Tuesday, June 29, 2021

Banks Raising Dividends After Passing the Fed Stress Tests

After passing the stress tests imposed by the Federal reserve, several financial institutions announced dividend increases to their shareholders. I have listed the companies below, along with their dividend increase, streak of annual dividend increases, and historical dividend growth.

Bank dividends in general are more cyclical than your typical dividend growth stock in the staples sector for example. Financial institutions are exposed to the up and down cycles of the economy, which is why dividends are more prone to a cut during a recession. For example, most large banks in the US cut dividends around the time of the 2007 - 2009 financial crisis. Many, like Bank of America, are still paying less than their 2007 dividend, while others like US Bank have already exceeded them.

However, during a long period of prosperity, banks can grow profits and dividends to investors. This had been the case prior to 2007, as many banks like Bank of America, US Bank and Wells Fargo had raised dividends for decades.

During the Covid-19 crisis however, only Wells Fargo (WFC) cut dividends. This was due to problems related to the bank and its scandals from the past few years. While many of the large banks were unable to boost dividends, they didn't cut them either. As the economy improved, these institutions managed to bounce back and share in the prosperity with shareholders.

The financial institutions that announced dividend hikes after passing the Fed Stress Tests include:

Bank of America (BAC) hiked its quarterly dividend by 17% to 21 cents/share. The bank has increased dividends for 8 years in a row. The ten year annualized dividend growth is 33.50%.

Bank of New York Mellon (BK) hiked its quarterly dividend by 10% to 34 cents/share. The company has increased annual dividends for 11 years in a row. The ten year annualized dividend growth is 13.20%.

Goldman Sachs (GS) hiked quarterly dividends by 60% to $2/share. Goldman has increased dividends for 10 years in a row. The ten year annualized dividend growth is 13.60%.

JPMorgan Chase (JPM) announced its plans to boost the quarterly dividend by 11.10% to $1/share. The bank has managed to boost annual dividends for 11 years in a row. The ten year annualized dividend growth is 33.50%.

Jefferies Financial Group (JEF) hiked its quarterly dividend by 25% to 25 cents/share. The company has raised dividends for 5 years in a row. It has managed to grow dividends at an annualized rate of 9.10% over the past decade.

Morgan Stanley (MS) announced its plan to double quarterly dividends to 70 cents/share. The bank has managed to increase dividends for 8 years in a row. The ten year annualized dividend growth is 21.50%.

PNC Financial (PNC) plans to boost its quarterly dividend by 9% to $1.25/share. The company will also start a $2.9 billion share buybacks. The company has managed to increase quarterly dividends for 11 years in a row. The ten year annualized dividend growth is 27.70%.

State Street (STT) raised its quarterly dividend by 10% to 57 cents/share. The company has managed to increase quarterly dividends for 11 years in a row.  The ten year annualized dividend growth is 48.50%.

Truist Financial (TFC) hiked its quarterly dividend by 7% to 48 cents/share. The company has managed to increase quarterly dividends for 11 years in a row. The ten year annualized dividend growth is 11.60%.

US Bank (USB) raised its quarterly dividends by 10% to 46 cents/share. The company has managed to increase quarterly dividends for 11 years in a row. The ten year annualized dividend growth is 23.70%.

Wells Fargo (WFC) plans to double its quarterly dividend to 20 cents/share. The bank also approved an $18 billion buyback starting in Q3, 2021. The bank is still subject to the Fed's asset cap as a result of the bank's fake account scandal in 2016. This is the first increase since Wells Fargo cut dividends in 2020.

Bank OZK (OZK) hiked its quarterly dividend by 1.80% to 28.50 cents/share. It is one of the smaller banks, which had kept raising dividends every quarter for several years now. The new dividend is 4.58% higher than the dividend paid during the same time last year. The ten year annualized dividend growth is 20.76%.

The one notable exception to the wave of dividend increases is Citigroup (C), which plans to keep dividends unchanged at 51 cents/share.

I obtained the following long-term dividend chart from ycharts.com: (Source)



Relevant Articles:

- Financial Stocks for Dividend Investors

- My Take On Covid-19 Dividend Cuts

- Which Bank will be next? Follow the dividend cuts



Monday, June 28, 2021

Kroger and John Wiley Reward Shareholders With Dividend Increases

As part of my monitoring process, I review the list of dividend increases every week. This exercise helps me to monitor events related to companies I own, in order to keep up with them better. It also helps me  identify companies for further research.

I usually focus my attention on the companies that have managed to increase dividends for at least a decade. That’s because my goal is to find companies for long-term investment, which I can hopefully hold for decades. I am not interested in buying a stock that I then have to sell a few years down the road. I am interested in companies that can deliver performance for long periods of time.

There were two companies that raised dividends last week, which also have managed to boost dividends for at least a decade:

The Kroger Co. (KR) operates as a retailer in the United States.

Kroger raised its quarterly dividend by 16.70% to 21 cents/share. This marks the 15th consecutive year of annual dividend increases. The company continues to expect, subject to board approval, an increasing dividend over time. Over the past decade, Kroger has managed to increase dividends at an annualized rate of 13.30%.

