Universal Corporation (UVV) Dividend Stock Analysis

Universal Corporation (UVV), together with its subsidiaries, operates as a leaf tobacco merchant and processor worldwide. It engages in selecting, procuring, buying, processing, packing, storing, supplying, shipping, and financing leaf tobacco for sale to, or for the account of, manufacturers of consumer tobacco products. This dividend champion has increased distributions for the past 40 consecutive years. The latest dividend increase was in November 2010, when the company raised distributions by 2.10% to 48 cents/share.

Over the past decade this dividend growth stock has delivered an annualized total return of 6.60% to its shareholders.

The company has managed to deliver an average increase in EPS of 3.70% per year since 2000. Analysts expect Universal Corporation to earn $4.60 per share in 2011.

The company’s return on equity has been on the rise since reaching a bottom in 2006. Rather than focus on absolute values for this indicator, I generally want to see at least a stable return on equity over time.

The annual dividend payment has increased by 4.60% per year since 2000. A 5% growth in distributions translates into the dividend payment doubling every fifteen years. If we look at historical data, going as far back as 1994, we would see that Universal Corporation has actually managed to double its dividend payment every sixteen years on average.

The dividend payout ratio has increased slightly over the past decade, having exceeded 50% in 2006 and 2007. 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, Universal Corporation is attractively valued at 8 times earnings, yields 4.90% and has a sustainable dividend payout. I would continue monitoring the stock and will consider adding to a position in the stock on dips.

Full Disclosure: UVV

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Best Dividend Stocks for 2011

Back in 2008 I was invited to participate in a friendly competition with several stock bloggers. My list of stocks has returned over 20% in 2009 and 2010. The companies I selected in both years included real estate investment trust Realty Income (O). utility Con Edison (ED), tobacco conglomerate Phillip Morris International (PM) and pipeline MLP Kinder Morgan Partners (KMP). Due to the low interest rates, most high yield stocks have been bid up by yield hungry investors to levels which would make investors think twice before adding new money to these positions.

Instead, I have selected four new stocks, which are attractively priced at the moment and could deliver solid earnings growth over the next few years. Dividend growth investing is all about finding the companies which are best positioned to increase dividends over the long haul. Companies with rising sales and earnings have to strong fundamental foundation that would lead to higher dividends over time and higher stocks prices as well. The best dividend stocks for 2011 include:

Johnson & Johnson (JNJ) engages in the research and development, manufacture, and sale of various products in the health care field worldwide. The company operates in three segments: Consumer, Pharmaceutical, and Medical Devices and Diagnostics. The company has had issues with product recalls in 2010, which is one of the reasons why the stock was flat this year. The diversified product base and global geographic reach of its products which are used by consumers on a daily basis produces a diversified stream of sustainable cash flow, which should enable the company to withstand any storms successfully. The company tries to grow organically through innovation and investment in R&D, as well as through strategic acquisitions in new opportunities such as vaccines or biosurgical products. Johnson & Johnson is a member of the dividend aristocrats index, and has consistently raised distributions for the past 48 years. Yield: (analysis)

The Procter & Gamble Company (PG) provides consumer packaged goods in the United States and internationally. The company operates in three global business units (GBUs): Beauty and Grooming, Health and Well-Being, and Household Care. The company is expected to grow earnings in the high single to low double digits over the next few years. It has a diverse base of consumer products, which consumers’ worldwide use on a daily basis. Tapping the growing emerging market middle class is a major opportunity for the company. Procter & Gamble is a member of the dividend aristocrats index, and has consistently raised distributions for the past 54 years. Yield: (analysis)

Philip Morris International Inc. (PM), through its subsidiaries, engages in the manufacture and sale of cigarettes and other tobacco products in markets outside of the United States. While the use of tobacco products is declining in the developed world, emerging market demand is on the increase. In addition, prices typically increase at a rate, which is faster than the rate of decrease in demand. This has translated into higher profits for companies like Philip Morris International, whose branded cigarettes are preferred by consumers worldwide. The company plans to grow organically through innovation of packaging and product lines and through strategic acquisitions. It has raised dividends three times since it was spun off from Altria Group (MO) in 2008. Yield: (analysis)

PepsiCo, Inc. (PEP) manufactures, markets, and sells various foods, snacks, and carbonated and non-carbonated beverages worldwide. The company operates in four divisions: PepsiCo Americas Foods (PAF), PepsiCo Americas Beverages (PAB), PepsiCo Europe, and PepsiCo Asia, Middle East and Africa (AMEA). Earnings growth could come from synergies associated with the acquisitions of its bottlers, streamlining of operations and cost cutting. The distribution networks of the bottlers acquired could be used to push some of PepsiCo’s non-beverage products such as snacks and other foods.Earnings growth could also come from strategic acquisitions, as well as product innovations in health and wellness food and beverage section. PepsiCo is a member of the dividend aristocrats index, and has consistently raised distributions for the past 38 years. Yield: (analysis)

