McDonald's Corporation (MCD) Dividend Analysis

McDonald's Corporation, together with its subsidiaries, franchises and operates McDonald's restaurants worldwide. Its restaurants offer various food items, and soft drinks and other beverages.
MCD is a dividend aristocrat as well as a component of the S&P 500 and Dow Jones Industrials indexes. The company has been increasing its dividends for the past 31 consecutive years. From 1998 up until 2007 this dividend growth stock has delivered an annual average total return of 11.00 % to its shareholders. During the first five years, the stock price was in a decline. Ever since MCD hit a bottom in early 2003, the stock has been outperforming the market.

At the same time company has managed to deliver a 6.70% average annual increase in its EPS since 1998.

The ROE fluctuated between 9% and 23%, rising and falling with the fluctuations of EPS over the past decade.

Annual dividend payments have increased over the past 10 years by an average of 25% annually, which is much higher than the growth in EPS. A 25% growth in dividends translates into the dividend payment doubling almost every three years. If we look at historical data, going as far back as 1979, MCD has actually managed to double its dividend payment every four years on average. The company recently switched from paying annual dividends to paying dividend payments quarterly.

If we invested $100,000 in MCD on December 31, 1997 we would have bought 4188 shares (Adjusted for A 2:1 stock split in March 1999). In 1998 your annual dividend income would have amounted to $739. If you kept reinvesting the dividends though instead of spending them, your quarterly dividend income would have risen to $7044 by December 2007. For a period of 10 years, your annual dividend income has increased by 853 %. If you reinvested it though, your annual dividend income would have increased by 752%.

The dividend payout has remained at or below 40% over our study period. In 2007 however, the payout has risen above 70%. A lower payout is always a plus, since it leaves room for consistent dividend growth minimizing the impact of short-term fluctuations in earnings.

I think that MCD is currently overvalued at a P/E of 27 and a payout ratio of over 75%. The only positive is the solid dividend yield and above average dividend growth. I would consider initiating a long position in MCD on dips below $40.

Disclosure: I do not own shares of MCD

Relevant Articles:

- Wal-Mart Dividend Analysis

- 3M Dividend Analysis

- Procter & Gamble Dividend Analysis

- Sherwin Williams Dividend Analysis

The Dividend Investing and Value Network (DIV-Net).

It is with great pleasure that I announce the debut of The Dividend Investing and Value Network (DIV-Net).

Dividend Growth Investor is proud to be a founding member of this new investing network. DIV-Net is a network of investors focused on dividend investing, value investing and a long-term buy and hold philosophy.We want The DIV-Net site to be a destination. Unlike most networks, The DIV-Net site will provide original unpublished content daily from a growing network that contains the best authors in the field. Seven Core Members are responsible for maintaining and administering The DIV-Net site and the DIV-Net network.This is where some networks stop. However, we so strongly believe in the virtues of dividend investing, value investing and a long-term buy and hold philosophy and did not want to limit DIV-Net to just seven members. In our desire to include as many bloggers that are interested in dividend investing, value investing and a long-term buy and hold philosophy, we created an Associate Membership.

Our Core Members include:

Dividends4Life
The Dividend Guy
Dividend Growth Investor
the moneygardener
Stock Market Prognosticator
The Div Guy
Disciplined Approach to Investing

Our Associate Members include:

Living Off Dividends and Passive Income
Old School Value
The Dividend Investing Blog
Triaging My Way To Financial Success
Dividend Money

In addition, DIV-Net sponsors a weekly Investing Carnival. The carnival's focus is on Value Investing, Dividend Investing and Long-term Buy-and-Hold Investing. There are also categories for real estate, commodities and other alternative investments. We welcome your relevant articles. To participate please submit your article here no later than 5:00 PM ET each Sunday. The Carnival will post every Tuesday. If you are interested in hosting, please e-mail dividendgrowthinvestor [AT] gmail [DOT] com.

