Thursday, February 22, 2018

Dividend Investors: Stay The Course

The past month has been difficult for many investors. It is during times like these that you see who really is a long-term investor, and who is just a pretender. When you are a long-term buy and hold investor, you stand the best chances to take maximum advantage of the power of compounding, and end up with the probability for the highest dividend income and capital gains. These are the times where having a disciplined approach to investing pays off. These are the times when the ability to allocate capital to use in quality dividend stocks would seem stupid in the short-term, but potentially really brilliant 10 – 20 years down the road. When stock prices fall, there is an urge in the investor to protect their nest eggs from further price impairment.

This is a dangerous situation to be in because:

Tuesday, February 20, 2018

Dividend Companies Showering Shareholders With More Cash

As part of my monitoring process, I review the list of dividend increases every week. I usually focus on companies that have managed to boost dividends to shareholders for at least a decade. It looks like this year may be classified as the year of higher dividend growth.

This is because of the new tax law, which went into effect this year. As a result of the lowering of corporate tax rates, companies are increasing the amounts of their regular dividends to shareholders, and are initiating new share buyback programs. Some companies are accelerating their dividend increases schedules, and therefore showering their shareholders with more cash. As shareholders in many prominent blue chips, we can hardly complain of course.

Over the past week, the following companies raised their dividends to shareholders:

The Sherwin-Williams Company (SHW) develops, manufactures, distributes, and sells paints, coatings, and related products to professional, industrial, commercial, and retail customers primarily in North and South America, the Caribbean, Europe, and Asia. The company operates in four segments: Paint Stores Group, Consumer Group, Global Finishes Group, and Latin America Coatings Group. The company raised its quarterly dividend by 1.20% to 86 cents/share. This is the third dividend increase in a row of a penny per share. This increase follows 39 consecutive years of dividend increases for this dividend aristocrat. The company is prioritizing debt repayment over high dividend hikes, which seems prudent. The company has managed to hike its annual dividends at a rate of 10.40%/year over the past decade. The stock yields 0.90%. The company managed to grow its earnings per share from $4.70/share in 2007 to $15.07/share in 2017. Currently, the stock is overvalued at 26 times earnings and yields 0.90%. I would be interested in Sherwin-Williams on dips below $300/share.

Saturday, February 17, 2018

Annual Market update for 2017

Good Morning,

I wanted to share the market commentary from a dividend growth investor friend of mine, who manages money. This is not a paid post, and I do not receive any compensation from him. Rather, I have interacted with Joe off and on over the past decade. He is one of those readers who have stuck around for a while, who I regularly discuss dividend investing with. Writing about investing can be a lonely pursuit, so it is definitely helpful to have someone and bounce off ideas. 

I am sharing this market commentary, which he shared privately with his clients, because a lot of his points resonate very well with me. While no two investors are alike, his strategy of finding quality dividend payers for the long term really hits home for me. The letter captures current market sentiment, investing strategy, lessons learned and general commentary. If I ever leave blogging to manage money full time, this is the type of letter I would be sharing with clients. 

Without further delay, this is the comment letter from Joe Ferris at Summer Fields Investments LLC: Source Of Letter

Dear Friends,

2017 was a remarkable year in the equity markets. The broader US stock market did not have any negative months in the year, giving it the distinction of being the strongest market, per that metric, in 90 years [1]. Furthermore, there was no correction greater than 3% in the year, which is unusual for equities. The graphic that I included over 6 months ago has proved to be correct, for now, as we have broken out, to the upside, of a long trading channel in the S&P.

There are a number of reasons for this.

Before the presidential election in November 2016, I thought that the Blue Team would win, and that minimum wage would be gradually raised, inflation would creep up, and goods and services would earn more revenues. This would put a higher floor in our companies' earnings, spurring the market to pay a higher multiple for our companies' earnings.

Well, as we all know, the Red Team won, and now, minimum wage is being gradually raised [2], inflation is creeping up, and our company's goods and services are earning more revenues. It's funny how that happens.

There is also the matter of the large corporate tax cut, which gives our companies more after-tax profits. The market has been excited by that.

We have seen a number of US companies either attempt (in the case of Pfizer and Allergan) or execute (Medtronic, Johnson Controls, etc) foreign inversions in the past decade, so it makes sense to me that incentives should be provided for US companies to not pack up and run to lower tax regions. However, they should also have more regulations on tax avoidance, and that is indeed happening, with some companies getting rid of their tax shelters [3].

Thursday, February 15, 2018

The Best Dividend ETF In The Accumulation Phase

My site is read by readers from all walks of life. We have those with no experience investing, to those who have been through the ups and downs of the past half a century (and even longer). We also have a variety of readers, who are interested in the concept of dividend growth investing, but who do not have the time to go through the painful process of screening, monitoring, and assembling portfolios of individual companies.

One of the most frequently asked questions I receive comes from busy investors, who are short on time right now, but want to be able to generate rising dividend income for life. Most of those investors are looking for the best dividend ETF out there. In general I have not been a big fan of dividend ETFs, but I have somewhat reluctantly relaxed my attitude about it. After all, not everyone wants to be like me ( go figure).

What should a busy investor do with their money? How should they invest their hard earned money for their life goals (retirement, kids education etc)?

After thinking out loud for a few years, I have come out with one or two funds for busy dividend investors.

The catch: they are not marketed as dividend growth funds.

When evaluating the dividend ETF I am going to share with you today, I looked for the following traits:

1) A history of dividend increases
2) Low costs
3) Low portfolio turnover
4) A long history of real world performance

Monday, February 12, 2018

Ten Dividend Paying Companies Working Tirelessly For Their Owners

As a dividend growth investor, my goal is to generate a stream of income, which grows above the rate of inflation.

For the past decade that I have been doing that, my annual organic dividend growth has easily outpaced the historical rates inflation by a factor of 2 or more. In fact, the dividend increases by my portfolio have always been higher than the annual raises I receive at work.

I do not have to spend 40 - 60 hours per week placing cover sheets on TPS reports, nor do I need to waste time in pointless meetings that could have been resolved with a single email. Having a dividend portfolio is like having a tireless employee, who works 24 hours/day, seven days/week, 365 days/year, who shares all of their income with me. Their raises are much higher than what I could get for working extremely hard.

It is not wonder that I have fully embraced the power of dividend investing - I love getting paid and receiving regular raises, even if I do not work hard. Most of the work in building a dividend machine is done upfront. If I did my job of security selection well, I could afford to do nothing for years, and simply enjoy a rising stream of income from my diversified list of dividend paying companies. I would be paid for decades, for an investment decision made a long time ago.

As part of my monitoring process, I review the list of dividend increases every single week. I use this exercise to monitor existing holdings, and also to monitor companies I may be interested in down the road.

I isolated the companies which have a ten year track record of annual dividend increases. The companies include:

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