I love hearing from the company executives, when they announce a dividend increase:

"In recognition of our strong performance during the last year, we are proud to increase the quarterly dividend at a higher rate than our historical average," said Rodney McMullen, Kroger's Chairman and CEO. "This increase reflects the Board of Directors' confidence in the strength of our free cash flow and our ability to deliver consistently strong and attractive total shareholder returns."  

"Kroger remains committed to investing in the business to drive long-term sustainable net earnings growth, maintaining its current investment grade debt rating, and returning excess free cash flow to shareholders via share repurchase and a growing dividend over time. The company actively balances the use of its adjusted free cash flow to achieve these goals."

The company managed to grow earnings from 51 cents/share in 2011 to $3.27/share in 2020.  Kroger is expected to earn $3.04/share in 2021.

The stock is selling for 12.86 times forward earnings and yields 2.15%. I find Kroger to be an interesting company for review. Check my analysis of Kroger for more information about this dividend achiever.

John Wiley & Sons, Inc. (JW.A) operates as a research and learning company worldwide.

John Willey & Sons raised its quarterly dividends by 0.70% to 34.50 cents/share. It was Wiley’s 28th consecutive annual increase. Over the past decade, this dividend champion has managed to raise dividends at an annualized rate of 8.60%. However, the 5 year rate is down to 3%.

The company is expected to earn $2.91/share in 2021. For reference, the company earned $2.80/share in 2011, which is not much of a growth.

The stock is selling for 19.73 times forward earnings and yields 2.41%. Given the lack of earnings growth over the past decade, I view it as a hold at best today.

Relevant Articles:

- Realty Income Delivers High Yields and Dependable Dividend Growth

- Nine Dividend Growth Stocks Rewarding Shareholders With Raises

- Ten Dividend Stocks For Further Monitoring

- Five Dividend Growth Stocks Rewarding Shareholders With Raises


Thursday, June 24, 2021

Roth IRA’s for Dividend Investors

Nothing is certain in this world except for death and taxes. For many dividend growth investors, this could be characterized as a feeling that they are being taxed to death. I am always on the lookout to legally minimize my investment taxes as much as possible. In fact there is an easy way to invest in dividend paying stocks without ever having to pay taxes on your investment.

The Roth IRA allows individuals who have earned income in a given year to contribute up to $6000 in after-tax dollars to their retirement account. There is a catch-up contribution of $1000 for individuals who are 50 years of age or older. While contributions to Roth IRA’s are not deductible on your tax returns, earnings and principal distributions are tax free once certain age and time requirements are met. 

Roth IRA’s allow for tax-free compounding of capital over time. This means that you will not pay taxes on dividends or capital gains on your investments that are placed in a Roth IRA.

The earned income includes compensation from salary, wages, commissions, bonuses and alimony. Income from interest, dividends, annuities or pensions does not count as earned income in the eyes of the IRS.

A non-working spouse can set-up a Spousal Roth IRA, even if they have no working income, as long as the other spouse has enough working income to contribute. For example, if one of the spouses earns $50,000/year, and the other one stays home, they can each contribute $6,000/year to their own Roth IRA's. If they are over the age of 50, the $1,000 catch-up contribution still applies.

The contribution limit for a Roth IRA is the same as the contribution limit for a regular IRA. However the amount that can be contributed to a Roth IRA is the amount remaining after subtracting any contribution made to a regular IRA. This means that if you contributed the maximum allowable amount to your regular IRA of $6000, you would not be able to contribute anything to a Roth IRA in that year.

There are no required minimum distribution rules for Roth IRAs. 

However, there are phase-out income limits for high earning taxpayers, which reduce the opportunity to use this tax advantaged investment account. A modified adjusted gross income (MAGI) of $208,000 for a couple filing jointly, or $140,000 for an individual makes you ineligible to contribute to a Roth IRA in 2021 There are ways around it of course, using the "Backdoor IRA Conversion" Strategy.  Basically, it entails contributing to a Regular IRA, and immediately converting it to a Roth.

In order to avoid paying taxes on distributions from Roth IRA accounts, investors need to become acquainted with the qualified nontaxable distribution rules.

According to the IRS, qualified nontaxable distributions for Roth IRA’s are those made at least 5 years after the taxpayer’s first contribution to a Roth IRA and made:

1) After the taxpayer become 59.5 years old
2) To a beneficiary after the death of the taxpayer
3) Because the taxpayer becomes disabled
4) For a use of a first time homebuyer

The biggest benefits of a Roth IRA are the long-term tax free compounding of capital, the fact that qualified distributions are tax-free and the fact that there are no required minimum distributions. Another little known fact behind Roth IRA’s is that direct contributions may be withdrawn at any time. This makes them a perfect investment vehicle for investors who plan on retiring early and living off dividends before they reach typical retirement ages of 60 years.

I hold a portion of my assets in a Roth IRA. While the contribution limit is only $6,000, that is still a good start. For a married couple maxing out their Roth IRA's, you have $12,000 to invest. 

In today's commission free world and fractional shares, you can build a diversified portfolio fairly easily.


