Chevron Corporation (CVX) Dividend Stock Analysis

Chevron Corporation operates as an integrated energy company worldwide. Chevron Corporation is a component of the S&P 500 and Dow Jones Industrials Indexes. The company is also a dividend achiever, which has consistently raised its dividends for 23 years in a row.
Over the past decade this dividend stock has delivered an annual average total return of 10.30% to its shareholders.

At the same time company has managed to deliver a 3.10% average annual increase in its EPS since 2000. The increase in prices of crude oil and natural gas definitely helped with earnings. The rapid fall of energy prices in late 2008 and early 2009 and weak global demand led to a 55% decrease in earnings per share in 2009 to $5.24. For fiscal year 2010 analysts expect earnings to increase by 53% to $8/share. Analysts also expect earnings per share to rise 25% from there to $10/share by FY 2011.

Any analysis of earnings trends for an oil and gas producer such as Chevron would definitely depend of the future prices of energy commodities over the next few years. Nevertheless the dividend is sustainable at current levels and there definitely is some room for dividend growth in 2011 and beyond.

Returns on Equity decreased to 11.70% in 2009, after a few years of consistently being above 20%. Year over year this indicator will fluctuate, due to the changes in the value of oil and natural gas. The company should be able to generate sufficient average returns on equity in excess of 20% in the long run.

Annual dividend payments have increased by an average of 8.30% annually since 2000, which is higher than the growth in EPS. The reason for this is that earnings have a much higher volatility than dividend payments. In my analysis of Chevron from last year, the growth in earnings was much higher than the dividend growth.

An 8 % growth in dividends translates into the dividend payment doubling almost every nine years. Since 1989 Chevron Corporation has actually managed to double its dividend payment almost every ten years on average. The company recently raised its quarterly dividend by 5.90% to 72 cents/share.

The dividend payout ratio has followed the trend in earnings and returns on equity. It largely remained at or below 50% after 2003. Before that it did shoot up above 50% in 2000 and in 2002. A lower payout is always a plus, since it leaves room for consistent dividend growth minimizing the impact of short-term fluctuations in earnings.

Chevron Corporation is trading at a P/E of 11.70, yields 3.70% and has an adequately covered dividend payment. The forward P/E for 2010 earnings is close to 10. In comparison Exxon Mobil (XOM) trades at a P/E multiple of 14.50 and yields 2.80%, while British Petroleum (BP) trades at a P/E multiple 8 while yielding 6.80%.I find Chevron attractively valued at current levels given its stable dividend growth history. If you are looking to add exposure to the energy sector for your dividend portfolio then CVX could just be the right stock for you.

Full Disclosure: Long BP, CVX and XOM

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A dividend portfolio for the long-term

As a dividend growth investor you would find that over time some stocks tend to fall off your radar and no longer fit the rising income stream criteria that you purchased them for in the first place. Thus it is important to monitor your portfolio on a regular basis and place such stocks on your sell radar. M&T Bank (MTB) and British Petroleum (BP) are two companies which I am closely monitoring, since they have both frozen dividends for several quarters in a row.

The four important characteristics of successful dividend portfolios include entry and exit criteria, diversification, dollar cost averaging and selective dividend reinvestment. I have built my dividend portfolio around those important characteristics over the past few years. I have grouped the stocks I own by sector. I have also included additional information about each company, and I have also marked any companies which I do not find attractive at the moment with "HOLD". Just because a company is not attractively valued at the moment however does not mean that it is automatically a sell. Any companies which I have considered to be a sell have been sold off.