At The DIV-Net, we do things differently. Check us out, we think you will find we do things better!

The price of higher current yield -Canadian Royalty Trusts

There are several Canadian royalty trusts which trade on the NYSE.

Advantage Energy Income Fund (AAV), based in Calgary, currently yields 11%. Its monthly dividend payments have declined from $0.23/unit in 2004 to $0.12/unit in 2008.

Baytex Energy Trust (BTE), also based in Calgary, currently yields 7.50%. Its monthly dividend payments have increased from $0.16/unit in 2006 to $0.20/unit in 2008.

Enerplus Resources fund (ERF) currently yields 10.70%. Its monthly dividend payments have greatly fluctuated between $0.20/unit and $0.52/unit since 2000.

Harvest Energy Trust (HTE) currently yields 14.40%. Its monthly dividend payments have fluctuated significantly less than other trusts – between $0.29/unit and $0.36/unit since 2005.

Pengrowth Energy Trust (PGH) currently yields 13.50%. Its monthly dividend payments have also fluctuated significantly less than other trusts – between $0.19/unit and $0.23/unit since 2004.

Penn West Energy Trust (PWE) currently yields 12.20%. Its monthly trust distributions have fluctuated between $0.29/unit and $0.35/unit since 2006.

They do look appealing to investors because of their high dividend yields of 10%-15% annually. Not only are the dividends paid monthly, which allows for a better dividend income compounding, but some of them also allow investors to purchase shares through DRIPs at discounted prices. Unlike most other “normal” stocks, dividend payments from the Canadian income trusts tend to fluctuate a lot.

Most trusts are engaged in oil and gas production and have average reserve lives of about 10 years. Unlike similar US trusts however, Canadian Royalty trusts can purchase new assets and make acquisitions, which could extend their lives forever.

The Canadian government applies a 15% non-resident withholding tax on distributions to U.S. investors. U.S. investors can apply for a refund for at least a portion of the amount withheld. Many Canadian trusts provide information for income tax filing instructions for U.S. unitholders on their Websites. Nevertheless, it can be a complicated process at tax time, thus U.S. investors should consult with a qualified tax advisor before investing.

Like any other investment that offers above-average dividend yields however there’s a catch: the reason why CanRoy’s are able to pay huge dividends is because they are not taxed at the corporate level and pass all of their income to shareholders. This is going to change in January 2011. Since many trusts pay all of their income in distributions to unit holders, they expand their operations through sales of additional units. The uncertainty related to the 2011 tax law changes make it difficult for trusts to expand. For example trusts that were formed before October 31 2006 cannot sell more than a certain amount of new units (stock), otherwise they will lose their preferential tax status even earlier than 2011.

Under the existing provisions of the Tax Act, income trusts can generally deduct in computing their income for a taxation year any amount of income that they distribute to unitholders for the year. According to the new bill, introduced in 2006, Income trusts will not be able to deduct certain portions of their distributed income (referred to as specified income).
Pursuant to the draft legislation, the distribution tax will only apply in respect of distributions of income and will not apply to returns of capital. Some trusts have substantial tax pools that could be applied to reduce the impact of the new tax for several years post-2011.

Under the new legislation the proposed tax will be 29.5 percent in 2011 and 28.0 percent in 2012 based upon a 13 percent provincial tax rate and a federal tax of 16.5 percent reducing to 15 percent in 2012. Add this to the 15% tax that US investors already pay on income trust distributions, and the higher yields might not look so good. Under the budget released by the Minister of Finance on February 26, 2008, the 13 percent provincial tax will be replaced under an allocation formula with the applicable provincial income tax rates for each province in which the income trust has a permanent establishment. Trust are likely to continue to take advantage of growth opportunities with an increased focus on assessing international acquisition opportunities given that revenue from outside Canada will likely not be subject to the new tax. In addition, trusts will likely continue to carefully manage their substantial tax pools to mitigate the impact of the new tax on our unitholders.

