Successful dividend investing is an outcome from following a sound investment strategy and having a small dose of luck. Another very important factor however is investor psychology. If investors have incorporated unrealistic objectives when they set up their strategy, they might end up setting themselves up for failure.
One example of unrealistic expectations that quite a few dividend investors have is the hunger for high yield stocks. These investors are searching for companies yielding 6 percent or more. The typical dividend growth stock with sustainable distributions and with reasonable chances of continuing future dividend increases yields anywhere between 2% - 4%. The reason why these investors need a high yielding stock is most probably because of inadequate retirement savings. An investor with a $500,000 nest egg can easily earn $15,000 - $20,000 from a diversified dividend portfolio today, which would boost distributions above the rate of inflation for decades to come. However, if our investor requires at least $30,000 in annual distributions from their income portfolio, they have only two options left. The first one is to come up with an extra $300,000 or to focus on higher yielding stocks in order to address the income shortfall.
This increase in dividend yield however, carries with it a disproportionate increase in risk to the principal and income.
The issue with most high yielding stocks is that they are typically concentrated in just a handful of sectors. Currently, it is possible to easily find stocks yielding above five to six percent in master limited partnerships, real estate investment trusts, some utilities, tobacco, and telecom stocks to name a few sectors. This exposes the investor to sector risk, as it leaves the portfolio undiversified.
The second issue is that most of these companies already have very high distribution payout ratios. As a result, they cannot afford to boost dividends above the rate of inflation. This inability to boost dividends, leaves retirees exposes to the decreases in purchasing power of their income over time. Over a typical 30 year retirement, this could mean consistently downgrading your lifestyle.
Third, because these companies have very high distribution payout ratios, they have a higher chance of dividend cuts than your regular dividend stocks like Procter & Gamble (PG) or Coca-Cola (KO). When a company with a high payout ratio experiences declines in earnings, it would be much more likely to cut distributions than a company with a low dividend payout ratio.
Fourth, most companies that pay high dividends can lose principal much faster if the distributions are cut or eliminated. For example, when Centurylink (CTL) cut distributions in 2013, its stock fell by more than 30% in a single day. When American Capital (ACAS) eliminated dividends in 2008, its stock fell by 40% on the day and was down 90% within a couple of months.
Fifth, the concentrated portfolio of high yielding stocks could be more vulnerable to certain types of risks such as a rise in interest rates, than your normal dividend growth portfolio. The low interest environment has led plenty of yield hungry investors bid up income stocks to unreasonably high valuations. When interest rates start inching up, these companies would likely drop in price. In addition, because many of these high yielding companies rely on continuous debt and equity offerings to grow or maintain their asset base, this increase in cost of capital would increase the risks of dividend cuts.
Unfortunately, investors cannot expect to construct unrealistic portfolios while having only their own goals and objectives in mind. Instead, investors need to realistically focus on what the market offers right now, and make the best out of it. Investors need to focus on building a diversified income portfolio, which grows dividend income every year, includes companies with strong earnings growth potential that have been purchased at attractive valuations. Each of these investments needs to be analyzed in detail, with its past record and prospects researched very well. Investors should not tell the market what they want from it, but what market can offer them at the moment. Imposing your will on market will likely lead to disappointment down the road.
Full Disclosure: Long PG, KO
Relevant Articles:
- How to be a successful dividend investor
- How to read my stock analysis reports
- How to define risk in dividend paying stocks?
- The Tradeoff between Dividend Yield and Dividend Growth
- The importance of yield on cost
Wednesday, May 7, 2014
Tuesday, May 6, 2014
Dividend Investing During the Financial Crisis
While stocks are going higher every day, it looks like there is not end in sight for prosperity. My net worth is in record territory, and so is my dividend income. However, I believe that somewhere down the road, we are going to experience another recession. Since the stock market is usually in a downward trend by the time the economy gets into a recession, this time of economic contraction would mean lower stock prices. As a result, I think that reviewing the lessons from the financial crisis will be helpful. This is in order to avoid panicking and doing something dumb.
The financial crisis of 2007 – 2009 was one of the darkest periods in US economic history. Millions of people lost their jobs and homes. Investors saw decrease in their net worths, as stock prices plunged. Even the relatively safe world of dividend investing was turned upside down for many. This might sound like a heresy to many fellow dividend growth investors, but there were a lot of solid companies that cut dividends during the worst of times. As a result, even investors who didn’t care about stock prices, started caring as they noticed decreased dividend checks due to dividend cuts.
New investors are often attracted to dividend investing when they hear stories about how someone with just $10,000 invested in Wal-Mart (WMT), McDonald’s (MCD) or Johnson & Johnson (JNJ) 20 – 30 years ago would be earning a lot of money in dividends, while sitting on a six-figure portfolio. In reality, not all companies that you will purchase over the span of your investing career will do as well as those three companies. On average however, if you follow a common sense dividend investing strategy that focuses on diversification, purchasing at attractive valuations, selective dividend reinvestment, and thorough analysis of companies, you should do just fine over time. The thorough analysis is important to determine if they have a chance of continuing streak of increases in the future.
