Friday, April 30, 2010

A record 22 companies boost dividend payouts

Over the past week twenty-two companies announced that they would be rewarding shareholders with higher dividend payouts. Several solid blue chip companies such as IBM, Costco and Exxon Mobil raised their payouts as well.

In order to make it easier to read through the list, I have separated the number of companies into three lists: Dividend Achievers and Dividend Aristocrats; Master Limited Partnerships; and Dividend Growth Stocks.

Dividend Achievers and Dividend Aristocrats

Dividend Achievers are companies which have boosted payouts for at least ten consecutive years. Companies that are members of the elite Dividend Aristocrats index, are members of the S&P 500 and have raised distributions for over a quarter of a century.

International Business Machines Corporation (IBM) is an information technology (IT) company. The company increased its dividend by 18% to 55 cents/share. This is the 15th year in a row that IBM has increased its quarterly cash dividend. This dividend achiever yields 2%. (analysis)

W.W. Grainger, Inc. (GWW) and its subsidiaries distribute facilities maintenance and other related products and services in the United States, Canada, Japan, and Mexico. The company raised its quarterly dividend by 17% from $0.46 to $0.54 per share. This is the thirty-ninth dividend increase in a row for this dividend aristocrat. The stock yields 2%. (analysis)

Exxon Mobil Corporation (XOM) engages in the exploration, production, transportation, and sale of crude oil and natural gas. The company raised its quarterly dividends to 44 cents/share, up from 42 cents/share. This is the twenty-eight consecutive annual dividend increase for this dividend aristocrat. The stock yields 2.60%. (analysis)

Chevron Corporation (CVX) operates as an integrated energy company worldwide. The company raised its quarterly dividends by 5.90% 72 cents/share. This is the twenty-third consecutive annual dividend increase for this dividend achiever. The stock yields 3.50%. (analysis)

Cullen/Frost Bankers, Inc., (CFR) through its subsidiaries, provides various banking and financial products and services primarily in Texas. The company increased its quarterly dividend by 4.70% to 45cents/share. This is the seventeenth consecutive annual dividend increase for this dividend achiever. The stock yields 3%.

Community Bank System, Inc. (CBU) operates as the holding company for Community Bank, N.A. that provides various banking and financial services to the retail, commercial, and municipal customers. It offers loans and accepts deposits. The Company’s Board of Directors approved a $0.02, or 9.1%, increase in its quarterly dividend on its common stock, to $0.24 per share. This is the seventeenth consecutive annual distribution increase for this dividend achiever. The stock yields 3.70%.

Master Limited Partnerships

Williams Partners L.P. (WPZ) is a limited partnership formed that owns, operates and acquires a portfolio of energy assets. This master limited partnership announced that the distribution its unit holders receive has been increased to $0.6575 per unit, a 3.5% increase over the previous dividend of $0.635. The partnership has consistently raised annual distribution since 2006. The units yield 6.30%.

Inergy Holdings, L.P. (NRGP) is engaged in the investment in propane and other natural gas liquids companies. This master limited partnership announced an increase in its quarterly cash distribution to $0.975 per limited partner unit, which was a 3.7% increase over the previously declared quarterly distribution. Inergy has boosted distributions since 2006. The stock yields 5.40%.

Holly Energy Partners, L.P. (HEP) operates a system of petroleum product and crude oil pipelines, storage tanks, distribution terminals, and loading rack facilities. This master limited partnership declared an increase in its distribution to $0.815 per unit, up from $0.805 that was distributed last quarter. Holly Energy Partners, L.P. has consistently boosted distributions since 2005. The units yield 6.90%.

Sunoco Logistics Partners L.P. (SXL) engages in the transport, terminalling, and storage of refined products and crude oil, as well as the purchase and sale of crude oil in the United States. The company increased quarterly distribution to $1.11 per share, from $1.09 prior. This master limited partnership has consistently raised distributions almost every quarter since 2002. The units yield 6.60%.

Alliance Holdings GP, L.P., (AHGP) through its subsidiaries, produces and markets coal primarily to utilities and industrial users in the United States. The company announced a boost in its quarterly distribution to 46.5 cents/share which represents a 12.0% increase over the $0.415 per unit distribution (for the quarter ended March 31, and an increase of 2.8% over the fourth quarter 2009 distribution of $0.4525 per unit. This master limited partnership has consistently boosted distributions since 2007. The units yield 5.60%.

Future Dividend Growth Stocks

EarthLink, Inc. (ELNK) is an Internet service provider (ISP), providing nationwide Internet access and related value-added services to individual and business customers. The company's Board of Directors has increased the amount of its quarterly cash dividend on its common stock from $0.14 per share to $0.16 per share. This is the first dividend increase since EarthLink initiated a dividend policy in 2009. The stock yields 7.40%.

Ameriprise Financial, Inc. (AMP) provides financial planning, products and services that are designed to be utilized as solutions for its clients' cash and liquidity, asset accumulation, income, protection, and estate and wealth transfer needs. The company raised its quarterly dividend from $0.17 to $0.18. The company has had higher annual dividend payments for four years in a row. The stock yields 1.50%.

Costco Wholesale Corporation (COST) operates membership warehouses that offer a selection of branded and private label products in a range of merchandise categories in no-frills, self-service warehouse facilities. The company approved a quarterly increase from $0.18 to $0.205 per share. This is the sixth consecutive dividend increase since the company initiated a dividend policy in 2004. The stock yields 1.40%.

Kellogg Company (K), together with its subsidiaries, engages in the manufacture and marketing of ready-to-eat cereal and convenience foods. The Company's Board of Directors announced plans to increase the quarterly dividend by 8% to $0.405 per share beginning with the third quarter of 2010. This would have been the sixth consecutive dividend increase for the company. The stock yields 2.90%.

International Paper Company (IP) operates as a paper and packaging company with operations in North America, Europe, Latin America, Russia, Asia, and North Africa. The company approved an increase in its quarterly common stock dividend from $0.025 per share to $0.125 per share. This is the first dividend increase since the company slashed distributions by 90% in 2009. The stock yields 1.70%.

