Friday, December 30, 2011

Becton, Dickinson and Company (BDX) Dividend Stock Analysis 2011

Becton, Dickinson and Company (BDX), a medical technology company, develops, manufactures, and sells medical devices, instrument systems, and reagents worldwide. This dividend champion has paid uninterrupted dividends on its common stock since 1926 and increased payments to common shareholders every year for 39 consecutive years.

The most recent dividend increase was in November 2011, when the Board of Directors approved a 10 % increase in the quarterly dividend to 45 cents/share. Becton Dickinson’s largest competitors include Medtronic (MDT), Baxter International (BAX) and Boston Scientific (BSC).


Over the past decade this dividend growth stock has delivered an annualized total return of 8.70% to its shareholders.

Despite soft economic outlook, the company should be able to generate higher sales in due to the sustainable demand for its diabetes products, disease testing products, and cell analysis products. The company generates over half of its sales from international operations, which is expected to increase as it grows its presence in emerging markets. The company is also active on the acquisition front as well as in investing heavily in research and development (R&D).

The company has managed to deliver a 13.50% annual increase in EPS since 2002. Analysts expect Becton Dickinson to earn $5.84 per share in 2011 and $6.45 per share in 2012. In comparison Becton Dickinson earned $5.59 /share in 2011. The company has been able to buyback 1.10% of its shares outstanding every year on average over the past decade.

The company’s Return on Equty has expanded over the past few years, from 20% in 2002 to 24% in 2011. 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 17.30% per year since 2001, which is much higher than the growth in EPS. Given the low dividend payout ratio however, Becton Dickinson can afford to raise distributions faster than earnings for at least one and a half to two decades.

A 17% growth in distributions translates into the dividend payment doubling almost every four years. If we look at historical data, going as far back as 1974 we see that Becton Dickinson has actually managed to double its dividend almost every six years on average.

The dividend payout ratio has increased from 21.80% in 2002 to 29.30% in 2011. Future increases in dividends above the rate of dividend increases could lead to further expansion in this indicator. 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 13.30 times earnings, has a sustainable dividend payout and yields 2.40%. I would consider initiating a position in the stock on dips below $72.

Full Disclosure: Long MDT

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Wednesday, December 28, 2011

Tech Dividends on the Rise

The technology sector has typically been characterized by rapid product obsolescence and the tremendous amounts of capital necessary to invest in Research and development, in order to maintain the competitive edge. The positive sides of technology include that a simple idea such as a piece of software can be widely distributed for a nominal cost, once the product is finished. The fact that companies have to come up with new innovative products all the time, since the status quo of the existing ones is challenged all the time, has historically lead to volatility in earnings. With such volatility, most companies have had to reinvest most of their earnings back into the business. This has not resulted in future growth however, as some firms ended up betting everything on themselves, while their industry niche was going into extinction.

In addition, the most successfully technology companies have been able to continuously predict and capitalize on future trends. Given the fact that the technologies ten years from now will be different that the technologies from today, a bet on tech stocks seems more like a speculation, rather than an investment. Because of the factors listed above, few tech companies have a wide moat. Most, such as Google, Microsoft, Intel or Apple have a moat, which could last for a few years. But that is until there is some ground breaking technology change or disruption, which provides consumers with a better, slicker and more advanced piece of technology. Companies such as International Business Machines (IBM), which has successfully been able to adapt for decades are the exception, rather than the norm.

Nevertheless, some companies such as International Business Machines (IBM), Intel (INTC) and Microsoft (MSFT) have been able to generate rising earnings per share over the past decade. This has enabled them to initiate a dividend, and also to increase it over time. The following companies have been able to achieve a higher annual dividend for at least five years:

Automatic Data Processing, Inc. (ADP) provides business outsourcing solutions. The company operates in three segments: Employer Services, Professional Employer Organization (PEO) Services, and Dealer Services. This dividend aristocrat has managed to boost distributions for 37 years in a row. Yield: 3.10% (analysis)

International Business Machines Corporation (IBM) provides information technology (IT) products and services worldwide. This dividend achiever has paid distributions for one century, and managed to boost distributions every year for 16 years in a row. Yield: 1.60% (analysis)

Microsoft Corporation (MSFT) develops, licenses, and supports a range of software products and services for various computing devices worldwide. This software giant has managed to raise distributions for seven consecutive year. Yield: 3.10% (analysis)

