Showing posts with label dividend stock analysis. Show all posts
Showing posts with label dividend stock analysis. Show all posts

Friday, March 27, 2015

W.W. Grainger (GWW) Dividend Stock Analysis

W.W. Grainger, Inc. (GWW) operates as a distributor of maintenance, repair, and operating (MRO) supplies; and other related products and services that are used by businesses and institutions primarily in the United States and Canada. W.W. Grainger, Inc.is a dividend champion, which has raised dividends for 43 years in a row.

The most recent dividend increase was in April 2014, when the Board of Directors approved a 16.10% increase in the quarterly dividend to $1.08/share.

The company’s largest competitors include Fastenal (FAST), Wesco International (WCC) and Applied Industrial Technologies (AIT).

Over the past decade this dividend growth stock has delivered an annualized total return of 16.30% to its shareholders. Future returns will be dependent on growth in earnings and starting dividend yields obtained by shareholders.


The company has managed to deliver a 13.80% average increase in annual EPS over the past decade. W.W. Grainger is expected to earn $13.01 per share in 2015 and $14.41 per share in 2016. In comparison, the company earned $11.45/share in 2014.

Earnings per share have also been aided by share buybacks. The number of shares outstanding has decreased from 92 million in 2005 to 69 million by 2015. For the past 30 years, the number of outstanding shares has been reduced by approximately one half.

W.W. Grainger is a leading distributor of maintenance, repair and operations products. The North American market is highly fragmented, and is characterized by annual revenues of approximately $150 billion. Grainger accounts for approximately 6% of it. The company can grow earnings through acquisitions, international expansion, gaining market share. The company has years of growth ahead of it. Some of that growth could be generated by going after small and medium sized customers. Currently, the company has a much better presence with larger customers. The company’s online platform could also generate higher sales growth, and lower costs for itself and customers. W.W. Grainger generates close to one third of its revenues from this online channel.

Approximately 88% of revenues are derived from North America (US and Canada). There is the opportunity to grow revenues by expanding internationally. Currently, W.W. Grainger has operations in Canada, Japan, Mexico, India, China, Panama and in Europe.

W.W. Grainger has scale and relationships with suppliers and customers (SME). Its size provides cost advantage relative to fragmented peers. The company also has strong relationships with manufacturers, which provides rebates and helps in maintaining a cost advantage.

In addition, W.W. Grainger is more efficient than its biggest competitor Fastenal. It manages to generate more revenue with less employees and less physical locations. However, those locations are generally larger, and have much more SKU’s and items per store.

The annual dividend payment has increased by 18.10% per year over the past decade, which is much higher than the growth in EPS. Future growth in dividends will be much lower than that however, and will be limited by the growth in earnings per share.

An 18% growth in distributions translates into the dividend payment doubling every four years on average. If we check the dividend history, going as far back as 1977, we could see that W.W. Grainger has managed to double dividends almost every six years on average.

In the past decade, the dividend payout ratio has increased from 24.30% in 2005 to 36.40% by 2014. A lower payout is always a plus, since it leaves room for consistent dividend growth minimizing the impact of short-term fluctuations in earnings.

W.W. Grainger has also managed to grow return on equity from a low of 15.90% in 2005 to 24.50% in 2014. I generally like seeing a high return on equity, which is also relatively stable over time.

Currently, W.W. Grainger is selling for 18 times forward earnings and yields 1.80%. Despite the fact that I typically require a higher initial yield, I like the growth story and the growth prospects behind this company. As a result, I recently initiated a half position in W.W. Grainger. I would consider adding to my position if current yields exceed 2%. I would really consider load up on this company if yields exceed 2.50%.

Full Disclosure: Long GWW

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Friday, March 20, 2015

Eaton Vance (EV) Dividend Stock Analysis

Eaton Vance Corp. (EV), through its subsidiaries, engages in the creation, marketing, and management of investment funds in the United States. It also provides investment management and counseling services to institutions and individuals. Eaton Vance is a dividend champion which has paid uninterrupted dividends on its common stock since 1976 and increased payments to common shareholders every year for 34 years.

The most recent dividend increase was in October 2014, when the Board of Directors approved a 13.60% increase in the quarterly dividend to 25 cents/share. Eaton Vance’s largest competitors include Franklin Resources (NYSE:BEN), T. Rowe Price Group (NASDAQ:TROW) and Blackrock (NYSE:BLK). In a previous article I mentioned that I am bullish on asset managers for the long run.

