The four percent rule is commonly used by financial planners in order to estimate the optimum amount of money to withdraw from client portfolios each year. The goal is to ensure longevity of client portfolios in retirement. Retirees are typically expected to sell a portion of their portfolios each year and adjust their withdrawals for inflation.
The possible reason for selecting 4% as a “safe” withdrawal strategy could be the fact that dividend yields have typically been around 4% on average for the decades covering the study.
In contrast, dividend investors tend to create portfolios which are concentrated around generating a sustainable income stream each year. By owning a diverse mix of income producing assets, dividend investors would ensure that a hiccup in one sector of the economy would not have lasting effects on their lifestyles in retirement.
Another positive of dividend portfolios is that investors tend to live off solely from the income that the basket of stocks produces each year. In contrast, the four percent rule contains an inherent risk because of the possibility of selling off portions of ones portfolio during a flat or down market, which could deplete the portfolios much faster, leaving retirees to rely solely on social security. By concentrating only on spending a portion of the income that the portfolio produces, investors are leaving their invested capital intact and letting it grow overtime. This is similar to having your cake and eating it too as well.
The research behind the four percent rule is still sound however, especially since index funds tended to yield approximately four percent on average over the study period. Thus I believe that a portfolio which yields between three and four percent would provide investors with adequate income for a lifetime. Even if ones income portfolio generates a starter yield which is higher than four percent, it would still be wise not to spend more than 4%. This would leave some room for maneuvering in case the income generating assets in the higher yielding portfolio cut distributions.
If I were starting an income portfolio today, I would break it down to four equally weighted basic components.
The first component would be fixed income securities such as 30 year Treasury Bonds. Having some stability in the principal and income would provide at least some cushion in certain catastrophic events such as reliving the Great Depression of 1929-1932 in US or the lost two decades in Japan between 1989 to 2009. In both scenarios stocks lost 80% of their values.
The second component would consist of higher yielding stocks with low dividend growth. Likely inclusions in this list include Master Limited Partnerships such as Kinder Morgan Partners (KMP), Enbridge Energy Partners (EEP) or Energy Transfer Partners (ETP). These companies have stable revenues from transporting natural gas and petroleum products through their pipelines. Another sector could include Real Estate Investment trusts such as Realty Income (O) or National Retail Properties (NNN). These companies also tend to generate stable cash flows from their long-term property leases. A third high yielding sector for current income could be utilities such as Con Edison (ED) or Dominion Resources (D). Utilities are natural monopolies in their specific geographic area, supplying electricity, water or natural gas to consumers.
The third component of the portfolio would include mature companies which offer yields similar to average market yields, but which have enjoyed solid dividend growth. Examples of such companies include consumer products giant Johnson & Johnson (JNJ), fast food giant McDonald’s (MCD) or Kimberly-Clark (KMB).
The last component will include companies with low current yields, which have the ability to generate double digit earnings increases. This could generate solid dividend growth in the future. Companies that fit this criteria include Walgreens (WAG), Becton Dickinson (BDX) and Medtronic (MDT).
The last two portions of the portfolio might only end up yielding between 3% and 4%, although they would provide the growth factor that would insulate the dividend income from inflation.
Full Disclosure: Long JNJ, MCD, KMB, ED, NNN, O, EEQ, KMR
This article was included in the Carnival of Personal Finance: Unanswered Questions Edition
Relevant Articles:
- The case for dividend investing in retirement
- Inflation Proof your income in retirement with Dividend stocks
- Is $1,000,000 enough to retire on?
- The Four Percent Rule in Retirement
Wednesday, March 31, 2010
Monday, March 29, 2010
Seven Dividend Stocks in the News
Finding the best dividend stocks is a difficult process. It requires constant screening of the dividend achievers and dividend aristocrat indexes, in order to identify companies which are worth your time to further research. Research entails reading analysts reports, annual company reports, staying up to date on news in the industry and competitors in general and constantly evaluating whether the stock is worth your investment or not. If you find the right dividend stocks however, the rewards could be tremendous. Sometimes however certain stocks would not be widely followed by dividend investors, because of their small size. Another reason could be because they are very close to getting on the dividend achievers list, but are not there yet.
The companies in the news include Realty Income (O), Williams-Sonoma, Inc. (WSM), ConocoPhillips (COP), Raytheon Company (RTN), Brinker International, Inc. (EAT), Starbucks (SBUX) and Hingham Institution for Savings (HIFS).
Realty Income Corporation (O) engages in the acquisition and ownership of commercial retail real estate properties in the United States. The company announced a miniscule distribution increase to $0.1433125 per share from $0.143 per share. This was the 50th consecutive quarterly increase and the 57th dividend increase since this dividend achiever went public in 1994. The stock currently yields 5.60%. Check my analysis of the stock.
Williams-Sonoma, Inc. (WSM) operates as a specialty retailer of home products. The company increased its quarterly dividend to 13 cents/share from 12 cents/share. The company doesn’t have a long enough history of paying rising dividends and yields only 1.90%.
ConocoPhillips (COP) operates as an integrated energy company worldwide. The company raised dividends by 10% to 55 cents/share. This represents the tenth consecutive annual dividend increase for ConocoPhillips. The stock yields 4.30%.
Raytheon Company (RTN) provides electronics, mission systems integration, and other capabilities in the areas of sensing, effects, and command, control, communications, and intelligence systems, as well as mission support services in the United States and internationally. The company boosted quarterly dividends by 21% to 37.50 cents/share. This is the sixth consecutive annual dividend increase for the company. The stock yields 2.60% .
Hingham Institution for Savings (HIFS) provides various financial services to individuals and small businesses in Massachusetts. The company’s board of directors approved a 4.5% increase in its quarterly dividend to 23 cents/share. The company has raised quarterly distributions for 15 consecutive years. The stock is thinly traded, and the market cap is only 70 million dollars. The stock yields 3.30%.
Brinker International, Inc. (EAT) owns, develops, operates, and franchises various restaurant brands primarily in the United States. The company increased its quarterly dividend by 27% to 14 cents/share. This was the first dividend increase since 2007. The company doesn’t seem to have followed a strategy of consistent dividend increases every year. The stock yields 2.90%.
Starbucks (SBUX) engages in the purchase, roasting, and sale of whole bean coffees worldwide. The company’s board of directors approved the first quarterly dividend ever in the company’s 25 year history. The stock would pay 10 cents/quarter. The indicated yield is 1.60%.
I was able to uncover a hidden gem in this week’s overview of dividend increase announcements. The gem is called Hingham Institution for Savings (HIFS), a thinly traded stock with a market capitalization of $70 million dollars. The company yields more than 3%, has a low payout ratio and trades at a P/E of 9. Only 22% of the company’s stock is owned by institutions, and few analysts seem to follow this stock. I would be researching this company of course in a future stock report.
Realty Income (O) seems to keep raising distributions by smaller and smaller amounts. Given the high FFO payout and the lowest yield in years, I view the stock as a hold. The dividend announcement from Starbucks (SBUX) was bullish. If the company manages to boost distributions for at least one decade, I would definitely consider it for inclusion to my portfolio.
Full Disclosure: Long O
Relevant Articles:
- The right time to sell dividend stocks
- Dividend Aristocrats List for 2010
- The right time to buy dividend stocks
- Realty Income (O) Dividend Stock Analysis
The companies in the news include Realty Income (O), Williams-Sonoma, Inc. (WSM), ConocoPhillips (COP), Raytheon Company (RTN), Brinker International, Inc. (EAT), Starbucks (SBUX) and Hingham Institution for Savings (HIFS).
Realty Income Corporation (O) engages in the acquisition and ownership of commercial retail real estate properties in the United States. The company announced a miniscule distribution increase to $0.1433125 per share from $0.143 per share. This was the 50th consecutive quarterly increase and the 57th dividend increase since this dividend achiever went public in 1994. The stock currently yields 5.60%. Check my analysis of the stock.
Williams-Sonoma, Inc. (WSM) operates as a specialty retailer of home products. The company increased its quarterly dividend to 13 cents/share from 12 cents/share. The company doesn’t have a long enough history of paying rising dividends and yields only 1.90%.
ConocoPhillips (COP) operates as an integrated energy company worldwide. The company raised dividends by 10% to 55 cents/share. This represents the tenth consecutive annual dividend increase for ConocoPhillips. The stock yields 4.30%.
