Friday, December 29, 2017

Best Investing Articles For 2017

I wanted to thank you all for reading the Dividend Growth Investor website. This site is a result of my efforts to improve my investing over time, write down and organize my thoughts, and make myself do the work to form an opinion on companies to invest in.

I find it helpful to write down my position on a given topic, and then revisit it a few years later, in order to learn from it. I would encourage all of you to keep an investment journal in private or in public, in order to write down reasons behind your strategy and the investment selections you are making. After a few years, you should be able to learn from your mistakes, and hopefully find ways to improve your results.

The way to improve is by gathering data, and analyzing the results against your expectations. I followed this approach to find out the most read articles on the Dividend Growth Investor website.

I have compiled a list of ten articles that readers found helpful in 2017, as evidenced by number of visits. The articles include:

Wednesday, December 27, 2017

My Bet With Warren Buffett

A decade ago, Warren Buffett made a famous bet with hedge fund manager Ted Seides. Buffett believed that hedge funds cannot beat the S&P 500 due to their high fees. Both parties put enough money in treasury bonds at the end of 2007, which was supposed to be worth $1 million by the end of 2017.

Buffett’s pick of S&P 500 did better than the portfolio of hedge funds selected by Ted Seides. This bet has been widely publicized by many investors. Those who believe in indexing use it as a reason to reinforce their beliefs. After all, the S&P 500 did much better than the hedge funds.

Unfortunately, the reason why the hedge fund bet did worse than S&P 500 over the past decade comes down to the fact that it had high costs and because it was globally diversified.

It makes sense that a hedge fund that charges high fees has a high hurdle rate relatively to a low cost portfolio of stocks. For example, hedge funds charge investors a 2% annual fee. In addition, they also charge investors a performance fee based on assets under management. The fee is for roughly for 20% of gains on investment. This is a rather steep set of fees, given the fact that the investors are the ones coming up with the capital at risk in the first place.

The other fact is that those hedge funds focused on US Equities, Foreign Equities and other asset classes. This is why the comparison to S&P 500 is not really an apples to apples comparison. However, even if we compare the performance to an equally weighted portfolio of US stocks, Foreign Stocks and Bonds, the hedge funds did not deliver either due to fees. However, the margin of error was lower.

I believe that the reason why the bet didn’t do as well was due to high fees, and the fact that we are not comparing apples to apples. As a DIY investor, I do not understand the need to have someone else look after your money. Wall Street makes its money by making investing complicated, so that they can charge you fees forever.

The truth is, building your own portfolio isn't really that difficult. I will illustrate this concept with this article.

Thursday, December 21, 2017

Attractively Valued Dividend Kings

I shared with you the 2018 Dividend Kings List the other day. To be considered a dividend king, a company must have rewarded shareholders with an annual dividend increase for at least 50 years in a row. This is such a difficult task, that only 26 companies in the US have managed to achieve this regal status in the dividend investing world.

I received a few questions from readers, asking me which one I thought were worthy of further research. In order to answer this question, I went through my basic screen:

1) P/E ratio below 20
2) Dividend Payout Ratio below 60%
3) Having more than a nominal dividend growth
4) Rising earnings per share over the past decade
5) Since those companies have each raised dividends for 50 years in a row, they already meet my ten year minimum requirement for annual dividend increases

After applying those criterion over the list of dividend kings for 2018, I came up with the following companies for further research:

Wednesday, December 20, 2017

2018 Dividend Kings List

A dividend king is a company, which has managed to grow annual dividends for at least 50 years in a row. There are only 26 such companies in the US, and perhaps a couple more in the rest of the world. It is not a small achievement to have been able to reward long-term shareholders with a dividend raise for over half a century.

Over the past 50 years, some calamities experienced include:

- The Vietnam War
- The oil crisis in the 1970s
- Stagflationary 1970s
- Double digit interest rates in the 1980s
- Fall of the Soviet Union in 1991
- 9/11 in 2001
- The Dot-com bubble bursting in 2000
- The housing bubble bursting in 2007 - 2008
- ZIRP and NIRP since 2009
- Seven Recessions since 1967…

Throughout this calamity each of those businesses managed to grow earnings, and raise the dividend to their long-term shareholders. If you are looking for a long-term shareholder base, the best way to build it is by paying those owners more every single year. This is a simple, but novel idea for corporations to embrace.

Monday, December 18, 2017

Nine Dividend Stocks Rewarding Shareholders With A Raise

As part of my monitoring process, I review the list of dividend increases every week. I try to narrow down this list to a more manageable level, by focusing only on companies which have managed to boost their distributions for at least a decade (with one exception listed below). I also tried to provide a brief summary on each company, citing reasons why I like or dislike at the moment. Regular readers will not be surprised that just because a company has managed to raise dividends for a decade, that doesn’t mean that it is an automatic buy. I try to review the trends in earnings, as well as valuations and dividend sustainability, in order to come up with a quick decision whether a company is worth investigating further for a potential addition to the portfolio. In general, I am looking for a company that grows earnings, grows dividends, has an adequate margin of safety in dividends, and has an attractive valuation.

The companies that boosted distributions to shareholders over the past week that met our criteria above include:

AT&T Inc. (T), which provides telecommunications and digital entertainment services. The company operates through four segments: Business Solutions, Entertainment Group, Consumer Mobility, and International. The company raised its quarterly dividend by 2% to 50 cents/share. This marked the 34th consecutive annual dividend increase for this dividend champion. The company has tended to boost its quarterly dividend rate by a penny over the past five years. This is due to the high dividend payout ratio, and the very slow growth in earnings per share. Due to the high yield however, shareholders are happy with any raise they can get. The company managed to boost earnings per share from $1.94 in 2007 to $2.10 in 2016. The company is expected to earn $2.92/share in 2017. AT&T is a popular holding for many retirees looking for current income with its 5.20% dividend yield, which is adequately supported by its 69% forward dividend payout ratio. The intense level of competition is the only thing that has stopped me from owning AT&T. The stock is cheap at 13 times forward earnings and that yield of 5.20%. If the company manages to keep the dividend, it can generate very good returns to shareholders over the next decade. Unfortunately, when companies take on too many acquisitions with debt, they have prioritized debt repayment over dividend growth. Let’s hope that this is not the case for AT&T.

