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

Saturday, March 15, 2014

General Mills Delivers a Consistent Dividend Raise to Shareholders

General Mills, Inc. (GIS) produces and markets branded consumer foods in the United States and internationally. Over the past week, the Board of Directors approved an 8% increase in the quarterly dividend to 41 cents/share. This marked the 11 consecutive annual dividend increase for this dividend achiever. Check my analysis of General Mills (GIS).

Chairman and CEO Ken Powell said, "General Mills and its predecessor firm have paid dividends without interruption or reduction for 115 years. This track record is testimony to the strong and steady operating cash flows generated by our consumer food brands. We expect dividends to grow with earnings over time, and we see this dividend growth as a key component of our long-term shareholder return model."

I generally view dividend increases as indication by management that they expect positive developments in the business in the coming year or two. This is because management only commits to an increased dividend payment amount, if their conservative estimates show business will pick up in the foreseeable future. If the business is unable to deliver the expected growth, and management has to cut the dividend, many share-owners would be unhappy. In contrast, share buybacks can be announced but not fulfilled if projects do not turn as expected. Therefore it is quite surprising that share buybacks are viewed by many on Wall Street as a superior to dividends as a way to return cash to shareholders.

General Mills has managed to pay dividends without cutting them for 115 years in a row, which is impressive. General Mills raised its dividends for 29 years in a row through 1995. However, after it spun-off Darden Restaurants (DRI) to shareholders, the dividend was frozen. General Mills raised dividends again between 1996 and 1999, but then kept them unchanged until 2004.

Over the past decade, General Mills has managed to increase dividends by 9.90%/year.
The company has managed to increase earnings per share from $1.22 in 2003 to $2.79 in 2013. Analyst estimates call for an increase to $2.88 in 2014 and $3.10 in 2015.

The stock fell on Friday, because it missed quarterly forecasts. However, I generally consider quarterly misses to be more of short-term noise than anything else. If the company is unable to grow earnings per share however in the next two years, it would likely be unable to grow the dividend as well. Therefore, that would be an indication that something has changed and your dollars might be better off somewhere else. Until then, I would not focus too much on quarterly misses or beats. Of course if a company I am watching dips after missing a few cents/share, it could create a decent opportunity to initiate or add to positions on the dip.

Currently, this dividend achiever is attractively priced at 18.50 times earnings and yields 3.30%. I recently added to my position in General Mills, in one of my tax-deferred accounts. I like the strong portfolio of quality brands, the stability of earnings and dividend growth, and the recession resistant type nature of the industry that General Mills operates in. With companies like General Mills, the big money is made by buying a patiently holding for decades, and letting the power of compounding do its work for your wealth accumulation.

Full Disclosure: Long GIS

Relevant Articles:

Four Practical Dividend Ideas for my SEP IRA
General Mills (GIS) Dividend Stock Analysis
Dividend Investors Should Ignore Market Fluctuations
Five Quality Dividend Payers I Bought on the Dip
How to read my weekly dividend increase reports

Monday, February 24, 2014

Five Dividend Growth Companies Boosting Cash Payouts

The goal of every dividend investor is to build a portfolio of quality income producing companies, which provide enough in income for them to live off of. It is also very important to focus on those companies that can afford to increase dividends over time, in order to maintain the purchasing power of your income. In order to achieve that, investors go through a lot of screening, analyzing companies in detail, and waiting for the right valuations, in order to build that portfolio brick by brick. Once purchased, it is also of utmost importance to keep monitoring the companies you own for major developments such as earnings releases, merger and acquisitions and dividend increases. This monitoring process could also help you identify hidden dividend gems, before they hit the lists of dividend achievers or dividend champions.

The following companies managed to raise dividends in the past week. These included either companies I own, or companies whose progress I am actively monitoring:

The Coca-Cola Company (KO), a beverage company, engages in the manufacture, marketing, and sale of nonalcoholic beverages worldwide. This dividend king approved its 52nd consecutive annual dividend increase, after hiking quarterly distributions by 9% to 30.50 cents/share. Over the past decade, Coca-Cola has managed to increase dividends by 9.80%/year. Currently, the stock is close to the top of my acceptable valuation range at 19.30 times earnings and a current yield of 3.30%. Despite headwinds the company seems to be facing, it seems investors overreacted to its forward guidance, where currency fluctuations were expected to shave off 7% of earnings per share. I generally see currency fluctuations as a wash, and I also do not think one should focus only on revenues, but on earnings per share. Hence, I will keep holding on to my stock, and might add another big chunk in early 2015, if my naked puts get exercised. Check my analysis of Coca-Cola.

Wal-Mart Stores, Inc. (WMT) operates retail stores in various formats worldwide. The company disappointed investors last week it’s the slowest rate of dividend increases ever as it boosted distributions by 2% to 48 cents/share. In contrast, over the past five years, Wal-Mart has managed to increase dividends by 14.20%/year on average. This was nevertheless the 41st consecutive annual dividend increase for this dividend champion. While the latest increase was disappointing, I am maintaining a wait and see attitude with the company and would continue holding on to my shares. However, I do not plan on adding more to the stock and would be deploying dividends elsewhere. Currently, the stock is cheap at 14 times earnings and yields 2.60%. Check my analysis of Wal-Mart.

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 raised its quarterly dividend by 7% to 57.50 cents/share. This marked the 58th consecutive annual dividend increase for this dividend king. Over the past decade, Genuine Parts Company has manage to increase dividends by 6.20%/year. Currently, the stock is close to the top of my acceptable valuation of 19.60 times earnings and yields 2.70%. I might considering initiating a position in the company, unless of course there aren’t better values at the time I have investable cash. Check my analysis of Genuine Parts Company.

NextEra Energy, Inc. (NEE), through its subsidiaries, engages in the generation, transmission, distribution, and sale of electric energy in the United States and Canada. The company raised its quarterly distributions by 9.80% to 72.50 cents/share. This marked the 20th consecutive year of dividend increases for this dividend achiever. Over the past decade, NextEra has managed to increase dividends by 8.20%/year. Currently the shares are trading at 17.40 times forward earnings with an yield 3.10%, which is not attractive valuation for an utility. Check my analysis of NextEra.

AbbVie Inc. (ABBV), a research-based biopharmaceutical company, engages in the discovery, development, manufacture, and sale of pharmaceutical products worldwide. The company increased its quarterly dividends by 5% to 42 cents/share. The company was formed after Abbott Laboratories split into two firms – AbbVie and Abbott Laboratories. Prior to the split, the original Abbott Labs had managed to raise dividends for 40 years in a row. After the split, I decided to hold on to both companies, and have been satisfied with the results so far. Currently, Abbvie is priced at the top of my acceptable valuation range of 19.90 times earnings although it yields 3.30%. However, I am not interested in adding more there, because of the patent cliff that drug Humira faces later this decade. Check my analysis of the split for more information.

Full Disclosure: Long KO, WMT, ABBV, ABT

Relevant Articles:

Dividend Growth Investor Article Archive
Should dividend investors hold on to Abbott (ABT) and Abbvie (ABBV) following the split?
How to read my weekly dividend increase reports
How to read my stock analysis reports
The Dividend Kings List for 2014

Monday, February 17, 2014

Three Dividend Growth Stocks Defying Skeptics Expectations

Everyone likes the story of the underdog . This is the person who has everything going against them in life, yet they still prevailed. Every person can identify themselves as the underdog, because most everyone has been an underdog at some stage of his or her life.

The following three companies have managed to defy skeptics expectations, and prove them wrong, time and again. The companies are Digital Realty Trust (DLR), Dr Pepper Snapple (DPS) and PepsiCo (PEP).