Raytheon Company (RTN) provides electronics, mission systems integration, and other capabilities in the areas of sensing, effects, and command, control, communications, and intelligence systems, as well as mission support services in the United States and internationally. The company boosted quarterly dividends by 21% to 37.50 cents/share. This is the sixth consecutive annual dividend increase for the company. The stock yields 2.60% .
Hingham Institution for Savings (HIFS) provides various financial services to individuals and small businesses in Massachusetts. The company’s board of directors approved a 4.5% increase in its quarterly dividend to 23 cents/share. The company has raised quarterly distributions for 15 consecutive years. The stock is thinly traded, and the market cap is only 70 million dollars. The stock yields 3.30%.
Brinker International, Inc. (EAT) owns, develops, operates, and franchises various restaurant brands primarily in the United States. The company increased its quarterly dividend by 27% to 14 cents/share. This was the first dividend increase since 2007. The company doesn’t seem to have followed a strategy of consistent dividend increases every year. The stock yields 2.90%.
Starbucks (SBUX) engages in the purchase, roasting, and sale of whole bean coffees worldwide. The company’s board of directors approved the first quarterly dividend ever in the company’s 25 year history. The stock would pay 10 cents/quarter. The indicated yield is 1.60%.
I was able to uncover a hidden gem in this week’s overview of dividend increase announcements. The gem is called Hingham Institution for Savings (HIFS), a thinly traded stock with a market capitalization of $70 million dollars. The company yields more than 3%, has a low payout ratio and trades at a P/E of 9. Only 22% of the company’s stock is owned by institutions, and few analysts seem to follow this stock. I would be researching this company of course in a future stock report.
Realty Income (O) seems to keep raising distributions by smaller and smaller amounts. Given the high FFO payout and the lowest yield in years, I view the stock as a hold. The dividend announcement from Starbucks (SBUX) was bullish. If the company manages to boost distributions for at least one decade, I would definitely consider it for inclusion to my portfolio.
Full Disclosure: Long O
Relevant Articles:
- The right time to sell dividend stocks
- Dividend Aristocrats List for 2010
- The right time to buy dividend stocks
- Realty Income (O) Dividend Stock Analysis
Friday, March 26, 2010
Emerson Electric (EMR) Dividend Stock Analysis
Emerson Electric Co., is a diversified global technology company, that engages in designing and supplying product technology, as well as delivering engineering services and solutions to various industrial, commercial, and consumer markets worldwide. The company is a member of the dividend aristocrat index, having raised distributions for 53 consecutive years.
Over the past decade this dividend growth stock has delivered an annual average total return of 7% to its shareholders. The stock is up almost 100% from its 2009 lows.
The company has managed to deliver a 3.60% average annual increase in its EPS between 2000 and 2009. Analysts are expecting an increase in EPS to $2.41 in 2010 and $2.90 by 2011, which would be an increase from FY 2009 EPS of $2.27. Short-term results showed that despite the diversified business conducted in five major segments, the company is not immune to cyclical movements in the overall economy. After steep declines in revenues in 2009, analysts expect Emerson to report flat revenues in FY 2010, followed by an increase as a result of the pickup in economic activity later this year. The company is focusing its long-term growth efforts in emerging markets, telecom and retail industries as well as services, power generation and process automation technologies as well as product innovation.
The Return on Equity has increased over the past decade from a low of 14.50% in 2000 to 19.50% in 2009. Rather than focus on absolute values for this indicator, I generally want to see at least a stable return on equity over time.
The annual dividend payment has increased by an average of 7% annually since 2000, which is slightly lower than the growth in EPS.
A 7 % growth in dividends translates into the dividend payment doubling every 10 years. If we look at historical data, going as far back as 1982, Emerson Electric Co. has actually managed to double its dividend payment every nine years on average.
The dividend payout ratio remained below 50% for the majority of the past decade. The only exception were the 2001-2003 and 2009 periods, because profitability suffered from economic downturns at the time. A lower payout is always a plus, since it leaves room for consistent dividend growth minimizing the impact of short-term fluctuations in earnings.
Currently Emerson Electric is trading at a Price to Earnings multiple of 21.50, yields 2.80% and has a dividend payout that is higher than 50%. Despite the fact that the company has a good business model, the stock is slightly overvalued at the moment. I would only add to my position in the stock on dips below $45.
Full Disclosure: Long EMR
Relevant Articles:
- Dividend Aristocrats List for 2010
- Ten Dividend Kings raising dividends for over 50 years
- Where are the original Dividend Aristocrats now?
- Estimating future Dividend Growth
Over the past decade this dividend growth stock has delivered an annual average total return of 7% to its shareholders. The stock is up almost 100% from its 2009 lows.
The company has managed to deliver a 3.60% average annual increase in its EPS between 2000 and 2009. Analysts are expecting an increase in EPS to $2.41 in 2010 and $2.90 by 2011, which would be an increase from FY 2009 EPS of $2.27. Short-term results showed that despite the diversified business conducted in five major segments, the company is not immune to cyclical movements in the overall economy. After steep declines in revenues in 2009, analysts expect Emerson to report flat revenues in FY 2010, followed by an increase as a result of the pickup in economic activity later this year. The company is focusing its long-term growth efforts in emerging markets, telecom and retail industries as well as services, power generation and process automation technologies as well as product innovation.
The Return on Equity has increased over the past decade from a low of 14.50% in 2000 to 19.50% in 2009. Rather than focus on absolute values for this indicator, I generally want to see at least a stable return on equity over time.
The annual dividend payment has increased by an average of 7% annually since 2000, which is slightly lower than the growth in EPS.
A 7 % growth in dividends translates into the dividend payment doubling every 10 years. If we look at historical data, going as far back as 1982, Emerson Electric Co. has actually managed to double its dividend payment every nine years on average.
The dividend payout ratio remained below 50% for the majority of the past decade. The only exception were the 2001-2003 and 2009 periods, because profitability suffered from economic downturns at the time. A lower payout is always a plus, since it leaves room for consistent dividend growth minimizing the impact of short-term fluctuations in earnings.
Currently Emerson Electric is trading at a Price to Earnings multiple of 21.50, yields 2.80% and has a dividend payout that is higher than 50%. Despite the fact that the company has a good business model, the stock is slightly overvalued at the moment. I would only add to my position in the stock on dips below $45.
Full Disclosure: Long EMR
Relevant Articles:
- Dividend Aristocrats List for 2010
- Ten Dividend Kings raising dividends for over 50 years
- Where are the original Dividend Aristocrats now?
- Estimating future Dividend Growth
Monday, March 22, 2010
PepsiCo (PEP): a consistent dividend aristocrat
Most dividend investors require consistency from their stock positions. As a result companies which are able to generate rising dividend income over time are viewed more favorably in comparison to companies such as Pfizer (GE) or General Electric (GE), which have followed an inconsistent dividend policy over the past two years.
Just last week General Electric (GE) forecasted that there is a high chance for a dividend increase in 2011, coupled with a resumption of the company’s stock buyback plan and retirement of the company’s preferred stock. General Electric (GE) has had a pretty terrible timing of its share buyback plan over the past decade. The company spent billions between 2005 and 2007 repurchasing 513 million shares when prices were high. By 2009 the company had issued 517 million shares at much lower prices, in order to obtain liquidity in the wake of the global financial crisis. If the company does start increasing dividends in 2011 however, this could be a bullish sign. It would take at least a decade of consistent dividend raises however in order for the dividend to reach its previous levels of 31 cents/share.
Compare this to the consistency of PepsiCo, Inc. (PEP), which manufactures, markets, and sells various foods, snacks, and carbonated and non-carbonated beverages worldwide. Last week the company announced a 7% increase in its quarterly dividend to 48 cents/share. This is the thirty-eight consecutive annual dividend increase for this dividend aristocrat. The company's Board of Directors also authorized the repurchase of up to $15 billion of PepsiCo common stock through June 2013. The stock currently yields 2.90%. Check my analysis of the stock. Dividend author Dave Van Knapp has included the company in his most recent book "The Top 40 Dividend Stocks for 2010". The company is also one of the Best Dividends Stocks for the Long Run.
PepsiCo (PEP) is a reliable dividend stock, which is attractively priced at the moment despite its forward yield of 2.90% being a tad lower than my entry requirement of 3%. My ideal entry price at PepsiCo would be $64, for those investors waiting for better prices. Investors have to weigh in the risks of waiting for a better price, versus the risk of missing out completely on any upside action if the company doesn’t go below $64/share.
