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

Wednesday, March 30, 2016

Focused Dividend Investing: Pros and Cons

I believe that diversification is the only free lunch in investing. However, different investors have different takes on the topic of diversification. Some claim that it makes sense to only invest in their best ideas. I will try to discuss the pros and cons on the focused approach. At the end, I will talk to you about my take on the situation.

Focused Investing Pros:

1) If you purchase a great company, which is a successful investment, it will help your portfolio a lot if you are overweight in it. For example, if you invested everything in Wal-Mart when it became a dividend achiever in 1984, you would have done much better than the average investor out there.

2) It helps the investor really focus on a select number of companies and learn everything there is to those companies. If you have a substantial amount of money in a few stocks, you will monitor them very closely, and you will be intimately more familiar with them.

3) It is easier to track 20 companies, than track 50 or more. In addition, the investors could learn more information per investment when they focus on about twenty companies, than when they focus on 50 companies.

4) If you have great ideas, you should put most money there. If you have a few great ideas over your lifetime, and you put a large portion of networth to them, the wealth building effect to your bottom line would be tremendous.

5) Some of the best investors such as Warren Buffett, Charlie Munger have made a majority of their money from just a small number of concentrated bets throughout their career. We have all heard about the time when Warren Buffett put 40% of his partnership in American Express (AXP) in 1964, and made millions of dollars.

Wednesday, March 16, 2016

24 Dividend Champions for Further Research

The list of dividend champions is the most complete list of US dividend stocks that have managed to boost dividends for 25 years in a row. David Fish painstakingly maintains this list, and spends many hours each month on this very useful tool for dividend growth investors. As a side bonus, his list also includes dividend contenders (those which have increased dividends for 10 to 24 years) and dividend challengers ( those which have increased dividends for 5 to 9 years in a row).

I applied the following entry criteria on the list of dividend champions:

1) Dividend yield higher than 2%
2) 1,3, 5 and 10 year dividend growth of at least 5%/year
3) Dividend payout ratio of less than 60%
4) Dividends Increasing for at least 25 years in a row ( dividend champions)

I then went ahead, and reviewed the growth in earnings over the past decade. I wanted to eliminate companies which were not able to boost profitability over the past decade. Without growing profits, a company’s ability to boost distributions is severely limited.

Monday, December 14, 2015

Where to invest the money from the sale of Kinder Morgan stock?

Last week was particularly busy for me on the investing front. I ended up selling almost my entire position in Kinder Morgan (KMI) at approximately $16/share after the company cut dividends by 75%. The surprising part was that the company went from forecasting 6% - 10% annual dividend growth to a 75% dividend cut within the span of one month. I decided that rather than hope for the best, I should cut my losses and reevaluate the situation with a clear head. This decision would also allow me to claim all losses on my 2015 tax return.

My average cost basis on Kinder Morgan stock that I bought outright was about $30/share. I started buying the shares after the IPO in 2011, and bought more until 2013. The company was one of my best ideas. I didn’t buy new stock outright since late in 2013. I have received several years worth of dividends. From a tax perspective, I get to reduce my income by the amount of the loss (technically I reduce any capital gains first, and then I get to deduct up to $3,000 and roll-forward any losses for future tax returns). The reduction in tax liability is helpful to soften the losses. Since the last time I made an investment in Kinder Morgan in late 2013, I have collected approximately $4/share in dividend income. I did hold a small portion of my Kinder Morgan position ( approximately 7% - 8% of my shares) in tax-deferred accounts such as an IRA, where the tax basis was in the mid-30s. I reinvested of my dividends there, and I won't get any deduction on the loss. A portion of those shares will likely be forever stuck in a tax-deferred account since the position is so small, that it would not be cost effective to sell the shares and then buy something else with the proceeds.

A large portion of Kinder Morgan stock came from my investment in Kinder Morgan Management (KMR) however. I received cash dividends of a little less than $2/share for only 1 year – before that I had received shares in lieu of distributions. This was a tax-free way of receiving distributions in stock at a discount, which made compounding easier and a no brainer decision. Either way, I came up only slightly behind on those investments from this legacy position from Kinder Morgan Management (KMR), despite what it looks like a low tax basis of approximately $20/share.

Thursday, December 3, 2015

What should I do about Kinder Morgan?