Consumer Discretionary

Family Dollar Stores, Inc. (FDO) operates a chain of self-service retail discount stores for low to lower-middle income consumers in the United States. This dividend aristocrat has raised dividends for 33 consecutive years and yields 1.50%. (analysis) HOLD

McDonald’s Corporation (MCD), together with its subsidiaries, franchises and operates McDonald’s restaurants in the food service industry worldwide. This dividend aristocrat has raised dividends for 33 consecutive years and yields 3.20%. (analysis)

The McGraw-Hill Companies (MHP), Inc. provides information services and products to the education, financial services, and business information markets worldwide. This dividend aristocrat has raised dividends for 37 consecutive years and yields 3.30%. (analysis)

The Sherwin-Williams Company (SHW) engages in the development, manufacture, distribution, and sale of paints, coatings, and related products in North and South America, Europe, and Asia. This dividend aristocrat has raised dividends for 32 consecutive years and yields 1.90%. (analysis) HOLD

Consumer Staples

Archer-Daniels-Midland Company(ADM) procures, transports, stores, processes, and merchandises agricultural commodities and products in the United States and internationally. This dividend aristocrat has raised dividends for 35 consecutive years and yields 2.40%. (analysis) HOLD

The Clorox Company (CLX) engages in the production, marketing, and sales of consumer products in the United States and internationally. This dividend aristocrat has raised dividends for 32 consecutive years and yields 3.20%. (analysis)

Kimberly-Clark Corporation (KMB), together with its subsidiaries, engages in the manufacture and marketing of various health care products worldwide. This dividend aristocrat has raised dividends for 38 consecutive years and yields 4.30%. (analysis)

The Coca-Cola Company (KO) manufactures, distributes, and markets nonalcoholic beverage concentrates and syrups worldwide. This dividend aristocrat has raised dividends for 48 consecutive years and yields 3.40%. (analysis)

PepsiCo, Inc. (PEP) manufactures, markets, and sells various foods, snacks, and carbonated and non-carbonated beverages worldwide. This dividend aristocrat has raised dividends for 37 consecutive years and yields 3%. (analysis)

The Procter & Gamble Company (PG) engages in the manufacture and sale of consumer goods worldwide. This dividend aristocrat has raised dividends for 53 consecutive years and yields 3.10%. (analysis)

Wal-Mart Stores, Inc. (WMT) operates retail stores in various formats worldwide. This dividend aristocrat has raised dividends for 35 consecutive years and yields 2.40%. (analysis)

Colgate-Palmolive Company (CL), together with its subsidiaries, manufactures and markets consumer products worldwide. This dividend aristocrat has raised dividends for 47 consecutive years and yields 2.70%. (analysis)

McCormick & Company, Incorporated (MKC) engages in the manufacture, marketing, and distribution of flavor products and other specialty food products to the food industry worldwide. This dividend achiever has raised dividends for 24 consecutive years and yields 2.70%. (analysis)

Universal Corporation (UVV), together with its subsidiaries, operates as the leaf tobacco merchants and processors worldwide. This dividend champion has raised dividends for 39 consecutive years and yields 3.90%. (analysis)

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. This dividend stock yields 6.70%. (analysis)

Diageo plc (DEO) engages in producing, distilling, brewing, bottling, packaging, distributing, developing, and marketing spirits, beer, and wine. This international dividend achiever has raised dividends for over one decade and yields 3.80%. (analysis)

Philip Morris International Inc. (PM), through its subsidiaries, engages in the manufacture and sale of cigarettes and other tobacco products in markets outside of the United States. This dividend stock yields 5.20%. (analysis)

Sysco Corporation (SYY), through its subsidiaries, markets and distributes a range of food and related products primarily to the foodservice industry in the United States. This dividend champion has raised dividends for 40 consecutive years and yields 3.40%. (analysis)

Unilever PLC (UL) provides fast-moving consumer goods in Asia, Africa, Europe, and Latin America. This international dividend achiever has raised dividends for over one decade and yields 4.10%. (analysis)

Energy
BP p.l.c. (BP) provides fuel for transportation, energy for heat and light, retail services, and petrochemicals products. This international dividend achiever has rewarded shareholders with dividend raises for 16 consecutive years and yields 7.70%. (analysis) HOLD

Chevron Corporation (CVX) operates as an integrated energy company worldwide. This dividend achiever has raised dividends for 22 consecutive years and yields 3.90%. (analysis)

Enbridge Energy Partners, L.P. (EEQ) owns and operates crude oil and liquid petroleum transportation and storage assets, as well as natural gas gathering, treating, processing, transmission, and marketing assets in the United States. This dividend stock yields 8.80%.

