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

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
The importance of yield on cost
Dividend Investors Will Make Money Even if the Stock Market Closed for Ten Years
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

Relevant Articles:

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?

Tuesday, September 23, 2014

Three Dividend Stocks With Consistent Dividend Hikes

As a dividend growth investor, I value consistency in the types of companies I own. When I buy shares, I view myself as a partial owner in a business. My success is therefore dependent on the ability of that business to earn more money over time, in order to pay me more dividends in the future. In my experience as a dividend investor over the past seven years, I have found that the companies that earn a repetitive stream of sales to a loyal set of customers are the ones who end up with reliable revenues and earnings to pay the dividend to me as a part owner. From time to time even the best business experiences temporary weakness, which is usually an opportunity to increase my stake, after careful analysis of the situation.

I do have safety in numbers however, as the majority of my total dividend income is generated by approximately 40 – 50 companies. Therefore, even if I made one bad decision, my total dividend income keeps coming, and keeps growing. Most regular readers are keenly aware that one of the methods I use to monitor dividend growth stocks is to regularly check the list of dividend increases for the week.

Over the past week, the following dividend growth companies I monitor announced increases in their dividends:

McDonald’s (MCD) franchises and operates McDonald's restaurants in the United States, Europe, the Asia/Pacific, the Middle East, Africa, Canada, and Latin America. The company raised its quarterly dividend by 4.90% to 85 cents/share. This marked the 38th consecutive dividend increase for this dividend champion.

Per the words of the CEO “McDonald's global growth priorities – providing great-tasting food and beverages, creating memorable experiences, offering unparalleled convenience and becoming an even more trusted brand – focus on what matters most to our customers and serve as the foundation to building our business over the long term. Today's dividend increase reflects the continued strength and sustainability of our cash flow and our commitment to enhancing shareholder value. We expect to return $18 to $20 billion to shareholders between 2014 and 2016 and have returned $3.2 billion year-to-date August toward that target”

This was the slowest dividend increase since the late 1990s. The stock sells for 17.50 times forward earnings and yields 3.60%. Check my analysis of McDonald’s for more details on what my take on the company is.

W.P. Carey (WPC) 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 across the globe. This REIT hiked quarterly distributions to 94 cents/share. This dividend achiever has increased distributions for 16 years in a row. Over the past decade, it has managed to hike distributions by 6.30%/year. W.P. Carey yields 5.50% after the hike. This REIT is one of my mistakes of omission. I have monitored it for several years, and missed out on the opportunity to acquire a stake in 2012, when the plans for conversion to a REIT were announced. I then continuously decided against investing in the company, “because the price went too high”. I believe that investors in W.P. Carey today would likely do slightly better than investors in Realty Income over the next 10 years. Maybe one of these months I will admit I was wrong and initiate a position, using the dividends I receive from Realty Income (O) and American Realty (ARCP).

Microsoft (MSFT) develops, licenses, markets, and supports software, services, and devices worldwide. . The company raised its quarterly dividend by 10.70% to 31 cents/share. This marked the twelfth consecutive annual dividend increase for this dividend achiever. Over the past decade, Microsoft has managed to boost dividends by 15%/year. The stock sells for 17.30 times forward earnings and yields 2.70%. I have analyzed the company before, but never really did anything about initiating a position. The company has a strong brand, and a business model I understand very well. However, I am not sure what the future of computing will be in 20 years, and how Microsoft will fit into it. Hence, it is on the too hard pile – meaning it is probably outside my circle for now.

That being said, I value each one of those companies for their consistency in dividend increases. To arrive at this list, I focused on companies that announced increases in dividends in the past week, and then focused only on those that have grown them for at least a decade.

