Saturday, September 29, 2018

October 2018 Dividend Champions List

I managed to update the list of Dividend Champions for a fourth month in a row. Part of my process of updating the list is to:

1) Review dividend increases weekly, and note if any dividend champions have raised dividends for the month. In addition, check if any dividend contenders have increased dividends

2) Obtain a listing of forward dividend payments at the end of the month, and make a comparison to determine if any changes occurred in the meantime.

You can see that this is a somewhat manual process. However, it is helpful for me, since I rely on dividend champions so much in general.

The October 2018 Dividend Champions list can be downloaded as Google Drive Document or a Dropbox Document.

September Dividend Increases

In the month of September, we had the following champions extending their streak of consecutive annual dividend increases:

Brady Corporation (BRC) raised its quarterly dividend by 2.40% to 21.25 cents/share. This marked the 33rd consecutive annual dividend increase for the dividend champion.

McDonald’s (MCD) hiked its quarterly dividend by 14.90% to $1.16/share. This was the 43rd consecutive annual dividend increase for McDonald’s.

I also updated the record for West Pharmaceutical Services (WST) to 26 years of annual dividend increases. The increase was announced in May 2018 together with the regular dividend payment. The new quarterly dividend of 15 cents/share is 7.10% higher than the previous amount of 14 cents/share.

Dividend Champion Additions/Removals

There were no dividend cuts. However, one company is probably going to lose its dividend champion status at the end of the year, if it doesn’t raise dividends. Tenant Company (TNC)  is in jeopardy of being removed from the list of dividend champions, since it hasn’t raised distributions since 2016.

Another company will be acquired in the first quarter of 2019, so I need to take it off the list then. This is utility Vectren (VVC), which had a 58 year streak of annual dividend increases. We have discussed before how dividend growth stocks make great acquisitions. I have found however that as a dividend investor, I would usually be in a better spot if the stock I owned was never acquired in the first place.

In the process of reviewing dividend histories and dividend increases, I have repeatedly stumbled upon a few companies with long histories of dividend increases that weren’t on the dividend champions list. After reviewing the dividend histories, I have decided to promote the following company into this elite list.

Abbott Laboratories (ABT) has increased dividends for 46 years in a row. The messy part about Abbott is that in early 2013, it split into Abbott Laboratories and Abbvie (ABBV). Since the split, both companies have managed to raise their dividends annually. Standard & Poor’s has both companies with the same track record of annual dividend increases, while the late Dave Fish had their track record at 5 years. The company that will keep the dividend increase record will be Abbott Laboratories, since Abbvie is a spin-off that doesn’t keep the legacy name. This is a similar situation to what happened with Altria (MO) in 2007 and 2008, after it spun-off Kraft and Phillip Morris International. Altria gets to keep the dividend record from before, while Kraft and PMI had to build theirs from scratch.

I decided to demote Realty Income, since it has only raised dividends for 24 years in a row. Realty income (O) raised its monthly dividend from 22 to 22.05 cents/share. The company will be eligible for inclusion after its first dividend increase in 2019 however. I still like the REIT, and would love it even more at lower entry prices.

Conclusion

This leaves us with 124 Dividend Champions for October 2018.

Relevant Articles:

Dividend Champions - The Best List for Dividend Investors
S&P Dividend Aristocrats Index – An Incomplete List for Dividend Investors
Dividend Stocks make great acquisitions
What are my dividend portfolio holdings?
September 2018 Dividend Champions List

Thursday, September 27, 2018

Illinois Tool Works (ITW) Dividend Stock Analysis

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. Illinois Tool Works is a dividend champion with a 44 year track record of annual dividend increases.
Back in August, the company’s Board of Directors authorized a 28 percent increase in the dividend payout to shareholders. This brought the quarterly dividend to $1/share. This action brought the stock to my radar.

The company has a ten year dividend growth rate of 11.60%/annum. Rather than pursue lower-return, higher-risk opportunities that reside outside of the company’s core strengths and capabilities management has chosen to return surplus capital to its shareholders. This is the type of return focused and shareholder friendly management I like to see.



The company has reduced the number of shares outstanding from 556 million in 2007 to 347 million in 2017. This is a 38% decrease in shares outstanding over the past decade, or a reduction of 4.30%/year

The Board also approved a new share repurchase program that authorizes management to buy back up to $3 billion of the company’s common stock over an open-ended period of time. The full authorization represents approximately 22 million shares, or 6% of shares outstanding.

