Showing posts with label dividend increase. Show all posts
Showing posts with label dividend increase. Show all posts

Monday, April 27, 2015

Four Quality Dividend Machines Hiking Distributions

Over the past week, there were four quality dividend paying companies, which announced that they are raising dividends for their shareholders. As a long-term shareholder, I like it when I am essentially paid to hold companies. I like it even better when that company I own regularly increases the amount of cash they send my way. I also view the near term rate of change in dividend hikes as a management indication about their expectations for earnings growth. One of the easiest ways for a time-starved investor like myself to monitor those dividend hikes on companies I own is my broker Interactive Brokers. I receive notifications about dividend payments that were just approved, and quarterly results that are about to be released.

In the past week, there were four companies that raised dividends, which also attracted my attention. I have shares in the first three. The last one is a company I have been monitoring.

Unilever (UL) increased its quarterly dividend by 6% to 30.20 eurocents/share. This marked the 20th consecutive annual dividend increase for this international dividend achiever. The ten year dividend growth rate is 6.20% /year. The stock slightly overvalued at 21.80 times forward earnings and yields 2.90%. Check my analysis of Unilever.

Ameriprise Financial, Inc. (AMP), through its subsidiaries, provides various financial products and services to individual and institutional clients in the United States and internationally. The company raised its quarterly dividends by 15.50% to 67 cents/share. This marked the tenth consecutive dividend increase for this dividend achiever. The five year annual dividend growth is 27.20%/year, which is normal for companies in the initial phases of dividend growth. The shares are selling for 13.10 times forward earnings and yield 2.10%. Check my analysis of Ameriprise Financial. I decided to make a small addition to my position last week.

Johnson & Johnson (JNJ), together with its subsidiaries, researches and develops, manufactures, and sells various products in the health care field worldwide. It operates in three segments: Consumer, Pharmaceutical, and Medical Devices. The company raised its quarterly dividend by 7.10% to 75 cents/share. This marked the 53rd consecutive annual dividend increase for this dividend king. The ten year dividend growth is 9.70%/year. The shares are selling for 16.50 times forward earnings and yield 3%. Unfortunately, Johnson & Johnson is one of my largest positions, which is why I may refrain from putting more capital there. Check my analysis of Johnson & Johnson.

Costco Wholesale Corporation (COST), together with its subsidiaries, operates membership warehouses. The company raised its quarterly dividend by 12.70% to 40 cents/share. This marked the 12th consecutive annual dividend increase for this dividend achiever. The ten year dividend growth rate for Costco is 16.40%/year. The stock is over valued at 28.30 times forward earnings and yield 1.10%. I have been following Costco for several years and really like the business, but I never really saw a good valuation to initiate a position in it.

Full Disclosure: Long AMP, JNJ, UL

Relevant Articles:

How to read my weekly dividend increase reports
International Dividend Stocks – Pros and Cons
How to Manage Your Dividend Portfolio
How to stay motivated on your road to financial independence
Margin of Safety in Dividends

Monday, April 20, 2015

Five Dividend Paying Companies Rewarding Shareholders With Higher Dividends

One of the ways to monitor my portfolio and the list of dividend growth companies is by checking for dividend increases each week. I achieve that in my process of reviewing press releases. In addition, my broker is really good at notifying me about upcoming earnings releases or recent dividend announcements for the companies I own.

There were a few companies I find interesting, which I have highlighted below:

Kinder Morgan, Inc. (KMI) operates as an energy infrastructure and energy company in North America. The company operates through Natural Gas Pipelines, CO2, Terminals, Products Pipelines, Kinder Morgan Canada, and Other segments. The company raised its quarterly dividend to 48 cents/share, which represented a 14.30% increase over the distribution paid at the same time last year. The yield based on the new distribution is a very respectable 4.40%. Kinder Morgan has raised dividends since going public in 2011. However, the Kinder Morgan Pipeline that it absorbed in 2014 and to which KMI was a general partner to, had managed to increase distributions for 18 years in a row.

Kinder Morgan is my largest position at close to 6%. When the merger of the partnerships into the General Partner was announced, there were some very optimistic projections shared with shareholders. For example, dividends per share were expected to reach $2 in 2015, followed by annual growth of 10%/year. I believe that with the slowdown in oil prices, there could be a corresponding decline in production of oil and possibly natural gas. This could impact volumes on pipelines, and could reduce demand for building new pipeline projects out there. This slowdown will likely be a good opportunity for someone like Kinder Morgan to further strengthen its grip on fee generating assets in the US, as it could use its stock as currency to acquire companies or assets directly at bargain prices. In addition, Kinder Morgan does not have to spend all of its cashflows on dividends, and could accumulate cash on balance sheet. This could be a very good competitive advantage relative to any other major US pipeline, which constantly sell shares to fund major new projects.

That being said, even if dividend growth and cash flows only grow by 5%/year for the next decade, current shareholders will do pretty well. That’s because a stock that has a 4.40% - 4.50% yield today, which also grows at 5%/year will likely be worth at least 50% - 60% more within a decade. Add in reinvested distributions, and it is quite possible that money and income will more than double after a decade under this pessimistic forecast.

CSX Corporation (CSX), together with its subsidiaries, provides rail-based transportation services in the United States and Canada. It offers traditional rail services, and transports intermodal containers and trailers. The company raised its quarterly distributions by 12.50% to 18 cents/share. This marked the 11th consecutive annual dividend increase for this dividend achiever. The ten year dividend growth rate as 25.20%/year, while the 5 year dividend growth rate is 16.50%/year. The stock sells for 16 times forward earnings and yields 2.20%. I would add the stock to my list for further research. I have meant to put more railroads on my list, but valuations have not been very attractive. Hopefully sentiment turns gloomy in the short-run, so that more attractive opportunities are present for those like me in the accumulation phase.

The Procter & Gamble Company (PG), together with its subsidiaries, manufactures and sells branded consumer packaged goods. The company operates through five segments: Beauty; Grooming; Health Care; Fabric Care and Home Care; and Baby, Feminine and Family Care. The company raised dividends by 3% to 66.29 cents/share. This marked the 59th consecutive annual dividend increase for this dividend king. This is also the slowest rate of dividend increases by P&G since the 3.70% increase in dividends in 1988. Back in 1986, the company also raised quarterly dividends by a paltry 3.80%. What makes those two dates stick out is the fact that the company had maintained dividends steady for 7 quarters in a row prior to the increases. Therefore the annual increases were likely smaller than 3%. However, the company was committed to rewarding its investors with an annual dividend raise and maintain its status of a dividend growth stock. Its business turned around and it managed to continue its streak of consistent dividend growth. If someone got scared from the slowdown in dividend growth and sold in the 1980s, they would have missed out since dividends rose over 16 times over the next 30 years. The shares are overvalued at 20.70 times forward earnings and yield 3.20%. While I would not add to P&G at present levels, I think the company is still a good hold for long-term investors. Check my last analysis of P&G. I will be posting an updated analysis shortly.

Discover Financial Services (DFS) operates as a direct banking and payment services company in the United States. It operates in two segments, Direct Banking and Payment Services. The company raised its quarterly dividends by 16.70% to 28 cents/share. This marked the 5th consecutive dividend increase for the company. The shares are attractively valued at times earnings and yield 1.90%. I like the valuation on this company relative to its rivals, and would add it to my list for further research.

PPG Industries, Inc. (PPG) manufactures and distributes coatings, specialty materials, and glass products. The company raised its quarterly dividends by 7.50% to 72 cents/share. This marked the 44th consecutive annual dividend increase for this dividend champion. The ten year dividend growth is 3.90%/year. The shares are selling for 19.80 times forward earnings and yield 1.30%. I have taken a pass on PPG Industries before, mostly because I did not feel comfortable with the wild fluctuations in earnings for this cyclical company. I would still put it on my list for further analysis, in order to understand how it managed to grow earnings so quickly in the past three years. Sometimes, it is helpful to look back  at ideas I have passed on and determine whether something could be learned from this mistake of omission.

