V.F. Corporation (VFC) Dividend Stock Analysis

V.F. Corporation (VFC) designs and manufactures, or sources from independent contractors various apparel and footwear products primarily in the United States and Europe. This dividend champion has paid dividends since 1941, and has been able to boost them for 40 years in a row.

The company’s last dividend increase was in October 2012 when the Board of Directors approved a 20.80% increase to 87 cents/share. The company’s peer group includes Coach (COH), Ralph Lauren (RL) and PVH Corp (PVH).

Over the past decade this dividend growth stock has delivered an annualized total return of 18.70% to its shareholders.

The company has managed to deliver an 10.50% average increase in annual EPS since 2002. Analysts expect VF Corp to earn $9.54 per share in 2012 and $10.99 per share in 2013. In comparison, the company earned $7.98/share in 2011.

The company has transformed itself into a designer and marketer of casual lifestyle brands for the US population. The company focuses on its Outdoor & Action sports, Sportswear and Contemporary brands lifestyle businesses, as rhey are projected to reach 60% of sales by 2015. Increasingly, I see many people wearing jackets with the “North Face” logo, either at work or in the streets. In 2011, the company outlined in its strategy the goal to generate $5 billion in additional sales and $5 in additional earnings per share by 2015, from 2010 levels. Over the near term, profits are going to come from increase I profit margins as denim costs decrease. Another growth factor could be expansion into international markets, as well as strategic shifting of focus to more profitable brands. The company expects to grow international sales by 15%/year, until they reach 40% of total sales. The company has a history of making acquisitions work, as evidenced by Vans and North Face deals in the early 2000s. The deal for Timberland brand is expected to be accretive to earnings as well. The company delivers a quality product at an attractive price point for consumers.

Another factor that could contribute to revenue growth is increase in the direct to consumer channels of sales. This will be achieved by increasing number of retail stores in US and Internationally as well as through online sales.

The return on equity has decreased from 22% in 2002 to 12.50% by 2009. Since then, it has increased back up to 21.20% in 2011. I generally want to see at least a stable return on equity over time.

The annual dividend payment has increased by 10.90% per year over the past decade, which is lower than the growth in EPS.

An 11% growth in distributions translates into the dividend payment doubling every six and a half years on average. If we look at historical data, going as far back as 1988, one would notice that the company has actually managed to double distributions every eight years on average.

The dividend payout ratio has increased from 30% in 2002 to 57% in 2009, before decreasing to 33% by 2011. 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 VF Corp is attractively valued at 16.50 times earnings and has a sustainable distribution. However, given the low yield of 2.30%, I would consider initiating a position in the stock on dips below $140.

Full Disclosure: None

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My Dividend Growth Stock Wish List

In a previous article I outlined three basic types of dividend growth stocks. One group of stocks included companies which are rapidly growing earnings through expansion. This could be through organic growth, acquisitions or through a combination of both. Most of these enterprises tend to reinvest a large portion of their earnings back into the business, which helps them to further generate higher profits. As a result, these companies tend to yield less than the average yield for S&P 500. In addition to that, because of their strong earnings growth, investors typically bid up these shares and they trade at rich valuations.

During recession however, investors start discounting future growth and indiscriminately start selling stocks off. This typically is the best time to purchase quality dividend growth stocks at attractive valuations. The tricky part is determining whether the long-term growth picture for the company is still intact. If investors manage to purchase these shares at attractive valuations, they stand a strong chance of generating market beating total returns as well as double or even triple digit yields on cost.

For example, investors who purchased $1,000 worth of shares of Wal-Mart Stores (WMT) at the end of 1984, and spent distributions each quarter, would be generating $1,321/year in dividends. By the end of 1984, Wal-Mart Stores had managed to boost dividends for ten consecutive years.

The companies on my wish list include:

Casey’s General Stores, Inc. (CASY), together with its subsidiaries, operates convenience stores under the Casey’s General Store, HandiMart, and Just Diesel names in 11 Midwestern states, primarily Iowa, Missouri, and Illinois. The company has raised dividends for 13 years in a row. Over the past decade, it has managed to boost distributions by 20.20%/year. Earnings per share are expected to grow by 11.50%/year over the next five years. The company trades at 18.30 times earnings and yields 1.20%. (analysis)

Family Dollar Stores, Inc. (FDO) operates a chain of self-service retail discount stores primarily for low and middle income consumers in the United States. The company has raised dividends for 36 years in a row. Over the past decade, it has managed to boost distributions by 12.70%/year. Earnings per share are expected to grow by 11%/year over the next five years. The company trades at 15.70 times earnings and yields 1.50%. (analysis)


YUM! Brands, Inc. (YUM), together with its subsidiaries, operates as a quick service restaurant company in the United States and internationally. The company has raised dividends for 9 years in a row. Over the past five years, it has managed to boost distributions by 17.80%/year. Earnings per share are expected to grow by 13.60%/year over the next five years. The company trades at 19.70 times earnings and yields 2%

Visa Inc. (V), a payments technology company, engages in the operation of retail electronic payments network worldwide. The company has raised dividends for 5 years in a row. Earnings per share are expected to grow by 18.30%/year over the next five years. The company trades at 51 times earnings and yields 0.80%.