Intel Corporation (INTC) engages in the design, manufacture, and sale of integrated circuits for computing and communications industries worldwide. The worlds largest chipmaker has managed to boost dividend payouts to shareholders for eight years in a row. Yield: 3.60% (analysis)

AT&T Inc. (T), together with its subsidiaries, provides telecommunication services to consumers, businesses, and other service providers worldwide. This dividend aristocrat has boosted distributions for 27 years in a row. Yield: 5.90% (analysis)

Verizon Communications Inc. (VZ) provides communication services. The company operates through two segments, Domestic Wireless and Wireline. The telecom carrier has managed to boost distributions for seven consecutive years. Yield: 5.20%

Vodafone Group Public Limited Company (VOD) provides mobile telecommunication services worldwide. It offers mobile voice services to approximately 370 million customers; messaging services; mobile data services; fixed broadband services to approximately 6 million customers; and whole sale carrier services to approximately 40 African countries. This international dividend achiever yields 7.70%.
I am not a big fan of technology in general for my dividend portfolio. As a result, I am mostly underweight the sector. While I might miss out on some spectacular stories such as Apple (AAPL), the lack of wide moats make it difficult to commit a large portion of my portfolio to the sector. In addition, the low number of dividend achievers and aristocrats in the technology sector epitomizes the fickle nature of technology as a business in general.


Full Disclosure: Long ADP

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Wednesday, December 21, 2011

Margin of Safety in Dividends

Benjamin Graham is the father of value investing. His strategy was focused on purchasing securities where the price was much lower than the total liquidation value of the corporation. This concept of purchasing stocks with a margin of safety has made him, his investors and the investors of his followers billions of dollars in profits. The real profits from this powerful concept were realized by Warren Buffett, who purchased stock in wide-moat companies at a fraction of what their future value was going to be.

Dividend investing is a form of value investing, where investors do not realize all of their return all at once, but rather on regular and consistent intervals. Dividends provide a direct link between the financial performance of a company, and the returns of its shareholders. Sometimes the market does not recognize that certain firms are more valuable for extended periods of time, even if their earnings are higher and valuations are cheap. With dividends, value investors realize a return that puts them closer to realizing the intrinsic value of the stock, no matter what the market or the stock price does.

Not all dividend stocks are attractive bargains however, which is evidenced when applying certain quantitative and qualitative criteria. In addition, investors should analyze whether the dividend payment is sustainable. There has to be an adequate margin of safety in dividend coverage from earnings or cashlows, which would ensure prompt payment of distributions even if there was a temporary fluctuation in operating performance.

I typically look for a margin of safety in dividends in corporations to be 50%-60% or below. This means that the dividend payout ratio should not be over 60%, since it leaves room for consistent dividend growth minimizing the impact of short-term fluctuations in earnings. When a company pays out almost all of its earnings as dividends, that leaves little room for maneuvering if earnings decline. In addition, this leaves little for investing and growing the business. There are some exceptions, where investors need to look beyond dividend payout ratio in order to evaluate dividend sustainability for Real Estate Investment Trusts, Master Limited Partnerships or Business Development Corporations to name a few. For REITs, investors should look at Funds from Operations (FFO). FFO is defined as net income available to common stockholders, plus depreciation and amortization of real estate assets, reduced by gains on sales of investment properties and extraordinary items.

For example, in 2010 Realty Income (O) distributed $1.722/share in dividends, whereas earnings were $0.92/share. It’s FFO per share was $1.83/share however. Check my analysis of this REIT.

Some companies with safe dividends include:

Aflac Incorporated (AFL), through its subsidiary, American Family Life Assurance Company of Columbus (Aflac), provides supplemental health and life insurance. The company earned $4.95/share in 2010, and its annual dividend is $1.32 /share. The dividend payout ratio is 26.70%. Yield: 3.10% (analysis)

Medtronic, Inc. (MDT) manufactures and sells device-based medical therapies worldwide. The company earned $2.86/share in 2011, and its annual dividend is $0.97/share. The dividend payout ratio is 33.90%. Yield: 2.70% (analysis)

McDonald’s Corporation (MCD), together with its subsidiaries, operates as a foodservice retailer worldwide. The company earned $4.58/share in 2010, and its annual dividend is $2.80 /share. The dividend payout ratio is 61.10%. Yield: 2.90% (analysis)

Wal-Mart Stores, Inc. (WMT) operates retail stores in various formats worldwide. The company earned $4.18/share in 2010, and its annual dividend is $1.46/share. The dividend payout ratio is 34.90%. Yield: 2.50% (analysis)

Margin of safety in dividends is just one of the characteristics I look in a stock before analyzing it and eventually initiating or adding to my position in it. Nevertheless it is important to purchase shares in companies that can grow dividends and produce sustainable distributions for decades, while minimizing the risk of a dividend cut.