Full Disclosure: Long KMI, PG

Relevant Articles:

How to create a bulletproof dividend portfolio
Five Metrics of Successful Dividend Companies
How long does it take to manage a dividend portfolio?
Return on Investment with Dividend Stocks
The work required to have an opinion

Monday, April 13, 2015

Six Companies Showering Shareholders with Higher Dividends

Checking for dividend increases is one of the tools I use to monitor my portfolio holdings and companies I am interested in. I have found that the rate of growth in company dividends shows the near term management sentiment in profitability for the enterprise. If management expects business as usual, they are much more likely to stay the course and maintain the rate of dividend increases from prior years. However, if tougher business environment is expected on the horizon, wise management will curtail dividend growth or might halt further increases in distributions.

In the past week, there were several companies that announced increases in dividends, which I am interested in. In addition, a company I have been monitoring initiated a dividend for the first time.

QUALCOMM Incorporated (QCOM) designs, develops, manufactures, and markets digital communications products and services in China, South Korea, Taiwan, and the United States. The company operates through three segments: Qualcomm CDMA Technologies (QCT), Qualcomm Technology Licensing (QTL), and Qualcomm Strategic Initiatives (QSI). The company raised its quarterly dividend by 14.30% to 48 cents/share. This marked the 13th consecutive annual dividend increase for this dividend achiever. The ten year dividend growth rate is 21.70%/year. This is typical for companies in the initial stage of dividend growth. Currently, Qualcomm is selling for 13.80 times forward earnings and yields 2.80%. While I have been familiar with the company since the days of the dot-com boom, I would add it on my list for further more detailed research.

Enterprise Products Partners L.P. (EPD) provides midstream energy services to producers and consumers of natural gas, natural gas liquids (NGLs), crude oil, petrochemicals, and refined products in the United States and internationally. This master limited partnership increased its quarterly distribution to 37.50 cents/unit. This represents an increase of 5.60% over the distribution paid at the same time last year. This master limited partnership has managed to increase distributions to unitholders for 16 years in a row. In the past decade, distributions have increased at a rate of 6.60%/year. I first initiated a position in 2010, but sold in 2013 to pursue Kinder Morgan and ONEOK Partners ( and later ONEOK). I would be interested in initiating a position back in Enterprise Products Partners at current yields above 5%. The current yield is close to 4.50% now. I should probably post an updated analysis of the partnership as well.

Plains All American Pipeline, L.P. (PAA), through with its subsidiaries, engages in the transportation, storage, terminalling, and marketing of crude oil, natural gas liquids (NGL), natural gas, and refined products in the United States and Canada. The company operates in three segments: Transportation, Facilities, and Supply and Logistics. Plains All American Pipeline raised its quarterly distributions to 68.50 cents/unit, which represents an increase of 8.70% over the distribution paid at the same time last year. This master limited partnership has raised distributions to unitholders for 14 years in a row. In the past decade, distributions have increased at a rate of 8.30%/year. Currently, this MLP yields 5.50%. I will add it on my list for further research. As a side note, the General Partner Plains GP Holdings, L.P. (PAGP) raised distributions as well. However, unlike other General Partners this one has a lower yield at 3.20%

Genesis Energy, L.P. (GEL) operates in the midstream segment of the oil and gas industry in the Gulf Coast region of the United States. This MLP raised its quarterly distribution to cents/unit, which represents an increase of 10.90% over the distribution paid at the same time last year. This master limited partnership has raised distributions to unitholders for 12 years in a row. In the past decade, distributions have increased at a rate of 14%/year. Currently, this MLP yields 5.50%. I will add it on my list for further research.

Airgas, Inc. (ARG) supplies industrial, medical and specialty gases, and hard goods. The company operates through two segments, Distribution and All Other Operations. Airgas increased its quarterly dividend by % to cents/share. This marked the 13th consecutive annual dividend increase for this dividend achiever. The ten year dividend growth rate is 28.40%/year, which again is typical for companies in the initial phase of dividend growth. The shares are currently overvalued at 22 times forward earnings and yield 2.25%. I would add the company to my list for further research. On a side note, I own shares of competitor Air Products & Chemicals (APD) so I am familiar with the industry. However, the industry as a whole does not offer an attractive entry price today.

Constellation Brands, Inc. (STZ), together with its subsidiaries, produces, imports, and markets beer, wine, and spirits in the United States, Canada, Mexico, New Zealand, and Italy. The company initiated its first dividend payment in 45 years of 31 cents/share for it’s a shares (STZ) and 28 cents/share for its B shares (STZB). The company is overvalued at 25.10 times forward earnings and yields 1%. The forward earnings of $4.85 for 2015 are a nice increase from the $1.19/share earned in 2005. I would add the company on my list for further research. However, I prefer Diageo (DEO), since it offers a better value today.

In general, I am looking for quality companies that are attractively valued, which have a track record of raising dividends, and which could grow earnings in the future. It is helpful to own a company with a decent initial yield, which has sustainable dividend and can grow that dividend in lockstep with growth in earnings.

Full Disclosure: Long KMI, APD, OKE, DEO

Relevant Articles:

Buying Quality Companies at a Reasonable Price is Very Important
How to read my weekly dividend increase reports
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Why Dividend Growth Stocks Rock?
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Monday, March 16, 2015

General Mills Delivers another Year of Consistent Dividend Growth

One of the ways I monitor dividend portfolio holdings includes checking on press releases about earnings, dividend increases and major changes. Once I have made an investment in a company, I like to check whether fundamentals are still solid, and whether earnings and dividends keep increasing.

One of the companies I own, General Mills (GIS), increased quarterly dividends over the past week. The company General Mills, Inc. manufactures and markets branded consumer foods in the United States and internationally. The company raised its quarterly dividends by 7.30% to 44 cents/share. This marked the 12th consecutive annual dividend increase for this dividend achiever. Over the past decade, the company has managed to increase dividends by 10.70%/year. Please check my most recent analysis of the company for more details.

Between 2004 and 2014, the company has managed to increase earnings per share from $1.38 to $2.83. This comes out to an average annual increase of 7.40%/year. Earnings are expected to be at $2.82 in 2015 and $3.01 in 2016. The company is experiencing near term headwinds in profitability, as consumers are getting more health conscious. Without further gains in earnings per share, future dividend growth will be limited and will be running on fumes (increases in the dividend payout ratio).

That being said, I still believe the company has what it takes to kick start growing earnings. Some of the things being done include cost containment initiatives, new products being introduced to target health conscious consumers and acquisitions of other brands or companies. The recent acquisition of Annie’s, Annie’s, Inc. is a natural and organic food company, could expand the company’s presence in the fast growing natural and organic food category. Savings from the company’s ongoing Holistic Margin Management (HMM) program are targeted to exceed $400 million in fiscal 2015, and several incremental cost-reduction actions launched in 2015 are expected to contribute to margin improvement in the second half. General Mills has a few initiatives to streamline its North American supply chain network and reduce overhead costs are on track to generate $40 million in cost savings in the second half of fiscal 2015. Cumulative annual savings from these efforts are expected to total between $260 and $280 million in fiscal 2016, and exceed $350 million in fiscal 2017.The company has also used share repurchases in order to reduce the number of shares outstanding from 818 million in 2005 to 632 million in 2014.

The international segment could also provide some long-term growth in earnings. It currently accounts to close to one third of sales. The thing about international sales is that their growth will be lumpy, since it will be heavily affected by currency fluctuations in the short-run.

Currently, the shares are meeting my entry criteria as they are selling at 18.70 times earnings, and yield 3.34%. The dividend payout is at 62%, which is slightly higher than what I want it to be. I may add to my position in the stock in January 2016, if shares are selling below $52.50/share. I have sold some puts on the stock. If exercised, my effective cost will be close to $48/share. If exercised, I would have reached a position size in my portfolio that would prevent me from adding more funds to this company. Given that information and given the slowdown in earnings growth, I view the company as a hold.

Full Disclosure: Long GIS

Relevant Articles:

How to read my weekly dividend increase reports
General Mills (GIS) Dividend Stock Analysis
Rising Earnings – The Source of Future Dividend Growth
- I purchased this dividend machine last week
Dividends versus Share Buybacks/Stock repurchases

Monday, March 2, 2015

Dividend Growth Stocks Rewarding Shareholders with a Raise

One of the ways for me to monitor my portfolio as well as my watchlist is by checking the list of dividend increases every week. This also helps me identify emerging dividend growth stocks that nobody is focusing on yet. Dividend increases show confidence of the corporate boards about their company near term earnings. Because US companies do not like to lower dividends, they tend to raise distributions only when they see high likelihood of gains in near term earnings. I enjoy reading press releases that describe the dividend increases as well, since they provide a good insight about the sentiment of those boards as well.