Kinder Morgan Management, LLC (KMR) operates as an energy transportation and storage company in North America. This dividend achiever has rewarded unitholders with regular distribution increases for 13 years in a row and yields 8.10%. (analysis)

Financials
Aflac Incorporated (AFL), through its subsidiary, American Family Life Assurance Company of Columbus (Aflac), provides supplemental health and life insurance. This dividend aristocrat has raised dividends for 27 consecutive years and yields 2.60%. (analysis) HOLD

The Chubb Corporation (CB), through its subsidiaries, provides property and casualty insurance to businesses and individuals. This dividend aristocrat has raised dividends for 45 consecutive years and yields 2.90%. (analysis)

Cincinnati Financial Corporation (CINF), through its subsidiaries, offers property, casualty, personal, and life insurance products to businesses and individuals in the United States. This dividend aristocrat has raised dividends for 49 consecutive years and yields 5.90%. (analysis)

Hingham Institution for Savings (HIFS) provides various financial services to individuals and small businesses in Massachusetts. The company currently has nine branches and several ATM locations in Boston and southeastern Massachusetts. The board of directors has raised annual dividends for sixteen years in a row. The stock yields 3%. (analysis)

M&T Bank Corporation (MTB) operates as the holding company for M&T Bank and M&T Bank, National Association that provide commercial and retail banking services to individuals, corporations and other businesses, and institutions. This former dividend aristocrat ended its 27-year streak of consistent dividend increases in 2008. The stock yields 3.30%. (analysis) HOLD

National Retail Properties (NNN), Inc. is a publicly owned equity real estate investment trust. This dividend achiever has raised dividends for 20 consecutive years and yields 6.90%. (analysis) HOLD

Realty Income Corporation (O) engages in the acquisition and ownership of commercial retail real estate properties in the United States. This dividend achiever has raised dividends for 16 consecutive years and yields 5.60%. (analysis)

The Toronto-Dominion Bank (TD), together with its subsidiaries, provides retail and commercial banking, wealth management, and wholesale banking products and services in North America and internationally. This international dividend achiever has raised dividends for 15 consecutive years and yields 3.60%. (analysis) HOLD

Health Care

Johnson & Johnson (JNJ) engages in the research and development, manufacture, and sale of various products in the health care field worldwide. This dividend aristocrat has raised dividends for 47 consecutive years and yields 3.50%. (analysis)

Teleflex Incorporated (TFX) primarily develops, manufactures, and supplies single-use medical devices used by hospitals and healthcare providers worldwide. This dividend champion has raised dividends for 31 consecutive years and yields 2.40%. (analysis) HOLD

Industrials

Emerson Electric Co. (EMR), a diversified global technology company, engages in designing and supplying product technology, as well as delivering engineering services and solutions to various industrial, commercial, and consumer markets worldwide. This dividend aristocrat has raised dividends for 53 consecutive years and yields 2.90%. (analysis)

W.W. Grainger (GWW), Inc. and its subsidiaries distribute facilities maintenance and other related products and services in the United States, Canada, Japan, and Mexico. This dividend aristocrat has raised dividends for 38 consecutive years and yields 2.10%. (analysis) HOLD

3M Company (MMM), together with its subsidiaries, operates as a diversified technology company worldwide. This dividend aristocrat has raised dividends for 52 consecutive years and yields 2.60%. (analysis)

United Technologies Corporation (UTX) provides technology products and services to the building systems and aerospace industries worldwide. This dividend achiever has raised dividends for 17 consecutive years and yields 2.60%. (analysis)

Illinois Tool Works Inc. (ITW) manufactures a range of industrial products and equipment worldwide. This dividend champion has raised dividends for 45 consecutive years and yields 2.70%. (analysis) HOLD

Information Technology
Automatic Data Processing, Inc. (ADP) provides technology-based outsourcing solutions to employers, and vehicle retailers and manufacturers. This dividend aristocrat has raised dividends for 35 consecutive years and yields 3.30%. (analysis)