Celanese Corporation (CE) is an integrated producer of chemicals and advanced materials. The company approved a 25% increase in the company’s quarterly dividend to $0.05 per share. The stock yields 0.60%.

Legg Mason, Inc., (LM) through its subsidiaries, operates as a diversified group of global asset management firm serving individual and institutional investors worldwide. The company’s Board of Directors has declared a quarterly cash dividend on its common stock in the amount of $0.04 per share which is a 33.33% increase over the previous dividend of $0.03. This is the first dividend increase for the company since it slashed dividends by 87.50 % in 2009 and lost its status as a dividend aristocrat after just one year in the elite index. The stock yields 0.50%.

Valmont Industries, Inc. (VMI) produces fabricated metal products; pole and tower structures; and mechanized irrigation systems in the United States and internationally. The board of directors increased the Company's quarterly cash dividend by 10% from $0.15 to $0.165 per share. This is the ninth consecutive annual dividend increase for the company. The stock yields 0.80%

Sturm, Ruger & Company, Inc. (RGR) engages in the design, manufacture, and sale of firearms in the United States. The company increased its quarterly dividend by 55% to 9.3 cents/share. The stock yields 2.10%.

TransAlta Corporation (TAC) operates as a non-regulated electricity generation and energy marketing company. The company raised its quarterly dividends by 6.40% to 29 cents/share. This is the third consecutive annual dividend increase for the company.The stock yields 5.60%.

Duff & Phelps Corporation (DUF), through its subsidiaries, provides independent financial advisory and investment banking services worldwide. The company increased quarterly dividend by 20% to $0.06 per share. This is the first dividend increase for the company since its started paying dividends in 2009. The stock yields 1.50%.

The list of dividend increases should not be viewed as a buy recommendation. Readers are advised to use it only as a starting reference point for further research, provided that any of those companies interest you.

Full Disclosure: Long CVX, GWW and XOM

Relevant Articles:

- Dividend Aristocrats List for 2010
- What Dividend Growth Investing is all about?
- Dividend Growth beats Dividend Yield in the long run
- Dividend Investors are getting paid for waiting

Thursday, April 29, 2010

Fixed Income for dividend investors

Over the past century stocks outperformed bonds rather handsomely. One dollar invested in the S&P 500 in 1802 with reinvested dividends would have turned into $12.70 million by 2006; a similar investment in fixed income would have only grown to $18,235. Most investors have far shorter investing periods than two centuries however.

Source: Stocks for the Long Run, 4th Edition: The Definitive Guide to Financial Market Returns & Long Term Investment Strategies

While US stocks have always produced positive total returns over any 30 year periods, this has come with tremendous volatility in total returns. Bonds on the other hand could also experience volatility in total returns, since they are particularly sensitive to changes in interest rates. The one thing which is helpful is that the coupons are fixed, which at least provides some stability of nominal income.

As mentioned earlier, bonds are sensitive to changes in interest rates. Bonds have been in a bull market for almost three decades now, fueled by a decrease in yields in the 30 year Treasrury Bond from 15% in the 1980's to 4.50% now. Most investments in bonds can hardly keep up with inflation. Only the TIPS ( Treasury Inflation Protection Securities) offer some inflation protection, as their principal and interest payments adjust to annual changes in the Consumer Price Index. Other than TIPS, fixed income securities typically do not do very well during inflation.

Furthermore most Corporate Bonds also have added risk, since there is always the possibility of default. Many prominent companies which were once regarded as solid blue chips have fallen on hard times and have had to go bankrupt, wiping out both shareholders and leading to huge losses of principal by bondholders. Municipalities, which lure investors with their tax exempt securities, are also prone to defaults. As a result I tend to concentrate my fixed income efforts only to US Treasury Bonds or FDIC insured Certificates of Deposit.

In a previous article I mentioned that a dividend portfolio in retirement must have at least a 25% allocation to fixed income. Despite the fact that I believe dividend growth stocks are a much better investment than fixed income, I still believe that bonds could offer some comfort for diversification purposes. While a bond portion of a portfolio would certainly lose purchasing power due to inflation, it would provide a portfolio with a cushion during market turmoil and during deflationary periods. If we were to experience higher inflation in the future, the dividend stock allocation should do its magic by lifting incomes and stock prices. If we have a repeat of the Great Depression or the Lost two decades for Japan, investors with a bond allocation should sleep better at night.

The way to actually invest in Treasuries is either by directly buying bonds or by investing through a bond fund or ETF. One way to purchase bonds is either directly by participating in Treasury Auctions or by buying bonds through your broker. While some brokers charge a small fee for bond transactions, others do not charge anything. If you decide to purchase your fixed income directly and hold to maturity, then you might consider laddering your bonds. Bond laddering means purchasing bonds with varying maturities, so that one is not overly exposed to interest rate fluctuations. Bond ladders could also be set up in a way that you can have bonds maturing at predetermined intervals of time. This allows investors to allocate bond proceeds to new bonds with the same maturities but different interest rates as the bonds which matured.


The advantage of holding onto individual bond issues is that investors could decide whether to hold to maturity or sell before that. Even if interest rates went to 10% and bonds with 4% yields were trading at steep discounts to par, investors holding to maturity will get their principal back. In addition to that investors would keep receiving the coupon payments every six months. Proceeds could also be reinvested back at the higher interest rates.


Investing in bonds should be done only as a long term investment. There has been a lot of speculation about interest rates rising since at least late 2008, claiming that bond investors would surely lose money over the long term. If one had $1000 in cash and invested in a ten year Treasury bond, they would lock in a 3.80% yield for 10 years. If one were to wait for three or four years however until rates on ten year bonds rose to 6%, then they would receive much lower returns.

The other method to buy bonds is by purchasing a bond mutual fund or a bond ETF. Some of the most active bond ETFs include:

iShares Barclays 20+ Year Treasury Bond (TLT )
Vanguard Long-Term Bond ETF (BLV)
iShares Barclays 7-10 Year Treasury (IEF )
iShares Barclays 1-3 Year Treasury Bond (SHY)
iShares Barclays TIPS Bond (TIP)

The issue with bond funds is that investors are charged annual management fees for them, which lower returns. Some bond mutual funds also tend to sell bonds, which triggers capital gains liabilities.