Before the financial crisis, many of the dividend growth stocks you would find in the dividend champions or dividend aristocrats lists were financials. Companies like Bank of America (BAC) had been able to boost distributions at high rates, while also paying high current yields. It was all great until the start of the financial crisis. Investors who held on through the financial crisis saw income decimated. However, investors who held financials as part of a diversified portfolio that had allocation to other sectors likely saw very little in terms of dividend income decreases.
I went through the list of dividend champions for 2007 and 2008, and noted that cuts were not as extreme as I through they were:
Out of 139 Dividend Champions at the end of 2007, 11 cut dividends in 2008. Not all was bleak in 2008 however as three other companies were eliminated from the index, because they were acquired.
Out of 128 Dividend Champions at the end of 2008, 22 cut dividends in 2009. There were two companies which were acquired at nice premiums and six companies which simply froze dividends.
Unfortunately, I started my dividend growth investing in 2008, right when I launched my site. As a result, I did not invest in many financial companies other than American Capital Strategies (ACAS), State Street (STT), General Electric (GE), Toronto-Dominion Bank (TD) and M&T Bank (MTB). I would assume that a lot of income investors owned financial stocks such as Citigroup (C), Fifth Third Bank (FITB), Keybank (KEY), Synovus Financial (SNV) and Bank of America (BAC) prior to the recession. Unfortunately, most of the dividend investors I end up talking to today seem to have become converts after the financial crisis. The ones that claim to have been dividend investors before the crisis often mention only their success stories, but fail to mention their mistakes. It is usually through mistakes that smart investors learn, and adapt, before they succeed in the game of investing. I would be very interested to learn from the experiences of investors who had become dividend growth investors prior to 2006 for example.
Learning from the lessons of the financial crisis will prevent investors from losing money, sleep and sanity during the next economic correction. I learned some of the best lessons because of the mistakes I made. I was lucky in that I always tried to keep a diversified dividend portfolio. I had approximately 30 stocks by late 2008. My position in American Capital Strategies (ACAS) was mostly a current yield play. I did consider some of the banks such as Bank of America (BAC) and US Bancorp (USB), but they didn’t look appealing, despite the high yields. I did have the habit however of purchasing stocks simply based on the quantitative factors such as rising earnings, dividends and current valuation. I focused on the dividend aristocrats list, looked for streaks of consecutive dividend increases and bought the stock without reading the annual report or much in terms of any external analysis. I have since been doing a more thorough research by going through annual reports, presentations, analyst reports, analyst estimates and trying to guesstimate whether a company will last for the next 10 - 20 years and raise dividends along the way. I am also becoming more patient in acquiring stock, as I focus more on entry price than before. I am fine missing out on a dividend stock that doesn’t hit my entry criteria price, because I know I can deploy my cash in other promising stocks which are cheaper instead. I am also careful in not being mesmerized by high current yields.
Many investors know that they should not panic, even if the stocks they own fall by 50% in value, as long as fundamentals are intact and dividends are maintained and raised. In reality, investors are humans that are subject to normal emotions such as fear and greed. Even if you were emotionally prepared for a decline in your portfolio, while dividends keep getting paid, it is easy to panic and sell everything in order to stop the bleeding. Holding on to companies that remain fundamentally sound is the right course of action, although it is a difficult decision when your stock is down 50%. There is some discussion however on whether one should sell after a dividend cut or not.
Investors who held on and didn’t sell after the dividend cuts for Citigroup and Bank of America learned an expensive lesson. However, any time I read an article on why dividend cuts are not the time to sell a dividend stock, I learn about General Electric (GE) and Wells Fargo (WFC) in 2009. In hindsight buying GE in 2009 seems like a no-brainer decision. However, at the time it looked as if General Electric could go under, as the company was facing a cash crunch. As an investor, my goal is not to gamble, which is why I am perfectly fine missing out on a 200% gain, if that means I am not going to lose 100% the next time I invest. If you still disagree with my thought process, just ask the investors who bought Bank of America or Citigroup after the first dividend cuts in 2008 how their investments are doing.
I personally felt like the world was indeed coming to an end, although I kept adding the money I could afford to set aside every month to stocks. What made me fine was the fact that I had over two years’ worth of living expenses saved up in high yielding CD’s and a high yielding checking account. While buying stocks during a recession is the best time to deploy cash, one should also be realistic about the limitations of their own personal situation. During recessions, it is much more likely for a person to lose their job, and have to liquidate assets in order to survive. If you lose your job, you would not be able to find the cash to deploy at attractive valuations. Having cash come in every month in the form of dividends and interest income does alleviate some of the pain however. I was also lucky, because dividend growth investing provides you with an advantage in the markets. The advantage is that most dividend growth stocks are mature companies with stable cash flows that allow them to grow while paying a consistently growing distribution to shareholders. Those cash dividends are particularly valuable during a crisis, since it provides investors with dry powder to deploy in quality companies selling at ridiculously discounted prices.
