Monday, August 19, 2019

Three Dividend Stocks Raising the Bar

I reviewed three companies which raised dividends last week. Each of these companies has managed to boost dividends annually for at least ten years in a row. I focused on trends in earnings per share, in order to determine if there is fuel for future dividend increases. I also focused on past growth in dividends, in comparison to the latest dividend increase. Last but not least, I looked at valuation, and decided if a company is worth pursuing further, and at what price. These reviews are part of my monitoring process.

The three companies for my review include:

Westlake Chemical Corporation (WLK) manufactures and markets basic chemicals, vinyls, polymers, and building products worldwide. It operates through two segments, Olefins and Vinyls.

The company’s Board of Directors approved a 5% increase in the quarterly dividend to 26.25 cents/share. This marked the 14th year of consecutive annual dividend increases for this dividend achiever. Over the past decade, Westlake Chemical has managed to grow distributions at an annualized rate of 24.50%.

The company managed to grow earnings from 40 cents/share in 2009 to an estimated $3.76/share in 2019.

This is a cyclical company, whose earnings tend to ebb and flow with the rise and fall of the economy. I find it to be fairly valued at 16.30 times forward earnings. The stock yields 1.70%. I am unsure about Westlake’s prospects in the future, but may monitor the company closer in a future review.

MGE Energy, Inc., (MGEE) operates as a public utility holding company primarily in Wisconsin. It operates through five segments: Regulated Electric Utility Operations; Regulated Gas Utility Operations; Nonregulated Energy Operations; Transmission Investments; and All Other.

The board of directors of MGE Energy, Inc. increased the regular quarterly dividend rate over 4% to 35.25 cents per share. This dividend champion has increased its dividend annually for the past 44 years and has paid cash dividends for more than 100 years.

MGE Energy has managed to grow dividends at an annualized rate of 3.30% over the past decade.
Between 2008 and 2018, the company has managed to grow earnings from $1.59/share to $2.43/share.

The stock is overvalued at 31 times earnings, offers a dividend yield of 1.90%, and grows distributions at a low rate. MGE Energy may be worth a closer look at a price that is equivalent to a 4% dividend yield, which may represent a better valuation for a company that grows at 3%/year.

Nordson Corporation (NDSN) engineers, manufactures, and markets products and systems to dispense, apply, and control adhesives, coatings, polymers, sealants, biomaterials, and other fluids worldwide.

The company’s board of directors authorized a 9% increase in the quarterly dividend to 38 cents/share. This represents the 56th consecutive year of annual dividend increases for this dividend king.

During the past decade, Nordson has managed to grow shareholder distributions at an annualized rate of 13.10%.

The strong growth in dividends was supported by strong earnings growth. Between 2008 and 2018, Nordson managed to grow earnings from $1.71/share to $6.40/share. The company is expected to generate $6.13/share in 2019.

The stock looks slightly overvalued at 22.30 times forward earnings. Nordson yields a safe 1.10%. It may be worth a second look on dips below $122/share.

Relevant Articles:

How I Manage to Monitor So Many Companies
How long does it take to manage a dividend portfolio?
How I manage my dividend portfolio
Dividend Aristocrats for 2019 Revealed

Thursday, August 15, 2019

Motif Investing Is Another Free Brokerage Option For Dividend Investors

Last year, I launched my premium newsletter titled Dividend Growth Investor Newsletter. In the newsletter, I build a portfolio of dividend growth stocks with the intention to generate $1,000 in monthly dividend income. I allocate $1,000 each month to ten attractively valued dividend growth stocks every single month using broker Robinhood. I used Robinhood, because the stock broker doesn’t charge commissions for buying individual stocks and it also offers real-time execution of orders.

The downside is that I can only purchase full shares, and not fractional shares. Therefore, if I wanted to buy one share of Johnson & Johnson and one share of Lockheed Martin, I cannot simply put $100 in each – I have to put the equivalent of $500 in both. Since I invest $1,000 each month in that portfolio, this causes some temporary lopsidedness in portfolio weights.

In addition, some readers have complained that Robinhood does not offer not automatic dividend reinvestment and that it doesn’t offer retirement accounts such as Roth IRA’s for example.

I rediscovered Motif Investing, a stock broker that I had reviewed a few years ago for its innovative idea to let you make an investment in up to 30 securities at once for a price of $9.95 for the whole trade. I never really did much investing using Motif, because I figured that I could invest in 30 companies directly and commission free using Robinhood. I could also invest in these 30 companies per month by using a broker such as Interactive Brokers, where I am charged 35 cents/trade. None of these options allow me to buy fractional shares however, though they do offer instantaneous order execution in real-time.

