart 2, each dividend strategy has produced higher
average annual total returns than the S&P 500. Interestingly, non dividend
payers have managed to produce the highest average annual total returns. We
believe this is part of the reason why investors frequently ignore dividend
strategies since companies that pay no dividends are often the ones with the
greater growth potential. However, as Chart 3 illustrates, dividend strategies tend
to produce the best returns when volatility is factored in. In fact, our analysis
suggests that a high quality dividend yield and growth approach is the most
effective strategy from a risk adjusted return perspective.
Chart 2: Average Annual Total Return Since 1980 Chart 3: Risk Adjusted Return Ratio
12.6%
13.2%
18.8%
16.3%
15.9%
17.6%
10%
11%
12%
13%
14%
15%
16%
17%
18%
19%
20%
S&P 500 Dividend
Payers
Dividend
Non Payers
High Quality
Dividend
Yield
Consistent
Dividend
Growth
High Quality
Dividend
Yield &
Growth
0.72
0.79
0.57
1.09
0.77
1.25
0.5
0.6
0.7
0.8
0.9
1.0
1.1
1.2
1.3
S&P 500 Dividend
Payers
Dividend Non
Payers
High Quality
Dividend
Yield
Consistent
Dividend
Growth
High Quality
Dividend
Yield &
Growth
Source: OAM Investment Strategy Group. Source: OAM Investment Strategy Group.
The current market environment
makes identifying dividend
opportunities a little easier…
…but we believe investors should
narrow their focus on high quality
dividend yield and growth stocks.
INVESTMENT STRATEGY

4. 4
Low payout rates, waning earnings growth and high cash levels warrant
higher dividends
Dividend payout rates are very low compared to historical norms. True, the
recession forced many companies to make difficult decisions regarding their
dividend policies. However, even prior to the recession companies appeared to
be putting less emphasis on dividends since payout rates had been slowly
declining for nearly 20 years (Chart 4). In addition, the impressive earnings
growth over the past several years is likely to cool off as the economic recovery
matures raising the prospect of muted equity market returns in the coming years.
Therefore, investors will probably demand more in the way of dividends to earn a
return on their investments. Fortunately, companies are in excellent shape to
deliver on these potential demands. As we have mentioned time and time again,
corporate balance sheets appear to be in outstanding shape. In fact, as Chart 5
illustrates, cash levels remain at historically high levels and equally important is
the fact that companies appear to be managing that cash very well judging by the
multi-year expansion in free cash flow levels. We believe all of these factors
taken together warrant higher dividend payments in the coming years and it
appears companies have already begun to act (Chart 6).
Chart 5: Corporate Cash Levels Are Very Healthy
0%
2%
4%
6%
8%
10%
12%
14%
3Q79 1Q82 3Q84 1Q87 3Q89 1Q92 3Q94 1Q97 3Q99 1Q02 3Q04 1Q07 3Q09
-$1.00
-$0.50
$0.00
$0.50
$1.00
$1.50
$2.00
Cash % Assets FCF per Share
Source: OAM Investment Strategy Group.
Chart 6: Companies are Increasing Dividends Again
Positive Dividend Actions for Prior 12 Months
(initiations plus increases)
0
100
200
300
400
500
600
12/73 12/76 12/79 12/82 12/85 12/88 12/91 12/94 12/97 12/00 12/03 12/06 12/09
Source: OAM Investment Strategy Group.
Chart 4: Current Dividend Payout Rates Are Very
Low Compared to Historical Norms
S&P 500 Dividend Payout Rate
20%
25%
30%
35%
40%
45%
50%
55%
60%
65%
70%
10/49 10/61 10/73 10/85 10/97 10/09
Dividend Payout Rate Long Term Average
Source: OAM Investment Strategy Group.
We think it is only a matter of time
before investors begin demanding
dividend increases.
INVESTMENT STRATEGY

5. 5
Sectors best positioned to increase dividends
From our perspective, the sectors most likely to increase dividend payments are
the ones with the combination of highest cash levels, lowest expected long-term
EPS growth relative to 2011 EPS expectations and relatively low current dividend
payout rates. Based on our analysis, it appears that Discretionary, Energy,
Industrials and Technology best fit these criteria (Table 1).