These companies rarely get into trouble, unless there is a major change such as the internet was for newspapers and mail industry. When such companies get into trouble, the last thing they do it cut dividends. It is very rare that dividend growth companies from all industries cut dividends at the same time. During the crisis, the cuts were concentrated mostly in the financial sector. Companies like Johnson & Johnson (JNJ), Chevron (CVX) and PepsiCo (PEP) kept raising dividends. My goal as an investor is to minimize losses, while maximizing profits. I am doing this by incorporating the lessons I learned over the past six years into my strategy, and also thinking about risks of unknown in terms of probabilities. By having a plan in place, and being prepared for different scenarios, I believe that my foundation will withstand the next several cycles of boom and bust.
Full Disclosure: Long WMT, MCD, JNJ, PEP, CVX, WFC
Relevant Articles:
- Should income investors give General Electric a second chance?
- The Dividend Edge
- The importance of yield on cost
- When to sell your dividend stocks?
- Is the End of Dividend Investing Coming?
The financial crisis of 2007 – 2009 was one of the darkest periods in US economic history. Millions of people lost their jobs and homes. Investors saw decrease in their net worths, as stock prices plunged. Even the relatively safe world of dividend investing was turned upside down for many. This might sound like a heresy to many fellow dividend growth investors, but there were a lot of solid companies that cut dividends during the worst of times. As a result, even investors who didn’t care about stock prices, started caring as they noticed decreased dividend checks due to dividend cuts.
New investors are often attracted to dividend investing when they hear stories about how someone with just $10,000 invested in Wal-Mart (WMT), McDonald’s (MCD) or Johnson & Johnson (JNJ) 20 – 30 years ago would be earning a lot of money in dividends, while sitting on a six-figure portfolio. In reality, not all companies that you will purchase over the span of your investing career will do as well as those three companies. On average however, if you follow a common sense dividend investing strategy that focuses on diversification, purchasing at attractive valuations, selective dividend reinvestment, and thorough analysis of companies, you should do just fine over time. The thorough analysis is important to determine if they have a chance of continuing streak of increases in the future.
Before the financial crisis, many of the dividend growth stocks you would find in the dividend champions or dividend aristocrats lists were financials. Companies like Bank of America (BAC) had been able to boost distributions at high rates, while also paying high current yields. It was all great until the start of the financial crisis. Investors who held on through the financial crisis saw income decimated. However, investors who held financials as part of a diversified portfolio that had allocation to other sectors likely saw very little in terms of dividend income decreases.
I went through the list of dividend champions for 2007 and 2008, and noted that cuts were not as extreme as I through they were:
Out of 139 Dividend Champions at the end of 2007, 11 cut dividends in 2008. Not all was bleak in 2008 however as three other companies were eliminated from the index, because they were acquired.
Out of 128 Dividend Champions at the end of 2008, 22 cut dividends in 2009. There were two companies which were acquired at nice premiums and six companies which simply froze dividends.
Unfortunately, I started my dividend growth investing in 2008, right when I launched my site. As a result, I did not invest in many financial companies other than American Capital Strategies (ACAS), State Street (STT), General Electric (GE), Toronto-Dominion Bank (TD) and M&T Bank (MTB). I would assume that a lot of income investors owned financial stocks such as Citigroup (C), Fifth Third Bank (FITB), Keybank (KEY), Synovus Financial (SNV) and Bank of America (BAC) prior to the recession. Unfortunately, most of the dividend investors I end up talking to today seem to have become converts after the financial crisis. The ones that claim to have been dividend investors before the crisis often mention only their success stories, but fail to mention their mistakes. It is usually through mistakes that smart investors learn, and adapt, before they succeed in the game of investing. I would be very interested to learn from the experiences of investors who had become dividend growth investors prior to 2006 for example.
Learning from the lessons of the financial crisis will prevent investors from losing money, sleep and sanity during the next economic correction. I learned some of the best lessons because of the mistakes I made. I was lucky in that I always tried to keep a diversified dividend portfolio. I had approximately 30 stocks by late 2008. My position in American Capital Strategies (ACAS) was mostly a current yield play. I did consider some of the banks such as Bank of America (BAC) and US Bancorp (USB), but they didn’t look appealing, despite the high yields. I did have the habit however of purchasing stocks simply based on the quantitative factors such as rising earnings, dividends and current valuation. I focused on the dividend aristocrats list, looked for streaks of consecutive dividend increases and bought the stock without reading the annual report or much in terms of any external analysis. I have since been doing a more thorough research by going through annual reports, presentations, analyst reports, analyst estimates and trying to guesstimate whether a company will last for the next 10 - 20 years and raise dividends along the way. I am also becoming more patient in acquiring stock, as I focus more on entry price than before. I am fine missing out on a dividend stock that doesn’t hit my entry criteria price, because I know I can deploy my cash in other promising stocks which are cheaper instead. I am also careful in not being mesmerized by high current yields.
