Friday, April 28, 2017

Altria is more expensive that you think

I usually run a screen using my entry criteria over the list of dividend champions regularly. I do this in order to find attractively companies for further research, which could then be added to my portfolio. I ran the screen a few weeks ago for the dividend champions list, which identified approximately fourteen companies for further research. One reader asked me why I hadn’t included Altria (MO) in the list. Check my latest analysis of Altria for more information about the company.

This was a very good question. So good, I decided to write a short post about it.

If you look at a place like Yahoo Finance, or Google Finance, you can see that Altria has a P/E ratio of 11. So this means that this amazing company is cheap, doesn’t it?

 Source: Yahoo Finance
Source: Google Finance

Well, not so fast. As part of our evaluation of company fundamentals, we review trends in earnings per share, dividends per share, revenues and payout ratios over the past decade. A quick review of the ten year trends in earnings per share shows a bump in 2016. The curious dividend investor would then search for the driver behind the discrepancy.

Wednesday, April 26, 2017

Stockpile Brokerage Review

As many of you know, brokerage Loyal3 is closing down in May. I received a lot of responses from readers, who shared their disappointment about the close. I did receive one response, which notified me of another broker that was similar to Loyal3, and which has no account minimums. This broker is called Stockpile, and I will be sharing my observations about it today.

Stockpile is an online broker which lets investors buy and sell shares in their favorite companies. It is aimed at newer investors with less experience. The appealing part for me was the fact that it offers the ability to open accounts for kids/teens. This is a feature that may be helpful to anyone who wants to buy stock for children/grandchildren or nieces/nephews, and teach them by example the powerful concepts of investing from an early age. The broker site could be accessed from this link.

The brokerage account at Stockpile is SIPC insured up to $500,000 for stock ( and $100,000 for cash).

Opening an account is a fairly easy and straightforward process. You need to have your social security number, address, bank information etc.This is a fairly standard procedure.

Monday, April 24, 2017

Seven Companies Giving Their Owners A Raise

I look at the list of dividend increases every week, as part of my monitoring process. I then narrow the scope by focusing on companies that have increased dividends for at least a decade. I do this in order to focus on companies that have managed to raise dividends throughout a full economic cycle or two. I also focused my attention on the companies which have managed to grow dividends by more than a token amount. My next step involves reviewing trends in fundamentals over the preceding decade, in order to determine if the business is growing. I also try to determine if the dividend is sustainable and can grow in the future. I want dividends that increase due to increases in earnings power. I do not want dividends that increase merely because the payout ratio is being expanded.

Last but not least, I also like to review valuations. After all, even the best company in the world is not worth overpaying for. If you overpay for an investment, you may still lose money, even if the company excels on the operations level and meets its growth forecasts.

Over the past week, there were several companies that gave their shareholders a raise. The companies include:

Friday, April 21, 2017

Rent Versus Buy - How to decide which one is best for you?

People usually get emotional when the topic of rent versus buy is brought up. One group swears by owning a home, and believes that it is a good decision. The second group believes in renting for life, and brings a lot of arguments to support their decision. I have personally stayed in the "undecided" camp, right in the middle of it all.

We are rational people however, so we want to avoid emotions, and make the best decisions for our own situations. Owning a home is one part a lifestyle decision, and another part a financial decision.

There are pros and cons to buying and renting a home.

I believe that some people who rent may be wasting their money away if house prices in their areas are low. If home prices are high however, people who buy a home may be the ones wasting their money away. Home prices are low, if they are selling at a low multiple of home cost divided by annual rent expense. Home prices are high, if they are selling at a high multiple of home cost dividend by annual rent expense. I find a ratio about 15 or lower to be attractive. If that ratio is over 20, it may be a little bit too high.

Based on my research, if you manage to purchase a comparable unit to what you are currently renting, and you are mindful of costs, you may do better than renting over long periods of time ( exceeding ten years). On the other hand, if you pay a high price to rent multiple, and your monthly payment absorbs most of the funds you would have otherwise used to save to retirement,  you may not do as well with buying a home.

