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

Tuesday, July 15, 2014

Seven Dividend Stocks I purchased for the long-term

In the past week, I acquired stakes in seven dividend growth companies. For three of the companies, I am adding to existing positions. For the rest of the companies, I initiated positions in companies which I believe will be around in 20 years, and stand a chance of earning more over time. The higher estimated level of earnings will hopefully lead to higher dividend payments to me as a shareholder. While the positions are small initially, I find it much better to monitor a company I am interested in by having some skin in the game. That way, if prices drop from here, I will be in a better position to take advantage of the situation, since I have done the prep work already and am monitoring the situation by being invested in the stock.

I am now increasingly favoring tax-deferred accounts, in an effort to minimize tax liabilities today, and enjoy uninterrupted tax-deferred growth of dividends and capital gains for the next 30 – 40 years. The 401 (k), Roth IRA and SEP IRA accounts are here to house the assets that will be generating my buffer dividend income. This is the income I don’t expect to ever need in retirement, but would have it just in case. I am also exploring ways to utilize a Health Savings Account, as another tool to cut down on taxes today, and have uninterrupted tax-deferred growth for decades on those funds. My only regret is that I didn’t max those out prior to 2012. If I had, I would have been much better off. Better late than never of course.

With those moves, my Roth IRA is maxed out for the year 2014. The companies I purchased there include:

Exxon Mobil Corporation (XOM) explores and produces for crude oil and natural gas. This dividend champion has managed to increase dividends for 32 years in a row. In the past decade, the company has managed to increase annual dividends per share by 9.60%/year. Currently, the stock is attractively valued at 13.30 times forward earnings and an yield of 2.70%. Check my analysis of Exxon Mobil.

International Business Machines Corporation (IBM) provides information technology (IT) products and services worldwide. This dividend achiever has managed to increase dividends for 19 years in a row. In the past decade, the company has managed to increase annual dividends per share by 19.40%/year. Currently, the stock is attractively valued at 10.50 times forward earnings and an yield of 2.40%. Check my analysis of IBM.

The Chubb Corporation (CB), through its subsidiaries, provides property and casualty insurance to businesses and individuals. This dividend champion has managed to increase dividends for 32 years in a row. In the past decade, the company has managed to increase annual dividends per share by 9.20%/year. Currently, the stock is attractively valued at 12.70 times forward earnings and an yield of 2.10%. Check my analysis of Chubb.

The Williams Companies, Inc. (WMB) operates as an energy infrastructure company. The company’s Williams Partners segment owns and operates natural gas pipeline system extending from Texas, Louisiana, Mississippi, and the offshore Gulf of Mexico through Alabama, Georgia, South Carolina, North Carolina, Virginia, Maryland, Delaware, Pennsylvania, and New Jersey to the New York City metropolitan area. The company has managed to boost dividends for 11 years in a row, and has a ten year dividend growth rate of 43.10%/year. I like the fact that the company owns the General Partner rights to Williams Partners, and has plans for further growth in dividend income through 2017. I have been monitoring the stock for 2 years, and just now initiated a position, which might not be at the best price of the moment. Of course, noone knows where prices will go next, which is why the best time to initiate a position is today. The yield is at 2.90%.

With the investment listed below, my SEP IRA is close to being maxed out for the year 2014 as well. I purchased the following investments there:

Baxter International Inc. (BAX) develops, manufactures, and markets products for people with hemophilia, immune disorders, infectious diseases, kidney diseases, trauma, and other chronic and acute medical conditions. The company has managed to increase dividends for 8 years in a row. In the past decade, the company has managed to increase annual dividends per share by 12.40%/year. Currently, the stock is attractively valued at 14.70 times forward earnings and an yield of 2.80%. Check my analysis of Baxter.

Deere & Company (DE), together with its subsidiaries, manufactures and distributes agriculture and turf, and construction and forestry equipment worldwide. The returns from this company are going to be lumpy from year to year, but the possibilities are high if world population increases, and more people in developing countries can afford to eat as much as those in the developed world. Deere is a dividend achiever, which has managed to increase dividends for 11 years in a row, and has a ten year dividend growth rate of 16.30%/year I believe the company will be around in 20 years, and given the low valuation today of 10.50 times forward earnings and yield of 2.60%, it offer a good opportunity for dividend growth and capital appreciation. Check my analysis of Deere.

Republic Services, Inc. (RSG), together with its subsidiaries, provides non-hazardous solid waste collection, transfer, and recycling and disposal services for commercial, industrial, municipal, and residential customers in the United States and Puerto Rico. The company is essentially part of an oligopoly, given the fact that waste storage locations need a lot of money, expertise to open and operate. I also like the recurring annuity like cash flow streams for the company. I believe that waste is going to increase over time in this country, and companies like Republic Services are going to benefit from this. I also like the fact that the company has managed to increase dividends for 11 years in a row, and had a five year dividend growth rate of 6.60%/year. The stock is close to being pricey at 19 times forward earnings and yields 2.80%. Check my analysis of Republic Services.