Over the past decade, the company has managed to increase earnings from $3.28/share in 2007 to $6.56/share in 2017. The 2017 earnings per share amounts were adjusted for $1.70/share charge related to the new tax law. Illinois Tool works is expecting to earn somewhere between $7.50/share to $7.70/share in 2018.

The company is in the middle of a restructuring that started in 2013. The goal was to simplify the business structure, narrow the focus and improve the quality of the portfolio, and ultimately focus on organic growth rather than growth through acquisitions. By simplifying and shedding areas that are more commoditified, the company has been able to boost profit margins. This realignment has been helpful in driving organic growth by focusing on most profitable segments, while simultaneously reducing the cost structure.

The ITW business model is focused on three pillars:

ITW has an 80/20 process, where it focuses on the 20 percent of its customers that generate 80 percent of its revenues and structures the business around serving and growing relationships with these key customers. The efficiencies gained from 80/20 deliver best-in-class operating margins, strong free operating cash flow and differentiated returns on invested capital.

The company’s innovation efforts are “80/20-enabled” as its businesses focus on building relationships with major customers to develop deep knowledge and insight around their key needs and pain points. This customer innovation approach has resulted in a large amount of patents, which further bolster the company’s competitive position.

Illinois Tool Works operates through 84 divisions in 57 countries in a highly decentralized structure that places responsibility on managers at the lowest level possible, in an attempt to focus each business unit on the needs of particular customers. Each business unit manager is held strictly accountable for the results of his or her individual business.

The company is targeting 3% – 5% organic revenue growth and 8% - 10% earnings growth through 2022, by leveraging the ITW business model outlined above.

The risks to ITW include the relative cyclicality in the businesses it serves. Another risk includes the fact that the company invests less than 3% of revenues on research & development, which is several times lower than competitors. The company may claim that it is only investing in areas where it can create value however, and that this low R&D investment is due to its laser sharp focus on providing value in its customer centric approach to innovation.

The dividend payout ratio increased from 28% in 2007 to 42% in 2017. The forward dividend payout ratio is at 53%. The dividend is safe based on the history of earnings growth and the dividend payout ratio.

Currently, the stock is fully valued at 18.90 times forward earnings, which is at the top of what I am willing to pay for a cyclical company. The stock yields 2.80%.

Relevant Articles:

September 2018 Dividend Champions List
Three Notable Dividend Increases To Consider
Dividend Aristocrats for 2018 Revealed
How I Manage to Monitor So Many Companies

Monday, September 24, 2018

Five Dividend Stocks Rewarding Shareholders With a Raise

As part of my monitoring process, I review the list of dividend increases every week. I use this process to evaluate existing holdings and also to identify hidden dividend gems. I find it helpful to observe the pulse of dividend increases in my overall monitoring process.

I looked at the list of dividend increases, and then narrowed it down to include those companies that have raised distributions for at least a decade.

The next step includes a focus on each company’s dividend increase, and comparison to its ten year average. After that, I am reviewing the trends in fundamentals, in order to determine if dividend growth is sustainable, and derived from earnings growth. In general, I want to focus my attention on companies which grow earnings and dividends in tandem; I want to avoid companies with stagnant earnings that grow dividends through the expansion in the dividend payout ratio. I have found that the companies with the safest dividends tend to have an adequate dividend payout ratio and growth in earnings per share to deliver future dividend growth, and provide an added margin of safety against short-term turbulence.

Last but not least, I also evaluate the valuation of each company. In general, I want to focus on companies with solid fundamentals, which are also available at attractive valuations.

Ingredion Incorporated (INGR) produces and sells starches and sweeteners for various industries. The company operates through four segments: North America, South America, Asia Pacific and Europe, and Middle East and Africa. The company raised its quarterly dividends by 4.20% to 62.50 cents/share. This marked the 8th consecutive annual dividend increase for this dividend challenger. The ten year dividend growth is 18.60%/year. Earnings grew from $3.52/share in 2008 to $7.06/share in 2017. Ingredion is expected to earn $7.50/share in 2018. Right now, the stock is attractively valued at 13.90 times forward earnings and yields 2.40%.

