Tuesday, February 11, 2014

Five Quality Dividend Payers I Bought on the Dip

In the past couple of weeks, I added to my positions in four companies, and initiated a position in two more. It is exciting to see stock prices starting a descend to more attractive values. I am starting to get excited about the possibility of further downside for share prices in 2014, if I am lucky of course. As an investor in the accumulation phase, I get to buy more dividend paying shares when my retirement income is on sale.

I view every stock that I purchase as essentially buying time. Every dividend check represents money I earned that I didn't have to exchange my labor for. This is the beauty of having your money work for you, invested in compounding machines that design and sell products and services around the world, make profits, reinvest in the business and send you a growing pile of excess cash to your brokerage account.

The five companies I purchased are listed below. I also purchased McCormick & Co (MKC) last week, but won’t discuss it here, because I already analyzed it in detail on Friday.

I added to my position in Target (TGT), as part of my intent to dollar cost average my way into the company throughout 2014. Target has suffered from breaches into the credit and debit card accounts of millions of customers in the US. In addition, Target seems to have mismanaged its expansion in Canada. As a result, the stock price has been on a slow slide since the middle of 2013. I find the stock to be a very good value at 15.10 times earnings and a yield of 3.10%. The company has also managed to increase dividends for a cool 46 years in a row. Check my analysis of Target.

Another company I added to was Wal-Mart Stores (WMT). Wal-Mart Stores, Inc. operates retail stores in various formats worldwide. The company has increased dividends for 39 years in a row. Over the past decade, Wal-Mart has managed to increase dividends by 18%/year. This dividend champion trades at 14.20 times earnings and a yield of 2.50%. Check my analysis of Wal-Mart.

For a second month in a row, I also added some McDonald’s (MCD) as well. McDonald’s Corporation franchises and operates McDonald's restaurants in the United States, Europe, the Asia/Pacific, the Middle East, Africa, Canada, and Latin America. This dividend champion has rewarded shareholders with a dividend raise for 38 years in a row. Dividend growth has been slowing down however, from 22.80%/year over the past decade all the way to 13.90%/year over the past five years. Currently, the stock is attractively priced at 17.30 times earnings and yields 3.40%. Check my analysis of McDonald’s.

I purchased shares of Diageo (DEO) for both my taxable and Roth IRA account. Diageo plc produces, distills, brews, bottles, packages, and distributes spirits, beer, wine, and ready to drink beverages. I had previously owned a token position in Diageo, which I sold in early 2013 to simplify my portfolio. This international dividend achiever trades at 18.30 times earnings and a yield of 2.40%. Diageo has managed to increase dividends for 16 years in a row. When competitors such as Beam (BEAM) were acquired at 30 times forward earnings, companies like Diageo look much cheaper. Of course, Diageo is 4 – 5 times larger than the likes of Beam of Brown-Forman (BF.B), so they are less likely to be an acquisition target. Check my analysis of Diageo.

I also added to my shares of General Mills (GIS) in the Roth IRA account. General Mills, Inc. produces and markets branded consumer foods in the United States and internationally. The company has paid dividends for 115 years and never reduced them. In 1995 it lost its status of a dividend champion of 29 years, after freezing distributions following spin-off of Darden Restaurants (DRI). In addition, General Mills has increased dividends for the past 10 years in a row. Over the past decade, General Mills has managed to increase dividends by 9.90%/year. Currently, this dividend achiever is trading at 17.90 times earnings and yields 3.20%. Check my analysis of General Mills.

I almost added to my position in Philip Morris International (PM), but I stopped myself, since it is the second or third largest position in my portfolio by weight. While I really like the company, its fundamentals and the possibilities for growth in earnings and dividends, I do want to be diversified and not overly reliant on a single security for my dividend income in retirement. However, if it drops to $75 and below, I might add some more to the position there. It is very rare that you can find a company with growing earnings, dividends , cheap valuations and a fat current yield, which is sustainable.

What securities did you buy over the past couple of weeks?

Full Disclosure: Long TGT, WMT, DEO, GIS, PM, MCD, BF.B, MKC

Relevant Articles:

Your Retirement Income is on Sale!
Six Compounding Machines for Long Term Dividend Investors
Dividend Champions - The Best List for Dividend Investors
Roth IRA’s for Dividend Investors
The Security I Like Best: Philip Morris International

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