Full Disclosure: Long PEP
Relevant Articles:
- Dividend Aristocrats List for 2010
- The right time to buy dividend stocks
- Dividends versus Share Buybacks/Stock repurchases
- PepsiCo (PEP) Dividend Stock Analysis
Just last week General Electric (GE) forecasted that there is a high chance for a dividend increase in 2011, coupled with a resumption of the company’s stock buyback plan and retirement of the company’s preferred stock. General Electric (GE) has had a pretty terrible timing of its share buyback plan over the past decade. The company spent billions between 2005 and 2007 repurchasing 513 million shares when prices were high. By 2009 the company had issued 517 million shares at much lower prices, in order to obtain liquidity in the wake of the global financial crisis. If the company does start increasing dividends in 2011 however, this could be a bullish sign. It would take at least a decade of consistent dividend raises however in order for the dividend to reach its previous levels of 31 cents/share.
Compare this to the consistency of PepsiCo, Inc. (PEP), which manufactures, markets, and sells various foods, snacks, and carbonated and non-carbonated beverages worldwide. Last week the company announced a 7% increase in its quarterly dividend to 48 cents/share. This is the thirty-eight consecutive annual dividend increase for this dividend aristocrat. The company's Board of Directors also authorized the repurchase of up to $15 billion of PepsiCo common stock through June 2013. The stock currently yields 2.90%. Check my analysis of the stock. Dividend author Dave Van Knapp has included the company in his most recent book "The Top 40 Dividend Stocks for 2010". The company is also one of the Best Dividends Stocks for the Long Run.
PepsiCo (PEP) is a reliable dividend stock, which is attractively priced at the moment despite its forward yield of 2.90% being a tad lower than my entry requirement of 3%. My ideal entry price at PepsiCo would be $64, for those investors waiting for better prices. Investors have to weigh in the risks of waiting for a better price, versus the risk of missing out completely on any upside action if the company doesn’t go below $64/share.
Full Disclosure: Long PEP
Relevant Articles:
- Dividend Aristocrats List for 2010
- The right time to buy dividend stocks
- Dividends versus Share Buybacks/Stock repurchases
- PepsiCo (PEP) Dividend Stock Analysis
Friday, March 19, 2010
Abbott Labs (ABT) Dividend Stock Analysis
Abbott Laboratories engages in the discovery, development, manufacture, and sale of health care products worldwide. It operates in four segments: Pharmaceutical Products, Diagnostic Products, Nutritional Products, and Vascular Products. The company is a component of the S&P 500 and the dividend aristocrat indexes. Abbott Laboratories has increased dividends for 38 years in a row. Most recently Abbott raised its quarterly dividend payment by 10% to $0.44/share. Dividend author Dave Van Knapp has included the company in his most recent book "The Top 40 Dividend Stocks for 2010".
For the past decade this dividend stock has delivered a total return of 7.3% annually.
At the same time the company has managed to increase earnings per share by 8.40% on average since the year 2000. For fiscal years 2010 and 2011, analysts expect EPS to increase to $4.24 and $4.77. This would be a nice increase from the $3.69 in earnings per share that the company booked for FY 2009. Analysts also expect an over 7% increase in sales for FY 2010 to 33 billion dollars, excluding the recently completed acquisition of Belgium based Solvay’s pharmaceuticals unit. This deal would add $0.10/share in FY 2010 and $0.20/share in FY 2011. I like the strong product pipeline of Abbott, as well as the potential for new launches. There could be some generic competition for some of Abbott’s products but overall the forecast for future revenue increases is quite rosy. Last year’s acquisition of Advanced Medical Optics exposes the company in the rapidly growing market for LASIK and Cataract procedures.
The company also delivers a little over half of its sales from international markets. Almost 18% of its sales come from the drug Humira, which treats rheumatoid arthritis and psoriatic arthritis. This drug is expected to continue delivering strong sales growth in the next few years for Abbott Labs. In June 2009, a federal jury has returned a verdict of $1.67 billion against Abbott Laboratories in a patent infringement suit. The other party to the suit was Johnson & Johnson (JNJ). Abbott Labs (ABT) is currently appealing the verdict.
The ROE has largely remained between 12% and 28% after falling from its 2000 highs over 34%.
The company has managed to increase its annual dividend by 8.60% on average over the past decade. A 9% increase in dividends translates into the dividend payment doubling every 8 years. Since 1986 Abbott Laboratories has managed to double its dividend every 6 years on average.
The dividend payout ratio has largely remained above 50% over the past decade, with spikes in 2001 and 2006 caused by lower earnings. A lower payout is always a plus, since it leaves room for consistent dividend growth minimizing the impact of short-term fluctuations in earnings. Currently the dividend payout ratio is below 50%.
Overall Abbott Laboratories (ABT) is attractively valued currently, trading at a P/E of 15, dividend yield of 3.20% and an adequately covered dividend. While I don't expect to earn as much as this early Abbott Labs (ABT) investor, I still believe that there is room for substantial total returns in this position. I would consider be adding to this position.
Full Disclosure: Long ABT
Relevant Articles:
- The Top 40 Dividend Stocks for 2010
- Four notable dividend increases
- Dividend Growth beats Dividend Yield in the long run
- Dividends Stocks versus Fixed Income
- Not all dividend stocks are overvalued
For the past decade this dividend stock has delivered a total return of 7.3% annually.
At the same time the company has managed to increase earnings per share by 8.40% on average since the year 2000. For fiscal years 2010 and 2011, analysts expect EPS to increase to $4.24 and $4.77. This would be a nice increase from the $3.69 in earnings per share that the company booked for FY 2009. Analysts also expect an over 7% increase in sales for FY 2010 to 33 billion dollars, excluding the recently completed acquisition of Belgium based Solvay’s pharmaceuticals unit. This deal would add $0.10/share in FY 2010 and $0.20/share in FY 2011. I like the strong product pipeline of Abbott, as well as the potential for new launches. There could be some generic competition for some of Abbott’s products but overall the forecast for future revenue increases is quite rosy. Last year’s acquisition of Advanced Medical Optics exposes the company in the rapidly growing market for LASIK and Cataract procedures.
The company also delivers a little over half of its sales from international markets. Almost 18% of its sales come from the drug Humira, which treats rheumatoid arthritis and psoriatic arthritis. This drug is expected to continue delivering strong sales growth in the next few years for Abbott Labs. In June 2009, a federal jury has returned a verdict of $1.67 billion against Abbott Laboratories in a patent infringement suit. The other party to the suit was Johnson & Johnson (JNJ). Abbott Labs (ABT) is currently appealing the verdict.
The ROE has largely remained between 12% and 28% after falling from its 2000 highs over 34%.
The company has managed to increase its annual dividend by 8.60% on average over the past decade. A 9% increase in dividends translates into the dividend payment doubling every 8 years. Since 1986 Abbott Laboratories has managed to double its dividend every 6 years on average.
The dividend payout ratio has largely remained above 50% over the past decade, with spikes in 2001 and 2006 caused by lower earnings. A lower payout is always a plus, since it leaves room for consistent dividend growth minimizing the impact of short-term fluctuations in earnings. Currently the dividend payout ratio is below 50%.
Overall Abbott Laboratories (ABT) is attractively valued currently, trading at a P/E of 15, dividend yield of 3.20% and an adequately covered dividend. While I don't expect to earn as much as this early Abbott Labs (ABT) investor, I still believe that there is room for substantial total returns in this position. I would consider be adding to this position.
Full Disclosure: Long ABT
Relevant Articles:
- The Top 40 Dividend Stocks for 2010
- Four notable dividend increases
- Dividend Growth beats Dividend Yield in the long run
- Dividends Stocks versus Fixed Income
- Not all dividend stocks are overvalued
Wednesday, March 17, 2010
The right time to buy dividend stocks
With the market getting overextended for several months now, and my unwillingness to chase many dividends stocks, it is time to reflect on whether I am doing the right thing or not. Some stocks such as Emerson Electric (EMR) and Realty Income (O) which I was going to add to either in March or in April are trading at valuations that seem richer than what I am willing to pay for at the time.
After writing dividend growth investor blog for over two years now, I have been able to observe investor reaction to my posts. My main source of ideas for improvement has always been with comments which offer some sort of criticism, be it constructive or not. It is understandable however that one cannot please everyone, and as a result I have pretty much kept at my ideas that dividend growth investing is a superior investing strategy for investors at all stages in their life. One of the largest criticisms that I often receive is from investors with a short-term vision in mind. Back in early 2008, the problem for owning US stocks was the weakening of the US dollar and the rise in oil prices. Somehow all commodity rich developing countries which were selling natural resources at inflated prices were being touted as the next big thing. Of course once the bubble collapsed in 2008, many countries such as Russia were hit hard and the lack of diversification in their economies was much evident.