These companies have shown solid earnings and dividend growth over the past decade. In addition, their earnings prospects for the foreseeable future look bright. This has made shares perennially overvalued, and thus makes it difficult to add to existing positions. If the market were to decline, it could probably bring these companies down to my value territory. If any of these companies stumbles in the short-term however, their stock prices could also fall to value territory. However, if any of these companies manages to raise dividends while the stock price remains flat or declines, they would be in buy territory for me. Buy territory would occur when stocks yields above 2.50% and trade at less than 20 times earnings.

Full disclosure: Long FDO, CASY, YUM, V, WMT

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Spring Cleaning My Dividend Portfolio

Most articles on dividend investing focus on buying the best dividend stocks, reinvesting dividends and living happily ever after. They dazzle you with elaborate analysis and entry criteria, yet spend little in analyzing factors that cause one to sell.

In a long term dividend portfolio, I expect that there will be lots of change occurring over time in both company’s business prospects and portfolio composition triggered by the business environment changes. As a result even if you picked the best stock in the world at the best price, you might still need to consider selling for one reason or another.

I have tried addressing this issue in previous articles, where I identified three reasons where I will make me sell. The three reasons include dividend cuts, company being bought out for cash or position being too high relative to other portfolio components. The only automatic rule is selling after a dividend cut or if I get bought out for cash when a stock is acquired. In the process of my portfolio reviews, I have uncovered another guideline that would recommend selling a certain type of companies on a stock per stock basis.

In the past year, I have sold three companies, which have kept growing their distributions. I then replaced these with companies which had better earnings and growth prospects.

In the middle of 2012, I replaced most of my Con Edison (ED) shares with units of ONEOK Partners (OKS). Con Edison was growing earnings and distributions very slowly, and looked overvalued based on the low future expected growth in earnings. ONEOK Partners on the other hand had much better growth prospects and a higher yield. The more time I spent researching the industry, the more I view utilities as poor long-term dividend growth stocks with their tendency to pay high current yields but to cut distributions every once in a while.

At the very end of 2012, I sold my position in Exxon-Mobil (XOM) and purchased shares in ConocoPhillips (COP). Exxon-Mobil has one of the stingiest dividend payouts in the oil and gas industry, and it tends to prefer stock buybacks to cash distributions. ConocoPhillips on the other hand has a better payout, and looked like a better value. I wanted to maintain my energy exposure, which is why I bought shares of ConocoPhillips.

The third trade I recently made was selling my position in Cincinnati Financial (CINF) and purchasing shares in five Canadian banks. These banks included Toronto-Dominion Bank (TD), Bank of Montreal (BMO), Bank of Nova Scotia (BNS), Canadian Imperial Bank of Commerce (CM) and Royal Bank of Canada (RY). Cincinnati Financial had raised distributions at a very slow rate over the past five years, had a high dividend payout ratio and earnings were not expected to grow by much in the foreseeable future. The yield was high due to indiscriminate yield chasing by yield hungry investors, and the P/E ratio is close to 18. With the funds received, I purchased the five Canadian banks mentioned above in order to maintain exposure to financials in my portfolio. In addition, they had slightly higher yields on average, and better earnings and growth prospects than Cincinnati Financial.

Another trade I have made includes replacing Universal (UVV) with Phillip Morris International (PM) stock. Both companies have similar yields, although Universal has a lower P/E ratio relative to PMI. However, I view PMI’s growth prospects to be much brighter than those for Universal. In my last analysis of Universal, I  realized that the company might experience declines in earnings going forward.

In general, I reviewed each company’s prospects on a company per company basis before making a decision to sell. I viewed low growth in earnings, dividends and poor near-term growth prospects as negatives. I then tried to look for a replacement in the same sector, or a close substitute.