Digital Realty Trust (DLR) recently increased its quarterly dividend by 6.40% to 83 cents/share. This REIT has raised distributions since going public in 2004. Back in May 2013, a short-seller hedge fund announced that Digital Realty would melt to $20/share. Hence they initiated a short position in the REIT, which has made a lot of investors very nervous. The hedge fund guy had several points about why the stock is going down, which I refuted point by point back in May. The other factor that scared investors in REIT in general was the threat of rising interest rates, which is supposed to obliterate the sector. In reality, even if treasury bonds yield 5%, investors would still be better off in high yielding REITs that can grow distributions over time. This is because those REITs will protect the purchasing power of income and principal against inflation. I have since added to my position in Digital Realty, and in one of those accounts I am automatically reinvesting distributions into more share ( this is something I rarely do). While I have no clue whether the stock price is going up or down from here, I am fairly confident that the dividend is going up over time.

It is likely that slowing dividend growth is probably worrying some investors. However, I have no problem holding a company with a safe 6% yield, which is growing above the rate of inflation. Check my analysis of Digital Realty Trust.

PepsiCo (PEP) was another company raising distributions in the past week. Despite decreased soda consumption in North America, the company has growth in snacks and in international sales. The company announced a 15 percent increase in its annualized dividend to $2.62 per share from $2.27 per share, to take effect with the June 2014 payment. The increase will be the 42nd consecutive annual increase in dividends per share for this dividend champion. It also anticipates increasing share repurchases in 2014 to approximately $5 billion. Check my analysis of PepsiCo.

The company expects to grow earnings per share by 7% in 2014, which is a healthy number. If a company sells at the same price to earnings multiple, and expands earnings per share by 7%/year and pays a 3% annual dividends, this can provide the investor with an annual total return of 10%. The only downside I can see with PepsiCo is if the P/E multiple contracts to say 15 times earnings, which would be an opportunity for investors like me in the accumulation phase of the game to buy more stock for the same amount of funds. As I have explained before, price fluctuations should mean nothing to long-term investors, except for as a tool to find bargains that were underpriced by the manic-depressive Mr Market.  The upside for PepsiCo is earnings per share growth of at least 7%/year for the next 15 - 20 years. This could translate into earnings per share of almost $9 in 2024 and $18 in 2034. In reality, I could see that earnings per share growth can easily exceed that amount, given the exposure to growing emerging market economies, and a diversified products base.

The other upside for PepsiCo is if the snacks and beverages divisions are split-up, as some activist investors have recommended. This could unlock a lot of value for shareholders, as managements will be more focused on the core underlying segments, rather than two somewhat different businesses. In my experience, spin-offs are usually very beneficial to shareholders.

The other company I follow and own a small position in includes Dr Pepper Snapple (DPS). The compaby raised quarterly dividends by 7.90% to 41 cents/share. Dr Pepper Snapple was spun-off from Cadbury Schweppes in 2008, and has raised dividends since 2009. The company derives most of its profits from Carbonated Soft Drinks in the US, Canada and Mexico. This is not the rosiest of places to be heavily concentrated on, as volumes in North America have been decreasing for several years. However, the company has been able to cut costs, increase prices, repurchase stock and increase earnings per share even in this difficult environment. This is a quality company, which will be around 20 years from now, and will still be pumping out cold hard cash for shareholders. I could see how the company can easily grow earnings per share by 7%/year for the next 20 years, and pay a 3% yield, for an annual total returns of 10%. The company sells at 16 times earnings, which is cheaper than rivals Coca-Cola and PepsiCo. The one kicker is that every 20 years or so, Dr. Pepper could earn a couple billion dollars from its licensing agreements with PepsiCo and Coca-Cola, which are used for share buybacks and debt reductions. Plus, there is always the possibility that Dr. Pepper gets acquired by one of its larger rivals, which could result in better payoffs for shareholders.

However, I am actually more bullish on PepsiCo and Coca-Cola (KO), because they derive a large portion of revenues from outside the US. That being said, I still find Dr Pepper to be an impressive company. However, adding a third “soda” company to my portfolio is not really adding that much to it. Hence, I am keeping the amount invested below 1%. Check my analysis of Dr. Pepper.


Full Disclosure: Long DPS, DLR, KO and PEP

Relevant Articles:

Dividend Investors Should Ignore Market Fluctuations
PepsiCo (PEP) - A great dividend stock for long-term investors
Dr. Pepper Snapple Group (DPS): A Cheap Stock with Dividend Growth Potential
Five Things to Look For in a Real Estate Investment Trust
Dividends Offer an Instant Rebate on Your Purchase Price.

Monday, December 23, 2013

Seven dividend companies bringing holiday joy to shareholders

The goal of every dividend investor is to generate a rising stream of sustainable dividend income. The growth in dividends protects the purchasing power of the income, and further turbochargers the compounding process in the accumulation phase. Not all dividend increases are created equal however, as they vary depending on size and sustainability. It is important to focus on growing income, but it is also important to focus on those companies that can sustainably pay distributions out of their growing earnings. Without growth in earnings, future dividend growth would eventually hit a ceiling. In addition, dividend investors should also refuse to purchase the rights to the future stream of dividends at any price.

If the investor manages to purchase quality dividend growth companies at fair prices after analyzing them individually, and puts them in a diversified income portfolio that is monitored regularly, they would greatly increase their odds of achieving their goals. Dividend stocks would therefore be the gift that keeps on giving for this investor, showering him with cash for years to come.

Over the past week, several dividend payers approved higher distributions for shareholders:

AT&T Inc. (T) provides telecommunications services to consumers, businesses, and other providers in the United States and internationally. The company raised dividends by 2.20% to 46 cents/share. This marked the 30th consecutive dividend increase for this dividend champion. Over the past decade, AT&T has raised dividends by 5.20%/year. Currently the stock trades at 13.90 times expected 2013 earnings and yields 5.40%. Given the deceleration of the dividend growth rate, and the increasing competition in the telecom markets, I am going to stay away from this one. This is not different than my stance on the company for the past five years. Check my analysis of AT&T.

Archer-Daniels-Midland Company (ADM) manufactures and sells protein meal, vegetable oil, corn sweeteners, flour, biodiesel, ethanol, and other value-added food and feed ingredients; and processes oilseeds, corn, wheat, cocoa, and other agricultural commodities. The company raised dividends by 26.30% to 24 cents/share. This marked the 39th consecutive dividend increase for this dividend champion. Over the past decade, Archer-Daniels-Midland has raised dividends by 9.10%/year. Currently the stock trades at 19.40 times earnings and yields 2.30%. I like the company, and would like to add to my position on dips below $38.50/share. Check my analysis of ADM.

3M Company (MMM) operates as a diversified technology company worldwide. The company raised dividends by 34.60% to 85.50 cents/share. This marked the 56th consecutive dividend increase for this dividend king. Over the past decade, 3M has raised dividends by 6.60%/year. Currently the stock trades at 20 times estimated 2013 earnings and yields 2.50%. It is nice to see another company that becomes a better dividend value in this otherwise overheated environment. Check my analysis of 3M.

Realty Income Corporation (O) is a publicly traded real estate investment trust that invests in commercial real estate markets of the United States. The company raised dividends to 18.217 cents/share. This dividend achiever has raised distributions since 1994. Over the past decade, the REIT has raised dividends by 4.20%/year. Currently the stock trades at 15.70 times FFO and yields 5.50%. The increase in interest rates in a few years might lead to further declines in stock prices for REITs. As a long-term investor, I see some growth in distributions from Realty Income in the future fueled by acquisitions and rent increases. This makes this REIT a buy in my book. I recently sold some January 2015 at-the-money puts on the stock. Check my analysis of Realty Income.

