Thursday, July 20, 2017

How to earn 5% on your savings

One of my favorite personal finance blogs is written by Jonathan Ping over at My Money Blog. Jonathan writes on a broad topic of finance items of interest to me, and has had great recommendations on products, books and services that I have benefited from. I wanted to share this resource with you, and also share that savings account that can generate 5% yields for readers. (which I learned from him)

Perhaps a couple of years ago, I read about several accounts that offered 5% yields on your cash. I was extremely skeptical at first, because the highest yields I could get on my cash was the 1% I could get at Ally Bank.

I did some research, and figured out that these are legitimate ways to earn a good yield on any spare cash I have. I found the company Insight Visa, in my research. The company Insight Visa offers a prepaid debit card, which comes with an FDIC insured savings account that yields 5% on your first $5,000. The interest is paid out quarterly. I will detail below the steps I took to earn that interest rate.

In order to earn the interest, I signed up for an Insight Visa prepaid debit card online. This step includes the usual things like address, Social Security Number etc.

The next step was to activate my card after receiving it through the mail. I set up an online profile, where I linked my checking account with the debit card. The verification only took a couple of business days.

Monday, July 17, 2017

Four Dividend Paying Companies Raising Dividends. Which ones are worth a closer look?

I review the list of weekly dividend increases as part of my monitoring process. Over the past week, there were several companies that raised dividends to investors. I am going to discuss how I came up with the list of companies that raised dividends this week. I will then also discuss the quick review process I go through.

This is a useful exercise for many reasons, but also as an educational exercise on the process I use to quickly narrow down any list of prospective dividend growth stocks down to a more manageable level.

I focused my attention to companies that have managed to increase annual dividends for at least ten years in a row. We do this in order to focus out companies which have managed to boost distributions throughout at least one or two economic cycles. In addition to that, we focused on companies whose recent dividend increases over the past year was more than a token increase.

The next step I the process involved reviewing valuation. I usually weed out companies where P/E ratios were below 20. Due to the large number of one-time accounting hits to earnings, I use forward earnings as a shortcut way to go through a lot of companies quickly.

We also weed out companies where earnings per share or funds from operations didn’t grow over the past decade.

Thursday, July 13, 2017

Should I invest in AT&T and Verizon for high dividend income?

Most readers are probably aware that it has been getting more difficult to find decent values in the current environment. When I ran my screens for valuation, I stumbled upon AT&T (T) and Verizon (VZ), which are telecom behemoths in the US.

AT&T (T) has increased dividends for 33 years in a row. In the past decade, it has managed to increase dividends by 3.70%/year. Between 1984 and 2016, the company has managed to increase dividends by 4.40%/year. The stock trades at 12.70 times forward earnings and yields 5.30%. The dividend is adequately covered with a dividend payout ratio of 67.60%, based on forward earnings. Check my previous analysis of AT&T for more information about the company.

Verizon (VZ) has increased dividends for 12 years in a row. In the past decade, dividends grew by 3.40%/year. Between 1984 and 2017, the company has managed to increase dividends by 3.30%/year. The stock trades at 11.60 times forward earnings and yields 5.30%. The dividend is adequately covered with a dividend payout ratio of 61.70%, based on forward earnings. Check my analysis of Verizon for more information about the company.

The telecom industry in the US is very competitive. Companies like AT&T (T) compete with the likes of Verizon (VZ), Sprint and T-Mobile. In the past, almost all of the profits have been made by Verizon (VZ) and AT&T, at the expense of smaller competitors. An investment in AT&T and Verizon today would presume that the status quo would remain unchallenged, and that Sprint and T-Mobile would be kept weak forever. The service that telecom companies is essentially a commodity. Telecom companies are not utilities, because there is the possibility for switching the provider. Try moving to Saint Louis, Missouri, and then switching your gas, water or electric utility – you can’t. But anywhere in the US, you can switch to another wireless carrier, plus you have other alternatives and very low customer loyalty. There is nothing to stop a customer from switching to another carrier after their contract expires.

Tuesday, July 11, 2017

Dividends Unlock Value For Shareholders

After observing companies for a decade now, I have come to the conclusion that dividends unlock value for shareholders. Let me start off with an actual example.

A few months ago, Costco (COST) announced that it would be paying a special dividend to shareholders.This event alone unlocked hidden value for shareholders.

On April 26, 2017 Costco announced special dividend of $7/share to shareholders on record from May 10, payable on May 26, 2017. The stock price rallied to 178.05/share at the opening and closed at $176.80/share on April 26, which was up from the close of $172.68/share on April 25. The stock closed at $172.64 on the ex-dividend date of May 8, and it had closed at 180.20 on May 5. In this case, the special dividend unlocked hidden value in the enterprise for shareholders.

That amount of money was locked in the business, and was not put to productive use for shareholders. This is why the company’s rational management decided to distribute the money to shareholders. This is the rational thing to do, when you are showered with cash, and you do not have a lot of high ROI projects to invest into. That $7/share were sitting in cash, but were not fully baked in the stock price, until the announcement unlocked this hidden value for shareholders.

I went back to look at the history of prior special dividends for Costco. I was stunned that every single special dividend ended up unlocking value for the shareholders. What I mean by “unlocking value” is the fact that the share price increased as a result of the special dividend announcement. So shareholders were better off as a result of the special dividend in every single case.

Wednesday, July 5, 2017

Two Dividend Growth Companies Rewarding Shareholders With a Raise

I like to check the pulse of dividend growth companies by monitoring dividend increases. This is helpful as part of my monitoring process. Two recent increases caught my eye. These are two companies I have owned for many years. These companies seem to have different expectations about the future. The first one is optimistic, and this has been fueled by rising earnings. The second company seems to be running out of space to raise dividends, due to stagnating profits. As dividend investors we are looking for the companies in the first camp. Of course, a long investing career will surely bring in some investments that show initial promise, but ultimately may turn out to be duds. Our goal is to manage our portfolios to reach our goals, despite having the occasional dud, and keep staying the course.

The companies that recently raised their dividend include:

Medtronic plc (MDT) manufactures and sells device-based medical therapies worldwide. The company raised its quarterly dividend by 7% to 46 cents/share. This marked the 40th consecutive year of an increase in the dividend payment for this dividend champion. Medtronic's dividend per share has nearly quadrupled over the past decade and has grown at a 17 percent compounded annual growth rate over the past 40 years.

Tuesday, July 4, 2017

Happy Financial Independence Day

Before I begin my message, I wanted to wish all my readers a Happy 4th of July. And I wanted to thank all of those military members for keeping us safe and able to enjoy our independence and freedom.

For the past seven and a half years, myself and my readers have been on a quest to achieve financial freedom with dividend growth stocks. So I wanted to take some time and reflect the accomplishments that we have all achieved in the past nine years.

Financial independence is the point at which the passive income exceeds expenses. People who achieve financial independence have the freedom to live their lives true to themselves. Most importantly, financially independent people have options in life. These options could include:

1) Working in a field they are passionate about
2) Caring for a child or a relative
3) Engaging in non-profit work, volunteering or charity
4) Writing a book
5) Traveling the world
6) Fill in the blanks (this is your passion so you have to decide what you want to do)

Thursday, June 29, 2017

Two Dividend Growth Stocks On Sale

Everyone loves a good sale. When quality merchandise is available at a discount, people get very excited.