Over the past decade this dividend growth stock has delivered an annualized total return of 7.20% to its shareholders.


The company has managed to deliver a 9.30% annual increase in EPS since 2004. Analysts expect Eaton Vance to earn $2.49 per share in 2015 and $2.83 per share in 2016. In comparison Eaton Vance earned $2.44 /share in 2014. The company has managed to consistently repurchase common stock outstanding over the past decade. As a result of these share buybacks, shares outstanding decreased from 142 million in 2005 to less than 119 million by 2014.

Overall I am bullish on asset managers in the long run, and Eaton Vance fits by default. The more assets under management they gather, the better the scale against competitors. Since investments grow in value over time, this makes it easier to simply generate higher fees without much additional insight. Switching costs to investors are high, since they would have to incur steep taxes and penalties as well as the uncertainty of finding an untested solution for their money. Therefore, a large portion of investors stick to the products they own.

Eaton Vance is a player that targets tax-sensitive investors in fixed income and securities. They are also a leader in closed-end funds. These assets are more sticky, and account for roughly half of assets under management. A company like Eaton Vance is worth a second look, since it has managed to attract and retain assets under management throughout different market cycles.

As we have millions of baby boomers retiring and needing financial advice, I expect them to use financial advice from certified planners, which would pre-sell open and closed-end funds and other financial products. Once a product has been sold to investors, it creates a recurring income stream to the provider of funds. The revenues that investment managers generate are realizable in cash almost instantaneously, which is a big plus. New product offerings could also contribute to growth, although at $298 billion in asset under management, it won’t be the main source of revenues for Eaton Vance. Eaton Vance has recently been cleared by the SEC to sell actively managed Exchange Traded Funds where holdings do not have to be disclosed daily.

Acquisitions to obtain advisers that target high-net worth individuals could be a big driver for future growth, as would be expansion internationally. Another positive is that as US stock prices keep increasing, this would eventually attract more investors to add in more money, which would create even higher profits for companies like Eaton Vance. Over time I expect Eaton Vance to get an even larger pile of assets under management due to all of the above mentioned reasons, which would lead to earnings and dividend growth.

One of the largest risks for Eaton Vance includes competition, which could result in net outflows for assets under management as well as decrease in fees charged to clients. Another risk includes prolonged declines in equity and fixed income markets, which could turn investors off stock market investing. A third risk includes underperformance relative to benchmarks, which could lead to outflows.

The company generates a very high return on equity, which has followed the ups and downs of the stock market over the past decade. Rather than focus on absolute values for this indicator, I generally want to see at least a stable return on equity over time.

The annual dividend payment has increased by 12.70% per year over the past decade, which is higher than the growth in EPS.

A 13% growth in distributions translates into the dividend payment doubling almost every five and a half years. If we look at historical data, going as far back as 1990, we see that Eaton Vance has actually managed to double its dividend almost every four years on average.

The dividend payout ratio has increased from 26.70% in 2005 to 58% in 2009, before falling down to 37% in 2014. The reason behind this increase was the fact that dividend growth exceeded earnings growth over the past decade. 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 Eaton Vance is attractively valued at 17 times forward earnings, yields 2.30% and has a sustainable dividend payout. If the stock yields more than 2.50%, it would be attractively valued per my entry criteria. A 2.50% yield would be equivalent to a stock price dip below $40.

Disclosure: Long EV, TROW

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Friday, March 13, 2015

Air Products and Chemicals (APD) Dividend Stock Analysis

Air Products and Chemicals, Inc. (APD) provides atmospheric gases, process and specialty gases, performance materials, equipment, and services worldwide. This dividend champion has paid distributions since 1954 and increased dividends on its common stock for 32 years in a row.

The company's last dividend increase was in March 2014 when the Board of Directors approved an 8.50% increase to 77 cents/share. The company's largest competitors include Airgas (ARG), Praxair (PX) and Air Liquide (AIQUY).

Over the past decade this dividend growth stock has delivered an annualized total return of 12.20% to its shareholders.


The company has managed to deliver 5.70% in annual EPS growth since 2004. Analysts expect Air Products and Chemicals to earn $6.47 per share in 2015 and $7.26 per share in 2016. In comparison Air Products and Chemicals earned $4.59/share in 2014. Earnings per share does look a little lower than usual, due to one-time items.

Air Products and Chemicals is expected to post growth in sales, due to strong demand for industrial gases in rapidly growing economies in Asia. Long term growth will be driven by acquisitions, expansion into rapidly growing markets in South America and Asia.