Full Disclosure: Long all stocks mentioned above

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I've been included in the latest edition of the Carnival of Personal Finance hosted at Money Cactus.

Monday, December 19, 2011

McCormick & Company (MKC) Dividend Stock Analysis 2011

McCormick & Company, Incorporated (MKC) 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 aristocrat has paid uninterrupted dividends on its common stock since 1925 and increased payments to common shareholders every year for 26 consecutive years.

The most recent dividend increase was in November 2011, when the Board of Directors approved a 10.70% increase in the quarterly dividend to 31 cents/share. McCormick’s largest competitors include J.M. Smucker (SJM), Ralcorp (RAH) and Tootsie Roll (TR).


Over the past decade this dividend growth stock has delivered an annualized total return of 9.50% to its shareholders.

The company has managed to deliver a 11.30% annual increase in EPS since 2001. Analysts expect McCormick to earn $2.78 per share in 2011 and $3.10 per share in 2012. In comparison McCormick earned $2.75 /share in 2010.

The company will be able to generate sales growth through acquisitions and joint venture, price increases, introductions of new products and expansion in its distribution channels. Recent acquisitions include a leading brand of Polish spices and has also formed a Joint Venture with Kohinoor in India. Major risks include inability to pass on price inflation to consumers as well as consumer’s switching to generic labels. While the company has a 50% market share in generic labels domestically, these products carry lower margins. McCormick has been able to maintain its position in branded spice products through constant innovation.

The company’s Return on Equty has decreased substantially over the past decade. This indicator seems to have bottomed out and is on the rebound as of recently. 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 11.20% per year since 2001, which in line with the growth in EPS.



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 see that McCormick has actually managed to double its dividend almost every six years on average.

The dividend payout ratio has remained consistently below 45% over the past decade. A lower payout is always a plus, since it leaves room for consistent dividend growth minimizing the impact of short-term fluctuations in earnings.



Currently McCormick is attractively valued at 17.40 times earnings, has a sustainable dividend payout and yields 2.50%. I would consider adding to my position in the stock on dips.

Full Disclosure: Long MKC

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Friday, December 16, 2011

Five Dividend Hikes In the News

In the world of dividend investing, there is always a trade-off between dividend yield and dividend growth. Companies that typically spot above average yields, tend to increase distributions very slowly. Corporations which manage to increase distributions very quickly, typically tend to pay a low current yield. I believe that there is a place for both strategies in a dividend growth investor's portfolio. The high yielders provide a steady stream of distribution income today, which will likely have a hard time keeping up with inflation. The high dividend growth stocks pay low yields today, but provide a great opportunity for high yields on cost in the future coupled with strong potential for capital gains.

The Boards of Directors of five consistent dividend paying companies approveded higher dividend payments to their loyal shareholders. The following consistent dividend payers exhibited the above mentioned characteristics very closely:

Nucor Corporation (NUE), together with its subsidiaries, engages in the manufacture and sale of steel and steel products in North America and internationally. It operates through three segments: Steel Mills, Steel Products, and Raw Materials. The company raised its quarterly dividend by 0.70% to 36.50 cents/share. This marked the 39th consecutive annual dividend increase for this dividend champion. Yield: 3.80% (analysis)

Realty Income Corporation (O) engages in the acquisition and ownership of commercial retail real estate properties in the United States. This real estate investment trust raised its monthly dividend to 14.55 cents/share. Realty Income is a dividend achiever, which has increased dividends for 17 years in a row. Yield: 5.20% (analysis)

Franklin Resources Inc. (BEN) is a publicly owned asset management holding company. It manages, through its subsidiary, separate client-focused equity, fixed income, and balanced portfolios. The company raised its quarterly dividend by 8% to 27 cents/share. This marked the 31st consecutive annual dividend increase for this dividend champion. Yield: 1.10%