However, when stock prices go down, many investors get terrified and refuse to invest.



Today I am going to discuss two promising companies, which are selling at attractive valuations. Both of those companies are retailers. As you know, retailers are in a tough spot today, because the story goes, online will eat their lunch. It is very true that retail is very difficult business, which is under constant threat from new innovators. However, some retailers are still doing well.

These two retailers have been increasing the number of locations over the past five to ten years. In addition, they have plans to further grow their location footprint in the US and worldwide. This is a good indication of growth. As I discussed before, a growing number of retail locations is one of the indicators we talked about in how to select winning retail stocks.

Each of those dividend achievers has managed to increase dividends for over 20 years in a row. Looking at a long streak of annual dividend increases is the first step in the process however.

Tuesday, June 27, 2017

Investing in the Dividend Aristocrats from 2007

Last week we saw how a $1 million investment in the original Dividend Champions did over the past nine years. Today, we are going to discuss how a similar passive investment in the Dividend Aristocrats at the beginning of 2008 would have done.

Introduction

S&P 500® Dividend Aristocrats® measure the performance S&P 500 companies that have increased dividends every year for the last 25 consecutive years. The Index treats each constituent as a distinct investment opportunity without regard to its size by equally weighting each company.

I first became fascinated with the list of Dividend Aristocrats in 2007/2008, just as I was beginning my dividend investing journey. This is what I wrote in an article from February 2008:

“One of my favorite stock lists is the S&P’s Dividend Aristocrats and the S&P High-Yield dividend aristocrats. These lists contain companies which have consistently increased their dividends over the past 25 years, which is a big achievement. These companies have gone through several up and down economic cycles and shown superiority of rewarding their shareholders with increasing payments through dividend growth.”

It made sense that solid blue chip companies, which have managed to grow dividends for 25 years in a row, are worthy of consideration. The requirement to grow dividends for a quarter of a century, or longer, weeds out a lot of the speculative companies out there. This requirement results in a list of quality companies with stable business models, which have withstood the test of time. It didn’t hurt that these companies had done phenomenally for their investors, while showering them with more dividends every year. Getting a rising dividend check, while also generating strong total returns in the process, is one example where you can have your cake and eat it too.

Thursday, June 22, 2017

Investing in the Dividend Champions from 2007

Imagine if you had $1 million dollars at the end of 2007. You decide to invest this money in the list of the original dividend champions companies. How would you have fared if you had invested that money in the dividend champions  almost a decade ago?

I have thought about the answers to this question many times. A few weeks ago I decided to start doing the work to answer it for myself. I always enjoy doing the hard work myself in order to form my opinions.

I used the information from David Fish and Robert Allan Schwarz in my data gathering phase. I wanted to determine how a passive investor in the original dividend champions from late 2007 to early 2008 would have done.

I was also inspired to do this research after observing those who always try to scare people away from dividend investing. The usual scare tactic involves mentioning one instance of a dividend cut, from the worst time for dividends during the 2007 – 2009 financial crisis, in order to trigger feelings of irrational fear. This low probability event is used to scare people away from dividend investing. Somehow, these doom and gloomers tend to focus on a once in a lifetime level of dividend cuts which has happened only during major financial collapses in 1929 – 1932 and 2007 – 2009. Otherwise, they do tend to ignore the 95% of the time when dividends are either up or flat for the year in aggregate.

I decided to accept the challenge, and offer proof that dividend growth investing works wonderfully even during a period that was extremely challenging for almost any strategy.

I decided to test how an investor in the original dividend champions from late 2007/early 2008 would have done through the end of 2016. The beginning period is right at the start of the Global Financial Meltdown, which supposedly decimated all dividend portfolios. Using data, and logic, I am going to refute the irrational fears against dividend growth investing.

Tuesday, June 20, 2017

Where are the Original Dividend Champions today?

The list of dividend champions was created by David Fish in 2007. It lists companies which have managed to boost dividends for 25 years in a row. David painstakingly maintains and updates the list every month on dripinvesting.org. In latter years, he has also added a list of dividend contenders and challengers ( companies raising dividends for more than 10 and more than 5 years respectively)
I first stumbled upon the list of dividend champions in early 2008, when I was starting my site from scratch. I have utilized the file in my research and investing, and have used it to gain insights into my investing.

In my research, I have also leveraged the historic compilation of the Dividend Champions, on the site of Robert Allan Schwartz. This collection of files has been instrumental in compiling the research on the original dividend champions.

There were 138 dividend champions in January 2008.

By the end of 2016, 78 of those original dividend champions are still on the list.

Monday, June 19, 2017

Eight Dividend Companies Increasing Dividend Payouts and Returns to Investors

As part of my monitoring process, I review the list of dividend increases every single week. I usually focus on companies that have raised dividends for at least a decade, in order to narrow down the list of companies to review. In order to be successful at dividend growth investing, you need to identify companies that can grow earnings, dividends and intrinsic values over time, which you can also purchase at an attractive valuation. I write these reviews in order to educate dividend investors about the quick way I use to look at companies before deciding whether to pursue further research or to discard them for the time being.

The companies that raised dividends last week, include:

Realty Income Corporation (O) is a publicly traded real estate investment trust. It invests in the real estate markets of the United States. The firm makes investments in commercial real estate. The REIT raised its monthly dividend to 21.15 cents/share. Realty Income is a dividend achiever, which has rewarded shareholders with rising dividends for 23 years in a row.

Friday, June 16, 2017

This is why you shouldn't overpay for stocks folks

You have probably read the news that Amazon is going to acquire Whole Foods Market (WFM) in cash for $42/share. This will increase competitive pressures in the grocery business, which has sent shares in companies like Target (TGT) and Wal-Mart (WMT) lower. Even retailers such as Ross Stores (ROST) and TJX Companies (TJX) are taking a beating. This decline could provide an opportunity to acquire quality merchandise at lower prices.

However, the issue I am going to discuss briefly deals with valuation. If you look at the chart of Whole-Foods over the past five years, you can see that the share price routinely sold above $42/share.

Whole Foods earned $1.26/share in 2012, and roughly $1.50/share every year through 2016. Therefore, anyone paying more than $30/share was likely overpaying for the stock. The company is worth $42/share in a going private transaction. However, if the buyout hadn't materialized, a discount to that price would have been warranted.

Thursday, June 15, 2017

Can you research everything about a company?

I have researched dividend paying companies for a decade. As a result, I have built a large database of dividend stock analyses that supported each of my decisions. I can afford to look back years after making an analysis, and seeing what worked, and what didn’t. I can also look back at my buying decisions, selling decisions, or the decisions to not do anything about a company, and see if these were smart or dumb in retrospect. I believe that every investor should evaluate their investments at least once per year, in order to improve themselves. It also helps to keep a diary of investment decisions, in order to see room for improvement over time. Regular reviews of my transactions have uncovered a lot of helpful tips for improvement. These reviews have also shattered a lot of my pre-existing beliefs.

I have found that I do not know in advance what the best performers will be. For example, I have been a big supporter of certain companies over others. However, the companies I was most confident about did not do as well as the companies I added without much confidence. This is why it is important to create fail-safe mechanisms that will propel the portfolio forward, even if you make mistakes. And believe me, you will make mistakes, which will be evident but only in retrospect.