Full Disclosure: Long MCD

Relevant Articles:

How to be a successful dividend investor
How to read my weekly dividend increase reports
The work required to have an opinion
Dividends Provide a Tax-Efficient Form of Income
My Dividend Goals for 2014 and after

Monday, September 15, 2014

High Yield Companies for Current Income

I monitor my portfolio holdings quite regularly, looking for material events concerning the companies I hold. As a dividend investor, the best news is when a company I hold raises dividends. This is a confirmation that the analysis I had done in the first place was valid, and that the decision to purchase a stock in a company after that painstaking process is indeed paying higher dividends. Rising dividends are important, because they ensure that the purchasing power of my income is at the very least maintained if I were to drop out of the rat race and retire tomorrow.

With dividend investing, success is very tangible, one dividend check at a time. Dividends represent money I earn without having to be physically present at a location or answer to a boss. Thus, with each dividend check I am getting one step closer to retirement.

Two of my holdings raised their dividends in the past week. Those include:

Philip Morris International Inc. (PM), through its subsidiaries, manufactures and sells cigarettes and other tobacco products. The company raised its quarterly dividend by 6.40% to $1/share. This was the slowest dividend increase since PMI was spun-off from Altria (MO) in 2008. The company is facing some headwinds worldwide, but despite those is still able to generate strong cashflows to pay increasing dividends and repurchase shares. I would probably have to lower my earnings and dividend growth expectations to 6% - 7%/year for the foreseeable future. However, a 6%-7% annual growth in dividends from a company yielding almost 4.80% is a pretty good achievement. The shares are still attractively valued at 16.30 time forward earnings. Check my analysis of PMI.

Realty Income Corporation (O) is a publicly traded real estate investment trust. The REIT increased its monthly dividend slightly to $0.1831/share. This was less than 1% higher than the monthly amount paid at the same time in the preceding year. Realty Income has managed to increase dividends by 6%/year over the past decade. This dividend achiever has also managed to boost distributions to its patient long-term investors for 20 years in a row. This includes a 20% increase in dividends in 2013, which is probably one of the reasons for the slow raises in 2014. Going forward, I would expect this REIT to manage to grow distributions to match or slightly exceed the rate of inflation. Since the company is already a high portion of my income portfolio, I do not plan on adding any more funds there. Check my analysis of Realty Income.

While I am not a big fan of looking for high yields  for the sake of looking for high yields, I understand that some investors who are retired need above average yields today. I believe that companies like the above mentioned could be the types of companies to research thoroughly, before you decide if they are a good fit for your portfolio or not. The two are a good fit for my portfolio, and provide quite a nice stream of growing dividend income, which is then reinvested into other attractively priced income producing assets.

As an added bonus to my readers, I am also going to mention another recent dividend increase, which is not from a high yield company. However, I believe that this company can achieve the type of dividend growth to reach high yields on cost in the future for those who manage to acquire the shares at attractive valuations. The company is Yum! Brands (YUM), which operates quick service restaurants in the United States and internationally. It operates in six segments: YUM Restaurants China, YUM Restaurants International, Taco Bell U.S., KFC U.S., Pizza Hut U.S., and YUM Restaurants India.

The company raised its quarterly dividend by 11% to 41 cents/share. This marked the tenth consecutive annual dividend increase for this dividend achiever. The stock is overvalued at 21.30 times forward earnings, but it does have potential for a lot of international growth. I hold a small position in it, and would like to add some more at 2.50% entry yields. Check my analysis of Yum.

Full Disclosure: Long PM and O, YUM

Relevant Articles:

How to Generate an 11% Yield on Cost in 6 Years
How to read my weekly dividend increase reports
How to Retire Early With Tax-Advantaged Accounts
How to read my stock analysis reports
Should I invest in AT&T and Verizon for high dividend income?

Monday, September 8, 2014

Two High Yield Companies Raising Dividends in the past month

In the past couple of weeks, there were two high yielding dividend growth stocks, which announced dividend hikes. I typically look for sustainable dividend payments, which can also grow over time. The companies I am about to mention, pay a large portion of earnings per share to shareholders in the form of distributions, which is why future expected growth is not going to be very high. However, for those who need high current income today, companies like those could be decent holdings in a diversified income portfolio. I hold stakes in both companies, and enjoy getting paid to own those shares. It is a very nice feeling to be paid cash dividends that grow faster than my salary, even if I decide to stay in bed and watch soap operas all day long.  With dividend investing, the big money is made by sitting, or sleeping, rather than through frenetic investment activity.