CVS Caremark Corporation (CVS), together with its subsidiaries, provides integrated pharmacy health care services in the United States. The company raised dividends by 22.20% to 27.50 cents/share. This marked the 11th consecutive dividend increase for this dividend achiever. Over the past decade, CVS has raised dividends by 18.80%/year. Currently the stock trades at 17.70 times estimated 2013 earnings and yields 1.60%. While the stock is below my minimum entry yield requirement, I would continue monitoring future developments at CVS.

General Electric Company (GE) operates as an infrastructure and financial services company worldwide.
The company raised dividends by 15.80% to 22 cents/share. This marked the 4th consecutive annual dividend increase for General Electric. The new dividend is still below the levels of 31 cents/share for shareholders, that was last seen in early 2009. Currently the stock trades at 16.70 times estimated 2013 earnings and yields 3.30%. I plan on reviewing GE in more detail in the coming weeks, in order to determine if it is worthy of my investment dollars.

Urstadt Biddle Properties, Inc. (UBA), a real estate investment trust (REIT), engages in the acquisition, ownership, and management of commercial real estate properties in the United States.
The company raised dividends by 1% to 25.25 cents/share. This marked the 20th consecutive dividend increase for this dividend achiever. Over the past decade, Urstadt Biddle Properties has raised dividends by 2%/year. Currently the REIT trades at 20 times FFO and yields 5.50%. I am generally not a fan of dividend growth companies that raise dividends simply to maintain a streak, but the nominal raises are below the rate of inflation. Despite the high current yield, I do not find the company worthy of further research.

Full Disclosure: Long O, MMM and ADM

Relevant Articles:

Check the Complete Article Archive
The Dividend Kings List Keeps Expanding
My Dividend Retirement Plan
Dividend Investing Goals for 2013
Margin of Safety in Dividends

Friday, December 6, 2013

Becton Dickinson (BDX) Dividend Stock Analysis

Becton, Dickinson and Company (BDX), a medical technology company, develops, manufactures, and sells medical devices, instrument systems, and reagents worldwide. This dividend champion has been able to boost distributions for 42 years in a row.

The company’s last dividend increase was in November 2012 when the Board of Directors approved a 10% increase to 54.50 cents/share. The company’s peer group includes Medtronic (MDT), Baxter International (BAX) and St. Jude Medical (STJ).

Over the past decade this dividend growth stock has delivered an annualized total return of 12.40% to its loyal shareholders.


The company has managed to deliver an 8.70% average increase in annual EPS since 2004. Analysts expect Becton Dickinson to earn $6.26 per share in 2014 and $6.84 per share in 2015. In comparison, the company earned $4.67/share in 2013. The company’s earnings were reduced by a one-time charge of $1.06/share related to a lawsuit filed against the company by Retractable Technologies.

Becton Dickinson has also managed to repurchase plenty of shares over the past decade, bringing the number of shares from 263 million in 2003 to 200 million in 2013.

Becton Dickinson operates in three segments:

Medical (Over 50% of sales)
BD Medical produces a broad array of medical devices that are used in a wide range of healthcare settings. The primary customers served by BD Medical are hospitals and clinics; physicians’ office practices; consumers and retail pharmacies; governmental and nonprofit public health agencies; pharmaceutical companies; and healthcare workers.

Diagnostics (almost one third of sales)
BD Diagnostics provides products for the safe collection and transport of diagnostics specimens, as well as instruments and reagent systems to detect a broad range of infectious diseases, healthcare-associated infections (“HAIs”) and cancers. BD Diagnostics serves hospitals, laboratories and clinics; reference laboratories; blood banks; healthcare workers; public health agencies; physicians’ office practices; and industrial and food microbiology laboratories.

Biosciences (Approximately 14% of sales)
BD Biosciences produces research and clinical tools that facilitate the study of cells, and the components of cells, to gain a better understanding of normal and disease processes. That information is used to aid the discovery and development of new drugs and vaccines, and to improve the diagnosis and management of diseases. The primary customers served by BD Biosciences are research and clinical laboratories; academic and government institutions; pharmaceutical and biotechnology companies; hospitals; and blood banks.

I like the fact that almost half of revenues is derived from items that are essential and disposable, and which creates the need for customers to repeatedly keep buying more syringes and needles to name a few. I like that the Diagnostics segment is also characterized by recurring revenue streams, as the customers would face high switching costs if they move to another competition. Becton Dickinson’s scale allows it to compete effectively in the Medical segment.

Becton Dickinson should be able to generate higher sales in due to the sustainable demand for its diabetes products, disease testing products, and cell analysis products. The company generates almost 60% of its sales from international operations, which is expected to increase as it grows its presence in emerging markets. Becton Dickinson is also active on the acquisition front and is investing heavily in research and development, which should benefit the company through new product launches. Becton Dickinson has a solid long-term potential for its business, due to its strong position and due to the bullish prospects for its industry. The company enjoys strong demand for its products and a more favorable pricing than other competitors in its industry.

While the company is expected to face higher costs by $55 million from the implementation of the new medical device tax in 2013, it should be able to benefit from increased healthcare spending in the US and internationally.

The return on equity has remained high above 20% over the past decade. I generally want to see at least a stable return on equity over time.

The annual dividend payment has increased by 16.80% per year over the past decade, which is higher than the growth in EPS. The past three dividend announcements were for a hike of 10% in dividends each time. Going forward, I would expect dividend growth to closely approximate 10%.

A 10% growth in distributions translates into the dividend payment doubling every seven years on average. If we look at historical data, going as far back as 1975, one would notice that the company has actually managed to double distributions every six years on average.

The dividend payout ratio has increased from 27% in 2004 to 42% in 2012. This is a short-term spike, caused by one-time accounting items discussed above. On a forward 2014 earnings basis, the dividend payout ratio is approximately 35%. A lower payout is always a plus, since it leaves room for consistent dividend growth minimizing the impact of short-term fluctuations in earnings.

Currently Becton Dickinson is attractively valued at 17.40 times forward earnings, yields 2% and has a sustainable distribution. I recently initiated a small starter position in the stock. I find it much easier to monitor a company I am interested in, if I have some skin in the game. As a long-term dividend investor in the accumulation stage, I get excited if the companies I am interested in are on sale, because I get to buy more shares with my limited amounts of capital. Although this price is a low probability event, I plan on adding to my position on dips below $88/share, equivalent to an entry yield of 2.50%.

Full Disclosure: Long BDX and MDT

Relevant Articles:

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Monday, November 25, 2013

These Dividend Growth Stocks Increased Distributions to Shareholders

There were many companies that increased dividends in the past week. I skimmed the list, and narrowed it down by eliminating any company yielding less than 2% and only having a minimal dividend growth below the historical rate of inflation. The list is further narrowed down by removing any company that has not raised distributions for at least five years in a row.

This meant that companies like Brown-Forman (BF.B), which raised dividends by 13.80% to 29 cents/share, were excluded, because they yielded 1.50%. As a holder of Brown-Forman stock I am happy with that, despite the fact that shares are currently overvalued at 25.60 times forward earnings. Given the steady increase in distributions for 30 years in a row however, this dividend champion is a hold, but not a buy at these prices.

