Friday, December 31, 2010

Universal Corporation (UVV) Dividend Stock Analysis

Universal Corporation (UVV), together with its subsidiaries, operates as a leaf tobacco merchant and processor worldwide. It engages in selecting, procuring, buying, processing, packing, storing, supplying, shipping, and financing leaf tobacco for sale to, or for the account of, manufacturers of consumer tobacco products. This dividend champion has increased distributions for the past 40 consecutive years. The latest dividend increase was in November 2010, when the company raised distributions by 2.10% to 48 cents/share.

Over the past decade this dividend growth stock has delivered an annualized total return of 6.60% to its shareholders.

The company has managed to deliver an average increase in EPS of 3.70% per year since 2000. Analysts expect Universal Corporation to earn $4.60 per share in 2011.

The company’s return on equity has been on the rise since reaching a bottom in 2006. Rather than focus on absolute values for this indicator, I generally want to see at least a stable return on equity over time.

The annual dividend payment has increased by 4.60% per year since 2000. A 5% growth in distributions translates into the dividend payment doubling every fifteen years. If we look at historical data, going as far back as 1994, we would see that Universal Corporation has actually managed to double its dividend payment every sixteen years on average.

The dividend payout ratio has increased slightly over the past decade, having exceeded 50% in 2006 and 2007. 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, Universal Corporation is attractively valued at 8 times earnings, yields 4.90% and has a sustainable dividend payout. I would continue monitoring the stock and will consider adding to a position in the stock on dips.

Full Disclosure: UVV

Relevant Articles:

- The case for dividend investing in retirement
- Eight Dividend Growers In the News
- Intel Corporation (INTC) Dividend Stock Analysis
- ONEOK Inc (OKE) Dividend Stock Analysis

Wednesday, December 29, 2010

Best Dividend Stocks for 2011

Back in 2008 I was invited to participate in a friendly competition with several stock bloggers. My list of stocks has returned over 20% in 2009 and 2010. The companies I selected in both years included real estate investment trust Realty Income (O). utility Con Edison (ED), tobacco conglomerate Phillip Morris International (PM) and pipeline MLP Kinder Morgan Partners (KMP). Due to the low interest rates, most high yield stocks have been bid up by yield hungry investors to levels which would make investors think twice before adding new money to these positions.

Instead, I have selected four new stocks, which are attractively priced at the moment and could deliver solid earnings growth over the next few years. Dividend growth investing is all about finding the companies which are best positioned to increase dividends over the long haul. Companies with rising sales and earnings have to strong fundamental foundation that would lead to higher dividends over time and higher stocks prices as well. The best dividend stocks for 2011 include:

Johnson & Johnson (JNJ) engages in the research and development, manufacture, and sale of various products in the health care field worldwide. The company operates in three segments: Consumer, Pharmaceutical, and Medical Devices and Diagnostics. The company has had issues with product recalls in 2010, which is one of the reasons why the stock was flat this year. The diversified product base and global geographic reach of its products which are used by consumers on a daily basis produces a diversified stream of sustainable cash flow, which should enable the company to withstand any storms successfully. The company tries to grow organically through innovation and investment in R&D, as well as through strategic acquisitions in new opportunities such as vaccines or biosurgical products. Johnson & Johnson is a member of the dividend aristocrats index, and has consistently raised distributions for the past 48 years. Yield: (analysis)

The Procter & Gamble Company (PG) provides consumer packaged goods in the United States and internationally. The company operates in three global business units (GBUs): Beauty and Grooming, Health and Well-Being, and Household Care. The company is expected to grow earnings in the high single to low double digits over the next few years. It has a diverse base of consumer products, which consumers’ worldwide use on a daily basis. Tapping the growing emerging market middle class is a major opportunity for the company. Procter & Gamble is a member of the dividend aristocrats index, and has consistently raised distributions for the past 54 years. Yield: (analysis)

Philip Morris International Inc. (PM), through its subsidiaries, engages in the manufacture and sale of cigarettes and other tobacco products in markets outside of the United States. While the use of tobacco products is declining in the developed world, emerging market demand is on the increase. In addition, prices typically increase at a rate, which is faster than the rate of decrease in demand. This has translated into higher profits for companies like Philip Morris International, whose branded cigarettes are preferred by consumers worldwide. The company plans to grow organically through innovation of packaging and product lines and through strategic acquisitions. It has raised dividends three times since it was spun off from Altria Group (MO) in 2008. Yield: (analysis)

PepsiCo, Inc. (PEP) manufactures, markets, and sells various foods, snacks, and carbonated and non-carbonated beverages worldwide. The company operates in four divisions: PepsiCo Americas Foods (PAF), PepsiCo Americas Beverages (PAB), PepsiCo Europe, and PepsiCo Asia, Middle East and Africa (AMEA). 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. PepsiCo is a member of the dividend aristocrats index, and has consistently raised distributions for the past 38 years. Yield: (analysis)

The common characteristic of these stocks is that they have a diverse product base and a global market reach. In addition to that they have strong brand names, which ensures that their products carry a premium value to consumers and makes them less likely to switch based on cost. This allows these companies generate high returns on equity and to shower stockholders with cash in the form of dividends and share buybacks. While these stocks are greatly positioned to benefit from the continued economic expansion in the world, they should do well even if we get a double dip recession, since their products or services are used by consumers on a daily basis.

In order to generate sustainable dividend income for the long run however, a more diversified portfolio consisting of at least 30 stocks should be constructed in order to withstand market forces. Check out the Best Dividend Stock for the Long Run list, which is a good addition to today's post. I will be adding the picks from the other bloggers as they are posted.