While European divisions have been operating in a tough environment, Air Products and Chemicals is attempting to streamline operations and manage costs strategically. The company has been shedding unprofitable operations, and focusing on cost cutting initiatives, in order to boost the bottom line.

In order to grow, the company should focus on increasing volumes in the merchant segment, plus executing new projects on time and budged in the tonnage segment, while focusing on plan efficiency improvements. In addition, focusing on major customers in the electronics and performance materials segment, while also introducing new offerings that could increase margins and returns. Other important opportunities include focusing on the pricing and the right mix of productivity and cost reductions, in order to hit profitability and margin goals set for itself.

The company operates under long-term customer supply contracts, particularly in the gases on-site business. These contracts principally have initial contract terms of 15 to 20 years. There are also long-term customer supply contracts associated with the tonnage gases business within the Electronics and Performance Materials segment. These contracts principally have initial terms of 10 to 15 years. Additionally, they company has several customer supply contracts within the Equipment and Energy segment with contract terms that are primarily 5 to 10 years. Under those contracts, the Company has built a facility on land owned by the customer, and is essentially a de-facto monopoly in the specific geographic area for that customer.

Activist investor Bill Ackman has built a 10% stake in the firm, with his goal likely to push management to improve performance. This could be achieved either by passing on cost increases to customers, cutting costs or a combination of both.

The return on equity has decreased slightly from 15.80% in 2005 to 13.70% in 2014. Rather than focus on absolute values for this indicator, I generally want to see at least a stable return on equity over time.

The annual dividend payment has increased by 11.20% per year over the past decade, which is higher than to the growth in EPS. Given the fact that earnings per share have been largely flat for the past five years, dividend growth has been running on fumes, mostly through the expansion of the dividend payout ratio. Without earnings growth, there is a limit to where dividends can rise. However, without certain one-time items, earnings per share are actually better off. Therefore, I am not worried in the case of Air Products & Chemicals.

An 11% growth in distributions translates into the dividend payment doubling every six and a half years. If we look at historical data, going as far back as 1985 we see that Air Products and Chemicals has managed to double its dividend every seven and a quarter years on average.

The dividend payout ratio increased from 40% in 2005 to 65.80%. This is a direct result of dividend growth exceeding earnings growth. Normally, I do not like seeing dividend payout ratios above 60%. In Air Products & Chemicals case however, I think that the payout is sustainable based on expected earnings in 2015. 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, Air Products and Chemicals is overvalued at 23.60 times earnings, yields 2% and has an adequately covered dividend. I would find the shares more appealing on dips below $123/share, equivalent to an entry yield of 2.50%.  I do not plan on adding to this position however, since this is one of the largest holdings in my portfolio. However, I do expect to hold on to this stock.

Full Disclosure: Long APD

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Friday, March 6, 2015

T. Rowe Price Group (TROW) Dividend Stock Analysis

T. Rowe Price Group, Inc. (TROW) is a publicly owned asset management holding company. The firm provides its services to individuals, institutional investors, retirement plans, financial intermediaries, and institutions. T. Rowe Price Group is a dividend champion, which has raised dividends for 29 years in a row.

The most recent dividend increase was in February 2015, when the Board of Directors approved an 18.20% increase in the quarterly dividend to 52 cents/share.

The company’s largest competitors include Blackrock (BLK), Vanguard and Fidelity.

Over the past decade this dividend growth stock has delivered an annualized total return of 12.80% to its shareholders. Future returns will be dependent on growth in earnings and starting dividend yields obtained by shareholders.


The company has managed to deliver a 13.70% average increase in annual EPS over the past decade. T. Rowe Price Group is expected to earn $4.85 per share in 2015 and $5.38 per share in 2016. In comparison, the company earned $4.55/share in 2014.

Overall I am bullish on asset managers, who have the odds stacked in their favor for future success. Essentially, the goal of the game is to get as much in assets under management, and then try to have low costs relative to competitors. As a large portion of customers stay with a manager, this generates fees for years to come.

Since asset prices tend to rise over time, asset managers who earn a fixed fee based on amount of money they manage are destined to earn more as well. This would not be a smooth ride up, but nevertheless the rising tide is destined to lift all boats up. Even if stock markets end going up by 6 - 7% in price annually for the next 2 - 3 decades, those asset managers are going to earn 6-7% more per year merely because they manage those assets. As long as the amount redeemed equal amount of new money invested, the asset manager will earn more money for shareholders simply for being there.
It is a pretty sweet model after all, where if you come up with a mutual fund idea and raise hundreds of millions from investors, you get to earn an annuity like income stream, as long as asset levels are at least maintained. There is no risk for the manager, and the risk is borne by investors in the funds.
Of course, if those asset managers also find ways to market their products and receive more in inflows from investors, their earnings per share could grow much faster than overall profits from other US sectors.