From the list of dividend increases, I isolated those where the company had raised dividends for at least 5 years. A few companies had disappointing increases, but I included them in case anyone else is owning them.

Digital Realty Trust, Inc. (DLR), a real estate investment trust (REIT), through its controlling interest in Digital Realty Trust, L.P., engages in the ownership, acquisition, development, redevelopment, and management of technology-related real estate. The company boosted its quarterly dividend by 2.40% to 85 cents/share. This was a rather disappointing rate of growth for this REIT. It nevertheless marked the 11th consecutive year of dividend increases for this dividend achiever. The ten year dividend growth was 14.40%/year, which is much higher than the current increase. Currently, the stock sells for 13.20 times FFO and yields 5.10%. Given the disappointing raise for this year, I am going to view this REIT as a hold at best. Check my previous analysis of Digital Realty for more details.

The Chubb Corporation (CB), through its subsidiaries, provides property and casualty insurance to businesses and individuals. This dividend champion has raised distributions for 33 years in a row. The company has managed to boost annual dividends by 9.80%/year over the past decade. Currently, the stock sells for 13.10 times forward earnings and yields 2.30%. I added some shares to my small position in Chubb. I would be more excited about this company if it sells for less than $91/share. Check my analysis of Chubb for more details.

Ross Stores, Inc. (ROST), together with its subsidiaries, operates off-price retail apparel and home fashion stores under the Ross Dress for Less and dds DISCOUNTS brand names in the United States.  The company boosted its quarterly dividend by 17.50% to 23.50 cents/share. This marked the 21st consecutive year of dividend increases for this dividend achiever. Over the past decade, the company has managed to raise dividends by 25%/year. Currently, the stock sells for 21.90 times forward earnings and yields 0.90%. I will need to add the company on my list for further research.

Comcast Corporation (CMCSA) operates as a media and technology company worldwide. It operates through Cable Communications, Cable Networks, Broadcast Television, Filmed Entertainment, and Theme Parks segments. The company boosted its quarterly dividend by 11.10% to 0.25 cents/share. This marked the 8th consecutive year of dividend increases for Comcast. The 5 year dividend growth is 26.80%/year. Currently, the stock sells for 18.30 times forward earnings and yields 1.70%. I need to add this company to my list for further research.

Essex Property Trust, Inc. (ESS) operates as a self-administered and self-managed real estate investment trust in the United States. The company boosted its quarterly dividend by 10.80% to $1.44/share. This dividend achiever has increased dividends for 21 years in a row. The company has managed to boost annual dividends by 4.80%/year over the past decade. Currently, the stock sells for 28 times FFO and yields 2.60%. This is a very low yield for a REIT and a high FFO ratio, and shows that this REIT is a little pricey today. Either way, I will add it to my list for further research, since I like learning about business, and I like to be prepared for different opportunities. But I would not touch that unless I can see it under $180/share, which is equivalent to the low range estimate of 20 times forward FFO for 2015.

Southwest Gas Corporation (SWX) is engaged in the purchase, distribution, and transportation of natural gas in Arizona, Nevada, and California. The company boosted its quarterly dividend by 11% to 40.5 cents/share. The company has raised dividends for 9 years in a row. Southwest Gas Corporation has managed to boost annual dividends by 5.70%/year over the past decade. Currently, the stock sells for 17.70 times forward earnings and yields 2.80%. Given the slowdown in dividend growth as of the past few years, I am not going to look further into this company.

Westar Energy, Inc. (WR), an electric utility, generates, transmits, and distributes electricity in Kansas. The company boosted its quarterly dividend by 2.90% to 36 cents/share. This marked the 11th consecutive year of dividend increases for this dividend achiever. Over the past decade, the company has managed to increase dividends by 6.20%/year. Currently, the stock sells for 16.20 times forward earnings and yields 3.70%. Given the slowdown in dividend growth as of the past few years, I am not going to look further into this company.

Waste Management, Inc. (WM), through its subsidiaries, provides various waste management environmental services to residential, commercial, industrial, and municipal customers in North America. I The company boosted its quarterly dividend by 2.70% to 38.50 cents/share. This marked the 12th consecutive year of dividend increases for this dividend achiever . Over the past decade, the company has managed to increase dividends by 7.20%/year. The rate of dividend growth has slowed down over the past five years however. Currently, the stock sells for 21.80 times forward earnings and yields 2.80%. Given the slow growth in distributions, the high P/E ratio, and the low yield, I would not consider this stock a buy at the moment.

Retail Opportunity Investments Corp. (ROIC), a real estate investment trust (REIT), engages in the acquisition, ownership, and management of necessity-based community and neighborhood shopping centers in the eastern and western regions of the United States. The company boosted its quarterly dividend by 6.30% to 17 cents/share. This will mark the 5th consecutive year of dividend increases for this company. Currently, the stock sells for times 19.70 times FFO and yields 4%.

National Interstate Corporation (NATL), together with its subsidiaries, operates as a specialty property and casualty insurance company in the United States. The company boosted its quarterly dividend by 8.30% to 13 cents/share. This marked the 11th consecutive year of dividend increases for this dividend achiever. Over the past five years, the company has managed to increase dividends by 11.40%/year. Currently, the stock sells for 16.40 times forward earnings and yields 1.90%. The dividend growth makes this an interesting play to put on my list for further analysis.

Infinity Property and Casualty Corporation (IPCC), through its subsidiaries, provides personal automobile insurance with a focus on nonstandard auto insurance in the United States. The company boosted its quarterly dividend by 19.40% to 43 cents/share. This marked the 11th consecutive year of dividend increases for this dividend achiever. In the past decade, the company has managed to increase dividends by 20.70%/year. Currently, the stock sells for 16.80 times forward earnings and yields 2.30%. This looks like an interesting opportunity that I would need to add to my list for further research.

The Home Depot, Inc. (HD) operates as a home improvement retailer. The Home Depot stores sell various building materials, home improvement products, and lawn and garden products as well as provide installation, home maintenance, and professional service programs to do-it-yourself, do-it-for-me, and professional customers. The company boosted its quarterly dividend by 25.50% to 59 cents/share. This marked the 6th consecutive year of dividend increases for this former dividend achiever . Over the past decade, the company has managed to increase dividends by 19.20%/year. Currently, the stock sells for 21.80 times forward earnings and yields 2%. I would need to add the company on my list for further research.

Albemarle Corporation (ALB) develops, manufactures, and markets engineered specialty chemicals. The company boosted its quarterly dividend by 5.50% to 29 cents/share. This marked the 21st consecutive year of dividend increases for this dividend achiever. Over the past decade, the company has managed to increase dividends by 13.80%/year. Currently, the stock sells for 16.10 times forward earnings and yields 2.10%. I would need to add the company on my list for further research.

Sempra Energy (SRE), an energy-services holding company, develops energy infrastructure, operates utilities, and provides related services. The company boosted its quarterly dividend by 6.10% to 70cents/share This marked the 12th consecutive year of dividend increases for this dividend achiever. Over the past decade, the company has managed to increase dividends by 10.10%/year. Currently, the stock sells for 22.40 times forward earnings and yields 2.50% I would need to add the company on my list for further research.

Full Disclosure: Long CB, DLR

Relevant Articles:

Five Things to Look For in a Real Estate Investment Trust
S&P Dividend Aristocrats Index – An Incomplete List for Dividend Investors
Three stages of dividend growth
How to read my weekly dividend increase reports
Rising Earnings – The Source of Future Dividend Growth

Monday, February 23, 2015

Twelve Companies Providing Investors with Dividend Raises

One of the ways I monitor my portfolio is to check press releases from dividend growth companies I have on my watchlist or which I own. Over the past week, there were several widely-held dividend growth companies, which raised dividends. I have summarized important information about each company, including rate of increase relative to historical data, current valuation as well as link to my most recent analysis of the company. The companies include:

Colgate-Palmolive Company (CL), together with its subsidiaries, manufactures and markets consumer products worldwide. The company operates in two segments: Oral, Personal and Home Care; and Pet Nutrition. The company raised its quarterly dividend by 5.60% to 38 cents/share. This marked the 52nd consecutive annual dividend increase for this dividend king. In addition, the company approved a $5 billion stock buyback to last for the next 3 – 4 years. The ten year dividend growth rate is 11.50%/year. Currently, the stock is selling for 23.30 times forward earnings and yields 2.20%. Check my analysis of Colgate-Palmolive.

