The Best Articles on Dividend Investing for November

For your weekend reading enjoyment, I have highlighted a few interesting articles from the archives, which I find to be relevant today. The first five articles have been written and posted on this site, while the last five have been selected from other authors. I tend to post anywhere between three to four articles to my site every week. I usually try to write at least one or two articles that contain timeless information concerning dividend investing. This could include information about my strategy, or other pieces of information, which could be useful to dividend investors.

Below, I have highlighted a few articles posted on this site, which many readers have found interesting:

• Why Warren Buffett purchased Exxon Mobil stock?
• Warren Buffett Investing Resource Page
• How to buy dividend stocks with as little as $10
• These Books Shaped My Investing Strategy
• What to do about those rising stock prices?

I read a lot about companies, and also read a lot of interesting articles from all over the web. A few that I really enjoyed over the past several months include:

• Early Warning Signs of a Dividend Cut
• Why I Don't Compare My Portfolio's Performance To The S&P 500
• Which Is Best: DRIP Or Collect And Invest?
• REIT Interest-Rate Concerns May Be Overblown
• Reasons to Love Dividends

Thank you for reading Dividend Growth Investor site. I am also on Twitter, if you are interested in following me on another platform, where I post about recent trades I have made.

Becton Dickinson (BDX) Dividend Stock Analysis

Becton, Dickinson and Company (BDX), a medical technology company, develops, manufactures, and sells medical devices, instrument systems, and reagents worldwide. This dividend champion has been able to boost distributions for 42 years in a row.

The company’s last dividend increase was in November 2012 when the Board of Directors approved a 10% increase to 54.50 cents/share. The company’s peer group includes Medtronic (MDT), Baxter International (BAX) and St. Jude Medical (STJ).

Over the past decade this dividend growth stock has delivered an annualized total return of 12.40% to its loyal shareholders.

The company has managed to deliver an 8.70% average increase in annual EPS since 2004. Analysts expect Becton Dickinson to earn $6.26 per share in 2014 and $6.84 per share in 2015. In comparison, the company earned $4.67/share in 2013. The company’s earnings were reduced by a one-time charge of $1.06/share related to a lawsuit filed against the company by Retractable Technologies.

Becton Dickinson has also managed to repurchase plenty of shares over the past decade, bringing the number of shares from 263 million in 2003 to 200 million in 2013.

Becton Dickinson operates in three segments:

Medical (Over 50% of sales)
BD Medical produces a broad array of medical devices that are used in a wide range of healthcare settings. The primary customers served by BD Medical are hospitals and clinics; physicians’ office practices; consumers and retail pharmacies; governmental and nonprofit public health agencies; pharmaceutical companies; and healthcare workers.

Diagnostics (almost one third of sales)
BD Diagnostics provides products for the safe collection and transport of diagnostics specimens, as well as instruments and reagent systems to detect a broad range of infectious diseases, healthcare-associated infections (“HAIs”) and cancers. BD Diagnostics serves hospitals, laboratories and clinics; reference laboratories; blood banks; healthcare workers; public health agencies; physicians’ office practices; and industrial and food microbiology laboratories.

Biosciences (Approximately 14% of sales)
BD Biosciences produces research and clinical tools that facilitate the study of cells, and the components of cells, to gain a better understanding of normal and disease processes. That information is used to aid the discovery and development of new drugs and vaccines, and to improve the diagnosis and management of diseases. The primary customers served by BD Biosciences are research and clinical laboratories; academic and government institutions; pharmaceutical and biotechnology companies; hospitals; and blood banks.

I like the fact that almost half of revenues is derived from items that are essential and disposable, and which creates the need for customers to repeatedly keep buying more syringes and needles to name a few. I like that the Diagnostics segment is also characterized by recurring revenue streams, as the customers would face high switching costs if they move to another competition. Becton Dickinson’s scale allows it to compete effectively in the Medical segment.

Becton Dickinson should be able to generate higher sales in due to the sustainable demand for its diabetes products, disease testing products, and cell analysis products. The company generates almost 60% of its sales from international operations, which is expected to increase as it grows its presence in emerging markets. Becton Dickinson is also active on the acquisition front and is investing heavily in research and development, which should benefit the company through new product launches. Becton Dickinson has a solid long-term potential for its business, due to its strong position and due to the bullish prospects for its industry. The company enjoys strong demand for its products and a more favorable pricing than other competitors in its industry.