The best lesson is that my basic analysis of quantitative factors have delivered better results than my analyses where I would review annual reports and press releases. In general, my evaluation of decisions uncovered that increasing the amount of information about a company did not add any incremental benefit. There has been a point of diminishing returns for me.

Monday, June 12, 2017

Two Dividend Machines Rewarding Shareholders With A Raise

As part of my monitoring process, I review the list of dividend increases every week. I focused my attention on companies with a ten year track record of annual dividend increases. I then also focused on companies that manage to grow dividends by more than a token rate. We generally want companies which can grow earnings over time, which then results in growth in dividends. The next requirement is to purchase those quality companies at attractive price.The following two dividend growth machines have high distribution growth rates, which are supported by strong growth in earnings per share.

Lowe’s Companies, Inc. (LOW) operates as a home improvement company in the United States, Canada, and Mexico. It offers a line of products for maintenance, repair, remodeling, and decorating. The company raised its quarterly dividend by 17.10% to 41 cents/share. This marked the 55th consecutive annual dividend increase for this dividend king.

Thursday, June 8, 2017

The Four Hour Dividend Investment Plan

If you are like most readers on this site, chances are you have a decent job, which allows you to have a certain lifestyle and to save money to invest. You are also likely to have other obligations including family, fixing the house or the car, plus a few other activities scattered around your schedule. It is very likely that you are starved on time. You are interested in dividend investing, but probably are hesitating to start it, because you do not believe you have the time to do all the work involved in it.

Well, there are a few solutions for you, if you want to go the self directed investor route. I would show you how you can be a dividend investor by spending less than four hours per week.

In order to achieve that, you need to be very efficient with your time. You need shortcuts to get the information you need, in order to make decisions. You would have to rely on the work and information presented by others, and should be ok with it. You should be ok that this information might include material omissions, some inaccuracies or might include an element of bias. Many believe that the best scenario for any investor is to immerse him/herself in the company they are studying by reading annual reports, industry publications, and try to get experience with the products/services offered. However, this takes time that you do not have, which is why the shortcuts are the way to go for you. Studies have shown that having too much information may actually lead to poor decision making. There is also point of diminishing returns when it comes to company information. In other words, it is unlikely that spending 100 hours studying the ins and outs of a particular security will result in better decision making over a couple of hours of research on the company for the average investor. (from the framework of having a diversified portfolio of course)

Tuesday, June 6, 2017

This Is How This Successful Dividend Investor Turned $1,000 Into $2 Million

I love reading stories of ordinary everyday folks, who manage to accumulate a multi-million dollar fortune that is donated for a good cause. I recently read the story of  the Chicago based dividend millionaire Russ Gremel, who donated $2.1 million dollar’s worth of Walgreen (WBA) stock to a wildlife refuge. Walgreen is a dividend champion, which has raised its dividends for 41 years in a row. You can read the story at the Chicago Tribune here.

Mr Gremel had accumulated the shares approximately 70 years ago, and had a cost basis of $1,000. The company kept growing and expanding over that long period of time. Mr Gremel never sold a single share during that stretch of time. Walgreen's had split the original shares to a cool 28,000 shares worth approximately $2.1 million by the time he made his donation in the past year. The amount of stock generates $42,000 in annual dividend income, which is equally impressive. In other words, the long-term investor receives his original cost basis back every single year, 42 times over. The article does not discuss whether dividends were reinvested into more stock over the years. However, using the limited amount of information available, it looks like this investment compounded at a cool 11.50%/year for 70 years. This is an impressive record. Compounding is a powerful force, especially when you stretch it over long period of time.

Thursday, June 1, 2017

Thirty Dividend Champions to Consider

I have written about my dividend investing journey for almost a decade now. One of the most common question I get asks how I identify companies for further research. In today’s post I will discuss the simple steps I use to obtain a manageable list of companies for further research. These are all used for potential additions to my dividend portfolio. Investing does not have to be complicated, and this simple process attests to this fact.

The first step I take is to start with the list of the US dividend champions, which is maintained and updated by David Fish every single month. To be a dividend champion, a company must have been able to increase its annual dividends per share for a minimum of 25 consecutive years. Only a company with a defensive business model can afford to grow the business, while also raising the dividend annually for a quarter of a century. Being a dividend champion is an indication of quality.

The second step I take is to focus on valuation. I look at the companies which sell at a P/E of 20 or lower. We look at valuation, in an effort to avoid overpaying dearly for an investment. Even the best company in the world is not worth overpaying for. When you buy at a lower price, your future expected returns are higher than buying at a higher price. I typically use Yahoo Finance’s trailing 12 months earnings for the earnings portion of the Price to Earnings calculation. However, I have found that one-time items have made it very difficult to determine the correct earnings power. This is why I use P/E based on forward earnings as a quick trick to scan a large group of companies, without getting bogged down in researching 100 one-time hits/gains to earnings.

Tuesday, May 30, 2017

Travelers Companies (TRV) Dividend Stock Analysis

The Travelers Companies, Inc., through its subsidiaries, provides a range of commercial and personal property, and casualty insurance products and services to businesses, government units, associations, and individuals in the United states and internationally. The company operates through three segments: Business and International Insurance, Bond & Specialty Insurance, and Personal Insurance. The company is a dividend achiever, which has increased distributions for 13 years in a row.

Back in April 2017 the Board of Directors approved a 7.50% increase in the quarterly dividend to 72 cents/share. The largest competitors for Traveler’s Companies include Allstate (ALL), Progressive Corp (PGR) and Cincinnati Financial (CINF).

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



Thursday, May 25, 2017

The Real Risk With Dividend Growth Investing

There are risks to many strategies. Some risks include permanent impairment of capital, due to an investment that ends up going to zero. Some companies would usually cut or eliminate dividends a long time prior to going under. This usually serves as a last warning sign to long-term investors like myself that something is broken in the business. But dividend cuts are not the biggest risk to dividend growth investing. This is not the risk I will discuss today.

The other risk includes mistakes of omission, where you fail to pull the trigger on a company because of fear. Then another risk is that you have identified an asset that has potential, purchased it at the right price, and it ends up meeting or exceeding your projections. However, you are not around to enjoy the full benefits of your analysis. While many cite dividend cuts as one of the biggest risks behind dividend growth investing, I believe that getting my shares acquired to be a much larger long-term risk to investment returns.

One way this could happen is if you sell a perfectly fine company. Some end up selling due to fear of the unknown. Ironically, share prices fluctuate much more than the changes in underlying fundamentals. This is why I try to focus mostly on companies that have stable earnings streams. A cyclical company with more volatile earnings streams is much tougher to value, and therefore I might be expected to receive more price volatility for each dollar of potential earnings power ( which in itself is a moving target). If you are good at timing your purchases, you may make a lot of money. If you are like almost everyone else however, chances are that exposure to cyclicals is best to be taken in a way that encourages doing nothing.

Tuesday, May 23, 2017

Merrill Edge Offers Commission Free Trades for Dividend Investors

I have reviewed a lot of brokerages throughout the years. All of the reviews have been based on my personal experience with the services. The personal experience and ideas is a main point of what I write about on this site too. I try to spread out my assets between several brokerage accounts, for additional diversification and peace of mind.

Over the past few years, I have opened and maintained an account with Merrill Edge. After a few years of contributions, the balance is set to exceed $50,000 for the first time. Why is that important?