Wal-Mart Stores Inc. (WMT) operates retail stores in various formats worldwide. The company operates through three segments: Wal-Mart U.S., Wal-Mart International, and Sam’s Club. The company delivered a disappointing dividend raise to its quarterly dividend of 2.10% to 49 cents/share. This marked the 42nd consecutive annual dividend increase for this dividend champion. The ten year dividend growth rate is 14.80%/year. However, this is the second year in a row where Wal-Mart raises its dividend by a disappointing 2%. Given this new fact, I will not be adding any new funds to my position in the company. However, I will keep my shares and allocate dividends elsewhere. Patience and low turnover are some of the surprising lessons behind my analysis of historical stock returns. Currently, the stock is selling for 16.90 times forward earnings and yields 2.30%. Check my analysis of Wal-Mart Stores.

The Coca-Cola Company (KO), a beverage company, manufactures and distributes coke, diet coke, and other soft drinks worldwide. The board of directors hiked Coca-Cola’s quarterly dividend by 8.20% to 33 cents/share. This marked the 53rd consecutive annual dividend increase for this dividend king. The ten year dividend growth rate is 9.30%/year. Currently, the stock is selling for 21.10 times forward earnings and yields 3.10%. Check my analysis of Coca-Cola.

T. Rowe Price Group, Inc. (TROW) is a publicly owned asset management holding company. The firm provides its services to individuals, institutional investors, retirement plans, financial intermediaries, and institutions. The board of directors hiked the company’s quarterly dividend by 18.20% to 52 cents/share. In addition, a $2/share special stock dividend will be distributed to shareholders. This marked the 28th consecutive annual dividend increase for this dividend champion. The ten year dividend growth rate is 16.60%/year. Currently, the stock is selling for 17.20 times forward earnings and yields 2.50%. I analyzed T. Rowe Price Group and should be posting an updated analysis soon. Please stay tuned.

Kimberly-Clark Corporation (KMB), together with its subsidiaries, manufactures and markets personal care, consumer tissue, and health care products worldwide. It operates through four segments: Personal Care, Consumer Tissue, K-C Professional, and Health Care. The company raised its quarterly dividend by 4.80% to 88 cents/share. This is the 44th consecutive annual dividend increase for this dividend champion. The ten year dividend growth rate is 8.20%/year. Currently, the stock is selling for 19.40 times forward earnings and yields 3.20%. Check my analysis of Kimberly-Clark Corporation.

Nestlé S.A. (NSRGY), together with its subsidiaries, provides nutrition, health, and wellness products worldwide. The company delivered a disappointing dividend raise to its quarterly dividend of 2.10% to 49 cents/share. This marked the 19th consecutive annual dividend increase for this international dividend achiever. The ten year dividend growth rate is 10.60%/year. Currently, the stock is overvalued at 15.80 times expected and yields 3.05%. At this stage I would see the stock as a hold at best, with dividends going to be reinvested elsewhere. Check my last review Nestle. I will need to refresh it with current data. Please stay tuned.

Genuine Parts Company (GPC) distributes automotive replacement parts, industrial replacement parts, office products, and electrical/electronic materials in the United States, Puerto Rico, the Dominican Republic, Mexico, and Canada. The company increased its quarterly dividend by 7% to 61.50 cents/share. This marked the 59th consecutive annual dividend increase for this dividend king. The ten year dividend growth rate is 6.80%/year. Currently, the stock is selling for 19.90 times forward earnings and yields 2.60%. The company has been on my watchlist for a long time and I should consider initiating a position on dips below 20 times earnings. Check my analysis of Genuine Parts Company.

AbbVie Inc. (ABBV) discovers, develops, manufactures, and sells pharmaceutical products worldwide. The company raised its quarterly dividend from 49 to 51 cents/share. This is the second dividend increase in less than an year – the previous one was from 42 to 49 cents/share. Abbvie was a spin-off from Abbott (ABT), formed in early 2013. The dividend has been increased for 2 years in a row now. The stock is selling for 13.90 times forward earnings and yields 3.30%. When I last analyzed the spin-off in early 2013, I concluded that the stock is a hold. I think I will keep holding on to it for as long as possible.

NextEra Energy, Inc. (NEE), through its subsidiaries, generates, transmits, distributes, and sells electric energy in the United States and Canada. The board of directors hiked Nextera Energy’s quarterly dividend by 6.20% to 77 cents/share. This marked the 21st consecutive annual dividend increase for this dividend achiever. The ten year dividend growth rate is 8.40%/year. Currently, the stock is selling for 18.80 times forward earnings and yields 2.90%. Check my previous analysis of NextEra.

The Sherwin-Williams Company (SHW) is engaged in the development, manufacture, distribution, and sale of paints, coatings, and related products to professional, industrial, commercial, and retail customers worldwide. The company operates in four segments: Paint Stores Group, Consumer Group, Global Finishes Group, and Latin America Coatings Group. The board of directors hiked the company’s quarterly dividend by 21.80% to 67 cents/share. This marked the 37th consecutive annual dividend increase for this dividend champion. The ten year dividend growth rate is 12.50%/year. Currently, the stock is overvalued at 25.90 times forward earnings and yields 0.90%.

Questar Corporation (STR) operates as an integrated natural gas company in the United States. The company raised its quarterly dividend by 10.50% to 21 cents/share. This marked the 36th consecutive annual dividend increase for this dividend champion. The ten year dividend growth rate is 6.10%/year. Currently, the stock is selling for 18.50 times forward earnings and yields 3.50%

Lorillard, Inc. (LO), through its subsidiaries, manufactures and sells cigarettes in the United States. It operates through two segments, Cigarettes and Electronic Cigarettes. The company increased its quarterly dividend by 7.30% to 66 cents/share. Lorillard has been increasing dividends every year since going public in 2008. The stock currently sells for 18.70 times forward earnings and yields 3.90%. I should probably put this stock on my list for further analysis.

I managed to initiate a position in T.Rowe Price (TROW) last week, and will likely add to it some more next week. I also added to Baxter (BAX), and will likely add some more next week as well. The other stock I added to was Kimberly-Clark, mostly to round off my odd-lot at one brokerage.

Full Disclosure: Long CL, WMT, KO, TROW, KMB, NSRGY, ABT, ABBV,

Relevant Articles:

- How to read my weekly dividend increase reports
Dividend Champions - The Best List for Dividend Investors
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Dividend Investing – Science versus Intuition

Tuesday, January 20, 2015

Seven Dividend Stocks Boosting Distributions this week

I check the list of dividend increases every single week, in order to monitor companies I own, as well as uncover hidden dividend gems. There were several companies which announced increases to their quarterly dividends in the past week:

Omega Healthcare Investors, Inc. (OHI) is a real estate investment firm which invests in healthcare facilities, primarily in long-term healthcare facilities. The REIT raised its quarterly dividend to 53 cents/share, which is an increase of 8.20% over the same distribution paid in the same time last year. This marked the 13th consecutive dividend increase for this dividend achiever. In the past decade, the company has manage to raise dividends by 10.90%/year. Currently, the stock is selling for times 15.40 FFO and yields 4.90%. Check my analysis of Omega Healthcare Investors.

ONEOK, Inc. (OKE) operates as the general partner of ONEOK Partners, L.P. (OKS) which does the gathering, processing, storage and transportation of natural gas in the U.S. and owns one of the nation's premier natural gas liquids (NGL) systems. ONEOK Inc raised its quarterly dividend to 60.50 cents/share, while the partnership raised its quarterly distributions to 79 cents/unit. The increase over the same time last year is 51% for the general partner and 8.20% for the limited partner. The ten year dividend growth is 18.70%/year for ONEOK Inc and 6.50%/year for ONEOK Partners. ONEOK Inc yields 5.70% while ONEOK Partners yields 8%. Check my analysis of ONEOK Partners. I recently sold my limited partner interest for those of the general partner. I had a small remaining position in ONEOK Partners which I converted to Williams companies (WMB) last week.