The companies raising distributions include:

Verizon Communications Inc. (VZ) provides communications, information, and entertainment products and services to consumers, businesses, and governmental agencies worldwide. The company raised its quarterly dividends by 3.80% to 55 cents/share. Verizon has managed to boost dividends for 10 years in a row. Over the past decade, Verizon has managed to increase dividends by 3%/year. Currently, this dividend achiever is attractively priced at 14.10 times forward earnings and yields 4.40%. I would expect that Verizon manages to grow dividends per share by about 3% - 4%/year in the foreseeable future. Check my analysis of Verizon.

Altria Group, Inc. (MO), through its subsidiaries, manufactures and sells cigarettes, smokeless products, and wine in the United States. The company raised its quarterly dividends by 8.30% to 52 cents/share. Altria has managed to boost dividends for 45 years in a row. Over the past five years, Altria has managed to increase dividends by 9.20%/year. Currently, this dividend champion is attractively priced at 16.90 times forward earnings and yields 4.80%. I would expect that Altria manages to grow dividends per share by about 6%/year in the foreseeable future, driven by its pricing power, strong position in the domestic tobacco market, as well as its 27% interest in SAB Miller. I will reinvest those dividends from Altria into more Altria shares. Check my analysis of Altria.

Both companies are valued properly right now for patient long-term investors, who also need income right now. For example, if we assume a 30 year investment period, and 3% annual growth in earnings per share, and require a 10% annual return, the discounted valued for Verizon is approximately $45.20/share. Using the same parameters for Altria, the discounted value comes out to $32.60/share. Those are of course very conservative expectations, although those fair values represent the value of the business to a private owner. Of course, in the case of Verizon, the future growth would likely be around 3%/year, whereas for Altria I expect that earnings per share to be closer to 5% – 6%/year for the next 30 years. The majority of growth in earnings will likely occur in the first 15 years or so, after which growth will probably get lower.Of course, I don't really do much in terms of discounted analysis, but based on what I know from analyzing both businesses, I prefer Altria to Verizon. Let's circle back in 20 years, and see if I was right.

Full Disclosure: Long VZ and MO

Relevant Articles:

Altria Group (MO): A Smoking Hot Dividend Champion
Should I invest in AT&T and Verizon for high dividend income?
Let dividends do the heavy lifting for your retirement
Why I don’t do discounted cash flow analysis on dividend paying stocks
Should I buy more high yielding stocks in order to retire early?

Monday, July 21, 2014

Five Dividend Machines With Growing Distributions

As part of my process of monitoring my proprietary list of dividend growth stocks, I monitor dividend increases regularly. This allows me to document any dividend increases for companies I own, by focusing on amount and frequency of the hike relative to past history and my expectations. This exercise also allows me to take note of any companies which have above average dividend growth potential. It is much easier to isolate companies that have certain behaviors such as high dividend growth, when they actually exemplify those behaviors, in comparison to a process where companies are screened for. Once a company with a certain set of characteristics is identified through the list of dividend increases, it is placed on the list for further research.

A few companies that raised dividends in the past week include:

Omega Healthcare Investors, Inc. (OHI) is a real estate investment firm. Omega Healthcare Investors increased quarterly dividend to 51 cents/share for an 8.50% increase over the distribution in the same time last year. This marked the 12th consecutive annual dividend increase for this dividend achiever. Omega Healthcare Investors has a five year dividend growth rate of 9.30%/year. This real estate investment trust (REIT) currently yields 5.40%. Check my analysis of Omega Healthcare Investors.