Back in late 2008 and early 2009 most investors were constantly being bombarded with negative stories about the end of buy and hold and the death of dividend investing after a record number of dividend cuts occurred. Of course it is difficult to separate the short-term noise, from the long term story behind the economy or a particular business. The truth is that in order to be successful in investing, one should stick to a certain strategy through thick and thin. Thinking too often could cause investors to deviate from their plans, and suffer from consequences as a result. Famous speculator Jesse Livermore once said that money is made by sitting, not by thinking. It is uncommon to find men who are both right and sit tight as well.
The first few months of the bear market recovery that began in March 2009 were characterized by bears speculating about a double dip recession, nationalization of major banks etc. After a few months of stocks hitting new 52 week high however, the risk of missing out on the rally and having to pay higher prices in the future if money is not deployed now is increasing every day.
Warren Buffett had mentioned in one of his letter sto shareholders that he would rather buy an excellent business at a fair price, rather than purchase a lousy business at a fire sale price. Speaking of the two companies I mentioned above, I have to decide whether they are excellent business trading at rich valuation, or whether they represent average businesses trading at inflated prices.
My strategy for my dividend portfolio is to dollar cost average my way into approximately ten stocks per month, reinvesting dividends selectively and building a diversified portfolio.
The truth of the matter is that if I keep following my strategy, it shouldn’t really matter in the long run whether I purchased Emerson (EMR) at 45 or at 48. This should hold true as long as I do not have more than 3 or 4% allocated to that position and as long as the company is able to generate a sufficient enough earnings growth to power up the dividend hikes into the next decade. Time and again I have noticed how some of the best dividend growth stories ever such as Gillette, Geico, Wal-Mart (WMT) or McDonald’s (MCD) didn’t yield much, yet they had outstanding competitive advantages and solid dividend and earnings growth. Currently Emerson Electric (EMR) and Realty Income (O) offer their lowest yields in many months, which coupled with the low dividend growth as of lately make them a pass until the next dip in prices. However, given the fact that there is seldom any “perfect time” to deploy cash, I would definitely add to those two positions on the next dip.
Full Disclosure: Long EMR, MCD, O and WMT
Relevant Articles:
- Realty Income (O) Dividend Stock Analysis
- Ten Dividend Kings raising dividends for over 50 years
- Buffett the dividend investor
- Should you re-invest your dividends?
After writing dividend growth investor blog for over two years now, I have been able to observe investor reaction to my posts. My main source of ideas for improvement has always been with comments which offer some sort of criticism, be it constructive or not. It is understandable however that one cannot please everyone, and as a result I have pretty much kept at my ideas that dividend growth investing is a superior investing strategy for investors at all stages in their life. One of the largest criticisms that I often receive is from investors with a short-term vision in mind. Back in early 2008, the problem for owning US stocks was the weakening of the US dollar and the rise in oil prices. Somehow all commodity rich developing countries which were selling natural resources at inflated prices were being touted as the next big thing. Of course once the bubble collapsed in 2008, many countries such as Russia were hit hard and the lack of diversification in their economies was much evident.
Back in late 2008 and early 2009 most investors were constantly being bombarded with negative stories about the end of buy and hold and the death of dividend investing after a record number of dividend cuts occurred. Of course it is difficult to separate the short-term noise, from the long term story behind the economy or a particular business. The truth is that in order to be successful in investing, one should stick to a certain strategy through thick and thin. Thinking too often could cause investors to deviate from their plans, and suffer from consequences as a result. Famous speculator Jesse Livermore once said that money is made by sitting, not by thinking. It is uncommon to find men who are both right and sit tight as well.
The first few months of the bear market recovery that began in March 2009 were characterized by bears speculating about a double dip recession, nationalization of major banks etc. After a few months of stocks hitting new 52 week high however, the risk of missing out on the rally and having to pay higher prices in the future if money is not deployed now is increasing every day.
Warren Buffett had mentioned in one of his letter sto shareholders that he would rather buy an excellent business at a fair price, rather than purchase a lousy business at a fire sale price. Speaking of the two companies I mentioned above, I have to decide whether they are excellent business trading at rich valuation, or whether they represent average businesses trading at inflated prices.
My strategy for my dividend portfolio is to dollar cost average my way into approximately ten stocks per month, reinvesting dividends selectively and building a diversified portfolio.
The truth of the matter is that if I keep following my strategy, it shouldn’t really matter in the long run whether I purchased Emerson (EMR) at 45 or at 48. This should hold true as long as I do not have more than 3 or 4% allocated to that position and as long as the company is able to generate a sufficient enough earnings growth to power up the dividend hikes into the next decade. Time and again I have noticed how some of the best dividend growth stories ever such as Gillette, Geico, Wal-Mart (WMT) or McDonald’s (MCD) didn’t yield much, yet they had outstanding competitive advantages and solid dividend and earnings growth. Currently Emerson Electric (EMR) and Realty Income (O) offer their lowest yields in many months, which coupled with the low dividend growth as of lately make them a pass until the next dip in prices. However, given the fact that there is seldom any “perfect time” to deploy cash, I would definitely add to those two positions on the next dip.
Full Disclosure: Long EMR, MCD, O and WMT
Relevant Articles:
- Realty Income (O) Dividend Stock Analysis
- Ten Dividend Kings raising dividends for over 50 years
- Buffett the dividend investor
- Should you re-invest your dividends?
Monday, March 15, 2010
Bank Shareholders: Forget About Dividend Increases
The most important dividend events of the past week included news that have regulators warned financial companies to restrict dividend increases and stock buybacks for the near future. According to Reuters, executives from Goldman Sachs (GS) and JP Morgan Chase (JPM) have had talks with regulators about returning more cash to shareholders. US Bancorp (USB) CEO was quoted saying that his bank has the ability to pay a higher dividend, although it is waiting for the green light by regulators. The issue is that once solid financial institutions such as US Bancorp (USB), Goldman Sachs (GS) and JP Morgan Chase (JPM) begin returning cash to shareholders, weaker companies might be forced to return cash to shareholders as well. Otherwise such companies might be at a disadvantage. Before the financial crisis hit Wall Street, banks and other financial institutions were favored amongst dividend investors for their dividend growth and solid dividend yields, fueled by their believed to be solid business models. The major financial institutions which were forced out of the Dividend Aristocrats list, after cutting dividends in response to TARP included Bank of America (BAC), State Street (STT) and US Bancorp (USB). The lesson that investors should have learned is to never fall in love with a certain sector so much that it represents a substantial chunk of your portfolio – always diversify risk across sectors.
Other than that few notable dividend increases occurred last week. The companies raising distributions were:
Lennox International Inc. (LII), through its subsidiaries, engages in the design, manufacture, and marketing of a range of products for heating, ventilation, air conditioning, and refrigeration markets in the United States, Canada, and internationally. The company raised quarterly distributions by 7% to 15 cents/share. This is the first dividend increase for the company since 2007. The stock yields only 1.30%.
Warwick Valley Telephone Company (WWVY) provides communication services to the residential and business customers in the United States. The company’s board of directors raised quarterly dividend by 9.10% to 24 cents/share. This is the second annual dividend increase for this company since 2009. The stock yields 7.30%.
Birner Dental Management Services, Inc. (BDMS), together with its subsidiaries, provides business services to dental group practices in Colorado, New Mexico, and Arizona. The company’s board of directors raised quarterly dividend by 17% to 20 cents/share. This is the first dividend increase for the company since 2008. The stock yields 5.10%.
Cohen & Steers, Inc. (CNS) manages income-oriented equity portfolios in the United States. The company’s board of directors doubled the quarterly dividend to 10 cents/share. Before you get too excited, investors should note that the new distribution is less than half of the highest quarterly distribution of 22 cents/share paid in 2008. The stock yields 1.70%.
Applied Materials, Inc. (AMAT) provides nanomanufacturing technology solutions for the semiconductor, flat panel display, solar, and related industries worldwide. The company’s board of directors boosted the quarterly dividend by 17% to 7 cents/share. This is the first dividend increase since 2007. The stock currently yields 2.30%.
