Friday, April 29, 2011

Emerson Electric (EMR) Dividend Stock Analysis

Emerson Electric Co. (EMR), a diversified global technology company, engages in designing and supplying product technology and delivering engineering services to various industrial and commercial, and consumer markets worldwide. The company operates through five segments: Process Management, Industrial Automation, Network Power, Climate Technologies, and Appliance and Tools. The company is member of the S&P 500 and the S&P Dividend Aristocrats indexes. Emerson Electric Co. has paid uninterrupted dividends on its common stock since 1947 and increased payments to common shareholders every year for 54 years. Only a handful of companies have managed to raise distributions for over 50 consecutive years. The most recent dividend increase was in November, when the Board of Directors approved a 3% increase to 34.50 cents/share.



Over the past decade this dividend growth stock has delivered an annualized total return of 6.60% to its loyal shareholders. The company has managed to deliver an impressive increase in EPS of 9% per year since 2001. Analysts expect Emerson Electric to earn $3.28 per share in 2011 and $3.85 per share in 2012. This would be a nice increase from the $2.61/share the company earned in 2010.

Emerson will be able to generate near term earnings growth due to the rebound of the global economy. The company generates a larger portion of its sales from outside the US. Longer-term, the growth would come from strategic new product initiatives through innovation as well as strategic acquisitions to strengthen the company’s product portfolio. Growth in emerging markets economy could also result in increased earnings for the company.


The return on equity has mostly remained above 20 over 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 by 6.30% per year since 2001, which is lower than the growth in EPS. A 6% growth in distributions translates into the dividend payment doubling every 12 years. If we look at historical data, going as far back as 1983, we see that Emerson electric has actually managed to double its dividend every nine years on average. As the world economy rebounds, I expect Emerson to start growing distributions at a higher rate.


Over the past decade the dividend payout ratio has been in decline until the 2007-2009 recession, when it briefly hit 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 Emerson Electric is trading at 20.60 times earnings, yields 2.30% and has a sustainable dividend payout. The stock would meet my entry criteria if it falls under $55.

Full Disclosure: Long EMR

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Wednesday, April 27, 2011

Highest Yielding Dividend Stocks of the S&P 500

The S&P 500 is one of the most followed stock market index in the world. Mutual fund managers benchmark their returns against it, yet somehow studies show that the vast majority underperforms the index in any any given year. There are many ways to invest in the S&P 500, including mutual funds (VFINX), exchange traded funds (SPY) or even stock index futures. I benchmark my dividend income against the S&P 500. Many of the best dividend stocks in the world have a substantial weight in this important stock market barometer. With its average yield of 1.70% however, many dividend investors choose to ignore the index, and instead focus on its components.


It is interesting to note that 386 companies included in the index pay dividends. The average yield on those is 2.30%. Below I have highlighted the ten highest yielding dividend stocks of the S&P 500:

Altria Group (MO) engages in the manufacture and sale of cigarettes, wine, and other tobacco products in the United States and internationally. This dividend champion has raised distributions for 43 years in a row. The company has a forward dividend payout ratio of 76%. Yield: 6.10% (analysis)

AT&T Inc. (T) , together with its subsidiaries, provides telecommunication services to consumers, businesses, and other service providers worldwide. This dividend champion has raised distributions for 27 consecutive years. The high dividend payout ratio, and the fact that the company is in a highly competitive industry cast a shadow on the sustainability of the distribution payment. Right now the dividend payout ratio is 72% based off forward 2011 EPS. If the acquisition of T-Mobile goes through, the payment of $25 billion dollars in cash could potentially jeopardize the current dividend. (analysis)

Frontier Communications Corporation, (FTR) a communications company, provides regulated and unregulated voice, data, and video services to residential, business, and wholesale customers in the United States. Between 2004 and 2010 the company paid a quarterly dividend of 25 cents/share. Last year however it cut the distribution rate by 25% to 18.75 cents/share. The company has been unable to cover its dividend out of earnings since 2006. More than two-thirds of its distributions are non-taxable as they are essentially a return of capital. Yield: 9.40%

Windstream Corporation (WIN), together with its subsidiaries, provides various telecommunications services primarily in rural areas in the United States. Since 2006 the company has paid 25 cents/share every quarter. Windstream has been unable to cover its dividends from earnings in every year since 2008. One the bright side cash flow from operations has been relatively stable, although the company has ramped up capex spending in recent years. Yield: 7.90%

CenturyLink, Inc. (CTL), provides a range of communications services, including local and long distance voice, wholesale network access, high-speed Internet access, other data services, and video services in the continental United States. The company is a member of the elite dividend aristocrats index, and has raised dividends for 37 consecutive years. In comparison to the previous two telecom players, CenturyLink has been able to cover its distributions from EPS, although its payout ratio is a scary 92.70%. Yield: 7.20%

Reynolds American Inc. (RAI), through its subsidiaries, manufactures and sells cigarette and other tobacco products in the United States. The company has raised dividends for 7 years in a row. The company has managed to double EPS over the past decade, and raise dividends by 9% per year as well. The forward dividend payout ratio is 79.70%. Yield: 6.20%

