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

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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Monday, October 20, 2014

United Technologies (UTX): A Diversified Dividend Powerhouse To Consider

United Technologies Corporation (UTX) provides technology products and services to the building systems and aerospace industries worldwide. This dividend achiever has paid a dividend since 1936 and increased it for 20 years in a row. Back in June 2013, when the Board of Directors approved a 10.30% increase in the quarterly dividend to 59 cents/share.

The company has managed to deliver a 10.20% average increase in annual EPS over the past decade. United Technologies is expected to earn $6.86 per share in 2014 and $7.52 per share in 2015. In comparison, the company earned $6.17/share in 2013.

United Technologies has consistent history of share repurchases. The company has been able to reduce the number of shares outstanding from 1.006 billion in 2004 to 916 million in 2014.

The annual dividend payment has increased by 14.40% per year over the past decade, which is higher than the growth in EPS. Future growth in dividends will likely match rate of increase in earnings per share, and be somewhere around 10%/year.

United Technologies has been able to generate a high return on equity, which has ranged between 19.70 in 2014 to 25.20% in 2008. I generally like seeing a high return on equity, which is also relatively stable over time.

Currently, United Technologies is attractively valued at 14.60 times forward earnings, and has a dividend yield of 2.40%. I recently added to my position in the stock, and plan on adding further this year, subject to availability of funds.


Full Disclosure: Long UTX and GE

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Friday, October 10, 2014

Visa: High Dividend Growth Stock To Consider

Visa Inc. (V), a payments technology company, operates as a retail electronic payments network worldwide. The company facilitates commerce through the transfer of value and information among financial institutions, merchants, consumers, businesses, and government entities. The company went public in 2008, and has managed to pay and increase dividends ever since. I initiated a position in 2011, after witnessing the strong dividend growth, the attention of Berkshire Hathaway, and the fact that the stock was available at 20 times earnings

Currently, Visa is slightly overvalued at 20.50 times forward 2015 earnings, and has a low yield of 0.80%. If the company manages to earn $20 per share by 2020, and even if the P/E ratio compresses to 15 times by, the stock could provide very good returns to investors. Another plus is that dividend growth could result in very high yields on cost for Visa investors in 15 - 20 years. Of course, long-term growth is never certain, which is why I do not plan on adding to Visa unless I can buy it at 20 times forward earnings or less. However, I am willing to break my rules slightly, and accept 20 times forward earnings for 2015. If we get a more significant stock correction, I would be a buyer and will try to increase my position to a top 20 level ( meaning it will be in my top 20 portfolio positions by size).  


Full Disclosure: Long V

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Friday, October 3, 2014

Disney: A Wide-Moat Stock To Hold Forever

The Walt Disney Company operates as an entertainment company worldwide. The company operates in five segments: Media Networks, Parks and Resorts, Studio Entertainment, Consumer Products, and Interactive. The company is not a typical dividend growth stock, although it has paid dividends since 1957, and has never cut them. Disney is the type of company that raises dividends for a few years, then keeps them unchanged, after which it raises them again. Disney is also one of the 60 companies, which could be purchased commission-free using Loyal3, with as little as $10.

Currently, Disney is overvalued at 20.80 times forward earnings and a low yield of 1% . I really like the company, and I believe it has a wide moat. I have hesitated initiating a position in the company for the past 20 points, because of irrelevant factors such as low yield, while ignoring the company's strong competitive position. I would feel more comfortable initiating a position in the company at lower prices, which is why I am going to be monitoring it closely. While the economics and prospects for the business are amazing, I do not like to overpay for even the best businesses, nor do I want to chase share prices higher. I would be most happy to initiate a position below $84 - $85/share. I would be even more ecstatic if I could purchase shares at 15 - 16 times earnings, which is equivalent to a dip below $70/share. This is the type of company to hold forever.