Relevant Articles:

- Kinder Morgan Partners – One Company three ways to invest
- Philip Morris International (PM) Dividend Stock Analysis



Sunday, June 20, 2021

Realty Income Delivers High Yields and Dependable Dividend Growth

Realty Income (O) is a real estate investment trust, which invests in commercial properties. The REIT owned 6500 properties, most of which were single-tenant ones. Realty Income has a weighted average remaining lease term (excluding rights to extend a lease at the option of the tenant) of approximately ten years. These are triple-net leases, where the tenant pays everything from taxes to maintenance on the property, while the landlord like Realty Income collects rent that escalates over time. It is a pretty sweet deal, provided that you can purchase great locations at attractive valuations. 

I analyzed the REIT using the guidelines listed in this post. The guidelines include focusing on:

  • Valuations
  • FFO trends
  • Occupancy
  • Tenant Concentration
  • Streak Consecutive Annual Dividend Increases

Realty Income is a dividend aristocrat which has raised dividends for 25 years in a row. The REIT has a strong track record of paying dividends monthly, and raising them several times per year. It is the Golden Standard of Triple Net Leases. The company usually raises its monthly dividends every quarter by a little bit, which amounts to a respectable year-over-year raise. The latest raise was just last week, as the monthly distribution was boosted to 23.55 cents/share (or $2.826/share annualized). This was the 111th dividend increase since Realty Income's listing on the NYSE in 1994. The new dividend is 0.85% higher than the dividend paid during the same time last year.


Over the past decade, Realty Income has managed to boost annual dividends by 4.90%/year. Coupled with high current yields, this has translated into respectable total returns to shareholders over time.



The largest tenants for Realty Income are listed below.  Most retailers today are widely believed to be doomed today, and Amazon is supposed to be the one and only retailer of choice in the future. The future will be tough on retail. However, people will still shop online and in physical locations. Looking at the list of 20 largest tenants, I think that we have a low risk for the majority of these locations losing out to Amazon.




I wanted to note that approximately 80% of rental revenues are derived from retailers. There is a risk that retail is going down the drain, which would result in bankruptcies and vacancies for landlords. Depending on your beliefs, real estate investment trusts are either bargains today or they are value traps which are destined for mediocrity. Rather than fall for broad generalization, I decided to look at top tenants Realty Income, in order to determine the degree to which the business is subject to destruction from online. I also believe that while many retailers will have a harder time earning profits, the landlords that own the real estate have some margin of safety due to the long-term lease contracts. In addition, those landlords could always sell or repurpose those locations.

Realty Income does point out that 90% of retail rent is leased to tenants with low price point, non-discretionary and/or service-oriented component to their business. These are retailers that may have  higher survival rates. Historical tenant bankruptcies have been in industries that Realty Income has minimal exposure to today ( casual dining, sporting goods and grocery).

Realty Income has also managed to manage client exposure over time. Its current mix has a lower cyclicality and a better credit and diversification.




Another factor I like in analyzing REITs is to review trends in portfolio occupancy. As you can see below, Realty Income has managed to enjoy a high occupancy in the 97% - 98% range over the past decade. The worst financial crisis since the Great Depression resulted in a decrease in portfolio occupancy to a low of 96.60%. This is not bad at all. Even Covid-19 didn’t derail much, albeit there were a few months where Realty Income collected a little over 80% of rent.



Below, you can see trends in Funds from Operations (FFO), Dividends Per Share (DPS) and FFO Payouts over the past decade for Realty Income (O).

 

2020

2019

2018

2017

2016

2015

2014

2013

2012

2011

2010

2009

2008

2007

FFO/Share

3.31

3.29

3.12

2.82

2.88

2.77

2.58

2.41

2.02

1.98

1.83

1.84

1.83

1.89

DPS/Share

2.79

2.71

2.63

2.53

2.39

2.27

2.19

2.15

1.77

1.74

1.72

1.71

1.66

1.56

FFO Payout

84%

82%

84%

83%

83%

82%

85%

89%

88%

88%

94%

93%

91%

83%


The company issued 2021 AFFO per share guidance of $3.44 to $3.49.

Realty income has managed to grow dividends per share throughout the Great Recession. This was supported by growth in FFO/share. As a result, the FFO Payout is around the same as it was a decade ago.

As a REIT, Realty Income distributes most of its free cash flow to shareholders in the form of dividends. As a result, it grows by relying on capital markets for investment capital. It has relied more so on equity than debt in the past, as is evidenced by its conservative capital structure with 72% equity and 28% debt.

Realty Income can grow FFO/share by a few levers:

1) Increasing rent to tenants
2) Buying new properties at a capitalization rate that is higher than the cost of capital ( debt or equity)
3) Strategic acquisitions where the acquisition cost is lower than cost of capital, after accounting for potential synergies
4) Cutting costs

Since the company has long term leases, this limits annual volatility in rent. Annual same-store rent growth run rate of ~1.0%/year over the past decade.

The Cap Rate that Realty Income has managed to get on new capital invested has declined over time to around 6%. The rising competition for properties has definitely pushed profits lower.

However, this is higher than the weighted cost of debt at 3.50% that Realty Income pays to creditors. Most of that debt is with a fixed rate, which is good if interest rates rise. As interest rates have been declining over the past 25 years that Realty Income has been publicly traded, this has been a strong tailwind for performance. Unfortunately, that debt needs to be rolled over every so often, which leaves the company exposed to the vagaries of credit markets, particularly if they freeze or interest rates are higher when Realty Income needs to tap capital markets for funding.