Consolidated Edison, Inc. (ED) is engaged in regulated electric, gas, and steam delivery businesses in the United States. This dividend champion raised its quarterly distribution by 3.20% to 65 cents/share. This marked the 41st consecutive dividend increase for Con Edison, which is the oldest continuously listed stock on the NYSE – been listed since 1824.The ten year dividend growth rate is 1.10%/year. Currently, the stock is selling at 17.90 times earnings and yields 3.80%. I used to own Con Edison, but grew dissatisfied by the low growth and ended up disposing my position there. Check my analysis of Con Edison I posted on Seeking Alpha.

Fastenal Company (FAST), together with its subsidiaries, operates as a wholesaler and retailer of industrial and construction supplies in the United States, Canada, and internationally. The company raised its quarterly dividend by 12% to 28 cents/share. This marked the 16th consecutive dividend increase for this dividend achiever. In the past decade, the company has manage to raise dividends by 25.90%/year. Currently, the stock is selling for 26.50 times earnings and yields 2.60%. I plan on adding this company on my list for further research.

Linear Technology Corporation (LLTC), together with its subsidiaries, designs, manufactures, and markets a line of analog integrated circuits (ICs) worldwide. The company raised its quarterly dividend by 11.10% to 30 cents/share. This marked the 23rd consecutive dividend increase for this dividend achiever. In the past decade, the company has manage to raise dividends by 12.90%/year. Currently, the stock is selling for 21.40 times earnings and yields 2.70%. I plan on adding this company on my list for further research.

BlackRock, Inc. (BLK) is a publicly owned investment manager. The company raised its quarterly dividend by 13% to $2.18/share. This marked the sixth consecutive annual dividend increase for Blackrock. While this dividend contender kept dividends unchanged in 2009, it nevertheless has managed to achieve a ten year dividend growth rate of 22.70%/year. The stock currently sells for 17 times earnings and yields 2.50%. I am going to add Blackrock on my list for further research.

Full Disclosure: Long OKE, WMB and OHI

Relevant Articles:

Dividend Yield or Dividend Growth:My Experience With both
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How to read my weekly dividend increase reports

Monday, December 15, 2014

Four Dividend Increases for Further Review

As part of my portfolio monitoring process, I look at dividend increases. Over the weekend, I looked at companies that increased distributions last week, and look like decent candidates for further research. Those companies pass preliminary attractiveness screens because of their attractive current yield, rate of dividend growth, or dividend growth streak. Those companies include:

W. P. Carey Inc. (WPC) is an independent equity real estate investment trust which primarily invests in commercial properties that are generally triple-net leased to single corporate tenants including office, warehouse, industrial, logistics, retail, hotel, R&D, and self-storage properties. This REIT raised its quarterly dividends to 95 cents/share, which is and increase of 9.20% over distribution paid at the same time last year. Over the past decade, this REIT has managed to increase dividends by 6.30%/year. W.P. Carey is a dividend achiever which has rewarded shareholders with a dividend raise for 17 years in a row. I recently initiated a position in this REIT and plan on further building out my exposure there slowly over the next few years. Currently, W.P. Carey sells at 14.80 times FFO and yields 5.50%.

General Electric Company (GE) operates as an infrastructure and financial services company worldwide. The company raised its quarterly dividend by 4.50% to 23 cents/share. This was a pretty low increase for this global corporation, but marked the fifth consecutive one since dividends were cut in 2009. I initiated a small position in General Electric this year, and might add to it sometime in 2015. The stock sells for 14.90 times forward earnings yields 3.70% today. Check my analysis of General Electric.

WD-40 Company (WDFC) is a global consumer products company dedicated to delivering solutions for a range of maintenance needs of doer and on-the-job users. The Company’s products included WD-40 Smart Straw, WD-40 Trigger Pro, 3-IN-ONE Professional Garage Door Lube, Spot Shot Pet Clean which is a non-aerosol Spot Shot trigger product, Blue Works product line, and a mildew stain remover under the X-14 brand. The company boosted its quarterly dividends by 11.80% to 38 cents/share. This marked the sixth consecutive dividend increase for this dividend challenger. The company has paid dividends for over 40 years in a row, although it did cut them in the years 2001 and 2002. I plan on reviewing this company in more detail despite those factors, because it looks like the type of franchise that is dominant in a market niche, which is boring, and could ultimately be a buy and hold type business that Buffett likes to hold “forever”. Currently the stock is overvalued at 24.70 times forward earnings and yields 2%. If it ever drops below 20 times earnings, I would be very interested in this company.

Ventas, Inc. (VTR) is a publicly owned real estate investment trust. The firm engages in investment, management, financing, and leasing of properties in the healthcare industry. It invests in the real estate markets of the United States and Canada. This Real Estate Investment Trust boosted its quarterly dividends by 9% to 79 cents/share. Ventas has raised dividends for 5 years in a row, since it kept them unchanged in 2009. However, it has consistently boosted them from 2001 – 2008. This REIT sells for 16.70 times FFO and yields 4.30%. I will add it to my list for further research.

The thing that is appealing about those companies is that their revenues and cash flows are relatively stable and recurring. This translates into easier distribution coverage, and better visibility and sustainability of dividend payments to shareholders with a long-term mindset. Purchasing an asset at a low price is important; It is equally important however that this asset can generate stable distributable cashflows or earnings, which grow over time.

Full Disclosure: Long GE, WPC

Relevant Articles:

Six Dividend Investments I Made Last Week
Should income investors give General Electric a second chance?
Five Things to Look For in a Real Estate Investment Trust
Three Dividend Raises I am Thankful For
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Tuesday, December 2, 2014

Brown Forman is a consistent dividend growth company

Brown-Forman Corporation (BF.A)(BF.B) is engaged in the manufacture, bottling, import, export, marketing, and sale of alcoholic beverages. It provides whiskey, ready-to-drink cocktails, vodka, tequilas, champagnes, wines, liqueur, and other distilled spirits.

Right before Thanksgiving Week, the company raised its quarterly dividend by 8.60% to 31.50 cents/share. This dividend champion has increased dividends for 31 years in a row, and paid them for 69 consecutive years.

Paul Varga, the chief executive officer of Brown-Forman shared the following information in the press release:, “This dividend increase marks the 31st consecutive year of increases at the company, and reflects our commitment to delivering top-tier returns for our shareholders. In addition to returning cash to shareholders through our dividend program, the company also implemented a new buyback program in October, and is aggressively investing behind the long-term global growth of our American whiskey brands.”

Brown Forman is the type of dividend growth stock which has a portfolio of strong brands, which generate stable and recurring sales and profits, around the globe. Over time, I would expect that earnings per share will increase, that dividends increase, and that it maintains pricing power that allows it to sell more of its unique products. This is the type of business which will be around in 20 years, and which will still be able to generate high returns on investment, that will translate into more dollars flowing into shareholders pockets. In other words, after I last analyzed the company, I have decided that this is the type of buy and forget, sleep well at night company to hold for the next 20 -30 years.

The problem that I have had with Brown Forman over the past 30 points is its current valuation. The stock is selling for somewhere between 27.20 to 29 times expected fiscal year 2015 earnings per share. The earnings per share are expected to come somewhere between $3.25 to $3.45. The yield based on the new dividend payment is 1.35%. Despite the fact that annual earnings per share growth could likely be around 8% - 10% over the decade, it is evident that the valuation today is rich. As a result, it is very likely that investors who own Brown-Forman today or those who somehow buy at todays valuations are very likely to generate poor returns over the next five – six years.

In the case of Brown-Forman, I accumulated the shares in 2010, with an average cost of $39.98/share. At this time, the stock accounted for approximately 1.50% of my dividend portfolio. Given the contributions I have made in the past 4-5 years, Brown-Forman's share of my portfolio is approximately 0.50% today. Because it takes me years to build a sizeable position in my portfolio, this is no surprise of course. In the case of Johnson & Johnson (JNJ), where the stock has always been attractively valued in each year between 2008 and 2014, I have been able to put money to work regularly. If Brown-Forman is ever available at 20 times earnings, I would most probably double my exposure to the stock.