The stock picks from the other bloggers along with their 2010 performance include:

The Wild Investor +27.15%

Where does all my Money go 26.56%

Dividend Growth Investor +26.08%

Zach Stocks +20.87%

My Traders Journal 10.39%

Million Dollar Journey 3.79%

Intelligent Speculator -0.45%

The Financial Blogger -1.64%

Four Pillars -35.25%

Full Disclosure: Long JNJ, PG, PM and PEP

Relevant Articles:

- Dividend Aristocrats list for 2011
- Ten Dividend Stocks with High Returns on Equity
- Strong Brands Grow Dividends
- Dividends versus Share Buybacks/Stock repurchases

This article was included in the Carnival of Personal Finance: 2011 New Year's Resolution Edition

Monday, December 27, 2010

Becton, Dickinson and Company (BDX) Dividend Stock Analysis

Becton, Dickinson and Company, a medical technology company, develops, manufactures, and sells medical devices, instrument systems, and reagents worldwide. This dividend champion has increased distributions for the past 38 consecutive years. The latest dividend increase was in November 2010, when the company raised distributions by 10.80% to 41 cents/share.

Over the past decade this dividend growth stock has delivered an annualized total return of 10.20% to its shareholders.

The company has managed to deliver an average increase in EPS of 13% per year since 2000. Analysts expect Becton Dickinson to earn $5.50 per share in 2011 and $6.12/share in 2012. The diversified product offering is a strong case behind the company’s business. Another positive is the strong sustainable global demand for the company’s diabetes-care, disease testing and safety products. The increased demand for cell analytics products in the US, should bolster growth in Becton Dickinson’s biosciences segment. The company is a diversified global player in the healthcare equipment field, with almost 55% of its sales derived outside of the US.

The company’s return on equity has been on the rise since 2000, has reach an impressive 25% in 2010. Rather than focus on absolute values for this indicator, I generally want to see at least a stable return on equity over time.

The annual dividend payment has increased by 16.30% per year since 2000. A 16% growth in distributions translates into the dividend payment doubling every four and a half years. If we look at historical data, going as far back as 1964, we would see that Becton Dickinson has actually managed to double its dividend payment every six and a half years on average.

The dividend payout ratio has increased slightly over the past decade, although it never exceeded 50%. 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, Becton Dickinson is attractively valued at 15 times earnings, yields 2.00% and has a sustainable dividend payout. Although Becton Dickinson does have the characteristics of a great business with a strong competitive advantages, the low current yield as well as my current exposure to the sector makes this stock a hold. I would continue monitoring the stock and will consider initiating a position in the stock on dips.

Full Disclosure: None

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- Waste Management (WM) Dividend Stock Analysis
- The case for dividend investing in retirement
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Wednesday, December 22, 2010

Dividend Aristocrats list for 2011

The Dividend Aristocrats index includes members of the S&P 500 which have raised distributions for at least 25 years in a row. This is no small accomplishment, given the fact that this long period of time includes several recessions, oil price shocks and two wars in Iraq. The companies that could achieve this accomplishment have been able to generate rising dividends for at least 25 years, due to their strong competitive advantages and sound business models. Only a company with a competitive advantage could afford to raise dividends to shareholders for such a long period of time.


Over the past few years, the S&P Dividend Aristocrats index has consistently beaten the S&P 500. Over the past 5 years, it has delivered annualized total returns of 5.20%, which was over four percent higher than S&P500's 1% annualized return for the same time period. This is despite the fact that many former dividend aristocrats in the financial sector cut dividends and were booted out of the elite dividend index during the financial crisis of 2007-2009. There are 42 stocks remaining right now. Below you could see the list of all current dividend aristocrats.


The S&P announced that it was adding three new components and deleting three old components of the index. The companies that were added include:

MCCORMICK & CO INC (MKC)
HORMEL FOODS CORP (HRL)
ECOLAB INC (ECL)

The companies that were deleted, include:

LILLY (ELI) & CO (LLY)
SUPERVALU INC (SVU)
INTEGRYS ENERGY GROUP INC (TEG)

The screen that I used in order to gauge the attractiveness of each o the 42 dividend aristocrats had the following criteria:

1) Company was a member for the S&P Dividend Aristocrats Index
2) Company traded at a P/E ratio less than 20
3) The dividend payout ratio was less than 60%
4) The current dividend yield was at least 2.50%

I have highlighted the ones that look attractively valued at the moment:

Abbott Laboratories (ABT) engages in the discovery, development, manufacture, and sale of health care products worldwide. It operates in four segments: Pharmaceutical Products, Diagnostic Products, Nutritional Products, and Vascular Products. The company has raised dividends for 38 years in a row. (analysis)

Automatic Data Processing, Inc. (ADP) provides technology-based outsourcing solutions to employers, and vehicle retailers and manufacturers. It operates in three segments: Employer Services, Professional Employer Organization Services, and Dealer Services. The company has raised dividends for 36 years in a row. (analysis)

Bemis Company, Inc. (BMS) manufactures and sells flexible packaging products and pressure sensitive materials in the United States, Canada, Mexico, South America, Europe, and Asia. The company operates in two segments, Flexible Packaging and Pressure Sensitive Materials. The company has raised dividends for 27 years in a row. (analysis)

The Chubb Corporation (CB), through its subsidiaries, provides property and casualty insurance to businesses and individuals. The company has raised dividends for 45 years in a row. (analysis)

Cincinnati Financial Corporation (CINF), through its subsidiaries, operates in the property casualty insurance business in the United States. It operates in four segments: Commercial Lines Property Casualty Insurance, Personal Lines Property Casualty Insurance, Life Insurance, and Investment. The company has raised dividends for 50 years in a row. (analysis)

The Clorox Company (CLX) engages in the production, marketing, and sales of consumer products in the United States and internationally. The company operates through four segments: Cleaning, Lifestyle, Household, and International. The company has raised dividends for 33 years in a row. (analysis)

Johnson & Johnson (JNJ) engages in the research and development, manufacture, and sale of various products in the health care field worldwide. The company operates in three segments: Consumer, Pharmaceutical, and Medical Devices and Diagnostics. The company has raised dividends for 48 years in a row. (analysis)