ABM Industries Incorporated (ABM) , through its subsidiaries, provides facility services for commercial, industrial, institutional, and retail facilities primarily in the United States. It operates in four segments: Janitorial, Engineering, Parking, and Security. The company raised its quarterly dividend by 3.60% to 14.50 cents/share. This marked the 45th consecutive annual dividend increase for this dividend champion. Yield: 2.80%

Urstadt Biddle Properties, Inc. (UBP),is a real estate investment trust (REIT) which 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 24.75 cents/share. This marked the 18th consecutive annual dividend increase for this dividend achiever. Yield: 5.73%

Full Disclosure: Long NUE and O

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- Dividend Achievers Offer Income Growth and Capital Appreciation
- Dividend Champions - The Best List for Dividend Investors
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- How dividend stocks protect investors from inflation

Wednesday, December 14, 2011

Dividend Investors – Do not forget about capital gains

When investing for income, many retirees focus on the dividend stream. Living off dividends in retirement is helpful in creating a consistent stream of income, which does not fluctuate as wildly as stock prices do. Focusing only on the distributions however, without giving much thought to anything beyond the juicy current yield could be dangerous.

Dividend investing is a process with several stages, in order to minimize risk of income reduction in retirement. The first stage should be selecting quality income candidates from a pool of securities which have certain characteristics that the dividend investor is looking for. For example, I tend to purchase companies which have consistently raised dividends for at least ten years in a row. As a result, I start my screen with the list of Dividend Achievers.

The second stage should be applying a set of entry criteria to the list of qualified candidates, in order to narrow it down to a more manageable list for further research. This set of criteria should reflect important points of the investor’s strategy, determined based off their experience in the markets and risk tolerance.


The next stage should be analyzing each security in detail. Given the wealth of data on the internet these days, many investors tend to focus on the quantitative side of analysis. While it is helpful to see the trends behind the data and it is fun to project past results, investors should not stop there. Evaluating qualitative characteristics such as branding, product mix, competitive advantages, strengths, weaknesses, opportunities, trends and industry factors should be an important part of the analysis toolset. Obtaining an understanding of the business by reading annual reports or research reports and news stories as well as observing the business operations in person would also add to the investment evaluation of the business.

While creating a diversified income stream is important, investors should also not forget about capital gains either. It is important to understand where the distributions are being derived from. There have been certain investments where investors have receiving a large portion of the distribution as a return of capital, rather than income. While the cashflow was high enogh to lure investors into the high yielding investment, the security was paying these distributions on a borrowed time. Once the capital base is depleted, investors would end up with no income and their security might be worthless.

One such security are US oil and gas royalty trusts. Most of these pass-through entities tend to pay high current distributions every month out of their royalty interests in Oil and Gas fields. As these fields get depleted however, there comes a time when there would be no longer any revenues and thus no profits to distribute to shareholders. A larger portion of the current distributions of these businesses represents a return of capital, which is logical given the fact that for every barrel of oil equivalents pumped out of the ground, there is one less barrel to be pumped in the future. Once all the barrels in the reserve have been depleted, there will be no more oil to be produced and sold.

Examples include BP Prudhoe Bay Royalty Trust (BPT), Hugoton Royalty Trust (HGT)and San Juan Basin Royalty Trust (SJT).

Dividends typically account for 40% of annual total stock market returns. The remaining 60% come from capital gains. It is also important to not forget about capital gains because they ensure that over time your principal investment maintains and even grows its purchasing power over time. That is why selecting companies which have future prospects for growth is so important.

Companies, whose future growth is virtually unlimited include:

McDonald’s Corporation, together with its subsidiaries, operates as a foodservice retailer worldwide. (MCD). This dividend aristocrat has raised distributions for 35 years in a row. Over the past decade, the company has managed to boost dividends by 26.50% per year. Yield: 2.80% (analysis)

Johnson & Johnson (JNJ) engages in the research and development, manufacture, and sale of various products in the health care field worldwide. This dividend aristocrat has raised distributions for 49 years in a row. Over the past decade, the company has managed to boost dividends by 13% per year. Yield: 3.50% (analysis)