FirstEnergy Corp (FE) is involved in the generation, transmission, and distribution of electricity, as well as energy management and other energy-related services. The company has maintained its dividend payment since 2008. It’s dividend payout ratio however is at 69.40%, which is sustainable for a utility company. Yield: 5.90%

Pitney Bowes Inc. (PBI) provides mail processing equipment and integrated mail solutions in the United States and internationally. The company is a member of the dividend aristocrats index and has raised distributions for 29 years in a row. Yield: 5.90%

Pepco Holdings, Inc. (POM) operates as a diversified energy company. It operates in two divisions, Power Delivery and Competitive Energy. The company cut dividends by 40% in 2001 to 25 cents/share, and has since raised them by 8& to 27 cents/share. Based off forward 2011 EPS, the payout ratio is over 85%. Yield: 5.80%

Lorillard, Inc (LO), through its subsidiaries, engages in the manufacture and sale of cigarettes in the United States. The company has paid a rising dividend since becoming a separately traded company in 2008. It yields 5.40% and has a high dividend payout ratio as well.

It is evident that the highest yielding stocks in the S&P 500 include sectors such as telecom, tobacco and utilities. All of the top ten companies have very high dividend payout ratios. This increases the risk of a dividend cut, as any decline in earnings would make it impossible to maintain the high distributions. Of particular concern are the telecom companies, since the cash cow businesses of telephones is a dying one. The cell phone industry is highly competitive and is becoming a basic commodity, since customers could expect similar levels of service, and similar prices as well. The only differentiator could be phones offered, but this is a short-lasting advantage, as new phones are introduced and it is impossible to tell which ones would be embraced by consumers.

The tobacco business is also in decline, as more people are starting to realize the health effects of smoking on their well-being. In contrast with telecoms however, tobacco companies have strong pricing power and a loyal customer base, which is addicted to its products. While taxes are raised each year on cigarettes, the levels of price increases that cigarette makers generate more than offsets the decline in consumption by customers. In addition, while there might be speculation that unfavorable court rulings could potentially make all tobacco companies bankrupt, this is highly unlikely. The taxes that tobacco products generate fill in government coffers with billions of dollars worldwide, and tax increases are favored by the electorate. It would be difficult to replace the tax revenues from tobacco products if they were banned.

Full Disclosure: Long MO

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Monday, April 25, 2011

Nine Income Stocks with Positive Dividend Trends

When evaluating a dividend stock, one of the criteria I look for is a rising dividend stream over time. I prefer to invest in companies which have consistently raised dividends for at least ten years in a row. I also examine the dividend record using as much historical data as available. I specifically look for prior dividend cuts, a pattern of significant dividend increases as well as a history of significant distribution payments.


Most importantly, I look for the trend in dividend payments to be higher each year. I have highlighted the following stocks, which have raised dividends for more than five years in a row and also announced distribution increases over the past week:

Kinder Morgan Energy Partners, L.P. (KMP) owns and manages energy transportation and storage assets. This MLP raised its quarterly distributions to $1.14/unit. This dividend achiever has consistently raised distributions for fifteen years in a row. Yield: 6% (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 raised its quarterly dividend by 6.10% to 70 cents/share. This marked the 40th consecutive annual dividend increase for this dividend aristocrat. Yield: 4.20% (analysis)

Sonoco Products Company (SON) provides industrial and consumer packaging products, and packaging services in North and South America, Europe, Australia, and Asia. The company raised its quarterly dividends by 3.60% to 29 cents/share. This marked the 28th consecutive annual dividend increase for this dividend champion. Yield: 3.30%

PPG Industries, Inc. (PPG) manufactures and supplies protective and decorative coatings. The company raised its quarterly dividend by 3.60% to 57 cents/share. This marked the 40th consecutive annual dividend increase for this dividend champion. Yield: 2.40% (analysis)

People’s United Financial, Inc. (PBCT) operates as the bank holding company for People’s United Bank that provides commercial banking, retail and small business banking, and wealth management services to individual, corporate, and municipal customers. The company raised its quarterly distributions by 1.60% to 15.75 cents/share. This marked the 18th consecutive annual dividend increase for this dividend achiever. Yield: 4.90%

ONEOK Partners, L.P. (OKS) engages in the gathering, processing, storage, and transportation of natural gas in the United States. This MLP raised quarterly distributions to $1.15/unit. ONEOK Partners has raised distributions for six consecutive years. Yield: 5.40%

Williams Partners L.P. (WPZ), a diversified master limited partnership, focuses on transporting; gathering, treating, and processing; storing natural gas; and natural gas liquid fractionating and oil transporting activities. This MLP raised distributions to 71.75 cents/unit, which marked the seventh consecutive annual distribution increase. Yield: 5.30%

Southern Company (SO) is a utility company that generates, transmits, and distributes electricity through coal, nuclear, oil and gas, and hydro resources. The company raised its quarterly dividend by 3.90% to 47.25 cents/share. This marked the tenth consecutive annual dividend increase for Southern Company. Yield: 4.90%

NewMarket Corporation (NEU), through its subsidiaries, engages in the petroleum additives and real estate development businesses. The company raised its quarterly dividend by 36.40% to 60 cents/share. This marked the seventh consecutive annual dividend increase for NewMarket. Yield: 1.50%

Successful investors know that the trend is your friend. I purchase stocks with rising dividend payments and hold on to them for as long as the dividend is at least maintained. I expect my holding period to last anywhere from a few years to a few decades on each stock I purchase.