While the company is expected to face higher costs by $55 million from the implementation of the new medical device tax in 2013, it should be able to benefit from increased healthcare spending in the US and internationally.

The return on equity has remained high above 20% over the past decade. I generally want to see at least a stable return on equity over time.

The annual dividend payment has increased by 16.80% per year over the past decade, which is higher than the growth in EPS. The past three dividend announcements were for a hike of 10% in dividends each time. Going forward, I would expect dividend growth to closely approximate 10%.

A 10% growth in distributions translates into the dividend payment doubling every seven years on average. If we look at historical data, going as far back as 1975, one would notice that the company has actually managed to double distributions every six years on average.

The dividend payout ratio has increased from 27% in 2004 to 42% in 2012. This is a short-term spike, caused by one-time accounting items discussed above. On a forward 2014 earnings basis, the dividend payout ratio is approximately 35%. 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 17.40 times forward earnings, yields 2% and has a sustainable distribution. I recently initiated a small starter position in the stock. I find it much easier to monitor a company I am interested in, if I have some skin in the game. As a long-term dividend investor in the accumulation stage, I get excited if the companies I am interested in are on sale, because I get to buy more shares with my limited amounts of capital. Although this price is a low probability event, I plan on adding to my position on dips below $88/share, equivalent to an entry yield of 2.50%.

Full Disclosure: Long BDX and MDT

Relevant Articles:

- Check the Complete Article Archive
- The importance of pricing and valuation in dividend investing
- My Retirement Strategy for Tax-Free Income
- Do not despise the days of small beginnings
- Three Characteristics of Successful Dividend Investors

Warren Buffet’s Favorite Exercise

I like learning from super investors of the world. When I think about super investors, the first thought that comes to mind is Warren Buffett.

Buffett’s favorite exercise is going to a certain year, looking at the top 10 - 20 companies by market capitalization, and then determining whether they are still around or not. This fits in perfectly with the long-term investment strategy of the Oracle of Omaha, where he tries to select companies that are still going to be around and doing well 15 – 20 years into the future.

In a Fortune interview from 1996, his friend Bill Gates recounted the following:

"He introduced me to an intriguing analytic exercise that he does. He'll choose a year--say, 1970--and examine the ten highest market-capitalization companies from around then. Then he'll go forward to 1990 and look at how those companies fared. His enthusiasm for the exercise was contagious. I stayed the whole day, and before he drove off with his friends, I even agreed to fly out to Nebraska to watch a football game with him"

For example, using the Standard & Poor's, I looked at the top ten companies in the index as of 1983:

Year	Company	%	Mkt Cap	% OF
1983	Int'l Bus. Machines (IBM)	1	74,346	6.09
1983	Exxon Corp (XOM)	2	32,114	2.63
1983	General Electric (GE)	3	26,626	2.18
1983	General Motors (GM)	4	23,414	1.92
1983	American Tel & Tel (T) (new)	5	17,234	1.41
1983	Stand'd Oil,Indiana	6	14,848	1.22
1983	Schlumberger, Ltd (SLB)	7	14,503	1.19
1983	Sears, Roebuck	8	13,150	1.08
1983	Eastman Kodak	9	12,603	1.03
1983	duPont(EI)deNemours	10	12,405	1.02

Thirty years later, only two of these companies went bankrupt (Eastman Kodak and General Motors), while the rest did well for their shareholders. The past 30 years were a tumultuous period for all of the companies however, as it was characterized by a flurry of mergers, acquisitions, reorganizations and changing of business focus. 

For example, at one point in 1993, International Business Machines (IBM) was very close to falling on the wrong path. 

In another example, Sears had acquired and then spun-off a handful of companies before merging with Kmart in 2004 to form Sears Holdings (SHLD). 

An investor who put $1000 equally in each of those ten leading blue chips at the time, did very well 30 years later if they held patiently all the stock they received and reinvested their dividends.

The AT&T you see listed is the long-distance operations of the original Ma Bell, after the split of the 7 regional baby bells. The company was acquired by SBC (one of the 7 baby bells that were split from Ma Bell in 1984) in 2005. Subsequently, SBC changed its name to the AT&T (T) we know today.