McDonald's Corporation (MCD) operates and franchises McDonald's restaurants in the United States and internationally. Its restaurants offer various food products, soft drinks, coffee, and other beverages, as well as breakfast menu. The company raised its quarterly dividend by 14.90% to $1.16/share. This marked the 43rd consecutive annual dividend increase for this dividend champion. The ten year dividend growth is 9.80%/year. Earnings grew from $3.76/share in 2008 to $6.37/share in 2017. McDonald's Corporation is expected to earn $7.67/share in 2018. The stock is slightly overvalued at 21.60 times forward earnings but yields 2.80%. McDonald’s may be worth a second look below $150/share.

Realty Income (O) The Monthly Dividend Company is an S&P 500 company dedicated to providing stockholders with dependable monthly income. The company is structured as a REIT, and its monthly dividends are supported by the cash flow from over 5,400 real estate properties owned under long-term lease agreements with regional and national commercial tenants.

Realty Income raised its monthly dividend to 22.05 cents/share. The new dividend is 4% higher than the dividend paid during the same time last year. The monthly dividend company has managed to reward shareholders with multiple dividend increases per year since going public in 1994. The ten year dividend growth is 4.40%/year. This was supported by growth in FFO/share from $1.89 in 2007 to $3.06 in 2017. The REIT yields 4.60% and is selling at 18.60 times FFO. I would prefer Realty Income below$53/share.

W. P. Carey Inc. (WPC) is an independent equity real estate investment trust. The firm also provides long-term sale-leaseback and build-to-suit financing for companies. It invests in the real estate markets across the globe. The firm primarily invests in commercial properties that are generally triple-net leased to single corporate tenants including office, warehouse, industrial, logistics, retail, hotel, R&D, and self-storage properties. The REIT raised its quarterly dividend to $1.025/share. The new rate is 2% higher than the dividends paid during the same time last year. W.P. Carey has raised dividends every year since going public in 1998. The ten year dividend growth rate is 8%/year. Since 2007, FFO/share has grown by 4.70%/year. The REIT yields 6.20%. I find W.P. Carey to be attractively valued today at 12.20 times AFFO.

Microsoft Corporation (MSFT) develops, licenses, and supports software, services, devices, and solutions worldwide. The company operates through Productivity and Business Processes, Intelligent Cloud, and More Personal Computing segments. The company raised its quarterly dividend by 9.50% to 46 cents/share. The forward dividend yield is 1.60%. This marked the 17th consecutive annual dividend increase for this dividend achiever. The ten year dividend growth is 14.50%/year. Microsoft has managed to increase its earnings from $1.62/share in 2009 to an estimated $4.28/share in 2018. The stock is overvalued at 26.70 times forward earnings. Microsoft may be worth a second look on dips below $85/share.

Relevant Articles:

Five Things to Look For in a Real Estate Investment Trust
The predictive value of rising dividends
How to read my weekly dividend increase reports
How to read my stock analysis reports

Sunday, September 23, 2018

Ten Dividend Stocks for September

Readers of my Dividend Growth Investor newsletter just received a list of ten dividend growth stocks I plan to purchase on Monday. This is a real money portfolio which I started in July, in an effort to educate investors on the process of building a portfolio to reach long-term objectives.

The report includes a detailed analysis of each company, using the methods I use to evaluate dividends for safety, valuation and whether dividend growth is on a solid footing. I used the same methods for building my dividend growth portfolio over the past decade.

The goal of the newsletter is to go beyond just identifying ten companies for investment every month. The real goal is to educate investors how real wealth can be built in the stock market. The process of building an income portfolio is very simple, but not easy. An investor simply needs to save money and put them to work in attractively valued stocks regularly. The next step involves reinvesting dividends either selectively or through a DRIP. The last step is the most exciting one – to patiently hold on to your collection of businesses for the long-term. To build a dividend machine, one has to arm themselves with a lot of patience and a long-term focus. This means avoiding the expensive habit of timing the market because it “looks high” or because “it is crashing”. Having the patience to hold on to your investments through thick or thin is a habit that is within the control of the investor.

I try to select companies that I believe will be around in a decade or so, and will be more profitable and pay higher dividend payments along the way. I also evaluate dividends for safety. I focus on valuation today as well as long-term fundamentals. Without growth in fundamentals, and the ability of the business to grow them over time, the companies I invest in will be unable to achieve future dividend growth. As a long-term investor, I buy companies to hold for years if not decades. This is not a newsletter where I will buy securities with the intent of selling them a few months later.