When to sell your dividend stocks? Part 2

Last week I laid out some of my reasons why I am hesitant about selling stocks which have cut their dividends.















This chart really sums it all up – dividend cutters as well as non-dividend payers underperformed dividend growers by about 5% on average per annum from 1972- 2005.
At the end of the day I am in this game not only for the increasing dividend income but also for the capital gains that stock ownership might lead to.

Additional research from Prof Siegel about the performance from 1957 to 2007 of the original 500 stocks of the S&P 500 index suggests that there is a high chance that a well diversified portfolio ,which is representative of the major market sectors of its days, will perform close to what the overall market returns.

Due to the different information and research out there I will choose to sell or hold a stock that cuts its dividend on a case by case basis. Additional capital, however will not be allocated to dividend cutters, although dividends will be automatically reinvested.

Relevant Articles:

- When to sell your dividend stocks?
- Diversification and portfolio allocation
- Diversification Matters
- The case for dividend investing in retirement

Illinois Tool Works (ITW) Dividend Analysis

Illinois Tool Works, Inc. manufactures a range of industrial products and equipment
ITW is a dividend champion as well as a component of the S&P 500 index. The company has been increasing its dividends for the past 44 consecutive years. From 1998 up until 2007 this dividend growth stock has delivered an annual average total return of 8.00 % to its shareholders.

At the same time company has managed to deliver a 10.80% average annual increase in its EPS since 1998.

The ROE fell from its 1998 highs of over 20% to its 2001 lows at 10%, before recovering all the was back to 20% by late 2000’s.

Annual dividend payments have increased over the past 10 years by an average of 15.70% annually, which is much higher than the growth in EPS. A 16% growth in dividends translates into the dividend payment doubling almost every four and a half years. If we look at historical data, going as far back as 1987, ITW has actually managed to double its dividend payment every five years on average.

If we invested $100,000 in ITW on December 31, 1997 we would have bought 3389 shares (Adjusted for A 2:1 stock split in May 2006). In March 1998 your quarterly dividend income would have been $203. If you kept reinvesting the dividends though instead of spending them, your quarterly dividend income would have risen to $1078 by December 2007. For a period of 10 years, your quarterly dividend income has increased by 367 %. If you reinvested it though, your quarterly dividend income would have increased by 430%.

The dividend payout has remained at or below 38% over our study period. A lower payout is always a plus, since it leaves room for consistent dividend growth minimizing the impact of short-term fluctuations in earnings.

I think that ITW is attractively valued with its low price/earnings multiple of 15 low DPR and competitive yield at 2.20%.

Disclosure: I own shares of ITW

Relevant Articles:

- Wal-Mart Dividend Analysis
- Family Dollar Stores Dividend Analysis
- Procter & Gamble Dividend Analysis
- Clorox Dividend Analysis

When to sell your dividend stocks?

So far I have only concentrated on the idea of picking up great companies which have a history of increasing payments and which have a higher than average probability of increasing their payments in the future. I have explored the ideas of dollar cost averaging ( link), my screen for entry criteria ( link) and my ideas on portfolio diversification (link). But when would I consider actually selling a dividend stock? To be perfectly honest the answer is not a black and white one. Initially I had mentioned that I planned on selling my stocks only in the occasion that a company that I own cuts its dividend. 

Even though my entry criteria is to buy companies that increase their payments over time, a company that I hold and does not raise its payment is on my radar. However, as I continuously add funds to my portfolio, the stocks that are unable to raise their dividend would not get any extra funding. Thus their proportion in my overall portfolio will decrease over time. 

Is it really a good idea to sell stocks that cut their payments? What if this is just a temporary solution?

Typically, when a stock cuts its dividend, the stock had already lost double digits from its recent highs, prior to the announcement. 