The Procter & Gamble Company (PG) provides consumer packaged goods in the United States and internationally. This dividend aristocrat has raised distributions for 55 years in a row. Over the past decade, the company has managed to boost dividends by 10.90% per year. Yield: 3.40% (analysis)

The Coca-Cola Company (KO) manufactures, distributes, and markets nonalcoholic beverages worldwide. This dividend aristocrat has raised distributions for 49 years in a row. Over the past decade, the company has managed to boost dividends by 10% per year. Yield: 2.70% (analysis)

Unilever PLC (UL) provides fast-moving consumer goods in Asia, Africa, Europe, and the Americas. This international dividend aristocrat has raised distributions for 11 years in a row. Over the past decade, the company has managed to boost dividends by 9.20% per year. Yield: 3.70% (analysis)

Wal-Mart Stores, Inc. (WMT) operates retail stores in various formats worldwide. This dividend aristocrat has raised distributions for 37 years in a row. Over the past decade, the company has managed to boost dividends by 17.80% per year. Yield: 2.80% (analysis)

Full disclosure: Long MCD, JNJ, PG, KO, UL, WMT

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Monday, December 12, 2011

How to invest like a Dividend Billionaire

Some of America’s richest families, own stakes in one of the oldest enterprises. The Rockefellers, Waltons, DuPonts, Johnson’s, Mellon’s control fortunes in the billions of dollars, which are spread amongst descendents of the people that accumulated the fortunes. These families have had generations of trust fund babies, which are essentially people who are expected to be retired for the rest of their lives. One common characteristic between all of these families, is that their wealth is stores in companies, which tend to pay consistently increasing dividends. The Waltons have Wal-Mart Stores (WMT), the Rockefeller's have Exxon-Mobil (XOM), the Johnsons have Johnson & Johnson (JNJ) while the Stryker Family has Stryker (SYK). The rising dividend payments generated by the companies these families own, generate the sufficient stream of income, to pay for the monthly expenses of generations of descendants. These families have essentially managed to live off dividends for decades.

Investors, who are interested in generating an income stream off their capital, that would last for several generations, should look no further than dividend growth stocks. As far as the Stryker Family is concerned, their core holding announced an 18% increase in dividend income over the past week.

Stryker Corporation (SYK), together with its subsidiaries, operates as a medical technology company worldwide. The company operates in three segments: Reconstructive, MedSurg, and Neurotechnology and Spine. The company raised its quarterly dividend by 18% to 21.25 cents/share. This marked the 19th consecutive annual dividend increase for this dividend achiever. Yield: 1.80%

Other companies, which rewarded their shareholders with dividend hikes include:

Universal Health Realty Income Trust (UHT) operates as a real estate investment trust (REIT) in the United States. The company invests in health care and human service related facilities, including acute care hospitals, behavioral healthcare facilities, rehabilitation hospitals, sub-acute facilities, surgery centers, childcare centers, and medical office buildings. The company raised its quarterly dividend by 0.80% to 61 cents/share. This marked the 23th consecutive annual dividend increase for this dividend achiever. Yield: 6.50% (analysis)

The Valspar Corporation (VAL) manufactures and distributes coatings, paints, and related products worldwide. The company raised its quarterly dividend by 11.10% to 20 cents/share. This marked the 34th consecutive annual dividend increase for this dividend champion. Yield: 2.20%

Ameriprise Financial, Inc. (AMP), through its subsidiaries, provides financial planning, products, and services primarily in the United States. The company raised its quarterly dividend by 21.70% to 28 cents/share. This marked the 8th consecutive annual dividend increase for this dividend stock. Yield: 2.30%

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 28.25 CAD cents/share. Enbridge is an international dividend achiever, which has raised dividends for 17 years in a row. Yield: 3.10%

Edison International (EIX), through its subsidiaries, engages in the supply of electric energy. Its distribution system consists of approximately 60,000 circuit miles of overhead lines, 43,500 circuit miles of underground lines, and 700 distribution substations located in California. The company raised its quarterly dividend by 1.60% to 32.50 cents/share. This marked the ninth consecutive annual dividend increase for Edison International. Edison International has paid dividends for over 100 years. Yield: 3.30%

National Health Investors, Inc. (NHI), a real estate investment trust (REIT), invests in health care properties, primarily in the long-term care industry in the United States. . The company raised its quarterly dividend by 5.70% to 65 cents/share. This marked the 11th consecutive annual dividend increase for this dividend achiever. Yield: 6.10%