Full Disclosure: Long Kinder Morgan and Kimberly-Clark

Relevant Articles:

Sunday, April 24, 2011

Weekend Reading Links - April 24, 2011

For your weekend reading pleasure, the articles listed below contain some of the best dividend and value investing insights found on the web. They were written by various members of the Dividend Investing and Value Network over the past week:

Articles From DIV-Net Members

There are some really good articles here, please take time and read a few of them.

Friday, April 22, 2011

Philip Morris International (PM) Dividend Stock 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. The company was spun off from Altria Group (MO) in 2008, in an effort to separate the international operations of the tobacco conglomerate from potential harmful litigation in the US. I own shares in both companies. Check my analysis of Altria Group here.


PMI has not raised distributions for over a decade, like other stocks I focus on. I do however like the fact that the dividend raising culture of Altria Group has been closely followed since the 2008 spin off. The company has managed to raise distributions every year since 2008. I like the economics of the tobacco business immensely.

First, the company has a strong brand name for its quality products. A large portion of what consumers pay for cigarettes goes to pay excise taxes, and only a small portion goes to the tobacco company. Whiles taxes are raised every year, the level of profits always tends to increase at a higher rate than the drop in tobacco consumption. This supports higher earnings, which translates into higher distributions and increased amounts for stock buybacks.

Tobacco products are highly regulated, which means that there is little competition in the form of new companies coming to the market. In addition, most companies cannot freely advertise products, which translate into higher cash flow amounts being freely available for distributions.

Another positive for PMI Group is that legislation in the rest of the world is not as severe as it is in the US, although it could be getting there. Big tobacco companies like Philip Morris face similar restrictions in the EU, just like they do in the US. However, given the fact that tobacco companies fill in government coffers with billions in taxes each year, it is highly unlikely that governments would allow cigarette companies to lose money because of lawsuits. It would be fairly difficult for governments to replace the lost taxes from abolishing tobacco products. Growth for Philip Morris International (PM) should come from several sources.

The first source includes generating cost efficiencies in its cost reduction programs. A second source of growth includes growth through acquisitions. The company has been active in the acquisition front since striking out on its own by purchasing Rothmans in 2008 and Swedish Match South Africa in 2009 to name a few. The third source of growth for PMI includes strategic product innovations in growing markets, in order to position itself in specific country’s markets. Last but not least, tapping into the growth of emerging markets such as China and India, where it has a low presence could provide another opportunity for future growth.

There are several risks behind Philip Morris International that investors should be aware of. First, while it has operations throughout the world, almost half of revenues come from the EU, which is a mature market with declining demand. The market in EU is similar to that in the US with its constraints on marketing and public smoking. A second risk factor is potential proposed legislation that would require plain packaging by cigarette manufacturers, which would be harmful for tobacco brands like Marlboro, Parliament, L&M etc. Another risk for Philip Morris is tobacco smuggling. In some emerging markets it is “relatively easy” for third parties to sell smuggled products at lower prices or to sell “counterfeit” products. Such products erode tobacco conglomerates market shares and could lead to further increases in taxes.

Overall analysts expect Philip Morris International to increase its earnings per share to $4.42 in FY 2011 and $4.90 by FY 2012. This would be a nice increase from the 2010 EPS of $3.92. Future EPS growth would also be aided by share repurchases. Unlike most other companies, PMI maintained its stock buyback program even during the most recent bear market.

Currently, Philip Morris International is attractively valued at a P/E of 16.60, yield of 4% and a dividend payout ratio of 65%. The stock fits my entry criteria and I will be adding to my position in it when cash is available and provided my asset allocation allows me to do so.

Full Disclosure: Long PM and MO

Relevant Articles:

Wednesday, April 20, 2011

Diversified Dividend Portfolios – Don’t forget about quality

Diversification is a process that allows dividend investors to spread their risks between different sectors and asset classes. The goal of this exercise is to minimize the risk of ruin and ensure portfolio longevity, while minimizing fluctuations in income and principal.


Many dividend investors perceive diversification as a dirty word, given the fact that not every sector of the stock market delivers consistent dividend payouts. As a result the portfolios of many novice dividend investors tend to be concentrated in higher yielding sectors such as MLPs, Utilities, REITs and Financials. Even such sectors as consumer staples could pose risks to dividend investors, if they have a disproportionate allocation there.

The risks of concentrated dividend portfolios could best be evidenced by the events that occurred during the financial crisis of 2007-2009. Financial stocks were some of the favorite picks for many dividend investors, given their long histories of dividend growth and above average yields. The dividend cuts that started in 2007 and escalated by 2009 lead to elimination of dividend income for bank investors and big capital losses as well. Investors who had allocation to the other sectors of the S&P 500 would have been able to withstand the wave of dividend cuts in the financial sectors.

Diversification is not a cure for failure to properly analyze investments however. Investors should not diversify at all costs. Most sectors have specific risks associated with the, which is why getting invested ina sector just for the sake of diversification is seldom a good idea. Careful investors should instead select companies from as a many sectors as possible which make sense for an investment.