Exxon managed to merge with Mobil in 1999, and formed Exxon Mobil (XOM). This was quite interesting, because both companies originated from the break-up of Standard Oil Trust in 1911. You might notice Standard Oil of Indiana in the list, which was also a descendant of the Standard Oil Trust, and was later renamed Amoco. The company was acquired by BP in 1998.

In my investing, I look at the dividend kings, not as a list of recommendation per se, but for learning perspective. It is always a good idea to try and understand how some companies managed to boost earnings, so that they could increase dividends to shareholders for over 50 years in a row. For example, companies like Procter & Gamble (PG) were able to use their scale to their advantage in the new medium of television starting in the 1950s. Then the company managed to ride the wave of prosperity after the fall of the Soviet Union in the 1990s.

Relevant Articles:

- Why Warren Buffett purchased Exxon Mobil stock?
- Warren Buffett Investing Resource Page
- How Warren Buffett made his fortune
- Check the Complete Article Archive

Nine Quality Dividend Stocks Purchased for the Roth IRA in November

Back in September, I started making contributions for my Roth IRA. I bought shares the following ten companies in September, these nine in October, and a few more in November. The purpose of this series of posts is to prove that it is possible to create a diversified dividend portfolio even if you do not have a lot of starting capital, while also keeping costs as low as possible. The low costs were possible because I used Sharebuilder, which allows you to make 12 purchases per month for $12. The first month after you sign up is a trial month, meaning that all twelve transactions are free. Therefore, if you make 12 trades/month for three months, the most you are going to pay is $24. That comes down to less than 0.50% of the investment amount, if you contribute the 2013 maximum contribution of $5,500. If you were putting more money than that to work however, the initial set up cost would be an even much lower percentage.

The more challenging part of the portfolio building process was uncovering quality dividend stocks, which were also attractively valued. Given the fact that stocks are hitting all-time-highs every day, it is difficult to find quality companies that are not overvalued.

As a result, I was able to purchase shares in the following dividend paying companies in November:

Philip Morris International Inc. (PM), through its subsidiaries, manufactures and sells cigarettes and other tobacco products. The company has consistently raised dividends since being spun off from parents Altria Group (MO) in 2008. Over the past 5 years, PMI has managed to boost distributions by 13%/year. The company is really cheap at 16.20 times earnings and yields 4.40%. This is my second largest holding, which is why it does not make sense from a diversification standpoint to keep adding money there for me. Check my analysis of Philip Morris International.

General Mills, Inc. (GIS) produces and markets branded consumer foods in the United States and internationally. I initiated a small position in the stock. This dividend achiever has raised distributions for 10 years in a row. Over the past decade, General Mills has managed to boost dividends by 8.70%/year. The company is selling for 17.40 times forward earnings, and yields 3%. Check my analysis of General Mills.

Target Corporation (TGT) operates general merchandise stores in the United States. This dividend champion has raised distributions for 46 consecutive years in a row. Over the past decade, Target has managed to boost dividends by 18.60%/year. The company is selling for 17.20 times earnings and yields 2.70%. The big opportunity behind the company is international expansion, which could reward shareholders immensely, if it is done right. Check my analysis of Target.

Exxon Mobil Corporation (XOM) engages in the exploration and production of crude oil and natural gas, and manufacture of petroleum products. This dividend champion has raised distributions for 31 years in a row. Over the past decade, Exxon Mobil has managed to raise dividends by 9%/year, and has also managed to repurchase stock consistently for decades. Currently, the stock is trading at 12.25 times earnings and yields 2.70%. The stock popped on news Warren Buffett initiated a large position in it, which is why adding to Exxon on dips might be a good strategy. Check my analysis of Exxon Mobil.

The Toronto-Dominion Bank (TD), together with its subsidiaries, provides financial and banking services in North America and internationally. The stock is selling for 13 times earnings and yields 3.60%. The company started raising dividends in 2011, after freezing them in 2008.

Royal Bank of Canada (RY), a diversified financial service company, provides personal and commercial banking, wealth management, insurance, corporate and investment banking, and transaction processing services worldwide. The stock is selling for 12.10 times earnings and yields 3.90%. The company started raising dividends in 2011, after freezing them in 2007.

Canadian Imperial Bank of Commerce (CM) provides various financial products and services in Canada and internationally. The stock is selling for 10.20 times earnings and yields 4.30%. The company started raising dividends in 2011, after freezing them in 2007.