The main problem behind mutual fund companies and asset managers is the rise in passive investing approaches, which have been popularized by Vanguard. It is tough to compete against an organization which runs its passively managed funds at cost, thus minimizing expenses for shareholders in those funds. However, I do believe that not all assets will end up in index funds, although the competition will much tougher than before. However, even the passively managed index funds are not a panacea for the ordinary mom and pop investor, who needs some guidance for managing their retirement money. From my personal experience , ordinary investors tend to focus on their jobs and lives, and are not very focused on investing decisions. This is why it is quite possible that traditional asset managers who manage to reach to those individuals, and sell relevant investment products that generate recurring revenues to them, will benefit.

It is very easy to buy and sell an investment these days, which makes "asset stickiness" a potential problem. This is why I like the fact that T.Rowe Price has over half of funds held in retirement accounts and variable annuity accounts. Those are pretty sticky account holders. However, many individuals who buy an investment such as a mutual fund, tend to hold on to that investment for years. In addition, fewer individuals have company pensions, which means that they would have to manage their own money, or otherwise risk not retiring. This is why professionally managed money will still be around, and earn fees for decades to come.

The annual dividend payment has increased by 16% per year over the past decade, which is much higher than the growth in EPS. Future growth in dividends will be much lower than that however, and will be limited by the growth in earnings per share.

A 16% growth in distributions translates into the dividend payment doubling every four and a half years on average. If we check the dividend history, going as far back as 1989, we could see that T. Rowe Price has managed to double dividends almost every four and a half years on average.


In the past decade, the dividend payout ratio has increased from 31% in 2005 to 38.70% by 2014. A lower payout is always a plus, since it leaves room for consistent dividend growth minimizing the impact of short-term fluctuations in earnings.

T. Rowe Price Group has also managed to generate a high return on equity, which stands at around 23% in 2014. You can see that this indicator is affected by stock market declines in the short-run. I generally like seeing a high return on equity, which is also relatively stable over time.

Currently, T. Rowe Price Group is attractively valued at 18.20 times forward earnings and yields 2.50%. I recently initiated a position in the company. I am hoping to slowly build my position in the stock.

Full Disclosure: Long TROW

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Friday, February 27, 2015

Unilever (UL) Dividend Stock Analysis 2015

Unilever PLC (UL) operates as a fast-moving consumer goods company in Asia, Africa, Europe, and the Americas. This international dividend achiever has paid dividends since 1937, and has increased dividends for 19 years in a row.

The company's last dividend increase was in June 2014 when the Board of Directors approved a 5.90% increase in the quarterly distribution to 28.50 eurocents /share. The company's peer group includes Nestle (NSRGY) and Procter & Gamble (PG).

Over the past decade this dividend growth stock has delivered an annualized total return of 10.30% to its US shareholders.


The company has managed to deliver a 9.20% average increase in annual EPS since 2004. Analysts expect Unilever to earn $2.15 per share in 2015. In comparison, the company is expected to earn $2.01/share in 2014. Over the next five years, analysts expect EPS to rise by 4.10%/annum. All this information is in US dollars however, while the company reports earnings in Euros. While earnings appear to be flat in dollars over the past 5 years, they actually increased in Euros.

The company is dually listed in the U.K. and the Netherlands. There are two classes of ADRs available for US investors, one for the U.K. listing - Unilever PLC (UL) and the other being Unilever N.V. (UN) in the Netherlands. For U.S. investors, the U.K. traded shares are much more desirable, because the U.K. does not withhold taxes on dividends. This makes the Unilever PLC (UL) shares best for retirement accounts. In a taxable accounts for investors already paying 15% on dividends, it might make slightly better sense to buy the Unilever N.V (UN) shares, since they are always selling at a slight discount.

A large share of Unilever's sales are derived from emerging markets, where revenue growth is expected to continue at a high single digit to a low double digit rate of increase. The company has also been able to pass on increases in prices of raw materials onto consumers, who purchase its branded products globally. The risk behind this strategy is if Unilever increases prices too rapidly, sales volumes might suffer as a result. Typically however, while the market for food and personal consumer products is highly competitive, demand is stable and relatively immune from economic stress. The company's strategic plans have revealed that it expects long-term sales growth of 3%- 5% per year.