Basically, Motif lets you invest a certain dollar amount into companies in your choosing, completely commission free. The platform allows you to invest through a taxable or tax-deferred portfolio.
In order to do that, you need to open a brokerage account, and provide information about yourself. This is typical, so I will skip it. Just make sure you have your Social Security Number, address, driver’s license and bank information handy. Once you open the account, and add a bank account, you can make investments with it.

While Motif doesn’t allow to DRIP cash dividends into the stock that produced them, they offer an interesting feature called “Auto-Reinvest Dividends”. This feature allows you to reinvest dividends into shares of a single entity of your choice. Otherwise, these dividends will be deposited as cash to your account, and you can choose to reinvest them any way you want. In theory, you can reinvest amounts as low as $1 into stock. I believe that the lowest denominator of individual securities you can purchase is 0.01 shares.

To make an investment after you log on to the account, click on “Trading”, and then click on “ Trade Stocks”.

You are taken to a screen that asks for the stock ticker, whether you want to buy or sell. Under quantity, select “Amount ($)”, and put the dollar amounts you want to invest in the security of your choice. Next, make sure you select an order type of “Market”, and also make sure that the checkbox for “ Execute trade on next market open” is checked.






Click “preview order”, and you are in business once you hit “ place order”. The order will be executed at the open on the next day.


In a Motif account, all single stock trades ( outside of built or community motifs) are commission-free when you select the option to trade at the next market open. Auto-reinvest dividends, auto invest are also commission free.

There are some drawbacks to Motif Investing however. You should be aware that there is a co-called platform fee of $10/quarter, which is assessed on accounts which have a balance below $10,000 or which hasn't paid a stock commission over the preceding 3 months. There are a few other ways to avoid the penalty, such as being a paid Motif Blue member, which costs $19.95/month but gives you 3 commission-free real-time trades and five commission-free next market open trades for motifs built by you or another Motif community member. It also provides early notifications about new IPOs and real-time quotes on all pages. If you have their Impact Member portfolios, you would avoid the quarterly fee, but you will be charged a fee of 0.25%/year, and you will be limited to their robo-adviser like selection of investments. For that reason, make sure you have at least $10,000 to invest there, and you are committed to building out your portfolio through Motif. Robinhood on the other hand, doesn't have a fee on low account balances.

While Motif offers a lot of other options, such as buying already made portfolios, robo-advisor like portfolios, and many other options, I focused only on the direct stock investment feature at low commissions that could be directly applicable to myself. I believe that Motif is a good platform for serious investors who do not want to pay commissions on their investments, buy fractional shares, and be able to invest through a retirement account, and open and maintain an account balance of at least $10,000.

Have you used Motif Investing? If so, I would love to hear your experienced. Please email me at dividendgrowthinvestor@gmail.com

Relevant Articles:

Create Your Own Dividend ETF With Motif Investing
Robinhood Offers Free Stock Trading for Dividend Investors
The Best Broker for Dividend Investors: Interactive Brokers
Stress Testing Your Dividend Portfolio

Monday, August 12, 2019

Four Dividend Growth Stocks Increasing Returns To Shareholders

Dividend Growth Investing is a strategy that focuses on companies that consistently raise dividends out of their rising stream of earnings. The goal of the dividend growth investor is to identify such companies, acquire them at an attractive valuation, and build their collection of businesses over time to create a diversified portfolio that can withstand most turbulent economic environments.

As an investor, I think that it is important to know what to look for, when evaluating dividend growth stocks for a potential inclusion into my portfolio.

However, it is equally important to know what to avoid or put on the list for later review.

When I review companies, I look for growth in earnings and dividends, coupled with an adequate dividend payout ratio. It is important to find a business which can deliver on fundamentals. However, it is also important to find that business at an attractive entry valuation.

There were four companies with at least a ten year history of raising dividends, which also approved dividend hikes last week. I do not find them attractive at this time, for the reasons listed in the article behind each company. I am posting this however, as an effort to educate investors that knowing what to avoid is equally important to knowing what to look for. The companies include:

STERIS plc (STE) provides infection prevention and other procedural products and services worldwide. It operates in four segments: Healthcare Products, Healthcare Specialty Services, Life Sciences, and Applied Sterilization Technologies. STERIS’s Board of Directors has increased the quarterly interim dividend from $0.34 to $0.37 per share. This marked the 15th year of annual dividend increases for this dividend achiever. During the past decade, Steris has managed to grow dividends at an annualized rate of 16.60%.