C.H. Robinson Worldwide, Inc. (CHRW), a third-party logistics company, provides multimodal freight transportation services and logistics solutions to companies in various industries worldwide. The company raised its quarterly dividend by 13.80% to 33 cents/share. This marked the 14th consecutive annual dividend increase for this dividend achiever. Yield: 2%

Erie Indemnity Company (ERIE) provides sales, underwriting, and policy issuance services to the policyholders of Erie Insurance Exchange in the United States. The company raised its quarterly dividend by 7.30% to 55.25 cents/share. This marked the 22nd consecutive annual dividend increase for this dividend achiever. Yield: 2.90%

AXIS Capital Holdings Limited (AXS), through its subsidiaries, provides various insurance and reinsurance products to insurers and reinsurers worldwide. The company raised its quarterly dividend by 4.30% to 24 cents/share. This marked the tenth consecutive annual dividend increase for AXIS. Yield: 3.10%

Roper Industries, Inc. (ROP) designs, manufactures, and distributes medical and scientific imaging products and software, energy systems and controls, and industrial technology products and radio frequency (RF) products and services. The company raised its quarterly dividend by 25% to 13.75 cents/share. This marked the 19th consecutive annual dividend increase for this dividend achiever. Yield: 0.70%

J&J Snack Foods Corp. (JJSF) manufactures nutritional snack foods; and 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 10.60% to 13 cents/share. This marked the 8th consecutive annual dividend increase for this dividend stock. Yield: 1%

Full Disclosure: Long UHT


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Friday, December 9, 2011

International Business Machines (IBM) Dividend Stock Analysis

International Business Machines Corporation (IBM) provides information technology (IT) products and services worldwide. This dividend achiever has paid uninterrupted dividends on its common stock since 1913 and increased payments to common shareholders every year for 16 consecutive years. Most recently, billionaire investor Warren Buffett made public his 5% stake in IBM, along with his stakes in several new companies.

The most recent dividend increase was in May 2011, when the Board of Directors approved a 15.40% increase in the quarterly dividend to 75 cents/share. IBM’s largest competitors include Infosys (INFY), Wipro (WIT) and Accenture (ACN).


Over the past decade this dividend growth stock has delivered an annualized total return of 8% to its shareholders.

The company has managed to deliver a 11.60% annual increase in EPS since 2001. Analysts expect IBM to earn $13.36 per share in 2011 and $14.79 per share in 2012. In comparison IBM earned $11.52 /share in 2010. IBM has publicly announced its goal to hit $20 in earnings per share by 2015. The company is one of the most consistent repurchasers of stock, having reduced the total shares outstanding by 50% since 1995.

IBM has transformed itself from a hardware company to services, solutions and software conglomerate. The company’ expansion overseas, focus on high margin software and providing solutions to customers, investing in innovation should help it in achieving its goals. The company faces some pricing pressure from competitors, and risks related to failure to transition new products successfully. However, given the company’s economies of scale, contiguous focus on building and maintaining strong client relations and drive to innovate, it should weather any near term weaknesses successfully.

The company’s Return on Equty has doubled 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 18.30% per year since 2001, which is higher than the growth in EPS. I would expect IBM to keep increasing in dividends at 10% per year at least for the foreseeable future.

An 18% growth in distributions translates into the dividend payment doubling every four years. If we look at historical data, going as far back as 1993 we see that IBM has actually managed to double its dividend every four and a half years on average. The company did cut distributions by 80% in 1993. If the company diverts the money it uses for share buybacks, its dividend payment could have easily topped $14/share in 2010.

The dividend payout ratio has remained low below 25% for the majority of the past decade. A lower payout is always a plus, since it leaves room for consistent dividend growth minimizing the impact of short-term fluctuations in earnings.

Currently IBM is cheap at 15.30 times earnings, has a sustainable dividend payout but yields a paltry 1.60%. I would keep IBM on my radar, and would consider it for inclusion in my dividend growth portfolio on dips below $120/share, which is the equivalent of a 2.50% yield at current dividend rates.