Table 1: S&P 500 Sector Attributes
Sector Cash % Assets
2011 EPS
Growth
Expected Long
Term Growth Dividend Payout
S&P 500 12.5 18.4 10.0 33.5
Consumer Discretionary 9.7 17.4 12.3 23.8
Consumer Staples 6.2 10.2 8.9 48.3
Energy 5.4 21.3 10.9 25.9
Financials 13.8 43.0 8.4 43.2
Health Care 17.8 9.4 6.9 37.9
Industrials 8.3 20.1 12.0 35.6
Information Technology 28.0 11.0 12.5 13.1
Materials 6.4 33.9 9.7 29.6
Telecom 2.6 6.2 7.0 67.0
Utilities 3.0 1.1 21.6 73.1
Source: OAM Investment Strategy Group, First Call.
Screening for high quality dividend yield and growth
opportunities
Table 2 below is a list of S&P 1,500 stocks (ranked by preference) screened
using the following parameters:
1. Dividend yield greater than the market;
2. Dividend increases in each of the prior 10 years;
3. S&P quality rating of A- or greater; and
4. Free cash flow yield greater than dividend yield.
Table 2: High Quality Dividend Yield and Growth Screen
Rank Ticker Company Name Dividend Yield Free Cash Flow Yield S&P Rating Market Value Price OpCo Rating
1 HSC Harsco Corp. 3.6 8.4 A $1,865 $24.27 NR
2 STR Questar Corp. 3.3 12.7 A- $2,979 $16.90 NR
3 CINF Cincinnati Financial Corp. 5.4 6.2 A $4,789 $29.96 NR
3 VFC VF Corp. 3.0 8.8 A $7,193 $83.82 NR
5 ABT Abbott Laboratories 3.7 6.4 A $79,240 $46.80 NR
6 HCBK Hudson City Bancorp Inc. 5.2 5.8 A $6,135 $11.38 NR
7 CB Chubb Corp. 2.6 10.8 A $18,250 $56.81 O
7 CFR Cullen/Frost Bankers Inc. 3.3 6.4 A $3,182 $54.05 P
7 PNY Piedmont Natural Gas Co. 3.8 5.8 A $2,127 $29.66 NR
10 MDT Medtronic Inc. 2.6 7.9 A $38,023 $33.84 O
10 TFX Teleflex Inc. 2.6 8.0 A- $2,226 $51.91 NR
12 JNJ Johnson & Johnson 3.4 5.7 A+ $175,376 $62.38 NR
12 TMP Tompkins Financial Corp. 3.5 5.5 A $318 $38.78 NR
14 GD General Dynamics Corp. 2.5 8.2 A+ $25,911 $67.12 O
15 AFL AFLAC Inc. 2.3 24.3 A $26,314 $51.55 NR
15 CBSH Commerce Bancshares Inc. 2.5 8.5 A- $2,734 $37.59 NR
17 OMI Owens & Minor Inc. 2.5 8.3 A $1,804 $28.91 NR
18 GPC Genuine Parts Co. 3.4 4.1 A $7,543 $48.53 NR
18 HCC HCC Insurance Holdings Inc. 2.1 13.1 A $3,050 $28.06 O
20 SFG StanCorp Financial Group Inc. 2.0 16.5 A $2,005 $42.15 NR
21 ABM ABM Industries Inc. 2.3 7.6 A- $1,060 $23.37 NR
22 ADP Automatic Data Processing Inc. 3.2 3.9 A $21,856 $45.48 P
22 WABC Westamerica Bancorp 2.9 4.2 A- $1,458 $49.62 NR
24 CL Colgate-Palmolive Co. 2.7 3.8 A+ $37,480 $77.39 P
24 ITW Illinois Tool Works Inc. 2.9 3.1 A $23,010 $47.13 NR
When searching for dividend
opportunities investors should not
solely focus on yield. Instead, they
should search for companies with a
consistent dividend growth track
record and cash flow to support future
dividend growth.