Materials

Air Products and Chemicals, Inc. (APD) offers atmospheric gases, process and specialty gases, performance materials, and equipment and services worldwide. This dividend aristocrat has raised dividends for 27 consecutive years and yields 2.90%. (analysis)

Nucor Corporation (NUE), together with its subsidiaries, engages in the manufacture and sale of steel and steel products in North America and internationally. This dividend champion has raised dividends for 33 consecutive years and yields 3.40%. (analysis)

RPM International Inc. (RPM) engages in the manufacture, marketing, and sale of various specialty chemical products to industrial and consumer markets worldwide. This dividend champion has raised dividends for 33 consecutive years and yields 4.20%. (analysis)

Telecommunications

AT&T Inc. (T) provides telecommunication products and services to consumers, businesses, and other telecommunication service providers under the AT&T brand worldwide. This dividend champion has raised dividends for 33 consecutive years and yields 6.80%. (analysis) HOLD

Utilities

Consolidated Edison, Inc. (ED), through its subsidiaries, provides electric, gas, and steam utility services in the United States. This dividend aristocrat has raised dividends for 33 consecutive years and yields 5.50%. (analysis)

Dominion Resources, Inc. (D), together with its subsidiaries, engages in producing and transporting energy in the United States. This dividend stock currently yields 4.60%.

There are several companies which I hold, that no longer fit my entry criteria, although they might have fit the entry criteria at some point in the past. Building a dividend portfolio does take some time to implement. I typically have between ten to fifteen stocks which are attractively valued at any time. I also keep a list with stocks I would consider buying on dips. This list typically varies depending on market conditions. Back in 2008 and 2009 this list was rather small, and the list of attractively valued stocks was large due to depressed market prices. If a stock is very close to my entry price I might consider initiating a small position and then build my exposure from there. It is very important however to keep current on the overall market environment in order to scoop up any bargains from the waiting list.

Update Note (July 1, 2011): I have since sold off shares of BP after the dividend cut. I also sold shares in AT&T (T) as well.
Update: (January 1, 2012): I have initiated positions in EPD and OKS over the past year as well.

Full Disclosure: Long all stocks mentioned above

This post was featured in the Carnival of Personal Finance #260: Forces of Nature Edition

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Why Dividend Growth Stocks Rock?

According to Ned Davis Research, $100 invested in all dividend payers of the S&P 500 index in 1972, would have grown to $2,266 by the end of 2009. The same $100 invested in non-dividend paying stocks in the S&P 500 returned a negative 39% over the same period. The performance of dividend payers and initiators was even better, returning $2,945 on the initial investment in 1972. Dividend investors should utilize every edge they could find in order to deliver above average total returns. As a result, the findings of the Ned Davis study should not be ignored. The reason why dividend growers outperform is that they represent an elite group of companies which grow earnings, reinvest some of it in the business, and distribute the rest to stockholders. Rising profits equal rising stock prices over the long run, and rising dividends as well. 

   

 Some of the companies which raised distributions over the past week include: 

 The Clorox Company (CLX) engages in the production, marketing, and sales of consumer products in the United States and internationally. The company raised dividends by 10% to 55 cents/share. This was the thirty-third consecutive year of dividend increases for this dividend aristocrat. The stock yields 3.40%. (analysis) 

First Financial Corporation,(THFF) through its subsidiaries, provides various financial services in Indiana and Illinois. The company raised its semi-annual dividend by 2.20% to 46 cents/share. This dividend achiever has managed to increase dividends to shareholders for 22 consecutive years. The stock yields 3.20%. 

Bunge Limited (BG) engages in the agriculture and food businesses worldwide. The company approved a 9.5% increase in the company's regular quarterly cash dividend, from $0.21 to $0.23 per share. The company, which is a member of the international dividend achievers, has consistently raised dividends since 2003. The stock yields 1.90%. 