The common characteristic of these stocks is that they have a diverse product base and a global market reach. In addition to that they have strong brand names, which ensures that their products carry a premium value to consumers and makes them less likely to switch based on cost. This allows these companies generate high returns on equity and to shower stockholders with cash in the form of dividends and share buybacks. While these stocks are greatly positioned to benefit from the continued economic expansion in the world, they should do well even if we get a double dip recession, since their products or services are used by consumers on a daily basis.

In order to generate sustainable dividend income for the long run however, a more diversified portfolio consisting of at least 30 stocks should be constructed in order to withstand market forces. Check out the Best Dividend Stock for the Long Run list, which is a good addition to today's post. I will be adding the picks from the other bloggers as they are posted.

The stock picks from the other bloggers along with their 2010 performance include:

The Wild Investor +27.15%

Where does all my Money go 26.56%

Dividend Growth Investor +26.08%

Zach Stocks +20.87%

My Traders Journal 10.39%

Million Dollar Journey 3.79%

Intelligent Speculator -0.45%

The Financial Blogger -1.64%

Four Pillars -35.25%

Full Disclosure: Long JNJ, PG, PM and PEP

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This article was included in the Carnival of Personal Finance: 2011 New Year's Resolution Edition

Becton, Dickinson and Company (BDX) Dividend Stock Analysis

Becton, Dickinson and Company, a medical technology company, develops, manufactures, and sells medical devices, instrument systems, and reagents worldwide. This dividend champion has increased distributions for the past 38 consecutive years. The latest dividend increase was in November 2010, when the company raised distributions by 10.80% to 41 cents/share.

Over the past decade this dividend growth stock has delivered an annualized total return of 10.20% to its shareholders.

The company has managed to deliver an average increase in EPS of 13% per year since 2000. Analysts expect Becton Dickinson to earn $5.50 per share in 2011 and $6.12/share in 2012. The diversified product offering is a strong case behind the company’s business. Another positive is the strong sustainable global demand for the company’s diabetes-care, disease testing and safety products. The increased demand for cell analytics products in the US, should bolster growth in Becton Dickinson’s biosciences segment. The company is a diversified global player in the healthcare equipment field, with almost 55% of its sales derived outside of the US.

The company’s return on equity has been on the rise since 2000, has reach an impressive 25% in 2010. Rather than focus on absolute values for this indicator, I generally want to see at least a stable return on equity over time.

The annual dividend payment has increased by 16.30% per year since 2000. A 16% growth in distributions translates into the dividend payment doubling every four and a half years. If we look at historical data, going as far back as 1964, we would see that Becton Dickinson has actually managed to double its dividend payment every six and a half years on average.

The dividend payout ratio has increased slightly over the past decade, although it never exceeded 50%. 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, Becton Dickinson is attractively valued at 15 times earnings, yields 2.00% and has a sustainable dividend payout. Although Becton Dickinson does have the characteristics of a great business with a strong competitive advantages, the low current yield as well as my current exposure to the sector makes this stock a hold. I would continue monitoring the stock and will consider initiating a position in the stock on dips.

Full Disclosure: None

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Dividend Aristocrats list for 2011

The Dividend Aristocrats index includes members of the S&P 500 which have raised distributions for at least 25 years in a row. This is no small accomplishment, given the fact that this long period of time includes several recessions, oil price shocks and two wars in Iraq. The companies that could achieve this accomplishment have been able to generate rising dividends for at least 25 years, due to their strong competitive advantages and sound business models. Only a company with a competitive advantage could afford to raise dividends to shareholders for such a long period of time.

Over the past few years, the S&P Dividend Aristocrats index has consistently beaten the S&P 500. Over the past 5 years, it has delivered annualized total returns of 5.20%, which was over four percent higher than S&P500's 1% annualized return for the same time period. This is despite the fact that many former dividend aristocrats in the financial sector cut dividends and were booted out of the elite dividend index during the financial crisis of 2007-2009. There are 42 stocks remaining right now. Below you could see the list of all current dividend aristocrats.