Well for starters, Merrill Edge will provide me with 30 free trades per month, provided that I have at least a $50,000 combined balance between my Merrill Edge brokerage account and my Bank of America checking account. You need to have a Bank of America checking account, in order to take advantage of this bundled deal. When you have a checking account, the fees are waived, as long as you still have at least $50,000 in combined assets. Once you reach $50,000 in assets for three months in a row, you become part of their platinum preferred rewards tier. The value of your stocks, bonds and ETFs/funds counts towards that combined balance calculation.

Wednesday, May 17, 2017

Three REITs Approaching Value Territory

There are several REITs which seem to be punished excessively as of lately. A few, which have caught my eye are listed in more detail in the article.

There is a risk that retail is going down the drain, which would result in bankruptcies and vacancies for landlords. Depending on your beliefs, real estate investment trusts are either bargains today or they are value traps which are destined for mediocrity. Rather than fall for broad generalization, I decided to look at top tenants for each REIT I analyzed in this article, in order to determine the degree to which the business is subject to destruction from online. I also believe that while many retailers will have a harder time earning profits, the landlords that own the real estate have some margin of safety due to the long-term lease contracts. In addition, those landlords could always sell or repurpose those locations.

The other risk for retailers includes potentially higher interest rates, which would make many projects more expensive. Higher interest rates will reduce FFO and cash available to pay dividends to shareholders. The contra-argument to the rising interest rates thesis has been that rising rates are an indication of increased economic activity, which should bode well for landlords. The other contra-argument is that most of the REITs below have staggered maturities, and are mostly capitalized by equity rather than debt. The third contra-argument is that existing debt is already taken at low fixed interest rates. Rising interest rates should affect debt refinancing and profitability spread for new properties. Of course, everyone has been expecting rising interest rates for almost a decade now. Noone can predict the future.

As I mentioned before, I analyze REITs using the guidelines listed in this post. The guidelines include focusing on:

Monday, May 15, 2017

Five Dividend Paying Companies Rewarding Shareholders With A Raise

I review the list of dividend increases every week, as part of an effort to monitor my holdings and review promising companies in action. I usually focus on the companies with a minimum ten years of annual dividend increases. I then narrow the list down to companies which are raising distributions by more than a token amount. After that, I review the trends in earnings, dividends/distributions, and decide whether a company is worth it for further research or not. Reasons for not recommending myself to do further research on a company also involves high valuations. This exercise is helpful for my monitoring process, since it provides me with the discipline to go out and do the monitoring work.

Over the past week, there were five of companies that met the above mentioned requirements and raised dividends last week. The companies, along with my commentary are listed below:

The Clorox Company (CLX) manufactures and markets consumer and professional products worldwide. It operates through four segments: Cleaning, Household, Lifestyle, and International. The company raised its quarterly dividend by 5% to 84 cents/share. This marked the 40th consecutive annual dividend increase for this dividend champion. Over the past decade, Clorox has managed to raise dividends at a rate of 10.50%/year.

The rate of dividend growth has been slowing down over the past decade however, as the payout ratio increased from 37% in 2007 to 63% in 2016.

Thursday, May 11, 2017

Why Magellan Midstream Partners Is the Best Dividend Growth Opportunity for 2017

Energy output has boomed across the country, and this little-known dividend stock could make investors a fortune.

New technologies have unlocked billions of barrels of oil and gas, even at prices that were once unthinkable. Traders betting the farm on drilling stocks over the past few months earned themselves overnight windfalls.

But when it comes to energy investing, the real money isn’t always in the firms doing the grunt work. “Pick-and-shovel” businesses provide the vital tools and services to a booming industry. Rather than taking the “all-or-nothing” route of searching for the next big strike, selling rigs, gear, and equipment can be a safer (and more lucrative) way to profit.

One of my favorites? Magellan Midstream Partners, L.P. (NYSE:MMP). This partnership owns pipelines, terminals, and processing plants across the country. And while it doesn’t get a lot of interest in the press, it’s one of my top dividend growth stocks for a couple of reasons.

Tuesday, May 9, 2017

J. M. Smucker (SJM) Dividend Stock Analysis

The J. M. Smucker Company (SJM) engages in manufacturing and marketing branded food products primarily in the United States, Canada, and internationally. The company is a member of the dividend achievers index, and has boosted distributions for nineteen years in a row.

The company’s last dividend increase was in July 2016 when the Board of Directors approved an 11.90% increase to 75 cents/share. The company’s largest competitors include Conagra (CAG), Kraft Heinz (KHC) and Hershey (HSY).

Over the past decade this dividend growth stock has delivered an annualized total return of 14.10% to its shareholders.

Monday, May 8, 2017

PepsiCo (PEP) Dividend Stocks Analysis for 2017

PepsiCo, Inc. (NYSE:PEP) manufactures, markets, and sells various foods, snacks, and carbonated and non-carbonated beverages worldwide. The company operates in four divisions: PepsiCo Americas Foods (PAF), PepsiCo Americas Beverages (PAB), PepsiCo Europe, and PepsiCo Asia, Middle East and Africa (AMEA). The company is a dividend champion, which has increased distributions for 45 years in a row.

Last week, the Board of Directors approved a 7% increase in the quarterly dividend to 80.50 cents/share. PepsiCo's largest competitors include Coca Cola (NYSE:KO) and Dr Pepper Snapple Group (NYSE:DPS).

Over the past decade, this dividend growth stock has delivered an annualized total return of 5.20% to its shareholders.


Thursday, May 4, 2017

Robinhood Offers Free Stock Trading for Dividend Investors

Robinhood is a new broker, who lets customers purchase US stocks for no commission. Yes, that is true, customers pay no commissions when they purchase stocks using Robinhood.

The service is available for customers with iPhone's or Android phones. I believe Robinhood could provide much lower fees to many beginning investors. To me, it would be much nicer to be able to allocate $2,000 - $3,000 into shares of 10 – 15 companies every month without paying commissions, rather than be limited to 2 – 3 investments for that month. Long-time readers know that I do not want to pay more than 0.50% in commissions on my purchase amount, and I also rarely sell. Your assets at Robinhood  are also SIPC insured, meaning that your assets are protected for amounts under $500,000.

There are several appealing factors behind Robinhood:

- Zero commissions on US Stocks
- No account minimums
- No Inactivity Fees
- No Deposit/Withdrawal fees
- Trades are executed right away at good prices
- Investor assets under $500,000 are insured by the SIPC

The items I don’t like are:

- Only available for a limited number of people
- Has not existed long enough
- Only available using an app
- Does not allow opening IRA accounts
- Does not allow automatic dividend reinvestment
- Does not allow purchasing fractional shares

Monday, May 1, 2017

Twelve Dividend Growth Stocks Rewarding Shareholders With A Raise

As part of my monitoring process, I look at the list of dividend increases every single week. I then narrow the list down by focusing on companies that have raised distributions for at least ten years in a row. The next step of the process includes a quick evaluation of company fundamentals, along with valuation and a brief comment about my current take on the company.