Kimberly-Clark Corporation (KMB) , together with its subsidiaries, engages in the manufacture and marketing of various health care products worldwide. The company operates in four segments: Personal Care, Consumer Tissue, K-C Professional & Other, and Health Care. The company has raised dividends for 38 years in a row. (analysis)

The Coca-Cola Company (KO) manufactures, distributes, and markets nonalcoholic beverage concentrates and syrups worldwide. The company has raised dividends for 48 years in a row. (analysis)

McDonald’s Corporation (MCD), together with its subsidiaries, operates as a worldwide foodservice retailer. It franchises and operates McDonald’s restaurants that offer various food items, soft drinks, coffee, and other beverages. The company has raised dividends for 34 years in a row. (analysis)

The McGraw-Hill Companies, Inc. (MHP) provides information services and products to the education, financial services, and business information markets worldwide. It operates in three segments: McGraw-Hill Education, Financial Services, and Information & Media. The company has raised dividends for 37 years in a row. (analysis)

PepsiCo, Inc. (PEP) manufactures, markets, and sells various foods, snacks, and carbonated and non-carbonated beverages worldwide. The company operates in four divisions: PepsiCo Americas Foods (PAF), PepsiCo Americas Beverages (PAB), PepsiCo Europe, and PepsiCo Asia, Middle East and Africa (AMEA). The company has raised dividends for 38 years in a row. (analysis)

The Procter & Gamble Company (PG) provides consumer packaged goods in the United States and internationally. The company operates in three global business units (GBUs): Beauty and Grooming, Health and Well-Being, and Household Care. The company has raised dividends for 54 years in a row. (analysis)

PPG Industries, Inc. (PPG) manufactures and supplies protective and decorative coatings. The company has raised dividends for 39 years in a row. (analysis)

V.F. Corporation (VFC), together with its subsidiaries, engages in the design, manufacture, and sourcing of branded apparel and related products for men, women, and children in the United States. The company has raised dividends for 38 years in a row. (analysis)

Screening for quality dividend stocks is just part of the process of identifying the best dividend stocks. Astute dividend investors should also research in detail each company in order to gauge whether it has any competitive advantages that would enable it to increase earnings and dividends over the next decades.

Full Disclosure: Long ABT, ADM, ADP,AFL, APD, BF-B,CB,CINF, CLX, ED, EMR, FDO, GWW, JNJ, KMB, KO, MCD, MHP, MKC, MMM, PEP, PG, WAG, WMT ,XOM
Relevant Articles:

Monday, December 20, 2010

Pfizer Raises Dividends, is that good or bad news?

Last week pharmaceuticals giant Pfizer (PFE) raised distributions for a second year in a row. The company raised its dividend by 11.10% to 20 cents/ share. Pfizer cut its dividend in 2009 from 32 to 16 cents/share after it announced that it was acquiring rival Wyeth in a 68 billion dollar buyout. The company has tried to rebuild it history of consistent dividend increases over the past two years, which is a positive thing. Astute dividend investors however know that future dividend increases are supported by strong fundamentals. In Pfizer’s case, the company has a steep cliff of patent expirations on key drugs such as Lipitor in 2011 -2013. Lipitor for example accounts for 22% of revenues and its US patent expires in 2011. Analysts are expecting that cheaper generic drug substitutes to Lipitor would erode Pfizer’s market share, thus hurting profitability. Pfizer has been unable to bring in any significant blockbuster drugs to the market, which would have compensate for the losses from generic competition after patents on existing drugs expire. Instead, the company has embarked on a series of acquisitions over the past decade, by purchasing Warner-Lambert in 2000, Pharmacia in 2003 and Wyeth in 2009. These acquisitions have resulted in major cost synergies, but in no new drugs on the market. In Pfizer’s defense, in order for a new drug to appear on the market, there is a long and expensive process coupled with several FDA approvals. This being said, I would keep monitoring Pfizer’s (PFE) business conditions, in order to be prepared to add it to my portfolio once it shows a decisive turnaround.

Other companies which raised dividends and which have raised distributions for over five years in a row include:

AT&T Inc. (T) provides telecommunication products and services to consumers, businesses, and other telecommunication service providers under the AT&T brand worldwide. The company raised its quarterly dividend by 2.40% to 43 cents/share. This marked the 27th consecutive annual dividend increase for this dividend champion. Yield: 5.90% (analysis)

Realty Income Corporation (O) engages in the acquisition and ownership of commercial retail real estate properties in the United States. The company raised its quarterly dividend by 0.20% to 14.425 cents/share. This dividend achiever has consistently raised dividends for 16 years in a row. Yield: 5.10% (analysis)

Waste Management, Inc. (WM) provides integrated waste management services in North America. The company raised its quarterly dividend by 8% to 34 cents/share. This marked the eight consecutive annual dividend increase for this dividend stock. Yield: 3.10% (analysis)

Franklin Resources Inc. (BEN) is a publicly owned investment manager. The firm provides its services to individuals, institutions, pension plans, trusts, and partnerships. The company raised its quarterly dividend by 13.60% to 25 cents/share. This marked the 30th consecutive annual dividend increase for this dividend champion. Yield: 0.90%

Urstadt Biddle Properties, Inc. (UBA), a real estate investment trust (REIT), engages in the acquisition, ownership, and management of commercial real estate properties in the United States. The company raised its quarterly dividend by 1% to 24.50 cents/share. This marked the 17th consecutive annual dividend increase for this dividend achiever. Yield: 5.20%

Pentair, Inc. (PNR) operates as a diversified industrial manufacturing company worldwide. The company raised its quarterly dividend by 5% to 20 cents/share. This marked the 35th consecutive annual dividend increase for this dividend champion. Yield: 2.20%