The price for the monthly subscription is just $6/month to new subscribers who sign up for the service. The price for the annual subscription is only $65/year for new subscribers. If you subscribe at the low introductory rate today, the price will never increase for you.

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The price will increase over time, so you have a limited chance to grab this subscription today. If you subscribe today however, your price will never increase. I guarantee it.

Thursday, September 20, 2018

Dividend Growth Investor Newsletter – September Edition

The September 2018 edition of the Dividend Growth Investor newsletter comes out this Sunday, September 23. This will be the third edition of the dividend investment newsletter that I started two months ago.

It will list ten dividend growth stocks I plan to purchase on Monday, September 24. Each company is analyzed in detail, using the criteria I use. The goal is to evaluate the dividend for safety and evaluate the fundamentals that will allow that dividend to grow over time. The companies listed are attractively valued, and will be bought by my personal portfolio. I use commission-free broker Robinhood, in order to keep investment costs low.

We have 19 companies in our portfolio right now. The new edition that comes out on Sunday will increase the number of portfolio holdings. The goal is to reach 30 - 40 companies in the portfolio by end of the year. I find most of the companies in the portfolio to be good values today. Long-term readers know that I am a long-term investor who buys stocks and holds them for years. Each investment is made with the intention to hold it for years. Given that I am investing real money in these companies, I am extra careful in what I purchase for long-term dividend income. After two months of operating, we have already had 3 dividend increases so far. I believe we are on the right track to hit the long-term dividend goals.

The newsletter is much more than a list of top ten dividend stocks however. It shows how I make portfolio selections, and how to build a portfolio from scratch and monitor its progress along the way.
This newsletter focuses on a real portfolio. I am showing the process I used to build my own personal dividend portfolio for the past decade. I am using the principles of screening, monitoring, valuation, company analysis to get to a list of companies to buy each month, and to build that portfolio along the way.

While we discuss how to build a dividend portfolio by making regular investments, I believe this newsletter can be helpful to retired investors, not just those in accumulation phase.

You can get a 7 day risk free trial by signing up for the newsletter. I am pricing it at $65/year or $6/month. I believe that for less than 20 cents/day, you can learn from my investing experience, and obtain a list of ten attractively valued dividend stocks for further research. This is a great value.

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Monday, September 17, 2018

3 Undervalued High-Yield Stocks with Fast Dividend Growth On Sale Today

Dividends growth stocks are great for both accumulators and retirees, although the emphasis can vary depending on your goals.

For people that are in the accumulation phase of their investing career, the emphasis is generally on total returns. People in this group rationally seek out the best stable sum of dividend growth and dividend yield, so that decades from now their wealth and passive income will be maximized.

On the other hand, people that are nearing retirement or who have reached retirement tend to have more of an eye on investment income. For them, while total returns are still important, higher current dividend yields are emphasized more strongly. The point here is for the portfolio to produce a ton of reliable income now or in the near future, and for that income to continue increasing faster than inflation over the long-term.

Compared to investment-grade bonds, high dividend stocks can produce higher yields combined with growth that exceeds inflation. In addition, qualified dividend income is taxed at a lower rate than interest income in most cases (with the exception of municipal bonds), meaning that the effective after-tax yield that you get to put in your pocket from dividends is higher than bonds that produce similar yields.

The only real catch is that even safe high-yielding stocks have volatility. During a broad market drawdown, a dividend investor’s principle wealth will decline even if their dividend income ideally remains intact, and they must resist selling at unfavorable prices in a panic. For this reason dividend stocks might not be suitable for 100% of an older investor’s portfolio, but can still provide the long-term backbone of the investment income focused strategy when cushioned by bonds and other asset classes.

With that being said, here are three attractively valued high-yielding businesses with well-protected and growing dividends.

Thursday, September 13, 2018

Abbvie Dividend Stock Analysis

AbbVie Inc. (ABBV) discovers, develops, manufactures, and sells pharmaceutical products worldwide. The company was created in 2013, when Abbott Laboratories split into two companies – Abbvie and Abbott. Abbvie continued raising dividends to shareholders for the five years since becoming a separate publicly traded company. The company is a dividend aristocrat., with a 45 year track record of annual dividend increases.

GAAP Earnings per share have been largely flat since 2013. The company does provide reconciliation between GAAP and non-GAAP earnings however. The non-GAAP earnings have been increasing.

However, Abbvie is expecting GAAP adjusted earnings per share of $6.47 - $6.57/share in 2018. Based on those forward earnings, the stock seems attractively valued today.