There were twelve companies that met the above criteria, and raised distributions over the past week. The companies include:

Johnson & Johnson (JNJ) researches and develops, manufactures, and sells various products in the health care field worldwide. It operates through three segments: Consumer, Pharmaceutical, and Medical Devices. This dividend king raised its quarterly dividend by 5% to 84 cents/share. This marked the 55th consecutive annual dividend increase for Johnson & Johnson. Over the past decade, the company has managed to raise annual dividends at a rate of 8%/year. Earnings per share rose from $3.63 in 2007 to $5.93 in 2016. The company is expected to earn $7.10/share in 2017. Currently the stock is attractively valued at 17.40 times forward earnings and yields 2.70%. If you are a more conservative investor, the company would be a decent idea on dips below $119/share, which is equivalent to 20 times last year’s earnings. Check my analysis of Johnson & Johnson for more information about the company.

Friday, April 28, 2017

Altria is more expensive that you think

I usually run a screen using my entry criteria over the list of dividend champions regularly. I do this in order to find attractively companies for further research, which could then be added to my portfolio. I ran the screen a few weeks ago for the dividend champions list, which identified approximately fourteen companies for further research. One reader asked me why I hadn’t included Altria (MO) in the list. Check my latest analysis of Altria for more information about the company.

This was a very good question. So good, I decided to write a short post about it.

If you look at a place like Yahoo Finance, or Google Finance, you can see that Altria has a P/E ratio of 11. So this means that this amazing company is cheap, doesn’t it?

 Source: Yahoo Finance
Source: Google Finance


Well, not so fast. As part of our evaluation of company fundamentals, we review trends in earnings per share, dividends per share, revenues and payout ratios over the past decade. A quick review of the ten year trends in earnings per share shows a bump in 2016. The curious dividend investor would then search for the driver behind the discrepancy.

Wednesday, April 26, 2017

Stockpile Brokerage Review

As many of you know, brokerage Loyal3 is closing down in May. I received a lot of responses from readers, who shared their disappointment about the close. I did receive one response, which notified me of another broker that was similar to Loyal3, and which has no account minimums. This broker is called Stockpile, and I will be sharing my observations about it today.

Stockpile is an online broker which lets investors buy and sell shares in their favorite companies. It is aimed at newer investors with less experience. The appealing part for me was the fact that it offers the ability to open accounts for kids/teens. This is a feature that may be helpful to anyone who wants to buy stock for children/grandchildren or nieces/nephews, and teach them by example the powerful concepts of investing from an early age. The broker site could be accessed from this link.

The brokerage account at Stockpile is SIPC insured up to $500,000 for stock ( and $100,000 for cash).

Opening an account is a fairly easy and straightforward process. You need to have your social security number, address, bank information etc.This is a fairly standard procedure.

Monday, April 24, 2017

Seven Companies Giving Their Owners A Raise

I look at the list of dividend increases every week, as part of my monitoring process. I then narrow the scope by focusing on companies that have increased dividends for at least a decade. I do this in order to focus on companies that have managed to raise dividends throughout a full economic cycle or two. I also focused my attention on the companies which have managed to grow dividends by more than a token amount. My next step involves reviewing trends in fundamentals over the preceding decade, in order to determine if the business is growing. I also try to determine if the dividend is sustainable and can grow in the future. I want dividends that increase due to increases in earnings power. I do not want dividends that increase merely because the payout ratio is being expanded.

Last but not least, I also like to review valuations. After all, even the best company in the world is not worth overpaying for. If you overpay for an investment, you may still lose money, even if the company excels on the operations level and meets its growth forecasts.

Over the past week, there were several companies that gave their shareholders a raise. The companies include:

Friday, April 21, 2017

Rent Versus Buy - How to decide which one is best for you?

People usually get emotional when the topic of rent versus buy is brought up. One group swears by owning a home, and believes that it is a good decision. The second group believes in renting for life, and brings a lot of arguments to support their decision. I have personally stayed in the "undecided" camp, right in the middle of it all.

We are rational people however, so we want to avoid emotions, and make the best decisions for our own situations. Owning a home is one part a lifestyle decision, and another part a financial decision.

There are pros and cons to buying and renting a home.

I believe that some people who rent may be wasting their money away if house prices in their areas are low. If home prices are high however, people who buy a home may be the ones wasting their money away. Home prices are low, if they are selling at a low multiple of home cost divided by annual rent expense. Home prices are high, if they are selling at a high multiple of home cost dividend by annual rent expense. I find a ratio about 15 or lower to be attractive. If that ratio is over 20, it may be a little bit too high.

Based on my research, if you manage to purchase a comparable unit to what you are currently renting, and you are mindful of costs, you may do better than renting over long periods of time ( exceeding ten years). On the other hand, if you pay a high price to rent multiple, and your monthly payment absorbs most of the funds you would have otherwise used to save to retirement,  you may not do as well with buying a home.

Tuesday, April 18, 2017

Loyal3 Brokerage to Shut Down in May

I just received notification that low cost broker Loyal3 is shutting down, effective May 22 2017. Loyal3 was a decent commission free alternative for beginning investors who wanted to slowly build positions in their favorite brands, without paying any commissions. The brokerage allowed you to invest as little as $10 per transaction, and allowed buying fractional shares. At one point, Loyal3 also allowed a brief arbitrage opportunity where you could invest using a credit card, and earn rewards points. Loyal3 also allowed many investors the chance to participate in IPO’s at the offer price. Sadly, it looks like its business model has not gained enough traction. Alternatively, low cost broker Robinhood offers access to all US equities for a zero rate and does it in real-time. This may have been one of the reasons for the failure.

There are several options to existing clients.

1) Do nothing, and have all securities be transferred to FolioFirst.

Monday, April 17, 2017

Procter & Gamble Raises Dividends for 61st Consecutive Year in a Row

The Procter & Gamble Company (PG) provides branded consumer packaged goods to consumers in North America, Europe, the Asia Pacific, India, the Middle East, Africa, and Latin America. The company operates through five segments: Beauty, Grooming, Health Care, Fabric Care and Home Care, and Baby Care and Family Care.

Last week, this dividend king raised its quarterly dividends by 3% to 68.96 cents/share. This marked the 61st consecutive annual dividend increase for the dividend king Procter & Gamble.

However, it also continues the recent trend of sub-par annual dividend growth for this widely held dividend king. For anyone who has looked at the financial performance over the past decade, the slow rate of annual dividend growth should not have been a surprise.

Over the past decade, the company has been unable to grow earnings per share.

Friday, April 14, 2017

How I Use Frugality to Accumulate Wealth

In a previous article I discussed that I am on track to have my dividend income cover my expenses sometime around 2018. I received a few questions on how I am able to achieve that. I have mentioned before, that I do not like to talk about myself, because I personally find it a little tacky. (this statement in itself sounds like humble-bragging, which is also tacky)

I think I have taken for granted certain topics such as saving, and the power of compounding. I always assumed that it was common sense that people who came to this site would not be interested in learning how I drive a 15 year old car, how I graduated college without any debt but $2,000 in the bank and no debt, and that my frugality has helped me save enough to build my portfolio since 2007.

I also naively assumed that everyone who already saves money sees dividend growth investing as a tool to achieve their financial goals and objectives, be that traditional retirement, early retirement, financial independence or something else. Based on many interactions I have had over the years, I think that I was wrong in my assumptions on what constitutes common sense and what doesn’t. Given the rapid growth of the site readership since its inception in 2008, it is reasonable to expect that not everyone will be on the same page when it comes to various topics.