The company generates a very high return on equity, which has declined however over the past decade. I generally want to see at least a stable return on equity over time. I use this indicator to assess whether management is able to put extra capital to work at sufficient returns.

The annual dividend payment has increased by 7.50% per year since 2004, which is slower than the growth in EPS. With international dividend achievers, it is important to look at the trend in distributions in their base currencies. Despite the fact that the annual dividend payment appears volatile in US dollars, the growth in distributions in Euros has shown a consistent upward trend in distributions.


Year
Dividend Per Share/ Euro
1991
               0.2100
1992
               0.2200
1993
               0.2233
1994
               0.2333
1995
               0.2333
1996
               0.2633
1997
               0.3367
1998
               0.3800
1999
               0.4233
2000
               0.4767
2001
               0.5200
2002
               0.5667
2003
               0.5800
2004
               0.6300
2005
               0.6600
2006
               0.7000
2007
               0.7200
2008
               0.7600
2009
               0.7800
2010
               0.8190
2011
               0.8830
2012
               0.9540
2013
               1.0500
2014
               1.1240

A 7.50% growth in distributions translates into the dividend payment doubling almost every nine and a half years on average. If we look at historical data, going as far back as 1996, one would notice that the company has actually managed to double distributions every nine years on average.

The dividend payout ratio has remained at or above 60% over the course of the past decade, with the exception of a brief decrease below in 2007 and 2008. Currently, this ratio is above 70%, which is not something I would like to see in a company I am considering purchasing. 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 Unilever is slightly overvalued at 20.90 times earnings, yields 3.10% and has a sustainable distribution. Since the stock is trading above a P/E of 20, I would only consider adding to my position there on weakness in the share price. The thing that I do not like however is the high payout ratio, and the slowing down of earnings growth. That being said, I believe Unilever is a good hold for long-term investors.

Full Disclosure: Long UL

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Friday, February 6, 2015

W.P Carey (WPC): A Dividend REIT For Current Income

W. P. Carey Inc. (WPC) is an independent equity real estate investment trust. The firm also provides long-term sale-leaseback and build-to-suit financing for companies. It invests in the real estate markets across the globe. The firm primarily invests in commercial properties that are generally triple-net leased to single corporate tenants including office, warehouse, industrial, logistics, retail, hotel, R&D, and self-storage properties.

W.P. Carey is a dividend achiever, which has managed to boost dividends for 17 years in a row. In September 2012, this dividend achiever converted from a partnership form into a real estate investment trust. After this transformation, as well as merger with one of its privately managed REIT, dividend growth has been spectacular, although I expect it to slow down in the foreseeable decade.

The company not only invests in triple-net lease properties throughout the world, but it also managed privately held REITs. As a result, its sources of revenues are derived from the stable and recurring rents from those properties, which are usually leased to tenants under long-term leases. Those triple-net leases also allow for rent escalation over time. Under a triple-net lease, the tenant is required to pay all expenditures associated with maintaining and operating the property under lease.


Since 2003, FFO/share has grown by 5.30%/year. Growth in FFO will be delivered through accretive acquisitions for its own portfolio of properties, increasing rents over time, growing assets under management which generate fees.

On the surface, it might not look like FFO/share has increased that much over the past decade. However, once you look at the composition, the data paints another picture. Up until 2007 – 2008, approximately 40% – 60% of FFO/share were derived from fees to manage non-traded REITs. The rest came from managing real estate holdings. As various of its CPA non-traded REIT programs came to their end, they ended up being acquired by W.P. Carey in a liquidity event, which boosted the share of rental real estate FFO/share. The portfolio management fees provide a source of income for the REIT, which is relatively stable, and allows it to spread costs over a larger asset base.

The nice thing is that approximately 94% of leases include either fixed or CPI-based rent increases or percentage rent. The REIT has virtually no exposure to operating expenses due to nature of net leases, and they come with built-in rent increases as mentioned in the previous sentence. The weighted average lease term is 8.50 years. Approximately half of leases expire after 2022.

Since 2003, dividends per share have increased by 7.10%/year. I wanted to point out that W.P. Carey converted into a Real Estate Investment trust in 2012 from a Master Limited Partnership. As a result, dividends per share increased rapidly after 2012. Prior to 2012, dividends per share ( or unit), grew very slowly over time.