Kinder Morgan Energy Partners, L.P. (KMP) operates as a pipeline transportation and energy storage company in North America. Kinder Morgan Energy Partners increased quarterly distributions to $1.39/unit, for a 5.30% increase over the distribution in the same time last year. This master limited partnership has increased distributions to unitholders for 18 years in a row. Kinder Morgan Energy Partners has a ten year distribution growth rate of 7.40%/year. This MLP currently yields 6.70%.Check my analysis of Kinder Morgan.

Kinder Morgan, Inc. (KMI) operates as a midstream and energy company in North America, and is the general partner behind Kinder Morgan Energy Partners and El Paso Pipeline Partners. Kinder Morgan increased quarterly dividend to 43 cents/share. Kinder Morgan has managed to boost quarterly payouts by 43%, since going public in 2011. In comparison, the limited partnership has raised distributions by 20.90% over the same time period. I really like the fact that the owner of Kinder Morgan has almost all of his net worth in the company's stock, and limited partnership units. I enjoy being a part owner in enterprises, where management has skin in the game. The company currently yields 4.70%.

The J. M. Smucker Company (SJM) manufactures and markets branded food products worldwide. J. M. Smucker increased quarterly dividend by 10.30% to 64 cents/share. This marked the 17th consecutive annual dividend increase for this dividend achiever. Over the past decade, J.M. Smicker has managed to increase annual dividends by 9.50%/year. The company sells at 17.50 times forward earnings and yields 2.40%. I would consider initiating a position in the stock on dips below $102. Check my analysis of J.M. Smucker.

National Retail Properties, Inc. (NNN) is a publicly owned equity real estate investment trust. National Retail Properties increased quarterly dividend by 3.70% to 42 cents/share. This marked the 25th consecutive annual dividend increase for this dividend champion. National Retail Properties has a ten year dividend growth rate of only 2.30%/year. This REIT currently yields 4.50%.

Full Disclosure: Long OHI, KMR, KMI

Relevant Articles:

How to read my weekly dividend increase reports
Richard Kinder: The Warren Buffett of Energy
I admire Investors with Skin in the Game
Types of dividend growth stocks
Why am I obsessed with dividend growth stocks?

Monday, July 14, 2014

ConocoPhillips Rewards Long-Term Investors with consistent dividend increases

ConocoPhillips (COP) explores for, develops, and produces crude oil, bitumen, natural gas, liquefied natural gas, and natural gas liquids worldwide. Over the past week, the company’s board of directors approved a 5.80% increase in the quarterly dividend to 73 cents/share. After this increase, this dividend achiever has managed to boost cash payouts to its patient long-term investors for a cool 14 years in a row. This was the second dividend increase after the spin-off of Phillips66. The first increase was by 4.50%  to 69 cents/share in 2013.

When I last analyzed ConocoPhillips, I really liked what I saw. I have been adding to the stock for the past two years. I really like the fact that the company trying to deliver value to shareholders by focusing on projects with the best potential for return on capital, in order to deliver an annual growth in production between 3 – 5 % per year. As a result of the company’s ongoing portfolio optimization and effort to increase returns on capital, the company has been able to deliver results to shareholders. One of the company’s stated objectives of delivering a return to shareholders has been through regular dividend increases.

In fact, after the dividend increase was announced, the company’s CEO was quoted in the press release, stating that “A compelling dividend remains a top priority for our company and reflects our commitment to deliver competitive shareholder returns”.