Thursday, December 14, 2017

Dividends Are The Investors' Friend

I recently learned that John Bogle had mentioned my humble blog in his latest book "The Little Book of Common Sense Investing" from a book review by my friend Mark Seed.

Some excerpts from this article on dividends was mentioned at the end of a chapter on dividend investing titled " Dividends Are The Investor's (Best?) Friend". The chapter discusses the important contribution of dividends towards total returns for the US stock market since 1926. The chapter also discusses the importance of reinvesting those dividends over time. I like how he focused on the stability of dividend income over time, placing a chart of S&P 500 dividend payments since 1926. The only major declines in dividends occurred around the Great Depression in 1929 - 1932, also in 1938, and during the Great Financial Crisis in 2008. The rest of the time we have a smooth uptrend in dividends as whole, as US corporations tend to gradually increase those dividend payouts every year since 1926. The chapter also discusses the importance of keeping costs low, in order to keep the majority of your dividend income. The book will also resonate with dividend investors, since it preaches investors to focus on their dividend checks, and ignore focusing on the fluctuating values of their investments

The book is worth a read by investors from all levels of experience.

I am beyond honored that John Bogle, who is a giant in the field of investing is even aware of my site. Actually, saying I am honored is an understatement.

Monday, December 11, 2017

Nine Dividend Increases For Further Review

As part of our monitoring process, we review the list of dividend increases every week. In this monitoring process I review the rate of dividend increases for companies I own. This is one of the many ways to evaluate if my thesis is still working. I also use this tool as one of the ways to review companies I may be interested in buying at some point in time ( provided the price was good).

I also post these updates on this site to share with you how I quickly evaluate companies and either put them on the list for further research or immediately discard them for the time being. Since our time is limited, we want to focus it on the best opportunities, available at the best prices today, and place the rest of opportunities on hold.

For this weekly review, I focused on the dividend companies whose boards approved a dividend increase over the past week. All of these companies have managed to reward shareholders with an annual raise for at least a decade.

The companies include:

Thursday, December 7, 2017

Don't Be An Arrogant Dividend Growth Investor

There are many risks to investing. One of the major risks that could ruin a portfolio’s chances of generating adequate dividends are purely psychological. Investors who act/are overconfident in their abilities, tend to rush through, and make silly mistakes that could be disastrous. Being cocky might work in certain areas of life, but not in investing on the financial markets.

One of the risks that overconfident investors take is when they create a concentrated dividend portfolio. These concentrated portfolios typically include no more than ten to fifteen individual securities. These cocky investors claim that they create these concentrated portfolios because they are only investing in their best ideas. According to these investors it is much easier to focus all your energy on ten individual stocks and research all there is to them, than to focus on thirty or more companies. The reason why I view these investors as overconfident is because they are forgetting that sometimes, no matter how great you are at analyzing investments, some unknown factor might cause you to still lose money. If just one out of ten companies eliminated dividends and fell substantially in the process, it could mean trouble. Contrast this to a portfolio of 30 companies, which is properly diversified and allocated to different sectors. An unexpected blow to one company would not jeopardize the dividend income stream.

Monday, December 4, 2017

Two dividend growth stocks raising dividends like clockwork

The appealing feature of the best dividend growth stocks is their ability to boost annual dividends like clockwork. This feature is even more appealing when strong dividend increases are supported by underlying growth in earnings.

Two prominent companies raised their dividends to shareholders in the past week. Both companies are high quality ones with wide moats. The companies include:

The Walt Disney Company (DIS) is an entertainment company. The Company operates in four business segments: Media Networks, Parks and Resorts, Studio Entertainment, and Consumer Products & Interactive Media.

Disney’s incomparable collection of iconic brands and franchises continues to deliver strong returns to shareholders, as the company raised its semi-annual dividend by 7.70% to 84 cents/share. This marked the 8th consecutive annual dividend increase for Disney. The new yield is 1.60%. Over the past decade, the company raised its dividend at an annual rate of 18.80%/year.

The strong dividend growth was supported by the increase in earnings from $2.28/share in 2008 to $5.69/share in 2017. Analysts expect the company to earn $6.23/share in 2018.

The stock is attractively valued at 16.90 times forward earnings. Check my analysis of Walt Disney Company for more information about the company.

McCormick & Company (MKC) is engaged in manufacturing, marketing and distributing spices, seasoning mixes, condiments and other flavorful products to the food industry, including retailers, food manufacturers and foodservice businesses. The Company's segments include consumer and industrial.

The company reiterated its commitment to dividend growth, by raising its quarterly dividend by 10.60% to 52 cents/share. This marked the 32nd consecutive annual dividend increase for McCormick. The new yield is 2%. Over the past decade, this dividend champion managed to grow its dividend at an annual rate of 9.10%/year.

The strong dividend growth was supported by the increase in earnings from $1.73/share in 2007 to $3.69/share in 2016. Analysts expect the company to earn $4.22/share in 2017.

The stock is overvalued at 24.40 times forward earnings. I would consider adding to my position on dips below $85/share.

Relevant Articles:

The predictive value of rising dividends
- How to value dividend stocks
How I Manage to Monitor So Many Companies
The predictive value of rising dividends

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