ABM Industries Incorporated (ABM), through its subsidiaries, provides facility services for commercial, industrial, institutional, and retail facilities primarily in the United States. The company raised its quarterly dividend by 3.70% to 14 cents/share. This marked the 44th consecutive annual dividend increase for this dividend champion. Yield: 2.10%

The Andersons, Inc. (ANDE) engages in the agriculture and transportation businesses in the United States. The company raised its quarterly dividend by 22.20% to 11 cents/share. This marked the ninth consecutive annual dividend increase for this dividend stock. Yield: 1.30%

Dominion Resources, Inc. (D), together with its subsidiaries, engages in producing and transporting energy in the United States. It operates in three segments: DVP, Dominion Generation, and Dominion Energy. The company raised its quarterly dividend by 7.70% to 49.25 cents/share. This marked the eight consecutive annual dividend increase for this dividend stock. Yield: 4.60%

The process of creating a dividend portfolio should include screening for and including only the companies with the best prospects. After all, dividend growth which is not supported by strong fundamentals is not sustainable and would not lead to financial success. In addition to that, investors should avoid overpaying for stocks and should avoid taking concentrated sector bets. Taking these precautionary steps would ensure that investors keep receiving a growing stream of dividend income even during the worst market conditions.

Full Disclosure: Long O and D

Relevant Articles:

- General Electric (GE) raises dividends again –should you care
- Eight Dividend Growers In the News
- AT&T Raises Distributions by 2.4%
- A dividend portfolio for the long-term

Friday, December 17, 2010

McCormick & Company (MKC) Dividend Stock Analysis

McCormick & Company, Incorporated engages in the manufacture, marketing, and distribution of flavor products and other specialty food products to the food industry worldwide. It operates in two segments, Consumer and Industrial. This dividend champion has increased distributions for the past 25 consecutive years. The latest dividend increase was in November 2010, when the company raised distributions by 8% to 28 cents/share.

Over the past decade this dividend stock has delivered a negative annualized total return of 13.20% to its shareholders.

The company has managed to deliver an average increase in EPS of 9.70% per year since 2000. Analysts expect McCormick to earn $2.61 per share in 2010 and $2.82/share in 2011. The company has been active on the acquisition front over the past decade, which has helped it grow, but has been leading to a decrease in return on equity. Almost 60% of sales are derived from the US operations, and the rest is split between Europe and other countries. The largest customers include PepsiCo (PEP) and Wal-Mart (WMT), each accounting for 11% of sales. Besides growth through acquisitions, maintaining and increasing market share comes from innovation. The company needs to innovate and differentiate its product line, in order to deflect private label competition, which could drag margins lower.


The company’s return on equity has been decreasing almost every year since 2000, although it is still impressive at 25% right now. Rather than focus on absolute values for this indicator, I generally want to see at least a stable return on equity over time.

The annual dividend has increased by 10.90% per year since 2000. An 11% growth in distributions translates into the dividend payment doubling every six and a half years. If we look at historical data, going as far back as 1988, we would see that McCormick has actually managed to double its dividend payment every five and a half years on average.

The dividend payout ratio has increased slightly over the past decade, although it never exceeded 50%. 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, McCormick is attractively valued at 17.60 times earnings, yields 2.50% and has a sustainable dividend payout. I would consider adding to my position in the stock on dips below $44.80.

Full Disclosure: Long MKC

Wednesday, December 15, 2010

Ten Dividend Stocks with High Returns on Equity

One of the biggest myths about dividend investing is that companies which pay a dividend offer no growth, and thus they pay the distribution in order to keep their long term investors. Many naysayers believe that a company that does not reinvest all of its profits back into the business should be sold. In my experience as a dividend investor, I have seen only one company which has successfully managed to reinvest all of its profits. The reason why this company was so successful in reinvesting those profits was because of the genius of its asset allocator – Warren Buffett. In retrospect Warren Buffett is a closet dividend investor, who invests in companies generating sufficient extra cashflows that allows him to exercise his investing prowess and buy assets at a discount. Even the Oracle of Omaha however is not immune to the laws of diminishing returns or investment mistakes that large capital bases and venturing in unfamiliar industries brings. There isn’t any other company like Berkshire Hathaway (BRK.B) which has managed to grow for four or five decades, while reinvesting all of its profits and delivering consistent returns on investment.

Buffett is not the only famous investor who spots attractive opportunities and holds on to them, while receiving dividends. Ben Graham, who was Buffett’s teacher and mentor in the field of value investing said that the purpose of a company is to pay dividends to its owners. Without sharing any of the returns that the business supposedly generated, these returns are suspect to ordinary investors, who typically have no say in the way the company operates.

Most exceptional businesses have achieved an optimal balance between reinvesting profits back in the business and distributing them to shareholders. Coincidentally, some of the best dividend stocks, which boast long records of consistent dividend increases also happen to generate high returns on equity. These businesses have strong competitive advantages but at the same time they understand that re-investing all of their profits back in the business would not automatically generate the same returns on equity. As a result they are able to throw off plenty of free cash to their shareholders, which is probably one of the reasons why investors like Buffett look for opportunities that deliver high returns on equity.