One of the biggest misconceptions about ConocoPhillips is that the company didn't increase dividends in 2012. To the inexperienced investor, who doesn't dig deeper into the data, it looks like the company maintained the dividend at 66 cents/share between 2011 and 2013. The reality is that the dividend investor from early 2012 owned one share of COP that paid them 66 cents/share. This dividend investor received half a share of Phillips 66 (PSX) in the middle of 2012, after the company was spun off, that paid them 20 cents/share initially. In addition, they still held on to their original share of ConocoPhillips, which paid 66 cents/share. So as a result, the investor was left with a share of the new ConocoPhillips (COP), and the half share in Phillips 66 (PSX). The new ConocoPhillips company owned only the exploration and production portion of the old ConocoPhillips, but it still paid the same dividend amount as if it was the larger predecessor company. The first quarter after the spin-off, the shareholder received 66 cents from ConocoPhillips shares and 10 cents from their half share of Phillips 66. Subsequently, Phillips 66 dividend has been increased to 50 cents/share. Phillips 66 ended up with the Refining and Marketing assets from the original ConocoPhillips company from pre-2012. Those include Refineries in the US, as well as pipelines and terminals across the US. Contrary to popular opinion, the gas stations that you see in the US, that have the name ConocoPhillips or Phillips 66 are not owned by either company. Those have been sold out almost a decade ago, in an effort for the legacy ConocoPhillips to focus on its core competencies.

This is why you need to hold on to your spin-offs, and not sell them. Investors who fixate on having a certain number of companies in their portfolios might end up selling companies like Phillips 66, because they are arguing that they have too many companies in their portfolios to monitor. In my experience, selling a spin-off is usually a mistake. My experience includes Phillip Morris separating into Altria (MO), Phillip Morris International (PM) and Kraft, and the subsequent split of Kraft into Mondelez (MDLZ) and Kraft (KRFT). It also includes the split of Abbott into Abbott (ABT) and Abbvie (ABBV). I hold on to those positions, because the research I have read indicates that this has been the smart thing to do in the past. I initiated a position in ConocoPhillips after the spin-off however, which is why I don't own any Phillips 66.

I believe that this is a great company to buy and then hold on for many decades, while receiving higher dividends over time, that eventually surpass the cost basis of the stock.Unfortunately, I believe that shares have gone up quicker than I anticipated. Depending on other opportunities available for my capital, I would not be opposed to further building out my position in ConocoPhillips. It would be nice if I can add to my position at a starter yield of 4% or forward P/E of around 11.

What is your opinion on the company and the shares?

Full disclosure: Long COP, MO, PM, KRFT, MDLZ, ABBV, ABT

Relevant Articles:

Four Practical Dividend Ideas for my SEP IRA
ConocoPhillips (COP) Dividend Stock Analysis 2014
Why Investors Should Look Beyond Typical Dividend Growth Screens
How to Generate Energy Dividends Despite the Peak Oil Nonsense
Six Slow & Steady Dividend Achievers Boosting Distributions

Monday, June 16, 2014

Ten Dividend Increases For Further Review

As a dividend growth investor, I spend several hours per week screening for attractive candidates for my portfolio and then researching them in detail. I believe in fundamental analysis first and foremost. I look for stability and stimulants for growth in earnings that can deliver strong dividend growth and stock price gains in the future. I also believe in regular monitoring of dividend growth stocks, in order to check how companies I own are doing. One aspect of monitoring involves checking for any recent dividend increases for every company in the US. That way I can not only monitor my holdings, but also find out about prospective dividend growth stocks at the start of their potential long journeys to stardom.

Over the past week, there were several dividend growth stocks that announced their intent to increase distributions to shareholders. I only included those that have managed to increase dividends for at least one
decade. The companies include:

Target Corporation (TGT) operates general merchandise stores in the United States and Canada. The company raised its quarterly dividends by 20.90% to 52 cents/share. This dividend champion has increased dividends for 47 years in a row. In the past decade, the company has managed to increase dividends by 19.80%/year. The stock is attractively valued at 15.50 times forward earnings and a current yield of 3.60%. Despite headwinds that the company has faced in the past year, I find the stock to be attractively valued, and I have been adding to my exposure several times so far this year. Check my analysis of Target.

Casey’s General Stores, Inc. (CASY), operates convenience stores in 14 Midwestern states, primarily Iowa, Missouri, and Illinois. The company raised its quarterly dividends by 11.10% to 20 cents/share. This dividend achiever has increased dividends for 15 years in a row. In the past decade, the company has managed to increase dividends by 19.10%/year. The stock is attractively valued at 20.10 times forward earnings and a current yield of 1.10%. Check my analysis of Casey’s General Stores.