The companies that met the criteria included:

National Bankshares, Inc. (NKSH) operates as the bank holding company for the National Bank of Blacksburg, which provides a range of retail and commercial banking services to individuals, businesses, non-profits, and local governments. The bank raised its semi-annual dividend to 58 cents/share. This marked the 15 consecutive annual dividend increase for this dividend achiever. Over the past decade, National Bankshares has managed to boost dividends by 8.50%/year. The stock is attractively valued at 14.60 times earnings and yields 3.20%. I analyzed National Bankshares last year, but never really did anything about it. While the stock is a buy, I found other shares in the past 18 months which seemed better places for my money.

Lancaster Colony Corporation (LANC) manufactures and markets consumer products focusing primarily on specialty foods for the retail and foodservice markets in the United States. The company boosted its quarterly dividend by 10% to 44 cents/share. This marked the 52nd consecutive annual dividend increase for this dividend king. Over the past decade, Lancaster Colony has managed to boost dividends by 6.70%/year.  The stock looks pricey at 21.40 times forward earnings, and at a current yield of 2.10%. I would need to add it to my list for further research.

The Williams Companies, Inc. (WMB) operates as an energy infrastructure company. The company raised quarterly distribution by 3.75% to 38 cents/share. Williams has raised dividends for 11 years in a row. Since 2011, this dividend achiever has actually managed to boost distributions every single quarter. As a result, the new dividend is 16.90% above the dividend paid in Q4 2012. The really interesting part is that Williams Companies (WMB) expects to hike dividends to $1.75/share in 2014 and $2.11/share by 2015. Over the past decade, Williams has raised dividends by 11%/year. The stock yields 4.30%, and seems to sell for 43 times earnings. I would need to put the company on my list for further research, although I have a hunch that the high P/E is because of its interest in Williams Partners (WPZ).

The Laclede Group, Inc. (LG), through its subsidiaries, engages in the retail distribution, sale, and marketing of natural gas. The company raised its quarterly dividend by 3.50% to 44 cents/share. This marked the eleventh consecutive annual dividend increase for this dividend achiever. Over the past decade, Laclede has managed to boost distributions by only 2.20%/year. The stock yields 3.75% and trades at 17.90 times earnings. Given the metrics out there, I would say this stock is probably a decent hold, although future dividend hikes would likely be limited to compensate for inflation.

To summarize, by focusing on the weekly list of companies that increase dividends, one would be able to monitor their holdings and also uncover opportunities that their regular screens might have overlooked. I am definitely interested to learn how Lancaster Colony has managed to raise dividends for over half a century, and whether it can continue this streak. I am also going to research more on Williams Companies, given the high yield and high expected dividend growth.

Full Disclosure: Lon g BF-B

Relevant Articles:

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Monday, November 4, 2013

Qualitative Dividend Analysis of Aflac (AFL)

Aflac Incorporated (AFL), through its subsidiary, American Family Life Assurance Company of Columbus, provides supplemental health and life insurance products. Over the past week, insurer Aflac (AFL) increased quarterly distributions by 5.70% to 37 cents/share. This marked the 31st consecutive annual dividend increase for this dividend champion. This increase for roughly in line with the 6.10% dividend increase in 2012.

Over the past decade, this dividend champion has managed to boost distributions by 19.30% per year. Over the past five years however, the growth rate has decreased to 10.90%./year.

In my previous analysis of the stock, it was trading at 8.40 times earnings and yielded 2.90%. Analysts expect the company to earn $6.18/share in 2013 and $6.40/share by 2014. In comparison, the company earned $6.11/share in 2012 and $4.13/share in 2011. Given the slowdown in earnings expectations, chances are that dividend growth would likely be slower than the past.

The slow rate of dividend growth is disappointing. However, as a long-term investor I have found that I should have more patience, and not let a single point of data influence me into tinkering too much with my portfolio. After all, dividend growth rates fluctuate over time. If you purchased Aflac at starting yields above 2.50%, your dividend income is still growing at twice the historical rate of inflation.

Insurers like Aflac typically do not earn much from the spread between collecting premiums and paying out benefits. Most of their profits are derived from holding the so called “float”, which is the premiums received before payouts, and invest it in fixed income securities. As any serious investor worth their salt knows, interest rates have been a little low, to say the least. However, if interest rates were to increase over the next five years for example, this float is going to generate much higher earnings for companies like Aflac. Therefore, insurance companies are a play on rising interest rates over time.

The thing that is most interest about Aflac is that although it is a US based company, it generates the majority of revenues from Japan. Basically, the company sells supplemental life insurance and cancer insurance policies through approximately 120,000 agents. The company targets employers, and has managed to add its supplemental insurance policies as part of the overall benefits packages that employers offer to their workers. This keeps costs relatively low, and provides a very good scale and the ability to generate recurring revenues. The scale is because 90% of employers in Japan offer the Aflac insurance and because Aflac is selling to employers, rather than target individual employees – hence the salesforce gets most bang for their efforts. The recurring revenues are generated from the payroll deductions from the employees who signed up through their employer plans.

The company is also able to find new ways to sell more insurance, through creating new products or finding new channels. It started selling insurance through the bank channels in 2007, and this has been a big success. Aflac would also be a beneficiary of any technological improvements, as this could further decrease administrative costs for example.

Of course, the risk to Aflac is the fact that it earns revenues in Japan, where a large portion of population is aging and the country has a high debt levels, coupled with very low interest rates. Approximately 40% of Aflac’s investments are in Japanese bonds. This leaves the company somewhat less exposed to depreciation of the Japanese currency, although it still could have an adverse impact in the short-term. Longer term, I view the effect of currency fluctuations on net incomes as a wash, since currencies of developed countries are not debased significantly relative to the US dollar.

That being said, the company is still growing operations in Japan. Its competitive strengths include being a low cost producer, and its distributions network of selling policies though brokers, banks and the Japan Post Office.

The next growth kicker could be the Aflac US operations. Currently, it is providing insurance that offers protection against income and asset loss. For Aflac, voluntary insurance sold at the
worksite represents virtually all of its focus, whereas its competitors tend to offer voluntary products as a peripheral line of business. The company has also started in 2009 to target larger businesses, by offering Group Plans to the employees of those businesses.

The stock is attractively valued at 9.90 times earnings, but yields only 2.30% at the moment. I would consider adding to my position in the stock on dips below $59.

Full Disclosure: Long AFL

Relevant Articles:

Seven wide-moat dividends stocks to consider
Aflac (AFL) Dividend Stock Analysis
Dividend Champions - The Best List for Dividend Investors
My Entry Criteria for Dividend Stocks
Ten Dividend Paying Stocks I purchased in September


Friday, October 18, 2013

Six Confident Dividend Increases Despite Government Turmoil

The past week was characterized by the possibility of default by the US government. Luckily, the debt ceiling debate and the possibility of US defaulting on its obligations has been postponed to early 2014. A few corporations I follow however, tend to have a more long-term view of the economy. They proved that by approving dividend increases to their shareholders. Typically, dividend growth companies that expect increases in earnings in the next two – five years tend to approve dividend increases to shareholders.

The companies that announced dividend increases so far this week include:

Abbott Laboratories (ABT) engages in the discovery, development, manufacture, and sale of health care products worldwide. The company raised its quarterly dividends by a whooping 57% to 22 cents/share. This marked the 41st consecutive annual dividend increase for this dividend aristocrat. In early 2013, it spun-off Abbvie (ABBV), which explains the reduction in dividend payments. Every shareholder of Abbott at 12/31/2012 received a share of Abbvie, which currently pay 40 cents/quarter. Before the spin-off, the legacy Abbott paid 51 cents/share in quarterly dividends. Therefore, I am glad I bought Abbott in late 2012, and stayed with it. My dividend income is essentially up by over 20% in this position alone. You can read more about my take on the spin-off here. The yield on Abbott Laboratories today is 2.40%.

