I have a serious spending addiction – any time I find myself with some extra cash on hand, I end up spending it. This is particularly troublesome, as I tend to salivate when I see an item that I really want.
Anytime there is a big sale, especially one with large markdowns, my spending problem comes out on the surface and I sometimes go through all of my cash on hand and sometimes even borrow money to spend. The exhilarating feeling of spending my cash is similar to probably what a drug addict feels when they get their daily dose. I look at the list of items I spent my money on, and it provides me with an internal sense of happiness and accomplishment. Sometimes, I even look for ways to save money from recurring expenses in order to have more money to spend. I am often scrambling to find enough cash, as I always have at least 15 – 20 deals on my radar, just waiting to be purchased.
I spend a large portion of my monthly income on dividend paying stocks. I willingly spend my money on dividend stocks because I know that I am contributing towards my retirement goals. I view every dollar that I can invest in a quality dividend stock at attractive valuation such as McDonald’s (MCD), Phillip Morris International (PM) or Johnson & Johnson (JNJ), will work hard for me and produce several more dollars over their lifetime for me.
Over the past month however, I have curtailed my spending problem. No the reason is not because the market has risen to all-time-highs. Even during the late 1990’s and the 2006 – 2007 periods, one could find attractive pockets of dividends that were cheap. My fingers are itching on my trigger, as I see so many quality firms which are trading at promising entry prices. The reason why I have not purchased any stock over the past month, and would likely not purchase any new stock in April is due to taxes. Once your income from non-salary sources becomes noticeable, you end up having to pay estimated quarterly taxes. Fortunately or unfortunately, my estimated payments were not sufficient to cover the remainder of taxes due. This is fortunate, because I had been able to deploy the funds at prices that were much lower than prices today. I would much rather invest the funds and get the chance of earning a return on them, rather than provide a zero interest loan to the government. The only investment I made recently was part of spring cleaning my portfolio, used cash from an existing position that I sold to purchase two new stocks.
Luckily, by the end of April, I should be able to redirect my cash flows toward growing my dividend positions. Hopefully, the market is not going to increase too much by that time.
Full Disclosure: Long JNJ, PM, MCD
Relevant Articles:
- Three stages of dividend growth
- Spring Cleaning My Income Portfolio, Part II
- S&P 8000 – The power of reinvested dividends in action
- Dividend Investors Should Focus on Valuation, not just Yield
- Warren Buffett on Dividends: Ideas from his 2013 Letter to Shareholders
Friday, March 29, 2013
Thursday, March 28, 2013
Spring Cleaning My Income Portfolio, Part II
As part of my dividend strategy, I invest in companies that grow distributions every year. I do like to see companies whose dividend growth at least matches the rate of inflation. For such companies, the yield better be much higher than my minimum requirement of 2.50% however. Otherwise, allocating funds to these securities might not be the most optimal allocation of my money. I do follow a tiered approach to portfolio management, where I own shares in companies with different yield and growth characteristics, which together fusion into a portfolio whose annual dividend growth is expected to be around 6%.
A few months ago, I started reassessing several of the holdings I held in my portfolio. In general, companies that slowed down on their distributions increases since the time of my purchase looked like excellent candidates for review. Currently, there is a very high amount of yield chasing going on by income starved retirees. In addition general stock prices are nearing all-time-highs. It looks like now is the perfect time to dispose of companies with high yields and very slow distributions growth.
One company whose stock I recently sold was Universal Health Realty Income Trust (UHT). This REIT invests in health care and human service related facilities, including acute care hospitals, behavioral healthcare facilities, rehabilitation hospitals, sub-acute facilities, surgery centers, childcare centers, and medical office buildings. Universal Health Realty Income Trust is also a dividend champion, which has managed to boost distributions for 26 years in a row. The distributions were not growing very quickly however, but the stock had increased from my purchase price in the mid 30’s from several years ago. In my previous analysis of the stock, I mentioned that half of the company’s revenues are generated from a related party, which is a little concerning. With current yields around 4.30%, the REIT looked overvalued relative to other REITs. The five year dividend growth was 1.40%/annually. I researched a few REITs, and decided to equally reinvest the sale proceeds in two other trusts: Digital Realty (DLR) and Omega Healthcare (OHI).