After the announcement, all dividend investors rush for the exits, creating even further supply in the stock thus pushing the price even lower. I looked at ED’s long-term chart for this exercise. From my previous analysis of ED ( link) I had noticed that the company had cut its dividend in 1974. The stock did fall by about 50% in April 1974. Had you sold at that time, you’d have been happy when the stock fell to $6/ share and when the dividend payment was cut by more than 50%. By February 1977 however, the dividend was even higher than the previous dividend and the stock was a little bit higher as well. Investors received increasing dividend payments for over 32 years since that moment.

Next week I will share some additional research that helped in my decision to sell or hold stocks that cut their dividend. 

 Relevant Links: 

 - Diversification and portfolio allocation

- Diversification Matters

- The case for dividend investing in retirement

- Why do I like Dividend Achievers

20 Highest-Yielding High Yield Dividend Aristocrats

In my previous post The 20 Highest Yielding Dividend Aristocrats I highlighted a sample list of the 20 highest yielding dividend aristocrats. Being fascinated with companies which have consistently increased their dividends for over 25 years, I wanted to examine a similar list, using the High-Yield Dividend Aristocrats this time. You could open it in google spreadsheets from here.

This stock list is just for illustrative purposes only, however, and not a recommendation to buy or sell. Its performance could be better or worse than the S&P 500 benchmark.

























The list, dominated by financial companies, yields a whopping 6.37% as of June 14,2008. On the cautionary note, some of the companies in this list seem likely to cut their payments. With the exception of certain income trusts, I would not consider entering a long-term position in a company whose dividend payout ratio is significantly over 50%.

On the contrary side, in a study performed by Jeremy Siegel, he found that better total return performance was directly correlated with higher dividend yields. The highest yielding 100 stocks in the S&P 500, produced an annualized return of 14.27% versus an annualized return of 11.18% for the S&P 500 Index, which resulted in three times the wealth accumulation of the index. (1957-2002, S&P 500). So far this year certain higher yielding stocks in the S&P 500 have underperformed the market.

How do you think this list would perform until the end of 2008?


Relevant Articles:

- Current Aging of the Dividend Aristocrats
- Long term returns of S&P high-yield aristocrats
- Dividend Conspiracies
- The friendliest states for dividend investors

V.F. Corporation (VFC) Dividend Analysis

V.F. Corporation, together with its subsidiaries, engages in the design, manufacture, and marketing of branded apparel and related products in the United States and internationally. It offers jeanswear, outdoor apparel, imagewear, and sportswear

It is a dividend aristocrat as well as a component of the S&P 500 index. It has been increasing its dividends for the past 34 consecutive years. From 1998 up until 2007 this dividend growth stock has delivered an annual average total return of 7.10 % to its shareholders.

At the same time company has managed to deliver a 6.40% average annual increase in its EPS since 1998.

The ROE has remained in the 16-21% range over the past 10 years with the exception of the 2001 spike below 7%.

Annual dividend payments have increased over the past 10 years by an average of 11.20% annually, which is much higher than the growth in EPS. An 11% growth in dividends translates into the dividend payment doubling almost every six and a half years. If we look at historical data, going as far back as 1986, VFC has actually managed to double its dividend payment every seven years on average. Much of the growth in dividends came from a 90% jump in payments to shareholders in 2006.

If we invested $100,000 in VFC on December 31, 1997 we would have bought 2445 shares (Adjusted for two 2:1 stock splits). In March 1998 your quarterly dividend income would have been $489. If you kept reinvesting the dividends though instead of spending them, your quarterly dividend income would have risen to $1804 by November 2007. For a period of 10 years, your quarterly dividend income has increased by 190 %. If you reinvested it though, your quarterly dividend income would have increased by 269%.

The dividend payout has remained below 50% for the majority of our study period, with the exception of a short spike above 75% in 2001. A lower payout is always a plus, since it leaves room for consistent dividend growth minimizing the impact of short-term fluctuations in earnings.