At the end of the day, dividend growth investing is a superior investing strategy. Adding another low correlated asset class such as fixed income however can smooth volatility in income in times of recessions and deflations. The goal is reducing risk as much as possible and providing a floor to the amount of sustainable income in retirement. Investors need to eat even during recessions. Thus, an allocation to fixed income should provide investors with a peace of mind and reduce long-term risk, without sacrificing long term growth for the rest of the portfolio.

Full Disclosure: Long US Government Bonds


Relevant Articles:


- Dividend Reinvestment is important
- Dividends Stocks versus Fixed Income
- The case for dividend investing in retirement
- Living off dividends in retirement

Monday, April 26, 2010

Universal Health Realty Income Trust (UHT) Dividend Stock Analysis

Universal Health Realty Income Trust (UHT) operates as a real estate investment trust (REIT) in the United States. The company invests in health care and human service related facilities, including acute care hospitals, behavioral healthcare facilities, rehabilitation hospitals, sub-acute facilities, surgery centers, childcare centers, and medical office buildings. The company is a dividend achiever and has raised distributions for 22 consecutive years.


Over the past decade this dividend stock has delivered a total return of 16.70% per annum to its shareholders.

As a Real Estate Investment trust, the company has to distribute almost all of its net income to shareholders. An important metric for evaluating REITs is Funds from operations (FFO). Over the past decade FFO has increased by 1.10% on average. Future growth in funds from operations could come from acquisitions or increase in rents. Universal Health Realty Income Trust earns bonus rents from the subsidiaries of UHS, which are based on the excess over base amounts revenue that these facilities generate. There were no acquisitions in 2009, although the company did make a few acquisitions in 2010 and 2008.

Fifty-one percent of UHT’s revenues are derived from leases to Universal Health Services. UHT’s advisor is a subsidiary of UHS, and all officers of Universal Health Realty are employees of UHS, which could create conflicts of interest. In addition to that over $32 million dollars in long-term debt are expected to mature in 2010. The company expects to refinance almost $12 million dollars of its maturing loans, which carry market interest rates. Another portion of the debt maturing in 2010 for $7 million could be extended for an additional three years to 2013. A construction loan for almost $13.5 million at a very low rate could be extended for up to one additional year. The company also has $48.8 million of outstanding borrowings under the terms of its revolving credit agreement which matures in January 2012.

Over the past decade distributions have increased by 2.90% per annum, which was higher than the growth in FFO. A 3% annual growth in distributions translates into dividends doubling every 24 years. In 2009 the company raised quarterly distributions by 1.70%. Dividends of $2.38 per share were declared and paid during 2009, of which $1.94 per share was ordinary income and $.44 per share was a return of capital distribution.

As a Real Estate Investment trust HCP, Inc. must make distributions to its stockholders aggregating annually at least 90% of its REIT taxable income, excluding net capital gains. The FFO payout ratio is at 85%, which was the first decrease in this indicator since 2004. Overall the FFO payout has increased from 72% in 2000 to 85%, which was due to distributions growing faster than funds from operations. A lower FFO payout is preferable, as it minimizes the effect of short term fluctuations in rental incomes on the distribution rate.


Overall I find UHT Inc an attractive company for investment, with a business model that generates stable income streams in the healthcare field. I like the low Price/FFO ratio of 13, which is in the low range when compared to the past five years. This REIT yields 6.80% and has an adequately covered dividend.

I would not expect much growth in funds from operations and distributions above the rate of inflation however. I own two Real Estate Investment trusts dealing with retail properties on a triple net lease terms, so adding a healthcare related REIT would add to diversification in my portfolio.

Full Disclosure: Long UHT

Relevant Articles:

Friday, April 23, 2010

Johnson & Johnson and Procter & Gamble Deliver Consistent Dividend Increases

Some of the best dividend stocks provide investors with the right to share ownership in some of the best managed companies in the world. Those companies are characterized by strong leadership as well as solid competitive advantages and products or services which have lasting pricing power. Such companies generate enough cash flows to not only invest back in the growth of the business but also to share the prosperity with shareholders by raising distributions as well as by making share buybacks. Two such companies which have raised distributions for decades like clockwork include Johnson & Johnson (JNJ) and Procter & Gamble (PG). Both companies raised distributions last week.

The Procter & Gamble Company (PG) engages in the manufacture and sale of consumer goods worldwide. The company operates in three global business units (GBUs): Beauty, Health and Well-Being, and Household Care. The company raised its quarterly distribution by 9.50% to 48.18 cents/share. This is the fifty-fourth consecutive annual dividend increase for this dividend aristocrat. The stock yields 3%. (analysis)

Johnson & Johnson (JNJ) engages in the research and development, manufacture, and sale of various products in the health care field worldwide. The company raised its quarterly dividend by 10.20% to 54 cents/share. This is the forty-eight consecutive annual dividend increase for this dividend aristocrat. The stock yields 3.30%. (analysis)

The ten year annual dividend growth rates for Procter & Gamble (PG) and Johnson & Johnson (JNJ) are 11.60% and 12.90% respectively. This consistency of rewarding shareholders has made them must own stocks for dividend investors. They are both attractively valued at the moment.

Other companies which raised distributions include:

Dividend Growth Stocks

The J. M. Smucker Company (SJM) engages in the manufacture and marketing of branded food products. The Board of Directors approved an increase in the quarterly dividend from $0.35 to $0.40 per common share. This dividend achiever yields 2.50%.

Sonoco Products Company (SON) provides industrial and consumer packaging products, and packaging services. The company rewarded shareholders with an increase in its quarterly distribution to 28 cents/share. This is the 27th consecutive dividend increase for this dividend champion. The stock yields 3.30%.

Kinder Morgan Energy Partners, L.P. (KMP) owns and manages energy transportation and storage assets in North America. The partnership boosted its quarterly distribution to $1.07/unit from $1.05/unit. This is the thirteenth consecutive annual distribution increase for this dividend achiever. The stock yields 6.30%. (analysis)

Artesian Resources Corporation (ARTNA) is a water utility that provides water, wastewater, and engineering services on the Delmarva Peninsula.. The company raised its dividend by 0.50% to 18.82 cents/share. Despite the fact that Artesian has increased its dividends each year for the last 13 years, it is not on the dividend achievers list most probably due to its low trading volume. The stock yields 4.20%.