Full Disclosure: None

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Wednesday, December 7, 2011

Dividend Aristocrats List

The Dividend Aristocrats index was created by Standard and Poor’s, to include companies in the S&P 500 which have increased dividends for at least 25 consecutive years. The types of companies included in the index are representative of several sectors, and thus the list is relatively well diversified. The stocks offer both capital appreciation potential as well as a growing dividend payment. Besides being a member of S&P 500 index, companies need to have a float of at least $3 billion, an average daily trading volume of $5 million and have increased distributions for at least 25 years in a row. Companies are deleted from the list, if they fail to increase or cut dividends in a given year.

The index is typically rebalanced once per year in December. The number of constituents bottomed at 42 in 2010, and will increase to 50 in 2012. Recently, Standard and Poor’s announced that it would not take into account special dividends in its determination of a streak of 25 years of dividend increases in a row. As a result, several new companies were added to the index:

AT&T Inc. (T), together with its subsidiaries, provides telecommunication services to consumers, businesses, and other service providers worldwide. The company has raised dividends for 27 consecutive years. Yield: 5.90% (analysis)

HCP, Inc. (HCP) is an independent hybrid real estate investment trust. It primarily invests in properties serving the healthcare industry including sectors of healthcare such as senior housing, life science, medical office, hospital and skilled nursing. The company has raised dividends for 26 consecutive years. Yield: 5.50% (analysis)

Sysco Corporation (SYY), through its subsidiaries, engages in the marketing and distribution of a range of food and related products primarily to the foodservice or food-away-from-home industry. The company has raised dividends for 42 consecutive years. Yield: 3.70% (analysis)

Illinois Tool Works Inc. (ITW) manufactures a range of industrial products and equipment worldwide. The company has raised dividends for 48 consecutive years. Yield: 3.30%

Genuine Parts Company (GPC) distributes automotive replacement parts, industrial replacement parts, office products, and electrical/electronic materials in the United States, Puerto Rico, Canada, and Mexico. The company has raised dividends for 55 consecutive years. Yield: 3.50% (analysis)

Medtronic, Inc. (MDT) manufactures and sells device-based medical therapies worldwide. The company has raised dividends for 34 consecutive years. Yield: 3% (analysis)

Colgate-Palmolive Company (CL), together with its subsidiaries, manufactures and markets consumer products worldwide. The company has raised dividends for 48 consecutive years. Yield: 2.70% (analysis)

T. Rowe Price Group, Inc. (TROW) is a publicly owned asset management holding company. The company has raised dividends for 24 consecutive years. Yield: 2.40% (analysis)

Franklin Resources Inc. (BEN) is a publicly owned asset management holding company. The company has raised dividends for 30 consecutive years. Yield: 0.90%

The only company, removed from the index includes CenturyLink (CTL).

CenturyLink, Inc. (CTL), together with its subsidiaries, operates as an integrated communications company. The company has maintained its quarterly dividend at 72.50 cents/share for two years, which is why it is being kicked out of the index after raising distributions for 37 years in a row.

The complete listing is included below:



While I initially considered the Dividend Aristocrat’s index the cream of the crop and the first stop in my dividend research, the volume and capitalization requirements have somewhat turned me off of the index. For example, companies which have managed to raise dividends for over a quarter of a century with a market capitalization of less than $3 billion and average daily volume of less than $5 million dollars would not be included. This is the reason why I prefer to use the Dividend Champions index instead. The only drawback of the Champions index is that the total returns are not calculated, whereas the total returns on the S&P Dividend Aristocrat’s index are.

Full Disclosure: Long MMM, AFL, ABT, APD, ADM, ADP, BF/B, CB, CINF, CL, CLX, KO, ED, EMR, XOM, FDO, GWW, ITW, JNJ, KMB, LOW, MKC, MCD, MHP, MDT, PEP, PG, SYY, WMT, WAG


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Monday, December 5, 2011

Four Income Stocks Raising Distributions

Every week, I review the list of dividend stocks, which announce dividend hikes. I tend to focus on the ones which have at least a five year record of consecutive dividend increases for future research. While I typically require at least ten years of consecutive dividend increases before I initiate a position in a given stock, familiarizing myself with potential additions several years before I pull the trigger could be a real time saver. In other words, if I like the economics of a company such as Intel (INTC) today, and the only red flag is that it hasn’t raised dividends for 10 years in a row, I would be mentally prepared to act if it is still attractively priced in a few years.