Some of the factors that dividend investors should asses include:

1.Valuation
2. Moat/ Competitive Advantage
3. Earnings and Dividend Growth Potential
4. Dividend sustainability

Below I have listed examples of attractive dividend companies by sector for 11 sectors:

Consumer Discretionary:

McDonald's (MCD) (Analysis)

Consumer Staples:

Procter & Gamble (PG) (Analysis)

Energy

Kinder Morgan Energy Partners (KMP) (Analysis)

Financials

Chubb Corp (CB) (Analysis)

Health Care

Johnson & Johnson (JNJ) (Analysis)

Industrials

3M (MMM) (Analysis)

Information Technology

Automated Data Processing (ADP) (Analysis)

Materials

Air Products and Chemicals (APD) (Analysis)

Telecom

AT&T (T) (Analysis)

Utilities

Dominion Resources (D )

Real Estate

NNN (Analysis)

This list is just an example of diversifying by sector. Investors should own at least 2- 3 stocks from each sectors in order to minimize company specific risk. This will not happen quickly, which is why the process of creating a diversified dividend portfolio takes time. Some of the stocks with the best potential for dividend growth could be overpriced, which requires patience on the part of the investor in order to wait for the right moment.

Full disclosure: Long MCD, PG, KMP, CB, JNJ, MMM, ADP, APD, D, NNN

Relevant Articles:

Monday, April 18, 2011

High Yield Stocks Raising Dividends

As a dividend growth investor I purchase stocks which are attractively valued and which have the business characteristics to keep raising distributions over time. Procter & Gamble is a perfect example of a dividend growth stock, after rewarding its shareholders with its 55th consecutive annual dividend increase.


The Procter & Gamble Company (PG) provides consumer packaged goods in the United States and internationally. The company raised its dividend by % to 52.50 cents/share. This marked the 55th consecutive annual dividend increase for this dividend king. There are only eleven companies which have managed to raise distributions for over half a century. The ten year dividend growth rate for Procter & Gamble is 10.90%. Yield: 3.40%. Check my analysis of the stock.

One sector which consistently pays not only high distributions, but also offers above average yields is master limited partnerships. Last week, several MLPs announced distribution hikes:

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. Last week, the largest master limited partnership announced an increase in its quarterly distributions to 59.75 cents/unit. Enterprise Product Partners has consistently raised distributions for the past fourteen years in a row. The ten year distribution growth was 8.30% annually. Yield: 5.60%. Check my analysis of this MLP.

Plains All American Pipeline, L.P. engages in the transportation, storage, terminalling, and marketing of crude oil, refined products, and liquefied petroleum gas and other natural gas-related petroleum products (LPG) in the United States and Canada. This master limited partnership raised quarterly distributions to 97 cents/unit. Plains All American Pipeline has consistently raised distributions to unitholders for eleven years in a row. Yield: 6.10%

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. This MLP raised its quarterly distributions to 40.75 cents/unit. Genesis Energy has raised quarterly distributions to unitholders for eight consecutive years. Yield: 5.90%

Duncan Energy Partners L.P. (DEP) engages in gathering, transporting, marketing, and storing natural gas, as well as in transporting and storing natural gas liquids (NGLs) and petrochemicals in the United States. This MLP raised its quarterly distributions by 2.20% to 4575 cents/unit. This marked the tenth consecutive quarterly distribution increase. Yield: 4.60%

Targa Resources Partners LP (NGLS) provides midstream natural gas and natural gas liquid (NGL) services in the United States. This MLP raised quarterly distributions to 55.75 cents/unit. Targa Resources Partners has raised distributions for 5 years in a row. Yield: 6.50%

Other consistent dividend growth stocks which raised distributions last week include:

United Technologies Corporation (UTX) provides technology products and services to the building systems and aerospace industries worldwide. The company raised its quarterly dividend by 12.90% to 48 cents/share. This marked the seventeenth consecutive annual dividend increase for this dividend achiever. Yield: 2.30%. Check my analysis of the stock.

H.B. Fuller Company (FUL) formulates, manufactures, and markets adhesives, sealants, paints, and other specialty chemical products worldwide. The company raised its quarterly distribution by 7.10% to 7.50 cents/share. This marked the 42nd consecutive annual dividend increase for this dividend champion. Yield: 1.40%

Fastenal Company (FAST), together with its subsidiaries, operates as a wholesaler and retailer of industrial and construction supplies. The company raised its quarterly dividends by 4% to 26 cents/share. This marked the thirteenth consecutive annual dividend increase for this dividend achiever. Yield: 1.60%

Omega Healthcare Investors, Inc. (OHI) operates as a real estate investment trust (REIT) in the United States. The company raised its quarterly dividend by 270% to 38 cents/share. This marked the ninth consecutive annual dividend increase for this REIT. On a cautionary note, the company cut dividend in 2000 and didn’t pay a dividend in 2001 and 2002. Yield: 6.40%

Full Disclosure: Long PG and UTX

Relevant Articles:

Friday, April 15, 2011

Nestle (NSRGY) Dividend Stock Analysis

Nestle S.A. (NSRGY) provides nutrition, health, and wellness products worldwide. The company is a member of the international dividend achievers index, as it has managed to increase dividends every year since 1996. In addition to that, Nestle recently sold its majority stake in Alcon (ACL), which has enabled it to pursue a massive stock buyback strategy.