Between 2008 and 2018, the company managed to grow earnings per share from $1.20 to $3.39. Steris is expected to generate $5.47/share in 2019.

Right now the stock is overvalued at 28.10 times forward earnings and offers a dividend yield of 1%. It may be worth a closer look on dips below $110/share.

International Flavors & Fragrances Inc. (IFF) manufactures flavors and fragrances for use in various consumer products. It operates through three segments: Taste, Scent, and Frutarom. The Board of Directors authorized a 3% increase to the quarterly dividend to $0.75 per share. The company has increased its quarterly dividend payment for the tenth consecutive year. Over the past decade, the company has managed to boost distributions at an annualized rate of 11.50%.

Between 2008 and 2018, the company has managed to boost earnings from $2.87/share to $3.79/share. International Flavors & Fragrances is expected to generate $6.20/share in 2019.

The stock is fully valued and then some at 19.80 times forward earnings and yields 2.40%. The company used to be on the dividend aristocrats list until the mid 1990s, when it cut dividends. I would have placed the company on my watchlist, but the recent slowdown in dividend increases is giving me pause.

Badger Meter, Inc. (BMI) provides flow measurement, control, and communication solutions worldwide. The Board of Directors of Badger Meter, Inc. authorized a 13% increase in its quarterly common stock dividend to $0.17 per share. This marked the 27th year of consecutive annual dividend increases for this dividend champion. Badger Meter has a ten year annualized dividend growth of 10.80%.

Between 2008 and 2018, Badger Meter managed to only boost earnings from 85 cents/share to 95 cents/share. Badger Meter is expected to generate $1.57/share in 2019.

The stock is overvalued at 34.50 times forward earnings and offers a dividend yield of 1%. Given the high valuation and lack of earnings growth over the past decade, I view the stock as a hold at best today.

Ritchie Bros. Auctioneers Incorporated (RBA) an asset management and disposition company, sells industrial equipment and other durable assets through its unreserved live on site auctions, online marketplaces, listing services, and private brokerage services. The company increased its quarterly cash dividend by 11% to $0.20 per share. This marked the 19th consecutive annual dividend increase for this dividend achiever. Over the past decade, it has managed to boost distributions at an annualized rate of 7.50%/year.

Between 2008 and 2019, the company managed to boost earnings from $0.88/share to $1.11/share. Ritchie Bros. Auctioneers is expected to generate $1.19/share in 2019.

The stock is overvalued at 31.30 times forward earnings and yields 2.10%. Given the slow rate of earnings growth over the past decade, coupled with the high valuation, I view the stock as a hold at best.

Relevant Articles:

Where are the original Dividend Aristocrats now?
- Historical changes of the S&P Dividend Aristocrats
My Entry Criteria for Dividend Stocks
2019 Dividend Champions List

Thursday, August 8, 2019

Dividend Stock Analysis of Johnson & Johnson (JNJ)

Johnson & Johnson (JNJ), together with its subsidiaries, is engaged in the research and development, manufacture, and sale of various products in the health care field worldwide. The company operates in three segments: Consumer, Pharmaceutical, and Medical Devices & Diagnostics. This dividend king has paid dividends since 1944 and has managed to increase them for 57 years in a row. Dividend increases have been like clockwork every year for decades.

Johnson & Johnson earned $3.63/share in 2007 and managed to grow earnings to $6.31/share in 2017 (adjusted for the provisional amount of $4.94/share associated with the recent enactment of tax legislation as well as a 90 cent/share charge for intangible amortization expense). The company just announced its latest earnings for 2018, which come out to $7.03/share. The amounts include $1.42/share in annual intangible amortization expense. I add this back, because it is a non-cash GAAP requirement, which requires companies to amortize intangible assets such as trademarks for companies they acquired. In other words, you amortize an intangible asset mostly due to accounting rules, and that doesn’t really follow the economics of how trademarks work for example. There is another process, where intangible assets that lose all of their value are written off as an impairment, which is when it may make sense to adjust earnings for those events. Anyways, Johnson & Johnson is expected to earn an adjusted $8.53-$8.63 per share in 2019, which is up from $8.18 adjusted EPS in 2018. Adjusted earnings guidance excludes the impact of after-tax intangible amortization expense and special items.