Transatlantic Holdings, Inc. (TRH), through its subsidiaries, offers reinsurance capacity for a range of property and casualty products, directly and through brokers, to insurance and reinsurance companies, in domestic and international markets. The dividend was raised by 5% to 21 cents/share. The Board of Directors has raised the quarterly distributions of this dividend achiever every year since TRH became a public company in 1990. The stock yields 1.80%. 

Canadian Pacific Railway Limited (CP), through its subsidiaries, provides rail and intermodal freight transportation services. The company increased its next quarterly dividend to 27 Cents/share from 24.75 cents per share. This international dividend achiever has consistently raised distributions since 2004. The stock yields 1.90%. 

Republic Bancorp, Inc. (RBCAA) operates as the holding company for Republic Bank & Trust Company and Republic Bank, which provides banking, tax refund solutions, and mortgage banking services to individuals and businesses in the United States. The company announced an 8% increase in the Company’s second quarter cash dividends to $0.143 per share. This dividend achiever has consistently raised dividends since 1999. The stock yields 2.30% 

Dr Pepper Snapple Group, Inc. (DPS) operates as a brand owner, manufacturer, and distributor of non-alcoholic beverages in the United States, Canada, Mexico, and the Caribbean. The company raised its quarterly dividend by 67% to 25 cents/share. This was the first dividend increase since the company initiated a dividend payment policy in 2009. The stock yields 2.60%. 

Nordstrom, Inc., (JWN) is a fashion specialty retailer, which offers apparel, shoes, cosmetics, and accessories for women, men, and children in the United States. The company announced that its board of directors declared a quarterly dividend of $0.20 per share, an increase of 4 cents or 25% over the previous quarter’s dividend. This was the first dividend increase since 2008.The stock yields 2.10%.

 

W.R. Berkley Corporation (WRB), operates in the property casualty insurance business in the United States and internationally. The company increased its cash dividend to an annual rate of 28 cents per share, representing a 17% increase from the present rate. The company’s annual dividends have increased for 5 years in a row. The stock yields 4.20%. 

Knight Transportation, Inc. (KNX), together with its subsidiaries, operates as a short to medium-haul truckload carrier of general commodities in the United States. The company raised distributions by 20% to 6 cents/share. The company has consistently raised dividends since 2004. The stock yields 1.20%. Analog Devices, Inc. engages in the design, manufacture, and marketing of analog, mixed-signal, and digital signal processing integrated circuits used in industrial, communication, computer, and consumer applications. The company’s Board of Directors increased quarterly dividend by 10% to $0.22 per share. The company’s annual dividends have increased every year since 2004. The stock yields 3.10%. 

Tiffany & Co.(TIF), through its subsidiaries, engages in the design, manufacture, and retail of fine jewelry. Its jewelry products include gemstone jewelry, gemstone band rings, diamond rings, wedding bands for brides and grooms, non-gemstone, gold or platinum jewelry, and sterling silver jewelry. The company announced a 25% increase in its quarterly dividend from $0.20 to $0.25/share. This is the second announced increase in the quarterly dividend payment policy since the start of the calendar year. The company’s annual dividend has increased every year since 2003. The stock yields 2.30%. 

Ship Finance International Limited (SFL) , through its subsidiaries, owns and operates vessels and offshore related assets in Bermuda, Cyprus, Malta, Liberia, Norway, the United States, Singapore, the United Kingdom, and the Marshall Islands. The company raised distributions by 10% to 33 cents/share. Before you get too excited about the current yield of 7.30%, please bear in mind that the current dividend is half what it were in Q3 2008. 

Unum Group (UNM), together with its subsidiaries, provides group and individual disability insurance products primarily in the United States and the United Kingdom. The company announced that its Board of Directors authorized an increase of 12.1% in the quarterly dividend to 9.25 cents/share. The stock yields 1.60%. Ashland Inc. (ASH)operates as a specialty chemicals company internationally. The company raised annual distribution by 100% to 60 cents/share. The stock yields 1.10%. 