As most of you know, Kinder Morgan is one of my largest holdings. The position is a result of accumulating the limited partnership units over the past 7 – 8 years through KMR, which were then converted into Kinder Morgan shares in the roll-up last year. I have also had Kinder Morgan as one of my best ideas ever since it went public in 2011. I liked the history of consistent dividend growth, the fact that a large portion of revenues are recurring toll-road like, and the competitive position of pipelines and storage terminal assets. I really liked the fact that Richard Kinder has a large portion of his net worth in Kinder Morgan.

With the stock going down precipitously this year, I have been asked by readers what I am doing. This is not a complete detailed analysis – just a few random thoughts.

Before I start, I have been doing tax-loss harvesting.

But I generally see several outcomes.

The first is that the company stops raising the dividend, but slashes its growth capital expenditures (Capex) budget ( though maintaining the maintenance capex expenditures). Given the low share price, the dividend yield is high, which causes the cost of capital to be high. Given the level of debt, the company will be unable to sell a lot of debt in order to grow. I believe that the company has the ability to fund the dividend from current cash flow from operations or DCF, as well as funding any maintenance capex. When cost of capital is high, the rational decision is to postpone investment. Otherwise, the company is leveraging itself and levering up when it should be staying put. Either way, as long as the dividend is paid, I will hold on to the shares. I will allocate the dividend elsewhere.

Wednesday, December 2, 2015

Recent Purchase

Last week I purchased shares of Hershey (HSY). The Hershey Company (HSY), together with its subsidiaries, engages in manufacturing, marketing, selling, and distributing various chocolate and confectionery products, pantry items, and gum and mint refreshment products worldwide.

Compared to the situation from earlier in 2015 when I warned of high prices on Hershey, I believe that the shares are attractively valued around $85 - $86/share. This translates to a little under 20 times expected earnings of $4.42/share for 2016 for the company. The stock yields 2.70%, which is a very good starter yield for the chocolate maker. The company has managed to boost dividends for five years in a row. In 2009, Hershey (HSY) froze dividends, thus ending a 30 year streak of dividend increases. I find Hershey to be a company of high quality, which has a unique product, loyal customer base, low chances of product obsolescence and some pricing power due to branded nature of its products. In other words, this is the type of company that I don't believe will change much to the worse in the next 20 years. This is also a company I think I understand. Check my analysis of Hershey on Seeking Alpha for more information about the company.

A few weeks before that, I also sold some puts on Hershey with a strike price of 85 that expire in May 2016. There are three possible outcomes that could occur by May 2016.

Monday, November 23, 2015

Three Dividend Seeds I Planted Last Week

I view each investment I make as a seed that I plant for the long-term. Some seeds could turn into a tree that would provide fruit (dividend income) for decades to come. My goal as an investor is to ensure that I plant those seeds in a systematic way that increases the odds of success. My definition of success is the ability to live off dividends when I decide to stop working.

In the past week, I managed to add to my positions in the following three companies:

Target Corporation (TGT) operates as a general merchandise retailer in the United States. Target is a dividend champion which has raised dividends for 48 years in a row. Over the past decade, the company has raised dividends by 20.30%/year.

The stock is selling at 15.20 times expected earnings for 2015 and yields 3.20%. Check my analysis of Target at Seeking Alpha.

The most interesting thing is that I sold two-thirds of my Target position in early 2015. Now I am able to get back in at lower prices. This happens very rarely, and is more of an exception rather than the norm.

Wednesday, October 28, 2015

Two Dividend Seeds I Planted For Long Term Income

I am incredibly lucky that I have been able to share my dividend investing journey with you over the past eight years. I am also very lucky that I have always maintained a frugal attitude to costs, which allows me to save money that I invest in dividend growth stocks every single month. Every action I make today helps me get closer to my goal of living off dividends after hitting the dividend crossover point. Each dividend check is used to buy more dividend stocks, that generate more dividend checks for me. This is the power of the dividend snowball in action.

One of my favorite sayings is the following:

“The best time to plant a tree was 20 years ago. The second best time is today”

I view each dividend investment as a small seed, which could snowball through the power of compounding into a mighty tree. When I decide to retire, I expect to live off the fruit from the seed I may have planted years or decades ago. With each $1000 investment, I increase the amount of dividend income I can generate. Every dollar I generate in dividend income is a dollar for which I do not have to spend 40 – 60 hours/week in the office. Every dollar allows me to buy my own time from an employer.