Johnson & Johnson has a diversified product line across medical devices, consumer products and drugs, which should serve it well in the future. This makes the company somewhat immune from economic cycles. Investors looking fora safe and dependable earnings can look no further than Johnson & Johnson. In addition, the company has strong competitive advantages due to its scale, leadership role in various diverse healthcare segments, breadth of product offerings in its global distribution channels, continued investment in R&D, high switching costs to users of its medical devices, as well as its stable financial position.

Future profits growth could come from new product offerings, which are the result of continued investment in research and development, and through strategic acquisitions.

Recently, shares have been hit hard by an article claiming the company knew that its baby powder contained traces of asbestos, which is then linked to cancer. The company denies the fact that its ingredient talc contains traces of asbestos and denies that its product causes cancer. I believe that this negative news can provide an opportunity to add in this quality company at lower prices. If it drags on, long-term investors may be able to purchase more shares at even lower prices.

Another high profile case is linking Johnson & Johnson to the nation’s opiod epidemic. It is possible that the two high-profile cases listed above may offer steeper drops in share prices, which may provide long-term investors with good entry points.

Johnson & Johnson has managed to reduce number of shares outstanding over the past decade, which helped earnings per share growth. Between 2007 and 2018, the number of shares declined from 2,911 million to 2,728 million. The short bumps up were related to acquisitions. JNJ unveiled a 5 billion dollar share buyback in December, as a way to show confidence and reassure investors after recent cancer allegations on its baby powder.

The company managed to grow its dividends by 7.40%/year over the past decade. The company's latest dividend increase was announced in April 2019 when the Board of Directors approved a 5.60% increase in the quarterly dividend to 95 cents /share.

The dividend payout ratio has increased from 45% in 2007 to 50% in 2018. The ability to generate strong cash flows, have enabled Johnson & Johnson to reward shareholders with a higher dividends for 57 consecutive years. I believe that the dividend is safe today, but will likely be limited to future growth in earnings per share of 5% - 6%/year over the next decade. A lower payout is always a plus, since it leaves room for consistent dividend growth and minimize the impact of short-term fluctuations in earnings.

Currently, the stock is attractively valued at 15.90 times forward earnings, yields 2.90% and has a forward dividend payout ratio of 44%.

Relevant Articles:

Eleven Dividend Focused Companies For Further Research
Dividend Growth Investor Newsletter Turns One
Dividend Kings List For 2019
How to value dividend stocks

Monday, August 5, 2019

Seven Companies Committed to Returning More Profits to Shareholders

Companies that grow dividends tend to have better financial health and produce sustained earnings and revenue growth. Dividends help identify well-managed companies; every dividend declaration represents a promise by management and a vote of confidence by the board of directors in the company's leadership. Companies that consistently raise their dividend payouts also raise the bar on their own performance expectations. These dividend increases show the longstanding commitment of returning capital to shareholders for these companies. These increases also provide evidence that companies are executing on their long-term business strategies.

Shares of dividend-paying companies possess built-in value that makes them generally more resilient in down markets, with solid appreciation potential during earnings-driven market upturns — with less price volatility.

I follow the list of dividend increases weekly as part of my dividend investing strategy. I try to approach investing from different points of view, in order to ensure that I can see emerging dividend success stories and monitor existing holdings.

Over the past week, there were several companies that raised their dividends to shareholders. I am listing below the ones which have managed to grow dividends over the past week and also have at least a ten year track record of annual dividend increases. The companies include:

Illinois Tool Works Inc. (ITW) manufactures and sells industrial products and equipment worldwide. It operates through seven segments: Automotive OEM; Food Equipment; Test & Measurement and Electronics; Welding; Polymers & Fluids; Construction Products; and Specialty Products.

ITW’s Board of Directors approved a 7% increase in its quarterly dividend to $1.07/share. This marked the 45th consecutive year of annual dividend increases for this dividend champion. During the past decade, Illinois Tool Works has managed to grow investor dividends at an annualized rate of 11.30%.

Between 2008 and 2018, Illinois Tool Works has managed to grow earnings from $2.91/share to $7.60/share. The company is expected to generate $7.70/share in 2019.

The stock is close to fully valued at 19.60 times forward earnings and offers a current dividend yield of 2.80%. Check my analysis of Illinois Tool Works for more information about the company.