Many investors know that they should not panic, even if the stocks they own fall by 50% in value, as long as fundamentals are intact and dividends are maintained and raised. In reality, investors are humans that are subject to normal emotions such as fear and greed. Even if you were emotionally prepared for a decline in your portfolio, while dividends keep getting paid, it is easy to panic and sell everything in order to stop the bleeding. Holding on to companies that remain fundamentally sound is the right course of action, although it is a difficult decision when your stock is down 50%. There is some discussion however on whether one should sell after a dividend cut or not.
Investors who held on and didn’t sell after the dividend cuts for Citigroup and Bank of America learned an expensive lesson. However, any time I read an article on why dividend cuts are not the time to sell a dividend stock, I learn about General Electric (GE) and Wells Fargo (WFC) in 2009. In hindsight buying GE in 2009 seems like a no-brainer decision. However, at the time it looked as if General Electric could go under, as the company was facing a cash crunch. As an investor, my goal is not to gamble, which is why I am perfectly fine missing out on a 200% gain, if that means I am not going to lose 100% the next time I invest. If you still disagree with my thought process, just ask the investors who bought Bank of America or Citigroup after the first dividend cuts in 2008 how their investments are doing.
I personally felt like the world was indeed coming to an end, although I kept adding the money I could afford to set aside every month to stocks. What made me fine was the fact that I had over two years’ worth of living expenses saved up in high yielding CD’s and a high yielding checking account. While buying stocks during a recession is the best time to deploy cash, one should also be realistic about the limitations of their own personal situation. During recessions, it is much more likely for a person to lose their job, and have to liquidate assets in order to survive. If you lose your job, you would not be able to find the cash to deploy at attractive valuations. Having cash come in every month in the form of dividends and interest income does alleviate some of the pain however. I was also lucky, because dividend growth investing provides you with an advantage in the markets. The advantage is that most dividend growth stocks are mature companies with stable cash flows that allow them to grow while paying a consistently growing distribution to shareholders. Those cash dividends are particularly valuable during a crisis, since it provides investors with dry powder to deploy in quality companies selling at ridiculously discounted prices.
These companies rarely get into trouble, unless there is a major change such as the internet was for newspapers and mail industry. When such companies get into trouble, the last thing they do it cut dividends. It is very rare that dividend growth companies from all industries cut dividends at the same time. During the crisis, the cuts were concentrated mostly in the financial sector. Companies like Johnson & Johnson (JNJ), Chevron (CVX) and PepsiCo (PEP) kept raising dividends. My goal as an investor is to minimize losses, while maximizing profits. I am doing this by incorporating the lessons I learned over the past six years into my strategy, and also thinking about risks of unknown in terms of probabilities. By having a plan in place, and being prepared for different scenarios, I believe that my foundation will withstand the next several cycles of boom and bust.
Full Disclosure: Long WMT, MCD, JNJ, PEP, CVX, WFC
Relevant Articles:
- Should income investors give General Electric a second chance?
- The Dividend Edge
- The importance of yield on cost
- When to sell your dividend stocks?
- Is the End of Dividend Investing Coming?
Monday, May 5, 2014
Twelve Predictable Dividend Growth Stocks Raising Dividends
As part of my dividend monitoring process, I review the list of dividend increases every single week. This helps me check if any of my dividend payers have hiked distributions, and also the see other potential dividend growers for further research. This definitely helps me in my quest to find companies that have predictable earnings, which translate into a predictable rising stream of dividend payments over time. By taking a long-term approach to investing, I am only focusing my attention on those companies that have above average chances of delivering dividend growth for the next 15 – 20 years.
I tried to narrow list by excluding companies that yielded less than 2%, and which have managed to grow dividends by less than 3%/year.
Chevron Corporation (CVX), through its subsidiaries, is engaged in petroleum, chemicals, mining, power generation, and energy operations worldwide. The company raised its quarterly distributions by 7% to $1.07 /share. This dividend champion has raised distributions for 27 years in a row, and has a ten year distribution growth rate of 10.60%/year. Currently, Chevron sells for 11.20 times earnings and yields 3.40%. While I find the company attractively valued right now, I am overweight there, which is why any additions by me would be unlikely. Check my analysis of Chevron.
Exxon Mobil Corporation (XOM) explores and produces for crude oil and natural gas. The company raised its quarterly distributions by 9.50% to 63 cents/share. This dividend champion has raised distributions for 32 years in a row, and has a ten year distribution growth rate of 9.60%/year. Currently, Exxon Mobil sells for 13.80 times earnings and yields 2.70%. While I find Exxon-Mobil to be attractively valued today, I believe that other oil majors like Chevron are better values right now. Check my analysis of Exxon-Mobil.