I have outlined several dividend stocks with high returns on equity to illustrate my point:

Medtronic, Inc. (MDT) develops, manufactures, and sells device-based medical therapies worldwide. This dividend champion has raised distributions for 33 years in a row. Returns on equity have remained above 19% for the majority of the past decade. Overall the ROE increased steadily over the past decade. ROE - 22.55% (analysis)

Automatic Data Processing, Inc. (ADP) provides technology-based outsourcing solutions to employers, and vehicle retailers and manufacturers. This dividend aristocrat has raised dividends for 35 consecutive years. Over the past decade the Return on Equity has remained in a tight range between 17% and 26%. ROE - 22.43% (analysis)

Wal-Mart Stores, Inc. operates retail stores in various formats worldwide. This S&P Dividend Aristocrat has consistently increased dividends every year for 36 years. Over the past 20 years the Return on Equity has firmly remained above 20%. ROE - 21.08% (analysis)

McDonald’s Corporation (MCD), together with its subsidiaries, franchises and operates McDonald’s restaurants in the food service industry worldwide. The company is also a dividend aristocrat, which has been consistently increasing its dividends for 33 consecutive years. The ROE has been increasing since it hit a low of 14 in 2002. Recently it hit 30%, and has stayed above that level for two consecutive years. ROE - 33.20% (analysis)

Johnson & Johnson (JNJ) engages in the research and development, manufacture, and sale of various products in the health care field worldwide. JNJ has been consistently increasing its dividend for 48 consecutive years. Over the past decade the ROE has remained largely between 25% and 30%, with the exception of 2006 and 2007. ROE - 26.35% (analysis)

The Coca-Cola Company (KO) manufactures, distributes, and markets nonalcoholic beverage concentrates and syrups worldwide. Coca-Cola has paid uninterrupted dividends on its common stock since 1893 and increased payments to common shareholders every year for 48 years. The Return on Equity has been in a decline after hitting a high in 2001. It has stabilized since 2005 at a very impressive 30%. ROE - 30.15% (analysis)

United Technologies Corporation (UTX) provides technology products and services to the building systems and aerospace industries worldwide. The company is also a dividend achiever, which has been consistently increasing its dividends for 16 consecutive years. Over the past decade the return on equity has remained largely between a low of 20% in 2005 and a high of 25% in 2008. ROE - 21.28% (analysis)


Kimberly-Clark Corporation (KMB), together with its subsidiaries, engages in the manufacture and marketing of health and hygiene products worldwide. This dividend aristocrat has boosted distributions for 38 years in a row. The return on equity has fluctuated between a low of 25.70% in 2006 and a high of 39.4% in 2009. Over the past few years it has remained above 30%, which is impressive. ROE - 40.59%. (analysis)

Abbott Laboratories (ABT) engages in the discovery, development, manufacture, and sale of health care products worldwide. The company is a component of the S&P 500 and the dividend aristocrat indexes. Over the past decade the ROE has largely remained between 12% and 28% after falling from its 2000 highs over 34%. ROE - 28.49% (analysis)

Colgate-Palmolive Company (CL), together with its subsidiaries, manufactures and markets consumer products worldwide. It operates in two segments, Oral, Personal, and Home Care; and Pet Nutrition. Over the past decade the Return on Equity has been truly phenomenal, having never fallen below 80% since 2000. This dividend champion has increased dividends for 47 years in a row. ROE - 97.74% (analysis)

Full Disclosure: Long all stocks mentioned above

Relevant Articles:


- Strong Brands Grow Dividends
- Seven dividend aristocrats that Buffett owns
- Dividend Investing Myths
- The case for dividend investing in retirement

Monday, December 13, 2010

General Electric (GE) raises dividends again –should you care?

Last week industrial conglomerate General Electric (GE) raised distributions by 17% to 14 cents/share. Equity investors viewed this boost in a positive way, sending GE stock price higher for the day. This was the second dividend increase for GE in 2010, after the company boosted its payout by 20% earlier this year to 12 cents/share. Dividend increases are typically a bullish sign from companies, which shows their confidence that their business would be able to generate sufficient cash flow in order to pay the higher distribution amount. For GE however, this stunning 40% increase in the quarterly distribution comes after it cut dividends from 31 cent/share to 10 cents/share in 2009 during the financial crisis. Furthermore, investors who are hoping that GE might eventually restore its dividend payment to the 2008 levels, should realize that it might take several years for this to happen.

The reason behind this is that in order for a company to function effectively, it needs to reinvest a portion of its earnings back into the business either to expand, innovate or maintain its position in the marketplace. With GE expected the earn $1.12/share in 2010 and $1.27/share in 2011, this puts a limit on the amount of dividends the company could distribute in the near term. That being said, I would wait for a few years in order to see whether General Electric (GE) would be able to generate earnings growth which will support a growing distribution over time.

Other companies which increased distributions last week include:

Nucor Corporation (NUE), together with its subsidiaries, engages in the manufacture and sale of steel and steel products in North America and internationally. The company announced a 0.70% increase in its quarterly dividend to 36.25 cents/share. This marked the thirty-eight consecutive annual dividend increase for this dividend champion. Yield: 3.50% (analysis)

Erie Indemnity Company (ERIE) provides sales, underwriting, and policy issuance services to the policyholders of Erie Insurance Exchange in the United States. The company announced a 7.30% increase in its quarterly dividend to 51.50 cents/share. This marked the twenty first consecutive annual dividend increase for this dividend achiever. Yield: 3.20%

Edison International (EIX), through its subsidiaries, engages in the supply of electric energy in central, coastal, and southern California. The company announced a 1.60% increase in its quarterly dividend to 32 cents/share. This marked the eight consecutive annual dividend increase for Edison International. Yield: 3.40%

C.H. Robinson Worldwide, Inc. (CHRW) operates as a third party logistics company. The company announced a 16% increase in its quarterly dividend to 29 cents/share. This marked the fourteenth consecutive annual dividend increase for this dividend achiever. Yield: 1.50%

Stryker Corporation (SYK), together with its subsidiaries, operates as a medical technology company worldwide. The company operates in two segments, Orthopaedic Implants and MedSurg Equipment. The company announced a 20% increase in its quarterly dividend to 18 cents/share. This marked the eighteenth consecutive annual dividend increase for this dividend achiever. Yield: 1.40%

Roper Industries, Inc. (ROP) engages in designing, manufacturing, and distributing energy systems and controls, scientific and industrial imaging products and software, industrial technology products, and radio frequency products and services. The company announced a 16% increase in its quarterly dividend to 11 cents/share. This marked the eighteenth consecutive annual dividend increase for this dividend achiever. Yield: 0.60%