Main competitors behind Nestle include Kraft Foods (KFT) and General Mills (GIS).

US investors can purchase the ADR’s of Nestle, which are traded on the pink sheets under symbol NSRGY. (or NSRGY.PK at yahoo finance). The fact that this company is traded on the pink sheets, rather than NYSE, NASDAQ or AMEX should not scare potential investors. Nestle is a global blue chip, based in Switzerland, which has not only managed to increase earnings over the past decade, but also to share the wealth with shareholders in the form of increased dividends and consistent share buybacks.

Over the past decade this dividend stock has delivered a total return of 8.60% per year.

Since 2001, Nestle has managed to increase earnings per share in Swiss Franks by 7.60% per year. The consistent stock buybacks, where the company has spent 39 billion CHF since 2005, have also aided EPS growth.

Dividends per share in local currency have increased by 12.50% per year since 2001, which was higher than the growth in EPS. The main reason behind this faster growth in distributions was the expansion of the dividend payout ratio. The dividend is paid annually, as opposed to the quarterly schedule that US companies tend to follow for distribution payments. The latest dividend increase was announced in February 2011, when distributions were increased to $1.85 CHF ($1.96/share).

Over the past decade the dividend payout ratio has expanded to over 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.

The company has been able to generate strong organic growth in key areas such as North America, Europe and Asia through several factors. Some of them include product innovation, leveraging the company’s global scale, investing in building and maintaining the company’s strong brand positions worldwide. The company has 29 billionaire brands, which have delivered strong organic growth over the past few years as well. Nestle’s long term goal is to generate 5% - 6% in annual organic sales growth, achieve sustainable improvement in EBIT and improving the trend in return on investment capital.

I own shares of Nestle. I would much rather own Nestle than Kraft (KFT) for example. I like the strong brands in the company's portfolio ( Purina is one of them). The food business is not a sexy growth business, but with the right strategy focusing on squeezing efficiencies across your value chain, expanding through innovation and strategic acquisitions, and buying back stock the company should be on track to meet its goals.

The company fits my entry criteria with its P/E of 10.90, yield of 3.20%, and with its sustainable distribution. I have recently added to my position in the stock.

Full disclosure: Long NSRGY

Relevant Articles:

- Coca-Cola (KO) Dividend Stock Analysis
- Kraft Foods freezes dividends
- PepsiCo (PEP) Dividend Stock Analysis
- Unilever (UL) Dividend Stock Analysis

Wednesday, April 13, 2011

Reinvesting Dividends Pays Off

I consider myself a fairly frugal person. I like cutting recurring expenses, which is why I drive a ten year old car and only have a discounted cell phone with the lowest plan possible. Saving money and investing in quality dividend stocks is just one of the strategies I utilize to increase my dividend income. Cutting expenses however can only go so far however. That’s why generating extra income is so important to me. Besides the dividend income from my portfolio, I often look for brokerage deals in order to find brokerage bonuses or free trades. I also like teaching young people how to save and invest for their future.


Back in 2008 Sharebuilder had a promotion, where investors who put $50 in their account and executed one trade could earn a $50 cash bonus. I shared this deal with a young dividend investor who invested $40 in a real estate investment trust called Realty Income (O), which pays monthly distributions to its shareholders. The company was well known for having raised distributions every quarter since going public in 1994. He paid a $4 commission on the trade and as a result generated a $0.20/month income stream from this small investment. He subsequently received the $50 cash bonus in a few weeks, which meant that he was essentially playing with the house’s money. The investor did sign up for the dividend reinvestment program, which meant that each month these $0.20 deposits were automatically reinvested into additional shares. The company has another $50 promotion right now as well.


I had forgotten about this account, until I spoke with this investor when I was preparing their taxes for 2010. I noted that their monthly distributions had increased to $0.25. This was a cool 25% increase in dividend income for just 3 years, during one of the worst recessions since the Great Depression. With the automatic dividend reinvestment he was able to purchase shares in Realty Income during the worst market conditions, as well as throughout the market’s steady climb over the past 2 years.

Albert Einstein had once said that compounding of interest was one of the biggest wonders in the world. With dividend reinvestment, investors could take advantage of this compounding for wealth accumulation. In addition to that, by selecting companies whose stocks regularly raise dividends, investors could essentially turbocharge their returns in the long run.

For my 40+ positions I typically collect the dividend income until it reaches a certain threshold, and then I reinvest it selectively in the most attractive dividend stocks at the time of purchase.

Companies for long term dividend investment, which fit my entry criteria right now include:

Wal-Mart Stores, Inc. (WMT) operates retail stores in various formats worldwide. This dividend aristocrat has raised distributions for 37 years in a row and has a ten year dividend growth rate of 17.80% per year. Yield: 2.80% Check my analysis of the stock.

The Coca-Cola Company (KO) manufactures, distributes, and markets nonalcoholic beverage concentrates and syrups worldwide. This dividend aristocrat has raised distributions for 49 years in a row and has a ten year dividend growth rate of 10% per year. Yield: 2.80% Check my analysis of the stock.