Ameriprise Financial, Inc. (AMP), through its subsidiaries, provides a range of financial products and services in the United States and internationally. The company raised its quarterly distributions by 11.50% to 58 cents /share. This dividend achiever has raised distributions for 10 years in a row, and has a five year distribution growth rate of 24.90%/year. Currently, Ameriprise Financial sells for 17.40 times earnings and yields 2.10%. I would consider adding to the stock on dips below $93. Check my analysis of Ameriprise Financial.
International Business Machines Corporation (IBM) provides information technology (IT) products and services worldwide. The company raised its quarterly distributions by 15.80% to $1.10 /share. This dividend achiever has raised distributions for 19 years in a row, and has a ten year distribution growth rate of 19.40%/year. Currently, IBM sells for 13.10 times earnings and yields 2.20%. I would consider adding to the stock on dips below $176. Check my analysis of IBM.
Alliance Holdings GP, L.P. (AHGP), through its subsidiaries, produces and markets coal primarily to utilities and industrial users in the United States. This MLP raised distributions to 84.75 cents/unit, which is an 11.20% raise over the same rate from this time last year. This general partner has raised distributions for 9 years in a row, and has a five year distribution growth rate of 18.60%/year. Currently, Alliance Holdings GP yields 5.20%. I would add it to my list for further research.
Alliance Resource Partners, L.P. (ARLP) is engaged in the production and marketing of coal primarily to utilities and industrial users in the United States. This master limited partnership raised quarterly distributions to $1.2225/unit, which is an 8.20% raise over the same rate from this time last year. This dividend achiever has raised distributions for 12 years in a row, and has a ten year distribution growth rate of 15.80%/year. Currently, Alliance Resource Partners yields 5.30%. I would add it to my list for further research.
DCP Midstream Partners, LP (DPM), together with its subsidiaries, owns, operates, acquires, and develops a diversified portfolio of midstream energy assets in the United States. This MLP raised distributions to 75.50 cents/unit, which is a 7.80% raise over the same rate from this time last year. This master limited partnership has raised distributions for 8 years in a row, and has a five year distribution growth rate of 3.60%/year. Currently, DCP Midstream Partners yields 5.60%. I would add it to my list for further research.
Energy Transfer Equity, L.P. (ETE), through its subsidiaries, provides diversified energy-related services in the Unites States. This MLP raised distributions to 35.875 cents/unit, which is an 11.20% raise over the same rate from this time last year. This general partner has raised distributions for 9 years in a row, and has a five year distribution growth rate of 6%/year. Currently, Energy Transfer Equity yields just 3.10%, which is rather low for a master limited partnership. I would add it to my list for further research.
AmeriGas Partners, L.P. (APU) operates as a retail and wholesale distributor of propane gas, and related equipment and supplies in the United States. This MLP raised distributions by 4.80% 88 cents/unit. This master limited partnership has raised distributions for 10 years in a row, and has a ten year distribution growth rate of 4.20%/year. Currently, AmeriGas Partners yields 7.60%. I would add it to my list for further research.
American Water Works Company, Inc. (AWK), through its subsidiaries, provides water and wastewater services in the United States and Canada. The company raised its quarterly distributions by 10.70% to 31 cents /share. This dividend payers has raised distributions for 7 years in a row, and has a five year distribution growth rate of 22.20%/year. Currently, American Water Works sells for 19.20 times forward earnings and yields 2.70%. I would consider adding the company to my list for further research.
UGI Corporation (UGI), through its subsidiaries, distributes, stores, transports, and markets energy products and related services in the United States and internationally. The company raised its quarterly distributions by 4.40% to 29.50 cents /share. This dividend champion has raised distributions for 27 years in a row, and has a ten year distribution growth rate of 6.70%/year. Currently, UGI Corporation sells for 18.50 times forward earnings and yields 2.50%. I would consider adding the company to my list for further research.
Cracker Barrel Old Country Store, Inc. (CBRL) develops and operates the Cracker Barrel Old Country Store concept in the United States. The company raised its quarterly distributions by 33.30% to $1/share. This dividend achiever has raised distributions for 12 years in a row, and has a ten year distribution growth rate of 36.70%/year. Currently, Cracker Barrel Old Country Store sells for 17 times forward earnings and yields 4.20%. I would consider adding the company to my list for further research.
I ended up excluding companies like Costco (COST), which raised dividends from 31 to 35.50, which marked 11th consecutive annual dividend increase, because they yielded 1.20%.
Again, this list is not a recommendation to buy or sell, but a group of companies for further research. Running a screen on a list of securities is just the first step in your quest of identifying promising dividend companies. The next step is researching each promising idea and deciding if it has a sustainable business model that can withstand various competitive pressures over the next 20 years. After that , one only has to wait for the right price, and select those investments that provide the most bang for their investment buck at the time. The last part is the most difficult one after buying, and it is to pretty much sit on your investments and do nothing.