Check the full article over at Seeking Alpha

Full Disclosure: None

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Friday, September 26, 2014

Chevron (CVX) Dividend Stock Analysis 2014

Chevron Corporation (CVX), through its subsidiaries, is engaged in petroleum, chemicals, mining, power generation, and energy operations worldwide. The company operates in two segments, Upstream and Downstream. This dividend champion has paid a dividend since 1912 and increased it for 27 years in a row.

In April 2014, the Board of Directors approved a 7% increase in the quarterly dividend to $1.07/share. Chevron’s peers include Exxon Mobil (XOM), ConocoPhillips (COP) and British Petroleum (BP).

The company has managed to deliver a 12% average increase in annual EPS over the past decade. Chevron is expected to earn $10.81 per share in 2014 and $11.37 per share in 2015. In comparison, the company earned $11.09/share in 2013.

The annual dividend payment has increased by 10.50% per year over the past decade, which is lower than the growth in EPS. Future growth in dividends will likely match rate of increase in earnings per share.

Currently, Chevron is attractively valued at 11.80 times forward earnings, and has a dividend yield of 3.30%. Overall, I believe that oil companies like Chevron have the quality of assets that generate strong cash flows, and quality of a management team, coupled with a dedication to sharing the wealth with shareholders through a commitment to dividend growth and share buybacks. While dividend growth rates might fluctuate from year to year, I am firmly believing that the investor with a 20 year horizon, who patiently accumulates and reinvests dividends, will reap the rewards in the future.

Read the full article on Seeking Alpha

Full Disclosure: Long CVX, XOM and BP

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Friday, September 19, 2014

Wal-Mart (WMT): The Time To Buy Is When No One Likes A Quality Dividend Company

Wal-Mart Stores Inc. (WMT) operates retail stores through three segments: Walmart U.S., Walmart International, and Sam’s Club. This dividend champion has paid a dividend since 1974, has consistent history of share repurchases. and increased it for 41 years in a row. Wal-Mart is also one of the companies, which could be purchased commission-free using Loyal3, with as little as $10.

The most recent dividend increase was in February 2014, when the Board of Directors approved a 2% dividend increase to 48 cents/quarter. This was the slowest dividend increase ever for Wal-Mart Stores. It is likely that management does not expect high earnings growth in the next couple of years.

Wal-Mart has delivered a 9.10% average increase in annual EPS over the past decade. It is expected to earn $5.16 per share in 2014 and $5.64 per share in 2015. In comparison, the company earned $4.85/share in 2013.

Currently, Wal-Mart is attractively valued at 14.40 times forward earnings, and has a dividend yield of 2.60%. I believe that Wal-Mart has what it takes to be successful, and endure changes over the next 20 years. Unfortunately, the company is so large that its future profits growth might not be that high. The valuation is compelling, but the expected earnings per share growth is not going to exceed 6% - 7 % per year. That being said, I will hold on to my existing position, and might consider adding a little more this year, subject to availability of funds and other ideas.

Check the full stock analysis at Seeking Alpha

Full Disclosure: Long WMT and TGT

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Friday, September 12, 2014

Walgreen: A High Dividend Growth Champion To Consider

Walgreen Co. (WAG), together with its subsidiaries, operates a network of drugstores in the United States. This dividend champion company has paid a dividend since 1933 and increased it for 39 years in a row.

Over the past decade this dividend growth stock has delivered an annualized total return of 9.10% to its shareholders.


The company has managed to deliver an 8.40% average increase in annual EPS over the past decade. Walgreen is expected to earn $3.32 per share in 2014 and $3.87 per share in 2015. In comparison, the company earned $2.56/share in 2013. In the press release from Walgreen from yesterday, the company mentioned that it expects earnings per share to hit $4.25 - $4.60 by 2016.

Between 2004 and 2012 Walgreen has been able to reduce the number of shares from 1.032 billion to 880 million through consistent share buybacks. The acquisition of 45% of Alliance Boots increased number of shares outstanding to 955 million in 2013, and this figure is expected to increase further through 2015 due to the purchase of remaining interest in AB. The company’s Board of Directors also approved a new $3 billion stock buyback through 2016.

