Monday, March 19, 2018

Realty Income Delivers High Yields and Dependable Dividend Growth

Realty Income (O) is a real estate investment trust, which invests in commercial properties. The REIT owned 5,172 properties at the end of 2017, most of which were single-tenant ones. Realty Income has a weighted average remaining lease term (excluding rights to extend a lease at the option of the tenant) of approximately 9.50 years. These are triple-net leases, where the tenant pays everything from taxes to maintenance on the property, while the landlord like Realty Income collects rent that escalates over time. It is a pretty sweet deal, provided that you can purchase great locations at attractive valuations.

I analyzed the REIT using the guidelines listed in this post. The guidelines include focusing on:

  • Valuations
  • FFO trends
  • Occupancy
  • Tenant Concentration
  • Streak Consecutive Annual Dividend Increases

Realty Income is a dividend achiever which has raised dividends for 24 years in a row. The REIT has a strong track record of paying dividends monthly, and raising them several times per year. It is the Golden Standard of Triple Net Leases. The company usually raises its monthly dividends every quarter by a little bit, which amounts to a respectable year-over-year raise. The latest raise was just last week, as the monthly distribution was boosted to 21.95 cents/share ( or $2.628/share annualized). This was the 96th dividend increase since Realty Income's listing on the NYSE in 1994. The new dividend is 4% higher than the dividend paid during the same time last year.

Thursday, March 15, 2018

Clorox (CLX) Dividend Stock Analysis

The Clorox Company (CLX) manufactures and markets consumer and professional products worldwide. It operates in four segments - Cleaning, Household, Lifestyle and International. This dividend aristocrat has paid dividends since 1968 and has increased them each year since 1977.

Last month, Clorox hiked its dividend by 14% to 96 cents/share. This was an accelerated declaration of the company's dividend increase, which typically takes place in the month of May.

Over the past decade this dividend growth stock has delivered an annualized total return of 11.70% to its shareholders.

The company has managed to deliver a 5.20% average increase in annual EPS over the past decade. Clorox is expected to earn $6.13 per share in 2018 and $6.51 per share in 2019. In comparison, the company earned $5.35/share in 2017.

In addition, between 2008 and 2017, the number of shares decreased from 142 million to 132 million.

Clorox has a portfolio of products with strong brand names, that are number one or two in their respective product lines, which helps in having pricing power. As a result, it should be able to pass on commodity price increases to customers. Future earnings growth could be driven by innovation, new product launches, cost containment initiatives, as well as international expansion.

Clorox aims to continue delivering total stockholder returns by focusing on company's long-term financial goals such as:

• Growing net sales 3-5 percent annually
• Expanding earnings before interest and income taxes (EBIT) margin 25-50 basis points annually
• Generating free cash flow of 10 percent to 12 percent of sales annually

The three pillars of the strategy include expansion in a geographic, category and channel direction, continued reinvestment in its brands as well as cost containment initiatives. A key driver of the strategy is to accelerate sales by growing existing brands, including expanding into adjacent categories, entering new sales channels and increasing penetration within existing countries. Increased exposure to emerging market economies could further drive increase in sales. The company also anticipates using its strong cash flow to pursue growth opportunities and increase shareholder returns. In addition to that the company will be targeting sales growth through product innovation, which helps its pricing power. Clorox will also target margin expansion and maximizing cash flow through implementation a continued robust cost-saving program and maintaining price increases the company has taken. The strong focus on cost, has provided the company with a relative cost advantage versus competition. In addition, Clorox continuously reinvests money in its brands, which helps it maintain its market position.

One of the risks behind Clorox is that it generates a large portion of revenues from the US – over 80%. It is more exposed to the US economy than other global consumer staples companies, which could also be an opportunity as well. The other risk I see is that Wal-Mart (WMT) accounts for a quarter of sales for Clorox. Wal-Mart is notorious for trying to keep costs low, by squeezing vendors to sell at lower prices. This is bad for pricing power, and could impact profitability. This over reliance on Wal-Mart could be mitigated through continued international expansion. The other risk include competition from generic products, which could be mitigated by the ability to distinguish Clorox' brands by spending on R&D and advertising.