Digital Realty Trust (DLR) engages in the ownership, acquisition, development, redevelopment, and management of technology-related real estate. I liked the fact that the company was focused on growing FFO, and also growing dividends to shareholders. The company is in expansionary mode, which should bode well for FFO/share over time, particularly given low interest rate costs on intermediate-term bonds. I also liked the fact that there is tenant diversification, which also spans across several continents. The top 10 tenants are responsible for 35% of revenues. The occupancy rate ranged between 94% and 95%, which is pretty impressive. This REIT went public in 2005, and has raised distributions every year since that event. The five year dividend growth is 20.60%/annually. Digital Realty Trust currently yields 4.70%.
Omega Healthcare Investors (OHI) invests in healthcare facilities, principally long-term healthcare facilities in the United States. The company had managed to boost distributions since 2003, and will soon join the ranks of dividend achievers. Over the past five years FFO/share has increased from $1.30 in 2008 to $2.06 in 2012. I also liked the company’s plans to expand FFO/share through new investments. One thing that worried me about Omega Healthcare Investors was the dividend cut and subsequent elimination in 2000 – 2001. The dividend was not reinstated until 2003. It takes a lot to reduce my fears of dividend cuts, especially if it has happened before. After reviewing occupancy trends, FFO payout of 87.40%, planned and past investments in properties, in addition to the debt profile of the REIT, I do not think that distributions are at risk. Occupancy is around 84%, which is an increase over the 80% occupancy in 2001. The top ten tenants generate 64% of revenues. And there isn’t any significant debt maturing until 2020, although there is $102 million in debt that needs to be paid in 2015. The five year dividend growth is 9.40%/annually. Omega Healthcare Investors currently yields 6.20%.
I have already analyzed Omega Healthcare Investors and Digital Realty Trust prior to my transactions. I plan to post these more detailed analyzes for readers to enjoy in a few weeks.
Full Disclosure: Long OHI and DLR
Relevant Articles:
- Universal Health Realty Income Trust (UHT) Dividend Stock Analysis
- Four High Yield REITs for current income
- Dividend Champions - The Best List for Dividend Investors
- My Dividend Retirement Plan
- Three Dividend Strategies to pick from
A few months ago, I started reassessing several of the holdings I held in my portfolio. In general, companies that slowed down on their distributions increases since the time of my purchase looked like excellent candidates for review. Currently, there is a very high amount of yield chasing going on by income starved retirees. In addition general stock prices are nearing all-time-highs. It looks like now is the perfect time to dispose of companies with high yields and very slow distributions growth.
One company whose stock I recently sold was Universal Health Realty Income Trust (UHT). This REIT invests in health care and human service related facilities, including acute care hospitals, behavioral healthcare facilities, rehabilitation hospitals, sub-acute facilities, surgery centers, childcare centers, and medical office buildings. Universal Health Realty Income Trust is also a dividend champion, which has managed to boost distributions for 26 years in a row. The distributions were not growing very quickly however, but the stock had increased from my purchase price in the mid 30’s from several years ago. In my previous analysis of the stock, I mentioned that half of the company’s revenues are generated from a related party, which is a little concerning. With current yields around 4.30%, the REIT looked overvalued relative to other REITs. The five year dividend growth was 1.40%/annually. I researched a few REITs, and decided to equally reinvest the sale proceeds in two other trusts: Digital Realty (DLR) and Omega Healthcare (OHI).
Digital Realty Trust (DLR) engages in the ownership, acquisition, development, redevelopment, and management of technology-related real estate. I liked the fact that the company was focused on growing FFO, and also growing dividends to shareholders. The company is in expansionary mode, which should bode well for FFO/share over time, particularly given low interest rate costs on intermediate-term bonds. I also liked the fact that there is tenant diversification, which also spans across several continents. The top 10 tenants are responsible for 35% of revenues. The occupancy rate ranged between 94% and 95%, which is pretty impressive. This REIT went public in 2005, and has raised distributions every year since that event. The five year dividend growth is 20.60%/annually. Digital Realty Trust currently yields 4.70%.
