Tuesday, February 11, 2014

Five Quality Dividend Payers I Bought on the Dip

In the past couple of weeks, I added to my positions in four companies, and initiated a position in two more. It is exciting to see stock prices starting a descend to more attractive values. I am starting to get excited about the possibility of further downside for share prices in 2014, if I am lucky of course. As an investor in the accumulation phase, I get to buy more dividend paying shares when my retirement income is on sale.

I view every stock that I purchase as essentially buying time. Every dividend check represents money I earned that I didn't have to exchange my labor for. This is the beauty of having your money work for you, invested in compounding machines that design and sell products and services around the world, make profits, reinvest in the business and send you a growing pile of excess cash to your brokerage account.

The five companies I purchased are listed below. I also purchased McCormick & Co (MKC) last week, but won’t discuss it here, because I already analyzed it in detail on Friday.

I added to my position in Target (TGT), as part of my intent to dollar cost average my way into the company throughout 2014. Target has suffered from breaches into the credit and debit card accounts of millions of customers in the US. In addition, Target seems to have mismanaged its expansion in Canada. As a result, the stock price has been on a slow slide since the middle of 2013. I find the stock to be a very good value at 15.10 times earnings and a yield of 3.10%. The company has also managed to increase dividends for a cool 46 years in a row. Check my analysis of Target.

Another company I added to was Wal-Mart Stores (WMT). Wal-Mart Stores, Inc. operates retail stores in various formats worldwide. The company has increased dividends for 39 years in a row. Over the past decade, Wal-Mart has managed to increase dividends by 18%/year. This dividend champion trades at 14.20 times earnings and a yield of 2.50%. Check my analysis of Wal-Mart.

For a second month in a row, I also added some McDonald’s (MCD) as well. McDonald’s Corporation franchises and operates McDonald's restaurants in the United States, Europe, the Asia/Pacific, the Middle East, Africa, Canada, and Latin America. This dividend champion has rewarded shareholders with a dividend raise for 38 years in a row. Dividend growth has been slowing down however, from 22.80%/year over the past decade all the way to 13.90%/year over the past five years. Currently, the stock is attractively priced at 17.30 times earnings and yields 3.40%. Check my analysis of McDonald’s.

I purchased shares of Diageo (DEO) for both my taxable and Roth IRA account. Diageo plc produces, distills, brews, bottles, packages, and distributes spirits, beer, wine, and ready to drink beverages. I had previously owned a token position in Diageo, which I sold in early 2013 to simplify my portfolio. This international dividend achiever trades at 18.30 times earnings and a yield of 2.40%. Diageo has managed to increase dividends for 16 years in a row. When competitors such as Beam (BEAM) were acquired at 30 times forward earnings, companies like Diageo look much cheaper. Of course, Diageo is 4 – 5 times larger than the likes of Beam of Brown-Forman (BF.B), so they are less likely to be an acquisition target. Check my analysis of Diageo.

I also added to my shares of General Mills (GIS) in the Roth IRA account. General Mills, Inc. produces and markets branded consumer foods in the United States and internationally. The company has paid dividends for 115 years and never reduced them. In 1995 it lost its status of a dividend champion of 29 years, after freezing distributions following spin-off of Darden Restaurants (DRI). In addition, General Mills has increased dividends for the past 10 years in a row. Over the past decade, General Mills has managed to increase dividends by 9.90%/year. Currently, this dividend achiever is trading at 17.90 times earnings and yields 3.20%. Check my analysis of General Mills.

I almost added to my position in Philip Morris International (PM), but I stopped myself, since it is the second or third largest position in my portfolio by weight. While I really like the company, its fundamentals and the possibilities for growth in earnings and dividends, I do want to be diversified and not overly reliant on a single security for my dividend income in retirement. However, if it drops to $75 and below, I might add some more to the position there. It is very rare that you can find a company with growing earnings, dividends , cheap valuations and a fat current yield, which is sustainable.

What securities did you buy over the past couple of weeks?

Full Disclosure: Long TGT, WMT, DEO, GIS, PM, MCD, BF.B, MKC

Relevant Articles:

Your Retirement Income is on Sale!
Six Compounding Machines for Long Term Dividend Investors
Dividend Champions - The Best List for Dividend Investors
Roth IRA’s for Dividend Investors
The Security I Like Best: Philip Morris International

18 comments:

  1. HI DGI,

    I bought Unilver, Diageo, SAB Miller, XOM, GE, MCD recently. PM looks interesting but I'm fully vested.

    Reg, Jon from UK

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  2. I purchased KO and TGT at the end of January. This represents my last purchase of KO for awhile unless something happens to help offer the stock at a significantly lower price (its one of my largest holdings).