Kinder Morgan Energy Partners, L.P. (KMP) operates as a pipeline transportation and energy storage company in North America. This MLP managed to raise distributions to $1.35/unit, which is an increase of 7% over the distributions paid this time in 2012. This dividend achiever has grown distributions for 17 years in a row. Over the past decade, KMP has managed to raise distributions by 7.50%/year. I have exposure to KMP through my investment in Kinder Morgan Management (KMR), which holds limited partner interests in the partnership. With KMR, I do not have to worry about K-1 filings, as distributions are received directly as partial shares, which are treated like non-taxable stock splits from a taxation standpoint. I also like the fact that KMR always trades at a discount to KMP, hence I am able to get the same exposure for a lower price. I like the consistency and length of distributions, and the yield of 6.70%. Check my analysis of Kinder Morgan Partners.

Kinder Morgan, Inc. (KMI) owns and operates energy transportation and storage assets in the United States and Canada. The general partner behind Kinder Morgan Partners and the El Paso Pipeline raised its quarterly dividends to 41 cents/share. This was a year over year increase of 14%. I expect Kinder Morgan to be able to grow dividends by 9 – 12%/year over the next several years, fueled by growth in distributable cash flows from the partnerships it manages. As a general partner, it earns 50% of incremental distributable cash flows from both Kinder Morgan Partners and El Paso Energy Pipeline. Since going public in 2011, it has not failed to disappoint investors with solid increases in dividends. Despite the fears that certain analysts are trying to create among investors, this is a solid company with a solid manager, whose wealth is tied into this entity. I like the yield of 4.70% and the solid growth prospects of the entity, which is why it is my largest holding as of 9/30.

Enterprise Products Partners L.P. (EPD) provides midstream energy services to producers and consumers of natural gas, natural gas liquids (NGLs), crude oil, refined products, and petrochemicals in the United States and internationally. The partnership raised its quarterly distributions to 69 cents/unit, which is an increase of 6% over same time last year. The partnership is a dividend achiever, which has managed to boost distributions to loyal unit holders for fourteen years in a row. Over the past decade, it has managed to boost distributions by 6.70%/year. I made a controversial trade this year, where I sold 2/3 of my position in the partnership, and split the proceeds equally into Kinder Morgan Management (KMR), Kinder Morgan Inc (KMI) and ONEOK Partners (OKS). This was driven purely by the high valuation of EPD. In retrospect, I probably could have simply held on to Enterprise, which is a stable organization. However, even the best of us sometimes make mistakes and fail to stick to their long-term buy and hold nature. The new yield of 4.40% however is rather low, especially when Kinder Morgan Partners has slightly higher distributions growth and a much higher current yield. That being said, Enterprise is a good partnership to hold on to for the next decade, as it has some of the best distribution payout coverages in the MLP sector. Check my analysis of Enterprise Product Partners.

Omega Healthcare Investors, Inc. (OHI) operates as a real estate investment trust (REIT) in the United States. This REIT boosted quarterly distributions to 48 cents/share. The new dividend is 9.10% higher than the one paid in Q4 2012. This dividend achiever has raised distributions for ten years in a row. Over the past five years, it has managed to increase dividends by 9.40%/year. I purchased shares in the REIT in 2013, after selling my position in Universal Healthcare Realty Trust (UHT). When I analyzed this REIT a few months ago, I liked the opportunities for growth in FFO from its acquisitions strategy. I also like the fact that with Omega Healthcare I get not only a high current yield at 5.80%, but also the possibility for strong dividend growth.

Northwest Natural Gas Company (NWN) stores and distributes natural gas primarily in Oregon, Washington, and California. The company increased its quarterly dividends by 1% to 46 cents/share. This marked the 58th year of consecutive dividend increases for this dividend champion. Over the past decade, the company has managed to boost distributions by 3.60%/year. While I am a big fan of companies that can build a long streak of consecutive dividend increases, I am not a fan of anemic dividend increases simply for the sake of maintaining dividend growth streaks. If a company cannot grow dividends faster than inflation, and provide decent yields, I usually wait to enter during more advantageous times. I usually look for companies that have the capacity to grow earnings and grow dividends faster than inflation. Despite the high yield of 4.30%, I think this company is a hold at the very best.

Full Disclosure: Long KMR, ABT, ABBV, KMI, EPD, OKS, OHI

Relevant Articles:

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Abbott Laboratories: Quality Dividend Aristocrat for Long-Term Investors
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Monday, September 30, 2013

Two dividend paying stocks to consider today

Every week, I look at the list of weekly dividend increases, in order to uncover hidden opportunities. I also use it in order to review the dividend performance of the companies in my portfolio. In this article, I am going to highlight a couple companies, which raised dividends. I weeded out companies that has low current yields or had low streaks of dividend increases. I looked at the initial statistics such as earnings and dividend growth over the past decade, and I found them promising enough to put in focus, and place on my list for further research.

The two dividend paying companies in focus today include:

Lockheed Martin Corporation (LMT), a security and aerospace company, engages in the research, design, development, manufacture, integration, and sustainment of advanced technology systems and products for defense, civil, and commercial applications in the United States and internationally. The company raised its quarterly dividend by 15.60% to $1.33/share. This marked the eleventh consecutive annual dividend increase for this dividend achiever. Over the past decade, Lockheed Martin has managed to increase dividends at a rate of 24.70%/year. The company is projected to earn $9.46/share in 2013 and $9.64 by 2014.

Currently, Lockheed Martin trades at 13.60 times forward earnings and yields 4.10%. Values like this are hard to come by in the current environment. I analyzed the company back in 2010, and liked everything except for the fact it hadn’t raised distributions for ten years in a row. I plan on reviewing the company in more detail in a future post, and make a decision on whether I should buy it or not.

Accenture plc (ACN) provides management consulting, technology, and business process outsourcing services worldwide. The company raised its semi-annual dividend by 15% to 93 cents/share. This marked the ninth consecutive annual dividend increase for Accenture. Over the past five years, Accenture has managed to increase dividends at a rate of 28.70%/year. The company is projected to earn $4.47/share in 2014 and $4.94 by 2014.

Currently, Accenture trades at 16.60 times forward earnings and yields 2.50%. I like how the company has managed to grow earnings and dividends over the past decade, and I also like the strong brand name that company has.

I am going to place these quality companies on top of my list for further research. I like the fact that I still can find value even in an overextended market like todays.

Full Disclosure: None

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Monday, September 23, 2013

Six Notable Dividend Increases so far in September

In this article, I have highlighted several notable companies, which have approved dividend increases in the month of September 2013. The thing that makes these companies notable is the fact that they have not only achieved a long streak of consecutive dividend increases, but also keep showing a tenacity to continue rewarding shareholders with higher distributions over time. In addition, most of these companies provide meaningful current income to shareholders. The companies that boosted dividends include:

Philip Morris International Inc. (PM), through its subsidiaries, manufactures and sells cigarettes and other tobacco products. The company raised dividends by 10.60% to 94 cents/share. This dividend paying stock has consistently raised distributions since the spin-off from Altria Group (MO) in 2008. The average rate of dividend increase since 2008 has been 12.70%. The stock is attractively valued at 17.40 times earnings and yields 4.20%. I like the long-term growth picture behind this international tobacco conglomerate so much, that it has been my largest portfolio holding for several years in a row. Check my analysis of Philip Morris International

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. The company raised dividends by 5.20% to 81 cents/share. This was the lowest rate of increase since 2002, when dividends were raised by only 4.40%. The five year dividend growth rate is 13.90%/year. However, variability in dividend growth rates are something normal and to be expected in a long-term dividend holding. This dividend champion has raised distributions for 37 years in a row. The stock is attractively valued at 17.80 times earnings and yields 3.30%. I recently added to my position in the stock, and would buy more subject to availability of cash. Check my analysis of McDonald’s.