Medicis Pharmaceutical Corporation (MRX), a specialty pharmaceutical company, engages in the development and marketing of products for the treatment of dermatological and aesthetic conditions in the United States, Canada, and Europe. The company raised its quarterly dividend by 50% to 6 cents/share. This was the first dividend increase since 2008. The stock currently yields only 1%.
Staples, Inc. (SPLS), together with its subsidiaries, operates as an office products company. The company sells various office supplies and services, business machines and related products, computers and related products, and office furniture. The company raised its quarterly dividend by 9% to 9 cents/share. This was the first increase in distributions since 2008. The stock yields only 1.50%.
I typically look for businesses with strong competitive advantages, which generate enough cash flows to not only grow the business, but also to pay increasing distributions. None of the companies mentioned above fit this criterion, as well as my ten year dividend growth requirement.
Full Disclosure: None
Relevant Articles:
- Which Bank will be next? Follow the dividend cuts
- US Bancorp (USB) cuts its dividend by 88%
- Yet Another Financial Company Cutting Dividends
- Dividend Cuts - the worst nightmare for dividend investors
- The ten year dividend growth requirement
Other than that few notable dividend increases occurred last week. The companies raising distributions were:
Lennox International Inc. (LII), through its subsidiaries, engages in the design, manufacture, and marketing of a range of products for heating, ventilation, air conditioning, and refrigeration markets in the United States, Canada, and internationally. The company raised quarterly distributions by 7% to 15 cents/share. This is the first dividend increase for the company since 2007. The stock yields only 1.30%.
Warwick Valley Telephone Company (WWVY) provides communication services to the residential and business customers in the United States. The company’s board of directors raised quarterly dividend by 9.10% to 24 cents/share. This is the second annual dividend increase for this company since 2009. The stock yields 7.30%.
Birner Dental Management Services, Inc. (BDMS), together with its subsidiaries, provides business services to dental group practices in Colorado, New Mexico, and Arizona. The company’s board of directors raised quarterly dividend by 17% to 20 cents/share. This is the first dividend increase for the company since 2008. The stock yields 5.10%.
Cohen & Steers, Inc. (CNS) manages income-oriented equity portfolios in the United States. The company’s board of directors doubled the quarterly dividend to 10 cents/share. Before you get too excited, investors should note that the new distribution is less than half of the highest quarterly distribution of 22 cents/share paid in 2008. The stock yields 1.70%.
Applied Materials, Inc. (AMAT) provides nanomanufacturing technology solutions for the semiconductor, flat panel display, solar, and related industries worldwide. The company’s board of directors boosted the quarterly dividend by 17% to 7 cents/share. This is the first dividend increase since 2007. The stock currently yields 2.30%.
Medicis Pharmaceutical Corporation (MRX), a specialty pharmaceutical company, engages in the development and marketing of products for the treatment of dermatological and aesthetic conditions in the United States, Canada, and Europe. The company raised its quarterly dividend by 50% to 6 cents/share. This was the first dividend increase since 2008. The stock currently yields only 1%.
Staples, Inc. (SPLS), together with its subsidiaries, operates as an office products company. The company sells various office supplies and services, business machines and related products, computers and related products, and office furniture. The company raised its quarterly dividend by 9% to 9 cents/share. This was the first increase in distributions since 2008. The stock yields only 1.50%.
I typically look for businesses with strong competitive advantages, which generate enough cash flows to not only grow the business, but also to pay increasing distributions. None of the companies mentioned above fit this criterion, as well as my ten year dividend growth requirement.
Full Disclosure: None
Relevant Articles:
- Which Bank will be next? Follow the dividend cuts
- US Bancorp (USB) cuts its dividend by 88%
- Yet Another Financial Company Cutting Dividends
- Dividend Cuts - the worst nightmare for dividend investors
- The ten year dividend growth requirement
Friday, March 12, 2010
Procter & Gamble (PG) Stock Dividend Analysis
The Procter & Gamble Company engages in the manufacture and sale of consumer goods worldwide. The company operates in three global business units (GBUs): Beauty, Health and Well-Being, and Household Care. This dividend aristocrat has raised distributions for 53 consecutive years.
This dividend stock has delivered an average annual total return of 3.30% over the past decade.
Earnings per share have grown at an average pace of 12.50% per annum. For FY 2010, analysts expect the company to earn $4.15/share, which is higher than 2009’s EPS of $3.58. For FY 2011 analysts expect Procter & Gamble to earn $4.10/share. The company has focused on cost cutting, improving efficiencies and streamlining its product portfolio over the past few years. It sold its Folgers Unit and exited its pharmaceuticals operations. As consumer spending picks up, the company’s recognizable brand products could get a nice boost in sales, especially if it increases advertising. Emerging and developing markets, product innovation, focusing on high margin products as well as strategic acquisitions could deliver strong earnings growth over the next decade. The demand for the company’s line of consumer products is generally stable and not much affected by overall economic conditions. The company continues to benefit from its acquisition of Gillette, through cost synergies and sales growth opportunities from its diverse sales channels.
- Colgate-Palmolive (CL) Dividend Stock Analysis
This dividend stock has delivered an average annual total return of 3.30% over the past decade.
Earnings per share have grown at an average pace of 12.50% per annum. For FY 2010, analysts expect the company to earn $4.15/share, which is higher than 2009’s EPS of $3.58. For FY 2011 analysts expect Procter & Gamble to earn $4.10/share. The company has focused on cost cutting, improving efficiencies and streamlining its product portfolio over the past few years. It sold its Folgers Unit and exited its pharmaceuticals operations. As consumer spending picks up, the company’s recognizable brand products could get a nice boost in sales, especially if it increases advertising. Emerging and developing markets, product innovation, focusing on high margin products as well as strategic acquisitions could deliver strong earnings growth over the next decade. The demand for the company’s line of consumer products is generally stable and not much affected by overall economic conditions. The company continues to benefit from its acquisition of Gillette, through cost synergies and sales growth opportunities from its diverse sales channels.
The annual dividend per share has increased by an average of 11% annually, which is below the growth in earnings. An 11% growth in dividends translates into the payment doubling every almost every six and a half years. Procter & Gamble has managed to double its distributions every seven years on average since 1973.
The return on equity has decreased since the acquisition of Gillette in 2006.
The dividend payout ratio has consistently remained below 50%. A lower payout is always a plus, since it leaves room for consistent dividend growth minimizing the impact of short-term fluctuations in earnings.
The return on equity has decreased since the acquisition of Gillette in 2006.
The dividend payout ratio has consistently remained below 50%. 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 Procter & Gamble is attractively valued with its low price/earnings multiple of 15, a not too high DPR. However the current dividend yield is below the 3% minimum threshold that I have set. Two of PG’s competitors, Colgate-Palmolive (CL) and Kimberly-Clark (KMB) trade at P/E multiples of 19 and 13 times earnings respectively. Colgate-Palmolive currently spots a 2.60% dividend yield, while Kimberly-Clark has a 4.00% yield. I would consider adding to my Procter & Gamble holdings on dips below $59.
Full Disclosure: Long PG
Relevant Articles:
- Colgate-Palmolive (CL) Dividend Stock Analysis
Wednesday, March 10, 2010
Capitalize on China’s Growth with these dividend stocks
China seems to be the engine of global growth these days. The country has managed to turn itself into the manufacturing facility of the world, producing almost everything that consumers in the western world need. It is being said that investing in China in 2010 is similar to investing in USA in 1910 or investing in the UK in 1810. Whether this turns out to be true or not, the Chinese economy has managed to expand rapidly over the past decade, fueled by demand for cheap goods which its skilled and low-cost labor force produces for worldwide markets. While there are plenty of ways to invest in the Chinese economic growth, including Chinese listed ADRs traded on the NYSE or Nasdaq, few have a long history of dividend increases, which would make them an interesting income play.
Most global companies do have a presence in China however. Some of these companies have had operations in the country for years, and have also developed a strategy for expanding their business there, which would provide strong earnings and dividend growths for the future. Some of these companies include well known dividend stocks such as McDonald’s (MCD), Coca Cola (KO), Wal-Mart (WMT) and Philip Morris International (PM).
While Philip Morris International (PM) does face declining demand in Western Europe, which accounted for a little less than 50% of its operating income, the company could benefit from growth in emerging markets such as China or India as well as from strategic acquisitions. The company’s low penetration in the Chinese market, which represents one third of the worldwide demand for tobacco products, could present an attractive opportunity. PMI has reached an agreement with the China National Tobacco Company (CNTC) for the licensed production of Marlboro China and the establishment of an international equity joint venture outside of China. In August 2008 production of Marlboro began under license in two factories. The joint venture has successfully launched three Chinese heritage brands in six international markets. Check my analysis of the stock.