I consider myself incredibly lucky that I have been able to save money consistently, and put it to work towards my future. I have been very lucky that I kept adding money even throughout the 2008 – 2009 crash, and the subsequent recovery, when everyone was telling me that stocks are about to crash. Even if they do fall by 20%, 30%, 50% from here, as an investor in the accumulation stage, I am going to view this as an opportunity to get more stock for my buck. If you are building out your stock portfolio today, you should be praying for lower stock prices, which means better stock values and better dividend incomes. In addition, to paraphrase Charlie Munger, if you are not willing to sit through a 50% decline in stock prices, then you should not be in stocks.

What purchases have you recently been making to your dividend portfolios?

Full Disclosure: Long all companies listed above

Relevant Articles:

Deere & Co (DE) Dividend Stock Analysis
Can everyone achieve financial independence with Dividend Paying Stocks?
I purchased this dividend machine last week
Multi-Generational Dividend investing
My Retirement Strategy for Tax-Free Income

Friday, July 11, 2014

Deere & Co (DE) Dividend Stock Analysis

Deere & Company (DE), together with its subsidiaries, manufactures and distributes agriculture and turf, and construction and forestry equipment worldwide. The company is a dividend achiever that has paid dividends since 1937 and managed to increase them for 11 years in a row. The company’s peer group includes CNH Industrial (CNHI), Caterpillar (CAT) and AGCO Corp (AGCO)

The company’s latest dividend increase was announced in May 2014 when the Board of Directors approved a 17.60% increase in the quarterly dividend to 60 cents /share. "Deere is well-positioned to benefit long-term from global trends that hold great promise for the company's customers and investors," said Samuel R. Allen, chairman and chief executive officer. "Our dividend increase reflects our confidence in Deere & Company's ability to generate strong cash flow throughout the cycle. We remain committed to our plans for profitable growth and for returning cash to shareholders."

Over the past decade this dividend growth stock has delivered an annualized total return of 12.10% to its shareholders.


The company has managed to deliver a 21.30% average increase in annual EPS over the past decade. Deere is expected to earn $8.55 per share in 2014 and $7.73 per share in 2015. In comparison, the company earned $9.09/share in 2013.


Deere also has an impressive record of consistent share repurchases. Between 2004 and 2014, the number of shares declined from 506 million to 379 million.

I have been biased against Deere, because it looks like a cyclical company, which managed to get lucky and ride a profitable trend over the past decade. As most of you are aware of, the past 10 – 15 years have been characterized by the rapid growth in emerging economies, which has lifted the boats of a lot of other companies. I am afraid that Deere might keep capitalizing on the those emerging markets, but at some point in time, it would have to go back to being a cyclical company with cyclical earnings. This could be a decade down the road, or could occur within the next few years. As a dividend growth investor, my goal is not only to find a cheap stock with a good dividend, but also a company that can grow earnings over time. If earnings per share are not increased over the next decade, most of dividend growth will come from increases in the dividend payout ratio, which is seldom a good sign for dividend income stability. I simply do not view Deere as the type of set it and forget it dividend growth stock that I can pass on to my heirs. That being said, it could still be a profitable investment for someone who buys today, given the low valuation, even if earnings do not increase by much. That would be true, as long as earnings per share do not decrease.

Long-term prospects could be brighter than I imagine however. An increasing world population should continue to exert pressure on food supplies, which in effect could raise the demand for new efficient farm machinery. However, if commodity pricing pressures farmer’s profits, demand for equipment could soften.

New products could be another boost for farming equipment, as is a cycle to upgrade old equipment over time, in an effort to boost productivity. The company has strong position in North America, with an established brand name and a 50% market share, which should provide it with a good scale of operations.
I also like the fact that management seems very shareholder friendly, as evidenced by their commitment to dividend growth over the past 20 years, the consistent share buybacks, and the fact that operations are run pretty well. For example, the finance division has pretty low loan losses, which is encouraging and shows that proper credit evaluation is being done before lending money to farmers.

I also like the fact that the largest shareholders is Cascade Investments LLC, which is the holding company that holds the investment portfolio of Bill Gates. I have been reading some about Bill Gates, and have found that his holding company is managed by Michael Larson, who is a very successful value investor.

The annual dividend payment has increased by 16.30% per year over the past decade, which is lower than the growth in EPS.

A 16% growth in distributions translates into the dividend payment doubling every seven years on average. If we check the dividend history, going as far back as 1989, we could see that Deere has actually managed to double dividends every eight years on average. What makes this analysis tricky however the fact that the company cut dividends in 1982 is, and the annual dividend didn’t exceed the 1982 highs till 1990. The annual dividend from 1982 didn’t really double until 2005.

Over the past decade, the dividend payout ratio has mostly remained low below 25%, with the exception of 2009. A lower payout is always a plus, since it leaves room for consistent dividend growth minimizing the impact of short-term fluctuations in earnings.

Deere has managed to increase return on equity from 30.60% in 2004 to 41.30% in 2013. Rather than focus on absolute values for this indicator, I generally want to see at least a stable return on equity over time.