Omega Healthcare Investors (OHI) invests in healthcare facilities, principally long-term healthcare facilities in the United States. The company had managed to boost distributions since 2003, and will soon join the ranks of dividend achievers. Over the past five years FFO/share has increased from $1.30 in 2008 to $2.06 in 2012. I also liked the company’s plans to expand FFO/share through new investments. One thing that worried me about Omega Healthcare Investors was the dividend cut and subsequent elimination in 2000 – 2001. The dividend was not reinstated until 2003. It takes a lot to reduce my fears of dividend cuts, especially if it has happened before. After reviewing occupancy trends, FFO payout of 87.40%, planned and past investments in properties, in addition to the debt profile of the REIT, I do not think that distributions are at risk. Occupancy is around 84%, which is an increase over the 80% occupancy in 2001. The top ten tenants generate 64% of revenues. And there isn’t any significant debt maturing until 2020, although there is $102 million in debt that needs to be paid in 2015. The five year dividend growth is 9.40%/annually. Omega Healthcare Investors currently yields 6.20%.
I have already analyzed Omega Healthcare Investors and Digital Realty Trust prior to my transactions. I plan to post these more detailed analyzes for readers to enjoy in a few weeks.
Full Disclosure: Long OHI and DLR
Relevant Articles:
- Universal Health Realty Income Trust (UHT) Dividend Stock Analysis
- Four High Yield REITs for current income
- Dividend Champions - The Best List for Dividend Investors
- My Dividend Retirement Plan
- Three Dividend Strategies to pick from
Wednesday, March 27, 2013
How to invest when the market is at all time highs?
With the market at all-time highs, many quality income stocks are getting close to being overvalued. As a result, many investors are tempted to postpone new purchases until there is some sort of a correction. While many household names like Coca-Cola (KO) are fully valued at the moment however, there are many othe companies which are trading at attractive valuations. These of course are not the rock bottom valuations we saw in late 2008 and early 2009, but nevertheless represent cheap entry points for enterprising dividend investors.
Dividend investors always have to be selective, and on the lookout for common stocks that are attractively priced. Entry price does matter, because overpaying for stocks could lead to subpar returns in the first five to ten years of the investment. Investors who purchased Coca-Cola (KO) or Wal-Mart (WMT) during the 1999 – 2000 didn’t register much in price returns for at least a decade, and the only return came in the form of dividends. On the other hand, having a large cash position that sits idle for over a year does not contribute to the financial goals of the would-be retiree. The investor is missing out on the long-term compounding of the growing distributions that the dividend machines which can be purchased with that idle cash could have provided for them.
Back in 1999 the US markets as a whole were much overvalued. It was difficult to find quality income stocks to buy. However, there were many pockets of opportunity for selective dividend investors. Many REITs were offering compelling valuations, and so were some financial companies like Bank of America (BAC) for example. Many tobacco companies such as Phillip Morris, were severely beaten down because of the bad press tobacco was getting. Of course the Phillip Morris of 1999 is now Altria (MO), Phillip Morris International (PM), Kraft Foods (KRFT) and Mondelez International (MDLZ) for historical references. This is as an example to say that there are always pockets of opportunity for the trained eye, even in a market that is pushing new highs every single day.
There are plenty of pockets of opportunity in the current market environment as well. I spent a few minutes going through the dividend champions list using my entry criteria. I came up with the following quick list of cheap but promising dividend stocks:
The companies above are not automatic buys, but merely ideas for further research. Investors should focus on building a portfolio of quality income stocks patiently, by allocating funds every month. One should layer their dividend portfolio brick by brick, which would bring solid foundation for long term results.
This exercise should show investors that there are attractively valued income stocks even while markets are trading at all time highs, and most of the usual suspects like Coca-Cola (KO) for example are fully valued. By maintaining an open mind, and having the willingness to perform an independent search for companies for further research, an investor should be able to capitalize on attractive opportunities throughout all market cycles.