Friday, October 23, 2015

I bought the following dividend stocks in October

In the past month, I bought shares in four dividend paying companies. Those purchases are in addition to the automatic dividend reinvestment I do in my tax-deferred accounts. The first two purchases were to existing positions, while the other two were for new positions. As I have mentioned before, I like to monitor companies by initiating a small position, and then add back when there is a better valuation.

I didn’t add to the dividend stocks that I had on my watchlist, because I saw other opportunities for investment. For example, it made sense to purchase shares in Yum Brands and United Technologies on the dip, rather than buy more shares of Exxon Mobil which bounced back by 20% from its lows in August.

The companies I purchased in October include:

YUM! Brands, Inc. (YUM), together with its subsidiaries, operates quick service restaurants. It operates in five segments: YUM China, YUM India, the KFC Division, the Pizza Hut Division, and the Taco Bell Division. Yum! is a dividend achiever which has managed to boost dividends for 12 years in a row. The ten year dividend growth rate is 22.90%/year. The company recently raised quarterly dividends by 12.20% to 46 cents/share. I would estimate that the annual dividend growth over the past decade will be below 10%/year, which is still a very good growth. The company is selling for a little over 21 times estimates year 2015 earnings and yields 2.60%. When I bought the stock on October 7, the forward earnings had not been revised as low as they are today. My next purchase should be below $64/share in 2015 but below $72 for 2016 assuming 20 times earnings. I last analyzed Yum!Brands a couple years ago. I should probably post a refreshed analysis soon.

Friday, October 16, 2015

Should I buy Wal-Mart stock at current levels?

On Wednesday, Wal-Mart (WMT) stock fell by 10% in a single day due to lowering its future estimates. This is a large drop from a company with a market capitalization of roughly 200 billion dollars and almost half a trillion in annual sales.

As an investor, I can do two things – I can either buy more or not do anything.

The case for buying more Wal-Mart stock is the fact that the shares are selling at a P/E of 13.10 and an yield of 3.30%. This is certainly the lowest valuation I have seen for Wal-Mart in quite some time. In addition, the company has recently approved a $20 billion dollar share buyback, which at current prices could retire approximately 10% of shares outstanding. While the company is expecting a hit to earnings through FY 2017 ( which is calendar year 2016), it then expects a rebound in earnings per share and slight growth. Furthermore, the company expects 3% - 4% annual growth in revenues over the next three - four years.

On the other hand, there is also the case against buying Wal-Mart for a passive buy and hold dividend portfolio. The first reason is that there has been no growth in earnings per share for the past three years. It looks like there will be no growth in earnings per share in 2015 and 2016 ( equivalent to fiscal years 2016 and 2017). Growth in dividends per share has been anemic for two years in a row as well. As a result, the intrinsic value of the business is not increasing either. This means that the compounding machine is not compounding – it is just treading water.

Monday, September 28, 2015

Dividend Companies I am Considering in October

The stock market has been showing signs of weakness this quarter. Little did I know that the stock market will go down so quickly after I wrote my article titled " are you ready for the next bear market" back in early August of this year.

For those of us who are in the accumulation stage, this is welcome news, since it means that future dividend income is available at lower cost today. To paraphrase Warren Buffett, whether it comes to socks or stocks, everyone loves a good sale.

For whatever reason, the environment today feels a lot like we are going to see lower prices in the foreseeable future, as long as the S&P 500 stays below 2000 points. After all, the stock market only started going down one or two months ago (though many cyclical companies had been drifting lower before that). It is interesting to note that through July of this year, most of the gains on the S&P 500 came from just six stocks. So we might actually see further weakness in major stock indices from here.

We have all been trained to buy on weakness over the past 6 years. If this doesn’t work for this correction, and it actually does turn into an actual bear market, I wonder how many will abandon stocks altogether

Friday, August 28, 2015

A Dividend Portfolio for Early Retirees

I am often asked the following question in some variation: If I were starting a dividend portfolio today, and had a lump sum to put to work, how would I invest it?

The goal of an early retiree is to have the flexibility to do what they want, paid for by their nest eggs.
Dividend growth stocks should be an ideal strategy for these individuals, because they provide a relatively safe stream of income which is always positive and is more stable than relying on total returns. The risk with traditional approaches to retirement such as the 4% rule is that you might have to sell assets when prices are low or stagnant, which could deplete the nest egg that you worked so hard to accumulate.