Currently, the stock looks cheap, as it trades at a forward P/E of 10.40 and a current yield of 2.60%. I believe that the business is more exposed to economic cycles than the typical dividend growth stock that I usually focus on. However, when a business is cheap, it can still generate shareholder value even if there is only a small improvement. With Deere, the $8 billion share buyback could be one catalyst that could result in better returns going forward. As a result, I initiated a small position in the stock this week.

Full Disclosure: Long DE

Relevant Articles:

Dividend Stocks Offering Positive Feedback to Investors
Caterpillar (CAT) Dividend Stock Analysis
Look beyond P/E ratios dividend investors
Return on Investment with Dividend Stocks
Price is what you pay, value is what you get

Monday, July 7, 2014

Are you drowning in cash?

With dividend investing, I get a lot of cash every week/month/quarter/year. Since I started focusing exclusively on dividend growth investing 6-7 years ago, quarterly dividend income has been increasing exponentially. I get a lot of cash, which i have to deploy intelligently. By that I mean avoiding overpaying, keeping diversification intact, and always being on the lookout for bargains that offer dividend growth. I therefore try to benefit from multiple levels of compounding - one is the dividend income that grows because companies earn more and hike dividends. The second is reinvesting those dividends into more quality companies selling at attractive valuations. Too much of a good can be a good thing too.

Lately, it has been very difficult to find good ideas, which are also priced attractively. I am really trying hard, and had found some ideas. However, given elevated valuation levels, it is more difficult to deploy cash in the future. Many companies and investors have similar issues, because they are drowning in cash, and money is so cheap too. I am afraid this could create bad behavior, which will be punished a few years down the road at the next recession.

Cash might burn a hole in corporate boards pockets. If they pay out dividends, that could be smarter than buying back stock at inflated valuations. For example, companies like General Electric (GE) spent tens of billions repurchasing shares at $30 between 2004 – 2007, only to issue a bunch of shares and warrants at $23/share. This is also smarter than bidding for assets today and paying high prices in order to deploy that cash, without much margin of safety on the returns of those assets.

When you have a lot of cash on hand, the odds that u will do something stupid with it increase exponentially. Even Warren Buffett is not immune to this folly - examples include investments in United Airlines and Salomon Bros in the late 1980s. He was drowning in cash in the late 1980s and put capital to use at suboptimal prices in assets of questionable quality. I am not saying this to predict a crash, since i don’t forecast market or economic directions. It is a fools game to make predictions about prices, the economy etc. However, i am just venting how more difficult it is to find quality companies that are selling at good prices today. This increases the opportunity that I do something that is bad today, but looks cheap because i am drowning in cash.

Either way, I believe that for a long-term buyer of equities today, with a 20 year horizon would do much better than someone who holds cash waiting for lower prices. For example, ever since late 2009, I have been hearing from investors that they are accumulating cash and waiting for lower prices. I have also been hearing from those who are bearish on everything. These people seem to forget that over time, businesses become more valuable, as they plow more money in their operations and earn more. Then they pay out more to shareholders. That doesn’t happen every year of course, but over time, I believe that productivity gains, increases in numbers of consumers and reinvestment in operations will lead to stakes in quality corporations becoming more valuable. Therefore, it makes sense to put money to work as soon as you have it, and then hold on for 20 years. This strategy of regular dollar cost averaging worked even for those who started right around the Great Depression for example. There are always decent values out there, which would start the dividend compounding process for the investor. It is that the investor has to do the work to identify them. A few quality companies selling at decent prices today include:

Company
Ticker
Yrs Div Increase
5 year DG
Fwd P/E
Yield
Review
Target
TGT
47
21.40%
16.10
3.60%
Exxon Mobil
XOM
32
9.70%
13.20
2.70%
Philip Morris Intl
PM
6
28.40%
16.60
4.10%
McDonald's
MCD
38
13.90%
17.50
3.20%
Baxter International
BAX
8
16.40%
14.60
2.80%
Aflac
AFL
31
8.10%
10.20
2.30%
IBM
IBM
19
14.30%
10.60
2.40%
Lockheed Martin
LMT
11
21.20%
14.60
3.20%
Diageo
DEO
15
7.20%
19.80
2.70%
Wal-Mart
WMT
41
14.20%
14.70
2.50%


Since I get cash every week/month/quarter from my investments and my other income sources, I am well positioned for a stock decline. In fact, I took a big advantage of the declines in February, during which i maxed out SEP IRA, and put one third of the maximum for the 401k. Plus I bought shares in taxable accounts. I have been opportunistically looking for companies which are temporarily battered by short-term noise for decent entry points. This is how I managed to initiate a small position in Accenture (ACN). It is too bad I didn’t put much in Roth IRA. Of course, perfectionist thinking is dangerous in investing, as it can also cause folly, that can lead to stupid actions on my part.

What are you buying these days?

