My long term strategy is to focus my attention on quality companies that will deliver a growing stream of dividends over the foreseeable future. This stream of dividends will enable me to retire, by providing me with an inflation adjusted stream of income that maintains its purchasing power. In order to achieve that, these companies should be able to generate higher earnings per share over that period, in order to invest in growing their operation and generate excess cash flows for distributions to investors. In order to achieve that consistency in earnings however, these companies need to have the ability to stay current even during challenging market conditions, and to deliver a quality of product or service that customers will be willing to pay up for.
While I am a dividend growth investor, I also require a minimum amount of entry yield. This would provide me with some level of adequate income should realized dividend growth fail to exceed my expectations. Over the past year however, I have focused my attention on companies with relatively high current yields, which also provide the potential for strong distribution growth as well.
I have identified the following high dividend growth stocks that I plan to add to my portfolio in 2013:
Philip Morris International Inc. (PM), through its subsidiaries, manufactures and sells cigarettes and other tobacco products. The company offers branded cigarettes outside of the US, including the growing emerging markets in Asia. It is growing through strategic acquisitions of the dominant player in strategic countries, as well as through increasing sales through raising prices. Earnings per share are expected to rise to $5.21 in 2012 and $5.81 by 2013, versus $4.85 in 2011. Yield: 3.80%. Check my analysis of the stock for more detail.
McDonald’s Corporation (MCD) franchises and operates McDonald's restaurants in the global restaurant industry. The company is the largest fast food restaurant in the world, and has managed to stay relevant by introducing new menu items and maintaining promotions to increase traffic to its locations. This dividend champion has raised distributions for 36 years in a row. I expect that the company will be able to boost dividends by 10%/year for the next decade. Yield: 3.50% .Check my analysis of the stock for more detail.
Kinder Morgan, Inc. (KMI) owns and operates energy transportation and storage assets in the United States and Canada. The main asset behind the company is the incentive distribution rights for distributions of Kinder Morgan Partners (KMP) and El Paso Partners (EPB), that allow it to keep 50% of distributions above a certain threshold. This would translate into low double digit dividend increases for several years. In addition, the company also has ownership of KMP limited partner units as well. Growth will come from strategic acquisitions, building new pipelines and organic growth in amount of carbons transported through its vast network of pipelines. Yield: 4.30%. Check my analysis of the stock for more detail.
ONEOK Partners, L.P. (OKS) engages in the gathering, processing, storage, and transportation of natural gas in the United States. Growth in distributions will come from new projects that the company is investing through 2015. The companies using services of pipelines like ONEOK Partners typically do not have other alternatives to transport NGLs, Natural Gas or Crude oil. The industry is regulated by FERC, which allows pipelines to charge fees on volumes of carbons transported that are sufficient to guarantee a rate of return on assets, as well as the ability to recover invested capital. Distributions have increased by 5.30%/year over the past five years. Yield: 5%. Several months ago I sold almost my entire position in Con Edison (ED) and purchased units in ONEOK Partners with the proceeds.
For all the companies mentioned above, I like the above average yields, as well as the strong potential for high divided growth rates. This potent combination would generate strong dividends for years to come, plus the possibility for very good total returns as well. I also believe that each of these companies is a good candidate for a long term buy and hold portfolio, and my holding period would certainly extend beyond 2013.
Full Disclosure: Long PM, KMI, MCD, OKS
Relevant Articles:
- Kinder Morgan Partners – One Company three ways to invest in it
- Two High Yield Dividend Growth Stocks I am buying
- Why I am replacing ConEdison (ED) with ONEOK Parthers
- My Dividend Retirement Plan
Popular Posts
-
Realty Income (O) stock reached an all-time-high of $82.29/share in February 2020, or about five years ago. Today, the stock is selling at $...
-
I review the list of dividend increases every week as part of my monitoring process. Dividend increases provide signaling value to me in my ...
-
As a shareholder, there are two ways to make profits from a stock. The first way is when you sell your stock for a gain, after it has incre...
-
I came upon an interesting story about another dividend investor, this time a famous actor. This is Sean William Scott, who starred in such ...
-
I review the list of dividend increases every week, as part of my monitoring process. This exercise helps me monitor existing positions. I a...
-
I am a big fan of diversification. That doesn't just mean owning a lot of companies however. It means spreading the risk. You need to un...
-
I tend to focus my attention on companies that regularly increase dividends to shareholders . A long history of annual dividend increases is...
-
I review the list of dividend increases every week as part of my monitoring process. Dividend increases provide signaling value to me in my ...
-
I was reviewing my old files and re-visited an interesting paper from Standard & Poor's from a few years ago about the importance of...
-
In terms of a somewhat succint summary, it is good to think in terms of trade-offs in the full picture. The expected returns formula I use r...