The first thing about investing is that in order to invest, you need to have money. In order to obtain that money, you need to utilize your most important asset to either find a job, or start a business. You then have to make sure that your expenses are less than what you earn. This surplus cash is then invested every month in dividend growth stocks. The formula to achieve wealth is really simple:

Wednesday, April 12, 2017

17 Dividend Aristocrats for Further Research

Last week, I shared the 2017 list of dividend aristocrats. The most common question I received focused on which companies are attractively valued today, according to my criteria.

The criteria I use have been well publicized over the past decade. They are simple, but effective tools to help me identify companies to include for my diversified dividend portfolio. Obviously, since we are looking only at the list of dividend aristocrats, we are starting out with a group of companies which are already pre-screened for quality. After all, only a company with a strong business model can afford to raise dividends like clockwork for 25 years in a row, or longer. I love companies which can afford to raise dividends like clockwork. Warren Buffett also loves companies that raise dividends like clockwork. Some of Berkshire's largest positions such as Coca-Cola, American Express, Geico, IBM, Wells Fargo are examples of high quality dividend growth stars which have compounded nicely for decades.

The first criteria is to focus on companies whose P/E ratio is below 20. I focus on this rule, in order to avoid overpaying for companies. As we all know, earnings per share can be lumpy in the near term, and distorted by one-time events. While they are not perfect, I use forward earnings as a shortcut to quickly estimate earnings power without doing too much digging in the initial stage.

The second criteria is to avoid companies which have a dividend payout ratio above 60%. I want to focus on companies that can easily cover their dividend. I take the concept of margin of safety very seriously.

Monday, April 10, 2017

Four Dividend Growth Stocks Raising The Bar

As part of my monitoring process, I review the list of dividend increases every week. I usually focus my attention to companies that have raised dividends for at least a decade. It is helpful to see companies I own that keep growing their dividends, years after they have been purchased by me. I also find it helpful to review this list for hidden dividend gems. From there, I review the basic fundamental performance over the preceding decade. I like to see dividend growth which is supported by growth in earnings per share.

Over the past week, there were four companies which raised dividends and also had at least a ten year record of annual dividend increases. The companies include:

The TJX Companies, Inc. (TJX) operates as an off-price apparel and home fashions retailer in the United States and internationally. It operates through four segments: Marmaxx, HomeGoods, TJX Canada, and TJX International. The company raised its quarterly dividend by 20.20% to 31.25 cents/share. This marked the 22nd consecutive annual dividend increase for this dividend achiever. The ten year dividend growth rate is 22%/year. Earnings per share increased from 83 cents/share in 2008 to $3.46/share in 2017. The company is expected to earn 3.91/share over the next fiscal year. Currently the stock is selling for 19.50 times forward earnings and yields 1.70%. Check my analysis of TJX Companies for more information about the company.

Thursday, April 6, 2017

Dividend Aristocrats List for 2017

The S&P Dividend Aristocrats index is an elite group of companies, members of the S&P 500, which have managed to increase dividends every year for at least 25 consecutive years.

To qualify for membership in the S&P 500 Dividend Aristocrats, a stock must satisfy the following criteria:

1. Be a member of the S&P 500
2. Have increased dividends every year for at least 25 consecutive years
3. Meet minimum float-adjusted market capitalization and liquidity requirements defined in the index inclusion and index exclusion rules below.

Those companies deliver both strong income growth and strong total returns over time. The consecutive years of dividend increases serves as a filter for quality – only a company with a stable business model can afford to grow the business, increase dividends and intrinsic value over a quarter of a century. The ability of management to maintain stable or increasing dividends indicates the quality of a firm’s earnings and its growth prospects.

The index was started in 1989, and had 26 original components. The number of components in the index has ranged between 26 in 1989 to 64 in 2001. I used this list as a primary tool for identifying companies with strong brands, which have raised distributions through both good and bad economic conditions. Check this post Historical changes of the S&P Dividend Aristocrats Index for reference.

Wednesday, April 5, 2017

How to Find Dividend Stocks With The Market At All-Time Highs

This guest post has been written by Mike McNeil, passionate investor, founder of Dividend Stocks Rock and author of The Dividend Guy Blog.

I started investing when I was 23, back in 2003. Those were the good times and I luckily sold most of my portfolio to buy a house in 2006, 2 years before the market crashed. In a search for a more efficient and less stressful way to invest, I decided to switch my holdings towards a dividend growth investing strategy in 2010. Two years later, 100% of my portfolio was invested in dividend paying stocks. As it is probably the case for most of you, the past 5 years have brought stellar returns.

As many investors start worrying about the stock market trading at a very high PE ratio, I consider reviewing my investing process. Not because I fear a market correction. I don’t fear it, I know it will happen, we just don’t know when it will happen.

But does it matter?
No, it doesn’t.

It doesn’t matter because staying invested in strong dividend paying company is the only way I can achieve my goals. However, investing in dividend stocks doesn’t mean investing in any kind of company making quarterly distribution. Therefore, it is important to tighten your investment process so that aren’t any bad decisions made.

Monday, April 3, 2017

Raytheon (RTN): A High Dividend Growth Stock to Consider on Dips

Raytheon Company (RTN) develops technologically integrated products, services, and solutions worldwide. It operates through five segments: Integrated Defense Systems (IDS); Intelligence, Information and Services (IIS); Missile Systems (MS); Space and Airborne Systems (SAS); and Forcepoint.

The company is a dividend achiever, which has managed to grow dividends for 13 years in a row. Last week, Raytheon raised its quarterly dividend by 8.90% to 79.75 cents/share.

Over the past decade, the company has delivered an annualized total return of 12.50%/year.

This strong performance was driven by the low valuation a decade ago, consistent dividend growth, consistent share buybacks, and strong earnings per share growth.

Thursday, March 30, 2017

What to do about slowing earnings growth?

Successful dividend growth investing relies on finding companies at an attractive price which can grow earnings and dividends over time. A long track record of annual dividend increases is an indication of a strong business model that generates a lot of excess cash, beyond the needs for growing the business. This is the characteristic for most of those dividend champions, which shower their shareholders with more cash every year.

One of the monitoring tools at my disposal involves checking the list of dividend increases, and analyzing companies every 12 – 18 weeks. I have noticed that several of the companies I own have been unable to grow earnings per share over the past few years. Some recent examples include Coca-Cola, Procter & Gamble and Colgate Palmolive.

Some of it could be due to the changing competitive and business nature at an individual company basis. The other reasons for slowing earnings growth is due to external factors such as:
  • The strong US dollar
  • Weaker International Economic Growth
  • Weak energy prices
  • Higher Competitive Pressures

Tuesday, March 28, 2017

14 Dividend Champions for Further Research

The list of dividend champions includes companies which have managed to increase dividends every single year for at least 25 years in a row. This is a very rare occurrence, and is indicative of a company that has a unique business model that withstood the test of time. Only a company with a unique set of competitive advantages can manage to grow the business, maintain its dominant industry position, and shower shareholders with more cash every single year for at least a quarter of a century. As of the time of this writing, there are 109 such businesses in the US. The list of Dividend Champions is maintained by David Fish, who is a true superhero for ordinary dividend investors.

After obtaining the list every month, I try to get it to a more manageable level by weeding out companies whose dividends are at risk.