Coca Cola (KO) has operated in China since 1979 and was a major sponsor of the recent summer Olympic Games held in Beijing. The company is planning to triple the size of its sales in China over the next decade, and double the size of its bottling plants in the country. China is the third largest country for Coca Cola by revenues, and it’s also a big part of the company’s expected growth in sales over the next decade. Coca Cola is already the largest soft drinks brand in China and its volumes are twice the size of rival PepsiCo (PEP). The potential of the Chinese market is immense – last year there was an average per capita annual consumption of 28 Coke products in China, which was much lower than the 199 Coke products in per capita consumption in Brazil (source). Check my analysis of the stock.
Wal-Mart (WMT) currently has 267 locations in China, operating under Wal-Mart or Trust Mart’s names. The company had 3615 international locations at the end of 2008. There is still room for growth in Chinese operations, fueled by the increase in number of middle-class families in the country. For Wal-Mart, China represents the biggest frontier since it conquered America. China's voracious consumers are pushing retail sales to a 15 percent annual growth rate; that market will hit $860 billion by 2009, according to Bain & Co. (source). Check my analysis of the stock.
McDonald’s (MCD) currently owns over 2000 stores in China. The company has an ambitious plan to expand operations by developing 500 new locations in 3 years. McDonald’s opened 146 restaurants in 2008 and earlier this year expected to open 175 restaurants in 2009. The company has been able to increase sales volumes by expanding its menu of items, offering convenient store hours and opening drive-thrus in the process. Restaurants with drive-thrus are more likely to achieve higher sales and satisfy the demands of the increasingly mobile society in China. Expanding store hours and adding breakfast items to the menu is another opportunity for internal growth at Mcdonald’s Chine operations. Check my analysis of the stock.
McDonald’s (MCD), Wal-Mart (WMT) and Coca-Cola (KO) have each raised dividends for more than 25 years in row. Expanding their operations in China would be the cornerstone that would provide the necessary earnings growth for these dividend aristocrats to be able to raise distributions for the next two decades.
Full Disclosure: Long MCD, PM, WMT, KO
Relevant Articles:
- Philip Morris International versus Altria
- Seven dividend aristocrats that Buffett owns
- Dividend Aristocrats List for 2010
- Valuing Dividend Stocks
Most global companies do have a presence in China however. Some of these companies have had operations in the country for years, and have also developed a strategy for expanding their business there, which would provide strong earnings and dividend growths for the future. Some of these companies include well known dividend stocks such as McDonald’s (MCD), Coca Cola (KO), Wal-Mart (WMT) and Philip Morris International (PM).
While Philip Morris International (PM) does face declining demand in Western Europe, which accounted for a little less than 50% of its operating income, the company could benefit from growth in emerging markets such as China or India as well as from strategic acquisitions. The company’s low penetration in the Chinese market, which represents one third of the worldwide demand for tobacco products, could present an attractive opportunity. PMI has reached an agreement with the China National Tobacco Company (CNTC) for the licensed production of Marlboro China and the establishment of an international equity joint venture outside of China. In August 2008 production of Marlboro began under license in two factories. The joint venture has successfully launched three Chinese heritage brands in six international markets. Check my analysis of the stock.
Coca Cola (KO) has operated in China since 1979 and was a major sponsor of the recent summer Olympic Games held in Beijing. The company is planning to triple the size of its sales in China over the next decade, and double the size of its bottling plants in the country. China is the third largest country for Coca Cola by revenues, and it’s also a big part of the company’s expected growth in sales over the next decade. Coca Cola is already the largest soft drinks brand in China and its volumes are twice the size of rival PepsiCo (PEP). The potential of the Chinese market is immense – last year there was an average per capita annual consumption of 28 Coke products in China, which was much lower than the 199 Coke products in per capita consumption in Brazil (source). Check my analysis of the stock.
Wal-Mart (WMT) currently has 267 locations in China, operating under Wal-Mart or Trust Mart’s names. The company had 3615 international locations at the end of 2008. There is still room for growth in Chinese operations, fueled by the increase in number of middle-class families in the country. For Wal-Mart, China represents the biggest frontier since it conquered America. China's voracious consumers are pushing retail sales to a 15 percent annual growth rate; that market will hit $860 billion by 2009, according to Bain & Co. (source). Check my analysis of the stock.
McDonald’s (MCD) currently owns over 2000 stores in China. The company has an ambitious plan to expand operations by developing 500 new locations in 3 years. McDonald’s opened 146 restaurants in 2008 and earlier this year expected to open 175 restaurants in 2009. The company has been able to increase sales volumes by expanding its menu of items, offering convenient store hours and opening drive-thrus in the process. Restaurants with drive-thrus are more likely to achieve higher sales and satisfy the demands of the increasingly mobile society in China. Expanding store hours and adding breakfast items to the menu is another opportunity for internal growth at Mcdonald’s Chine operations. Check my analysis of the stock.
McDonald’s (MCD), Wal-Mart (WMT) and Coca-Cola (KO) have each raised dividends for more than 25 years in row. Expanding their operations in China would be the cornerstone that would provide the necessary earnings growth for these dividend aristocrats to be able to raise distributions for the next two decades.
Full Disclosure: Long MCD, PM, WMT, KO
Relevant Articles:
- Philip Morris International versus Altria
- Seven dividend aristocrats that Buffett owns
- Dividend Aristocrats List for 2010
- Valuing Dividend Stocks
Monday, March 8, 2010
Seven Dividend Increases in the news
Dividend Investing is more than just selecting stocks that pay dividends. Successful dividend investing is about selecting stocks with strong fundamentals, which not only generate enough cash to reinvest in the growth of the business, but also generate excess cash to pay a rising payment over time. On his 2009 letter to shareholders, Warren Buffett mentioned that ” the best businesses by far for owners continue to be those that have high returns on capital and that require little incremental investment to grow”. Most dividend growth stocks have exactly the same characteristics.
The stocks which raised distributions last week include:
Wal-Mart Stores, Inc. (WMT) operates retail stores in various formats worldwide. The company raised its annual dividend by 11% to $1.21/share. Walmart is a dividend aristocrat which has increased its dividend every year since its first declared dividend of $0.05 per share in March 1974. This dividend aristocrat currently yields 2.20%. (analysis)
WGL Holdings, Inc. (WGL) engages in the delivery and sale of natural gas, and provides energy-related products and services in the District of Columbia, Maryland, Virginia, and Delaware. The company increased its quarterly dividend by 2.70% to 37.75 cents/share. This is the 34th consecutive annual dividend increase for this dividend champion. The stock currently yields 4.50%.
General Dynamics Corporation (GD) provides business aviation; combat vehicles, weapons systems, and munitions; shipbuilding design and construction; and information systems, technologies, and services worldwide. The company increased its quarterly dividend by 10.50% to 42 cents/share. This is the 17th consecutive annual dividend increase for this dividend achiever. The stock currently yields 2.30%.
Myers Industries, Inc. (MYE) manufactures and distributes polymer products for industrial, agricultural, automotive, commercial, and consumer markets, primarily in North America, Central America, and South America. The company increased its quarterly dividend by 8% to 6.5 cents/share. This dividend achiever has raised distributions for almost two decades. The stock yields 2.60%.
Canadian Natural Resources Limited (CNQ) engages in the exploration, development, and production of crude oil and natural gas. The company increased its quarterly dividend by 42.90% to 0.15 Canadian dollars/share. This international dividend achiever has boosted distributions since the year 2000. The stock currently yields only 0.80%.
QUALCOMM Incorporated (QCOM) engages in the development, design, manufacture, and marketing of digital wireless telecommunications products and services. The company boosted its payout by 12% to 19 cents/share and announced a new 3 billion dollar stock buyback
program. The company has raised distributions since 2003. The stock currently yields 2%.
American Greetings Corporation (AM), together with its subsidiaries, engages in the design, manufacture, and sale of greeting cards and other social expression products worldwide. The company boosted distributions by 17% to 14 cents/share. This is the first quarterly increase since 2008, despite the fact that the company’s annual dividend has been on the rise since 2006. The stock yields 3.20%.
I continue to be bullish on Wal-Mart (WMT), despite its low current yield. I believe that it is an excellent business which has a strong competitive advantage. I would be a buyer on any dips to $50.