Caterpillar Inc. (CAT) manufactures and sells construction and mining equipment, diesel and natural gas engines, industrial gas turbines, and diesel-electric locomotives worldwide. The company raised its quarterly dividends by 16.70% to 70 cents/share. This dividend achiever has increased dividends for 21 years in a row. In the past decade, the company has managed to increase dividends by 12.70%/year. The stock is attractively valued at 17.20 times earnings and a current yield of 2.60%. Check my analysis of Caterpillar.

Universal Health Realty Income Trust (UHT) is a real estate investment trust, that invests in healthcare and human service related facilities. The company raised its quarterly dividends by 0.80% to 63 cents/share. This dividend champion has increased dividends for 28 years in a row. In the past decade, the company has managed to increase dividends by 2.40%/year. This REIT currently yields 5.85%. I sold my stake in the company last year, given the anemic dividend growth of the past and do not plan on initiating a position again.

C. R. Bard, Inc. (BCR) designs, manufactures, packages, distributes, and sells medical, surgical, diagnostic, and patient care devices worldwide. The company raised its quarterly dividends by 4.80% to 22 cents/share. This dividend champion has increased dividends for 43 years in a row. The stock is attractively valued at 16.60 times earnings and a current yield of 0.60%. In the past decade, the company has managed to increase dividends by 6.20%/year. Ordinarily given the low yield and low dividend growth, I will take a pass at this time. However, there is something about C.R. Bard’s relentless increase in earnings per share that makes me really want to add the stock to my list for further research.

National Fuel Gas Company (NFG) operates as a diversified energy company in the United States. The company raised its quarterly dividends by 2.70% to 38.50 cents/share. This dividend champion has increased dividends for 44 years in a row. In the past decade, the company has managed to increase dividends by 3.40%/year. The stock is overvalued at 21.50 times forward earnings and a current yield of 2.10%. Given the low growth, I would take a pass on it for the time being.

Oil-Dri Corporation of America (ODC) mines, develops, manufactures, and markets sorbent products in the United States and internationally. The company raised its quarterly dividends by 5.30% to 20 cents/share. This dividend achiever has increased dividends for 12 years in a row. In the past decade, the company has managed to increase dividends by 9.60%/year. The stock is attractively valued at 16.40 times forward earnings and a current yield of 2.70%. I would add it to my list for further research.

Essex Property Trust, Inc. (ESS) is a real estate investment trust in the United States that engages in the ownership, operation, management, acquisition, development, and redevelopment of apartment communities, as well as commercial properties. The company raised its quarterly dividends by 7.40% to $1.30/share. This dividend achiever has increased dividends for 20 years in a row. In the past decade, the company has managed to increase dividends by 4.30%/year. This REIT yields 2.90% today, which I believe to be low for a pass-through entity these days.

Best Buy Co., Inc. (BBY) operates as a multi-national, multi-channel retailer of technology products in the United States, Canada, China, and Mexico. The company raised its quarterly dividends by 11.80% to 19 cents/share. This dividend achiever has increased dividends for 12 years in a row. In the past decade, the company has managed to increase dividends by 13%/year. The stock is attractively valued at 12.60 times forward earnings and a current yield of 2.60%. I need to add Best Buy on my list for further research.

FedEx Corporation (FDX) provides transportation, e-commerce, and business services in the United States and internationally. The company raised its quarterly dividends by 33.30% to 20 cents/share. This dividend achiever has increased dividends for 12 years in a row. In the past decade, the company has managed to increase dividends by 10.70%/year. The stock is overvalued at 21 times forward earnings and a current yield of 0.60%. I would add it on my list for further research.