The other factor to keep in mind is that so far, the dividend yield on Realty Income has been lower than the yield that could be generated by renting out properties to tenants. If investor sentiment turns sour towards REITs, further growth may be limited when dividend yields on the types of Realty Income exceed rental yields on triple-net-properties. Rising interest rates could translate into lower demand for REIT dividends by investors, which would lead to decline in share prices and rising dividend yields. This would be a headwind for future growth. Of course, if cost of capital increases, it is very likely that demand for properties declines, which will push cap rates higher to compensate for the lack of demand (or lower demand). Since Realty Income is of high quality, and it has a large scale of operations, its cost of capital is lower than competitors. This is a competitive advantage that could lead to better access to deals and potentially better opportunities relative to competitors.

The risk  of potentially higher interest rates would make many projects more expensive. Higher interest rates will reduce FFO and cash available to pay dividends to shareholders. The contra-argument to the rising interest rates thesis has been that rising rates are an indication of increased economic activity, which should bode well for landlords. The other contra-argument is that most of the REITs below have staggered maturities, and are mostly capitalized by equity rather than debt. The third contra-argument is that existing debt is already taken at low fixed interest rates. Rising interest rates should affect debt refinancing and profitability spread for new properties. Of course, everyone has been expecting rising interest rates for almost a decade now. Noone can predict the future.

A few months ago, Realty Income announced its intent to acquire Vereit (VER). This is going to be in an all-stock transaction, which will increase its size and scale. Realty Income plans to spin off their office properties into a new REIT. There will be significant financial synergies, and the transaction is expected to add 10% to Realty Income’s FFO/share in year one. 

Today, Realty income is selling for 19.80 times forward FFO and yields 4.25%. I believe that companies like Realty Income will prosper over the coming decade. That’s because they have a solid management team, with a solid track record, and a fairly conservative balance sheet. 


Relevant Articles:

Five Things to Look For in a Real Estate Investment Trust
Should Dividend Investors Worry About Rising Interest Rates?
Are we in a REIT bubble?
Dividend Achievers Offer Income Growth and Capital Appreciation Potential
Three REITs Approaching Value Territory

Wednesday, June 16, 2021

Church & Dwight (CHD) Dividend Stock Analysis

Church & Dwight Co., Inc. (CHD) develops, manufactures, and markets household, personal care, and specialty products. The company operates through three segments: Consumer Domestic, Consumer International, and the Specialty Products Division. 

The company is a dividend achiever, which has increased distributions for 24 years in a row, starting in 1996.

Back in February, the Board of Directors approved a 5.21% increase in the quarterly dividend to 25.25 cents/share. During the past decade, the company has managed to increase dividends at an annualized rate of 20%. The five-year dividend growth rate is 7.50% annualized. 


Over the past decade, this dividend growth stock has delivered an annualized total return of 17.63% to its shareholders.



Between 2010 and 2020, Church & Dwight managed to increase earnings from 94 cents/share to $3.12/share.

Church & Dwight is expected to earn $3.04/share in 2021 and $3.27/share in 2022.



The company has several important brands, but has mostly been able to grow through acquisitions. Other than Arm & Hammer, most of its biggest brands have been acquired over the past 20 years. It is a smaller player, which increases the chances that some of the big players takes it over.

The demand for its products is fairly stable and relatively immune from the economic cycle. Future growth will be a function of new product development, maintaining cost, improving efficiencies, expanding internationally and strategic acquisitions. Increased focus on marketing should help in retaining and attracting more customers to buy its products on a repeatable basis.

The goal of Church & Dwight is to grow revenues at 3%/year, growing gross margins by a quarter of a percent, reducing overhead by a quarter of a percent. This comes out to organic earnings growth of 8%/year.

Church & Dwight has a well balanced portfolio of household and personal care products. Household accounts for close to 47% of sales, personal care accounts for 45% of sales, while the remainder comes from Specialty Products. 

The company can grow sales and earnings through strategic acquisitions, expanding its international sales and creating new products. Acquisitions can help earnings per share by generating cost efficiencies and increasing scale. On the other hand, acquisitions can be difficult and costly to integrate, particularly if corporate cultures do not align well.

Church & Dwight has managed to grow revenues through acquisitions over the past decade. More than 80% of sales come from 11 brands. These are dominant brands in their product category. The majority of those brands have been acquired since 2001.

International distribution is an opportunity for Church & Dwight, since the company generates less than 16% of sales from abroad. The risk with international distribution is increased promotional activity by larger and more established competitors, which may result in increased sales without a material increase.  There is a high level of organic growth international I the 6%/year range. The number of middle class consumers in Asia for example is expected to triple between 2009 and 2020 and then double from there to over 3 billion people by 2030.

Another risk is the fact that almost a quarter of sales come from Wal-Mart. Depending on a single entity for a quarter of sales is a risk, because you are likely to be pressured in order to maintain this distribution channel. Church & Dwight is also at risk from generic brands, which Wal-Mart could push harder than the branded products.

Church & Dwight is also working on increasing its online sales, With a large number of consumers spending an increasing amount of time online, this is a great opportunity. On the other hand, it is difficult to sell directly online, without going through an online retailer which can offer the same type of pressures as a traditional retailer such as Wal-Mart.