INVESTMENT STRATEGY

6. 6
Table 2 (continued): High Quality Dividend Yield and Growth Screen
Rank Ticker Company Name Dividend Yield Free Cash Flow Yield S&P Rating Market Value Price OpCo Rating
24 LLTC Linear Technology Corp. 2.8 3.8 A- $7,234 $32.96 P
24 WAG Walgreen Co. 2.1 6.7 A+ $32,971 $33.68 NR
28 PII Polaris Industries Inc. 2.2 6.1 A- $2,364 $73.69 NR
29 EMR Emerson Electric Co. 2.5 4.2 A+ $41,307 $55.60 P
30 BRC Brady Corp. (Cl A) 2.3 5.5 A- $1,618 $31.07 NR
31 PNR Pentair Inc. 2.3 4.2 A $3,230 $33.11 P
32 UTX United Technologies Corp. 2.3 5.1 A+ $69,467 $75.28 O
33 MMM 3M Co. 2.5 3.7 A+ $60,060 $84.40 NR
33 XOM Exxon Mobil Corp. 2.6 2.7 A+ $338,452 $69.23 P
33 RLI RLI Corp. 2.0 5.8 A $949 $58.02 P
36 WMT Wal-Mart Stores Inc. 2.3 4.6 A+ $108,345 $53.74 NR
37 LOW Lowe's Cos. 2.0 5.5 A- $29,932 $22.24 O
38 MKC McCormick & Co. Inc. 2.4 2.5 A+ $5,892 $44.27 NR
39 DOV Dover Corp. 2.0 4.0 A- $9,912 $55.71 NR
40 CAT Caterpillar Inc. 2.1 2.3 A+ $49,555 $84.13 NR
Source: Oppenheimer Asset Management Investment Strategy Group.
Prices as of 11/26/2010
Rating Key, according to Oppenheimer & Co. Inc. Equity Research:
O: Outperform
P: Perform
U: Underperform
NR: Not rated by Oppenheimer & Co. Inc. Equity Research
INVESTMENT STRATEGY

7. 7
Performance Statistics
Major US Indices
Index 1W 1M 3M 6M 12M YTD
DJ Industrial Average -0.1 0.5 10.2 10.4 6.9 7.3
DJ Transportation 0.1 3.0 16.6 12.5 22.8 19.0
DJ Utilities -0.7 -1.9 0.7 9.4 3.5 -0.7
NASDAQ 100 0.9 1.3 20.2 16.3 20.1 15.8
NASDAQ Composite 0.7 1.3 17.7 12.3 16.5 11.7
Russell 1000 -0.7 1.0 12.5 9.6 8.6 7.7
Russell 1000 Growth 0.0 2.0 15.9 13.3 11.6 10.0
Russell 1000 Value -1.3 0.0 9.1 5.9 5.7 5.5
Russell 2000 1.2 4.0 18.8 10.7 23.7 17.2
S&P 500 -0.9 0.6 11.7 9.2 7.1 6.7
S&P 500/Citigroup Growth -0.3 1.4 15.1 13.3 9.3 8.7
S&P 500/Citigroup Value -1.4 -0.1 8.5 5.3 5.1 4.7
S&P Mid Cap 400 1.1 3.9 17.0 12.7 23.2 18.3
S&P Small Cap 600 1.5 4.4 18.0 10.3 24.6 17.2
Source: Oppenheimer Asset Management Investment Strategy Group, Prices as of 11/26/10
S&P 500 GICS Sectors
Sector 1W 1M 3M 6M 12M YTD
Consumer Discretionary 0.4 3.6 18.7 12.6 24.9 21.9
Consumer Staples -1.1 -0.1 7.0 9.0 5.1 7.4
Energy -1.7 4.8 18.7 17.1 4.4 8.0
Financials -2.5 -0.9 5.3 -1.5 -1.4 0.3
Health Care -1.3 -2.0 7.1 6.2 -1.8 -2.4
Industrials -0.3 0.9 13.1 9.6 15.2 15.6
Information Technology 0.4 0.2 17.4 11.5 10.2 5.8
Materials -1.0 1.2 13.9 16.6 7.9 8.3
Telecommunications Services -1.0 -0.3 7.1 17.8 8.7 5.3
Utilities -1.0 -2.8 -0.8 7.5 2.9 -1.4
Source: Oppenheimer Asset Management Investment Strategy Group, Prices as of 11/26/10
S&P 500 - Top & Bottom 10 Performing Industries, Trailing Week
Top 10 1W 1M 3M 6M 12M YTD
Internet & Catalog Retail 5.5 5.9 37.6 51.8 39.6 38.9
Real Estate Management & Development 2.9 4.0 15.7 20.5 69.6 40.6
Multiline Retail 2.5 7.8 19.5 8.0 19.1 19.8
Computers & Peripherals 2.1 2.1 24.5 13.2 22.0 17.8
Distributors 2.0 2.8 13.0 19.5 33.0 27.8
Trading Companies & Distributors 1.9 4.9 17.5 15.6 35.0 30.3
Semiconductors & Semiconductor Equipment 1.4 5.7 20.9 8.7 16.2 6.7
Specialty Retail 1.2 5.2 18.2 2.4 15.0 14.3
Textiles & Apparel & Luxury Goods 1.2 8.1 28.8 22.4 35.3 34.0
Leisure Equipment & Products 1.1 8.0 19.5 15.0 37.3 33.5
Bottom 10 1W 1M 3M 6M 12M YTD
Diversified Financial Services -3.9 -1.2 1.0 -10.9 -13.5 -9.0
Commercial Banks -3.1 0.2 6.6 -9.3 -0.5 3.2