Full disclosure: Long WMT
Relevant Articles:
- Dividends versus Share Buybacks/Stock repurchases
- My biggest weakness as a dividend investor
- High yield stocks for current income
- Dividend Stocks in the news over the past week
The stocks which raised distributions last week include:
Wal-Mart Stores, Inc. (WMT) operates retail stores in various formats worldwide. The company raised its annual dividend by 11% to $1.21/share. Walmart is a dividend aristocrat which has increased its dividend every year since its first declared dividend of $0.05 per share in March 1974. This dividend aristocrat currently yields 2.20%. (analysis)
WGL Holdings, Inc. (WGL) engages in the delivery and sale of natural gas, and provides energy-related products and services in the District of Columbia, Maryland, Virginia, and Delaware. The company increased its quarterly dividend by 2.70% to 37.75 cents/share. This is the 34th consecutive annual dividend increase for this dividend champion. The stock currently yields 4.50%.
General Dynamics Corporation (GD) provides business aviation; combat vehicles, weapons systems, and munitions; shipbuilding design and construction; and information systems, technologies, and services worldwide. The company increased its quarterly dividend by 10.50% to 42 cents/share. This is the 17th consecutive annual dividend increase for this dividend achiever. The stock currently yields 2.30%.
Myers Industries, Inc. (MYE) manufactures and distributes polymer products for industrial, agricultural, automotive, commercial, and consumer markets, primarily in North America, Central America, and South America. The company increased its quarterly dividend by 8% to 6.5 cents/share. This dividend achiever has raised distributions for almost two decades. The stock yields 2.60%.
Canadian Natural Resources Limited (CNQ) engages in the exploration, development, and production of crude oil and natural gas. The company increased its quarterly dividend by 42.90% to 0.15 Canadian dollars/share. This international dividend achiever has boosted distributions since the year 2000. The stock currently yields only 0.80%.
QUALCOMM Incorporated (QCOM) engages in the development, design, manufacture, and marketing of digital wireless telecommunications products and services. The company boosted its payout by 12% to 19 cents/share and announced a new 3 billion dollar stock buyback
program. The company has raised distributions since 2003. The stock currently yields 2%.
American Greetings Corporation (AM), together with its subsidiaries, engages in the design, manufacture, and sale of greeting cards and other social expression products worldwide. The company boosted distributions by 17% to 14 cents/share. This is the first quarterly increase since 2008, despite the fact that the company’s annual dividend has been on the rise since 2006. The stock yields 3.20%.
I continue to be bullish on Wal-Mart (WMT), despite its low current yield. I believe that it is an excellent business which has a strong competitive advantage. I would be a buyer on any dips to $50.
Full disclosure: Long WMT
Relevant Articles:
- Dividends versus Share Buybacks/Stock repurchases
- My biggest weakness as a dividend investor
- High yield stocks for current income
- Dividend Stocks in the news over the past week
Friday, March 5, 2010
Kimberly-Clark Corporation (KMB) Stock Dividend Analysis
Kimberly-Clark Corporation (KMB), together with its subsidiaries, engages in the manufacture and marketing of health and hygiene products worldwide. Every day, 1.3 billion people - nearly a quarter of the world's population - trust K-C brands and the solutions they provide to enhance their health, hygiene and well-being. With brands such as Kleenex, Scott, Huggies, Pull-Ups, Kotex and Depend, Kimberly-Clark holds No. 1 or No. 2 share positions in more than 80 countries. This dividend aristocrat has boosted distributions for 38 years in a row. The most recent increase was in February 2010, when the company boosted distributions by 10% to 66 cents/share.
This dividend stock has delivered an average annual total return of 2.80% over the past decade.
Earnings per share have grown at an average pace of 3.40% annually. The company has also has repurchased 3% of its outstanding stock annually on average since 2001. For FY 2010, analysts expect the company to earn $4.95/share, which is higher than 2009’s EPS of $4.52. For FY 2011 analysts expect Kimberly-Clark to earn $5.36/share. As with other consumer products companies, the growth is likely to come from developing and emerging markets, rather than developed markets. Developed markets could benefit from cost cutting and efficiency profits, which would decrease the total price of doing business. Commodity prices could be detrimental to total costs at the company, as is the competitive nature of developed markets in which Kimberly-Clark does business.
The annual dividend payment per share has increased by an average of 9.30% annually, which is much higher than the growth in earnings. A 9% growth in dividends translates into the payment doubling every almost eight years. Kimberly-Clark has managed to double its distributions almost every eight years on average since 1986.
The return on equity has fluctuated between a low of 25.70% in 2006 and a high of 39.4% in 2009. Over the past few years it has remained above 30%, which is impressive.
The dividend payout ratio has been on the rise over the past decade, increasing from a low of 32.30% in 2000 to a high of 60% in 2006. Currently it is at 53%. The increase is mostly due to the faster rate of increase in dividends, whereas earnings growth has been somewhat sluggish. A lower payout is always a plus, since it leaves room for consistent dividend growth minimizing the impact of short-term fluctuations in earnings.
Currently Kimberly-Clark (KMB) is attractively valued at 13.30 times earnings, has an adequately covered dividend payment and yields 4%. Despite the fact that the company has grown slowly over the past decade, it could easily catch up over the next few years, which would make it a worthwhile investment. Add in the consistency of dividend increases and the stock buybacks, and you have a shareholder friendly management which is something hard to find these days.
Full Disclosure: Long KMB
Relevant Articles:
- Unilever (UL) Dividend Stock Analysis
- Diageo (DEO) Dividend Stock Analysis
- McGraw-Hill (MHP) Dividend Stock Analysis
- Brown-Forman Corporation (BF-B) Dividend Stock Analysis
This dividend stock has delivered an average annual total return of 2.80% over the past decade.
Earnings per share have grown at an average pace of 3.40% annually. The company has also has repurchased 3% of its outstanding stock annually on average since 2001. For FY 2010, analysts expect the company to earn $4.95/share, which is higher than 2009’s EPS of $4.52. For FY 2011 analysts expect Kimberly-Clark to earn $5.36/share. As with other consumer products companies, the growth is likely to come from developing and emerging markets, rather than developed markets. Developed markets could benefit from cost cutting and efficiency profits, which would decrease the total price of doing business. Commodity prices could be detrimental to total costs at the company, as is the competitive nature of developed markets in which Kimberly-Clark does business.
The annual dividend payment per share has increased by an average of 9.30% annually, which is much higher than the growth in earnings. A 9% growth in dividends translates into the payment doubling every almost eight years. Kimberly-Clark has managed to double its distributions almost every eight years on average since 1986.
The return on equity has fluctuated between a low of 25.70% in 2006 and a high of 39.4% in 2009. Over the past few years it has remained above 30%, which is impressive.
The dividend payout ratio has been on the rise over the past decade, increasing from a low of 32.30% in 2000 to a high of 60% in 2006. Currently it is at 53%. The increase is mostly due to the faster rate of increase in dividends, whereas earnings growth has been somewhat sluggish. A lower payout is always a plus, since it leaves room for consistent dividend growth minimizing the impact of short-term fluctuations in earnings.
Currently Kimberly-Clark (KMB) is attractively valued at 13.30 times earnings, has an adequately covered dividend payment and yields 4%. Despite the fact that the company has grown slowly over the past decade, it could easily catch up over the next few years, which would make it a worthwhile investment. Add in the consistency of dividend increases and the stock buybacks, and you have a shareholder friendly management which is something hard to find these days.
Full Disclosure: Long KMB
Relevant Articles:
- Unilever (UL) Dividend Stock Analysis
- Diageo (DEO) Dividend Stock Analysis
- McGraw-Hill (MHP) Dividend Stock Analysis
- Brown-Forman Corporation (BF-B) Dividend Stock Analysis
Wednesday, March 3, 2010
The ten year dividend growth requirement
After my post when to break your rules, some readers asked me whether it is reasonable to enter into a dividend investment, which has not raised dividends for more than 10 years in row.
The truth is that dividend investing should require intense scrutinizing of companies, in order to find the best stocks for ones portfolio. Otherwise, investors could end up getting whipsawed in and out of stocks, which would increase trading costs and would make them less likely to reach their goals. The reason behind requiring at least a decade of consistent dividend growth is to weed out all companies which are inconsistent in their dividend policies. Few companies which raise distributions for less than a decade end up on the dividend achievers list. In fact of the total universe of 10,000 US publicly traded stocks, less than 300 are included in the achievers list.