Tuesday, April 18, 2017

Loyal3 Brokerage to Shut Down in May

I just received notification that low cost broker Loyal3 is shutting down, effective May 22 2017. Loyal3 was a decent commission free alternative for beginning investors who wanted to slowly build positions in their favorite brands, without paying any commissions. The brokerage allowed you to invest as little as $10 per transaction, and allowed buying fractional shares. At one point, Loyal3 also allowed a brief arbitrage opportunity where you could invest using a credit card, and earn rewards points. Loyal3 also allowed many investors the chance to participate in IPO’s at the offer price. Sadly, it looks like its business model has not gained enough traction. Alternatively, low cost broker Robinhood offers access to all US equities for a zero rate and does it in real-time. This may have been one of the reasons for the failure.

There are several options to existing clients.

1) Do nothing, and have all securities be transferred to FolioFirst.

Monday, April 17, 2017

Procter & Gamble Raises Dividends for 61st Consecutive Year in a Row

The Procter & Gamble Company (PG) provides branded consumer packaged goods to consumers in North America, Europe, the Asia Pacific, India, the Middle East, Africa, and Latin America. The company operates through five segments: Beauty, Grooming, Health Care, Fabric Care and Home Care, and Baby Care and Family Care.

Last week, this dividend king raised its quarterly dividends by 3% to 68.96 cents/share. This marked the 61st consecutive annual dividend increase for the dividend king Procter & Gamble.

However, it also continues the recent trend of sub-par annual dividend growth for this widely held dividend king. For anyone who has looked at the financial performance over the past decade, the slow rate of annual dividend growth should not have been a surprise.

Over the past decade, the company has been unable to grow earnings per share.

Friday, April 14, 2017

How I Use Frugality to Accumulate Wealth

In a previous article I discussed that I am on track to have my dividend income cover my expenses sometime around 2018. I received a few questions on how I am able to achieve that. I have mentioned before, that I do not like to talk about myself, because I personally find it a little tacky. (this statement in itself sounds like humble-bragging, which is also tacky)

I think I have taken for granted certain topics such as saving, and the power of compounding. I always assumed that it was common sense that people who came to this site would not be interested in learning how I drive a 15 year old car, how I graduated college without any debt but $2,000 in the bank and no debt, and that my frugality has helped me save enough to build my portfolio since 2007.

I also naively assumed that everyone who already saves money sees dividend growth investing as a tool to achieve their financial goals and objectives, be that traditional retirement, early retirement, financial independence or something else. Based on many interactions I have had over the years, I think that I was wrong in my assumptions on what constitutes common sense and what doesn’t. Given the rapid growth of the site readership since its inception in 2008, it is reasonable to expect that not everyone will be on the same page when it comes to various topics.

The first thing about investing is that in order to invest, you need to have money. In order to obtain that money, you need to utilize your most important asset to either find a job, or start a business. You then have to make sure that your expenses are less than what you earn. This surplus cash is then invested every month in dividend growth stocks. The formula to achieve wealth is really simple:

Wednesday, April 12, 2017

17 Dividend Aristocrats for Further Research

Last week, I shared the 2017 list of dividend aristocrats. The most common question I received focused on which companies are attractively valued today, according to my criteria.

The criteria I use have been well publicized over the past decade. They are simple, but effective tools to help me identify companies to include for my diversified dividend portfolio. Obviously, since we are looking only at the list of dividend aristocrats, we are starting out with a group of companies which are already pre-screened for quality. After all, only a company with a strong business model can afford to raise dividends like clockwork for 25 years in a row, or longer. I love companies which can afford to raise dividends like clockwork. Warren Buffett also loves companies that raise dividends like clockwork. Some of Berkshire's largest positions such as Coca-Cola, American Express, Geico, IBM, Wells Fargo are examples of high quality dividend growth stars which have compounded nicely for decades.

The first criteria is to focus on companies whose P/E ratio is below 20. I focus on this rule, in order to avoid overpaying for companies. As we all know, earnings per share can be lumpy in the near term, and distorted by one-time events. While they are not perfect, I use forward earnings as a shortcut to quickly estimate earnings power without doing too much digging in the initial stage.

The second criteria is to avoid companies which have a dividend payout ratio above 60%. I want to focus on companies that can easily cover their dividend. I take the concept of margin of safety very seriously.