I think that VFC is attractively valued with its low price/earnings multiple of 13, low DPR and above average dividend yield of 3.10%.

Disclosure: I own shares of VFC

Relevant Articles

- Wal-Mart Dividend Analysis

- 3M Dividend Analysis

- Procter & Gamble Dividend Analysis

- Sherwin Williams Dividend Analysis

Carnivals, Festivals and Blogs- June 14, 2008

Carnivals and Festivals

The 156th Carnival of Personal Finance: Songs of Summer, hosted by PT Money, selected my post Selected Dividend Increases in May.

The 92nd Edition of the Festival of Stocks, hosted by George over at Fat Pitch Financials included my post Commerce Bancshares (CBSH) Dividend Analysis.

Blogs

Moneygardener posted top 5 stock picks - 1 year update.

The Dividend Guy showed Where to Find Dividend Growth Rates.

Tyler from Dividend Money is concerned that Baby Boomers Getting Deeper In Debt.

Dividends4Life presented Dividends - The Capitalist’s Ideal.

The Div Guy presented Pay Yourself With Dividends.

Passive Family Income is asking whether He should ride his bike to work.

Target Corporation (TGT) Dividend analysis

Target Corporation operates large-format general merchandise and food discount stores under the brand names of Target' and Super Target' in the United States.

It is a dividend aristocrat as well as a major component of the S&P 500 index. It has been increasing its dividends for the past 40 consecutive years. From 1998 up until 2007 this dividend growth stock has delivered an annual average total return of 12.30 % to its shareholders.














At the same time company has managed to deliver a 16.90% average annual increase in its EPS since 1998.
















The ROE has remained in the 16-20% range over the past 10 years with the exception of the 2005 spike above 24%.
















Annual dividend payments have increased over the past 10 years by an average of 12.20% annually, which is lower than the growth in EPS. A 12% growth in dividends translates into the dividend payment doubling almost every 6 years. If we look at historical data, going as far back as 1985, TGT has actually managed to double its dividend payment every seven years on average.

If we invested $100,000 in TGT on December 31, 1997 we would have bought 5926 shares (Adjusted for two 2:1 stock splits). In February 1998 your quarterly dividend income would have been $266.67. If you kept reinvesting the dividends though instead of spending them, your quarterly dividend income would have risen to $889 by November 2007. For a period of 10 years, your quarterly dividend income has increased by 211 %. If you reinvested it though, your quarterly dividend income would have increased by 234%.

The dividend payout has remained at or below 24% over our study period. A lower payout is always a plus, since it leaves room for consistent dividend growth minimizing the impact of short-term fluctuations in earnings.

I think that TGT is attractively valued with its low price/earnings multiple of 16 and low DPR. The yield is below my 2% threshold however. I would only consider entering into a position below $32 at current dividend rates.

Disclosure: I do not own shares of TGT

Relevant Articles

- Commerce Bancshares (CBSH) Dividend Analysis

- Consolidated Edison (ED) Dividend Analysis

- Automatic Data Processing (ADP) Dividend analysis

- Kimberly-Clark (KMB) Dividend Analysis

The 20 Highest Yielding Dividend Aristocrats

In today’s low interest rate environment, retirees are having a hard time finding tax efficient income opportunities, worthy of their money, which would help them enjoy their post-working years. A great idea for income seeking investors is investing in stocks that pay good yields and have consistent dividend payments. With inflation averaging around 3 - 4% per year, your investment in dividend paying stocks would provide you with a source for income that keeps its purchasing power over time, which unlike fixed income securities can also provide you with capital gains. Unlike bond payments which are fixed, stock dividends could be raised and thus provide stockholders with a nice raise for owning the right companies.

A good starting point for income investors is the S&P Dividend Aristocrats list, which features companies that have increased their annual dividend payments every year for more than 25 consecutive years. I have selected the 20 highest yielding stocks in the index, along with their ticker, P/E ratio, dividend yield and dividend payout ratio.
