Currently Walgreen is attractively valued at 17.80 times forward earnings and a yield of 2.30%. Either way, I took advantage of the huge sell-off after Alliance Boots acquisition news and added a small number of shares to my existing position. I would be more interested in the stock on dips below $54/share.

Check the full stock analysis at Seeking Alpha

Full Disclosure: Long WAG, WMT

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Friday, September 5, 2014

McDonald’s (MCD) Dividend Stock Analysis 2014

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. As of December 31, 2013, it operated 35,429 restaurants, including 28,691 franchised and 6,738 company-operated restaurants. McDonald’s is a dividend champion which has increased distributions for 38 years in a row.

Over the past decade this dividend growth stock has delivered an annualized total return of 17.90% to its shareholders.

The company has managed to deliver 16.70% average increase in annual EPS over the past decade. I expect future growth in annual earnings and dividends to be in the range of 7% - 10% per year in the next decade.

Currently, the stock is attractively valued at 16.70 times earnings and a current yield of 3.50%. There is an increasingly negative sentiment toward the company. I believe McDonald’s will overcome its problems, and reward patient shareholders who have a long-term horizon. I also find it easier to buy shares in a company when there is some known hang-up, which keeps price depressed. I would be even more excited if shares fell further from here, because this would mean more shares and more dividend income for every dollar I put to work. I have been adding to my position in the stock slowly throughout 2014.



Full Disclosure: Long MCD and YUM

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Friday, August 29, 2014

Starbucks: The Next Dividend Growth Success Story

Starbucks Corporation (SBUX) operates as a roaster, marketer, and retailer of specialty coffee worldwide. The company initiated its dividend in 2010, and has been growing distributions rapidly since then. While the company has only managed to increase dividends for four years in a row, I believe that it has the potential to reach dividend achiever status, and have the growth story to become as successful for its dividend growth investors.

Currently, I find Starbucks to be overvalued at 28.70 times forward earnings and a low yield of 1.35%. Starbucks is a growth company, which will likely grow earnings per share by 12% - 15%/year over the next decade, which somewhat justifies the low yield and optimistic valuation. Unfortunately, I cannot get myself to pay more than 20 times earnings for a company, because I know that things could go wrong to derail even for the best crafted plans. If the company stumbles, or if stock markets finally decide to cool off a little bit during the next bear market, that would be the best opportunity to acquire a stake in this otherwise fine company. The third option for me would be to sell a long-dated put with a strike as far out as January 2016 with a strike of $70, earn a premium of $5, and pay an effective entry price of $65 per share if called out. If not, and the stock price explodes from here, I would at least earn some premium.

Check the complete analysis at Seeking Alpha

Full Disclosure: Long MCD and NSRGY

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Friday, August 22, 2014

PepsiCo (PEP) Dividend Stock Analysis 2014

PepsiCo, Inc. (PEP) manufactures, markets, and sells various foods, snacks, and carbonated and non-carbonated beverages worldwide. The company operates in four divisions: PepsiCo Americas Foods (PAF), PepsiCo Americas Beverages (PAB), PepsiCo Europe, and PepsiCo Asia, Middle East and Africa (AMEA). The company is a dividend aristocrat which has increased distributions for 42 years in a row. PepsiCo is also one of the 60 companies which could be purchased commission-free using Loyal3, with as little as $10.

The company has managed to deliver 7.70% average increase in annual EPS over the past decade, while the annual dividend payment has increased by 13.50% per year over the past decade, which is higher than the growth in EPS.

Currently, the company is attractively valued as it sells for 19.70 times forward earnings and yields 2.90%. It is slightly more expensive than Coca-Cola, which sells for 19 times forward earnings and has the same yield. The pure play on North American soda is Dr. Pepper Snapple (DPS) is cheaper at 17 times forward earnings and a current yield of 2.70%. I like PepsiCo, but it is selling at the highest point I would be willing to put money at. As a result, I would likely not put money there, unless valuation gets better or unless I run out of other ideas.



Full Disclosure: Long PEP, KO, DPS

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