Share buybacks have resulted in the decrease in diluted outstanding shares from 289 million in 2010 to 252 million in 2020. A history of consistent share repurchases is helpful, because it shows that the company is willing to help out long-term holders of stock with increased proportional share of earnings and the business over time. Over the past three years however, management has not repurchased any shares. In a way I support this decision, since the stock has not been cheap.


The dividend payout ratio has shot up from 16% in 2010 to 43.50% in 2015, before slowly leveling off at 30.77% in 2020. The increase in the payout ratio explains the rapid growth in dividends per share over the past decade, which was faster than earnings growth. In the past five years however, the rate of dividend growth has slowed down and is now slower than earnings growth. Longer term expectations for earnings and dividend growth are to be roughly in check, albeit the company does have some wiggle room to raise the dividend faster than earnings.




Currently, the company is not cheap at 25.80 times forward earnings and yields 1.30%. I like the earnings growth pattern, and believe that the business can continue growing its earnings over time.

These are the P/E ranges for Church & Dwight over the past decade:

Monday, June 14, 2021

Five Dividend Growth Stocks Rewarding Shareholders With Raises

As part of my monitoring process, I review the list of dividend increases evey week, focusing on the companies with at least a ten year track record of annual dividend increases. During the past week, there were several companies that raised dividends, and also have a ten year track record of annual dividend increases. The companies include:

UnitedHealth Group Incorporated (UNH) operates as a diversified health care company in the United States.

The company raised its quarterly dividend by 16% to $1.45/share. This is the 12th consecutive year of annual dividend increases for this dividend achiever. Over the past decade, the company has managed to grow dividends at an annualized rate of 28.10%/year.

Between 2011 and 2020, the company grew earnings from $4.73/share to $16.03/share.

The company is expected to earn $18.59/share in 2021.

The stock sells for 21.60 times forward earnings and yields 1.44%.

Target Corporation (TGT) operates as a general merchandise retailer in the United States.

The company increased its quarterly dividend by 32.40% to 90 cents/share. This is the 50th consecutive year in which Target has increased its annual dividend, making it the latest addition to the dividend kings list. The company has managed to grow dividends at an annualized rate of 12.30% over the past decade. The past 5 years showed a more modest 4.40%/year however.

Between 2012 and 2021, the company grew earnings from $4.28/share to $8.64/share.

The company is expected to earn $12.23/share in 2021.

The stock is selling for 18.95 times forward earnings and yields 1.55%.

Caterpillar Inc. (CAT) manufactures and sells construction and mining equipment, diesel and natural gas engines, industrial gas turbines, and diesel-electric locomotives worldwide. 

Caterpillar raised quarterly dividends by 7.80% to $1.11/share. The company has paid higher dividends to shareholders for 27 consecutive years and is a member of the S&P 500 Dividend Aristocrat Index.

Between 2011 and 2019, the company’s earnings went from $7.40/share to $10.74/share, before dipping to $5.46/share in 2020. The company is expected to earn $9.86/share in 2021.

The stock sells for 22.89 times forward earnings and yields 1.97%.

Oil-Dri Corporation of America (ODC) develops, manufactures, and markets sorbent products in the United States and internationally.

Oil Dri increased its quarterly dividend by 3.80% to 27 cents/share. This is the 18th year in a row of annual dividend increases for this dividend achiever.

Between 2011 and 2020, earnings grew from $1.26/share to $2.65/share.

The stock sells for 14.65 times earnings and yields 3.03%.

HEICO Corporation (HEI) designs, manufactures, and sells aerospace, defense, and electronic related products and services in the United States and internationally.

Heico raised its semi-annual dividend by 12.50% to 9 cents/share. This is the 14th year of consecutive annual dividend increase for this dividend achiever.

Between 2011 and 2020, earnings per share grew from 56 cents to $2.29/share.

The company is expected to earn $2.17/share in 2021.

The stock sells for 66.78 times forward earnings and yields 0.12%.

Relevant Articles:

Thursday, June 10, 2021

Happy Microsoft Dividend Day

Microsoft (MSFT) is a dividend achiever, which has managed to increase dividends regularly since initiating a dividend in 2003.

Today, it distributed its regular quarterly dividend of 56 cents/share to qualified shareholders. If you own 100 shares, you would have received a quarterly dividend of $56, which is a nice amount of pocket change.

The company's founder is Bill Gates, who launched it in 1975 with Paul Allen. The company grew by leaps and bounds, and was eventually take public in 1986.

Bill Gates received a check for $$57,676,043.04 , given that he owned shares according to the last proxy filed in 2019.

Of course, Bill Gates is a major philanthropist, which is the reason why he has been gradually reducing his ownership stake in the Seattle-based software company. He has also been diversifying his wealth away from Microsoft for the past 35 years.

At the time Microsoft went public, Bill Gates owned 11,222,000 shares, which represented 49% ownership in the stock according to the prospectus.

If he had held on to his shares, and just spent all dividends, he would have 3,231,936,000 shares after the 9 stock splits between 1987 and 2003.

These shares would be worth close to $766 billion, and be paying a quarterly dividend of $1,809,884,160.

That's $1.8 billion in dividends every single quarter, or roughly $229.56 in dividend income every second.