The S&P announced that it was adding three new components and deleting three old components of the index. The companies that were added include:

MCCORMICK & CO INC (MKC)
HORMEL FOODS CORP (HRL)
ECOLAB INC (ECL)

The companies that were deleted, include:

LILLY (ELI) & CO (LLY)
SUPERVALU INC (SVU)
INTEGRYS ENERGY GROUP INC (TEG)

The screen that I used in order to gauge the attractiveness of each o the 42 dividend aristocrats had the following criteria:

1) Company was a member for the S&P Dividend Aristocrats Index
2) Company traded at a P/E ratio less than 20
3) The dividend payout ratio was less than 60%
4) The current dividend yield was at least 2.50%

I have highlighted the ones that look attractively valued at the moment:

Abbott Laboratories (ABT) engages in the discovery, development, manufacture, and sale of health care products worldwide. It operates in four segments: Pharmaceutical Products, Diagnostic Products, Nutritional Products, and Vascular Products. The company has raised dividends for 38 years in a row. (analysis)

Automatic Data Processing, Inc. (ADP) provides technology-based outsourcing solutions to employers, and vehicle retailers and manufacturers. It operates in three segments: Employer Services, Professional Employer Organization Services, and Dealer Services. The company has raised dividends for 36 years in a row. (analysis)

Bemis Company, Inc. (BMS) manufactures and sells flexible packaging products and pressure sensitive materials in the United States, Canada, Mexico, South America, Europe, and Asia. The company operates in two segments, Flexible Packaging and Pressure Sensitive Materials. The company has raised dividends for 27 years in a row. (analysis)

The Chubb Corporation (CB), through its subsidiaries, provides property and casualty insurance to businesses and individuals. The company has raised dividends for 45 years in a row. (analysis)

Cincinnati Financial Corporation (CINF), through its subsidiaries, operates in the property casualty insurance business in the United States. It operates in four segments: Commercial Lines Property Casualty Insurance, Personal Lines Property Casualty Insurance, Life Insurance, and Investment. The company has raised dividends for 50 years in a row. (analysis)

The Clorox Company (CLX) engages in the production, marketing, and sales of consumer products in the United States and internationally. The company operates through four segments: Cleaning, Lifestyle, Household, and International. The company has raised dividends for 33 years in a row. (analysis)

Johnson & Johnson (JNJ) engages in the research and development, manufacture, and sale of various products in the health care field worldwide. The company operates in three segments: Consumer, Pharmaceutical, and Medical Devices and Diagnostics. The company has raised dividends for 48 years in a row. (analysis)

Kimberly-Clark Corporation (KMB) , together with its subsidiaries, engages in the manufacture and marketing of various health care products worldwide. The company operates in four segments: Personal Care, Consumer Tissue, K-C Professional & Other, and Health Care. The company has raised dividends for 38 years in a row. (analysis)

The Coca-Cola Company (KO) manufactures, distributes, and markets nonalcoholic beverage concentrates and syrups worldwide. The company has raised dividends for 48 years in a row. (analysis)

McDonald’s Corporation (MCD), together with its subsidiaries, operates as a worldwide foodservice retailer. It franchises and operates McDonald’s restaurants that offer various food items, soft drinks, coffee, and other beverages. The company has raised dividends for 34 years in a row. (analysis)

The McGraw-Hill Companies, Inc. (MHP) provides information services and products to the education, financial services, and business information markets worldwide. It operates in three segments: McGraw-Hill Education, Financial Services, and Information & Media. The company has raised dividends for 37 years in a row. (analysis)

PepsiCo, Inc. (PEP) manufactures, markets, and sells various foods, snacks, and carbonated and non-carbonated beverages worldwide. The company operates in four divisions: PepsiCo Americas Foods (PAF), PepsiCo Americas Beverages (PAB), PepsiCo Europe, and PepsiCo Asia, Middle East and Africa (AMEA). The company has raised dividends for 38 years in a row. (analysis)

The Procter & Gamble Company (PG) provides consumer packaged goods in the United States and internationally. The company operates in three global business units (GBUs): Beauty and Grooming, Health and Well-Being, and Household Care. The company has raised dividends for 54 years in a row. (analysis)

PPG Industries, Inc. (PPG) manufactures and supplies protective and decorative coatings. The company has raised dividends for 39 years in a row. (analysis)

V.F. Corporation (VFC), together with its subsidiaries, engages in the design, manufacture, and sourcing of branded apparel and related products for men, women, and children in the United States. The company has raised dividends for 38 years in a row. (analysis)

Screening for quality dividend stocks is just part of the process of identifying the best dividend stocks. Astute dividend investors should also research in detail each company in order to gauge whether it has any competitive advantages that would enable it to increase earnings and dividends over the next decades.

Full Disclosure: Long ABT, ADM, ADP,AFL, APD, BF-B,CB,CINF, CLX, ED, EMR, FDO, GWW, JNJ, KMB, KO, MCD, MHP, MKC, MMM, PEP, PG, WAG, WMT ,XOM

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Pfizer Raises Dividends, is that good or bad news?