Monday, April 10, 2017

Four Dividend Growth Stocks Raising The Bar

As part of my monitoring process, I review the list of dividend increases every week. I usually focus my attention to companies that have raised dividends for at least a decade. It is helpful to see companies I own that keep growing their dividends, years after they have been purchased by me. I also find it helpful to review this list for hidden dividend gems. From there, I review the basic fundamental performance over the preceding decade. I like to see dividend growth which is supported by growth in earnings per share.

Over the past week, there were four companies which raised dividends and also had at least a ten year record of annual dividend increases. The companies include:

The TJX Companies, Inc. (TJX) operates as an off-price apparel and home fashions retailer in the United States and internationally. It operates through four segments: Marmaxx, HomeGoods, TJX Canada, and TJX International. The company raised its quarterly dividend by 20.20% to 31.25 cents/share. This marked the 22nd consecutive annual dividend increase for this dividend achiever. The ten year dividend growth rate is 22%/year. Earnings per share increased from 83 cents/share in 2008 to $3.46/share in 2017. The company is expected to earn 3.91/share over the next fiscal year. Currently the stock is selling for 19.50 times forward earnings and yields 1.70%. Check my analysis of TJX Companies for more information about the company.

Thursday, April 6, 2017

Dividend Aristocrats List for 2017

The S&P Dividend Aristocrats index is an elite group of companies, members of the S&P 500, which have managed to increase dividends every year for at least 25 consecutive years.

To qualify for membership in the S&P 500 Dividend Aristocrats, a stock must satisfy the following criteria:

1. Be a member of the S&P 500
2. Have increased dividends every year for at least 25 consecutive years
3. Meet minimum float-adjusted market capitalization and liquidity requirements defined in the index inclusion and index exclusion rules below.

Those companies deliver both strong income growth and strong total returns over time. The consecutive years of dividend increases serves as a filter for quality – only a company with a stable business model can afford to grow the business, increase dividends and intrinsic value over a quarter of a century. The ability of management to maintain stable or increasing dividends indicates the quality of a firm’s earnings and its growth prospects.

The index was started in 1989, and had 26 original components. The number of components in the index has ranged between 26 in 1989 to 64 in 2001. I used this list as a primary tool for identifying companies with strong brands, which have raised distributions through both good and bad economic conditions. Check this post Historical changes of the S&P Dividend Aristocrats Index for reference.

Wednesday, April 5, 2017

How to Find Dividend Stocks With The Market At All-Time Highs

This guest post has been written by Mike McNeil, passionate investor, founder of Dividend Stocks Rock and author of The Dividend Guy Blog.

I started investing when I was 23, back in 2003. Those were the good times and I luckily sold most of my portfolio to buy a house in 2006, 2 years before the market crashed. In a search for a more efficient and less stressful way to invest, I decided to switch my holdings towards a dividend growth investing strategy in 2010. Two years later, 100% of my portfolio was invested in dividend paying stocks. As it is probably the case for most of you, the past 5 years have brought stellar returns.

As many investors start worrying about the stock market trading at a very high PE ratio, I consider reviewing my investing process. Not because I fear a market correction. I don’t fear it, I know it will happen, we just don’t know when it will happen.

But does it matter?
No, it doesn’t.

It doesn’t matter because staying invested in strong dividend paying company is the only way I can achieve my goals. However, investing in dividend stocks doesn’t mean investing in any kind of company making quarterly distribution. Therefore, it is important to tighten your investment process so that aren’t any bad decisions made.

Monday, April 3, 2017

Raytheon (RTN): A High Dividend Growth Stock to Consider on Dips

Raytheon Company (RTN) develops technologically integrated products, services, and solutions worldwide. It operates through five segments: Integrated Defense Systems (IDS); Intelligence, Information and Services (IIS); Missile Systems (MS); Space and Airborne Systems (SAS); and Forcepoint.

The company is a dividend achiever, which has managed to grow dividends for 13 years in a row. Last week, Raytheon raised its quarterly dividend by 8.90% to 79.75 cents/share.

Over the past decade, the company has delivered an annualized total return of 12.50%/year.

This strong performance was driven by the low valuation a decade ago, consistent dividend growth, consistent share buybacks, and strong earnings per share growth.

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