These are huge numbers, and just illustrate the power of compound interest and the power of identifying a great company early on, and sticking to it. Not every company does that well. Microsoft has had its share of ups and downs throughout its history.

I just find it fascinating that Bill Gates would have been richer than most folks out there. 

But of course Bill Gates realized that building wealth is not as important as making a difference with all that wealth. At the end of the day, making a real difference in the world is much more important to his legacy, than becoming the first trillionaire.

Sadly, with Mr. Gates divorce proceedings, it may be harder to estimate future dividend income from his Microsoft stock. It is likely that it will be reduced going forward.

Monday, June 7, 2021

Clorox (CLX) Dividend Stock Analysis

 The Clorox Company (CLX) manufactures and markets consumer and professional products worldwide. It operates through four segments: Health and Wellness, Household, Lifestyle, and International.

Clorox is a dividend aristocrat with a 44-year history of annual dividend increases. Over the past decade, Clorox has managed to increase dividends at an annualized rate of 7.50%.

The last dividend increase was in June 2021, when the Board of Directors authorized a 4.50% hike in the quarterly dividend to $1.16/share.



The company managed to grow earnings from $4.24/share in 2010 to $7.36/share in 2020. Clorox is expected to earn $8.38/share in 2021 and $8.13/share in 2022. The Covid-19 pandemic increased demand for Clorox products in the near term. While it is possible that growth in the near term would decelerate because people are not stocking up, it is also possible that we are in a new normal that would permanently increase the demand for its products.



It is fascinating how earnings per share basically remained flat between 2010 and 2015, which tested the patience of most long-term shareholders.

Clorox has a portfolio of products with strong brand names, that are number one or two in their respective product lines, which helps in having pricing power. As a result, it should be able to pass on commodity price increases to customers. Future earnings growth could be driven by innovation, new product launches, cost containment initiatives, as well as international expansion.

Clorox aims to continue delivering total stockholder returns by focusing on company's long-term financial goals such as:

• Growing net sales 2-4 percent annually
• Expanding earnings before interest and income taxes (EBIT) margin 25-50 basis points annually
• Generating free cash flow of 11- 13 percent of sales annually

The three pillars of the strategy include expansion in a geographic, category and channel direction, continued reinvestment in its brands as well as cost containment initiatives. A key driver of the strategy is to accelerate sales by growing existing brands, including expanding into adjacent categories, entering new sales channels and increasing penetration within existing countries. Increased exposure to emerging market economies could further drive increase in sales. The company also anticipates using its strong cash flow to pursue growth opportunities and increase shareholder returns. In addition to that the company will be targeting sales growth through product innovation, which helps its pricing power. 
Clorox will also target margin expansion and maximizing cash flow through implementation a continued robust cost-saving program and maintaining price increases the company has taken. The strong focus on cost, has provided the company with a relative cost advantage versus competition. In addition, Clorox continuously reinvests money in its brands, which helps it maintain its market position.

One of the risks behind Clorox is that it generates a large portion of revenues from the US – over 80%. It is more exposed to the US economy than other global consumer staples companies, which could also be an opportunity as well. The other risk I see is that Wal-Mart (WMT) accounts for a quarter of sales for Clorox. Wal-Mart is notorious for trying to keep costs low, by squeezing vendors to sell at lower prices. This is bad for pricing power, and could impact profitability. This over reliance on Wal-Mart could be mitigated through continued international expansion. The other risk include competition from generic products, which could be mitigated by the ability to distinguish Clorox' brands by spending on R&D and advertising.

In 2019, the Company unveiled its “IGNITE” strategy, which works on top of its concluded 2020 strategy. Source: Clorox PR

Growth in earnings per share was aided by a gradual decrease in the number of shares outstanding. Clorox has reduced its share count from 141 million in 2010 to 128 million by 2020.


The dividend payout ratio increased from 47% in 2010 to 67.73% in 2015, before falling down to 58% in 2020.


Currently the stock is slightly overvalued at 23.23 times forward earnings. Clorox yields 2.59%.


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Thursday, June 3, 2021

How Ronald Read managed to accumulate a dividend portfolio worth $8 million

Dividend investing is as sexy as watching paint dry on the wall. Defining an entry criteria that selects quality dividend stocks with rising dividends over time and then patiently reinvesting these dividends while sitting on your hands is not exciting. While active traders have a plethora of hedge fund managers on the covers of Forbes magazine there are not many well-publicized successful dividend investors. Even value investing has its own superstars – Ben Graham and Warren Buffett.

I did some research and uncovered several successful dividend investors, whose stories provide reassurance that the traits of successful dividend investing I outlined in a previous post are indeed accurate.

The reason why dividend investors are not highly publicized is because dividend investing is not sexy enough to be featured in the financial mainstream media. In addition to that, it is not profitable for Wall Street to sell you into the idea that ordinary investors can invest on their own. This is why you have advisors crying wolf over the fact that you are paying 15% tax on your dividend income, while charging clients 1%/year on assets under management, and investing that money in a mutual fund that costs an additional 1%/year. Mutual funds, annuities and other products generate billions in commissions for Wall Street, despite the fact that they might not be in the best interest of small investors.

The dividend investor to profile today is Ronald Read, who left an $8 million fortune behind when he passed away in 2015. What's fascinating about him is that he never earned a high income, because he worked as a gas station worker or a janitor. 