The FFO payout has been increasing from 65% in 2003 to over 80% expected in 2014. This is still sustainable, but means that future growth in distributions will definitely have to come from growth in FFO, since this ratio cannot exceed 100%. I do view the dividend to be sustainable at the moment however.

The portfolio occupancy has increased from 89% in 2004 to 97% in 2007, before stumbling again during the 2008 – 2009 recession and bottoming at 89% in 2010. It has been on the rebound and is approximately at 98% as we speak of. I am a little concerned about the fluctuations in occupancy/vacancy over the past decade, since it seems prone to high vacancy rates when times are tough and we are coming out of a recession. I have not seen declines of a similar nature with Realty Income (O), or National Retail Properties (NNN) for example.

The other metric I like to look at is tenant diversification. The nice thing about W.P. Carey is that it owns and manages triple-net properties in 17 countries. International accounts for approximately one third of revenues. The top 10 tenants account for 31% of revenues.

The current yield on W.P. Carey is 5.30%. I recently initiated a small position in W.P. Carey.  I would be more interested in this REIT on dips to 5.50% - 6% or higher yields. I am hopeful that 2015 will be a complete mirror to 2014, and be similar to the latter part of 2013, when everyone was scared from the potential for rising interest rates. Either way, I will probably increase my holdings in this REIT slowly over the next five years to take maximum advantage of dollar cost averaging.

Full Disclosure: Long WPC, O

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Friday, January 30, 2015

HCP Inc (HCP) A High Yield REIT Play on Healthcare

HCP, Inc. (HCP) is an independent hybrid real estate investment trust. The fund invests in real estate markets of the United States. It primarily invests in properties serving the healthcare industry including sectors of healthcare such as senior housing, life science, medical office, hospital and skilled nursing.

HCP is a dividend champion which has increased dividends for 30 years in a row. The latest dividend increase was in January 2015 , when the board of directors increased the distribution by 3.87% to 56.50 cents/share.

Over the past decade, FFO/share has increased from $1.64 in 2003 to an expected $3.10 in 2014. This comes out to an annual FFO increase of 5.90%/year on average.


The company operates under 5 segments. Senior housing contributes 37% of revenues in 2013, while Post-Acute/Skilled properties contributes 31% of revenues. The Life Science and Medical Office Segments contributed 14% and 13% respectively, while the remaining 5% is generated from Hospital properties. I also like to look at the tenant diversification, in order to determine if revenues are overly dependent on a single customer. Based on the 2013 annual report, the four largest customers were HCR Manor Care with 29% of revenues, Emeritus Corporation with 13% of total revenues, Brookdale Senior Living with 8% and Sunrise Senior Living with 5%. The leases often provide for either fixed increases in base rents or indexed escalators, based on the Consumer Price Index or other measures, and/or additional rent based on increases in the tenants’ operating revenues. Most of our the leases require the tenant to pay a share of property operating costs such as real estate taxes, insurance and utilities. Substantially all of HCP’s senior housing, life
science, post-acute/skilled nursing and hospital leases require the operator or tenant to pay all of the property operating costs or reimburse us for all such costs. The statistic to use is same-store growth, which has consistently been above 3% since 2009, and ranged between a low of 3.10% in 2013 to a high of 4.80% in 2010.

FFO/share growth has definitely been helped out by the low cost of debt, which has also been decreasing throughout its life as a public company since 1985. The nice thing about its debt profile is that almost all of liabilities are with fixed interest rates. Approximately half of the debt matures by 2018, which would mean that it would have to be refinanced at the rates available at the moment. The risk of course is if those rates start going up, it could leave less money for acquisitions and growing distributions.

Another factor that has helped FFO/share growth is the acquisition of properties, as well as strategic debt investments it has made. As the population ages in the US, the demand for health care services is only expected to increase. The percentage of senior citizen population is estimated to increase over the next 30 – 40 years, as is the growth in healthcare services. Therefore, a company like HCP should be able to enjoy stable occupancy in its medical properties, and recurring rents from that diversified portfolio that grow over time.

Over the past decade, dividends per share have increased from $1.66 in 2003 to $2.18 in 2014. This comes out to an annual dividend increase of 2.70%/year on average. The company offers a drip discount of 1% for those shareholders who elect to reinvest distributions back into more HCP shares. As a REIT, the company is required by law to distribute at least 90% of its taxable income. Since it is not taxed at the entity level, most distributions are not eligible for the preferential qualified dividend tax rates. Instead, a large portion of distributions are usually taxed under the ordinary income tax rates. The percentage allocations by tax source vary each year however. For example, in 2013, approximately 86% of the distribution was treated as ordinary income for tax purposes, while 7% was treated as capital gains income and the remainder was treated as a return of capital, which is nontaxable but reduces shareholders’ basis in the stock.