Occidental Petroleum Corporation (OXY), together with its subsidiaries, operates as an oil and gas exploration and production company primarily in the United States. The company announced a 21% increase in its quarterly dividend to 46 cents/share. This marked the ninth consecutive annual dividend increase for this dividend stock. Yield: 2%

The Toro Company (TTC) engages in the design, manufacture, and marketing of turf maintenance equipment and precision irrigation systems to help customers worldwide care for golf courses, sports fields, public green spaces, commercial and residential properties, and agricultural fields. The company raised its quarterly distribution by 11% to 20 cents/share. The company has raised dividends for seven years in a row. Yield: 1.30%

Instead of speculating whether GE would be able to raise distributions in the future, investors should be focusing on the companies which already have a history of raising dividends, and no dividend cuts. Several such companies which I plan on researching further include Occidental Petroleum Corporation (OXY), Stryker Corporation (SYK), Erie Indemnity Company (ERIE) and Edison International (EIX). I have recently added to my position in Nucor (NUE), which is expected to generate sufficient amount of earnings to cover distributions in 2011 and beyond on strong global demand.

Full Disclosure: Long NUE

Relevant Articles:

- General Electric (GE) raises dividend; 15 other companies follow suit
- General Electric (GE) Cuts the Dividend
- Nucor Corporation (NUE) Dividend Stock Analysis
- Another reason for companies to pay dividends

Friday, December 10, 2010

Waste Management (WM) Dividend Stock Analysis

Waste Management, Inc. (WM) provides integrated waste management services in North America. The company offers collection, transfer, recycling, disposal, and waste-to-energy services. This dividend challenger has increased distributions for the past 7 years in a row. The latest dividend increase was in December 2009, when the company raised distributions by 8.60% to 31.50 cents/share.

Over the past decade this dividend growth stock has delivered an annualized total return of 8.20% to its shareholders.

The company has managed to deliver increase in its EPS from a deficit of $0.16/share in 2000 to a profit of $2.01 in 2009. Analysts expect Waste Management to earn $2.05 per share in 2010 and $2.30/share in 2011.
The company is a leader in waste management in the US. The waste the consumers generate would likely increase in the future, which should bode well for business. Future growth could also come from strategic acquisitions. The company also generates sufficient excess cash flows that it uses to cover distributions and stock buybacks.


The company’s return on equity has remained above 15% for the majority of the past decade. Rather than focus on absolute values for this indicator, I generally want to see at least a stable return on equity over time.

The annual dividend payment has increased substantially from one cent/share in 2003 to 31.50 cents/share in 2010. Since 2004, when a more generous dividend policy toward dividend investors was implemented, quarterly distributions have increased by 9% per year.

The dividend payout ratio has increased over the past decade, reaching 58% in 2009. Based off 2010 forward earnings, the dividend payout would decrease to 61%. Waste Management seems to have reached the limit to its sustainable dividend growth. Without earnings growth over the next few years, future growth in distributions will be limited at best. 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, Waste Management is attractively valued at 17 times 2010 earnings and yields 3.60%. In comparison, rival Republic Services (RSG) yields 2.90% and trades at a P/E of 27. Given Waste Management's inability to grow EPS over the past five years, the high dividend payout ratio and the fact that the company is three years away from being eligible for inclusion in the dividend achievers index, I would rate it as a hold for the time being.

Full Disclosure: None

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Wednesday, December 8, 2010

The case for dividend investing in retirement

There are over 60 million baby boomers in the US, most of which will retire over the next two decades. Most of them will generate income in retirement through social security, while some of the lucky ones will also enjoy a pension provided by their employers. Some boomers might also have some amount of money that they want to learn how to invest, in order to generate income in retirement.

Financial Advisers typically offer the four percent rule as a solution for managing ones money in retirement. This method assumes that investors will rely on total returns in order to monetize their portfolio for living expenses. According to the four percent rule, investors would spend four percent of their portfolio in year one of retirement, followed by an increase in distributions by factoring in inflation. For example, an investor with a $1 million portfolio invested in index funds and US treasury bonds would sell $40,000 worth of assets in year one. If we assume an annual inflation rate of 3% per year, in year 2 our investor would have to sell $41,200 worth of assets from his or her portfolio. The danger of this method is that it requires total returns each year in order to grow your portfolio, and avoid eating/spending your principal. Otherwise investors could end up depleting their asset base and might not be able to enjoy retirement for long.

One of the best kept secrets in retirement investing seems to be dividend stocks. Dividend investors receive positive feedback in the form of dividends every time they receive a dividend payment. In fact, as long as the company they purchased is stable and grows distributions out of rising earnings, dividend investors could care less about volatility in the stock market altogether. An investor relying on the four percent rule will feel the pain of selling his assets during bear markets and would fear that their account would be depleted sooner than expected. Many investors that have followed the traditional retirement path over the past decade have much lower networths and income today after the dot-com and the financial bubbles burst. Investors in dividend stocks on the other hand who only spent their dividend checks, could afford to ignore stock prices.

The benefit of dividend stocks, is that over time dividends increase at a rate that is two percent higher than the rate of inflation. This makes them a must own asset class not only for the retired investor who needs income for the next three or four decades, but also for the investor who expects to retire in 30 or 40 years. Fixed income like bonds for example, will pay a fixed interest payment every year, which will certainly lose its purchasing power over time. This could mean downgrading your lifestyle from eating caviar at the onset of your retirement to endulging on cat good at the end of it. In addition to that, if the world economy does well over the period you are invested, chances are that your untouched principal invested in quality dividend stocks would appreciate as well, matching or exceeding the rate of inflation.

Dividend investing was a widely followed strategy to obtain income until the bull market of 1980’s and 1990’s, when growth stocks were all the rage. In order to be successful at dividend investing and create a lasting stream of dividend income, retirees should follow a few simple principles.

