Thursday, September 20, 2018

Dividend Growth Investor Newsletter – September Edition

The September 2018 edition of the Dividend Growth Investor newsletter comes out this Sunday, September 23. This will be the third edition of the dividend investment newsletter that I started two months ago.

It will list ten dividend growth stocks I plan to purchase on Monday, September 24. Each company is analyzed in detail, using the criteria I use. The goal is to evaluate the dividend for safety and evaluate the fundamentals that will allow that dividend to grow over time. The companies listed are attractively valued, and will be bought by my personal portfolio. I use commission-free broker Robinhood, in order to keep investment costs low.

We have 19 companies in our portfolio right now. The new edition that comes out on Sunday will increase the number of portfolio holdings. The goal is to reach 30 - 40 companies in the portfolio by end of the year. I find most of the companies in the portfolio to be good values today. Long-term readers know that I am a long-term investor who buys stocks and holds them for years. Each investment is made with the intention to hold it for years. Given that I am investing real money in these companies, I am extra careful in what I purchase for long-term dividend income. After two months of operating, we have already had 3 dividend increases so far. I believe we are on the right track to hit the long-term dividend goals.

The newsletter is much more than a list of top ten dividend stocks however. It shows how I make portfolio selections, and how to build a portfolio from scratch and monitor its progress along the way.
This newsletter focuses on a real portfolio. I am showing the process I used to build my own personal dividend portfolio for the past decade. I am using the principles of screening, monitoring, valuation, company analysis to get to a list of companies to buy each month, and to build that portfolio along the way.

While we discuss how to build a dividend portfolio by making regular investments, I believe this newsletter can be helpful to retired investors, not just those in accumulation phase.

You can get a 7 day risk free trial by signing up for the newsletter. I am pricing it at $65/year or $6/month. I believe that for less than 20 cents/day, you can learn from my investing experience, and obtain a list of ten attractively valued dividend stocks for further research. This is a great value.

You can subscribe using this Paypal form:

Once you subscribe, I will add you to my exclusive email list, and you will be able to receive premium information about the dividend growth investor portfolio. If you subscribe today however, your price will never increase. I guarantee it.

Monday, September 17, 2018

3 Undervalued High-Yield Stocks with Fast Dividend Growth On Sale Today

Dividends growth stocks are great for both accumulators and retirees, although the emphasis can vary depending on your goals.

For people that are in the accumulation phase of their investing career, the emphasis is generally on total returns. People in this group rationally seek out the best stable sum of dividend growth and dividend yield, so that decades from now their wealth and passive income will be maximized.

On the other hand, people that are nearing retirement or who have reached retirement tend to have more of an eye on investment income. For them, while total returns are still important, higher current dividend yields are emphasized more strongly. The point here is for the portfolio to produce a ton of reliable income now or in the near future, and for that income to continue increasing faster than inflation over the long-term.

Compared to investment-grade bonds, high dividend stocks can produce higher yields combined with growth that exceeds inflation. In addition, qualified dividend income is taxed at a lower rate than interest income in most cases (with the exception of municipal bonds), meaning that the effective after-tax yield that you get to put in your pocket from dividends is higher than bonds that produce similar yields.

The only real catch is that even safe high-yielding stocks have volatility. During a broad market drawdown, a dividend investor’s principle wealth will decline even if their dividend income ideally remains intact, and they must resist selling at unfavorable prices in a panic. For this reason dividend stocks might not be suitable for 100% of an older investor’s portfolio, but can still provide the long-term backbone of the investment income focused strategy when cushioned by bonds and other asset classes.

With that being said, here are three attractively valued high-yielding businesses with well-protected and growing dividends.

Thursday, September 13, 2018

Abbvie Dividend Stock Analysis

AbbVie Inc. (ABBV) discovers, develops, manufactures, and sells pharmaceutical products worldwide. The company was created in 2013, when Abbott Laboratories split into two companies – Abbvie and Abbott. Abbvie continued raising dividends to shareholders for the five years since becoming a separate publicly traded company. The company is a dividend aristocrat., with a 45 year track record of annual dividend increases.

GAAP Earnings per share have been largely flat since 2013. The company does provide reconciliation between GAAP and non-GAAP earnings however. The non-GAAP earnings have been increasing.

However, Abbvie is expecting GAAP adjusted earnings per share of $6.47 - $6.57/share in 2018. Based on those forward earnings, the stock seems attractively valued today.

The downside with Abbvie is that the company generates 60% of its sales and a larger share of profits from a rheumatoid arthritis drug called Humira. The drug’s patent expired in 2016 in the US and is expiring in 2018 in the European Union. However, due to the drug being a bio-similar, there are over 70 patents that provide some intellectual property protection until sometime in 2022 according to Abbvie.