Full Disclosure: Long XOM,CVX, AMP, IBM
Relevant Articles:
- Long Term Dividend Growth Investing
- How to read my weekly dividend increase reports
- Dividend Champions - The Best List for Dividend Investors
- Dividend Macro trends: The Baby Boomer Retirement Investment
- The importance of yield on cost
I tried to narrow list by excluding companies that yielded less than 2%, and which have managed to grow dividends by less than 3%/year.
Chevron Corporation (CVX), through its subsidiaries, is engaged in petroleum, chemicals, mining, power generation, and energy operations worldwide. The company raised its quarterly distributions by 7% to $1.07 /share. This dividend champion has raised distributions for 27 years in a row, and has a ten year distribution growth rate of 10.60%/year. Currently, Chevron sells for 11.20 times earnings and yields 3.40%. While I find the company attractively valued right now, I am overweight there, which is why any additions by me would be unlikely. Check my analysis of Chevron.
Exxon Mobil Corporation (XOM) explores and produces for crude oil and natural gas. The company raised its quarterly distributions by 9.50% to 63 cents/share. This dividend champion has raised distributions for 32 years in a row, and has a ten year distribution growth rate of 9.60%/year. Currently, Exxon Mobil sells for 13.80 times earnings and yields 2.70%. While I find Exxon-Mobil to be attractively valued today, I believe that other oil majors like Chevron are better values right now. Check my analysis of Exxon-Mobil.
Ameriprise Financial, Inc. (AMP), through its subsidiaries, provides a range of financial products and services in the United States and internationally. The company raised its quarterly distributions by 11.50% to 58 cents /share. This dividend achiever has raised distributions for 10 years in a row, and has a five year distribution growth rate of 24.90%/year. Currently, Ameriprise Financial sells for 17.40 times earnings and yields 2.10%. I would consider adding to the stock on dips below $93. Check my analysis of Ameriprise Financial.
International Business Machines Corporation (IBM) provides information technology (IT) products and services worldwide. The company raised its quarterly distributions by 15.80% to $1.10 /share. This dividend achiever has raised distributions for 19 years in a row, and has a ten year distribution growth rate of 19.40%/year. Currently, IBM sells for 13.10 times earnings and yields 2.20%. I would consider adding to the stock on dips below $176. Check my analysis of IBM.
Alliance Holdings GP, L.P. (AHGP), through its subsidiaries, produces and markets coal primarily to utilities and industrial users in the United States. This MLP raised distributions to 84.75 cents/unit, which is an 11.20% raise over the same rate from this time last year. This general partner has raised distributions for 9 years in a row, and has a five year distribution growth rate of 18.60%/year. Currently, Alliance Holdings GP yields 5.20%. I would add it to my list for further research.
Alliance Resource Partners, L.P. (ARLP) is engaged in the production and marketing of coal primarily to utilities and industrial users in the United States. This master limited partnership raised quarterly distributions to $1.2225/unit, which is an 8.20% raise over the same rate from this time last year. This dividend achiever has raised distributions for 12 years in a row, and has a ten year distribution growth rate of 15.80%/year. Currently, Alliance Resource Partners yields 5.30%. I would add it to my list for further research.
DCP Midstream Partners, LP (DPM), together with its subsidiaries, owns, operates, acquires, and develops a diversified portfolio of midstream energy assets in the United States. This MLP raised distributions to 75.50 cents/unit, which is a 7.80% raise over the same rate from this time last year. This master limited partnership has raised distributions for 8 years in a row, and has a five year distribution growth rate of 3.60%/year. Currently, DCP Midstream Partners yields 5.60%. I would add it to my list for further research.
Energy Transfer Equity, L.P. (ETE), through its subsidiaries, provides diversified energy-related services in the Unites States. This MLP raised distributions to 35.875 cents/unit, which is an 11.20% raise over the same rate from this time last year. This general partner has raised distributions for 9 years in a row, and has a five year distribution growth rate of 6%/year. Currently, Energy Transfer Equity yields just 3.10%, which is rather low for a master limited partnership. I would add it to my list for further research.
AmeriGas Partners, L.P. (APU) operates as a retail and wholesale distributor of propane gas, and related equipment and supplies in the United States. This MLP raised distributions by 4.80% 88 cents/unit. This master limited partnership has raised distributions for 10 years in a row, and has a ten year distribution growth rate of 4.20%/year. Currently, AmeriGas Partners yields 7.60%. I would add it to my list for further research.
American Water Works Company, Inc. (AWK), through its subsidiaries, provides water and wastewater services in the United States and Canada. The company raised its quarterly distributions by 10.70% to 31 cents /share. This dividend payers has raised distributions for 7 years in a row, and has a five year distribution growth rate of 22.20%/year. Currently, American Water Works sells for 19.20 times forward earnings and yields 2.70%. I would consider adding the company to my list for further research.