The reason behind the slower dividend growth relative to the higher FFO growth is due to the steady decrease in the FFO payout ratio over the past decade. Back in 2003, this indicator stood at 99%, which was certainly unsustainable. However as of 2014 it stands at 70%. The company also has another indicator called Funds Available for Distribution, which stood at $2.52/share in 2013. Therefore the dividend is well covered, and also has potential for growth at close to the rate of inflation for the foreseeable future.



HCP is an investment for those who need current income today, which will at least match the rate of inflation. I believe that the income stream is defensible, which means that dividends are secure, and are very likely to continue growing at least by the historical rate of annual inflation of around 3% over the next decade. As a result, the lower the entry price paid by the investor, the better the chances for higher returns, especially since the majority (approximately 60%) of long-term returns for REIT investors come from their distributions. The shares currently yield less than 5% and are selling for a forward price/FFO ratio of 15.40. I recently initiated a small position in HCP Inc. However, I would like to build a position in this REIT at an entry yield of 5 - 5.50% or higher.

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Friday, January 16, 2015

Target (TGT): The Underdog Dividend Champion To Consider On Further Weakness

Target Corporation (TGT) operates general merchandise stores in the United States and Canada. Target is a dividend champion, which has paid dividends since and raised them every year for 47 years in a row.

The most recent dividend increase was in June 2014, when the Board of Directors approved a 20.90% increase in the quarterly dividend to 52 cents/share.

The company’s largest competitors include Wal-Mart (WMT), Costco (COST) and Amazon (AMZN).

Over the past decade this dividend growth stock has delivered an annualized total return of 4.80% to its shareholders. Future returns will be dependent on growth in earnings and dividend yields obtained by shareholders.

The company has managed to deliver a 4.40% average increase in annual EPS over the past decade. Target is expected to earn $3.25 per share in 2015 (minus losses on exiting Canada) and $3.88 per share in 2016. In comparison, the company earned $3.07/share in 2013. Earnings per share have been depressed by steep losses in the company’s Canadian division, where expansion has been difficult.

Between 2005 and 2014, the number of shares outstanding has decreased from 912 million to 638 million. The decrease in shares outstanding through consistent share buybacks adds an extra growth kick to earnings per share over time. The annual dividend payment has increased by 19.80% per year over the past decade, which is much higher than the growth in EPS.

Currently, Target is selling for 23.60 times expected current year earnings and 19.80 times next year's earnings and yields 2.70%. So far in 2014, I was slowly building my position in the stock by dollar cost averaging my way. At this stage I am not planning on adding more to Target.

I posted the full analysis on Seeking Alpha in September. The thing that changed is that Target is now exiting Canada. By stopping the bleeding, the company can start generating more income right away. 


Full Disclosure: Long TGT, WMT

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Friday, November 21, 2014

Franklin Resources (BEN) Dividend Stock Analysis

Franklin Resources Inc. (BEN) is a publicly owned asset management holding company. The firm provides its services to individuals, institutions, pension plans, trusts, and partnerships. This dividend champion has paid dividends since 1981 and managed to increase them for 34 years in a row.


The company has managed to deliver a 17.70% average increase in annual EPS over the past decade. Franklin Resources is expected to earn $3.73 per share in 2014 and $4.07 per share in 2015. In comparison, the company earned $3.37/share in 2013.

The annual dividend payment has increased by 15% per year over the past decade, which is lower than the growth in EPS. The company has preferred share repurchases to paying dividends, although it has kept raising dividends at a very healthy clip. 

Currently, Franklin Resources is selling for times 14.80 times forward earnings and yields 0.90%. Many dividend investors overlook the company, because of the low yield. I believe that they are wrong to do so however, because the company offers an attractive valuation today, opportunity for high earnings and dividend growth over time, and the potential for further expansion of the dividend payout ratio. While I do have a minimum yield requirement, I am considering initiating a position in the stock sometime in late 2014 or early 2015, which of course would be subject to availability of cash and other ideas. I would of course start with a small position, but I do believe this company will bring wealth to shareholders in the future. I am hopeful for a stock market decline, which would result in temporary decreases in earnings and share prices. Accumulating the whole position after a five year bull market does not sound very tempting. This is why dollar cost averaging would really help in accumulating a position in asset managers like Franklin Resources.