Humira sales have been growing rapidly, and will likely continue going strongly, until competitors catch up to it. Abbvie projects that Humira sales will peak at $21 billion in 2020, up from $ 18.50 billion in 2017. It is possible that sales can continue growing at a healthy clip until 2022, after which they will start decreasing as competitors nibble at Humira’s market share. If the market it serves expands, or there are new uses for the drug, it is possible that sales can actually be maintained, even if we have increased competition.

I do not like the huge reliance on a single product, because it decreases the margin of safety factor. I also do not like the fact that this product will certainly face higher competition in the years to come. The third fact I do not like is that I do not see another blockbuster drug that will replace Humira’s sales after 2022. While there are many compounds in different stages of clinical trials, it would take several new drugs to compensate for the eventual loss of Humira’s sales.

As a dividend investor, I need growing earnings in order to have growing dividend income. If the current business model cannot be forecasted into the future, it may mean that the company may not be the type of buy and hold investment that can be safely be tucked into your portfolio. It may need more monitoring.

On the other hand, others may argue that these headwinds are already priced into the shares. As a result, despite the problems that are expected to occur in the 2020s, investors will do ok and enjoy a high dividend income in the meantime. To put things in perspective, Pfizer faced its own patent cliff in 2011, when large drugs were set to lose patent protection, impacting future profitability. In 2009 the company bought Wyeth. Fast forward a decade from now, and the company's dividend has been restored after a dividend cut. Investors who bought Pfizer a decade ago have done pretty well for themselves.

Perhaps Abbvie could similarly acquire growth through acquisitions as well. Hopefully they do not overpay for those acquisitions, and do not decide to cut the dividend in the meantime.

The annual dividend per share has increased from $1.60/share in 2013 to $2.56/share in 2017. Based on its most recent dividend increase, the company’s forward annual dividend comes out to $3.84/share.

The dividend seems adequately covered based on forward earnings for 2018. The forward dividend payout ratio comes out to 59.40%. However, if earnings per share over the next decade end up falling off a cliff if Humira sales start decreasing, the dividend may be in a dangerous territory sometime in the latter part of the next decade.

I find Abbvie to be attractively valued today at 14.60 times forward earnings and yields 4.10%. While the future is unclear as to where future growth in sales will be generated after Humira, the stock can still deliver solid returns in the near term. Some may argue that the future uncertainty is somewhat priced in the stock already. That being said, the stock could still provide good entry points for investors on bad news.

I am glad I held on to my Abbvie and Abbott stock following the split in early 2013. However, I am unsure about adding more to Abbvie at present levels. Abbvie seems like a company that needs closer monitoring, because it is not the type of business where future growth can be taken for granted. On the other hand, the dividend seems sustainable at the moment, and will likely grow for the next four - five years at a high single digit rate. Investors today need to decide for themselves whether the current valuation is attractive enough to outweigh future risks. Either way, investors are getting paid generously to hold onto their Abbvie shares.

Relevant Articles:

Dividend Companies Showering Shareholders With More Cash
Turbocharge Income Growth with Dividend Reinvestment
Dividend Aristocrats for 2018 Revealed
Is Pfizer (PFE) a value trap for investors?
Should dividend investors hold on to Abbott (ABT) and Abbvie (ABBV) following the split?

Monday, September 10, 2018

Verizon Hikes Dividends For The 12th Consecutive Year

Verizon Communications Inc. (VZ), through its subsidiaries, offers communications, information, and entertainment products and services to consumers, businesses, and governmental agencies worldwide.

Verizon raised its quarterly dividend by 2.10% to 60.25 cents/share. This was the 12th consecutive year that Verizon’s Board has approved a quarterly dividend increase. As a result of the track record of consecutive dividend increases, Verizon is a member of the dividend achievers index.

Between 2007 and 2017, earnings per share grew from $1.90 to $3.26. Earnings per share for 2017 were adjusted to exclude the impact of the 2017 tax reform. The company is expected to earn $4.66/share in 2018.

Over the past decade, Verizon’s annual dividends per share rose from $1.65 in 2007 to $2.33 in 2017. At the current rate of 60.25 cents/quarter, the annual dividend comes out to $2.41/share.

Based on 2017 earnings per share, the dividend payout ratio was at 71.40%. Using forward earnings per share, the payout ratio looks even more appealing at close to 52%. I believe that Verizon’s dividend is safe.

I like Verizon as a long-term holding, but I would prefer it at an entry yield that is closer to 5%. For some reason I prefer Verizon to AT&T. Perhaps the reason is that their non-core acquisitions have been on a much smaller scale than those of AT&T.

 I was hopeful that the proposed Sprint/T-Mobile acquisition would spook telecom investors into panic sell mode that would push prices lower. Unfortunately, this has not happened so far. I am monitoring the situation however.

A stock like Verizon will not make you rich overnight. This is a slow and steady dividend payer, which would provide some extra current yield for a portfolio, as well as some stability during turbulent times.