Potential Dividend Achievers

Renaissance Learning, Inc. (RLRN) provides computer-based assessment and periodic progress monitoring technology for pre-kindergarten through senior high schools and districts in the United States and internationally. The company increased the quarterly cash dividend by 14%, from $0.07 to $0.08 per share. This is the first dividend increase for this company since 2007. The stock yields 2.00%.

Coach, Inc. (COH) engages in the design and marketing of fine accessories and gifts for men and women in the United States and internationally. The company said that it board has approved to raise its cash dividend by 100% to 60 cents per share on an annual basis. This is the first dividend increase for the company since it initiated a dividend policy in 2009. The stock yields 1.40%.

Southern Company (SO), through its subsidiaries, operates as a utility company that provides electric service in the southeastern United States. The company raised its quarterly distributions by 4% to 45.50 cents/share. This is the ninth consecutive annual dividend increase for the company. The stock yields 5.30%.

Arch Coal (ACI) engages in the production and sale of steam and metallurgical coal from surface and underground mines to power plants, steel mills, and industrial facilities in the United States. The company increased its dividend by 11% to 10 cents/share. This is the seventh consecutive annual dividend increase for the company. The stock yields 1.50%.

Magellan Midstream Partners, L.P. (MMP), together with its subsidiaries, engages in the transportation, storage, and distribution of refined petroleum products in the United States. The partnership raised its distributions by 1.40% to 72 cents/share. This was the ninth consecutive annual distribution increase for this master limited partnership. The units currently yield 6%.

Freeport-McMoRan Copper & Gold Inc. (FCX) engages in the exploration, mining, and production of mineral resources. The company raised its annual dividend by 100% to $1.20/share. The company has a fluctuating dividend payment, and does not have a history of consistent dividend increases. The stock yields 1.50%.

Sensient Technologies Corporation (SXT), together with its subsidiaries, manufactures and markets colors, flavors, and fragrances worldwide. The company’s board of directors announced a 5% dividend increase to 20 cents/share. This is the fifth consecutive annual dividend increase for the company. The stock yields 2.50%.

Full Disclosure: Long JNJ PG KMP

Relevant Articles:

- Procter & Gamble (PG) Stock Dividend Analysis
- Johnson & Johnson (JNJ) Dividend Stock Analysis
- 16 Quality Dividend Stocks for the long run
- Best Dividends Stocks for the Long Run

Wednesday, April 21, 2010

Living off dividends in retirement

My article on the four percent rule for dividend investors created a lot of discussion. One financial adviser strongly doubted the sustainability of the portfolio, by criticizing its individual parts, without understanding the basic premise behind the idea of living off dividend income.

First, Dividend stocks are a proxy for equities, and not a different asset class. For many decades before the big bull run of the 1980s started, investors held common stocks exclusively for the right to receive dividend distributions from corporate profits.

Second, Dividend investors live off dividend income. The goal of every investor is to have their portfolio throw off enough income which would be more than enough to cover their expenses. Dividend investors do not plan on selling off principal to live off assets, which is similar to cutting off the branch of the tree you are sitting on.

Spending only income and keeping capital gains reinvested into the portfolio and not spendable is something that many organizations have done for decades. Most endowment funds, trusts and foundations follow the principle of spending only income from dividends and interest or rent and treating capital gains and losses as additions or subtractions to principal. Some examples include the Hershey Trust or the Nobel Foundation. These entities have managed to remain “retired” for far longer than most fee hungry financial advisers have stayed in business. While a typical retirement is expected to last for approximately three decades, investors could definitely learn something from these endowments. They should try to find an optimum balance for sustainable income generation that would provide maximum longevity for portfolios just in case.

The goal of every portfolio is to ensure maximum sustainability for the longest term possible as investors would never know how long they would need to live off their income. As a result focusing on the four pillars that I mentioned previously should be a good starting point. Focusing a portion of the portfolio on higher yielding names is helpful to boost the current yield a little bit, and provide current income for the first few years. Some examples of types of companies which historically have provided higher current yields include Master Limited Partnerships such as Kinder Morgan (KMP) and Real Estate Investment Trusts such as Realty Income (O), Health Care Property Investors, Inc. (HCP) or National Retail Properties (NNN).

Utilities such as Con Edison (ED) and Dominion Resources (D) are also known for their decent yields. There are of course other individual names such as British Petroleum PLC (BP) or Philip Morris International (PM) which also offer good current yields. Investors should of course try not to overpay when purchasing stocks, and should try evaluating sustainability of the distribution payments.

The focus on the last two components was to provide rising dividends, which would match or exceed the rate of inflation. The growing dividend stream would generate yields on cost that are higher than the current yields on many high yielding stocks of today, This is the component that would increase portfolio longevity. Few investors appreciate and understand stocks like Johnson & Johnson (JNJ) or McDonalds (MCD) which yield about 3%. What investors fail to understand is that the rising dividends of stocks with solid competitive advantages which could raise earnings for many years, could afford growing their distributions over time. This would generate mind blowing yields on cost, which are sure to exceed returns on even the highest yielding Canadian royalty trust. Johnson & Johnson (JNJ) or McDonalds (MCD) yield only 3% for new investors. One decade from now they would still be yielding 3% each. For today’s investors however, such stocks would have most likely generated a yield on cost of 8% to 10%.

Last but not least investors should not forget the power of the 3 D’s – diversification, dollar cost averaging into your investments and selective dividend reinvestment. That means one should accumulate positions over time, without overpaying for stocks. In order to reduce company specific risk and avoid having a few dividend cuts derail your total dividend income, one has to diversify and hold at least 30 individual issues representative of different sectors in the economy. In addition to that if dividend reinvestment is feasible, one should do it selectively by allocating extra dividends to stocks which are attractively valued.