The portfolio consisting of the 20 highest yielding stocks in the Dividend Aristocrats index currently yields 5.31% ( As of May 23, 2008). This is far better than most bonds and most stocks. This portfolio is just for illustrative purposes only, however. Its performance could be better or worse than the S&P 500 benchmark.

You could access the spreadsheet from here.

Full Disclosure: I own GCI, CINF, GE, KMB and CLX.
Relevant Articles:

- The next bubble in the making.
- Dividend Champions Watchlist
- Dividend Growth Stocks Watchlist
- The case for dividend investing in retirement

Abbott Laboratories (ABT) Dividend Analysis

Abbott Laboratories engages in the development, manufacture, and sale of health care products worldwide. It operates in four segments: Pharmaceutical Products, Diagnostic Products, Nutritional Products, and Vascular Products.
Abbott Laboratories is a dividend aristocrat as well as a component of the S&P 500 index. It has been increasing its dividends for the past 36 consecutive years. Over the past 10 years the company has delivered an average total return of 8.50% annually to its loyal shareholders.

The company has managed to deliver a 4.80% average annual increase in its EPS.

The ROE has been declining over the past 10 years, from its highs in 1998 of over 40% to its lows of 12% in 2006. A declining ROE trend is a ref flag for me. I would like to see some stabilization in this ratio over the next few years.

Annual dividend payments have increased over the past 10 years by an average of 6.80% annually, which is slightly above the growth in EPS. A 6.80 % growth in dividends translates into the dividend payment doubling almost every 10 years. If we look at historical data, going as far back as 1985, ABT has indeed managed to double its dividend payments every five and a half years.

If we invested $100,000 in ABT on December 31, 1997 we would have bought 3053 shares (adjusted for a 2:1 split in June 1998). Your first quarterly check would have been $412.15 in early 1998. If you kept reinvesting the dividends though instead of spending them, your quarterly payment would have risen to $1210.62 by October 2007. For a period of 10 years, your quarterly dividend has increased by 140.75 %. If you reinvested it though, your quarterly dividend would have increased by 193.75%.

The dividend payout ratio has remained above 50% for the majority of the time over the past 10 years however. Overall, a lower payout is always a plus, since it leaves room for consistent dividend growth minimizing the impact of short-term fluctuations in earnings.

Overall, I think that ABT is overvalued at its P/E of over 22 and DPR of over 50%. The only positive is the higher than average dividend yield of 2.60%. I would only consider initiating a long position below $46, as long as the payout is closer to 50% and the dividend yield exceeds the yield on the SPY.

Full Fisclosure: I do not own any shares of ABT

Relevant Articles:

- American Capital Strategies (ACAS) Dividend Analysis

- Kinder Morgan Energy Partners (KMP) Dividend Analysis

- TEPPCO Partners (TPP) Dividend Analysis

- Kimberly-Clark (KMB) Dividend Analysis

How to protect yourself from rising gasoline prices with hedging?