Safeway Inc.(SWY), together with its subsidiaries, operates as a food and drug retailer in North America. The company approved a 20% increase in its quarterly dividend from $0.10 per share to $0.12 per share. This is the sixth consecutive annual dividend increase for the company. The stock yields 2%. 

Xcel Energy Inc.,(XEL) through its subsidiaries, engages in the generation, purchase, transmission, distribution, and sale of electricity to residential, commercial, industrial, and public authorities in the United States. The board of directors raised the quarterly dividend on the company’s common stock from $0.245 per share to $0.2525 per share. The company has raised distributions for 7 consecutive years. The stock yields 4.80%. 

Northrop Grumman Corporation (NOC) provides products, services, and integrated solutions in the aerospace, electronics, information and services, and shipbuilding sectors. The company raised distributions by 9.30% to 47 cents/share for a seventh consecutive year. The stock yields 3%. 

Full Disclosure: Long CLX 

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Exxon Mobil (XOM) Dividend Stock Analysis

Exxon Mobil Corporation engages in the exploration, production, transportation, and sale of crude oil and natural gas. The company is a component of the S&P 500, Dow Jones Industrials and the Dividend Aristocrats indexes. Exxon Mobil has been consistently increasing its dividends for 28 years in a row.

Over the past decade this dividend stock has delivered an annual average total return of 8% to its shareholders.

At the same time company has managed to deliver a 6.40% average annual increase in its EPS since 2000. The forecasts for the foreseeable future are for a 45% increase in the EPS in 2010 to $5.80/share, followed by an increase in EPS to a $7.27 by 2011. The sheer scale of the company gives it huge economies of scale. Its productivity is further boosted by the efficiency of developing new projects in Quatar, Norway and US. Exxon Mobil does business on over 200 countries and derives only 30% of its revenues from the US. The company has over 130 projects worldwide whose goal is to increase reserves of oil and natural gas. The company’s future acquisition of XTO Energy will boost natural gas production by over a quarter. XTO’s resources are close to the markets it serves. In addition to that technical expertise from XTO energy could assist Exxon Mobil in developing new shale fields worldwide.

The ROE had consistently increased from less than 15% in 2002 to over 38% in 2008, before dipping back to 17.30% last year on lower profitability.

Annual dividend payments have increased by an average of 7.30% annually since 2000, which is higher than the growth in EPS. Currently, the number of shares is lower than the number of shares at the time of the merger between Exxon and Mobil. The tremendous increase in commodities prices over the past decade has greatly contributed to the strength in earnings per share. A 7 % growth in dividends translates into the dividend payment doubling almost every ten years. If we look at historical data, going as far back as 1970, XOM has indeed managed to double its dividend payment every ten years on average. Just a few days ago Exxon boosted its dividend by 4.80% for the 28th year in a row.

The dividend payout has declined from a high of 57% in 2002 to a low of 17.8% in 2008., before increasing to 41.70% last year. 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 company has returned money to shareholders exclusively through share buybacks, which are typically not as consistent as increases in dividends.

Overall Exxon-Mobil has low dividend payout ratio and a low P/E ratio of 14. In addition to that the stock yields 2.80%. I would appreciate it greatly if the company increases its payout of dividends over time at the expense of reducing its massive share buybacks. XOM has the potential to achieve an above average dividend growth over the next decade if oil prices increase over the next few year.In comparison Chevron Corporation (CVX) trades at a P/E multiple of 11 and yields 3.70%, while British Petroleum (BP) trades at a P/E multiple 8 while yielding 7.40%. I would consider adding to my position in Exxon Mobil as long as the stock is below $70.

Full Disclosure: Long BP, CVX and XOM

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Dividend Payback from six quality dividend stocks

When investors put their hard earned money to work, they are always hoping that they would receive a positive return on their investment. The profits could come either through capital gains, from dividends or from a combination of both. Dividends have traditionally been more stable than capital gain returns. Stock prices are volatile, and it would not be unheard of experiencing 40% losses in one year, which is then followed by 30% gains in the following year. That’s why many retirees these days are building their retirement income strategies exclusively off of dividend stocks.