Full Disclosure: Long ACN, TGT, XOM, PM, MCD, AFL, IBM, DEO, WMT

Relevant Articles:

How to find long term dividend stock ideas
Six Compounding Machines for Long Term Dividend Investors
How to become a successful dividend investor
Best Brokerage Accounts for Dividend Investors
How to retire in 10 years with dividend stocks

Monday, June 30, 2014

I purchased this dividend machine last week

In the past week I added to my position in a dividend growth stock I have been following for one year. This dividend achiever has managed to increase dividends for 11 years in a row. What is really surprising is that the company has managed to never cut dividends over the past 115 years, which is amazing.

The company I added to was General Mills (GIS). When I last analyzed the company back in 2013, I concluded that it was a nice stock to accumulate. I have already made a few purchases over the past 12 months, but those are nowhere close to building a substantial position in a short period time. I managed to take advantage of a drop in prices last week, in order to add to my existing position in General Mills. I view the stock as one of the core group of buy and hold forever type companies. Of course, as I have mentioned before however, buy and hold is still buy and monitor. However, if the stock drops further from here and is available in the $45 - $48 range and below, that would be really neat, and I would add to my positions there.

In the past decade, the company has managed to increase dividends by 9.90%/year. Earnings per share increased by 7.40%/year. The company is expected to increase earnings per share to $3.04 in 2015 and $3.24 in 2016. Even if the company manages to increase earnings per share by 7%/year, it would double them every decade. As a result, the intrinsic value of the business should double accordingly. Of course, if you are an investor who buys an asset where earnings increase by 7%/year, and they are also paid a 3% dividend yield, this translates into a total return of roughly 10%/year. The company itself is expecting that its adjusted earnings per share in constant currency will increase at the high single digits, which in my opinion is achievable.

The company was able to raise dividends in March 2014, when the dividend was increased by 8% to 41 cents/share. The company is expecting to grow dividends with earnings over time, and views dividend growth as a key method of providing returns to long-term shareholders. This track record is a real testimony to the strong and steady cash flows which are generated by its portfolios of consumer food brands.

Earnings per share could increase from new product offerings, strategic acquisitions, international expansion and streamlining of operations. A constant focus on operations, eliminating unnecessary costs, improving margins and reducing negative effects of input costs are something that should help the company accomplish its targets. The company is able to expand its distribution network on a global basis, invest in innovation and in its strong brands. Having a portfolio of stable food brands generates recurring excess cash flows. Those excess cash flows are not necessary for expansion of the business. Therefore they result in the ability for the company to shower shareholders with more cash every year through regular dividend payments and increases.

One interesting fact about General Mills is that the company was a dividend champion until 1995, when it spun-off Darden Restaurants (DRI) to shareholders. After that, the company was able to increase dividends between 1996 and 1999, but kept them unchanged between 2000 and 2004. Ever since 2004, dividends per share have been on the increase.

Currently, this dividend achiever is attractively priced at 18.50 times earnings, and a current yield of 3.10%.

Full Fisclosure: Long GIS

Relevant Articles:

General Mills Delivers a Consistent Dividend Raise
General Mills (GIS) Dividend Stock Analysis
Buy and Hold means Buy and Monitor
Companies I am Considering for my Roth IRA
Let dividends do the heavy lifting for your retirement

Tuesday, June 17, 2014

Companies I am Considering for my Roth IRA

Ever since last year, I am on a quest to max out any tax-deferred vehicles available for me. This is in an effort to diversify my asset base, since the majority of my money is in taxable brokerage accounts. However, by maxing out tax deferred accounts, I am deferring taxes on dividends and capital gains for several decades. In the case of some accounts like 401 (k) and SEP IRA, I am also receiving a pretty nice tax break today. I have maxed out 401 (k) and SEP IRA for 2014, the next goal is to max out my Roth.

Last year, I separated my Roth IRA contribution and made approximately 30 transactions. I ended up paying less than 0.50% on the total thing, which was great. This year, I am finding less quality companies to invest in, that are also available at attractive valuations. As a result, I am going to split the results in only a few companies.

Many readers of the site know that I own a lot of companies in my dividend portfolio. Since I already own too many companies, I have decided to add the new funds in the best positions that I already own. However, I am going to refrain from allocating any of the new funds in the five holdings with the largest portfolio weights. This means that companies like Philip Morris International (PM) would not be considered, given the fact that I am overweight in it, relative to any other holdings. I will also exclude certain foreign companies from consideration for my Roth IRA, because of dividend taxes that foreign governments withhold from my distributions at source.

The companies I am interested in purchasing include:

Exxon Mobil Corporation (XOM) explores and produces for crude oil and natural gas. The company has managed to increase dividends for 32 years in a row. In the past decade, this dividend champion has managed to boost distributions by 9.60%/year, and earnings per share by 8.90%/year. Currently, the stock is selling at 13 times forward earnings and yields 2.70%. Check my analysis of Exxon Mobil.

International Business Machines Corporation (IBM) provides information technology products and services worldwide. The company has managed to increase dividends for 32 years in a row. In the past decade, this dividend achiever has managed to boost distributions by 9.60%/year, and earnings per share by 13.20%/year. Currently, the stock is selling at 10.30 times forward earnings and yields 2.40%. Check my analysis of IBM.