The annual dividend payment has increased by 8% per year over the past decade, which is higher than the growth in EPS. This was accomplished through the expansion of the dividend payout ratio. Future growth will be limited by any growth in earnings per share. The five year growth in annual dividends of 5.80% is closer to what we can reasonably expect going forward from Clorox in terms of future dividend growth.

An 8% growth in distributions translates into the dividend payment doubling every nine years on average. Since 1986, Clorox has been able to double dividends almost every seven years on average.

The dividend payout ratio increased from 51% in 2008 to almost 60.60% in 2017. A lower payout is always a plus, since it leaves room for consistent dividend growth minimizing the impact of short-term fluctuations in earnings.

The company’s Return on Assets has decreased slightly over the past decade. Rather than focus on absolute values for this indicator, I generally want to see at least a stable return over time.

Currently, the stock is slightly overvalued at 21.20 times forward earnings. The stock yields 2.90% today. I am analyzing the company because I believe it is quality dividend growth stock, which may be worth a second look on dips below $122/share. This is equivalent to a forward P/E below 20. For more conservative investors, they may want to wait for 20 times FY 2017 earnings, which is the equivalent of buy the dip below $107/share.

Relevant Articles:

Clorox Hikes Dividends, but is it a buy at current levels
Nine Dividend Paying Stocks I Accumulated in the Past Month
Procter & Gamble (PG) - A dividend stock to hold forever
Why do I own so many individual dividend paying stocks
Warren Buffett’s Dividend Stock Strategy

Monday, March 12, 2018

Four Dividend Growth Stocks Working Hard For Their Shareholders

As part of my monitoring process, I review the list of dividend increases every week. I use this list to check for dividend increases for companies I own, as well as monitor companies I am interested in researching at the right valuation.

I narrowed the list down to focus only on companies that have rewarded their shareholders with a dividend raise for at least ten years in a row. I want to focus my attention on companies that have managed to grow dividends over a full economic cycle. I also review each company, in order to determine whether past dividend growth was sustainable, and it came mostly from earnings growth. I am not interested in companies that grow dividends by mere expansion of the dividend payout ratio, while their earnings per share stagnate.

Last but not least, I look for an attractive entry valuation. Even the best company in the world is not worth buying at an inflated price. As a result, I try to avoid purchasing companies above 20 times earnings.

The companies that raised dividends over the past week, and met the above criteria include:

Friday, March 9, 2018

Hormel Foods (HRL) Dividend Stock Analysis

Hormel Foods Corporation (HRL) produces and markets various meat and food products worldwide. The company operates in five segments: Grocery Products, Refrigerated Foods, Jennie-O Turkey Store, Specialty Foods, and International & Other.

The company is a dividend king which has managed to increase annual dividends for 52 years in a row. There are only twenty-six dividend kings in the world, which have each managed to boost annual dividends every single year for at least half a century.

Hormel’s last dividend increase was in November 2017 when the Board of Directors approved a 10.30% increase in the quarterly distribution to 18.75 cents/share.

Hormel’s largest competitors include Tyson Foods (TSN), Conagra Foods (CAG), General Mills (GIS), Campbell Soup (CPB) and J.M. Smucker (SJM).

Over the past decade this dividend growth stock has delivered an annualized total return of 14.20% to its shareholders.

Wednesday, March 7, 2018

TJX Companies (TJX) Dividend Stock Analysis

The TJX Companies, Inc. (TJX) operates as an off-price apparel and home fashions retailer in the United States and internationally. It operates through four segments: Marmaxx, HomeGoods, TJX Canada, and TJX Europe. TJX Companies is a dividend achiever, which has raised dividends for 22
years in a row.

The most recent dividend increase was in March 2018, when the Board of Directors approved a 25% increase in the quarterly dividend to 39 cents/share.

The company’s largest competitors include Ross Stores (ROST), Kohl’s (KSS) and Target (TGT).

Over the past decade this dividend growth stock has delivered an annualized total return of 19.20% to its shareholders. Future returns will be dependent on growth in earnings and starting dividend yields obtained by shareholders.

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