Full Disclosure: Long KO, WMT, APD, AFL, CVX, MCD, PG,
Relevant Articles:
- Does entry price matter to dividend investors?
- Buy and hold dividend investing is not dead
- Three stages of dividend growth
- Warren Buffett on Dividends: Ideas from his 2013 Letter to Shareholders
- Dividend Investors Should Focus on Valuation, not just dividend yield
Dividend investors always have to be selective, and on the lookout for common stocks that are attractively priced. Entry price does matter, because overpaying for stocks could lead to subpar returns in the first five to ten years of the investment. Investors who purchased Coca-Cola (KO) or Wal-Mart (WMT) during the 1999 – 2000 didn’t register much in price returns for at least a decade, and the only return came in the form of dividends. On the other hand, having a large cash position that sits idle for over a year does not contribute to the financial goals of the would-be retiree. The investor is missing out on the long-term compounding of the growing distributions that the dividend machines which can be purchased with that idle cash could have provided for them.
Back in 1999 the US markets as a whole were much overvalued. It was difficult to find quality income stocks to buy. However, there were many pockets of opportunity for selective dividend investors. Many REITs were offering compelling valuations, and so were some financial companies like Bank of America (BAC) for example. Many tobacco companies such as Phillip Morris, were severely beaten down because of the bad press tobacco was getting. Of course the Phillip Morris of 1999 is now Altria (MO), Phillip Morris International (PM), Kraft Foods (KRFT) and Mondelez International (MDLZ) for historical references. This is as an example to say that there are always pockets of opportunity for the trained eye, even in a market that is pushing new highs every single day.
There are plenty of pockets of opportunity in the current market environment as well. I spent a few minutes going through the dividend champions list using my entry criteria. I came up with the following quick list of cheap but promising dividend stocks:
Symbol
|
Name
|
Price
|
Yrs Div Increase
|
P/E
|
Dividend Payout Ratio
|
10 yr Dividend Growth
|
Yield
|
DGI Portfolio
|
(MCD)
|
McDonald's Corp.
|
99.27
|
36
|
18.52
|
57%
|
28.43%
|
3.10%
|
Yes
|
(AFL
|
AFLAC Inc.
|
51.85
|
30
|
8.49
|
23%
|
19.27%
|
2.70%
|
Yes
|
(WMT
|
Wal-Mart Stores Inc.
|
74.28
|
39
|
14.8
|
37%
|
18.10%
|
2.53%
|
Yes
|
(WEYS
|
Weyco Group Inc.
|
24.18
|
31
|
13.98
|
39%
|
14.75%
|
2.81%
|
No
|
(APD
|
Air Products & Chem.
|
87.52
|
31
|
15.67
|
46%
|
11.79%
|
3.20%
|
Yes
|
(PG
|
Procter & Gamble Co.
|
77.27
|
56
|
17.54
|
51%
|
10.84%
|
2.91%
|
Yes
|
(CVX
|
Chevron Corp.
|
121.18
|
25
|
9.1
|
27%
|
9.63%
|
2.97%
|
Yes
|
(XOM
|
ExxonMobil Corp.
|
89.29
|
30
|
9.21
|
24%
|
9.01%
|
2.55%
|
No
|
(EFSI
|
Eagle Financial Services
|
22.4
|
26
|
11.43
|
37%
|
8.60%
|
3.21%
|
No
|
(SRCE
|
1st Source Corp.
|
24
|
25
|
11.9
|
34%
|
7.27%
|
2.83%
|
No
|
(CTBI
|
Community Trust Banc.
|
34.27
|
32
|
11.86
|
44%
|
7.03%
|
3.68%
|
No
|
(UGI
|
UGI Corp.
|
37.6
|
25
|
19.84
|
57%
|
6.94%
|
2.87%
|
No
|
(GPC
|
Genuine Parts Co.
|
77.4
|
57
|
18.7
|
52%
|
5.30%
|
2.78%
|
No
|
(ABM
|
ABM Industries Inc.
|
21.94
|
46
|
18.66
|
51%
|
4.88%
|
2.73%
|
No
|
The companies above are not automatic buys, but merely ideas for further research. Investors should focus on building a portfolio of quality income stocks patiently, by allocating funds every month. One should layer their dividend portfolio brick by brick, which would bring solid foundation for long term results.