First and foremost, investors should pick companies whose business they understand. In addition to that investors should purchase stock in equities that have solid competitive advantages and a sound business model which could afford to not only maintain but also grow earnings over time. This would allow companies to raise dividends over time, which would inflation proof your dividend income in retirement.

Second, investors should diversify their risk and avoid being concentrated in a certain sector, even if it produces high yields on the surface.

Third, investors should avoid paying top dollar for dividend stocks. If you cannot justify a high price, then either wait on the sidelines for the price to get lower or buy another stock that is cheaper.

Fourth, investors should pick stocks that have sustainable dividend payments. This means that the dividend is adequately covered from earnings, and that earnings per share are not more than twice the amount of dividends per share. The exceptions to the rule are certain pass-through entities such as master limited partnerships, real estate investment trusts and utilities.

At those exceptions investors should make a trend of distributions relative to cash flows or to earnings in order to determine the sustainability of the payout. Dividend sustainability is important, because if a company distributes a dividend which it cannot afford to pay, it would cut or eliminate the payment. This would be a blow to your portfolio dividend income, and might set you back in your goals.

The companies that meet the criteria above include:

Medtronic, Inc. (MDT), which manufactures and sells device-based medical therapies worldwide. The company is a member of the dividend champions index and has raised distributions for 33 years in a row. Yield: 2.60% (analysis)

Johnson & Johnson (JNJ) engages in the research and development, manufacture, and sale of various products in the health care field worldwide. The company operates in three segments: Consumer, Pharmaceutical, and Medical Devices and Diagnostics. The company is a member of the dividend aristocrats index and has raised distributions for 48 years in a row. Yield: 3.40% (analysis)

The Procter & Gamble Company (PG) provides consumer packaged goods in the United States and internationally. The company operates in three global business units (GBUs): Beauty and Grooming, Health and Well-Being, and Household Care. The company is a member of the dividend aristocrats index and has raised distributions for 54 years in a row. Yield: 3.00% (analysis)

McDonald's Corporation (MCD), together with its subsidiaries, operates as a worldwide foodservice retailer. It franchises and operates McDonald's restaurants that offer various food items, soft drinks, coffee, and other beverages. The company is a member of the dividend aristocrats index and has raised distributions for 34 years in a row. Yield: 3.10% (analysis)

The Coca-Cola Company (KO) manufactures, distributes, and markets nonalcoholic beverage concentrates and syrups worldwide. It principally offers sparkling and still beverages. The company is a member of the dividend aristocrats index and has raised distributions for 48 years in a row. Yield: 2.80% (analysis)

These companies are just a starting block in building a lasting dividend portfolio. Investors should look for stocks with similar characteristics as they strive to create a diversified portfiolio of at least 30 stocks.

Full Disclosure: Long all stocks listed above

This article was included in the Carnival of Personal Finance

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Monday, December 6, 2010

Eight Dividend Growers In the News

Obtaining an edge in investing is important in order to make it in the stock market. One has to find the right strategy that works for them, or otherwise they would not stick with it when times get tough. One strategy that rewards patient investors no matter what the stock market does is called dividend investing. A good and a consistently growing dividend payer that rewards investors with dividends throughout all market conditions, is a must own, since it does not expose its investors to the whims of the market. This also minimizes the risk that investors would have to sell off chunks of their portfolio during adverse market conditions in order to fund their lifestyle. By purchasing the right stock at an attractive valuation, a dividend investor could ignore flash crashes and market volatility and instead simply focus on fundamentals in order to be successful. This strategy does require time and commitment, including searching for hidden dividend gems in such places as the list of weekly dividend increases. Last week there were eight companies which announced their intentions of growing their distributions:

Citizens Holding Company (CIZN) operates as the bank holding company for The Citizens Bank of Philadelphia that provides commercial and personal banking products and services in Mississippi. The company raised its quarterly dividend by 4.8% to 22 cents/share. This marked the eleventh consecutive annual dividend increase for the company. Yield: 4.80%

Graco Inc. (GGG), together with its subsidiaries, provides fluid handling solutions to manufacturing, processing, construction, and maintenance sectors worldwide. It operates in three segments: Industrial, Contractor, and Lubrication. The company raised its quarterly dividend by 5% to 21 cents/share. This marked the fourteenth consecutive annual dividend increase for this dividend achiever. Yield: 2.20%

Enbridge Inc. (ENB) engages in the transportation and distribution of crude oil and natural gas primarily in Canada and the United States. The company raised its quarterly dividend by 15% to 49 cents/share. This international dividend achiever has raised dividends for 15 years in a row. Yield: 3.40%

Lincoln Electric Holdings, Inc. (LECO), through its subsidiaries, manufactures and resells welding and cutting products worldwide. The company raised its quarterly dividend by 10.70% to 31 cents/share. This dividend achiever has raised dividends for 16 years in a row. Yield: 2%

Ecolab Inc. (ECL) engages in the development, manufacture, sale, and service of products that clean, sanitize, and promote food safety and infection prevention. The company raised its quarterly dividend by 13% to 17.50 cents/share. This dividend achiever has raised dividends for 16 years in a row. Yield: 1.50%

Deere & Company (DE) provides products and services primarily for agriculture and forestry worldwide. The company operates in three segments: Agriculture and Turf, Construction and Forestry, and Credit. The company raised its quarterly dividend by 16.7% to 35 cents/share. This marked the eight consecutive annual dividend increase for this dividend challenger. Yield: 1.80%

J&J Snack Foods Corp. (JJSF), together with its subsidiaries, manufactures nutritional snack foods, as well as distributes frozen beverages to the food service and retail supermarket industries in the United States, Mexico, and Canada. The company raised its quarterly dividend by 9.30% to 11.75 cents/share. This marked the seventh consecutive annual dividend increase for this dividend challenger. Yield: 1%