The payback that these investors are targeting is mostly from the dividend income stream in order to estimate how long it might take to get their money back. Dividend payback is just that – how long it would take for the dividends from a stock investment to exceed the investment itself. Savers have two options – either go for a higher yielding but slower growing company or go for a stock with a lower current yield but has a huge dividend growth potential.

I compared the two strategies using a few stocks in my portfolio to illustrate my examples. In the first example I used electric utility Con Edison (ED). Right now the company is yielding 5.40%, which means that an investment in the company today could pay off for itself in 19 years. This estimate assumes limited dividend growth for the next two decades. I calculated it by dividing 100 by the current yield in order to come up with the number of years that it would take for the dividend checks to pay me back for the stock.

Based on this exercise, one might believe that in order for dividend checks to pay for the stock in the shortest amount of time possible, one should go for the high dividend stocks of the day. However even a small growth of 1% in the dividend payment however could shorten the time for the dividend payback to seventeen and a half years. If you are able to reinvest your dividends in the company, the payback would probably be even quicker.

That’s why I checked other stocks like Johnson & Johnson (JNJ) in order to estimate whether a low yield of 3% coupled with a dividend growth of 10% annually makes a difference. It seems that for an investment like that it would take fifteen and a half years in order to achieve a dividend payback. In fact if you had purchased Johnson & Johnson in 1994, the dividend income stream would have paid for the stock by 2009, without even reinvesting the dividends. The cost on your investment would have been returned to you, yet you would still maintain ownership.

Being a balanced investor I have highlighted six stocks which I believe would achieve a dividend payback of fifteen years. Some of the stocks mentioned below are high dividend stocks, while others are dividend growth stocks with good potential.

Johnson & Johnson (JNJ) engages in the research and development, manufacture, and sale of various products in the health care field worldwide. The company operates through three segments: Consumer, Pharmaceutical, Medical Devices and Diagnostics. Johnson & Johnson has consistently increased dividends for 46 years in a row. The stock yields 3.40%. The yield on cost on stock purchased at the end of 1989 is 29.10%. (analysis)

The Procter & Gamble Company (PG) 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. The company has rewarded stockholders with dividend increases for 53 consecutive years. Check my analysis of the stock.

Wal-Mart Stores, Inc. (WMT) operates retail stores in various formats worldwide. The world’s largest retailer has a 35 year record of annual dividend raises. I would be a buyer of WMT on dips. Check my analysis of the stock.

McDonald’s Corporation (MCD), together with its subsidiaries, franchises and operates McDonald’s restaurants in the food service industry worldwide. The company's share of the US fast food market is several times larger than its closest competitors, Burger King (BKC) and Wendy's (WEN). McDonald’s is a major component of the S&P 500 and Dow Industrials indexes. The company is also a dividend aristocrat, which has been consistently increasing its dividends for 33 consecutive years. (analysis)

Consolidated Edison (ED) provides electric, gas, and steam utility services in the United States. This dividend aristocrat has raised annual distributions for 36 years in a row. The stock spots a yield of 5.3%, which a good compensation if you seek current income for the next 5 - 10 years. Check my analysis of Consolidated Edison.

Kinder Morgan (KMP) owns and manages energy transportation and storage assets in North America. This dividend achiever has raised annual distributions for the past 14 years. The stock currently yields 6.50%. Check my analysis of Kinder Morgan.


Full Disclosure: Long ED, JNJ, KMP, MCD, PG, WMT

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How to Uncover Hidden Dividend Gems

Uncovering 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 that they are very close to getting on the dividend achievers list, but are not there yet.

Several companies increased distributions over the past week. The companies include:

National Bankshares, Inc. (NKSH) operates as the bank holding company for The National Bank of Blacksburg (NBB), which provides various retail and commercial banking services to individuals, businesses, non profits, and local governments in Virginia. The company increased its semi-annual dividend by 7.3% to 44 cents/share. This was the tenth consecutive annual dividend increase for the company. The stock yields 3.10% and has a dividend payout ratio of less than 50%.