This exercise should show investors that there are attractively valued income stocks even while markets are trading at all time highs, and most of the usual suspects like Coca-Cola (KO) for example are fully valued. By maintaining an open mind, and having the willingness to perform an independent search for companies for further research, an investor should be able to capitalize on attractive opportunities throughout all market cycles.
Full Disclosure: Long KO, WMT, APD, AFL, CVX, MCD, PG,
Relevant Articles:
- Does entry price matter to dividend investors?
- Buy and hold dividend investing is not dead
- Three stages of dividend growth
- Warren Buffett on Dividends: Ideas from his 2013 Letter to Shareholders
- Dividend Investors Should Focus on Valuation, not just dividend yield
Monday, March 25, 2013
Message for RSS readers
Sorry to interrupt, but if you are reading this on Google Reader, you will need to figure out a different way to follow us. Google is getting rid of Google Reader soon and you should switch to other RSS readers such as Feedly instead.
Subscribe to have every article delivered to your inbox using the form below, and you won’t have to worry about the RSS problems.
In addition, I wanted to let you know that I will be hosting Carnival of Personal Finance # 404 on Monday, April 1. This is a collection of the best Personal Finance articles from the blogosphere.
Blogging friends, please feel free to submit quality articles on topics related to Budgeting, Career, Credit, Debt, Economy, Finance, Frugality, Investing, Money Management, Real Estate, Saving and Taxes.
In addition, I wanted to highlight the top five articles from Dividend Growth Investor blog for the month of March:
Subscribe to have every article delivered to your inbox using the form below, and you won’t have to worry about the RSS problems.
In addition, I wanted to let you know that I will be hosting Carnival of Personal Finance # 404 on Monday, April 1. This is a collection of the best Personal Finance articles from the blogosphere.
Blogging friends, please feel free to submit quality articles on topics related to Budgeting, Career, Credit, Debt, Economy, Finance, Frugality, Investing, Money Management, Real Estate, Saving and Taxes.
In addition, I wanted to highlight the top five articles from Dividend Growth Investor blog for the month of March:
- Pure Dividend Growth Stocks I wish I owned
- Are these high yield dividends sustainable?
- Three High Yielding Dividend Machines Boosting Distributions
- Warren Buffett on Dividends: Ideas from his 2013 Letter to Shareholders
- Three stages of dividend growth
Thank you for reading Dividend Growth Investor.
Three Dividend Paying Stocks that Deliver Dividend Growth
As a dividend growth investor, I uncover attractively valued companies by running my monthly screen against the dividend champions and dividend achievers’ indexes. I also tend to focus on the weekly list of companies that boosted distributions, in order to monitor the dividend growth of companies I own or might consider for further analysis. I also use this list in order to uncover any emerging dividend stocks, which are in the first phase of their dividend growth journey. Over the past week, there were sixteen companies which announced increases in distributions. I narrowed the list by excluding companies which had raised dividends for less than five years in a row, and came up with the following three stocks:
Air Products and Chemicals, Inc. (APD) provides atmospheric gases, process and specialty gases, performance materials, equipment, and services worldwide. The company increased the quarterly dividend on the company’s common stock by 10.90% to 71 cents per share. This marked the 31st consecutive year that Air Products has increased its dividend payment. Over the past decade, this dividend champion has raised distributions by 11.80%/year. Between 2003 and 2012, the company’s earnings rose from $1.81/share to $5.53/share. Analysts expect earnings to hit $5.78/share in 2013, and increase to $6.40/share by 2014. Currently the stock is attractively valued at 15.70 times earnings and yields 3.20%. I plan on adding to my position in the stock within the next couple of months. Check my analysis of Air Products & Chemicals for more information.