The last couple of months have been devastating for consumers with gas breaking through $4 across the country, thus triggering increases in essential items such as food and transportation. The increase in gasoline is directly correlated to the relentless increase in the price of oil, which has risen almost 14 fold since its lows in 1999. On Friday, the price of oil rose to yet another record high. News reports claim that the only reason why gas prices are increasing is not due to actual supply shortages, but due to speculator activity in the futures markets. Never the less important price levels are being broken. $3, $4 we might even see $5/gallon very soon.
So how can you protect yourself from rising gasoline prices?
One way is through conservation. Try commuting to work or school with friends. Use a bicycle for short distances or simply to walk to your destination. This would decrease some of your gasoline usage, but not all of it.
A smart way to protect yourself from rising gas prices is by hedging your annual usage using one ETF. A hedge is an investment that is taken out specifically to reduce or cancel out the risk in another investment. The ETF is UGA- United State Gasoline Fund L.P. It trades on the NYSE just like any other stock like Microsoft, IBM or Apple. This fund owns futures contracts on gasoline and thus is able to track the daily movements of gas prices pretty closely.
In order to take full advantage of UGA try to determine your gas usage for a year, multiply it by the current price of gasoline and then determine how many UGA shares you should buy to protect yourself for one year.
In other words if I use 10 gallons of gas per week, that translates into 520 gallons per year. At $4/gallon my annual gasoline costs would equal $2080/year. Based off of UGA’s closing price of $65.78/share on Friday, I would need about 32 shares in order to be fully hedged for the next one year. Of course you can hedge your exposure for more than one year or even hedge only a part of your expected gas usage.
If you are interested in protecting yourself from future gas price increases by purchasing UGA, consider opening a brokerage account with Zecco Trading. If open it with at least $2,500, you will receive 10 free stock trades every month.
If you don’t have $2,500 to open an account, then consider trying out Sharebuilder, which offers low commissions and also allows you to buy fractional shares.

Carnivals, Festivals and Blogs- June 7, 2008

Carnivals and Festivals

Carnival of Personal Finance #155 — Time With Family, hosted by Moolanomy, included my post Automatic Data Processing (ADP) Dividend Analysis.

The Festival of Stocks # 91, hosted by Personal financier, included my post Consolidated Edison (ED) Dividend Analysis.

Blogs

Several dividend bloggers updated their net worth this month.

DivGuy shared his May Net Worth Update and May Dividend Income Update.

The Money Gardener posted his 4 goals progress report.

Living Off Dividends achieved $2,811 In Passive Income For April 2008.

Other bloggers whose posts I read on a daily basis were:

The Dividend Guy who posted the The Top 3 Dividend Investing Books.

Dividends4Life asked Who is Ben Grossbaum and Why Should We Lisiten to Him?

Dividend Money posted The Most Boring Investment Ever.

Contrarian Value Investing presented Cintas Now At Bargain Levels.

Dividend Based Investing asked Why do (most) investment managers underperform?

Commerce Bancshares (CBSH) Dividend Analysis

Commerce Bancshares, Inc., through its subsidiaries, provides various banking services to individuals and businesses. It operates in three segments: Consumer, Commercial, and Money Management.

The company is not a dividend aristocrat but a dividend champion. In fact, this stock never crossed my radar, untill I found about the dividend champions list. The company has been increasing its dividends for the past 40 consecutive years. Over the past 10 years the stock has delivered an average total return of 7.20% annually to its loyal shareholders. In addition, the company has paid a generous 5% stock dividend ever since 1996.

Commerce Bancshareshas managed to deliver a 6.80% average annual increase in its EPS since 1998. It has also managed to buy 3% of its stock back on average every year over our study period.

The ROE has been in a 13% -16% range for our study period, which is also an impressive number.

Annual dividend payments have increased over the past 10 years by an average of 10% annually, which is above the growth in EPS. A 10% growth in dividends translates into the dividend payment doubling every 7 years. If we look at historical data, going as far back as 1986, CBSH has indeed managed to double its dividend payments every seven years.

If we invested $100,000 in CBSH on December 31, 1997 we would have bought 2214 shares. Your first quarterly check would have been $188.15 in early 1998. If you kept reinvesting the dividends though instead of spending them, your quarterly payment would have risen to $974.75 by November 2007. For a period of 10 years, your quarterly dividend has increased by 180 %. If you reinvested it though, your quarterly dividend income would have increased by 418%. The significant increase in reinvested dividend income comes from dividend growth, as well as the 5% stock dividend which was paid each November since 1996.

I also like the fact that the company’s dividend payout has not exceeded 50% over the past 10 years in addition to the low P/E ratio which is less than 14 and the above average dividend yield of 2.30%.