The four consistent dividend stocks, whose boards approved dividend hikes over the past week included:

Ecolab Inc. (ECL) develops and markets products and services for the hospitality, foodservice, healthcare, and industrial markets primarily in the United States. The company increased its quarterly dividend by 14.30% to 20 cents/share. This marked the 20th consecutive dividend increase for this dividend achiever. Yield: 1.40%

Graco Inc. (GGG) designs, manufactures, and markets systems and equipment to move, measure, control, dispense, and spray fluid materials. It operates in three segments: Industrial, Contractor, and Lubrication. The company increased its quarterly dividend by 7.10% to 22.50 cents/share. This marked the 15th consecutive dividend increase for this dividend achiever. Yield: 2.10%

OGE Energy Corp. (OGE), together with its subsidiaries, operates as an energy and energy services provider that offers physical delivery and related services for electricity and natural gas primarily in the south central United States. The company increased its quarterly dividend by 4.70% to 39.25 cents/share. This marked the 6th consecutive dividend increase for OGE Energy Corporation. Yield: 3.00%

Wisconsin Energy Corporation (WEC) engages in the generation, distribution, and sale of electric energy and steam. The company increased its quarterly dividend by 15.40% to 30 cents/share. This marked the 9th consecutive dividend increase for Wisconsin Energy Corporation. Yield: 3.60%

Full Disclosure: None

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Friday, December 2, 2011

V.F. Corporation (VFC) Dividend Stock Analysis 2011

V.F. Corporation (VFC) designs and manufactures, or sources from independent contractors various apparel and footwear products primarily in the United States and Europe. This dividend champion has paid uninterrupted dividends on its common stock since 1941 and increased payments to common shareholders every year for 39 consecutive years.

The most recent dividend increase was in October 2011, when the Board of Directors approved a 14.30% increase in the quarterly dividend to 72 cents/share. V.F. Corporation’s largest competitors include Coach (COH), Ralpha Lauren (RL) and PVH Corp (PVH).

Over the past decade this dividend growth stock has delivered an annualized total return of 18.50% to its shareholders.

The company has managed to deliver a 17.70% annual increase in EPS since 2001. Analysts expect V.F. Corporation to earn $8.04 per share in 2011 and $9.31 per share in 2012. In comparison V.F. Corporation earned $5.18 /share in 2010.

I last analyzed the stock in 2010, but never managed to pull the trigger, given the fact that I know little about apparel. I have been skeptical of most apparel and footwear industries, but V.F. Corp has managed to defy my skepticism. The company seems to have strong brands and pricing power, which could explain the reason why it has been able to earn sufficient amounts of excess cash to pay higher distributions for almost 4 decades.

In early 2011 the company updated its long-term targets to reflect confidence in its future. In short V.F. Corporation aims to add $5 billion in organic revenue growth and $5 in earnings per share over the next five years from 2010 levels. Strong growth in its highly profitable international and direct-to-consumer businesses is expected to fuel an expansion in operating margins to 15%. Over the next five years, the company’s goal is to grow international revenues by 15% annually to comprise 40% of total revenues. V.F. Corporation’s management team also expects 15% growth in its direct-to-consumer businesses, which should account for about 22% of revenues by 2015.

The company’s acquisition of Timberland Brand, will help it acquire a strong lifestyle brand, and would result in higher sales as well as $35 million in annual synergies. This acquisition is expected to add at least 50 cents/share in 2011, at least $1/share by 2012 and $2/share by 2015.

The company’s Return on Equty has been on a slow decline since hitting a high at 23% in 2003. This indicator seems to have hit a bottom in 2009, and is currently on the rebound. 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 11.20% per year since 2001, which is lower than the growth in EPS. I would expect V.F. Corporation to keep increasing in dividends at 10% per year at least for the foreseeable future.

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 1986 we see that V.F. Corporation has actually managed to double its dividend every 8 years on average.

The dividend payout ratio has remained sustainable for the majority of the past decade. A lower payout is always a plus, since it leaves room for consistent dividend growth minimizing the impact of short-term fluctuations in earnings.

Currently V.F. Corporation overvalued and is trading at 22 times earnings, yields 2.10% but has a sustainable dividend payout. I am excited about the growth opportunities behind this stock, and the potential for dividend growth and capital gains. I would keep V.F. Corporation on my radar, and would consider it for inclusion in my dividend growth portfolio on dips below $115/share.

Full Disclosure: None

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