Full Disclosure: Long MCD,JNJ,ED,D,BP,PM,NNN

Relevant Articles:

- Four Percent Rule for Dividend Investing in Retirement
- Inflation Proof your income in retirement with Dividend Stocks
- Three Dividend Strategies to pick from
- High-Yield Canadian Royalty Trusts vs Dividend Growth Stocks

Monday, April 19, 2010

MLPs Dominate Distribution Increases

Master Limited Partnerships are limited by US Code to only apply to enterprises that engage in certain businesses, mostly pertaining to the use of natural resources, such as petroleum and natural gas extraction and transportation. They combine the tax advantages of a partnership and higher dividend yields with the day to day tradability of common stocks . Unlike corporations, MLPs are not subject to double taxation.

Last week, several Master Limited Partnerships announced increases in their distribution rates. They represented the majority of distribution increases in my weekly list of dividend increases:

TransMontaigne Partners L.P. (TLP) operates as a terminating and transportation company. The company increased its distribution rate by 1.70% to 60 cents/unit. This was the fifth consecutive annual distribution increase since TransMontaigne Partners L.P. went public in 2005. This master limited partnership currently yields 8.50%.

Enterprise Products Partners L.P (EPD). provides a range of services to producers and consumers of natural gas, natural gas liquids (NGLs), crude oil, refined products, and petrochemicals in the continental United States, Canada, and Gulf of Mexico. The company declared a 1.34% increase in the quarterly cash distribution rate paid to partners from $0.56 to $0.5675 per common unit. Enterprise Product Partners L.P. (EPD) is a member of the dividend achievers index, after raising distributions for eleven years in a row. This master limited partnership currently yields 6.40%.

Genesis Energy, L.P.(GEL) , together with its subsidiaries, operates in the midstream segment of the oil and gas industry in the Gulf Coast area of the United States. The company raised its quarterly distribution to 36.75 cents/unit, which was up from 36 cents/unit paid in the prior quarter and 33.75 cents/unit paid this time last year. The company has raised distributions for seven consecutive years. This master limited partnership currently yields 7.30%.

H.B. Fuller Company (FUL) formulates manufactures, and markets adhesives, sealants, paints, and other specialty chemical products worldwide. The company boosted its quarterly payout by 2.90% to 7 cents/share. This marks the forty-first annual consecutive dividend increase for H.B. Fuller Company, which is a member of the dividend champions index. The stock currently yields 1.20%.

Donegal Group Inc., (DGICA; DGICB) through its subsidiaries, provides personal and commercial lines of property and casualty insurance products to businesses and individuals in the United States. The company’s board of directors declared a $0.115 per share of Class A common stock and $0.1025 per share of Class B common stock. These dividends represent percentage increases of 2.2% for the Company's Class A common stock and 2.5% for the Company's Class B common stock compared to the previous quarterly cash dividend. The company has consistently raised dividends since 2003. The stock yields 3.10%.

Full Disclosure: None

Relevant Articles:

- Master Limited Partnerships (MLPs) – an island of stability for dividend investors
- Six companies boosting future yield on cost
- Seven Dividend Stocks in the News
- Six Significant Dividend Increases

Friday, April 16, 2010

Health Care Property Investors, Inc. (HCP) Dividend Stock Analysis

Health Care Property Investors, Inc. (HCP) operates as a real estate investment trust in the United States. The company invests in health care-related properties and provides mortgage financing on health care facilities. This dividend achiever has raised distributions for 24 consecutive years.

Over the past decade the stock has delivered a total return of 18.20% per annum to its shareholders.

As a Real Estate Investment trust, the company has to distribute almost all of its net income to shareholders. An important metric for evaluating REITs is Funds from operations (FFO). Over the past decade FFO has increased by 3% on average. The fund has a diversified portfolio of healthcare properties by tenants, type of asset or geography. The major tenants include Sunrise Senior Living, Brookdale Senior Living, HCA, Tenet Healthcare, HCR ManorCare, Covenant Care In addition to that the trust has approximately 14% of total assets invested in debt issued by high-quality healthcare operators, secured by their real estate, rather than in the real estate itself.

The company’s focus on senior living facilities should benefit from increasing demand by retiring baby boomers. There will be a significant increase in the number of people over the age of 65 in the US over the next decade, which would be beneficial to overall healthcare facilities.
The company’s assets produce a relatively stable stream of income, which is predictable and resilient in times of recessions. There won’t be much growth however asides from general rate increases on its leases, unless management starts acquiring more properties. The trust routinely disposes or acquires properties in order to enhance shareholder value.
One warning statistic is the fact that average occupancy percentage for Senior Housing has dropped from 95% in 2005 to 86% in 2009. This occupancy ratio represents occupancy and unit/bed amounts as reported by the respective tenants or operators. Certain operators in HCP Inc’s hospital portfolio are not required under their respective leases to provide operational data however

In terms of lease expirations, only Medical Office properties face a steep expirations cycle of leases until 2014. For Senior Housing segment, there aren’t any major lease expirations until 2016.

The company doesn’t face any major debt maturities until 2013, when it has a total of $1.225 billion in Mortgage debt and senior unsecured notes maturing.

Analysts expect FFO to reach $2.15 and $2.24 for 2010 and 2011 respectively. HCP Inc’s leases often provide for either fixed increases in base rents or indexed escalators, based on the Consumer Price Index or other measures, and/or additional rent based on increases in the tenants’ operating revenues. Substantially all of their senior housing, life science, and skilled nursing and hospital leases require the operator or tenant to pay all of the property operating costs or reimburse us for all such costs.

Over the past decade distributions have increased by 2.50% per annum. A 2.5% annual growth in distributions translates into dividends doubling every 29 years. In 2009 the company raised quarterly distributions by 1.00%.

As a Real Estate Investment trust HCP, Inc. must make distributions to its stockholders aggregating annually at least 90% of its REIT taxable income, excluding net capital gains. The FFO payout ratio is at 86%, which was the first increase in this indicator since it exceeded 100% in 2003. Overall a lower FFO payout is preferable, as it minimizes the effect of short term fluctuations in rental incomes on the distribution rate.