ConocoPhillips (COP) explores for, develops, and produces crude oil, bitumen, natural gas, liquefied natural gas, and natural gas liquids worldwide. The company has managed to increase dividends for 13 years in a row. In the past decade, this dividend achiever has managed to boost distributions by 15.70%/year, and earnings per share by 6.20%/year. Currently, the stock is selling at 12.70 times forward earnings and yields 3.40%. Check my analysis of COP.

Altria Group, Inc. (MO), through its subsidiaries, manufactures and sells cigarettes, smokeless products, and wine in the United States and internationally. The company has managed to increase dividends for 44 years in a row. In the past decade, this dividend champion has managed to boost distributions by 11.40%/year. Currently, the stock is selling at 16.50 times forward earnings and yields 4.70%. Check my analysis of Altria.

Ameriprise Financial, Inc. (AMP), through its subsidiaries, provides a range of financial products and services in the United States and internationally. The company has managed to increase dividends for 9 years in a row. In the past five years, this dividend company has managed to boost distributions by 24.90%/year, and earnings per share by 12.40%/year over the past six years. Currently, the stock is selling at times forward earnings and yields 2%. Check my analysis of Ameriprise.

General Mills, Inc. (GIS) produces and markets branded consumer foods in the United States and internationally. The company has managed to increase dividends for 11 years in a row. In the past decade, this dividend achiever has managed to boost distributions by 9.90%/year, and earnings per share by 8.60%/year. Currently, the stock is selling at 19.20 times forward earnings and yields 3%. Check my analysis of General Mills.

The Chubb Corporation (CB), through its subsidiaries, provides property and casualty insurance to businesses and individuals. The company has managed to increase dividends for 32 years in a row. In the past decade, this dividend champion has managed to boost distributions by 9.20%/year, and earnings per share by 15%/year. Currently, the stock is selling at 12.80 times forward earnings and yields 2.10%. Check my analysis of Chubb.

Aflac Incorporated (AFL), through its subsidiary, American Family Life Assurance Company of Columbus, provides supplemental health and life insurance products. The company has managed to increase dividends for 31 years in a row. In the past decade, this dividend champion has managed to boost distributions by 16.80%/year, and earnings per share by 16.10%/year. Currently, the stock is selling at 10.20 times forward earnings and yields 2.40%. Check my analysis of Aflac.

Accenture plc (ACN) provides management consulting, technology, and business process outsourcing services worldwide. The company has managed to increase dividends for 9 years in a row. In the past five years, this dividend company has managed to boost distributions by 28.40%/year, while in the past decade earnings per share have risen by 16%/year. Currently, the stock is selling at 18.50 times forward earnings and yields 2.20%. Check my analysis of Accenture.

Of course, this is all subject to changes, given the fact that valuations chance. If companies like ConocoPhillips keep going higher without any break, I might have to put the money into the next best ideas. For example, I had Family Dollar on the list when I initially wrote the article in late May, but given recent actions by activist investors, I dropped it due to increase in price. I am also hesitant on adding Target to my Roth IRA, since I already have a plan of investing there in one of my regular taxable accounts already, so that all the stock is in one place. In addition, if other companies drop suddenly, I would consider them instead.

The companies I don’t own, that could also be included for consideration include:

General Electric Company (GE) operates as an infrastructure and financial services company worldwide. The company has managed to increase dividends for years in a row. In the past decade, this former dividend champion has managed to deliver negative earnings per share and dividends per share. Currently, the stock is selling at 16.10 times forward earnings and an yield of 3.30%. Check my analysis of General Electric.

Baxter International Inc. (BAX) develops, manufactures, and markets products for people with hemophilia, immune disorders, infectious diseases, kidney diseases, trauma, and other chronic and acute medical conditions. The company has managed to increase dividends for 8 years in a row. In the past decade, this former dividend champion has managed to boost distributions by 12.40%/year, and earnings per share by 9.20%/year. Currently, the stock is selling at 14.30 times forward earnings and an yield of 2.80%. Check my analysis of Baxter.

Again, in my purchases I am looking for good entry price today, coupled with good growth opportunities. The resulting compounding effect would do the heavy lifting for my capital and dividend incomes.

I plan on making the contribution sometime in the next month or so. After that, my contributions for tax-deferred accounts such as 401 (k), SEP IRA and Roth IRA would be complete for 2014. I would only have to rebuild my cash reserves after maxing out those contributions and paying out another steep tax bill in April. Going forward, I continue to view my taxable accounts as a place to purchase out-of-favor securities on dips, while viewing my tax-deferred accounts as the place to put money to work on a more regular basis.

Full Disclosure: Long TGT, IBM, XOM, COP, MO, AMP, GIS, CB, AFL, ACN

Relevant Articles:

Dividends Provide a Tax-Efficient Form of Income
My Retirement Strategy for Tax-Free Income
How to buy dividend stocks with as little as $10
Nine Quality Dividend Stocks Purchased for the Roth IRA
Roth IRA’s for Dividend Investors

Friday, May 16, 2014

Genuine Parts Company (GPC) Dividend Stock Analysis

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. This dividend king has paid dividends since 1948 and has managed to increase them for 58 years in a row.