Building Products -2.8 0.5 0.4 -19.7 -23.9 -22.4
Capital Markets -2.6 1.5 12.8 6.1 -3.5 -4.6
Household Products -2.4 -1.1 2.8 1.2 -2.8 0.5
Metals & Mining -2.4 2.9 16.4 15.4 9.7 9.2
Insurance -2.2 -3.4 4.2 5.7 5.5 6.6
Construction Materials -2.0 7.0 0.7 -23.2 -22.5 -26.4
Oil Gas & Consumable Fuels -1.8 4.0 15.8 13.5 1.3 5.4
Industrial Conglomerates -1.7 -2.7 6.4 -1.4 -0.2 3.5
Source: Oppenheimer Asset Management Investment Strategy Group, Prices as of 11/26/10
Recent US Strategy Topics
Date US Strategy Weekly
11/15/2010 Finding Value Within Value
11/8/2010 Repositioning Industrials
11/1/2010 Upgrading Energy to Market Weight
10/25/2010 Midterm Elections and the Market
10/18/2010 Stockpickers Capitalize on Recent Strength
10/11/2010 Stocks Are Still a Viable Investment
10/4/2010 Discussing the Impact of Additional QE
9/27/2010 Not All Beta is Created Equal
9/20/2010 Notes from the Road: Earnings Revisions
9/7/2010 Tempering Our Tone, But We Remain Bullish
8/23/2010 This Remains a Value Oriented Market
8/16/2010 What’s Wrong With Technology?
8/9/2010 2Q10 Earnings Update
8/2/2010 Still Overweight Discretionary
7/26/2010 Are We Range Bound?
7/19/2010 Sentiment Extremes and Market Performance
7/12/2010 Don’t Miss the End of the Buyers Strike
6/28/2010 Reviewing our 2010 Investment Themes
6/21/2010 Dividends and Buybacks Are Increasing
6/14/2010 Pictures to Ponder
6/7/2010 Easing the Anxiety Aids the Recovery
5/24/2010 The Bear Finally Growls
5/17/2010 Leading Indicators Are Not Peaking
5/10/2010 The US is a Cure for the Greek Tragedy
5/03/2010 The Great Valuation Debate
4/26/2010 Don’t Forget About Dividends
4/19/2010 Our Thoughts on Small Cap Outperformance
4/12/2010 Sector Changes: OK to Get More Cyclical
4/5/2010 Reluctant Bull Market Still Charging Ahead
3/29/2010 Strategies for A Stock Pickers Market
3/15/2010 This Is Still A Stock Pickers Market
3/8/2010 Investment Reluctance Can Be Very Costly
3/1/2010 Market Poised for M&A Revival
2/22/2010 Homebuilder Bounce Still Early
2/16/2010 Tech Off to a Slow Start
2/8/2010 Revisiting Dividend Strategies
2/1/2010 Risks to Our Market Outlook
1/25/2010 Time to Move From Bonds Into Stocks
1/19/2010 Maintaining Our Value Preference
1/11/2010 So What if the Fed Raises Rates?
1/4/2010 A Differentiated Bull in 2010
12/14/2009 Anatomy of a Bull Market
11/30/2009 Q3 Earnings Review
11/16/2009 Consumer Discretionary Selectivity
11/9/2009 Preparing Portfolios for Economic Growth
11/2/2009 Don’t Fret About Job Losses or the Fed
10/26/2009 Our Thoughts on the Recent Gold Rush
US Strategy Special Report
5/27/2010 Reactions Create Opportunities
5/24/2010 Fear Factor, Russian Redux?
12/7/2009 2010 Market Outlook
US Strategy Monthly
10/6/2010 October Chartbook
INVESTMENT STRATEGY

8. 8
Important Disclosures and Certifications
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affiliate of Oppenheimer & Co. Inc. Strategic analysis is based on fundamental, macroeconomic and quantitative data to provide
investment analysis with respect to U.S. securities markets. Strategic analysis may offer a view that is inconsistent with technical
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INVESTMENT STRATEGY

9. 9
and should not rely solely on investment recommendations contained herein, if any, as a substitution for the exercise of
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