Overall I find HCP Inc an attractive company for investment, with a business model that generates stable income streams in the healthcare field. I like the low Price/FFO ratio of 15, which is one of the lowest in the past decade. I would not expect much growth in funds from operations and distributions above the rate of inflation however. I own two Real Estate Investment trusts dealing with retail properties on a triple net lease terms, so adding a healthcare related REIT would add to diversification in my portfolio.

I plan on adding a small position in HCP Inc. on dips over the next month. My ideal starter yield however would be 6%, indicating an entry price of $31 however. I would not settle for a current yield of less than 5% on this investment however.

Full Disclosure: None

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Wednesday, April 14, 2010

16 Quality Dividend Stocks for the long run

The dividend yield on the S&P 500 has been declining throughout 2009, amidst one of the worst years for dividends since 1955. Back in late 2008 and early 2009, yields on major market indices exceeded 3%. Currently the dividend yield on the S&P 500 is 1.70%. However, if we remove the negative yield effect of non-dividend payers in the index, the dividend yield increases to 2.30%.

In order to be flexible in this market and not limit myself only to higher yielding stocks with disappointing dividend growth prospects, I am considering lowering my entry yield criteria to 2.50%, down from the 3% which was in effect since the end of 2008. As long as the selected companies for purchase have long histories of consistent dividend raises in addition to having good prospects for future dividend growth, my yield on cost would keep on increasing over time.

The screening criteria applied toward the S&P Dividend Aristocrat index was:

1) Current yield of at least 2.50%
2) Dividend payout ratio no higher than 60%
3) Price/Earnings Ratio of not more than 20
4) 25 years or more of consecutive dividend increases



These investment ideas are only the beginning blocks of a sustainable dividend portfolio. Investors should strive to maintain a dividend portfolio consisting of at least 30 individual securities representative of as many sectors as possible. The process of building a dividend portfolio is long, as it takes time to find enough qualified candidates for further research. As a result investors should consistently apply their screening method under all market conditions, in order to take advantage of market opportunities, and include enough of the best rising dividend stars available.

Full Disclosure: Long all stocks mentioned above except LLY and VFC

This article was included in the Carnival of Personal Finance #253 (Demotivational Version)

Relevant Articles:

- Dividend Aristocrats List for 2010
- Emotionless Dividend Investing
- Yield on Cost Matters
- The Dividend Edge

Monday, April 12, 2010

Six companies boosting future yield on cost

Many dividend investors ignore stocks which have low current yields. It is interesting to note however that many low yielding stocks frequently are able to raise dividend payments faster while growing the business, which translates into higher stock prices over time. The rising stock price offsets the effect of the increasing dividend payments, leaving the current yield low. The yield on cost for original investors however could get to a very respectable level after a series of consistent dividend increases.

Several of this week’s dividend increases show companies which are not yielding much today, but have the power to grow distributions over time to an above average yield on cost:

Bank of the Ozarks, Inc. (OZRK) operates as the bank holding company for Bank of the Ozarks that provides a range of retail and commercial banking services. The board of the directors of the bank announced a 7.10% increase in its quarterly dividend to 15 cents/share. The company is a member of the dividend achievers index, after raising distributions for 12 consecutive years. The stock yields 1.60%. An investment at the end of 1999, when the stock yielded 2%, would have generated a yield on cost of 12.31%.

The TJX Companies, Inc. (TJX) operates as an off-price retailer of apparel and home fashions in the United States and internationally. The company raised its quarterly dividend by 25% to 15 cents/share. This was the 14th consecutive annual dividend increase for this dividend achiever. The stock currently yields 1.30%. An investment at the end of 1999, when the stock yielded 0.70%, would have generated a yield on cost of 5.90%.

Tanger Factory Outlet Centers, Inc. (SKT) engages in acquiring, developing, owning, operating, and managing factory outlet shopping centers. The company increased its quarterly distributions by 1.30% to 38.75 cents/share. This was the seventeenth consecutive year of annual dividend increases for this dividend achiever. The stock yields 3.60%. An investment at the end of 1999 , when the stock yielded 11.60% , would have generated a yield on cost of 15%.

Monro Muffler Brake, Inc. (MNRO) provides automotive undercar repair and tire services in the United States. The company’s board of directors authorized a 28.60% dividend increase to 9 cents/share. This will be the fifth consecutive year of annual dividend increases for the company. The stock yields 1%. An investment at the end of 1999, when the stock did not pay a dividend, would have generated a yield on cost of 10.80%.

IDEX Corporation (IEX) engages in the manufacture and sale of an array of pumps, flow meters, other fluidics systems and components, and engineered products worldwide. The company raised its quarterly dividend by 25% to 15 cents/share. This is the first dividend increase since 2007. The stock yields 1.80%. An investment at the end of 1999, when the stock yielded 1.80%, would have generated a yield on cost of 4.40%.

Entergy Corporation (ETR) engages in electric power production and retail electric distribution operations. The company raised its quarterly dividends by 10.70% to 83 cents/share. This was the first dividend increase since 2007. The stock yields 4%. An investment at the end of 1999, when the stock yielded 4.70%, would have generated a yield on cost of 12.90%.

Full Disclosure: None

Relevant Articles:

- Why do I like Dividend Achievers
- Yield on Cost Matters
- Seven Dividend Stocks in the News
- Bank Shareholders: Forget About Dividend Increases

Friday, April 9, 2010

Hingham Institution for Savings (HIFS) Dividend Stock Analysis

Hingham Institution for Savings (HIFS) provides various financial services to individuals and small businesses in Massachusetts. The company currently has nine branches and several ATM locations in Boston and southeastern Massachusetts. In the second quarter of 2008, the Bank opened a new branch in Norwell which has, thus far, surpassed management’s expectations with respect to deposit growth. Back in March the bank raised its quarterly dividend by 4.50%.

The board of directors has raised annual dividends for sixteen years in a row. Since the year 2000 the company has paid a special dividend at the beginning of each year. The company is not a member of the dividend achievers index possibly because its stock doesn’t generate a daily volume of over $500,000. This makes me wonder how many other decent companies are excluded from the eyes of dividend growth investors, simply because their stocks are not attractive to day-traders.

Over the past decade this dividend growth stock has delivered an annual average total return of 10.90% to its shareholders.