UGI Corporation (UGI), through its subsidiaries, distributes, stores, transports, and markets energy products and related services in the United States and internationally. The company raised its quarterly distributions by 4.40% to 29.50 cents /share. This dividend champion has raised distributions for 27 years in a row, and has a ten year distribution growth rate of 6.70%/year. Currently, UGI Corporation sells for 18.50 times forward earnings and yields 2.50%. I would consider adding the company to my list for further research.
Cracker Barrel Old Country Store, Inc. (CBRL) develops and operates the Cracker Barrel Old Country Store concept in the United States. The company raised its quarterly distributions by 33.30% to $1/share. This dividend achiever has raised distributions for 12 years in a row, and has a ten year distribution growth rate of 36.70%/year. Currently, Cracker Barrel Old Country Store sells for 17 times forward earnings and yields 4.20%. I would consider adding the company to my list for further research.
I ended up excluding companies like Costco (COST), which raised dividends from 31 to 35.50, which marked 11th consecutive annual dividend increase, because they yielded 1.20%.
Again, this list is not a recommendation to buy or sell, but a group of companies for further research. Running a screen on a list of securities is just the first step in your quest of identifying promising dividend companies. The next step is researching each promising idea and deciding if it has a sustainable business model that can withstand various competitive pressures over the next 20 years. After that , one only has to wait for the right price, and select those investments that provide the most bang for their investment buck at the time. The last part is the most difficult one after buying, and it is to pretty much sit on your investments and do nothing.
Full Disclosure: Long XOM,CVX, AMP, IBM
Relevant Articles:
- Long Term Dividend Growth Investing
- How to read my weekly dividend increase reports
- Dividend Champions - The Best List for Dividend Investors
- Dividend Macro trends: The Baby Boomer Retirement Investment
- The importance of yield on cost
Saturday, May 3, 2014
Best Dividend Investing Articles for April 2014
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:
When to buy dividend paying stocks?
Seven Sleep Well at Night Dividend Stocks
Where to search for investment opportunities?
How to Manage Your Dividend Portfolio
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 months include:
Why I Eventually Want To Be Invested In 50 Companies: Income Diversification
Don't Touch These 5 Dividend Stocks!
Michael Lewis And Flash Traders Do Not Affect Long-Term Investors
What Do I Do With My Stocks If The Market Crashes?
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.
When to buy dividend paying stocks?
Seven Sleep Well at Night Dividend Stocks
Where to search for investment opportunities?
How to Manage Your Dividend Portfolio
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 months include:
Why I Eventually Want To Be Invested In 50 Companies: Income Diversification
Don't Touch These 5 Dividend Stocks!
Michael Lewis And Flash Traders Do Not Affect Long-Term Investors
What Do I Do With My Stocks If The Market Crashes?
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.
Friday, May 2, 2014
Chubb Corporation (CB) Dividend Stock Analysis
The Chubb Corporation (CB), through its subsidiaries, provides property and casualty insurance to businesses and individuals. This dividend champion has paid dividends since 1902 and has managed to increase them for 32 years in a row.
The company’s latest dividend increase was announced in February 2014 when the Board of Directors approved a 13.60% increase in the interim dividend to 50 cents /share. The company’s peer group includes Travelers Cos (TRV), Allstate (ALL), and Cincinnati Financial (CINF).
Over the past decade this dividend growth stock has delivered an annualized total return of 12.40% to its shareholders.
The company has managed to deliver a 9.40% average increase in annual EPS since 2004. Chubb is expected to earn $7.37 per share in 2014 and $7.89 per share in 2015. In comparison, the company earned $9.04/share in 2013.
Chubb has a record of consistent share repurchases. Between 2006 and 2013, the number of shares decreased from 423 million to 259 million.
The typical property and casualty insurer has no moat, because the products they sell are basically commodities, where the cost of policy would not be known for several years. As a result, many companies have the tendency to underprice themselves in the pursuit of premiums growth. However, Chubb seems to have a more disciplined approach to handling premium volumes, and seems to be concentrating more on maintaining the quality of premiums received and only accepting the rates that adequately compensate for risk, rather than chase premium growth at any cost. The company has also set itself apart by focusing on personal insurance and specialty insurance segments. With its personal lines insurance segment, the company targets high net worth persons. There are some switching costs for high networth individuals, because insurance companies require an assessment of the value of fine cars, homes or other objects, before deciding to insure them, which means those customers have a higher tendency to stay. The specialty insurance offers a wide variety of specialized professional liability products for privately held and publicly traded companies, financial institutions, professional firms, healthcare and not-for-profit organizations. Chubb Specialty Insurance products primarily include directors and officers liability insurance, errors and omissions liability insurance, employment practices liability insurance, fiduciary liability insurance and commercial and financial fidelity insurance. These risks are unique, and require a very strong management discipline. Overall, Chubb has a competent and able management, which has resulted in good results for shareholders. However, the business is not idiot-proof, which could be a problem if a reckless risk taker succeeds current CEO when he retires in 2016.