Full Disclosure: Long PM, BMO, CM, BNS, RY, TD, COP, OKS, ED

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Sixteen Great Dividend Champions on Sale

My favorite list of quality dividend stocks that I use in my research is the list of dividend champions updated every month by David Fish. It is the most comprehensive list of US dividend growth stocks available. I also like David’s additional lists of the Contenders, while the Challengers provide another list of upcoming dividend growth stars. Without these lists, I would have been stuck in the dark days of following the Dividend Aristocrats and the Dividend Achievers indices, which exclude stocks based on stock market volume or the fact that they are not included in the S&P 1500 index.

I use the list to routinely scour the market for attractively valued stocks for further research. Every month, I run the following parameters:

1) At least 25 years of consecutive dividend increases

Only companies which have a solid business that generates extra cash flows are usually able to boost dividends for 25 years in a row. A company that cannot boost profitability will be unable to raise dividends over time. This does not ensure future success, but narrows the list for further research down significantly.

2) Price/Earnings ratio below 20

Even the best dividend stocks are not worth owning at any price. Investors who purchased Wal-Mart (WMT) in the year 2000 did not earn much in returns over the past 12 years, except for the dividend checks they cashed along the way. The business boomed since then, but because the price investors paid was expensive, stocks prices remained flat.

3) Dividend Yield above 2.50%

I like to purchase stocks that pay me at least a decent amount of dividend yield to hold on to their stock. If the dividend doubles over a decade for example, then the income I receive will be noticeable. If a company didn't pay a very high dividend and yielded only 1%, then dividends would have to increase substantially in order for me to generate a decent amount of dividend income. In addition, when stock prices fall in the next recession, a 2.50% yielder would provide a higher level of comfort than a 1% yielder.

4) Dividend Payout Ratio below 60%

I try to avoid companies paying more than 60% of earnings out in the form of dividends for safety. Earnings fluctuate every year, which is why a well-covered dividend can be sustained even in the event of a recession that leads to a temporary dip in profitability.

5) Ten year annual dividend growth rate above 6%

I usually look for a company that grows earnings and dividends at roughly the same percentages. The 6% dividend growth rate is slightly higher than the 5.50% dividend growth rate in the Dow Jones Index between 1920 – 2005 that I observed in this analysis. However, the premium is warranted because the companies I focus on have managed dividend policies.

The list I came up with, after applying the five criteria on the dividend champions group includes:

(The screen was run last week, and prices and information above reflect that)

I use this list only as a starting point for further research. Before investing your money in a business, you need to gain a very good understanding of it. One needs to understand how the business makes money and whether it has any competitive advantages such as recognizable brand names, which can translate into strong pricing power. In addition, investors also need to look at trends in revenues, earnings and dividends, and then try to assess whether profits can increase over time. A company that targets earnings growth should also be analyzed to see if it has a plan to achieve this.

Full Disclosure: Long AFL, APD, CLX, KO, MCD, PEP, SYY, WAG, WMT

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Stryker Corporation (SYK) Dividend Stock Analysis

Stryker Corporation (SYK), together with its subsidiaries, operates as a medical technology company. The company operates in three segments: Reconstructive, MedSurg, and Neurotechnology and Spine. The company is a member of the dividend achievers index, and has been able to boost distributions for 20 years in a row.

The company’s last dividend increase was in December 2012 when the Board of Directors approved a 24.70% increase to 26.50 cents/share. The company’s peer group includes Johnson & Johnson (JNJ), Zimmer Holdings (ZMH) and Smith & Nephew (SNN).

Over the past decade this dividend growth stock has delivered an annualized total return of 6% to its shareholders.

The company has managed to deliver an 11% average increase in annual EPS since 2002. Analysts expect Stryker to earn $4.04 per share in 2012 and $4.30 per share in 2013. In comparison, the company earned $3.45/share in 2011.

The medical device sales tax that will be introduced in 2013 might reduce near term earnings. Softer hospital budgets might also be unfavorable to earnings growth. The market for US reconstructive sales is expected to recover, thus boosting Stryker’s revenues, and hopefully offsetting any softness from Europe. The company’s future growth could come from acquisitions as well as new product launches. It spends 17%/year in R&D expenses per year in an effort to maintain market share in an increasingly competitive marketplace.

The return on equity has decreased from 27% in 2002 to 18% by 2012. I generally want to see at least a stable return on equity over time.

The annual dividend payment has increased by 33.50% per year over the past decade, which is higher than the growth in EPS.

A 33% growth in distributions translates into the dividend payment doubling every two years on average. If we look at historical data, going as far back as 1993, one would notice that the company has actually managed to double distributions every three years on average.

The dividend payout ratio has increased from 6% in 2002 to 21% in 2011. 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 Stryker is attractively valued at 14.70 times earnings and has a sustainable distribution. However, given the low yield of 2%, I would consider initiating a position in the stock on dips below $43.

Full Disclosure: Long JNJ

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