The company has managed to deliver a 7% average annual increase in its EPS between 2000 and 2009. The company has grown to nine locations over the years. It currently plans on expanding its headquarters, in order to accommodate future growth. The Bank’s ratios also exceeded regulatory capital requirements in both 2009 and 2008, and was considered to be well-capitalized. The company makes its money on the spread between the rates on its real estate loans and the rates on its deposits and borrowings. The net interest margin has increased by 1% to 3.30% in 2009 due to lower rates on deposits and borrowings. Incidentally, the rates on the commercial and residential mortgage loans that the company has made have dropped by only 0.70%. A notable increase from 300 thousand to 1.3 million was the company’s FDIC insurance expense. The Bank’s primary competition for deposits is other banks and credit unions in the Bank’s market area as well as the internet and mutual funds. The Bank’s ability to attract and retain deposits depends upon satisfaction of depositors’ requirements with respect to insurance, product, rate and service. Since 2005 deposits have grown from $364.5 million to $631.1 million, while loans have increased from $488.1 million to $718.2 million.
Only 22% of the company’s stock is held by institutions. This means that investors would not be competing with mutual funds for this stock. When few institutional investors are following a stock, there is an opportunity to uncover a good company and purchase it at a bargain price.
The negative is that there is little information available about the company given its market cap of $70 million. The auditor is not one of the Big 4 CPA firms, which may or may not be a major risk. Another potential red flag is a related party transaction, where Hingham paid legal fees to a law firm owned by certain directors of the Bank.

The return on equity has steadily decreased over the past decade, from a high of 17% in 2002 to current levels at 13%.


The annual dividend payment has increased by an average of 8.60% annually since 2000, which is slightly higher than the growth in EPS.

A 9% growth in dividends translates into the dividend payment doubling every 8 years. If we look at historical data, going as far back as 1994, Hingham Institution for Savings has actually managed to double its dividend payment every seven years on average.

The dividend payout ratio remained below 50% for the majority of the past decade. A lower payout is always a plus, since it leaves room for consistent dividend growth minimizing the impact of short-term fluctuations in earnings.
Currently Hingham Institution for Savings (HIFS) is trading at a Price to Earnings multiple of 9, yields 3.10% and has a dividend payout that is lower than 50%. The stock is attractively valued, and I recently initiated a position in it.

Full Disclosure: Long HIFS


Relevant Articles:


- Seven Dividend Stocks in the News
- Financial Stocks for Dividend Investors
- Aflac (AFL) Dividend Stock Analysis
- Cincinnati Financial’s Dividend Surprise

Wednesday, April 7, 2010

Three Dividend Strategies to pick from

Most new investors typically tend to focus on the companies with the highest dividend yields. I am often being asked why I never write about companies such as Hatteras Financial (HTS) or American Agency (AGNC), each of which yields 16% and 19% respectively. While some of my holdings are higher yielding companies, I typically tend to invest in stocks with strong competitive advantages, which have achieved a balance between the need to finance their growth and the need to pay their shareholders.
After looking at my portfolio, I have been able to identify three types of dividend stocks.

The first type is high yield stocks with low to no dividend growth.

Realty Income (O) (analysis)

Enbridge Energy Partners (EEP)

Kinder Morgan Partner (KMP) (analysis)

Consolidated Edison (ED) (analysis)

It is important not to fall in the trap of excessive high yields, caused by the market’s perceptions that the dividend is in peril. Recent examples of this included some of the financial companies such as Bank of America (BAC). While current dividend income is important, these stocks would produce little in capital gains over time.

The second type is low yielding stocks with a high dividend growth rate.

Wal-Mart (WMT) (analysis)

Aflac (AFL) (analysis)

Colgate Palmolive (CL) (analysis)

Archer Daniels Midland (ADM) (analysis)

Family Dollar (FDO) (analysis)

One of the issues with this type of strategy is that it might take a longer time to achieve a decent yield on cost on your investment. It is difficult to achieve a double digit dividend growth rate forever. Once you achieve an adequate yield on cost on your investment, it might slow down dividend increases. The positive side of this strategy is that many of the best dividend growth stocks such as Wal-Mart (WMT) or McDonald’s (MCD) never really yielded more than 2%-3% when they first joined the Dividend Achievers index. The main positive of this strategy is the possibility of achieving strong capital gains.

The third type is represented by companies with an average yield and an average dividend growth. Some investors call this the sweet spot of dividend investing.

Johnson & Johnson (JNJ) (analysis)

Procter & Gamble (PG) (analysis)

Clorox (CLX) (analysis)

Pepsi Co (PEP) (analysis)

Automatic Data Processing (ADP) (analysis)

There is a common misconception that buying the stocks in the middle, would produce average returns. Actually finding stocks with average market yields, which also produce a good dividend growth could produce not only exceptional yield on cost faster, but also capital gains as well.

At the end of the day successful dividend investing is much more than finding the highest yielding stocks. It is more about finding the stocks with sustainable competitive advantages which allow them to enjoy strong earnings growth, which would be the foundation of sustainable dividend growth. A company like Procter & Gamble (PG) which yields almost 3% today butraises dividends at 10% annually would double your yield on cost in 7 years to 6%. A company like Con Edison (ED) would likely yield around 6% on cost in 7 years. The main difference would be capital gains – Procter & Gamble (PG) would likely still yield 3%, while Con Edison (ED) would likely yield 6%. Thus the investor in Procter & Gamble would have most likely doubled their money in less than a decade, while also enjoying a rising stream of dividend income.

Full Disclosure: Long all stocks mentioned in the article except HTS and AGNC

This article was included in the Carnival of Personal Finance #252: Famous People With Tax Troubles Edition

Relevant Articles:

- 2010’s Top Dividend Plays
- Six Dividend Stocks for current income
- Best Dividends Stocks for the Long Run
- Capital gains for dividend investors
- Dividend Growth beats Dividend Yield in the long run

Monday, April 5, 2010

PepsiCo, Inc. (PEP) Dividend Stock Analysis

PepsiCo, Inc. (PEP) manufactures, markets, and sells various foods, snacks, and carbonated and non-carbonated beverages worldwide. The company is a member of the S&P Dividend Aristocrat index, after raising distributions for 38 years in a row. Most recentlyPepsiCo raised its quarterly dividend payment by 7% to $0.48/share. Dividend author Dave Van Knapp has included the company in his most recent book "The Top 40 Dividend Stocks for 2010".