If interest rates start increasing, this could result in higher earnings from the premiums float that is being invested. As a result, it is quite possible that earnings per share could increase significantly from this tailwind.
The annual dividend payment has increased by 9.20% per year over the past decade, which is in line with growth in EPS.
A 9% growth in distributions translates into the dividend payment doubling every eight years on average. If we check the dividend history, going as far back as 1987, we could see that Chubb has indeed managed to double dividends every nine years on average.
The dividend payout ratio has largely remained below 29% throughout the decade. A lower payout is always a plus, since it leaves room for consistent dividend growth minimizing the impact of short-term fluctuations in earnings. In Chubb’s case, a large portion of cashflow is spent on share buybacks than dividends.
The return on equity has been in a decline between 2007 and 2012. Overall the amounts for 2013 are just slightly lower than the amounts in 2004. Rather than focus on absolute values for this indicator, I generally want to see at least a stable return on equity over time.
Currently, the stock is attractively valued, as it trades at a forward P/E of 11.80 and yields 2.30%. I am analyzing the company because I believe it is quality dividend growth stock, which will be a very good addition to my portfolio on dips below $80/share, which is equivalent to a current yield above 2.50%.
Full Disclosure: Long CB
Relevant Articles:
- Are Dividend Investors Benefiting from Stock Buybacks
- Dividend Champions - The Best List for Dividend Investors
- Does entry price matter to dividend investors?
- Accumulating Dividend Stocks is a Long Term Process
- How to be a successful dividend investor
The company’s latest dividend increase was announced in February 2014 when the Board of Directors approved a 13.60% increase in the interim dividend to 50 cents /share. The company’s peer group includes Travelers Cos (TRV), Allstate (ALL), and Cincinnati Financial (CINF).
Over the past decade this dividend growth stock has delivered an annualized total return of 12.40% to its shareholders.
The company has managed to deliver a 9.40% average increase in annual EPS since 2004. Chubb is expected to earn $7.37 per share in 2014 and $7.89 per share in 2015. In comparison, the company earned $9.04/share in 2013.
Chubb has a record of consistent share repurchases. Between 2006 and 2013, the number of shares decreased from 423 million to 259 million.
The typical property and casualty insurer has no moat, because the products they sell are basically commodities, where the cost of policy would not be known for several years. As a result, many companies have the tendency to underprice themselves in the pursuit of premiums growth. However, Chubb seems to have a more disciplined approach to handling premium volumes, and seems to be concentrating more on maintaining the quality of premiums received and only accepting the rates that adequately compensate for risk, rather than chase premium growth at any cost. The company has also set itself apart by focusing on personal insurance and specialty insurance segments. With its personal lines insurance segment, the company targets high net worth persons. There are some switching costs for high networth individuals, because insurance companies require an assessment of the value of fine cars, homes or other objects, before deciding to insure them, which means those customers have a higher tendency to stay. The specialty insurance offers a wide variety of specialized professional liability products for privately held and publicly traded companies, financial institutions, professional firms, healthcare and not-for-profit organizations. Chubb Specialty Insurance products primarily include directors and officers liability insurance, errors and omissions liability insurance, employment practices liability insurance, fiduciary liability insurance and commercial and financial fidelity insurance. These risks are unique, and require a very strong management discipline. Overall, Chubb has a competent and able management, which has resulted in good results for shareholders. However, the business is not idiot-proof, which could be a problem if a reckless risk taker succeeds current CEO when he retires in 2016.
If interest rates start increasing, this could result in higher earnings from the premiums float that is being invested. As a result, it is quite possible that earnings per share could increase significantly from this tailwind.
The annual dividend payment has increased by 9.20% per year over the past decade, which is in line with growth in EPS.
A 9% growth in distributions translates into the dividend payment doubling every eight years on average. If we check the dividend history, going as far back as 1987, we could see that Chubb has indeed managed to double dividends every nine years on average.
The dividend payout ratio has largely remained below 29% throughout the decade. A lower payout is always a plus, since it leaves room for consistent dividend growth minimizing the impact of short-term fluctuations in earnings. In Chubb’s case, a large portion of cashflow is spent on share buybacks than dividends.
The return on equity has been in a decline between 2007 and 2012. Overall the amounts for 2013 are just slightly lower than the amounts in 2004. Rather than focus on absolute values for this indicator, I generally want to see at least a stable return on equity over time.
Currently, the stock is attractively valued, as it trades at a forward P/E of 11.80 and yields 2.30%. I am analyzing the company because I believe it is quality dividend growth stock, which will be a very good addition to my portfolio on dips below $80/share, which is equivalent to a current yield above 2.50%.
Full Disclosure: Long CB
Relevant Articles:
- Are Dividend Investors Benefiting from Stock Buybacks
- Dividend Champions - The Best List for Dividend Investors
- Does entry price matter to dividend investors?
- Accumulating Dividend Stocks is a Long Term Process
- How to be a successful dividend investor
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