With dividend investing, you are essentially living off the dividends generated by the portfolio. This is similar to living off the fruit from a tree you have planted twenty years ago. Selling chunks of your portfolio in order to finance expenses in retirement is similar to cutting the tree branch you are sitting on. By cutting off the tree that gives you fruit, you won’t get any more fruit. However, by focusing on the fruit (income), you not only receive more fruit over time, but you also can benefit from long-term appreciation in the companies you have invested in ( the tree grows too). It is a true win-win for long term dividend investors. I also believe that dividend growth investing addresses many risks that retirees face these days.

Monday, August 24, 2015

Dividend Companies I purchased in August

The stock market is finally having the correction everyone has been waiting for since 2012. In the past month, the S&P 500 is down by 7 – 8% from its all-time-highs. I am not sure if people are scared yet or not. I have a feeling that stock prices can go down even further from here, though it will be a slow process that could take several months. Either way, this is not the time to panic. This is the time to stay the course, and keep following a sound strategy for achieving long-term investment goals and objectives. It is important to remember that time in the market trumps timing the market for the long-term dividend investor.

As many of you know, I am in the accumulation phase of the game. Therefore, I have money to deploy each month. That money comes from regular job income and dividends. It is very interesting that the most important asset I have is my ability to earn income. As long as I have that asset, I have the ability to deploy excess cash into investments that will pay rising dividends for me.

As a dividend investor, I view each stock I buy as an asset that will provide me with growing cashflow for decades to come. The only difference is that I do not have to spend 50 - 60 hours/week in the office, filing TPS reports, and sitting in long status update meetings which take more work than the work itself, in order to earn that passive dividend income.  I gladly accept lower prices for shares, because this means I am effectively purchasing my future retirement income at a discount. Since I am not a market timer, I cannot tell you whether stock prices are going to be up or down. My hunch is that things will go lower over the next few months, though not in a straight line down, given the fact that the broad market is only recently starting to sell off. No matter what happens, I do know that by investing my savings each month, without emotion, I should do fine over time.

Friday, August 21, 2015

Eaton Corporation: Attractively Valued Stock to Consider

Eaton Corporation plc (NYSE: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. While you would not find the company covered by most other dividend investors, I believe that it has some great prospects for those willing to take the time and study this business. I recently added to my position in the company, and decided to update my analysis on the company.

The most recent dividend increase was in February 2015, when the Board of Directors approved a 12.20% increase in the quarterly dividend to 55 cents/share.

The company's competitors include Johnson Controls (NYSE:JCI), Parker Hannifin (NYSE:PH) and ITT Corporation (NYSE:ITT).

Monday, August 10, 2015

Are these oil dividends safe?

The price of oil has declined a lot since the summer of 2014. The West Texas Intermediate (WTI) in Cushing, Oklahoma has declined from a high of $107.52/barrel in June 2014 to a low of $45.25/barrel in August 2015. This severe decline in prices has reduced the earnings power of many energy dividend growth stocks, which are engaged in exploration and production.

The question on everyone’s mind is whether these dividends are safe. Only after we answer this question, can we determine whether it makes sense to purchase those shares for income in a dividend growth portfolio.

Back in late 2014, I discussed whether the oil price decline was the opportunity of a lifetime. I talked about three companies I had my eye on. Initially, I discussed how I wanted to slowly build my positions every month. I even made a purchase of ConocoPhillips in early 2015, followed by a small purchase of Exxon Mobil (XOM) a few later. As I was buying Exxon Mobil, I had a change of heart after realizing that the oil price shock had drastically reduced energy companies’ earnings a few weeks later. Therefore, the drop in share prices was much lower than the decline in earnings power, which made those shares overvalued. As a result, I changed course and only recently bought shares in Exxon Mobil.

Friday, August 7, 2015

UnitedHealth Group (UNH) Dividend Stock Analysis

UnitedHealth Group (UNH) is the largest, most diversified health care enterprise in the United States. It serves more than 85 million individuals worldwide. The company operates under two complementary business platforms, UnitedHealthcare for health benefits, and Optum for health services. UnitedHealth Group is a dividend contender, which has raised dividends for 6 years in a row.