I find this story to be very inspiring, because it showed how an ordinary person who never earned a high income was able to amass a dividend portfolio worth $8 million by the time of his death. The portfolio was generating close to $20,000 in monthly dividend income on average. This portfolio was a result of frugality, hard work, and ability to buy stocks to hold for decades, while patiently reinvesting dividends.

When Ronald Read died at the age of 92 in 2014, he left a dividend portfolio worth $8 million to charity and his children. That story shows that Ronald Read earned close to $20,000 in monthly dividend income from this diversified portfolio of 95 blue chip securities. They were spread across a variety of sectors, including railroads, utility companies, banks, health care, telecom and consumer products. He avoided technology stocks. It looked like Mr Read invested solely for dividend income, and his portfolio was well put together. Besides being a good stock picker, he displayed remarkable frugality and patience which gave him many years of compounded growth.



Ronald Read didn't have a finance degree, nor an MBA, but was an ordinary Joe who managed to save and invest for the long term. The story is appealing to me because it shows that investors who pick quality blue chip stocks to hold for decades, and reinvest those dividends patiently, can accumulate a sizeable portfolio over time. The important trait is patience. I follow the same slow and steady approach to long term dividend investing as Ronald Read.

Attached below is a list of Ronald Read's largest portfolio holdings:


Mr. Read left behind a five-inch-thick stack of stock certificates in a safe-deposit box. Owning the stock directly is old school, but it also reinforces the behavior to buy and hold equity stakes in solid blue chips. 

Among his longtime holdings were blue-chip stalwarts such as Procter & Gamble, J.P. Morgan Chase, General Electric and Dow Chemical. When he died, he also had large stakes in J.M. Smucker, CVS Health and Johnson & Johnson. He was able to stick to his securities for many years. Not all of his securities worked out, but did pretty well in the end. For example, his portfolio included shares of Lehman Brothers Holdings, the financial firm that collapsed in 2008, for example. 

One example of a long-term investment was buying 39 shares of Pacific Gas & Electric on Jan. 13, 1959 for $2,380. Adjusting for stock splits, these shares would have been worth $10,735 at te time of his death. He ended up owning 578 shares in all of PG&E, worth just over $26,500, some of which he may have purchased with the dividend payments made to shareholders.

He researched his ideas thoroughly, reading business publications such as Wall Street Journal, going to the library, and chatting about investments with close friends.

Ronald Read's success was dependent on several important factors:

1) Stay frugal and live within your means
2) Invest savings at a high rate of return for a long period of time
3) Invest in companies with durable competitive advantages with a long runway
4) Stay patiently invested for decades, without selling
5) Keep reinvesting those dividends along the way

This dividend investor managed to turn small investments into a cash machine that generated large amounts of dividends. He was able to accomplish this through identifying quality dividend growth companies at attractive valuations, patiently reinvesting distributions and mostly maintaining a diversified portfolio of stocks. These are the lessons that all investors could profit from.





Tuesday, June 1, 2021

Nine Dividend Growth Stocks Rewarding Shareholders With Raises

 As part of my monitoring process, I observe the list of dividend increases each week. I tend to focus my attention on the companies with at least a ten year history of annual dividend increases. My goal is to identify companies that can grow earnings and dividends for decades, and compound my net worth and income in the process. I am not interested in situations where I have to time my entry and exit correctly, and have to worry about the economic cycles too much.

This process helps me monitor existing holdings and to identify possible research opportunities for further investigation.

Over the past week, there were several companies that raised dividends to shareholders and had at least a ten year track record of annual dividend increases. The companies include:

Lowe's Companies, Inc. (LOW) operates as a home improvement retailer in the United States and internationally. 

The company raised its quarterly dividend by 33.30% to 80 cents/share, marking the 59th year of annual dividend increases for this dividend king. Lowe’s has managed to increase dividends at an annualized rate of 18.90% over the past decade.

Lowe’s has managed to grow earnings from $1.43/share in 2012 to $7.75/share in 2021.

The company is expected to earn $10.94/share in 2022.

The stock is selling for 17.81 times forward earnings and yields 1.64%.

American Tower (AMT), one of the largest global REITs, is a leading independent owner, operator and developer of multitenant communications real estate with a portfolio of approximately 181,000 communications sites.

American Tower increased its quarterly dividend by 2.40% to  $1.27/share.  The company has raised dividends every single quarter since 2012. The current dividend is 15.45% higher than the dividend paid during the same time last year. This REIT has managed to increase annual dividends for 10 years in a row. Over the past five years, it has managed to boost distributions at an annualized rate of 19.10%.

The REIT is expected to earn $9.33/share in FFO for 2021.

The stock is selling for 27.37 times forward FFO and yields 1.99%.

Sysco Corporation (SYY) markets and distributes a range of food and related products primarily to the foodservice or food-away-from-home industry in the United States, Canada, the United Kingdom, France, and internationally. It operates through three segments: U.S. Foodservice Operations, International Foodservice Operations, SYGMA, and Other. 

Sysco increased its quarterly dividend by 4.40% to $0.47/share. This is the 52nd consecutive annual dividend increase for this dividend king. Over the past decade, it has managed to increase dividends at an annualized rate of 6.10%.