Air Products and Chemicals, Inc. (APD) provides atmospheric gases, process and specialty gases, performance materials, equipment, and services worldwide. The company has raised distributions for 29 years in a row and has a ten year dividend growth rate of 10% per year. Yield: 2.50% Check my analysis of the stock.

The Chubb Corporation (CB) , through its subsidiaries, provides property and casualty insurance to businesses and individuals. The company has raised distributions for 46 years in a row and has a ten year dividend growth rate of 8.30% per year. Yield: Check my analysis of the stock.

McDonald's Corporation (MCD) , together with its subsidiaries, operates as a worldwide foodservice retailer. The company has raised distributions for 34 years in a row and has a ten year dividend growth rate of 26.50% per year. Yield: 3.20% Check my analysis of the stock.

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 distributions for 54 years in a row and has a ten year dividend growth rate of % per year. Yield: 3.10% Check my analysis of the stock.

The moral of the story is to save a lot, buy quality dividend growth stocks at the right times and reinvest dividends when you can.

Full Disclosure: Long all stocks mentioned above

This article was included in the Carnival of Personal Finance #305

Relevant Articles:

- Reinvest Dividends Selectively

Monday, April 11, 2011

Three dividend stocks raising dividends, 4 more expected to raise them in April

Three consistent dividend stocks raised distributions over the past week. I define consistent dividend payers as companies which have raised dividends for at least five years in a row. These companies merit further research by dividend investors. However, I only intend to purchase stock in companies which have consistently raised dividends for at least one decade. The companies which announced dividend increases last week include:


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 26.70% to 19 cents/share. This marked the 16th consecutive annual dividend increase for this dividend achiever. Yield: 1.50%

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 bank announced a 5.90% dividend increase to 18 cents/share. This marked the 14th consecutive annual dividend increase for this dividend achiever. Yield: 1.60%

QUALCOMM Incorporated (QCOM) engages in the development, design, manufacture, and marketing of digital wireless telecommunications products and services. The company operates in four segments: Qualcomm CDMA Technologies, Qualcomm Technology Licensing, Qualcomm Wireless and Internet, and Qualcomm Strategic Initiatives. The company raised its dividend by 13.20% to 21.50 cents/share. This marked the tenth consecutive annual dividend increase for this stock. Yield: 1.60%

I also expect the following dividend aristocrats to raise distributions in April, based on the fact that each of them has raised distributions in April since 2003. The companies 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. Johnson & Johnson has raised dividends for 48 years in a row and has a 5 year dividend growth rate of 10.60% per year. Yield: 3.60% (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. Procter & Gamble has raised dividends for 54 years in a row and has a 5 year dividend growth rate of 11.60% per year. Yield: 3.10% (analysis)

Exxon Mobil Corporation (XOM) engages in the exploration, production, transportation, and sale of crude oil and natural gas. Exxon Mobil Corporation has raised dividends for 28 years in a row and has a 5 year dividend growth rate of 8.80% per year. Yield: 2.10% (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. W.W. Grainger, Inc. has raised dividends for 39 years in a row and has a 5 year dividend growth rate of 17.70% per year. Yield: 1.50% (analysis)

The list of weekly dividend increases is just one report in my toolset that I use to identify promising dividend growth stocks. Further research should done at the individual stock level by enterprising dividend investors, in order to find our the best fit for their long-term portfolios.

Full disclosure: Long GWW, JNJ, PG, XOM

Relevant Articles:

Sunday, April 10, 2011

Weekend Reading Links - April 10, 2011

For your weekend reading pleasure, the articles listed below contain some of the best dividend and value investing insights found on the web. They were written by various members of the Dividend Investing and Value Network over the past week:

Articles From DIV-Net Members

There are some really good articles here, please take time and read a few of them.

Friday, April 8, 2011

Clorox (CLX) Dividend Stock 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 is a dividend aristocrat which has increased distributions for 33 years in a row. The most recent dividend increase was in January, when the Board of Directors approved a 6.40% increase to 25 cents/share. The major competitors of Clorox include Procter & Gamble (PG), Colgate-Palmolive (CL) and Church & Dwight (CHD).


Over the past decade this dividend stock has delivered an annualized total return of 8.60% to its loyal shareholders.

The company has managed to deliver an impressive increase in EPS of 13.50% per year since 2001. Analysts expect Clorox to earn $3.95 per share in 2011 and $4.43 per share in 2012. This would be a nice increase from the $4.24/share the company earned in 2010. The company has managed to decrease the number of shares outstanding by 6.70% per year over the past decade through share buybacks, which has aided earnings per share growth.

In 2007 the company introduced its Centennial Strategy where the company is focused on achieving double-digit annual growth in economic profit. A key driver of the strategy is to accelerate sales by growing existing brands, including expanding into adjacent categories, entering new sales channels and increasing penetration within existing countries. The company also anticipates using its strong cash flow to pursue growth opportunities and increase shareholder returns. For an update on the results from the strategy, check this press release.
Basically the company will try to deliver further growth through an ongoing focus on consumer megatrends. In addition to that the company will be targeting a 2% sales growth through product innovation. The company projects sales growth of 3-5 percent, excluding acquisitions and expansion into new geographies through 2013. Last but not least Clorox will target margin expansion and maximizing cash flow through implementation a continued robust cost-saving program and maintaining price increases the company has taken.

