Monday, November 10, 2014

Three Dividend Machines I Accumulated Recently

I like accumulating things that provide me with something of value to me. Early in life, I accumulated knowledge and paid to it out of pocket by holding multiple part time jobs, earned scholarships, and graduated with a couple of thousand in cash and no debt. I used that knowledge to find employment, and use it to find the necessary capital to invest, and to gain even more knowledge about the opportunities around me. I never liked however the fact that most of my income is derived from a single source, being employment. I prefer to have my income coming from a variety of sources. This is why I like accumulating ownership interests in quality companies that sell at reasonable valuations, and which have long histories of paying and raising dividends. By having a diverse portfolio of businesses from different industries and with operations around the world, my dividend income is not dependent on a single source drying up. The ultimate goal of this exercise is to accumulate enough in income generating assets early in life, in order to enjoy the fruits of my early efforts for decades, while having the opportunity to pursue other interests.

But enough of the mumbo jumbo. The paragraph above describes what most of you are doing as well. Let's get to the point: Over the past week, I added to my positions in those three companies:

Diageo plc (DEO) manufactures and distributes premium drinks such as Johnnie Walker Crown Royal, Baileys, Smirnoff, Captain Morgan, Guinness to name a few. This international dividend achiever has managed to boost dividends in British pounds for 15 years in a row. The ten year dividend growth rate is 5.80%/year. US investors could purchase the ADR’s at 16.90 times forward earnings and a yield of 2.80%. Check my analysis of Diageo.

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. The ten year dividend growth rate is 12.40%/year. The stock is attractively priced at 14.50 times forward earnings and yields 3%. Check my analysis of Baxter.

ConocoPhillips (COP) explores for, develops, and produces crude oil, bitumen, natural gas, liquefied natural gas, and natural gas liquids worldwide. This dividend achiever has raised dividends for years in a row. The ten year dividend growth rate is 15.70%/year, but this would likely drop over the next decade. Currently, ConocoPhillips is selling at 11.80 times forward earnings and yields 4.10%. Check my analysis of COP.

Another company that I might add to later in 2014 or early in 2015 is Emerson Electric (EMR), which just recently announced it was increasing its quarterly dividend by 9.30% to 47 cents/share. This marked the 58th consecutive annual dividend increase for this dividend king. In the past decade, this dividend king has managed to boost distributions by 7.70%/year. The stock is attractively valued at 16.20 times forward earnings and a forward yield of 2.90%. I last looked at the company in 2012, so it is on the block for a fresh analysis.

Overall, I find that the person who ends up wealthy is the one who regularly saves money to invest every month, then patiently sits on his pile of businesses for decades, and reinvests the growing stream of dividends into more income producing assets along the way. Even if you make mistakes along the way, a diversified portfolio throwing and ever growing amounts of cash every 90 days will correct them, and make them seem like a rounding error in the grand scheme of things.

Full Disclosure: Long DEO, BAX, COP, EMR

Relevant Articles:

Dividend Reinvestment is important
Coca-Cola: A wide-moat dividend growth stock to buy and hold
The Only Reason for Automatic Dividend Reinvestment
Why dividends?
My Strategy

6 comments:

  1. All good buys DGI. I recently read some article where COP is still profitable on oil in the $45 dollar range (if I remember correctly).

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  2. I own BAX in my ROTH IRA and I DRIP COP.

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  3. Nice buys.

    I like ConocoPhillips the most, I think oil companies are under lots of pressure in the moment because of the weak oil price so we all have nice opportunities to invest and wait for better oil prices.

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  4. I am ticked off with ICE they did NOT raise their dividend.

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  5. Very nice list. Three strong dividend paying companies. I own DEO already and would like to add more to my position soon. Do you have a certain entry point in mind? Thanks for bringing EMI to my attention, I will have to research it soon!

    Bert, one of the Dividend Diplomats

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  6. dgi : look forward to your blog and comments. truly an inspiration. but were you drinking when you wrote this? Not questioning your selections -- all well and good -- but typos and grammatical errors and a tone that seemed out of sorts... everything ok?

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