The most recent dividend increase was in June 2015, when the Board of Directors approved a 33.30% increase in the quarterly dividend to 50 cents/share. High dividend growth is typical of companies in the first stage of dividend growth.

The company’s largest competitors include Aetna (AET), Humana (HUM), and Anthem (ANTM).

Friday, July 31, 2015

Dividend Growth Stocks I Purchased in July

One of my favorite quotes from Warren Buffett deals with an issue that many dividend investors face from time to time. The quote is” If you like a stock at $50, you would love it at $30”

As usual this quote is jam-packed with a lot of insight. It makes perfect sense that a long-term investor should be excited to purchase ownership stakes in real businesses at cheaper valuations. If you have analyzed a company, and you like the business, and the economics of the business are not materially impaired, the investor should be excited that prices are lower. For us dividend growth investors, it is always better when we can obtain dividend income at a discount. Who doesn’t like getting more bang (dividend income) for their buck?

In the month of July, I managed to add to my stakes in the following companies listed below. I didn’t get to buy all companies I was eyeing at the beginning of the month, since unfortunately I only have a limited amount of capital to deploy each month. I also decided to take advantage of the declines in two transportation companies, which have been exhibiting weakness recently.


Friday, July 24, 2015

ACE Limited (ACE) Dividend Stock Analysis

ACE Limited (ACE), through its subsidiaries, provides a range of property and casualty insurance and reinsurance products worldwide. It operates through five segments: North American P&C, North American Agriculture, Insurance, Overseas General, Global Reinsurance and Life Insurance. ACE Limited is a dividend achiever, which has raised dividends for 23 years in a row.

The most recent dividend increase was in May 2015, when the Board of Directors approved a 3.10% increase in the quarterly dividend to 67 cents/share. After reviewing the past history of dividend increases however, I wouldn’t be surprised if there isn’t another dividend increase this year.

The company’s largest competitors include American International Group (AIG), Travelers (TRV), and Berkshire Hathaway (BRK.B)

Friday, July 17, 2015

McDonald's (MCD) Dividend Stock Analysis 2015

McDonald's Corporation (NYSE: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, 2014, it operated 36,258 restaurants, including 29,544 franchised and 6,714 company-operated restaurants. McDonald's is a dividend champion that has increased distributions for 39 years in a row. McDonald's is one of the 60 companies which could be purchased commission-free using Loyal3, with as little as $10.

The most recent dividend increase was in September 2014, when the Board of Directors approved a 4.90% increase in the quarterly dividend to 85 cents/share. The largest competitors for McDonald's include Restaurant Brands International (QSR), YUM! Brands (NYSE:YUM) and Starbucks (NASDAQ:SBUX).

Monday, July 6, 2015

Dividend Companies I am Considering this Month

The goal of every dividend investor is to generate dividend income that is larger than their annual expenses. This coveted goal is called the dividend crossover point. Regular readers know that my goal is to reach the dividend crossover point somewhere around 2018. I am on track to achieve that, because I put money to work every month, and have been doing that after starting from scratch more than 8 years ago. When you have a goal, and a plan to achieve that goal, the important thing is to keep working towards that goal. I do this by constantly searching for attractively valued companies, which also have good prospects to grow dividend income in the future.

In the article below, I have highlighted a few companies, which I am considering adding to. I had included Chubb (CB) when I originally started thinking about what purchases I am considering for July. However, insurer ACE Limited (ACE) decided to acquire Chubb last week, which derailed those plans. That being said, I will add ACE to my list for further review, and will post an analysis shortly. As I have said before, quality dividend growth stocks are more likely to be acquired by larger competitors.

Friday, June 26, 2015

Emerson Electric (EMR) Dividend Stock Analysis 2015

Emerson Electric Co. provides technology and engineering solutions to industrial, commercial, and consumer markets worldwide. It operates through five segments: Process Management, Industrial Automation, Network Power, Climate Technologies, and Commercial & Residential Solutions. Emerson Electric is a dividend king, which has raised dividends for 58 years in a row. There are only 16 dividend kings in the world.

The most recent dividend increase was in November 2014, when the Board of Directors approved a 9.30% increase in the quarterly dividend to 47 cents/share..

The company’s largest competitors include General Electric (GE), ABB (ABB), and Honeywell (HON)

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

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