Dover Corporation (DOV) provides equipment and components, specialty systems, consumable supplies, software and digital solutions, and support services worldwide. The company operates through three segments: Engineered Systems, Fluids, and Refrigeration & Food Equipment. $5.82/share in 2019

The Board of Directors of Dover increased its quarterly cash dividend by 2.10% to $0.49 per share. This is the 64th consecutive year in which this dividend king has increased its annual cash dividend. During the past decade, this dividend king has managed to grow distributions at an annualized rate of 9.70%.

Dover earned $3.24/share in 2008 and is expected to grow profits to $5.82/share in 2019.
The stock is attractively valued at 16.20 times forward earnings and yields 2.10%. Given the slow rate of dividend increases, I view the stock as a hold.

Carlisle Companies Incorporated (CSL) operates as a diversified manufacturing company. It operates through four segments: Carlisle Construction Materials, Carlisle Interconnect Technologies, Carlisle Fluid Technologies, and Carlisle Brake & Friction.

The Board of Directors for Carlisle Companies increased the quarterly dividend by 25% to $0.50 per share. This dividend champion has increased its dividend for the 43rd consecutive year. The company has delivered an annualized 9.90% dividend growth over the past decade.

Carlisle Companies managed to earn $2.34/share in 2009 and is expected to generate $8.13/share in 2019.

The stock looks attractively valued at 17.20 times forward earnings and yields 1.40%. Carlisle is a company to add to my list for further research.

Reinsurance Group of America, Incorporated (RGA) engages in reinsurance business. The company’s Board of Directors increased its quarterly dividend by 17% to 70 cents/share. This marked the twelfth year of consecutive annual dividend increases for this dividend achiever. Reinsurance Group of America has delivered annualized dividend growth of 37.70% over the past decade.

Between 2009 and 2018, the company managed to grow earnings from $5.55/share to $11/share. The rapid dividend growth was aided by expanding the dividend payout ratio from a low base.
Reinsurance Group of America is expected to generate $13.14/share in 2019.

The stock looks fairly priced at 11.50 times forward earnings, but yields only 1.80%. That being said, it may be worth adding to my list for further research.

McKesson Corporation (MCK) provides pharmaceuticals and medical supplies in the United States and internationally. It operates in three segments: U.S. Pharmaceutical and Specialty Solutions, European Pharmaceutical Solutions, and Medical-Surgical Solutions.

The company’s Board of Directors declared a 5% increase in the regular quarterly dividend to 41 cents per share. This marked the twelfth consecutive annual dividend increase for this dividend achiever. Over the past decade, this dividend achiever has managed to grow distributions at an annualized rate of 12.90%.

The company has managed to grow earnings from $2.32/share in 2009 to an estimated $14.24/share in 2019.

Right now McKesson is attractively valued at 10.40 times forward earnings and yields 1.10%. Drug distributors have been under pressure over the past four years. This could be a good time to place companies such as McKesson on the list for further research, given the low valuations.

The Scotts Miracle-Gro Company (SMG) manufactures, markets, and sells consumer lawn and garden products in the United States and internationally. The company operates through three segments: U.S. Consumer, Hawthorne, and Other. The company’s Board of Directors approved a 5.40% increase in quarterly dividends to 58 cents/share. This marked the tenth consecutive annual dividend increase for this newly minted dividend achiever. Over the past decade, the company has managed to grow dividends at an annualized rate of 15.80%.

The company has managed to grow earnings from $2.32/share in 2009 to an estimated $4.50/share in 2019.

The stock is overvalued at 24.40 times forward earnings and yields 2.10%. The company may be worth a second look if it dips below $90/share.

NewMarket Corporation (NEU) engages in the petroleum additives businesses. The company’s Board of Directors approved an 8.60% increase in its quarterly dividend to $1.90/share. This marked the 14th consecutive year of annual dividend increases. During the past decade, it has managed to grow distributions at an annualized rate of 24.20%.

Between 2009 and 2018, NewMarket has managed to boost earnings from $10.65/share to $20.34/share. The company is expected to generate $21.41/share in 2019.

The stock is overvalued at 21 times forward earnings and yields 1.70%.

Relevant Articles:

Three Notable Dividend Increases To Consider
Illinois Tool Works (ITW) Dividend Stock Analysis
2019 Dividend Kings List
Dividend Achievers versus Dividend Contenders & Champions
2019 Dividend Champions List

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