The return on assets has largely remained above 11% since 2003. I used return on assets, since the stockholders equity portion of the balance sheet was negative after in 2004 Clorox exchanged its ownership in a subsidiary for approximately 29% of the company’s outstanding shares at the time of this transaction.

The annual dividend payment has increased by 10.10% per year since 2001, which is lower than the growth in EPS.


A 10% growth in distributions translates into the dividend payment doubling every 7 years. If we look at historical data, going as far back as 1983, we see that Clorox has indeed managed to double its dividend every seven years on average.
Over the past decade the dividend payout ratio has remained below 50% for a majority of the time with the exception of a brief period in 2001 and 2002. 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 Clorox is trading at 16.80 times earnings, yields 3.20% and has a sustainable dividend payout. The stock meets my entry criteria, and I will look forward to adding to my existing position in it.

Full Disclosure: Long CLX
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Wednesday, April 6, 2011

Dividend Macro trends: The Baby Boomer Retirement Investment

There are millions of baby boomers retiring and needing financial advice. I expect them to use financial advice from certified planners, which would pre-sell open and closed-end funds and other financial products. While I am a big fan of dividend investing in retirement, I understand that most investors would probably end up relying on the four percent rule. Once a product has been sold to investors, it creates a recurring income stream to the provider of funds.


The revenues that investment managers generate are realizable in cash almost instantaneously, which is a big plus. New product offerings could also contribute to growth. Acquisitions to obtain companies that target high-net worth individuals could be a big driver for future growth, as would be expansion internationally. Another positive is that as US stock prices keep increasing, this would eventually attract more investors to add in more money, which would create even higher profits for asset managers. Overtime I expect money managers to get an even larger pile of assets under management due to all of the above mentioned reasons, which would lead to earnings and dividend growth. Overall I am bullish on asset managers in the long run, and companies like Eaton Vance (EV) fit by default. One of the largest risks for money managers includes competition, which could result in net outflows for assets under management as well as decrease in fees charged to clients. Another risk includes prolonged declines in equity markets, which could turn investors off stock market investing. Most notably that hasn’t been the case for many companies during "the lost decade”, as assets under management grew steadily over the period.

Companies which have been able to raise dividends for several consecutive years include:

Eaton Vance Corp. (EV), through its subsidiaries, engages in the creation, marketing, and management of investment funds in the United States. It also provides investment management and counseling services to institutions and individuals. This dividend champion has raised distributions for 30 years in a row and spots a 10 year annual dividend growth rate of 20.60% per year. Yield: 2.40% (analysis)

T. Rowe Price Group, Inc. (TROW) is a publicly owned asset management holding company. The firm primarily provides its services to individual and institutional investors, retirement plans, and financial intermediaries. This dividend achiever has raised distributions for 24 years in a row and spots a 10 year annual dividend growth rate of 15.30% per year. Yield: 1.90% (analysis)

SEI Investments Company (SEIC) provides investment processing, fund processing, and investment management business outsourcing solutions to corporations, financial institutions, financial advisors, and high-net-worth families. This dividend achiever has raised distributions for 18 years in a row and spots a 10 year annual dividend growth rate of 17.90% per year. Yield: 0.90%

Franklin Resources Inc. (BEN) is a publicly owned investment manager. The firm provides its services to individuals, institutions, pension plans, trusts, and partnerships. It primarily manages families of equity, fixed income, and balanced mutual funds for its clients. This dividend champion has raised distributions for 30 years in a row and spots a 10 year annual dividend growth rate of 13.90% per year. Yield: 0.80%

Ameriprise Financial, Inc. (AMP), through its subsidiaries, provides financial planning, products, and services primarily in the United States. The company operates in four principal segments: Advice & Wealth Management, Asset Management, Annuities, and Protection. This dividend stock has only raised distributions for 6 years in a row and and yields 1.20%.

The fortunes of financial services firms are closely tied to the performance of the stock markets. As result they would typically be selling at the most attractive valuations during bear markets. Nevertheless, some of the companies traded above could be attractive purchases on dips. Untill then, do your research and wait for the right price.

Full Disclosure: None

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Monday, April 4, 2011

Top Dividend Stocks of 2011, 1Q Update

Back at the end of 2010, several investment bloggers invited me to a stock picking competition. Each one had to select four stock picks which they expect to perform well in 2011. The four picks that I selected were all dividend growth stocks. The companies I selected include Philip Morris International (PM), Johnson & Johnson (JNJ), Procter & Gamble (PG) and PepsiCo (PEP). You could read the reasoning behind selecting these stocks in this article.