The downside with Abbvie is that the company generates 60% of its sales and a larger share of profits from a rheumatoid arthritis drug called Humira. The drug’s patent expired in 2016 in the US and is expiring in 2018 in the European Union. However, due to the drug being a bio-similar, there are over 70 patents that provide some intellectual property protection until sometime in 2022 according to Abbvie.

Humira sales have been growing rapidly, and will likely continue going strongly, until competitors catch up to it. Abbvie projects that Humira sales will peak at $21 billion in 2020, up from $ 18.50 billion in 2017. It is possible that sales can continue growing at a healthy clip until 2022, after which they will start decreasing as competitors nibble at Humira’s market share. If the market it serves expands, or there are new uses for the drug, it is possible that sales can actually be maintained, even if we have increased competition.

I do not like the huge reliance on a single product, because it decreases the margin of safety factor. I also do not like the fact that this product will certainly face higher competition in the years to come. The third fact I do not like is that I do not see another blockbuster drug that will replace Humira’s sales after 2022. While there are many compounds in different stages of clinical trials, it would take several new drugs to compensate for the eventual loss of Humira’s sales.

As a dividend investor, I need growing earnings in order to have growing dividend income. If the current business model cannot be forecasted into the future, it may mean that the company may not be the type of buy and hold investment that can be safely be tucked into your portfolio. It may need more monitoring.

On the other hand, others may argue that these headwinds are already priced into the shares. As a result, despite the problems that are expected to occur in the 2020s, investors will do ok and enjoy a high dividend income in the meantime. To put things in perspective, Pfizer faced its own patent cliff in 2011, when large drugs were set to lose patent protection, impacting future profitability. In 2009 the company bought Wyeth. Fast forward a decade from now, and the company's dividend has been restored after a dividend cut. Investors who bought Pfizer a decade ago have done pretty well for themselves.

Perhaps Abbvie could similarly acquire growth through acquisitions as well. Hopefully they do not overpay for those acquisitions, and do not decide to cut the dividend in the meantime.

The annual dividend per share has increased from $1.60/share in 2013 to $2.56/share in 2017. Based on its most recent dividend increase, the company’s forward annual dividend comes out to $3.84/share.

The dividend seems adequately covered based on forward earnings for 2018. The forward dividend payout ratio comes out to 59.40%. However, if earnings per share over the next decade end up falling off a cliff if Humira sales start decreasing, the dividend may be in a dangerous territory sometime in the latter part of the next decade.

I find Abbvie to be attractively valued today at 14.60 times forward earnings and yields 4.10%. While the future is unclear as to where future growth in sales will be generated after Humira, the stock can still deliver solid returns in the near term. Some may argue that the future uncertainty is somewhat priced in the stock already. That being said, the stock could still provide good entry points for investors on bad news.

I am glad I held on to my Abbvie and Abbott stock following the split in early 2013. However, I am unsure about adding more to Abbvie at present levels. Abbvie seems like a company that needs closer monitoring, because it is not the type of business where future growth can be taken for granted. On the other hand, the dividend seems sustainable at the moment, and will likely grow for the next four - five years at a high single digit rate. Investors today need to decide for themselves whether the current valuation is attractive enough to outweigh future risks. Either way, investors are getting paid generously to hold onto their Abbvie shares.

Relevant Articles:

Dividend Companies Showering Shareholders With More Cash
Turbocharge Income Growth with Dividend Reinvestment
Dividend Aristocrats for 2018 Revealed
Is Pfizer (PFE) a value trap for investors?
Should dividend investors hold on to Abbott (ABT) and Abbvie (ABBV) following the split?

Monday, September 10, 2018

Verizon Hikes Dividends For The 12th Consecutive Year

Verizon Communications Inc. (VZ), through its subsidiaries, offers communications, information, and entertainment products and services to consumers, businesses, and governmental agencies worldwide.

Verizon raised its quarterly dividend by 2.10% to 60.25 cents/share. This was the 12th consecutive year that Verizon’s Board has approved a quarterly dividend increase. As a result of the track record of consecutive dividend increases, Verizon is a member of the dividend achievers index.

Between 2007 and 2017, earnings per share grew from $1.90 to $3.26. Earnings per share for 2017 were adjusted to exclude the impact of the 2017 tax reform. The company is expected to earn $4.66/share in 2018.

