Monday, February 9, 2015

Two Dividend Paying Companies I purchased last week

I like purchasing companies, which have dependable revenues and earnings. Companies that manage to generate dependable earnings throughout different phases of the economic cycle, and also grow them over time, have an especially important place in the portfolios of the dividend investors. This is because stable earnings reduce the likelihood of a dividend cut when things get tough. Since my goal is to one day live off dividends, the primary goal is to find those companies whose dividend streams are reliable, and can withstand short-term fluctuations in earnings. Another important factor is the ability of those companies to grow those earnings over time. Rising earnings per share are the secret ingredient behind future dividend growth. Companies that usually manage to keep growing earnings for many years tend to have some type of competitive advantage, and usually are in an industry where they provide a product or service that is well differentiated, and not commoditized.

Over the past week, I made two additional purchases, other than the Exxon Mobil one I previously discussed.

Diageo plc (DEO) manufactures and distributes premium drinks such as Johnnie Walker, Crown Royal, Buchanan’s, J&B, Baileys, Smirnoff, Captain Morgan, Guinness, Shui Jing Fang, and Yenì Raki.. The company has raised dividends for 15 years in a row. In the past decade, the company has managed to boost dividends by 5.80%/year. Currently, the stock is selling for 18.70 times forward earnings and yields 2.70%. Check my analysis of Diageo.

United Technologies Corporation (UTX) provides technology products and services to the building systems and aerospace industries worldwide. The company has raised dividends for 22 years in a row. In the past decade, the company has managed to boost dividends by 12.90%/year. Currently, this dividend achiever is selling for 17.10 times forward earnings and yields 2.10%. Check my analysis of United Technologies.

The nice thing was that the day of my scheduled purchase of United Technologies, the company also announced that it was raising its quarterly dividend by 8.50% to 64 cents/share. For Diageo, the interim dividend was raised in late January by 9% in British Pounds. While the interim dividend is usually 40% of the total annual dividend that will be paid, the growth in interim and final dividends for Diageo usually follow very similar rates of change.

A few other companies I own, which raised dividends last week include Archer Daniels Midland (ADM) and Dr. Pepper Snapple (DPS).

Archer Daniels Midland (ADM) raised its quarterly dividend by 16.70% to 28 cents/share. This marked the 40th consecutive annual dividend increase for this dividend champion.The stock yields 2.30%, and sells at 14 times forward earnings. I would probably consider adding to this stock on dips below $44.80/share. Check my analysis of ADM.

Dr. Pepper Snapple (DPS) raised its quarterly dividend by 17.10% to 48 cents/share. This marked the sixth consecutive annual dividend increase for the company. The stock yields 2.50%, but is overvalued at 21.40 times forward earnings. I would only consider the stock on dips below $73. Check my analysis of Dr. Pepper.

Since the purpose of my investment strategy is to generate enough dividends to cover my expenses, I receive a validation of my research any time a company I have purchased raises its dividend. Of course, it doesn't hurt that dividends represent cold hard cash deposited in my brokerage accounts, for which I didn't have to work 60 hours/week putting cover sheets on TPS reports. Dividends are the return on investment, which is always positive, almost always go up, and once paid to you can never be taken away from you. Any time a dividend payment is paid to me, it also serves as a kind of positive reinforcement that helps me reiterate to myself that I am a partial business owner of tens of companies in a variety of industries that have global operations and employ millions of workers.

Full Disclosure: Long DEO, UTX, XOM, DPS, ADM

Relevant Articles:

The Energy Company I want to buy
Six Quality Dividend Companies For Long Term Investors
Two Dividend Stocks I Purchased in 2015
Six Dividend Investments I Made Last Week
Three Dividend Machines I Accumulated Recently

14 comments:

  1. Well done! With enough dividends that eventually help to achieve FI...I know I'm looking forward to a different kind of conversation with my office Lumbergh.

    ReplyDelete
    Replies
    1. Haha, the Bobs might determine that you are a straight shooter with upper management potential.

      Goodd luck in your dividend investing journey!

      Delete
  2. Thanks for your thoughts on DEO and UTX. I've watched DEO for quite a while but think its still about 6% high compared to its own 5 year dividend yield average on SA site. Getting close ... :-) Thanks, Rog

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    Replies
    1. Well, hopefully DEO keeps falling down in price. And UTX also..

      Delete
  3. I'm a shareholder in UTX as well. It's a fantastic business! Glad to have you as a fellow shareholder.

    Cheers.

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    Replies
    1. Hi Henry,

      I have owned UTX for many years. I am just adding to my existing position. Should have added when we had the dip the other week, but had little cash

      Delete
  4. DGI,

    Two excellent companies. I hope to join you as a shareholder at some point here. :)

    Best regards!

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    Replies
    1. Those are some pretty nice and stable companies which will be around for decades. Hopefully there is some correction to enter at better valuations.

      Delete
  5. Long UTX and XOM. I have lately been considering whether or not it would make sense to move my investment in KO to DPS, but I keep hearing your admonition against such a move. Maybe I'll just start a new position in DPS one of these days when the stock is down in a general market decline.

    ReplyDelete
    Replies
    1. Hi Keith,

      I own KO, PEP and DPS. You are right, selling and buying something is something I am not fond of. I have made my biggest mistakes doing exactly what I am not fond of.

      Please check the analysis of DPS I linked. DPS has some risks that KO doesn't. For a couple days the past 2 weeks, I found PEP to be attractively valued, but it went up too much again so I could only add a little..

      Delete
    2. Thanks DGI - I enjoy reading and seeing your comments on seeking alpha. I am long UTX since the dip late last year and considering opening a position DEO if it drops a little more. Also glad to see your above comment on KO- I've been considering moving my KO holdings into PEP, but am very hesitant to start making 'moves' like this. I'll continue to hold KO, and open a PEP or DPS position if/when the time is right.

      Delete
  6. Cannot agree more with your closing paragraph. I view dividends as the ultimate form of profit sharing. Awesome to ring up those rising profits thru increased dividend payments, year-after-year, or better yet, decade-after-decade, feeding a perpetually growing revenue stream.

    If there still remain doubters of this simple philosophy, they need to read this article about a Vermont man that worked 42 years as a gas station attendant & janitor, who amassed an $8 million nest egg with dividend paying stocks.

    http://www.cnbc.com/id/102410730

    Keep up the wonderful writing!

    ReplyDelete
    Replies
    1. That's a great story. You might like this article on some of the most successful dividend investors:

      http://www.dividendgrowthinvestor.com/2012/06/most-successful-dividend-investors-of.html

      Delete
  7. Love DEO. It's on my shortlist of permanent holdings.

    ReplyDelete

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