The stock has returned a 7.60% average annual return over the past decade, fueled by the company’s strong growth in earnings.


Since the year 2000, PepsiCo has managed to deliver a 9.90% average annual increase in earnings per share. The company has also managed to implement a share buyback where it purchased almost 1.7% of outstanding stock on average each year since 2001. After it acquired Pepsi Bottling Co. and PepsiAmericas the company's Board of Directors also authorized the repurchase of up to $15 billion of PepsiCo common stock through June 2013. At current prices this represents approximately 14.40% of the stock outstanding.

Analysts are expecting EPS growth to $4.17 in FY 2010, which would be a 10.60% increase in comparison to FY2009 EPS of $3.77. The expectations for FY 2011 are for EPS to reach $4.65, which would be an 11.50% increase.

Earnings growth could come from synergies associated with the acquisitions of its bottlers, streamlining of operations and cost cutting. The distribution networks of the bottlers acquired could be used to push some of PepsiCo’s non-beverage products such as snacks and other foods.
Earnings growth could also come from strategic acquisitions, as well as product innovations in health and wellness food and beverage section.

The return on equity has remained largely above 30%, with the exception of 2004, when it fell to as low as 22%.


Annual dividend payments have increased by 13.60% on average since 2000, which is much higher than the growth in earnings per share.


A 13.60% growth in dividends translates into the dividend payment doubling almost every five years. Since 1979 PepsiCo has actually managed to double its dividend payment every six years on average.


The dividend payout has remained below 50%, with the exception of a brief increase in 2008. A lower payout is always a plus, since it leaves room for consistent dividend growth minimizing the impact of short-term fluctuations in earnings.

PepsiCo (PEP) is a reliable dividend stock, which is attractively priced at the moment despite its forward yield of 2.90% being a tad lower than my entry requirement of 3%. My ideal entry price for PepsiCo would be $64. Dividend Investors waiting for better prices should weigh in the risks of waiting for a better price, versus the risk of missing out completely on any upside action if the company doesn’t go below $64/share.

Full Disclosure: Long PEP
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Thursday, April 1, 2010

Top Dividend Stocks for 2010, 1Q update

Back in 2009 I was invited to participate in a stock picking competition, where I had to submit my top four stocks for 2010. The companies which I thought included high yielding companies from four sectors of the economy, which also were characterized with consistent cash flows and stable but rising dividend payments. The sectors covered include real estate, utilities, energy transportation and tobacco.

The companies which I selected for 2010 include:

Consolidated Edison (ED) provides electric, gas, and steam utility services in the United States. This dividend aristocrat has raised annual distributions for 36 years in a row. The last dividend increase was in January 2010. The company is a natural monopoly in its geographic area, and thus is able to generate strong and steady revenue streams. The stock spots a yield of 5.3%, which a good compensation if you seek current income for the next 5 - 10 years. The stock is unchanged year to date. Check my analysis of Consolidated Edison.

Kinder Morgan (KMP) owns and manages energy transportation and storage assets in North America. This dividend achiever has raised annual distributions for the past 13 years. The last dividend increase occurred in 2009 however. Master Limited Partnerships like Kinder Morgan (KMP) typically receive a fixed fee for moving a product over a certain distance through their pipelines. In addition to that there is little competition between pipeline companies for business, as they are almost monopoly like businesses. Thus, their revenues tend to be rather stable. Kinder Morgan is eyeing expansion, which would be accretive to distributable cash flows per unit for the near future. The stock currently yields 6.50% and is up 9.40% year to date. Check my analysis of Kinder Morgan.

Philip Morris International (PM) engages in the manufacture and sale of cigarettes and other tobacco products in markets outside of the United States. The company has raised distributions each year since it was spun-off from Altria Group (MO) in 2008. While it does face declining demand in Western Europe, which accounted for a little less than 50% of its operating income, the company could benefit from growth in emerging markets such as China or India as well as from strategic acquisitions. Add in to that the strong shareholder focused culture of Altria Group, which has always tried to deliver strong and consistent dividend growth and buybacks, and you have a recipe for success. Tobacco usage is not going to stop just like that no matter how much taxes are being levied on the products. The stock currently yields 4.4%, and is up 9.40% year to date. Check my analysis of Philip Morris International.

Realty Income (O) engages in the acquisition and ownership of commercial retail real estate properties in the United States. This dividend achiever has raised distributions for sixteen consecutive years. The last dividend increase occurred in March 2010. Some investors are concerned that Realty Income has a high dividend payout ratio, which stops them from purchasing its shares. The truth is that real-estate investment trusts have to distribute all of their earnings to shareholders in order to avoid being taxed by the IRS. Thus, a more useful gauge for Realty Income’s dividend coverage is its Funds from Operations, which includes earnings per share and certain non cash items such as depreciation expense for example.Realty Income (O) currently yields 5.60%, and is up 19.90% year to date. Check my analysis of Realty Income.

The four stocks that I selected have delivered a total return of 9.60% year to date, which so far is better than the returns from the rest of the investors participating in the competition:

Dividend Growth Investor: 9.58%

WildInvestor: 9.30%

My Traders Journal: 5.78%

Where does all my money go: 5.45%

The Financial blogger: 2.87%

Zach Stocks: 2.55%

Four Pillars: -1.01%

Intelligent Speculator: -1.27%

Million Dollar Journey: -11.83%

While the four stocks are ideal for investors seeking current income, in order to reduce risk one has to hold a diversified portfolio of income stocks. At a minimum a diversified dividend portfolio should hold at least 30 securities representative from the ten sectors in the S&P 1500. In addition to that a well diversified income portfolio should also have at least a 25% allocation to fixed income.

Full Disclosure: Long ED, KMP, PM and O

Relevant Articles:

- Six Dividend Stocks for current income
- Four Percent Rule for Dividend Investing in Retirement
- Dividend Investors are getting paid for waiting
- 2010’s Top Dividend Plays

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