Realty Income Corporation (O) is a publicly traded real estate investment trust. The company raised monthly dividends to 18.185 cents/share. This dividend achiever has raised distributions for 19 years in a row. The five year dividend growth rate is low at 1.50%/year. However, this period includes the Financial Crisis, which led to steep dividend cuts across the REIT sector. The REIT yields 5.50%. I recently added to my position in Realty Income, with a purchase on Friday. Check my analysis of Realty Income.

Microsoft Corporation (MSFT) develops, licenses, and supports software, services, and hardware devices worldwide. The company raised dividends by 21.70% to 28 cents/share. This dividend achiever has raised distributions for 11 years in a row. The five year dividend growth rate is 15.10%/year. While the stock is attractively valued at 12.70 times earnings and yields 3.40%, I am not able to determine if 20 years from now it would have the same durable competitive advantages in has today. Check my analysis of Microsoft.

YUM! Brands, Inc. (YUM), together with its subsidiaries, operates quick service restaurants in the United States and internationally. The company raised dividends by 10.40% to 37 cents/share. This dividend achiever has raised distributions for ten years in a row. The five year dividend growth rate is 17.80%/year. The stock is valued at 23 times earnings and yields 2.10%. The company has had some short-term headwinds in China, which would likely create opportunities to accumulate the stock on weakness. I do not believe these short-term issues will affect the long-term growth potential of Yum Brands. I would look forward to adding to my position in Yum! Brands on dips below $60/share. Check my analysis of YUM! Brands.

W. P. Carey Inc. (WPC) is an independent equity real estate investment trust. The company raised its quarterly dividends to 86 cents/share. This dividend achiever has raised distributions for 16 years in a row. This REIT yields 5.20%. I had been following dividend increases in W.P. Carey for several years, and was aware of the potential for strong dividend growth after 2012. For whatever reason however, I failed to pull the trigger. Sometimes, failing to act timely on companies to buy can result in missed opportunities, which are not reflected on your brokerage statements or tax returns.

Full Disclosure: Long PM, MCD, O, YUM

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Monday, July 15, 2013

Six Slow & Steady Dividend Achievers Boosting Distributions

Dividend growth stocks are the gift the keeps on giving. If you have had the fortitude to identify, analyze and purchase a portfolio of at least 30 individual income stocks, you should be able to enjoy a rising stream of dividend income over time. Whether you reinvest your distributions or decide to spend them, you will be able to generate dividends for many years, from a simple idea that occurred to you several decades prior. In order to achieve maximum results however, you need to purchase shares at attractive entry price, then diversify and reinvest dividends in the best values, rather than automatically.

Over the past week, several dividend growth companies announced their intention to boost distributions to their shareholders:

Walgreen Co. (WAG), together with its subsidiaries, operates a network of drugstores in the United States. The company increased its quarterly dividend by 14.50% to 31.50 cents/share. This marked the 38th consecutive annual dividend increase for this dividend champion. Over the past decade, Walgreen has managed to boost distributions by 21.20%/year. Currently, the stock is trading at 21.33 times earnings and yields 2.60%. I would consider adding to my position on dips below 20 times earnings. Check my analysis of Walgreen.

Enterprise Products Partners L.P. (EPD) provides midstream energy services to producers and consumers of natural gas, natural gas liquids (NGLs), crude oil, refined products, and petrochemicals in the United States and internationally. The partnership increased its quarterly distribution to 68 cents/unit. This marked the 16th consecutive annual dividend increase for this dividend achiever. Over the past decade, Enterprise Products Partners has managed to boost distributions by 6.70%/year. Currently, the partnership yields 4.20%. I recently sold 2/3 of my position in the partnership, because I found it to be overvalued. Check my analysis of Enterprise Products Partners.

ConocoPhillips (COP) explores for, produces, transports, and markets crude oil, bitumen, natural gas, liquefied natural gas, and natural gas liquids on a worldwide basis. The company increased its quarterly dividend by 4.50% to 69 cents/share. This marked the 12th consecutive annual dividend increase for this dividend achiever. Over the past decade, ConocoPhillips has managed to boost distributions by 15.10%/year. Currently, the stock is trading at 10.50 times earnings and yields 4.20%. This is one of the few types of stocks that are undervalued in today’s market. Check my analysis of ConocoPhillips.

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 master limited partnership increased its quarterly dividend to 51 cents/unit. This marked the 10th consecutive annual dividend increase for this dividend achiever. Over the past decade, Genesis Energy has managed to boost distributions by 8.60%/year. Currently, the partnership yields 3.80%. I largely believe that investors who get a current yield of less than 4% today from pass-through entities such as Genesis Energy or Plains All American Pipeline are generally way too optimistic, despite low current interest rates. Their funds might be better invested elsewhere.

Plains All American Pipeline, L.P. (PAA), through its subsidiaries, engages in the transportation, storage, terminalling, and marketing of crude oil and refined products in the United States and Canada. The partnership increased its quarterly distributions to 58.75 cents/unit. This marked the 13th consecutive annual dividend increase for this dividend achiever. Over the past decade, Plains All American Pipeline has managed to boost distributions by 7.20%/year. Currently, the partnership yields 4.30%.

Cummins Inc. (CMI) designs, manufactures, distributes, and services diesel and natural gas engines, and engine-related component products. The company increased its quarterly dividend by 25% to 62.50 cents/share. This marked the 8 consecutive annual dividend increase for the company. Over the past decade, Cummins has managed to boost distributions by 19.60%/year. Currently, the stock is trading at 14.80 times earnings and yields 2.20%. The company looks interesting, and I would put it on my list for future analyses.

Full Disclosure: Long WAG, EPD, COP

Relevant Articles:

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Walgreen (WAG) Dividend Stock Analysis 2012

Monday, June 10, 2013

Three Interesting Dividend Increases to Learn From

In order to identify promising dividend candidates for further research, I follow a multi-dimensional approach. At least once per month, I run my dividend entry criteria screen on the dividend champions list in order to uncover attractively valued securities. I also review my portfolio, in order to determine whether I should initiate a position in a new stock or I should add to an existing position. Another method I use is to look at the weekly list of dividend increases, in order to identify up and coming dividend achiever, and also to monitor the dividend increases for my existing positions.

I identified the following dividend increases over the past week, which I found interesting.

Lowe’s Companies, Inc. (LOW) operates as a home improvement retailer. It offers products for maintenance, repair, remodeling, and home decorating. The company managed to increase dividends by 12.50% to 18 cents/share. This dividend king has managed to boost distributions for 51 consecutive years. While earnings per share have not grown above the high set in 2007, I believe that the company’s best days are ahead in the future. Lowe’s will benefit from the long-term recovery in the US housing sector, as well as expanding its presence domestically and internationally. The stock is not cheap right now at 23 time earnings and an yield of 1.70%, but it is a very good long-term hold. Check my analysis of Lowe’s.

Helmerich & Payne, Inc. (HP) engages in the contract drilling of oil and gas wells. The company raised its quarterly distributions by 233% to 50 cents/share. This dividend champion has rewarded its shareholders with growing distributions for 41 consecutive years. The company also hiked dividends back in late 2012 from 7 to 15 cents/share.