Raytheon Company (RTN) provides electronics, mission systems integration, as well as a range of mission support services in the United States and internationally. The company’s Board of Directors voted to increase the company's annual dividend payout rate by 10 percent, from $2.00 to $2.20 per share. This marked the ninth consecutive year that Raytheon Company has increased its dividend payment. Over the past decade, the company has raised distributions by 25.40%/year. Between 2003 and 2012, the company’s earnings rose from $0.88/share to $5.67/share. Analysts expect earnings to decline in 2013 to $5.33/share, and increase to $5.54/share by 2014. Currently the stock is attractively valued at 10.30 times earnings and yields 3.90%. While the dividend is sustainable and has room to grow, the focus on budget cuts in the company’s biggest customer might not bode well for long-term profitability.
Williams-Sonoma, Inc. (WSM) operates as a specialty retailer of home products. The company’s Board of Directors has authorized a 41% increase in the company’s quarterly cash dividend to $0.31 per share. This marked the eighth consecutive year that Williams-Sonoma has increased its dividend payment. Over the past five years, the company has raised distributions by 14.60%/year. Currently the stock is trading at 20.80 times trailing earnings and yields 2.50%. The trailing earnings per share over the past four quarters nets to $2.39. Analyst projections for 2013 and 2014 are for earnings growth to $2.78 /share and $3.17/share. Between 2004 and 2012, the company’s earnings rose from $1.36/share to $2.27/share. I am going to add Williams-Sonoma to my list for further analysis.
Full Disclosure: Long APD
Relevant Articles:
- Three stages of dividend growth
- My Entry Criteria for Dividend Stocks
- The World’s Best Dividend Portfolio
- Dividend Champions Index – Five Year Total Return Performance
- Dividend Champions - The Best List for Dividend Investors
Air Products and Chemicals, Inc. (APD) provides atmospheric gases, process and specialty gases, performance materials, equipment, and services worldwide. The company increased the quarterly dividend on the company’s common stock by 10.90% to 71 cents per share. This marked the 31st consecutive year that Air Products has increased its dividend payment. Over the past decade, this dividend champion has raised distributions by 11.80%/year. Between 2003 and 2012, the company’s earnings rose from $1.81/share to $5.53/share. Analysts expect earnings to hit $5.78/share in 2013, and increase to $6.40/share by 2014. Currently the stock is attractively valued at 15.70 times earnings and yields 3.20%. I plan on adding to my position in the stock within the next couple of months. Check my analysis of Air Products & Chemicals for more information.
Raytheon Company (RTN) provides electronics, mission systems integration, as well as a range of mission support services in the United States and internationally. The company’s Board of Directors voted to increase the company's annual dividend payout rate by 10 percent, from $2.00 to $2.20 per share. This marked the ninth consecutive year that Raytheon Company has increased its dividend payment. Over the past decade, the company has raised distributions by 25.40%/year. Between 2003 and 2012, the company’s earnings rose from $0.88/share to $5.67/share. Analysts expect earnings to decline in 2013 to $5.33/share, and increase to $5.54/share by 2014. Currently the stock is attractively valued at 10.30 times earnings and yields 3.90%. While the dividend is sustainable and has room to grow, the focus on budget cuts in the company’s biggest customer might not bode well for long-term profitability.
Williams-Sonoma, Inc. (WSM) operates as a specialty retailer of home products. The company’s Board of Directors has authorized a 41% increase in the company’s quarterly cash dividend to $0.31 per share. This marked the eighth consecutive year that Williams-Sonoma has increased its dividend payment. Over the past five years, the company has raised distributions by 14.60%/year. Currently the stock is trading at 20.80 times trailing earnings and yields 2.50%. The trailing earnings per share over the past four quarters nets to $2.39. Analyst projections for 2013 and 2014 are for earnings growth to $2.78 /share and $3.17/share. Between 2004 and 2012, the company’s earnings rose from $1.36/share to $2.27/share. I am going to add Williams-Sonoma to my list for further analysis.
Full Disclosure: Long APD
Relevant Articles:
- Three stages of dividend growth
- My Entry Criteria for Dividend Stocks
- The World’s Best Dividend Portfolio
- Dividend Champions Index – Five Year Total Return Performance
- Dividend Champions - The Best List for Dividend Investors
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