Companies like Brown-Forman confirm my belief that automatic dividend reinvestment could be a very poor capital allocation strategy. While your dividend income compounds faster when you reinvest it automatically, and you do not pay a commission to buy more stock, you are doing your capital a bad service by putting it to work in a stock that sells for over 27 times expected earnings. This is why I accumulate dividends in cash every month, and use them to buy shares in some of the most attractive ideas at the moment. Plus, I view dividends received as a rebate on my purchase price, which effectively reduces the amount of capital I have at risk in that particular company. I could then redeploy those funds elsewhere, thus effectively lowering my risk and increasing my portfolio diversification. In the past year, I have redeployed those dividends into shares of Diageo (DEO), which sell at better valuations.

The reason why I will still hold on to the stock however is my belief that the company can keep growing earnings per share in the high single digits for a considerable amount of time. Therefore, while the next 5-6 years could provide for lousy returns, I think that the next 20 years will provide for some good returns to the long-term investor. I have no problem “underperforming” some benchmark such as S&P 500 over a five year period with a company like Brown-Forman, because I know that this is the type of business that is built to last and could provide exceptional returns to my portfolio over the long-run. For example, let's assume earnings per share of $3.25 for FY 2015, and annual dividends of $1.26/share, with annual growth of 8% in both. This could translate into earnings per share of $14 and dividends per share of $5.40 in 20 years. At a P/E of 15, this translates into a price of $210/share and a total of dividends collected of approximately $58 over those 20 years, for a total return of 182%. This of course assumes contraction in P/E multiple, and no dividend reinvestment, as well as no taxes.

I also believe that selling outright is risky, due to taxes, opportunity cost and reinvestment risk. If I sold today, I would have to pay at least a 15% tax on capital gains of $54/share, which would leave me with $86/share ( assuming stock price of $94/share and cost of $40). I could potentially purchase shares of Diageo with the proceeds. However, I am not certain whether the dividend and earnings will grow as fast as those of Brown-Forman over the next 20 years. Plus, I always prefer to have some diversification, rather than be concentrated exclusively in one company. Thus I have reinvestment risk, which is the risk that the stock you sold could have done much better than the stock you purchased with the after-tax proceeds from the sale in the first place.

It is tough to make forecasts spanning 15 – 20 years down the road. However, the thing that provides confidence about making forecasts is the nature of the products and business of consumer staple companies such as Brown Forman. I know that in 15 – 20 years more people will be drinking quality alcoholic beverages, particularly those with highly recognizable brands such as Jack Daniels. There is brand loyalty, which translates into repetitive sales for years down the road.

I also like the fact that the company’s management is very shareholder friendly, and that they are able to raise the dividend for so many years. Long-term dividend investors might remember how in 2010 and 2012 Brown-Forman distributed special dividends to shareholders, which was right before the taxes on qualified dividends were expected to rise significantly. This is the type of management that looks out for shareholders, that I like. There are of course things that I do not like however, such as the program to repurchase shares at current valuations. I also do not like the dual-class shareholding structure, which gives the controlling family overwhelming voting power. If the stock price is ever depressed, they could take the company private at that low price, thus triggering losses for long-term shareholders. This is not as much of a risk with companies like Diageo. The other thing that makes Brown-Forman less valuable in my eyes is that there is a lower chance of it being acquired by someone, given the control of the Brown family. We saw how Beam was acquired for 30 times earnings, by Japanese company Suntory. Hence, the value of Brown Forman to a private buyer is approximately 30 times earnings under current conditions. However, given the control of the family, it is highly unlikely that such transaction would ever be consummated. However, one never knows too.

Overall, I think that Brown-Forman is the type of quality dividend champion to buy and hold for the long-term. If it ever falls to 20 times earnings, I would add to my stock position in the company. In the meantime, even up to 30 times expected earnings, it makes sense to own this company, due to its quality of earnings, and valuable portfolio of brands which are very likely to sell higher volumes to customers in the future. Selling this company stock would likely be a mistake, unless of course we get massive overvaluation.

Full Disclosure: Long BF/B and DEO

Relevant Articles:

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Brown-Forman (BF.A)(BF.B) Dividend Stock Analysis
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Diageo (DEO) Dividend Stock Analysis

Monday, December 1, 2014

Three Dividend Raises I am Thankful For

As part of my disciplined stock monitoring process, I review the list of dividend increases every month. This has helped me in identifying hidden dividend gems, identify companies in the initial phase of dividend growth or check whether my stock holdings are paying me more cash to hold on to them. The most rewarding part of dividend growth investing is when a company I have included many years ago, keeps earning more and sending me a higher dividend check each year. It is particularly interesting that my organic dividend growth has trounced inflation by a factor of two, and has been much higher than the annual raises I receive at my day job.

McCormick & Company (MKC) manufactures, markets, and distributes spices, seasoning mixes, condiments, and other flavorful products to retail outlets, food manufacturers, and foodservice businesses. The Board of Directors of McCormick & Company declared an increase in the quarterly dividend from $0.37 to $0.40 per share on its common stock. This marked the 29th consecutive year that this dividend champion has increased its quarterly dividend. The company generates strong cashflows, and views increasing dividends as an important way to share its success as a business with shareholders. Management believes that the company’s long history of dividend increases demonstrates its commitment to building long-term value for its shareowners. In the past decade, McCormick has managed to increase dividends by 11.40%/year. Currently, the shares are slightly overpriced at 20.30 times forward earnings and a yield of 2.20%. Check my analysis of McCormick.

Becton, Dickinson and Company (BDX), a medical technology company, develops, manufactures, and sells medical devices, instrument systems, and reagents worldwide. This dividend champion increased its quarterly dividends by 10% to 60 cents/share. This marked the 43rd consecutive year in which the company has managed to boost dividends. This increase reflects the company’s confidence in its long-term outlook, as well as its ongoing commitment of returning value to shareholders. In the past decade, Becton Dickinson has managed to increase dividends by 17.60%/year. Currently, the shares are a little pricey at 20.80 times forward earnings and a yield of 1.70%. Check my analysis of Becton Dickinson.

Brown-Forman Corporation (BF.A) (BF.B) is engaged in the manufacture, bottling, import, export, marketing, and sale of alcoholic beverages. Brown-Forman announced that its Board of Directors increased its quarterly cash dividend on its Class A and Class B Common Stock by 8.6% to 31½ cents per share from the prior quarter’s 29 cents per share. This marked the 31st consecutive year in which the company has managed to boost dividends. In the past decade, Brown-Forman has managed to increase dividends by 10.20%/year. Currently, the shares are overvalued at 28.30 times forward earnings and a yield of 1.30%. Check my analysis of Brown-Forman. I will also discuss my thoughts on the company tomorrow, so please stay tuned.

All of those three dividend growth companies are slightly overpriced today. However, these are three quality companies, which could deliver consistently higher earnings, dividends and stock price appreciation to long-term shareholders who have a long-term view of those businesses. These are the type of businesses that can compound wealth and do the heavy lifting for long-term dividend growth investor. The goal of the dividend investor is to monitor businesses like those like a hawk, and take advantage of any temporary weakness in share prices order to initiate or add to their positions in those businesses at attractive valuations.

Full Disclosure: Long all companies listed above

Relevant Articles:

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Wednesday, November 5, 2014

Three Commission Free Investments and a Dividend Increase

Many readers know that it is possible to invest in some of the best blue chip dividend stocks without paying any commissions by using Loyal 3. There are plenty of companies like PepsiCo (PEP), Coca-Cola, McDonald’s, Unilever to name a few, where a beginning dividend investor can set up to invest anywhere from $10/month to $2,500/month. This is all commission free, and ideal for setting up a monthly investment plan with those companies. I believe that the most important part of investing is continuous education, and starting as early as possible, in order to enjoy the longest compounding of capital contributions possible. Even a small seed can turn into a mighty oak, which is why one should never despise the days of small beginnings. It is very important to invest a set amount in quality blue chips every month, reinvest dividends, and patiently sit on the companies you own for as long as possible. This is how wealth is built for ordinary investors.

With services like Loyal3, any investor who has at least $10 can invest in individual dividend paying companies, provided they like the valuations. Granted, the number of companies they offer is limited to less than 60, which is why investors who can put at least $1000/month might be better off opening a discount broker account like TradeKing and do their purchases that way. In addition, the executions take approximately 2- 3 business days. For that reason, I do very little investing using Loyal3. I am essentially buying small chunks every month, but my dividend stock investing is done using a discount broker like Interactive Brokers.