Full Disclosure: Long TGT, CASY

Relevant Articles:

How long does it take to manage a dividend portfolio?
Buy and Hold means Buy and Monitor
Dividend Champions - The Best List for Dividend Investors
Dividend Achievers Offer Income Growth and Capital Appreciation Potential
How to read my weekly dividend increase reports

Monday, May 19, 2014

Clorox (CLX) Delivers a Disappointing Dividend Increase

The Clorox Company (CLX) manufactures and markets consumer and professional products worldwide. Last week, the company increased quarterly dividends by 4.20% to 74 cents/share. This marked the 37 consecutive annual dividend increase for this dividend champion. It was a disappointing increase however, which is much lower than what I am expecting. This is also the slowest dividend increase since 2006, when dividends were raised by 3.60% to 29 cents/share.

I still like the company, and would continue holding onto the stock I own, based on my original analysis of Clorox. However, I would not be adding to the company in the near future, because the annual dividend growth is lower than my 6% annual dividend growth target. In addition, the stock is trading at the top of my acceptable valuation range of 20 times earnings, although the yield at 3.20% is pretty decent, and sustainable for the time being. The company earned $4.32/share in 2013, and is expected to earn $4.33/share in 2014 and $4.50/share in 2015.

I also do not like the fact that revenues have increased from $4.324 billion in 2004 to $5.623 billion in 2013, but total net income went from 549 million to 572 million. Earnings per share went from $2.56 in 2004 to $4.30 in 2013, mainly due to massive share buybacks in 2005 and 2006. Those share buybacks resulted in negative book values per share, which are scaring novice investors. Many investors are thrown off from the supposed high debt levels for Clorox, but I am not seeing any reason for worry. The company could easily pay off all of its long-term debt within less than 3 – 4 years based off its free cash flow. Of course, in the current low yield environment, the incentive is to lock in those ridiculously low rates, not repay debt with cash that can deliver higher value to shareholders or by reinvesting in the business.

The chart below teaches one important lesson for dividend growth investors. The lesson is that dividend growth rates can fluctuate over time, and are not going to be consistent every single year. It is important to understand this, in order to avoid having unreasonable expectations. It is also important to note that one should not panic and sell, because of one or two years where the dividend is not increased fast enough. Year over year dividend growth can be lumpy, yet the ten year average growth could turn out to positively surprise investors. There were nine quarters between 2000 and 2002 and six quarters between 2003 and 2004, where dividend payments were unchanged. Despite this, annual dividend payments still increased every year during that period. However, investors who panicked and sold because they didn’t like the freeze missed out on a dividend that almost tripled.

Decl Date
Qtrly Dividends
Increase %
05/12/14
0.74
4.23%
05/12/13
0.71
10.94%
05/14/12
0.64
6.67%
05/18/11
0.6
9.09%
05/19/10
0.55
10.00%
06/11/09
0.5
8.70%
05/14/08
0.46
15.00%
05/24/07
0.4
29.03%
11/15/06
0.31
6.90%
11/16/05
0.29
3.57%
11/17/04
0.28
3.70%
07/16/03
0.27
22.73%
07/16/02
0.22
4.76%
07/19/00
0.21
5.00%
07/20/99
0.2
11.11%
07/14/98
0.18
12.50%
07/16/97
0.16
10.34%
07/17/96
0.145
9.43%
07/19/95
0.1325
10.42%
07/19/94
0.12
6.67%
03/19/93
0.1125
7.14%
04/16/92
0.105
7.69%
04/19/91
0.0975
8.33%
04/20/90
0.09
16.13%
04/21/89
0.0775
19.23%
03/18/88
0.065
18.18%
04/21/87
0.055
15.79%
04/18/86
0.0475
11.76%
04/29/85
0.0425
13.33%
04/30/84
0.0375
15.38%


Full Disclosure: Long CLX

Relevant Articles:

Clorox Company (CLX) Dividend Stock Analysis
Dividend Champions - The Best List for Dividend Investors
Should you sell after a dividend freeze?
When to sell your dividend stocks?
How to read my weekly dividend increase reports

Popular Posts