Last week pharmaceuticals giant Pfizer (PFE) raised distributions for a second year in a row. The company raised its dividend by 11.10% to 20 cents/ share. Pfizer cut its dividend in 2009 from 32 to 16 cents/share after it announced that it was acquiring rival Wyeth in a 68 billion dollar buyout. The company has tried to rebuild it history of consistent dividend increases over the past two years, which is a positive thing. Astute dividend investors however know that future dividend increases are supported by strong fundamentals. In Pfizer’s case, the company has a steep cliff of patent expirations on key drugs such as Lipitor in 2011 -2013. Lipitor for example accounts for 22% of revenues and its US patent expires in 2011. Analysts are expecting that cheaper generic drug substitutes to Lipitor would erode Pfizer’s market share, thus hurting profitability. Pfizer has been unable to bring in any significant blockbuster drugs to the market, which would have compensate for the losses from generic competition after patents on existing drugs expire. Instead, the company has embarked on a series of acquisitions over the past decade, by purchasing Warner-Lambert in 2000, Pharmacia in 2003 and Wyeth in 2009. These acquisitions have resulted in major cost synergies, but in no new drugs on the market. In Pfizer’s defense, in order for a new drug to appear on the market, there is a long and expensive process coupled with several FDA approvals. This being said, I would keep monitoring Pfizer’s (PFE) business conditions, in order to be prepared to add it to my portfolio once it shows a decisive turnaround.

Other companies which raised dividends and which have raised distributions for over five years in a row include:

AT&T Inc. (T) provides telecommunication products and services to consumers, businesses, and other telecommunication service providers under the AT&T brand worldwide. The company raised its quarterly dividend by 2.40% to 43 cents/share. This marked the 27th consecutive annual dividend increase for this dividend champion. Yield: 5.90% (analysis)

Realty Income Corporation (O) engages in the acquisition and ownership of commercial retail real estate properties in the United States. The company raised its quarterly dividend by 0.20% to 14.425 cents/share. This dividend achiever has consistently raised dividends for 16 years in a row. Yield: 5.10% (analysis)

Waste Management, Inc. (WM) provides integrated waste management services in North America. The company raised its quarterly dividend by 8% to 34 cents/share. This marked the eight consecutive annual dividend increase for this dividend stock. Yield: 3.10% (analysis)

Franklin Resources Inc. (BEN) is a publicly owned investment manager. The firm provides its services to individuals, institutions, pension plans, trusts, and partnerships. The company raised its quarterly dividend by 13.60% to 25 cents/share. This marked the 30th consecutive annual dividend increase for this dividend champion. Yield: 0.90%

Urstadt Biddle Properties, Inc. (UBA), a real estate investment trust (REIT), engages in the acquisition, ownership, and management of commercial real estate properties in the United States. The company raised its quarterly dividend by 1% to 24.50 cents/share. This marked the 17th consecutive annual dividend increase for this dividend achiever. Yield: 5.20%

Pentair, Inc. (PNR) operates as a diversified industrial manufacturing company worldwide. The company raised its quarterly dividend by 5% to 20 cents/share. This marked the 35th consecutive annual dividend increase for this dividend champion. Yield: 2.20%

ABM Industries Incorporated (ABM), through its subsidiaries, provides facility services for commercial, industrial, institutional, and retail facilities primarily in the United States. The company raised its quarterly dividend by 3.70% to 14 cents/share. This marked the 44th consecutive annual dividend increase for this dividend champion. Yield: 2.10%

The Andersons, Inc. (ANDE) engages in the agriculture and transportation businesses in the United States. The company raised its quarterly dividend by 22.20% to 11 cents/share. This marked the ninth consecutive annual dividend increase for this dividend stock. Yield: 1.30%

Dominion Resources, Inc. (D), together with its subsidiaries, engages in producing and transporting energy in the United States. It operates in three segments: DVP, Dominion Generation, and Dominion Energy. The company raised its quarterly dividend by 7.70% to 49.25 cents/share. This marked the eight consecutive annual dividend increase for this dividend stock. Yield: 4.60%

The process of creating a dividend portfolio should include screening for and including only the companies with the best prospects. After all, dividend growth which is not supported by strong fundamentals is not sustainable and would not lead to financial success. In addition to that, investors should avoid overpaying for stocks and should avoid taking concentrated sector bets. Taking these precautionary steps would ensure that investors keep receiving a growing stream of dividend income even during the worst market conditions.

Full Disclosure: Long O and D

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