The best dividend stocks are typically characterized by having a strong durable competitive advantage, which allows them to grow earnings and increase dividends on an annual basis. A company which raised dividends for only a few years could have achieved that because it simply got lucky by being at the right place at the right economic cycle. Once the economic expansion or trend which boosted the company’s profitability ends, the company’s earnings would stop growing or worse could start declining. This is another major reason to avoid dividend growers with less than a decade of distribution raises.
That being said I do have several stocks on my watch list, which I would be happy to consider for inclusion in my dividend portfolio once the following characteristics are met:
1) Raising dividends for at least 10 consecutive years
2) Trading at no more than 20 times earnings
3) Having an adequately covered dividend payout ratio (or for REITs and MLPs a distribution payout ratio which is consistent with the ratio of the past few years)
4) Yielding at least 3%
The companies which one day could become dividend achievers that I am watching include:
Kellogg Company (K), together with its subsidiaries, engages in the manufacture and marketing of ready-to-eat cereal and convenience foods. Kellogg Company is a former dividend aristocrat, which has fought back to regain its status of a dividend growth stock since 2005. The stock currently yields 3.10%
General Mills (GIS) engages in the manufacture and marketing of branded consumer foods worldwide. General Mills has increased its quarterly dividend in each of the past six consecutive years. The stock currently yields 2.80%.
Microsoft (MSFT) provides software and hardware products and solutions worldwide. Although the company has raised its annual dividend since 2003, over the past quarters the dividend has been flat.
Kraft Foods Inc. (KFT), together with its subsidiaries, manufactures and markets packaged food products and grocery products worldwide. The company has consistently raised dividends since it went public in 2001. In early September 2009 the company announced that it has would leave its current dividend payment of $0.29/share unchanged for the fifth consecutive quarter.
This post was featured in the Carnival of Personal Finance - Women in History Edition
Full Disclosure: None
- What are your dividend investing goals?
- Kraft Foods freezes dividends
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Monday, March 1, 2010
Six Significant Dividend Increases
Any company could afford to boost distributions in a single year. Any type of business could also have a high yield, especially if it distributes all of its cash flows to shareholders. It takes a special kind of a business model to afford a proper balance between investing back into the business and distributing excess profits to shareholders. It is even more exciting when those distributions have been increased regularly for over ten consecutive years. I have highlighted six dividend stocks each of which has consistently raised distributions for over two decades.
Altria Group, Inc. (MO), through its subsidiaries, engages in the manufacture and sale of cigarettes, wine, and other tobacco products in the United States and internationally. The company’s board of directors raised its quarterly dividend by 2.90% to 35 cents/share. This is the 43rd consecutive dividend increase for Altria Group. The only reason why the company is not on the dividend aristocrat list is because its dividend payment is lower due to the spin-off of Phillip Morris International (PM) in 2008 and Kraft Foods (KFT) in 2007. The company does have a policy to return approximately 75% of earnings to shareholders in the form of cash distributions. Stock currently yields 7%. (analysis)
Kimberly-Clark Corporation, (KMB) together with its subsidiaries, engages in the manufacture and marketing of various health care products worldwide. The company’s board of directors raised distributions by 10% to 66 cents/share. This is the 38th consecutive annual dividend increase for this dividend aristocrat. The stock yields 4.40%. (analysis)
The Chubb Corporation (CB), through its subsidiaries, provides property and casualty insurance to businesses and individuals. The company raised its quarterly dividend by 5.7% to 37 cents/share. This was the 45th consecutive annual dividend increase for this dividend aristocrat. The stock currently yields 2.90%. (analysis)
CenturyTel, Inc. (CTL), together with its subsidiaries, operates as an integrated communications company. The company raised its quarterly distributions by 3.60% to 72.50 cents/share. This increase would represent the 37th consecutive year where this dividend aristocrat has boosted annual distributions to shareholders. The stock currently yields 8.50%.
Piedmont Natural Gas Company, Inc. (PNY), an energy services company, distributes natural gas to residential, commercial, industrial, and power generation customers in portions of North Carolina, South Carolina, and Tennessee. The company boosted distributions by 3.70% to 28 cent/share, marking the 32nd consecutive annual dividend increase. This high yield dividend aristocrat yields 4.30%.
Donaldson Company, Inc. (DCI), together with its subsidiaries, engages in the manufacture and sale of filtration systems and replacement parts worldwide. The company’s board of directors raised distributions by 4% to 12cents/share marking the 24th consecutive year of dividend increases. This dividend achiever currently yields 1.20%.
I view Kimberly-Clark (KMB) and Chubb (CB) as attractively valued stocks. I plan adding to my position in Chubb (CB) this month. Piedmont Natural Gas Company (PNY) looks like an interesting company for further research. Altria (MO) and CenturyLink (CTL) are two high yielding dividend growth stocks, which also spot high dividend payout ratios. I would choose tobacco over telecom however, because once you are addicted to it is difficult to stop using the product. With telecom you could easily cancel your telephone and get a cell phone or simply use Skype instead. Donaldson (DCI) does seem like a company that could be included in the dividend aristocrat list over the next one or two years. The problem is the low current yield, the anemic dividend growth rate and the high price/earnings multiple of 27.
Full Disclosure: Long CB, KMB, MO and PM
Relevant Articles:
- Altria (MO) - a recession proof high yield dividend stock
- Philip Morris International versus Altria
- Chubb (CB) Dividend Stock Analysis
- Dividend Growth beats Dividend Yield in the long run
Altria Group, Inc. (MO), through its subsidiaries, engages in the manufacture and sale of cigarettes, wine, and other tobacco products in the United States and internationally. The company’s board of directors raised its quarterly dividend by 2.90% to 35 cents/share. This is the 43rd consecutive dividend increase for Altria Group. The only reason why the company is not on the dividend aristocrat list is because its dividend payment is lower due to the spin-off of Phillip Morris International (PM) in 2008 and Kraft Foods (KFT) in 2007. The company does have a policy to return approximately 75% of earnings to shareholders in the form of cash distributions. Stock currently yields 7%. (analysis)
Kimberly-Clark Corporation, (KMB) together with its subsidiaries, engages in the manufacture and marketing of various health care products worldwide. The company’s board of directors raised distributions by 10% to 66 cents/share. This is the 38th consecutive annual dividend increase for this dividend aristocrat. The stock yields 4.40%. (analysis)
The Chubb Corporation (CB), through its subsidiaries, provides property and casualty insurance to businesses and individuals. The company raised its quarterly dividend by 5.7% to 37 cents/share. This was the 45th consecutive annual dividend increase for this dividend aristocrat. The stock currently yields 2.90%. (analysis)
CenturyTel, Inc. (CTL), together with its subsidiaries, operates as an integrated communications company. The company raised its quarterly distributions by 3.60% to 72.50 cents/share. This increase would represent the 37th consecutive year where this dividend aristocrat has boosted annual distributions to shareholders. The stock currently yields 8.50%.
Piedmont Natural Gas Company, Inc. (PNY), an energy services company, distributes natural gas to residential, commercial, industrial, and power generation customers in portions of North Carolina, South Carolina, and Tennessee. The company boosted distributions by 3.70% to 28 cent/share, marking the 32nd consecutive annual dividend increase. This high yield dividend aristocrat yields 4.30%.
Donaldson Company, Inc. (DCI), together with its subsidiaries, engages in the manufacture and sale of filtration systems and replacement parts worldwide. The company’s board of directors raised distributions by 4% to 12cents/share marking the 24th consecutive year of dividend increases. This dividend achiever currently yields 1.20%.
I view Kimberly-Clark (KMB) and Chubb (CB) as attractively valued stocks. I plan adding to my position in Chubb (CB) this month. Piedmont Natural Gas Company (PNY) looks like an interesting company for further research. Altria (MO) and CenturyLink (CTL) are two high yielding dividend growth stocks, which also spot high dividend payout ratios. I would choose tobacco over telecom however, because once you are addicted to it is difficult to stop using the product. With telecom you could easily cancel your telephone and get a cell phone or simply use Skype instead. Donaldson (DCI) does seem like a company that could be included in the dividend aristocrat list over the next one or two years. The problem is the low current yield, the anemic dividend growth rate and the high price/earnings multiple of 27.
Full Disclosure: Long CB, KMB, MO and PM
Relevant Articles:
- Altria (MO) - a recession proof high yield dividend stock
- Philip Morris International versus Altria
- Chubb (CB) Dividend Stock Analysis
- Dividend Growth beats Dividend Yield in the long run
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