The Bank of Nova Scotia (BNS), together with its subsidiaries, provides various personal, commercial, corporate, and investment banking services in Canada and internationally. The stock is selling for 12 times earnings and yields 3.90%. The company started raising dividends in 2011, after freezing them in 2008.

Bank of Montreal (BMO), together with its subsidiaries, provides various retail banking, wealth management, and investment banking products and services in North America and internationally. The stock is selling for 11 times earnings and yields 4%. The company started raising dividends in 2013, after freezing them in 2007.

Overall, I am very bullish on Canadian banks for the very long term. None of the five largest Canadian banks cut dividends during the financial crisis, although they did freeze them for a few years. I think that the Canadian economy is in a unique position to deliver population growth, economic growth, that would trickle down to bolster long-term earnings for the largest banks in the country. This is a bet that Canada in 50 years will be very prosperous, which would trickle down to huge amount of rising dividends from those banks. In addition, while Canadian dividends face a 15% withholding for taxable accounts, there is no withholding in retirement accounts such as Roth IRA's. I plan on writing an article specifically outlining my thesis behind a core long-term holding of these five Canadian banks. Please stay tuned.

UPDATE 2/5/2014 : Sharebuilder is still withholding Canadian taxes on dividends, despite the fact that it is in a ROTH IRA. They seemed unwilling to accommodate my needs as a client, which is why I would not recommend them for buying Canadian dividend paying stocks in tax-deferred accounts.

With this, my allocations for 2013 Roth IRA are complete. I would wait to make my 2014 Roth IRA, until I make my SEP IRA contributions in the first quarter of 2014. Given the fact that I am trying to put away as much as possible in tax-deferred accounts, ( 401K, Sep and Roth IRA’s), I am not going to be able to make as many investments in taxable accounts as before. Therefore, my dividend income would grow merely as a result of organic dividend increases and dividend reinvestment. I expect this to lead to a 10% annual increase in dividends for the next five years. Let’s see if this can be done.

Full Disclosure: Long all companies mentioned in this article

Relevant Articles:

- Check the Complete Article Archive
- Why Warren Buffett purchased Exxon Mobil stock?
- Roth IRA’s for Dividend Investors
- Six things I learned from the financial crisis
- My Retirement Strategy for Tax-Free Income

These Books Shaped My Investing Strategy

My journey to becoming a dividend growth investor was a very long and arduous one. I have been following the stock market for years, but didn’t really gain an understanding of it, until a few years ago. The following books helped me to learn about investing from people who are practicing it and are successful at it. I then used the lessons from these books to craft my own dividend growth strategy, that is unique to my investment goals and objectives of living off dividends in retirement. The books that shaped me as an investor include ( in no particular order):

Stocks for the Long Run : The Definitive Guide to Financial Market Returns and Long-Term Investment Strategies, by Prof Jeremy Siegel

The Ultimate Dividend Playbook: Income, Insight and Independence for Today's Investor, by Josh Peters

The Dividend Rich Investor: Building Wealth With High-Quality, Dividend-Paying Stocks, by Joseph Tigue

The Single Best Investment: Creating Wealth with Dividend Growth by Lowell Miller

One Up On Wall Street : How To Use What You Already Know To Make Money In The Market

Beating the Street, by Peter Lynch

Stop Working : Here's How You Can!: Using the Strategy of Canada's Youngest Retiree, by Derek Foster (Check my review of the book)

The Snowball: Warren Buffett and the Business of Life, by Alice Schroeder

Common Stocks and Uncommon Profits (Revised Edition), by Philip Fisher

The Intelligent Investor: A Book of Practical Counsel by Graham, Benjamin

Damn Right! Behind the Scenes with Berkshire Hathaway Billionaire Charlie Munger, by Janet Lowe

In the future, I plan on posting my reviews of these books to my site. Please check the post as it would likely expand over time, and would also include links to my book reviews.

Personal Finance Focused Books

Cashing in on the American Dream: How to Retire at 35, by Paul Terhorst

Rich Dad Poor Dad, by Robert Kiyosaki

Your Money or Your Life: Transforming Your Relationship with Money and Achieving Financial Independence, by Joe Dominguez

In addition, I would also encourage you to check the Warren Buffett investing resource page, which includes links to his shareholder and partner letters, plus notes from Berkshire’s shareholder meetings.