The company’s latest dividend increase was announced in February 2014 when the Board of Directors approved a 7% increase in the quarterly dividend to 57.50 cents /share. The company’s peer group includes W.W. Grainger (GWW), Autozone (AZO) and Advanced Auto Parts (AAP).

Over the past decade this dividend growth stock has delivered an annualized total return of 14% to its shareholders.


The company has managed to deliver an 8% average increase in annual EPS over the past decade. Genuine Parts Company is expected to earn $4.60 per share in 2014 and $4.93 per share in 2015. In comparison, the company earned $4.40/share in 2013.

Genuine Parts Company does have a record of consistent share repurchases. Between 2004 and 2014, the number of shares decreased from 176 million to 156 million.

Future growth could be driven by acquisitions, expansions in same-store sales and somewhat by adding new locations. The company’s near term prospects should be aided by sales growth, triggered by the expansion in the US economy. It should also be able to leverage its distribution networks to increase sales in acquired companies. Margins should also be higher on cost cutting and higher volumes. Longer term the company could benefit from increased complexity of vehicles and the rising number of automobiles. The company seems to be very conservative in its finances and has a low level of debt coupled with strong cash flow from operations to fund future dividend increases. The industry will force a lot of smaller competitors out, which could result in more opportunities for Genuine Parts Company. Long-term growth will be driven by internal growth and acquisitions.

The annual dividend payment has increased by 6.20% per year over the past decade, which is lower than the growth in EPS.

A 6% growth in distributions translates into the dividend payment doubling every twelve years on average. If we check the dividend history, going as far back as 1983, we could see that Genuine Parts Company has actually managed to double dividends every ten years on average.

The dividend payout ratio has decreased slightly from 53% in 2004 to under 49% by 2013. A lower payout is always a plus, since it leaves room for consistent dividend growth minimizing the impact of short-term fluctuations in earnings.

The return on equity has been on a rise from 16.30% in 2004 to 21.60% in 2013. Rather than focus on absolute values for this indicator, I generally want to see at least a stable return on equity over time.

Currently, the stock is attractively valued, as it trades at a forward P/E of 19 and yields 2.70%. I would consider initiating a position on dips, and subject to availability of funds.

Full Disclosure: None

Relevant Articles:

Five Dividend Growth Companies Boosting Cash Payouts
The Dividend Kings List for 2014
How to invest when the market is at all time highs
The Dividend Kings List Keeps Expanding
Dividend Aristocrats List

Friday, May 9, 2014

Family Dollar Stores (FDO) Dividend Stock Analysis

Family Dollar Stores, Inc. (FDO) operates a chain of self-service retail discount stores primarily for low- and middle-income consumers in the United States. This dividend champion has paid dividends since 1976 and has managed to increase them for 38 years in a row.

The company’s latest dividend increase was announced in February 2014 when the Board of Directors approved a 19.10% increase in the quarterly dividend to 31 cents /share. The company’s peer group includes Dollar General (DG), Dollar Tree (DLTR), and Wal-Mart Stores (WMT).

Over the past decade this dividend growth stock has delivered an annualized total return of 6.60% to its shareholders.


The company has managed to deliver a 10.40% average increase in annual EPS over the past decade. Family Dollar is expected to earn $3.15 per share in 2014 and $3.51 per share in 2015. In comparison, the company earned $3.83/share in 2013.

Family Dollar has a record of consistent share repurchases. Between 2004 and 2014, the number of shares decreased from 172 million to 115 million.

Future earnings per share growth will come from new store openings, same store sales growth, streamlining costs and reducing the number of shares outstanding. The big risk is the fact that there are so many dollar stores in the US, that future growth will likely hit a roadblock in the next five – ten years. In addition, a potential entry by Wal-Mart in the dollar store space could be detrimental for companies like Family Dollar.

The company recently announced it will close 370 underperforming stores in 2014. However, it also plans to increase number of stores by 525, which would still result in a net addition to store count. In addition, if you reduce number of locations where you are losing money, your bottom line would increase overall. Therefore, I do not think that this is such bad news after all. In addition, the company plans to slow down the number of store openings to 350- 400 in 2015, which is still close to a 4 – 5% growth in number of stores.

Given current store counts of about 8,000 locations, this could translate into store counts doubling in 20 years. The company is usually having stores in small towns, and those locations are usually viewed as a convenience neighborhood mart for shoppers. Its consumers are usually female, earnings less than $30,000/year, and 40% are relying on government assistance. I think that the proximity of Family Dollar stores is one of the factors that can result in repeating sales, and converting those customers into loyal followers. Family Dollar Stores has also managed to increase the variety of foods, including refrigerated ones, and qualify for inclusion in the food stamp program. Family Dollar’s limited time offerings also create excitement for consumers, and differentiates the chain from its competitors. In addition, it is increasingly accepting credit cards in its stores, which creates convenience for its customers.

The annual dividend payment has increased by 13.60% per year over the past decade, which is higher than the growth in EPS.

A 13.60% growth in distributions translates into the dividend payment doubling every five years on average. If we check the dividend history, going as far back as 1985, we could see that Family Dollar has actually managed to double dividends every six years on average.