Company Chairman and CEO, Hans Helmerich commented, "We are pleased to be in position to deliver a meaningful level of yield to our shareholders while retaining a strong ability to continue to pursue growth opportunities."

High double or triple digit dividend growth rates are more of one-time events, rather than the norm in future dividend increases for companies. I have found that companies that increase dividends at a double or triple digit rates indicate a policy shift that is friendly for investors. In addition, their willingness to distribute more to investors shows confidence in the underlying business prospects over the next three to five years. When I look at situations where companies decided to boost their payout ratio, and increased dividends significantly, shareholders were much better off going forward. This includes increases in earnings, dividends and also total returns.

For example, since V.F. Corp (VFC) increased quarterly dividends from 29 to 55 cents/share in 2006, dividends are up 58% to 87 cents/share. Earnings per share are up from $4.72 in 2006 to 49.70 in 2012, while the stock price is up by 205% to $187/share.

In the case of Helmerich & Payne, the company always had a very low dividend payout ratio, because the number of drilling units in the industry in the US and around the world fluctuates a lot. However, they still managed to build the long history of dividend hikes. This dividend champion has raised distributions for 42 years in a row. If earnings continue growing, and the company starts to meaningfully increase distributions over time in the high single digits, shareholders will be well compensated for the risks they are taking. The stock looks cheap at 11.20 times earnings and yields 3.10%. I would need to look into it, analyze further over the coming few weeks.

Cracker Barrel Old Country Store, Inc. (CBRL) develops and operates the Cracker Barrel Old Country Store restaurant and retail concept in the United States. The company raised its quarterly distributions by 50% to 75 cents/share. This dividend achiever has raised distributions for 11 years ina row.

Ever since last year, when on April 26, 2012 Cracker Barrel increased quarterly dividends from 25 to 40 cents/share; the stock has been on a tear. The company has essentially tripled the dividend, and the stock has gone by 70%. Earnings per share have increased from $3.61 in 2011 to an expected range of $4.75 – $4.85 in 2013. Currently, the stock is fully valued at 20.80 times earnings and an yield of 3.10%.

At the end of the day, dividend growth investors need not only look at dividend yields but also the underlying earnings growth that fuels those distributions. If a company that has maintained a low payout ratio all of a sudden determines to share a greater portion of its already growing earnings stream, this unlocks a lot of value for shareholders and makes the asset even more appealing.

Full Disclosure: Long LOW

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Monday, May 20, 2013

Clorox Hikes Dividends, but is it a buy at current levels?

One aspect of dividend investing that is very appealing to me is the consistency of dividend increases for many of the dividend champions I own. I realize how I take these raises for granted, in the rare event when a stock I own freezes or cuts distributions.

Over the past week, Clorox (CLX) boosted dividends by 10.90% to 71 cents/share. This marked the 36th consecutive annual dividend increase for this dividend champion. Between 2002 and 2012, annual dividends have increased by 11.30% per year. Earnings per share increased by 11.60%/year. Check my analysis of Clorox.

The current yield increased to 3.20%, which is higher than the 2.88% which 30 year US Treasury Bonds offer right now. An investor in a company like Clorox today will likely earn much more in income over the next 30 years, compared to a 30 year US Treasury Bond.  As a result, fixed income allocation might not make sense for investors who look for current income. This would be driven by increases in profits over time, which would likely also result in much higher stock prices. If we experience an annual inflation of 3% over the next 30 years, an investment in Clorox with its rising dividends would essentially provide shareholders with a source of income that is relatively protected against inflation.

It is no surprise that investors are rushing to purchase quality dividend stocks right now, which is pushing valuations to overvalued levels.

The average estimate for 2013 earnings per share for Clorox is $4.30. The estimate for 2014 is $4.63. Based on these estimates however, I would not think it is reasonable to pay more than $86/share. For those investors who have owned Clorox for several years, such as myself however, holding on to this fine consumer goods company is a very good idea that will pay dividends for a long time. In the company’s Centennial Strategy, it targets 3 – 5% revenue growth, and profits above the rate of revenue growth. Given the company’s propensity to repurchase shares, I could easily see earnings per share growth in the high single digits for the foreseeable future. Given that the international segment is only approximately 20% of sales, I see this as a growth opportunity to expand the brand further outside the US.

One concerning factor is the high dividend payout ratio of 66% for 2013. If we use 2014 forward earnings however, the dividend payout falls to 61%, which is borderline high.


Over the past 30 years, investors in Clorox have done very well. The key to success had been investing at P/E ratios below 20, and holding on the position. Selling even after gains of 1000% would have been a mistake, as the company kept earning more income and kept raising dividends. While the next 30 years might not look the same as the past 30 years, this chart illustrates the power of selecting just a few quality stocks like Clorox for your dividend portfolio and then holding them for as long as possible. The data for 2013 assumes two payments at the new rate and two dividend payments at the old rate; it also assumes forward EPS projections for 2013 fiscal year.

Full Disclosure: Long CLX

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Monday, May 6, 2013

Four Select Dividend Increases of Note

I track the list of dividend increases every week for the stocks I own. Over the past week, there were 49 companies that raised dividends. I scanned the list and focused on the ones I own as well as another that I have been patiently waiting to purchase for the past two years. Whether the market goes up or down from here, these dependable dividend payers will continue generating the earnings streams to pay a stable and rising dividend to me. The stability of dividends from quality companies who stock I hold makes retirement planning much easier. The companies include:

International Business Machines Corporation (IBM) provides information technology products and services worldwide. The company raised quarterly distributions by 11.80% to 95 cents/share. This marked the 19th consecutive annual dividend increase for this dividend achiever. Currently, IBM trades at 14 times earnings and yields 1.90%.

I like the fact that IBM has been able to repurchase stock consistently since 1995, although I would prefer special dividends instead. I also like the fact that IBM has been able to transform and adapt its business model, and that it has a goal to earn $20/share in 2015. Check my analysis of IBM.

PepsiCo, Inc. (PEP) operates as a food and beverage company worldwide. The company raised quarterly distributions by 5.60% to 56.75 cents/share. This marked the 42th consecutive annual dividend increase for this dividend champion. Currently, PepsiCo trades at 21.10 times earnings and yields 2.80%. Check my analysis of PepsiCo.

The company has been slowing down dividend increases in the past two years, which shows management does not expect stellar performance over the next few years. I would probably hold on to PepsiCo for the next 20 – 30 years, but at this point it is price out of my buy range.

Royal Dutch Shell plc (RDS/B) operates as an independent oil and gas company worldwide. The company raised its quarterly dividend by 4.70% to 90 cents/share. This was the second year of dividend increases for the company. When dividends were frozen in 2010, this ended the company’s streak of 17 consecutive years of dividend increases. I purchased Royal Dutch Shell “B” shares after British Petroleum (BP) cut distributions in 2010. I like the company right now, especially as it is trading at 8.40 times earnings and yields 5%.

Costco Wholesale Corporation (COST) engages in the operation of membership warehouses. The company raised quarterly distributions by 12.70% to 31 cents/share. This marked the 11th consecutive annual dividend increase for this dividend achiever. Currently the stock trades at 24.40 times earnings and yields 1.10%.

I like the company’s business model, and believe that it has excellent growth opportunities ahead.
Unfortunately, I find the stock to be overvalued at present conditions, despite the fact that I like the business a lot. If Costco misses earnings projections in a given quarter, or when we get the next bear market in stocks, chances are that I would be salivating at the attractive stock prices as I initiate a position in it. I would like to obtain it at prices significantly below 20 times earnings.