My screening criteria on the list of dividend champions includes:

1) P/E ratio at or below 20
2) Dividend Payout Ratio below 60%
3) EPS growth over the past decade
4) Dividend Growth exceeding 3%/year

The companies which met this criteria include:

Friday, March 24, 2017

John Bogle Likes Dividends

John Bogle is an investing legend. He is the founder of Vanguard Group, a $4 trillion dollar mutual fund powerhouse. Vanguard is credited for single handedly rolling out the first index mutual fund in 1976. It gave millions of investors around the world the opportunity to invest at a low cost.

I have read several of his books, and really enjoyed his simple messages. I really liked Bogle's message on keeping costs low, keeping turnover low, staying the course and keeping it simple. I liked the advice the minute I read it.

It makes sense that when you do not pay 1%/year to a greedy asset manager, you have more money working for you.

I have been inspired by Bogle to find a way to educate investors and help them get their fair share of returns. For example, building a diversified portfolio of dividend companies will only cost a one time brokerage fee. This means that the investor’s only cost is to buy the diversified list of blue chip stocks for their portfolio. Their job is to then remain patiently invested. That way, they will not have to pay an annual fee for the privilege of someone else picking well-known companies for their portfolios. After all, I do not need to someone else to buy Johnson & Johnson with my money, and charge me an annual fee in the process. This is a well-known business.

I especially liked Bogle’s advice on dividends. In his books, he discusses how share returns are dependent in three factors:

Wednesday, March 22, 2017

Why Holding 100% of Equity Investments in Taxable Accounts is a Mistake

One of the best vehicles for accumulating a nest egg for ordinary investors is the 401 (k). For most employees of large companies, they get the ability to contribute as much as $18,000/year, and get a tax break in the process. The money is then invested in those 401 (k) plans, and grows tax-free for decades, until it has to be withdrawn at retirement. At that point, the withdrawals are taxed as ordinary income for pre-tax plans, and not taxed for after-tax ones. This is the best way to invest for someone who holds a demanding day job, and spends a lot of time on family affairs, and is not able or willing to dedicate even 10 hours/week on their goal of retirement or financial freedom. This is the best way for probably 80% of employees out there. Those include most investors that probably have no clue about investing, economics, business, the difference between preferred stock and livestock, and are not going to spend the time or effort to learn about it. A very close relative of mine invests entirely in index funds in their 401 (k) and Roth IRA every month, and have ok over the past decade.

I have been thinking about it, and think that this is also a very good way to invest for the average self-directed investor. Basically, what I am trying to say is that the ability to defer taxes in a 401 (k) today, enjoy tax-deferred compounding for decades, and earn an employee match on contributions is a more advantageous place for your money than a taxable portfolio. This is because by investing in a taxable portfolio, you are essentially able to place much less money to work for you. In addition, in a taxable account your capital gains and dividends are taxed during your accumulation phase, when your total income is usually at its the highest. Thus, even a portfolio of the best dividend paying stocks has to perform at least a couple percentage points better per year, in order to keep up with the tax-advantaged performance of investments in a 401 (k). In my case, I am getting a 25% effective discount from my purchase price by investing through a tax-deferred account.

Monday, March 20, 2017

Two REITs Delivering High Growing Income for Retirees

As you know, I review the list of dividend increases every single week as part of my monitoring process. I usually focus my attention on the ones that have raised distributions every single year for at least a decade. Over the past week, there were two real estate investment trusts, which raised dividends for their shareholders. These are well known, and widely held Real Estate Investment Trusts (REITs). REITs are a great way to obtain exposure to real estate for DYI investors. The companies include:

Realty Income Corporation (O) is a publicly traded real estate investment trust. It invests in the real estate markets of the United States. The firm makes investments in commercial real estate. Realty Income raised its monthly dividend to 21.10 cents/share. This REIT is a dependable dividend achiever which has rewarded shareholders with a raise for 23 years in a row. Realty Income calls itself “The Monthly Dividend Company”. This is a very well run REIT, whose sole purpose is to shower shareholders with monthly dividend checks. I really like the stability of the long-term triple-net type leases that Realty Income uses to rent out its properties. The long-term track record of dividend increases is very impressive.



Friday, March 17, 2017

Target: An Attractively Valued Dividend Champion on Sale

Target Corporation (NYSE:TGT) operates general merchandise stores in the United States and Canada. Target is a dividend champion, which has paid dividends since 1965 and raised them every year for 49 years in a row.

The most recent dividend increase was in June 2016, when the Board of Directors approved a 7.10% increase in the quarterly dividend to 60 cents/share.

The company's largest competitors include Wal-Mart (NYSE:WMT), Costco (NASDAQ:COST) and Amazon (NASDAQ:AMZN).

Over the past decade this dividend growth stock has delivered an annualized total return of 1.60% to its shareholders. Future returns will be dependent on growth in earnings and dividend yields obtained by shareholders. More recently, the stock price has been hammered by a decline in earnings expectations. This is why I wanted to take another look at Target.

The company has managed to deliver a 3.60% average increase in annual EPS over the past decade. Target is expected to earn $4.01 per share in 2018 and $5.80 per share in 2019. In comparison, the company earned $4.09/share for fiscal year 2017.

Wednesday, March 15, 2017

Canadian Banks for Long Term Dividend Growth Investors

I have owned shares of the largest Canadian Banks as a long-term investment for over four years now. I initiated a position in those five banks in early 2013, and then added some more in late 2013.  I also added a little more a couple of years later. If prices make sense, and I have money to invest, I will likely make another investment. The banks include:

Bank of Montreal (BMO) provides various retail banking, wealth management, and investment banking products and services in North America and internationally. It has operations in the US, in the form of BMO Harris Bank. Bank of Montreal has paid dividends since 1829. Over the past decade, Bank of Montreal has increased quarterly dividends per share by 3.10%/year. And that’s despite the fact that the dividends were as left unchanged in 2009, 2010 and 2011. Earnings per share have increased by 3%/year over the same time period. The bank sells for 14.90 times earnings and yields 3.40%.

Monday, March 13, 2017

Colgate-Palmolive (CL) Dividend Stock Analysis for 2017

Colgate-Palmolive Company, together with its subsidiaries, manufactures and markets consumer products worldwide. The company operates in two segments: Oral, Personal and Home Care; and Pet Nutrition. This dividend king has paid dividends since 1895 and has increased them for 54 years in a row.

The company’s latest dividend increase was announced in March 2017 when the Board of Directors approved a 2.60% increase in the quarterly annual dividend to 40 cents /share. This was the slowest rate of dividend increases since 1980. It indicates that the company's management is cautious about Colgate-Palmolive's near term business outlook.

The company’s peer group includes Procter & Gamble (PG), Clorox (CLX), and Kimberly Clark (KMB).

Over the past decade this dividend growth stock has delivered an annualized total return of 11.50% to its shareholders.

Friday, March 10, 2017

Honeywell Beats GE On The Following Four Points

This guest post has been wrote by Mike McNeil, passionate investor, founder of Dividend Stocks Rock and author of The Dividend Guy Blog.

The current bull market hides many companies flaws. In fact, since 2009, almost all stocks have gone up one way or another. My 11-year-old boy could probably do as well as most investors on the street. This situation makes it even more difficult for investors to differentiate the good picks from the bad seeds. For example, when you look at the Honeywell (HON) and General Electric (GE) stock price graph for the past 5 years, both seem to be a good investment:



Source: YCharts

While Honeywell (HON) clearly outperformed General Electric during this period, most GE shareholders won’t complain about its performance. I know that General Electric is a very popular stock among investors. The company has been around for over 100 years, and has performed quite well for decades. However, I believe the current bull market is hiding many flaw, and Honeywell is a better option for those who look at adding an industrial stock to their portfolio. Ironically, Honeywell  failed to merge with General Electric back in 2001.