“Sysco’s strategy is built upon its commitment to a balanced capital allocation strategy – investing for growth, while preserving our strong balance sheet and investment grade rating and returning value to our shareholders,” said Aaron Alt, Sysco’s chief financial officer. “The combined actions we are announcing today position Sysco for long-term growth and success.”

The company is expected to earn $1.34/share in 2021. Earnings seem to have been depressed by Covid-19, as it also earned 42 cents/share in 2020. For reference, between 2011 nad 2019, the company grew earnings from $1.96/share to $3.20/share.

The stock is selling for 60.49 times forward earnings and yields 2.32%.

Medtronic plc (MDT) develops, manufactures, distributes, and sells device-based medical therapies to hospitals, physicians, clinicians, and patients worldwide. It operates through four segments: Cardiac and Vascular Group, Minimally Invasive Therapies Group, Restorative Therapies Group, and Diabetes Group.

Medtronic hiked its quarterly dividend by 8.60% to $0.63/share. This marked the 44th consecutive year of an increase in the dividend for this dividend aristocrat. Over the past decade, Medtronic has managed to boost dividends at an annualized rate of 10%.

"We're pleased to be able to increase our dividend by 9% during the pandemic," said Martha. "Today's dividend increase is a strong sign of our commitment to providing robust returns for our shareholders and of the confidence that our Board of Directors has in Medtronic's financial strength and future growth opportunities."

The company is expected to earn $5.68/share in 2021. Between 2011 and 2020, Medtronic’s earnings went from $2.86/share to $3.54/share. When analyzing a company like Medtronic however, you need to dig further and remove certain items, in order to gain a true understanding of its earnings power.

The stock is selling for 22.27 times forward earnings and yields 1.99%.

LyondellBasell Industries N.V. (LYB) operates as a chemical company in the United States, Germany, Mexico, Italy, Poland, France, Japan, China, the Netherlands, and internationally. The company operates in six segments: Olefins and Polyolefins—Americas; Olefins and Polyolefins—Europe, Asia, International; Intermediates and Derivatives; Advanced Polymer Solutions; Refining; and Technology.

The company increased its quarterly dividend by 7.60% to $1.13/share. This marked the tenth consecutive year of annual dividend increases for this newly minted dividend contender.  It has a five year annualized dividend growth rate of 6.70%.

The company is expected to earn $14.43/share in 2021. Between 2011 and 2020, its earnings went from $3.74/share to $4.24/share.

The stock is selling for 7.80 times forward earnings and yields 4%.

Unum Group (UNM) provides financial protection benefit solutions primarily in the United States, the United Kingdom, and Poland.

The company raised its quarterly dividend by 5.3% to $0.30/share. This is the 13th year of consecutive annual dividend increases for this dividend achiever. Over the past decade., the company managed to boost annual distributions at a rate of 12.50%.

Unum Group managed to grow earnings from 94 cents/share in 2011 to $3.89/share in 2020. The company is expected to earn $4.70/share in 2021.

The stock is selling for 6.59 times forward earnings and yields 3.68%.

Flowers Foods, Inc. (FLO) produces and markets packaged bakery products in the United States.

The company raised its quarterly dividend by 5% to 21 cents/share. This marked the 20th year of consecutive annual dividend increases for this dividend achiever. During the past decade, the company has managed to increase dividends at an annualized rate of 8.70%.

"The board is confident that the company's leading brands will drive growth in-line with our long-term financial targets," said Ryals McMullian, Flowers Foods president and CEO. "That expected growth and our strong cash flow enables the company to invest strategically and enhance our business while also continuing our long history of rewarding shareholders with a growing dividend."

Between 2011 and 2020, its earnings went from 60 cents/share to 72 cents/share. The company is expected to earn $1.15/share in 2021. 

The stock is selling for 21 times forward earnings and yields 3.49%.

Donaldson Company, Inc. (DCI) manufactures and sells filtration systems and replacement parts worldwide.

The company increased its quarterly dividend by 4.80% to $0.22/share. This marked the 35th consecutive year of annual dividend increases for this dividend champion. Over the past decade, the company has managed to raise dividends at an annualized rate of 13%.

Between 2011 and 2020, the company grew earnings from $1.43/share to $2/share. The company is expected to earn $2.22/share in 2021. 

The stock is selling for 27.73 times forward earnings and yields 1.43%.

Insperity, Inc. (NSP) provides human resources (HR) and business solutions to improve business performance for small and medium-sized businesses.

The company increased its quarterly dividend by 12.50% to 45 cents/share. This is the eleventh consecutive annual dividend increase for this dividend achiever. Over the past decade, the company has managed to raise dividends at an annualized rate of 19.90%.

Between 2011 and 2020, the company grew earnings from 58 cents/share to $3.54/share. The company is expected to earn $4.10/share in 2021. 

The stock is selling for 22.47 times forward earnings and yields 1.95%.

After reviewing this list, I am interested in researching more about Insperity (NSP). I have a position in Lowe’s (LOW), Medtronic (MDT), American Tower (AMT) and Sysco (SYY), so it was neat to see getting a raise. 

Ironically, I was expecting a raise from Clorox this week, but it never arrived. This is something I am monitoring on.

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