Over the past decade, Verizon’s annual dividends per share rose from $1.65 in 2007 to $2.33 in 2017. At the current rate of 60.25 cents/quarter, the annual dividend comes out to $2.41/share.


Based on 2017 earnings per share, the dividend payout ratio was at 71.40%. Using forward earnings per share, the payout ratio looks even more appealing at close to 52%. I believe that Verizon’s dividend is safe.

I like Verizon as a long-term holding, but I would prefer it at an entry yield that is closer to 5%. For some reason I prefer Verizon to AT&T. Perhaps the reason is that their non-core acquisitions have been on a much smaller scale than those of AT&T.

 I was hopeful that the proposed Sprint/T-Mobile acquisition would spook telecom investors into panic sell mode that would push prices lower. Unfortunately, this has not happened so far. I am monitoring the situation however.

A stock like Verizon will not make you rich overnight. This is a slow and steady dividend payer, which would provide some extra current yield for a portfolio, as well as some stability during turbulent times.

I would not expect large dividend increases in the future either, as the company is working to reduce debt, and invest in the business, while still providing dividend increases to shareholders.
The telecom business is highly competitive. However, companies like Verizon have the scale to build a quality network across the United States, which is customers like ( as evidenced by the low 1% churn rate). There is a lot of investment that has to be made to maintain and upgrade the network, since technology doesn’t sit still. When you have 126 million customers however like Verizon does, you have the scale to efficiently deploy new technology like 5G and a cheaper per customer cost than competitors.

Right now Verizon is attractively valued at 11.60 times forward earnings and yields 4.50%. I would prefer the stock closer to an entry yield of 5%, given the slow rate of dividend growth.


Relevant Articles:

Attractively Valued Dividend Contenders To Consider
Dividend Achievers Offer Income Growth and Capital Appreciation
My Bet With Warren Buffett
Ten Dividend Growth Stocks For Retirement Income
Should I invest in AT&T and Verizon for high dividend income?

Thursday, September 6, 2018

3M (MMM) Dividend Stock Analysis

3M Company (MMM) operates as a diversified technology company worldwide, which operates in five segments: Industrial, Safety and Graphics, Health Care, Electronics and Energy, and Consumer segments.

3M is a dividend king with a 60 year record of annual dividend increases. The company raised its quarterly dividend by 15.70% to $1.36/share in January 2018. This increase reflects 3M's confidence in its ability to continue generating premium returns in 2018 and beyond.

Over the past decade this dividend growth stock has delivered an annualized total return of 14.40% to its shareholders. Future returns will be dependent on growth in earnings and starting dividend yields obtained by shareholders.



The company has managed to deliver a 3.50% average increase in annual EPS over the past decade. 3M is expected to earn $10.33 per share in 2018 and $11.19 per share in 2019. In comparison, the company earned $7.93/share in 2017. If we adjust for the $1.24 one-time item, related to the new tax laws implemented in 2017 however, earnings per share would have been $9.17.

The strength of 3M’s business model is largely driven by three key strategic levers: active portfolio management, investing in innovation, and business transformation. Management believes that these levers, combined with more aggressive capital deployment, will drive enhanced value creation. Over the last several years 3M has taken significant actions to strengthen its technology capabilities, improve portfolio and cost structure, and make the company even more relevant to customers. 3M’s technology platforms and its manufacturing scale allow it to achieve the lowest unit cost in most of the categories in which 3M competes. This also ensures high margins as well.

The first lever – Portfolio Management – is increasing customer relevance and allowing 3M to focus on its most profitable and fastest-growing businesses. 3M has realigned from 40 businesses to 24 over the past five years. This has resulted in SG&A savings of around $250 million. Continued portfolio management will also help to optimize its footprint, and the company is targeting $125 million to $175 million in additional operational savings by 2020. The company is also expecting that acquisitions, net of divestitures will result in a net 1% growth in annual sales over time. Portfolio management is strengthening 3M’s competitiveness and making them even more relevant to our customers and the marketplace.

Investing in Innovation is the second lever. 3M plans to increase investments in research and development to about 6 percent of sales. The company spends over 6% of revenues on R&D, and has been able to discover innovative products to bolster its bottom line. 3M also allows it engineers to spend 15% of their time on their own projects, which has resulted in a lot of innovation. The company has a proven track record of making money on its research dollars spent, as it tries to find applications with a customer centric point of view. The company invests in research and development to support organic growth, and enhance the company’s strong margins and return on invested capital.