In the past several months, I have been adding up shares in the following three companies using Loyal3:

McDonald’s Corporation (MCD) 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 increased dividends for 39 years in a row. The company’s most recent dividend increase was by 4.90%. I am telling this because the earnings and dividend growth has slowed down considerably in the past few years. The stock is selling for 18.50 times forward earnings and yields 3.60%. Check my analysis of McDonald’s.

Unilever PLC (UL) operates as a fast-moving consumer goods company in Asia, Africa, the Middle East, Turkey, Russia, Ukraine, Belarus, Europe, and the Americas. The company operates through Personal Care, Foods, Refreshment, and Home Care segments. This international dividend achiever has increased dividends for at least 19 years in a row. Over the past decade, Unilever has managed to boost dividends by 6.10%/year in Euros. The stock is selling for 19.20 times earnings and yields 3.80%. Check my analysis of Unilever.

The Coca-Cola Company (KO), a beverage company, manufactures and distributes coke, diet coke, and other soft drinks worldwide. This dividend king has increased dividends for 52 years in a row. The company has managed to increase dividends by 9.80%/year over the past decade. The stock is selling for 20.30 times earnings and yields 2.90%. Check my analysis of Coca-Cola.

The drawback of Loyal3 for some investors is that it doesn’t allow automatic dividend reinvestment. However, if earn cash dividends earned in Loyal3, the cash will be used towards your next purchase there. For a new investor putting $50/month in 6-8 companies, it would take less than an year before monthly dividends exceed the $10 needed to make a one-time purchase commission free. That would be the nice part where a portion of monthly contributions are self-funded through dividends. It would also be pretty illustrative and motivating for the investor that the dividend machine they set up is now growing on its own, without much additional capital.

Another company I own that is not available through Loyal3, Aflac (AFL), raised dividends by 5.40% to 39 cents/share. This marked the 32nd consecutive annual dividend increase for this dividend champion. However, the most recent history of dividend increases has been pretty disappointing, when compared to the 16.80%/annual dividend increases enjoyed by shareholders over the past decade. That being said, the stock looks cheap at 9.70 times forward earnings and a current yield of 2.60%. Since I have a high allocation to Aflac, I doubt I would do much buying in the company. I like Chubb (CB) better, especially on dips. Check my analysis of Aflac.

Full Disclosure: Long everything mentioned here

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Qualitative Dividend Analysis of Aflac (AFL)
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Monday, October 27, 2014

Dividends Make Investing Easier During Market Declines

The past two weeks have been characterized by declines in stock prices. Many were speculating whether this decline is the beginning of a new bear market, or whether it was a sign that the US economy is heading into a recession. As I discussed in a previous article, I choose to ignore that noise, and stick to my simple long-term investing. It is during turbulent times, that I realize how much easier it is to keep a simple investment strategy that produces steady ( and growing) cash flow that goes directly to my bottom line.

For example, I used the cash produced by my income portfolio over the preceding few weeks to buy more shares. I also bought some shares in ConocoPhillips (COP) last week and just purchased some shares of IBM (IBM) as well. The fact is, I receive my dividend checks whether the stock market falls by 10% or rises by 10%. I will still receive them even if they closed the stock market for 10 years. Since I am in the accumulation phase, I reinvest all dividends into more dividend paying stocks each month. In addition, I am also able to save money from my day job, and use it to further build up my Dividend Growth Machine. As a passive investor with a long-term holding period, I have found that having a demanding career is helpful to keep me engaged. This helps because it prevents me from hearing noise about stocks, which would create an urge to do something. As we discussed last week, to be successful in investing, you have to have a set it and forget type of mentality where you let compounding to the heavy lifting for you. Worrying about ticks in unemployment, economy, Dow Jones Industrial s average is usually a recipe to do something stupid, such as panicking and selling when everyone else is selling. The other positive part of having a career is that I receive cash to deploy and invest.

Building wealth is really simple – get a job, save money, and then invest savings wisely. I invest my funds as if I would never ever be able to earn another penny, which is why I try to be a conservative income investor. This is a boring, slow and steady way, but if I methodically invest and compound my dividends, I know I will do reasonably well in 10, 20, 30 years.

The fact that I receive cash from the companies I own to deploy on a periodic basis is the fundamental strength of dividend investing. During a dip in stock prices, I can put that to work at more attractive valuations. If I needed retirement income which is predictable in amount and timing, my dividend checks satisfy both needs.

The things are getting better of course, when companies I own decide they have earned so much money, that they can now afford to not only pay me a dividend, but also to increase it for another consecutive year. I typically look for companies with long histories of consecutive dividend increases, because I have found that this is usually an indicator of a strong business with strong fundamentals. I do analyze companies in detail however before deciding if I want to buy their shares. In addition, I also try to follow a few basic valuation guidelines, in order to determine if share prices are attractive or not.

In the past week, several companies which I own, announced their intent to reward me with higher dividend payments.

Abbvie (ABBV) discovers, develops, manufactures, and sells pharmaceutical products worldwide. The company raised its quarterly dividend by 17% to 49 cents/share. In addition, the company approved $5 billion share buyback, after it scrapped its acquisition plan of Shire (SHPG). This was the second dividend increase for the company, since the split of Abbott Laboratories (ABT) into two companies. Given the fact that the company is expected to earn $4.06/share for the year ending December 2015, this puts the payout ratio at an adequate 48.30% and valuation of a forward 15 times earnings and an yield of 3.30%. Abbvie generates a large portion of sales from the drug Humira, which is scheduled to go off patent later in the decade. At this time I do not plan on adding to my position there, although I would keep holding, and allocating those dividends elsewhere.

Visa (V) operates as a retail electronic payments network worldwide. The company raised its quarterly dividends by 20% to 48 cents/share. This is the sixth consecutive dividend increase for the company which went public in 2008. The new dividend payment is 4.5 times larger than the initial payment of $0.105/share. The new yield is 0.90%, and the forward P/E ratio is 20.60 times FY 2015 earnings. The only reason to invest in Visa is if you believe that the company can maintain growing earnings per share by at least 15% for the next five years, and then by at least 10% for the subsequent 5- 10 years after that. This could translate into high dividend per share growth, and potential yields on cost that double every five years and come with massive capital gains in the process. Check my analysis of Visa on Seeking Alpha.

ONEOK Inc (OKE), which is the general partner of ONEOK Partners (OKS), raised its quarterly dividend to 59 cents/share. The forward yield on new shares is 3.90%. At the same time, ONEOK Partners (OKS) increased its quarterly distribution to 77.50 cents/unit, which is an increase of 6.90% over the same period in 2013. The forward yield is 5.80%. I sold most of my partnership units last week and purchased shares of the general partner with the proceeds. Based on my analysis of the situation, it almost always makes sense for a long-term investor to hold the general partnership shares, than the limited partnership units. ONEOK Inc is a dividend achiever, which has managed to boost distributions for 12 years in a row. It has a ten year dividend growth rate of 15.70%/year. ONEOK Partners on the other hand has increased distributions for 9 years in a row, and has a ten year dividend growth rate of only 6%/year.  I believe that yields on cost on an investment in ONEOK Inc (OKE) today could surpass the yield on cost in ONEOK Partners (OKS) in approximately five years. In addition, those shares could deliver higher total returns than the limited partnership units. That being said, I am keeping a minor position in ONEOK Partners in my retirement account, because the amount allocated to it is so small, the commissions to buy and sell are high at $7.95, which makes it not worth making a change at this time.

In addition, two other dividend champions continued their streak of regular dividend increases as well. Those included:

V.F. Corporation (VFC) designs, manufactures, or sources from independent contractors various apparel and footwear products primarily in the United States and Europe. This dividend champion raised its quarterly distributions by 21.90% to 32 cents/share. This marked the 42nd consecutive annual dividend increase for V.F. Corporation. The company has managed to increase annual dividends by 13.70%/year in the past decade. The stock sells for 21.50 times forward earnings and yields 1.90%

Parker-Hannifin Corporation (PH) manufactures and sells motion and control technologies and systems for various mobile, industrial, and aerospace markets worldwide. This dividend king raised its quarterly distributions by 31.25% to 63 cents/share. This marked the 59th consecutive annual dividend increase for Parker-Hannifin. The company has managed to increase annual dividends by 13.40%/year in the past decade. The stock sells for 15.20 times forward earnings and yields 2.20%.