Full Disclosure: I do not own any shares of CBSH

Relevant Articles:

- Wilmington Trust (WL) Dividend Analysis
- RPM Dividend Analysis

- USB Dividend Analysis

- GWW Dividend Analysis

Selected Dividend Increases in May

Several Dividend Aristocrats have increased their dividends in May. The companies are:








From this list, the only companies that fit my fundamental criteria are PEP, CLX and ROH.

Expected dividend increases in June

Based off historical information from this spreadsheet, I would expect that the following companies increase their dividend in June: BCR, BDX, STT, and TGT. Those dividend aristocrats have increased their dividends during every month of February over the past 4 years. Upon a closer examination of the dividend growth stock behavior of the 60 dividend aristocrats, it seems that every month there is at least one company that raises its dividend. It’s nice to get a pay raise every month. The only company that has increased its dividend twice in one year is STT- State Street.

Relevant Articles

- Selected Dividend Increases in April
- Dividend Increases in March
- Dividend Increases in February
- Dividend Increases in January

Carnivals, Festivals and Blogs- May 31, 2008

Carnivals and Festivals

My article Kinder Morgan Energy Partners (KMP) Dividend Analysis, was selected to appear on 90th edition of The Festival of Stocks May 26, 2008, hosted by Circle of Competence.

My post on Why Do I Like Dividend Achievers, was selected to appear on the 154th edition of Carnival of Personal Finance #154, hosted by Canadian Dream Free at 45.

My post TEPPCO Partners (TPP) Dividend Analysis. was selected to appear on The 14th Money Hacks Carnival - Weird Golf Facts Edition, hosted by PTMoney.

My post Dividend Champions Watchlist was included in the Carnival of Everything Finance: # 18, hosted by Everything Finance.

Blogs

FireFinance published his monthly list of the Top 100 Personal Finance Blogs. My blog is ranked #41 according to sitemeter and #50 according to quantcast.

Dividends4Life presented Stock Analysis: PepsiCo, Inc. (PEP). I myself am a fan of the company. You could read about my opinion here and here.

DividendMoney posted How To Develop Your Investing Style.

The Money Gardener presented BNS earnings down, dividend up. It's always nice to find a company which consistently increases its dividends twice per year.

Million Dollar Journey posted updates on his investing in Smith Manoeuvre Portfolio - May 2008.

I also enjoyed the chart in The Dividend Guy’s May Dividend Portfolio Review.

DivGuy is getting pretty good at finding buyout opportunities to invest in. I enjoyed reading his post Another buyout offer on one of my stocks: Calpine (CPN).

Passive Family Income is Creating a new Income Stream using Prosper.

Articles

I enjoyed reading America's hottest investor. Being the contrarian that I am, I bet that CGM Focus fund will significantly underperform over the next 5 years.

I also enjoyed reading about The next Buffetts at Canadian Business. In his first book Peter Lynch mentions that whenever someone refers to a stock as the next big thing, then you should stay away from it. In other words, putting money on LNUX, which was touted as the next Microsoft in 1999, would have been a disastrous investment.

Guest Articles

My post Automatic Data Processing (ADP) Dividend analysis marked the 100th post on Dividend Growth Investor. I am very interested in collaborating with fellow personal finance and investment bloggers. To celebrate my centennial, if you are an aspiring writer, and you have an opinion on Personal Finance, Investing, Retirement Planning or a similar money related story, and you want to get more exposure I would love to receive and publish your article on my blog.
Feel free to send the articles to my e-mail address at dividendgrowthinvestor at gmail dot com.

I would be considering only original articles, which haven't been posted anywhere else before. You could place up to 3 links to your blog/website in the article. the material shouldn't be offensive and should be ok to be read by all audiences ( no R rated stuff please).

One week from today, I would let you know if I would be including your article or not. If I publish it, you could also publish it on your blog/website on the same day as me. If its not chosen, you could publish it whenever you wish to.