3M continues to make good progress on its third lever – Business Transformation – which is enabling the company to better serve customers with even more agility and efficiency. Its Business Transformation lever aims to creating value for the company and its customers. By 2020, this initiative is expected to deliver $500 to $700 million in annual operational savings, and an additional $500 million reduction in working capital.

The company is also focusing on investments in priority growth platforms such as auto electrification, air quality and personal safety. The company is also focusing investments on its strong global business model including in the U.S. and China.

The company provided a rough roadmap of how it plans to get from the $9.17/share earned in 2017 to the earnings expected in 2018. I believe that a picture is worth a thousand words in this case.



Earnings per share have also been aided by share buybacks. The number of shares outstanding has decreased from 732 million in 2007 to 613 million by 2017.

The annual dividend payment has increased by 9.40% per year over the past decade, which is higher than the growth in EPS. Future rates of growth in dividends will be limited to the rate of growth in earnings per share.

For more than a century the strings of 3M business model has enabled the company to invest in the business while also returning cash to our shareholders. All of this has included a strong steady and rising dividend which is management sees as the hallmark of the enterprise.

In the past decade, the dividend payout ratio has increased from 34% in 2007 to 59% in 2017. I believe that 3M's dividend is safe. A lower payout is always a plus, since it leaves room for consistent dividend growth minimizing the impact of short-term fluctuations in earnings.

Currently, 3M is slightly overvalued at 20.40 times forward earnings and has a current yield of 2.60%. This quality company may be worth a second look on further dips in the stock price below $206/share. More conservative investors who are using FY 2017 earnings per share may require dips below $183/share before considering 3M.

Relevant Articles:

How to determine if your dividends are safe
Nine Companies Giving Raises To Shareholders
2018 Dividend Kings List
Dividend Aristocrats for 2018 Revealed
Variability in Dividend Growth Rates

Tuesday, September 4, 2018

Where to find international dividend paying stocks?

A common question I have received from readers has to deal with finding quality dividend growth stocks that are not US based. If you follow financial markets, you may have seen that foreign stocks have gone nowhere for a decade, while US stocks have increased in value. In addition, the overall valuations on foreign companies seem to be lower than overall valuations on US stocks.

After some additional research however, it seems that the differences in overall valuation has more to do with the different sector composition of foreign stock indices versus the sector composition of the US stock market. For example, foreign consumer staples companies like Diageo (DEO) and Unilever (UL) are just as expensive as their US counterparts.

For readers who are willing to do a little bit more research, there is the possibility to uncover hidden dividend gems abroad, which are under-followed and possibly undervalued.

There are several lists of foreign dividend growth stocks that can be used in your research.

The NASDAQ International Dividend Achievers Index is comprised of non-US incorporated securities with at least five consecutive years of increasing annual regular dividend payments. I was able to obtain the complete list of holdings as of August 31, 2018. There are over 300 international dividend growth stocks in that list, from many different countries. This is the most comprehensive list of international dividend growth stocks I have seen. You can download the list from here:

There is an ETF that tracks the index, which is from Vanguard (VIGI). You can also download a list of all holdings from this google document.

There are few other sites, which focused on the international dividend growth stocks. These lists provide a lot of information on those securities, including annual dividend increases, dividend history and valuation.






After going through some of the lists outlined here however, I saw quite a few companies that I have never heard of before.

Just as I mentioned in a previous article, there are some risks to consider with international companies. Notably, their dividends are paid in foreign currencies, which means that the dividend income in US dollars will fluctuate in the short term.

In addition, those dividends may be subject to withholding taxes at the source, which may result in extra paperwork for you each year. This means that you should be careful before placing foreign stocks in retirement accounts, because your dividends can be taxed. The exceptions include British and Canadian stocks.

Another thing to consider includes the fact that many of the foreign dividend stocks I have considered and owned in the past have tended to be global multinationals with operations around the world.

Of course, the most challenging factor in researching international companies involves the difficulties in finding information in different languages and even accessing international stock markets directly, which could be costlier. International companies are not as accessible for research like the US companies. I find that owning US stocks is better in those situations, since most dividend growth stocks I focus on already have vast global operations.


Relevant Articles:

Is international exposure overrated?
International Dividend Stocks – Pros and Cons
A Costly Misconception about foreign dividend stocks
Best International Dividend Stocks

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