OGE Energy Corp. (OGE), together with its subsidiaries, operates as an energy and energy services provider offering physical delivery and related services for electricity and natural gas primarily in the south central United States. The company raised its quarterly dividend by 3.5% to 37.50 cents/share. This marked the fifth consecutive annual dividend increase for OGE Energy Corp. Yield: 3.40%

I was once again able to uncover a hidden dividend growth stock, which was missed by the dividend achievers index. The company is Citizens Holding Company (CIZN), a small bank with a market capitalization of just 88 million dollars, which trades a few thousand shares per day. The low volume alone makes the company “unfit” for the dividend achievers index, despite the fact that the company has kept growing distributions throughout the worst financial crisis since 1929. Back in March 2010 I uncovered Hingham Institution for Savings (HIFS), which has deliver a total return of over 27% since I analyzed the stock. I will be analyzing Citizens Holding Company (CIZN) in a future post.

Full Disclosure: Long HIFS

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Friday, December 3, 2010

Intel Corporation (INTC) Dividend Stock Analysis

Intel Corporation designs, manufactures, and sells integrated circuits for computing and communications industries worldwide. This dividend challenger has increased distributions for the past 8 years in a row. The latest dividend increase was in November 2010, when the company raised distributions by 15% to 18 cents/share.

Over the past decade this dividend stock has delivered a negative annualized total return of 6.40% to its shareholders.

The company has managed to deliver a negative 7.20% average annual increase in its EPS between 2000 and 2009. Analysts expect Intel to earn $1.99 per share in 2010 and $1.94/share in 2011. In comparison, the company earned $0.77/share in 2009.

Intel is basically the main game in town when in comes to microchips. The PC replacement cycle in addition to IT spending driven by the new Microsoft (MSFT) Windows 7 system could boost sales in the near term. The company shipped 80% of all microprocessors in 2009. It’s main competitor is Advanced Micro Devices (AMD), whose market share is approximately 20%. Product differentiation is very difficult to achieve in the semiconductor industry, and there is some commoditization of the product line. As a result price wars could affect profitability in a negative fashion. In addition to that, the need to constantly invest money in R&D in order to keep competitive is a typical characteristic behind every tech stock, including Intel. Tech spending is highly cyclical, which leads to EPS volatility. This could provide a ceiling to consistent dividend increases, and could also increases the risks of a dividend cut.

The company’s return on equity has been in a steady decline, after peaking in 2005. Rather than focus on absolute values for this indicator, I generally want to see at least a stable return on equity over time.

The annual dividend has increased by an average of 26% annually since 2000, which is much higher than the growth in EPS. The main reason is the increase in the dividend payout ratio over the past decade.

A 26 % growth in dividends translates into the dividend payment doubling every three years. If we look at historical data, going as far back as 1995, Intel has indeed managed to double its dividend payment every three years on average.

The dividend payout ratio has increased over the past decade, reaching 73% in 2009. Based off 2010 forward earnings, the dividend payout would decrease to 37%. 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, Intel is attractively valued at 10.80 times 2010 earnings and yields 3.00%. The company is the leader in microprocessors and it is cheaper by historical standards. However given the erratic earnings trend and the fact that the company is two years away from being eligible for inclusion in the dividend achievers index, I would rate it as a hold for the time being.

Full Disclosure: None

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Wednesday, December 1, 2010

ONEOK Inc (OKE) Dividend Stock Analysis

ONEOK, Inc. (OKE), a diversified energy company, operates as a natural gas distributor primarily in the United States. The company operates in three segments: ONEOK Partners, Distribution, and Energy Services. This dividend challenger has increased distributions for the past 8 years in a row. The latest dividend increase was in October 2010, when the company raised distributions by 4% to 48 cents/share.

Over the past decade this dividend stock has delivered annualized total returns of 13.80 % to its shareholders.

The company has managed to deliver a 7.80% average annual increase in its EPS between 2000 and 2009. Analysts expect ONEOK Inc. to earn $2.97 per share in 2010 and $3.15/share in 2011. In comparison, the company earned $2.87/share in 2009.


ONEOK Inc.(OKE) owns the general partner interest in the ONEOK LP (OKS) partnership as well as almost half of the units outstanding of the partnership. In addition to that, investors in ONEOK Inc. do not receive K-1 tax forms, but would receive a regular 1099-DIV for dividend income earned. This makes this investment suitable for tax-deferred accounts. ONEOK LP (OKS) does account for 60% of ONEOK Inc’s (OKE) operating income. The beauty of master limited partnerships is that they are heavily regulated, there is very little competition in for transporting energy for specific geographic locations, and their revenues are typically not dependent on the rise or fall in energy prices. When a new pipeline is being constructed, after being approved by the Federal Energy Regulatory Commission (FERC), transportation rates are set by the agency. These rates also cover certain returns on investment. The monopoly of pipelines is further strengthened by the steep cost of entering of a particular market, which could be in the hundreds of millions of dollars.

The company’s return on equity has been stable around 15%, after peaking in 2005/ Rather than focus on absolute values for this indicator, I generally want to see at least a stable return on equity over time.

Annual dividends have increased by an average of 11.40% annually since 2000, which is much higher than the growth in EPS. The main reason is the increase in the dividend payout ratio over the past decade.
A 12 % growth in dividends translates into the dividend payment doubling every six years. If we look at historical data, going as far back as 1993, ONEOK Inc. has actually managed to double its dividend payment every eight and a half years on average.

The dividend payout ratio has increased over the past decade, breaking out above 50% in 2009. 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, ONEOK Inc is attractively valued at 17.20 times earnings and yields 3.80%. Given the high dividend payout ratio and the fact that the company is two years away from being eligible for inclusion in the dividend achievers index, I would rate it as a hold for the time being.

Full Disclosure: None
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