Below you could find a brief overview of each of the four stock picks:

Philip Morris International Inc. (PM) engages in the manufacture and sale of cigarettes and other tobacco products in markets outside of the United States. The company generates all of its revenues outside the US, which shields it from potential negative legislation here. In addition, by focusing on the growth in emerging economies, it could achieve high earnings and dividend growth, while paying an above average dividend to investors. While the EU market is mature like the US one, the positive for PMI is that it has a growth kick. If you add in strategic acquisitions and cost initiatives, there is no wonder investors increasingly favor PMI over Altria Group (MO). (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 a diversified product line across medical devices, consumer products and drugs, which should serve it well in the future. In addition ot that Johnson & Johnson is expanding into new long term opportunities such as vaccines business of Crucell NV. As usual growth in emerging markets and opportunities for cost restructurings should further help the company in squeezing out extra profits in the long run. Sales in drugs like Simponi, Stelara and Prezista should more than offset the generic erosion from older drugs which are losing their patent protection. Most importantly this dividend aristocrat has raised distributions for 48 consecutive years. (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. Procter & Gamble is an example of the perfect dividend growth stock. It has strong brand recognition, solid competitive advantages as well as a diverse portfolio of products sold throughout the world. The company strives to generate cost savings, tries to grow through innovation and through acquisitions, while carefully managing the cash flow in order to pay dividends and buy back stock consistently. The company has the benefit of its large scale and sells a diverse number of products that have a broad geographic reach. The company has a consistent revenue stream and is targeting earnings per share growth in the high single to low double digits. Most importantly this dividend aristocrat has raised distributions for 54 consecutive years. (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, PepsiCo Americas Beverages, PepsiCo Europe, and PepsiCo Asia, Middle East and Africa. The company has recognized that carbonated drink sales are not going to grow significantly in the future, which is why it has focused on fast growing non-carbonated soft drinks. The company’s innovation in the area has been successful with the introduction of Aquafina , Gatorade and Propel, Lipton teas and Tropicana. Pepsi has also started to emphasize on health and wellness, and has worked to minimize the amount of trans fats in its snack foods. Future earnings growth could also 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 company has recently announced its plans to acquire the leading Russian food and beverage company Wimm-Bill-Dann (WBD), in an effort to position itself in the growing emerging market in Russia and to build its nutrition business. PepsiCo is another member of the S&P Dividend Aristocrats index, and has consistently raised distributions for 38 years in a row. (analysis)

My performance year to date trails the market and several of the bloggers. It is important to note that as a long term investor, I don’t judge my performance based off monthly or quarterly fluctuations. I try to select solid dividend spaying companies with strong competitive advantages, which would allow the firms to generate rising earnings and pay higher dividends over time.







Dividend Growth Investor +1.43%



In summary, investors should be cautioned that in order to be successful in dividend investing, one has to have much more than four dividend stocks in their portfolio. I believe in diversification, meaning having at least 30 dividend stocks in your portfolio. These stocks should be representative of as many sectors as possible. In addition to that, having some international exposure could be an added bonus.

Friday, April 1, 2011

T. Rowe Price Group (TROW) Dividend Stock Analysis

T. Rowe Price Group, Inc. (TROW) is a publicly owned asset management holding company. The firm primarily provides its services to individual and institutional investors, retirement plans, and financial intermediaries. The company is a dividend achiever which has increased distributions for 24 years in a row. The most recent dividend increase was in February, when the Board of Directors approved a 14.80% increase to 31 cents/share. The major competitors of T. Rowe Price Group include Blackrock Inc (BLK), Eaton Vance (EV) and Franklin Resources (BEN).

Over the past decade this dividend stock has delivered an annualized total return of 13.90% to its loyal shareholders.

The company has managed to deliver an impressive increase in EPS of 14.30% per year since 2001. Analysts expect T.Rowe Price Group to earn $3.23 per share in 2011 and $3.81 per share in 2012. This would be a nice increase from the $2.53/share the company earned in 2010.

Long term growth in earnings is dependent on several factors including attracting new assets under management, maintaining management fees on assets under management and the overall performance of financial markets. When the stock market increases in value, assets under management generally tend to increase as well. This brings in more revenues to companies like T.Rowe Price. Mutual Funds that also perform at least as well as the average, would likely keep investors holding on to their fund shares. The costs of running a mutual fund do not increase proportionately with the amount of money under management. As a result higher amounts of assets under management provides the investment adviser with a sufficient scale that would allow them to charge lower management fees than peers, which could potentially entice investors to switch over, without hurting profitability.

T.Rowe Price is strategically positioned to make money from the wave of Baby Boomers that will be retiring between 2008 and 2024. Given the widespread appeal of such plans as the 401 (K) or IRA’s, I expect a larger portion of the population in the US to keep saving for retirement. As a result, companies like T.Rowe Price could only benefit from that trend as well. Two thirds of the company’s assets under management are in retirement accounts, which generally tend to have a lower turnover rate.

The trend in return on assets has closely followed the annual fluctuations in the stock markets. 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 14.90% per year since 2001, which is lower than the growth in EPS. A 15% growth in distributions translates into the dividend payment doubling every five years. If we look at historical data, going as far back as 1987, we see that T. Rowe Price has actually managed to double its dividend every four years on average.


Over the past decade the dividend payout ratio has been characterized by short spikes during bear markets of 2001-2003 and 2007-2009.. 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 T.Rowe Price is trading at 25.50 times earnings, yields 1.90% and has a sustainable dividend payout. The stock would meet my entry criteria if it fell under $50.

Full Disclosure: None

Relevant Articles:

- Eaton Vance (EV) Dividend Stock Analysis
- Eleven Dividend Machines Beating Inflation
- Sixteen Consistent Dividend Payers Raising Dividends
- The New Dividend Aristocrats

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