The dividend payout ratio has increased slightly from 21% in 2004 to under 25% by 2013. A lower payout is always a plus, since it leaves room for consistent dividend growth minimizing the impact of short-term fluctuations in earnings.

The return on equity has been on a rise from 19.70% in 2004 to 30.60% in 2013. Rather than focus on absolute values for this indicator, I generally want to see at least a stable return on equity over time.

Currently, the stock is attractively valued, as it trades at a forward P/E of 17.10 and yields 2.20%. For the first six years of my dividend growth journey, I used Family Dollar as an example of a good company which was always above my buy price. Now, I would view it as a buy on dips below $50/share. However, I think growth is slowing down, there will be new pressures on the sector. As a result, I might only add there if I am out of other ideas at the time cash is available for investment.

Full Disclosure: Long FDO, WMT

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Friday, May 2, 2014

Chubb Corporation (CB) Dividend Stock Analysis

The Chubb Corporation (CB), through its subsidiaries, provides property and casualty insurance to businesses and individuals. This dividend champion has paid dividends since 1902 and has managed to increase them for 32 years in a row.

The company’s latest dividend increase was announced in February 2014 when the Board of Directors approved a 13.60% increase in the interim dividend to 50 cents /share. The company’s peer group includes Travelers Cos (TRV), Allstate (ALL), and Cincinnati Financial (CINF).

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


The company has managed to deliver a 9.40% average increase in annual EPS since 2004. Chubb is expected to earn $7.37 per share in 2014 and $7.89 per share in 2015. In comparison, the company earned $9.04/share in 2013.

Chubb has a record of consistent share repurchases. Between 2006 and 2013, the number of shares decreased from 423 million to 259 million.

The typical property and casualty insurer has no moat, because the products they sell are basically commodities, where the cost of policy would not be known for several years. As a result, many companies have the tendency to underprice themselves in the pursuit of premiums growth. However, Chubb seems to have a more disciplined approach to handling premium volumes, and seems to be concentrating more on maintaining the quality of premiums received and only accepting the rates that adequately compensate for risk, rather than chase premium growth at any cost. The company has also set itself apart by focusing on personal insurance and specialty insurance segments. With its personal lines insurance segment, the company targets high net worth persons. There are some switching costs for high networth individuals, because insurance companies require an assessment of the value of fine cars, homes or other objects, before deciding to insure them, which means those customers have a higher tendency to stay. The specialty insurance offers a wide variety of specialized professional liability products for privately held and publicly traded companies, financial institutions, professional firms, healthcare and not-for-profit organizations. Chubb Specialty Insurance products primarily include directors and officers liability insurance, errors and omissions liability insurance, employment practices liability insurance, fiduciary liability insurance and commercial and financial fidelity insurance. These risks are unique, and require a very strong management discipline. Overall, Chubb has a competent and able management, which has resulted in good results for shareholders. However, the business is not idiot-proof, which could be a problem if a reckless risk taker succeeds current CEO when he retires in 2016.

If interest rates start increasing, this could result in higher earnings from the premiums float that is being invested. As a result, it is quite possible that earnings per share could increase significantly from this tailwind.

The annual dividend payment has increased by 9.20% per year over the past decade, which is in line with growth in EPS.

A 9% growth in distributions translates into the dividend payment doubling every eight years on average. If we check the dividend history, going as far back as 1987, we could see that Chubb has indeed managed to double dividends every nine years on average.

The dividend payout ratio has largely remained below 29% throughout the 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. In Chubb’s case, a large portion of cashflow is spent on share buybacks than dividends.


The return on equity has been in a decline between 2007 and 2012. Overall the amounts for 2013 are just slightly lower than the amounts in 2004. Rather than focus on absolute values for this indicator, I generally want to see at least a stable return on equity over time.

Currently, the stock is attractively valued, as it trades at a forward P/E of 11.80 and yields 2.30%. I am analyzing the company because I believe it is quality dividend growth stock, which will be a very good addition to my portfolio on dips below $80/share, which is equivalent to a current yield above 2.50%.

Full Disclosure: Long CB

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Monday, April 21, 2014

Seven Sleep Well at Night Dividend Stocks

For my retirement, I am planning on relying exclusively on income from my dividend portfolio. In order to achieve the dividend crossover point, I would need to be prudent about saving and then investing the cash in quality income stocks at attractive valuations. The valuation part is generally easy to convey using simple numerical equations such as:

1) A ten year record of annual dividend increases
2) Annual dividend growth exceeding 6%
3) A Price/Earnings ratio below 20
4) A dividend payout ratio below 60%
5) A minimum yield of 2.50%

I usually run this screen on the dividend champions list once a month and come up with ideas for further research or with alerts that stocks I like are attractively priced. The more difficult task is evaluating quality when it comes to stocks. It is often said that beauty lies in the eyes of the beholder. When assessing quality in income stocks, I am often finding that what I identify as quality might be trashed by someone else.