As a dividend growth investor, my focus when analyzing companies is payouts and potential increase. In order to do so, I have studied 3 components leading to sustainable payment increase as per the 7 dividend growth investing principles:

Wednesday, March 8, 2017

Five Myths About Index Investing

Index investing has become extremely popular in recent years. A lot of new investors have embraced the strategy in recent years. Unfortunately, many investors are embracing the strategy by believing certain myths that are simply not true. I am going to examine several of their problematic thought points, and discuss why they are myths that could hurt those investors in the future. In reality, there is nothing magical about index investing.

I will refute the five myths below:


1) Indexing is passive investing.

Indexing is not passive, because there is a requirement for the investor to exercise judgment as to which index funds to select.  It then also imposes forced market timing through buying and selling of assets at certain time periods. In addition, the indexes themselves comprise portfolios of individual stocks or bonds which constantly add or remove components for a variety of reasons. One recent example includes this advisor, who decided to add to international stocks in early 2015, rather than stick to their original allocation. This is market timing, dressed up in indexing clothes.

Index investors fail to understand the fact that an index is merely a collection of investments, that is actively selected by a group or a committee, using some sort of a quantitative or arbitrary reason. For example, the index committees on S&P 500 or Dow Jones Industrial Average make active component changes for various reasons. As you can see, an index investor actively chooses their funds, and then the funds themselves actively choose the components using some criteria.

Monday, March 6, 2017

Eight Dividend Growth Stocks Raising The Bar

As part of my monitoring process, I evaluate the list of dividend increases every week. This exercise helps me observe the rate of dividend growth for companies I own. It also helps me to familiarize myself with other dividend growth companies. I also believe that running through the list, and narrowing it down to a more manageable level using my screening criteria is helpful to readers for educational purposes. I find it helpful to run through the exercise of narrowing the list of companies that raised dividends in a given week, by focusing on those that have raised dividends for at least ten years in a row. I also find it helpful to then evaluate each company quickly, using my well-publicized entry criteria, and then zooming in further on the fundamental performance and valuation criteria in order to determine whether a stock is worth a further look today. This is the type of decision making that goes in my head while I review different companies.

Over the past week, there were several dividend companies with a track record that raised distributions. The companies include:

Thursday, March 2, 2017

How Warren Buffett earns $1,140 in dividend income per minute

On April 3rd, 2017, Buffett’s Berkshire Hathaway (BRK.B) will receive $148 million dollars in dividend income from their 400 million shares of Coca-Cola (KO). This comes out to roughly $1.644 million in dividend income per day, $68,500 dollars in dividend income per hour, $1142 dollars in dividend income for Berkshire Hathaway every minute, or almost $19.03 every single second. Those shares have a cost basis of $1.29 billion dollars, and were acquired between 1988 – 1994. This comes out to $3.25/share. The annual dividend payment produces an yield on cost of over 45.60%. This doesn’t assume dividend reinvestment and is 4 – 5 times higher than what investors in 30 year US Treasuries would be earning today. This is why I believe that Warren Buffett is a closet dividend investor.

This is a testament to the power of long-term dividend investing, where time in market is the investors best ally, not timing the market. If you can select a business which is run by able and honest management, which has solid competitive advantages, and which is available at a good price today, one needs to only sit and let the power of compounding do the heavy lifting for them. As Buffett likes to say, time is a great ally for the good business. In the case of Coca-Cola, the past 29 years have been a great time to buy and hold the stock. The company has been able to tap emerging markets in Eastern Europe, Asia, Africa and Latin America like never before. As a result, it has been able to receive a higher share of the worldwide drinks market, which has also been expanding as well. If you add in strategic acquisitions, new product development, cost containment initiatives and streamlining of operations, you have a very powerful force for delivering solid shareholder returns. With dividend investing your are rewarded for smart decisions you have made years before.

Monday, February 27, 2017

14 Dividend Stocks Rewarding Shareholders With a Raise

Every week, I go through the list of dividend increases as part of my monitoring process. I usually focus on those companies that have raised dividends for at least a decade. I then focus on things like growth in earnings per share, in order to gauge the possibility of further dividend growth in the future. I also focus on valuation – even the best company in the world is not worth overpaying for. The discussion behind each company outlines my basic review process for proceeding with promising ideas or discarding them. I post it for educational purposes to my readers.
The companies that increased their dividends include:

Genuine Parts Company (GPC) distributes automotive replacement parts, industrial replacement parts, office products, and electrical/electronic materials in the United States, Canada, Mexico, Australia, New Zealand, Puerto Rico, the Dominican Republic, and the Caribbean region. The company raised its quarterly dividend by 2.70% to 67.50 cents/share. This marked the 61st consecutive annual dividend increase for this dividend king. Over the past decade, the company has managed to increase annual dividends at a rate of 6.90%/year. The company managed to grow earnings from $2.98/share in 2007 to $4.59/share in 2016. The company is expected to earn $4.77share in 2017. The stock is overvalued at 21 times forward earnings and yields 2.80%. It would be worth a second look on dips below $92/share. Check my analysis of Genuine Parts Company for more information.

Thursday, February 23, 2017

Dividend Achievers Offer Income Growth and Capital Appreciation

The NASDAQ US Broad Dividend Achievers Select Index is comprised of a select group of securities with at least ten consecutive years of increasing annual regular dividend payments. There are 272 companies in this index today. You can find all those holdings as of February 2017 at the following location.

Peter Lynch, the legendary manager of the Fidelity Magellan Fund has mentioned the following about dividend achievers:

"The Dividend Achievers Handbook is one of my favorite bedside thrillers. Here's a simple way to succeed in Wall Street: Buy the stocks on Mergent's list and stick with them as long as they stay on the list"

The stocks he mentions in his book, "One Up on Wall Street", is Automatic Data Processing (ADP), which incidentally has kept raising distributions 25 years after his book was published.

In fact some of the best performing stocks on Wall Street over the past decade have been the dividend achievers. Dividend achievers are companies which have increased their distributions for at least ten consecutive years. They provide a superior alternative than investing in fixed income because they provide investors with the opportunity of a rising dividend payment and they could also receiving higher total returns over time as well. The premise is that higher dividends are a direct result of rising earnings, which translates into higher stock prices. When managements boost distributions, this shows what their outlook for the business and the economy really is.

Wednesday, February 22, 2017

The Coffee Can Portfolio

I have invested in dividend growth stocks for over a decade now, and shared experiences and knowledge with you on the Dividend Growth Investor site along the way.

One of the lessons I have learned is that once I buy a solid company, I should hold on tightly and not sell no matter what "noise" I see or hear. When I evaluated my sales, I noticed that I would have been better off simply doing nothing, rather than sell to pay capital gains taxes, and to buy another company that did not do as well as the original one.

My evaluation of the Corporate Leaders Trust in 2015 confirmed the observation that time in the market trumps timing the market. It simply pays to be patient as an investor.

I recently learned of an interesting concept called the Coffee Can Portfolio on the Sure Dividend website:

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