Full Disclosure Long COP, IBM, OKE, OKS, ABBV, ABT

Relevant Articles:

- Dividend Champions - The Best List for Dividend Investors
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Time in the market is more important than timing the market
Top Dividend Growth Stocks of the past decade

Monday, September 29, 2014

Mistakes of Omission Can Be Costlier than Mistakes of Commission

Warren Buffett is one the best investors in the world. He has coined the term mistakes of commission. Basically, mistakes of omission are those situations where you have identified a company to invest in, but you fail to pull the trigger. As a result, your inability to act results in lost opportunity cost. A mistake of commission on the other hand is the act of buying a security which declines in price, which leads to a permanent loss of capital. Buffett is a very wise and rich person, who is a collector of quality businesses, that throw enough cash for him, that he then uses to buy more income generating assets. This is why I believe he is actually a dividend investor.

With dividend growth stocks, the most one can lose is less than 100% of their investment. This is because if I bought a company like Coca-Cola (KO), and it outright fails in a few years or decades, I would have received enough dividends to recover a big chunk of my original investment. I think it is highly unlikely that Coca-Cola will fail in the next 20 years, although it is possible that its growth will be slower than that in the past 20. Even if the dividend grows a little for the next 10 years, I will be able to recover somewhere around a third of my investment just from dividend income alone. The upside however is virtually unlimited – if the company gets its act together, it can deliver 20 – 30% yields on cost by 2034.

As a dividend investor, I am also a collector of quality assets that regularly pay me more and more cash on a regular basis. My goal is to work hard at saving as much as possible, and use those savings to invest. The reason why I try collect as much in income producing assets as possible is so I can live off those dividends one day. This is the reason why most of you read what I have been thinking out loud about investments over the past seven years.

In order to come up with a list of companies to buy, I go through a rigorous top down approach. I basically start with a list of dividend growth stocks, and then try to narrow it down using some sort of entry criteria. After that I research the most attractively prices companies from that list. Sometimes however I end up missing the forest for the trees.

The recent dividend increase of Lockheed Martin (LMT) increased my mistake of commission. The defense contractor increased its quarterly dividend by 12.80% to $1.50/share. This marked the 12th consecutive annual increase for this dividend achiever. Lockheed Martin has managed to increase dividends by 23.50%/year over the past decade. The lesson to learn from this exercise is that sometimes, you will make mistakes as an investor. I am mentioning this, because the stock continuously appeared on my valuation screens, and my dividend increase monitoring updates in 2011 and 2012, but I did absolutely nothing. I am reviewing this mostly as a way to identify shortcomings in my investment process, and see if I can improve it.

The situation in 2010 - 2012 was very interesting, because the stock of the company was very cheap and yielding a lot. The reason was the near ending of the wars in Iraq and Afghanistan, as well as the US budget issues. The main consensus was that defense contractors were going to face stagnating defense budgets from their largest clients, which was going to affect revenues.

Managements of those defense companies did prove to be good stewards of shareholder capital however. Lockheed Martin managed to repurchase shares at low valuations, reduce its workforce and otherwise maintain its cost base. When your stock sells at 9 – 11 times earnings, you can grow earnings per share in perpetuity merely by repurchasing some of your stock each year. If you contain costs a little as well, this also results in a better growth in earnings per share. Lockheed Martin did just that, by reducing the number of shares outstanding from 410 million in 2008 to 322 million by 2014, through its consistent share buybacks.

I guess, when you have a dividend growth company, which sells at a low P/E multiple, and which grows dividends per share and earnings per share, you can make some pretty decent amounts of money. Imagine if you bought shares yielding 4% - 5%, where dividends increased while the shares outstanding decreased as well, and you also reinvested those dividends. This is some pretty turbocharged compounding of income and capital to me.

While I have been advocating doing qualitative analysis of each company on my screen, I could also be exposing myself to biases that could be costly. As I have mentioned earlier, things are not always black and white in investing. My evaluation of the defense industry was generally correct, but it ignored the fact that earnings could be grown through buybacks and cost containment. Of course, back until late 2012, I didn’t even like stock buybacks. I still don’t like them as much as I like dividends, but I know that companies that consistently do them, and manage to do them while their stock is fairly valued, can improve shareholder wealth.

After analyzing the investments I have done in the past seven years, I have noticed that those that did the best for me were selling for less than 16 – 17 times earnings, and were experiencing growing earnings per share and consistent dividends per share growth. By sometimes listening in to news or other noise, I ended up speculating about the future, without really taking into account that I should merely get on the rising earnings and dividends train. I essentially ignored the fact of rising earnings and dividends per share, and focused on speculating about the future, which is not what enterprising dividend investors do. Worrying about when it is going to stop dividend growt is not really a productive thing to do. This was also the case with Microsoft (MSFT), which was selling at a very cheap price just a couple of years ago, because it was perceived as losing its way. Yet, the company was raising its dividends each year, earnings per share were growing, and the threats sounded scary but also have not materialized yet. Currently, the company that everyone is afraid for is IBM, which sells at a ridiculous cheap valuation, grows earnings per share and dividends, and regularly repurchases shares. This is why I am trying to build out my position in the stock. I am also working my way through increasing my exposure to the much hated Exxon Mobil (XOM) as well.

The mistakes of omission with Microsoft and Lockheed Martin show that maybe I just didn't understand the companies very well altogether. This could be a good reason why I never bought in the first place. I also didn’t buy Bank of America (BAC) in 2008, and also avoided buying Nu Skin (NUS). However, I should be trying to learn more about those businesses (LMT and MSFT), and isolate events that can result in more dividends over time for me, so I can be even more successful. Knowledge is like compound interest – it builds up slowly over time, and results in dividends for years. After this I also learned that the situation with Lockheed Martin in 2010 - 2012 was similar (though not identical) to the situation with General Dynamics in 1993 - 1994, when the company repurchased a large block of stock and sold off businesses to pay more dividends. Warren Buffett made an investment in the defense contractor in 1993, and made a lot of money for Berkshire Hathaway shareholders. It is interesting how the big money in defense companies can be made even after major wars such as Vietnam, The Cold War and the wars in Afghanistan and Iraq were over. It is counterintuitive, yet this is a good thing to have in mind at some point in the future.

Of course one cannot be right 100% of the time either. While I have not been right on all investments I have analyzed ( both through commission and omission), I have achieved solid progress towards my goal of reaching the dividend crossover point. The important thing is to keep learning from your mistakes.

Things are not always black and white, and investing is subjective to a certain degree – I cannot automate and distill it into an investment formula. This is why it is important to evaluate how your companies are doing at least once per year, and decide if you are making some common mistakes. My previous analysis of mistakes showed me that I sometimes sell to buy something cheaper. The end result is worse than doing nothing. The mistake that most dividend investors do is chase yield at all costs, without thinking about sustainability throughout different phases of the economic cycle. They also tend to focus on yield, without taking into consideration growth, which results in decrease in the purchasing power of income over time. If you do not realize you are making mistakes, chances are that you will never learn from them. This is why Buffett is so great – he learned from his mistakes, adapted to the new environment, and kept learning more about business and ways to make money.

You keep hearing about the people who have been calling for a stock market top for 5 – 6 years now. Yet many of those people have been looking for a turn for 20 years. They forget that overall economies improve, earnings improve, productivity improves, which leads to higher valuations in companies and more money for dividends. The fact that those people never learned from their mistakes is really troublesome. If you missed out on the growth in US stocks over the past 20 years, and you still maintain your view, chances are you need some corrective action to do. If you are not objective in the analysis of your investments, you will not be able to identify shortcomings. If you do not identify those mistakes, you are likely to lose on potential gains. This is why it is important to keep learning, and try to improve consistently.

Full Disclosure: Long IBM, KO

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Don’t chase High Yielding Stocks Blindly
Never Stop Learning and Improving
How to analyze dividend stocks
Three stages of dividend growth
Should Dividend Investors be Defensive about these five stocks?

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