Check the full article at Seeking Alpha

Full Disclosure: None

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Friday, November 14, 2014

Con Edison (ED) Dividend Growth Analysis

Consolidated Edison, Inc. (ED) is engaged in regulated electric, gas, and steam delivery businesses in the United States. The company, through its subsidiary, Consolidated Edison Company of New York, Inc., provides electric services to approximately 3.4 million customers in New York City and Westchester County; gas to approximately 1.1 million customers in Manhattan, the Bronx, and parts of Queens and Westchester County; and steam to approximately 1,703 customers in parts of Manhattan This dividend champion has paid dividends since 1885 and managed to increase them for 40 years in a row.


The company has managed to deliver an 4.30% average increase in annual EPS over the past decade. Con Edison is expected to earn $3.78 per share in 2014 and $3.90 per share in 2015. In comparison, the company earned $3.61/share in 2013.In the past decade, the number of shares outstanding increased from 236 million in 2004 to 294 million in 2014. 

The annual dividend payment has increased by 1% per year over the past decade, which is lower than the growth in EPS. I would expect the dividend growth rate to be slightly higher to 2% for the near future, as the dividend payout ratio is more sustainable these days.

Currently, Con Edison looks attractively valued on the surface at 16.30 times forward earnings, and has a dividend yield of 4%. However, due to the low earnings and dividend growth, I am not planning to initiate a position in the company anytime soon. The shares only make sense for investors who really need current income today, but are fine if their dividend income loses purchasing power over time, and their ability to generate capital gains is extremely limited at best.

Read the Full Analysis over at Seeking Alpha

Full Disclosure: None

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Friday, November 7, 2014

Eaton Corporation (ETN): A Hidden Dividend Gem To Consider

Eaton Corporation plc (ETN) operates as a power management company worldwide. This dividend company has paid dividends since 1923 but is the type of company that does not raise them every year. For example, in the past two decades the company kept annual dividends unchanged in 1999, 2000, 2002 and 2009. I recently initiated a position in the company, and just now managed to get some time to do a write up about it.

Over the past decade this dividend growth stock has delivered an annualized total return of 10.70% to its shareholders. Future returns will be dependent on growth in earnings and dividend yields obtained by shareholders.

The company has managed to deliver an 11.80% average increase in annual EPS over the past decade. Eaton is expected to earn $4.60 per share in 2014 and $5.34 per share in 2015. In comparison, the company earned $3.90/share in 2013.

The annual dividend payment has increased by 13.80% per year over the past decade, which is higher than the growth in EPS. I would expect the dividend growth rate to be closer to 10% for the near future.

Currently, Eaton is attractively valued at 15.30 times forward earnings, and has a dividend yield of 2.80%. I initiated a position in the company in the past month. I would be looking forward to adding to my position in the company in the coming years, subject to availability of funds, opportunity cost and valuation.

Full Disclosure: Long ETN

Review the full analysis at Seeking Alpha

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Friday, October 31, 2014

Verizon (VZ): Another High Yield Telecom for Current Income

Verizon Communications Inc. (VZ) provides communications, information, and entertainment products and services to consumers, businesses, and governmental agencies worldwide. This dividend achiever has paid dividends since 1984 and increased them for 10 years in a row.

The most recent dividend increase was in September 2013, when the Board of Directors approved a 2.90% increase in the quarterly dividend to 53 cents/share.

The company’s competitors include AT&T (T), Sprint (S) and T-Mobile (TMUS).

Over the past decade this dividend growth stock has delivered an annualized total return of 9% to its shareholders. Future returns will be dependent on growth in earnings and dividend yields obtained by shareholders.

Please read the rest of the article on Seeking Alpha


Full Disclosure: Long VZ

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Friday, October 24, 2014

AT&T: A High Yield Telecom for Current Income

AT&T Inc. (T) provides telecommunications services to consumers and businesses in the United States and internationally. This dividend champion has paid dividends since 1984 and increased them for 30 years in a row. The most recent dividend increase was in December 2013, when the Board of Directors approved a 2.20% increase in the quarterly dividend to 46 cents/share.

The company’s competitors include Verizon (VZ), Sprint (S) and T-Mobile (TMUS).

Over the past decade this dividend growth stock has delivered an annualized total return of 9% to its shareholders. Future returns will be dependent on growth in earnings and dividend yields obtained by shareholders.

Read the rest of the article on Seeking Alpha

Full Disclosure: Long VZ

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