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  3. Sounds like a solid contribution to your portfolio. I bought KO, PEP, TGT, AFL and UN. All purchases where based on my dividendprofiles. Purpose is to help the people in The Netherlandse (you know, Amsterdam and not Copenhagen;-) to use the DGI theory to build wealth over the long term.

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  4. Those are some nice buys. I couldn't resist PM but definitely weighted a little too heavy with it at the moment. I'm a little sad I missed out on DEO, that's one stock I never seem to have money to invest when it's at a good price.

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  5. Looks like you made some smart moves there.
    I'm curious - even though I wouldn't call them direct competitors, do you worry about TGT cannibalizing WMT at all, or vice versa? Personally I would lean more strongly toward TGT than WMT, but that's just my opinion.

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  6. By my calculations DEO decreased their yearly dividend in 2009 by $0.35. Increasing it the following year. Which only puts it at 4 years consecutive raises. I am wondering where you pull your information and stats. They lowered dividend in both 2008 and 2009 so to have in increasing for 16 years is big mistep. They also lowered the dividend in 1999 which is inside the 16 year window.

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  7. Bought TGT and CVX in the past week

    Share your problem with Philip Morris - a victim of it's own success.

    A short story from Canada - WMT entered Canada in 1993/1994 when they purchased a struggling Canadian retailer. Canadians didn't take a shine to this American company, and WMT didn't do itself any favours during the conversion as they thought Canadians were just like Americans; only in a a different county.

    Turns that wasn't true. They spent the next several years adjusting their marketing, advertising, staffing, product mix and...investing lots of money in new stores; built from the ground up. I would say they hit their stride in 1997/98.

    In the early '00s they expanded their store count by moving into smaller cities. Over the last two years, they have converted a significant number of stores into SuperCenters with a full grocery department. They are still building new stores. And the parking lots are still full.

    TGT is a great company; so great it can successfully compete against WMT. They will do the same in Canada - it just isn't going to be as fast as we all thought.

    Cheers,

    David

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  8. Thanks everyone for reading the site and sharing your ideas.

    Anon,

    I had no idea that WMT had some headwinds in Canada. I might need to look into it. I had found some information that TGT stumbled with the introduction of SuperTarget concept in 1995, but I haven't been able to confirm that.

    JT,

    For foreign companies, I base the dividend record on the annual dividend payments in local currency, which is British Pounds for Diageo. It has managed to raise dividends every years since 1998 ( Diageo was formed in 1997 after a merger of 2 companies)

    http://www.diageo.com/en-sc/investor/shareholderservices/ordinaryshares/Pages/Dividend-Information.aspx

    They also recently raised distributions by 9%:

    http://www.diageo.com/en-sc/newsmedia/pages/resource.aspx?resourceid=1969

    Matt,

    I think WMT and TGT have different customer types. I would say owning both exposes you to different types of risks and opportunities.

    Best Regards,

    DGI

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  9. DGI,

    Great list of purchases here. You added some real quality to the portfolio.

    I'm currently interested in both GIS and UL, and some of the energy companies are also trading at attractive valuations.

    Of course, I have to do taxes this month so my TGT purchase might be it this month. We'll see.

    Keep up the great work!

    Best wishes.

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  10. DGI,

    Here I bought TGT, CVX, MCD, and PH. Also, PH increased their dividend this month. A nice company I think, low divi but they are enthusiastic about increasing it and have done so for a long time.

    A

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  11. I've been helping a friend convert an under performing fee laden 100k IRA to a dividend growth model since the end of December. So far I've bought AFL, ARLP, BAX, CSX, CVX, DE, GIS, HCP, JNJ, KMP, KO, MCD, PG, PM, QCOM, T, TGT, TROW, TRV, WMT, XOM. Pulled trigger a little early on TGT but keeping faith. Still have room for 4 more positions. Thought of BLK and CLX or WEC. Any ideas????

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  12. RAI, GD, SWY, TUP, T.

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  13. This post and the comments named most of my watch list. I went with KO and CVX on the dip.

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  14. Bought or added TGT, KSS, UL, O, MFA, GIS, CVX, and T since the beginning of the year. Keith

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  15. I bought some KO last week, just couldn't pass up that 3% starting yield!

    Best wishes

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  16. I like the additions. I recently initiated a position in MKC myself. Had been watching that stock for quite some time.

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  17. Hey DGI,

    I Like the additions, but MKC at this price? Why?

    ReplyDelete

Questions or comments? You can reach out to me at my website address name at gmail dot com.

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