I would not expect large dividend increases in the future either, as the company is working to reduce debt, and invest in the business, while still providing dividend increases to shareholders.
The telecom business is highly competitive. However, companies like Verizon have the scale to build a quality network across the United States, which is customers like ( as evidenced by the low 1% churn rate). There is a lot of investment that has to be made to maintain and upgrade the network, since technology doesn’t sit still. When you have 126 million customers however like Verizon does, you have the scale to efficiently deploy new technology like 5G and a cheaper per customer cost than competitors.

Right now Verizon is attractively valued at 11.60 times forward earnings and yields 4.50%. I would prefer the stock closer to an entry yield of 5%, given the slow rate of dividend growth.

Relevant Articles:

Attractively Valued Dividend Contenders To Consider
Dividend Achievers Offer Income Growth and Capital Appreciation
My Bet With Warren Buffett
Ten Dividend Growth Stocks For Retirement Income
Should I invest in AT&T and Verizon for high dividend income?

Thursday, September 6, 2018

3M (MMM) Dividend Stock Analysis

3M Company (MMM) operates as a diversified technology company worldwide, which operates in five segments: Industrial, Safety and Graphics, Health Care, Electronics and Energy, and Consumer segments.

3M is a dividend king with a 60 year record of annual dividend increases. The company raised its quarterly dividend by 15.70% to $1.36/share in January 2018. This increase reflects 3M's confidence in its ability to continue generating premium returns in 2018 and beyond.

Over the past decade this dividend growth stock has delivered an annualized total return of 14.40% to its shareholders. Future returns will be dependent on growth in earnings and starting dividend yields obtained by shareholders.

The company has managed to deliver a 3.50% average increase in annual EPS over the past decade. 3M is expected to earn $10.33 per share in 2018 and $11.19 per share in 2019. In comparison, the company earned $7.93/share in 2017. If we adjust for the $1.24 one-time item, related to the new tax laws implemented in 2017 however, earnings per share would have been $9.17.

The strength of 3M’s business model is largely driven by three key strategic levers: active portfolio management, investing in innovation, and business transformation. Management believes that these levers, combined with more aggressive capital deployment, will drive enhanced value creation. Over the last several years 3M has taken significant actions to strengthen its technology capabilities, improve portfolio and cost structure, and make the company even more relevant to customers. 3M’s technology platforms and its manufacturing scale allow it to achieve the lowest unit cost in most of the categories in which 3M competes. This also ensures high margins as well.

The first lever – Portfolio Management – is increasing customer relevance and allowing 3M to focus on its most profitable and fastest-growing businesses. 3M has realigned from 40 businesses to 24 over the past five years. This has resulted in SG&A savings of around $250 million. Continued portfolio management will also help to optimize its footprint, and the company is targeting $125 million to $175 million in additional operational savings by 2020. The company is also expecting that acquisitions, net of divestitures will result in a net 1% growth in annual sales over time. Portfolio management is strengthening 3M’s competitiveness and making them even more relevant to our customers and the marketplace.

Investing in Innovation is the second lever. 3M plans to increase investments in research and development to about 6 percent of sales. The company spends over 6% of revenues on R&D, and has been able to discover innovative products to bolster its bottom line. 3M also allows it engineers to spend 15% of their time on their own projects, which has resulted in a lot of innovation. The company has a proven track record of making money on its research dollars spent, as it tries to find applications with a customer centric point of view. The company invests in research and development to support organic growth, and enhance the company’s strong margins and return on invested capital.

3M continues to make good progress on its third lever – Business Transformation – which is enabling the company to better serve customers with even more agility and efficiency. Its Business Transformation lever aims to creating value for the company and its customers. By 2020, this initiative is expected to deliver $500 to $700 million in annual operational savings, and an additional $500 million reduction in working capital.

The company is also focusing on investments in priority growth platforms such as auto electrification, air quality and personal safety. The company is also focusing investments on its strong global business model including in the U.S. and China.

The company provided a rough roadmap of how it plans to get from the $9.17/share earned in 2017 to the earnings expected in 2018. I believe that a picture is worth a thousand words in this case.

Earnings per share have also been aided by share buybacks. The number of shares outstanding has decreased from 732 million in 2007 to 613 million by 2017.

The annual dividend payment has increased by 9.40% per year over the past decade, which is higher than the growth in EPS. Future rates of growth in dividends will be limited to the rate of growth in earnings per share.

For more than a century the strings of 3M business model has enabled the company to invest in the business while also returning cash to our shareholders. All of this has included a strong steady and rising dividend which is management sees as the hallmark of the enterprise.

In the past decade, the dividend payout ratio has increased from 34% in 2007 to 59% in 2017. I believe that 3M's dividend is safe. 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, 3M is slightly overvalued at 20.40 times forward earnings and has a current yield of 2.60%. This quality company may be worth a second look on further dips in the stock price below $206/share. More conservative investors who are using FY 2017 earnings per share may require dips below $183/share before considering 3M.

Relevant Articles:

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