In general, a quality company is the one that has strong brand name products and services that customers are willing to pay top dollar for. The products/services associated with this brand name represent quality, and offer something of value to consumers that is only offered by this company. When a company is offering something that is uniquely distinguished, and is not a commodity, it can then charge a premium and can pass on cost increases to consumers if input costs increase.

For example, you can purchase Cola products from many companies including PepsiCo (PEP), RC Cola and Coca-Cola (KO). However, for many consumers throughout the world, Coca-Cola offers a refreshing taste that is unique to the product they like. Even if someone was able to reverse engineer Coke, they would not be hugely successful because they would offer a largely untested product that the consumer is not familiar with. The company has managed to increase dividends for 52 years in a row, and pays an annual dividend of 3%. Check my analysis of Coca-Cola.

The same is true for PepsiCo (PEP), which is a close rival of Coke in the Cola Wars. PepsiCo however is much more than a soft drinks company. It also sells snacks to consumers such as Lays potato chips. The food business is incredibly stable, as consumers are typically used to buying the brands they trust on their trips to the grocery store. In addition, it is much easier to charge higher prices for your product that the customer likes.The company has managed to increase dividends for 42 years in a row, and pays an annual dividend of 2.70%.  Check my analysis of PepsiCo.

Another quality company is Wal-Mart Stores (WMT), which is used by 100 million shoppers every week. The company is offering the lowest prices for everyday items that shoppers ultimately purchase. Wal-Mart has been able to distinguish itself as the lowest price store as a result of its massive scale in the US. That has allowed it to dictate terms for its suppliers, many of which feel lucky to have their products on display at the largest retailer in the US. For a competitor to replicate this success, it would take an enormous amount of capital and years of experience. The company has managed to increase dividends for 41 years in a row, and pays an annual dividend of 2.50%. Check my analysis of Wal-Mart Stores.

International Business Machines (IBM) is a quality technology company that I have always found to be slightly over valued for my taste. I like the fact that the firm has been able to successfully transform itself into essentially what is now a global consulting company, from the pure hardware behemoth it once was in the 1980’s and early 1990’s. The firm has achieved that by building relationships with clients, gaining their trust and offering them services that provide them great value. In business, relationships are very important. Technology is one aspect of the business, where companies are less likely to venture with an unknown firm simply to save a few bucks. It would be much easier to justify selecting a company like IBM for an important technology implementation, than a little known firm. Plus, if the IBM consultants have a working knowledge of a company or industry, they would be much better at delivering value for their clients. The company has managed to increase dividends for 18 years in a row, and pays an annual dividend of 2%. Check my analysis of IBM.

Philip Morris International (PM) sells its Marlborough brand of cigarettes all over the world. Phillip Morris International has a high exposure to emerging markets, where number of smokers is increasing, along with their disposable incomes. Plus, it is not exposed to ruin if one country decides to ban tobacco outright. PMI has a wide moat, because it would be extremely difficult for a new company to start and compete against the long established brands like Marlboro. Consumers generally stay with the brands they are used to buying. Cigarettes are an addictive product, which spots very good pricing power. In addition, PMI has the economies of scale which ensure that its costs stay low relative to the competition. The company has managed to increase dividends for 6 years in a row, and pays an annual dividend of 4.50%. This is why this is the security I like best.

Another firm I like is Kinder Morgan Partners (KMP). This master limited partnership has the longest network of oil and gas pipelines in the US. It also has pipelines transporting oil and gas in Canada as well. The beauty of pipeline business is that it is federally regulated, and that companies that build pipelines seldom have competition. In essence, they are natural monopolies that connect the operators of oil and gas wells with the refineries and other end users, while receiving a toll charge. The amounts of oil and gas consumed in the US is remarkably stable, which is why a company with little competition that manages to charge toll type rates that are indexed with inflation seems like a good idea. The company has managed to increase dividends for 18 years in a row, and pays an annual dividend of 7%. Check my analysis of Kinder Morgan.

The last company on the list is McDonald's (MCD). There are over 35,000 restaurants world-wide, which bear the name McDonald's. Over 80% of those restaurants are franchised, which means that McDonald's is earning a boatload of royalties off those restaurants merely for their right of using the strong brand name, without taking the risk and significant capital expenditures associated with restaurants. These franchise agreements last several decades, which all but ensures a regular stream of cash being sent to the headquarters. In many cases however, the company also owns the real estate under the restaurants ( both company and franchised), which is a hidden asset on the balance sheet, since many locations are on busy intersections and therefore extremely valuable. Plus, consumers like McDonald's, who is always quick to look for new opportunities for growth such as drive-through windows, new markets, change in menus, expanding store hours or drive-through lanes, etc. The company has managed to increase dividends for 38 years in a row, and pays an annual dividend of 3.20%. Check my analysis of McDonald's.

What makes this investments sleep well at night ones is the fact that their income is produced by a diverse set of divisions, geographies and products. Plus, I find them to be fairly valued in today's market, and I believe they have bright futures that would bring in more earnings and dividend income for shareholders in the decades ahead.

Full Disclosure: Long MCD, PM, KMR, KMI, KO, PEP, IBM, WMT

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