I used the dip caused by IBM’s earnings release last month to initiate a small position in the company. This year I used dips in Yum! Brands (YUM) and Family Dollar (FDO) to acquire small positions on dips caused by irrational markets. If I had spare funds right now, I would have probably added to my position in ONEOK Partners (OKS) on the dips as well.

Full Disclosure: Long IBM, PEP, YUM, FDO, OKS, RDS/B

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Monday, April 29, 2013

Four Attractively Priced Dividend Stocks Boosting Distributions

With many stocks close to all-time-highs, it is getting increasingly difficult to find places where to park new cash. Luckily, the companies below not only fit the characteristics of dividend growth stocks, but they are also attractively priced. It is crucial to acquire solid companies only when they are fairly priced Putting new money to work at overvalued prices could lead to mediocre results for the first five – ten years of your investment. The companies boosting dividends include:

Johnson & Johnson (JNJ), together with its subsidiaries, engages in the research and development, manufacture, and sale of various products in the health care field worldwide. This dividend king raised quarterly distributions by 8.20% to 66 cents/share. This marked the 51st consecutive annual dividend increase for the company. Despite the recent run, the company is attractively priced at 15.70 times forward earnings and a yield of 3.10%. The dividend is adequately covered, and has been raised by 11.70%/year over the past decade. I added to my position in Johnson & Johnson in April. Check my analysis of Johnson & Johnson.

Chevron Corporation (CVX), through its subsidiaries, engages in petroleum, chemicals, mining, power generation, and energy operations worldwide. This dividend champion raised quarterly distributions by 11.10% to $1/share. This marked the 26th consecutive annual dividend increase for Chevron. The stock is trading at 9.70 times forward earnings, has an adequately covered dividend and yields 3.40%. The company has managed to boost annual distributions by 9.60%/year over the past decade. I recently added to my position in Chevron in April. Check my analysis of Chevron.

Exxon Mobil Corporation (XOM) engages in the exploration and production of crude oil and natural gas, and manufacture of petroleum products. This dividend champion raised quarterly distributions by 10.50% to 63 cents/share. This marked the 31st consecutive annual dividend increase for Exxon. Over the past decade, Exxon has managed to boost annual dividends by 9%/year. The stock trades at 11 times forward earnings, yields 2.90% and has a sustainable dividend coverage. Back in 2012 I replaced Exxon Mobil with ConocoPhillips (COP), because Exxon seemed stingier than its peers with dividend payments. Instead, the company has been one of the most active share repurchases in the US for several years in a row.

Ameriprise Financial, Inc. (AMP), through its subsidiaries, provides a range of financial products and services in the United States and internationally. The company boosted quarterly dividends by 15.60% to 52 cents/share. This was the second dividend increase over the past year, bringing the total increase to 48.605 since the second quarter of 2012. The company has only raised distributions for 7 years, and has been public since 2005. It was spun off from American Express (AXP) in 2005, and since then it has managed to boost earnings from $2.32/share to $4.70/share by 2012. Forward earnings expectations are for $6.60/share in 2013 and $7.26/share by 2014, which means that Ameriprise Financial would have no problem becoming a dividend achiever by 2015. I like the fact that the company is attractively valued at 11.10 times forward earnings, yields 2.80% and has a sustainable dividend coverage. I plan on analyzing the stock before committing any funds to it.

These four stocks are a testament that income investors can find quality companies at reasonable valuations even in this overheated market. By looking through the list of dividend increases, I was once again able to uncover a hidden dividend gem, Ameriprise Financial, which has the potential to pay dividends in my portfolio for the next 20 years.

Full Disclosure: Long JNJ, CVX, COP

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Monday, April 22, 2013

Kinder Morgan Rewards Both General and Limited Partners with Higher Income

Kinder Morgan is the largest midstream company in North America, with over 73,000 miles of pipelines and 180 terminals. The pipelines transport oil, natural gas, CO2 and other products. The terminals handle a variety of products such as gasoline, jet fuel, ethanol, coal, coke, steal and others.

As I outlined in an earlier article, there are three ways to invest in Kinder Morgan. The first and second way to invest are through purchasing the limited partnership units. With Kinder Morgan Partners (KMP), unitholders can earn distributions in cash, while for Kinder Morgan Management LLC (KMR), limited partners directly obtain i-units, instead of cash. Since there is no taxable event for holders of KMR, the i-units are a great tax efficient way to build a position in the partnership even in a taxable account. Before the IPO of Kinder Morgan Inc in 2011, my entire position in the partnership was in i-units. For example, if Kinder Morgan Partners (KMP) paid $1.30/unit in a given quarter, holders of Kinder Morgan Management LLC (KMR) would have received a partial share worth $1.30. If the price for KMR was $100, the KMR unitholder would have received 0.013 units.

Last, there are the general partnership interests in Kinder Morgan Partners, where Kinder Morgan Inc (KMI) is the vehicle to purchase. Kinder Morgan Inc also owns the general partner interest in El Paso Pipeline Partners (EPB). In addition, KMI also owns limited partnership interests in Kinder Morgan Partners, El Paso Pipeline Partners and Kinder Morgan Management LLC. I recently added to my position in Kinder Morgan Inc in my IRA.

Over the past week, Kinder Morgan approved distribution hikes for both the general and limited partners.
The limited partners of Kinder Morgan Partners (KMP) also received a distributions boost to $1.30/unit. This represented an 8% increase over the distribution paid in the corresponding quarter in 2012. This brings the current yield up to 5.70%. The partnership is projecting an increase in annual distributions to $5.28 for 2013. Since KMP is a master limited partnership, distributions are not eligible for preferential qualified dividend tax treatment. Because partnerships are pass-through entities whose income is taxed at the limited partner level and not the entity level, distributions from MLPs are slightly more complex to handle from a tax perspective. This is a big reason why many investors avoid them outright. Check my analysis of Kinder Morgan Partners.

The distributions to Kinder Morgan Management LLC (KMR) will be paid in additional KMR shares. I hold the i-shares because I am in the accumulation phase and it is an option to have less complicated and time-consuming tax returns. The i-shares usually trade at a discount to the limited partnership interests, which is why it is usually a better deal for long-term holders.

Kinder Morgan Inc (KMI) shareholders will receive a higher quarterly dividend by 2.70% to 38 cents/share. This was an increase of 19% over the distribution paid in the same quarter in 2012. This brings the current yield up to 3.90%. The company is projecting an increase in annual dividends to $1.57 for 2013. Since KMI is a corporation, the dividends are eligible for preferential qualified dividend tax treatment.

The partnership is able to grow distributions from new additions to its vast portfolio of fee-generating assets. I would strongly encourage investors to read through the press release. According to it, distributions are well covered in Q1, as DCF/unit was $1.46, for a DCF payout ratio of 89%. The partnership is a great vehicle for investors who are looking for high current income, with solid distributions growth. The K-1 forms make this investment slightly more challenging, although it leads to substantial tax deferral of distributions received for over a decade.

Kinder Morgan Inc is able to grow dividends faster, because of its incentive distribution rights (IDR). These IDR’s entitle the general partner to half of any incremental distributable cash flow above certain thresholds. This stock is perfect for investors who want high yields today, plus the possibility of high dividend growth. The stock is also perfect for investors who do not want to deal with the more complicated tax return that Kinder Morgan Partners would create.

Full Disclosure: Long KMI and KMR

Relevant Articles:

Kinder Morgan Partners (KMP) for High Yield and Solid Distributions Growth
Kinder Morgan Partners – One Company three ways to invest in it
General vs Limited Partners in MLP's
Master Limited Partnerships (MLPs) – an island of opportunity for dividend investors
Six Dividend Paying Stocks I Purchased for my IRA

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