Mine Safety Appliances Company (MSA) develops, manufactures, and supplies health and safety products used by workers in the fire service, homeland security, construction, and other industries, as well as the military. The company increased its quarterly dividend to 25 cents per share, an increase of about 4% over its prior dividend in February of 24 cents. This was the thirty-eight consecutive annual dividend increase for this dividend champion. The stock yields 3.40%.

FactSet Research Systems Inc. (FDS) provides financial and economic information, analytical applications, to investment professionals. The company’s board of directors approved a 15% increase in the quarterly dividend to 23 cents/share. This is the eleventh consecutive annual dividend increase for this dividend achiever. The stock yields 1.20%.

NACCO Industries, Inc.(NC), through its subsidiaries, engages in lift trucks, small appliances, specialty retail, and mining businesses primarily in the Americas, Europe, and the Asia-Pacific. The Board of Directors increased its regular cash dividend from 51.75 cents to 52.25 cents per share. This dividend achiever has raised distributions for 25 consecutive years. The stock yields 2%.

For the above stocks, I typically require a current dividend yield of at least 2.50% before I start researching them. For the stocks below, since they have not raised distributions for at least one decade, I would just keep an eye on them.

Assurant, Inc. (AIZ), through its subsidiaries, provides specialized insurance products and related services in North America and internationally. The company raised distributions by 7% to 16 cents/share. This is the sixth consecutive annual dividend increase for the company. The stock yields 1.80%.

Portland General Electric Company (POR) operates as an integrated electric utility in Oregon. The company raised dividends by 2% to 26 cents/share. This is the fourth consecutive annual dividend increase since 2006. The stock yields 5.30%.

Quaker Chemical Corporation (KWR) develops, produces, and markets formulated chemical specialty products for various heavy industrial and manufacturing applications. The company increased its quarterly dividend to $0.235 per share from $0.23/share. This was the first increase since 2008. The stock yields 3.30%.

CPI Corp.(CPY), through its subsidiaries, provides professional portrait photography services. The company declared a second quarter cash dividend of $0.25 per share, an increase of 56%. This was the first dividend increase since 2003. The stock yields 3.50%.

Cliffs Natural Resources Inc.(CLF) a mining and natural resources company, produces iron ore pellets, lump and fines iron ore, and metallurgical coal. The board of directors increased the quarterly cash dividend on the Company’s common shares by 60% to $0.14 per share. The stock yields 1%.

The Timken Company (TKR), together with its subsidiaries, manufactures engineered anti-friction bearings and assemblies, alloy steels, aerospace power transmission systems, and related products and services worldwide. The company raised its quarterly distributions by 44.40% to 13 cents/share. This isn’t too impressive however, given the fact that the company cut its distributions in half in 2009. Over the past decade the company has always managed to cut distributions whenever they reached 18 cents/share. The stock yields 1.60%.

Once again I was able to identify a hidden dividend gem, while browsing through the list of dividend increases. The hidden gem is called National Bankshares, Inc. (NKSH), which has decided to forgo taking any monies from the U.S. Treasury through the Capital Purchase Program due to its already strong capital position. I would be featuring a stock analysis of the stock in the future. I would not expect the company to be added to the dividend achievers index, particularly because its market capitalization is less than $200 million and it trades six thousand shares per day.

This post was included in Money Hackers Carnival #117: Wedding & Marriage Edition

Full Disclosure: None

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Clorox (CLX) Dividend Stock Analysis

The Clorox Company engages in the production, marketing, and sales of consumer products in the United States and internationally. The company operates through four segments: Cleaning, Lifestyle, Household, and International.
Clorox has paid uninterrupted dividends on its common stock since it was spun out of Procter and Gamble (PG) in 1968 and increased payments to common shareholders every year for 32 years. The company is a member of the elite S&P Dividend Aristocrats Index.
Over the past decade this dividend growth stock has delivered an annual average total return of 4.30% to its shareholders.

At the same time company has managed to deliver an impressive 9.80% average annual increase in its EPS since 2000. Analysts are expecting an increase in 2010 earnings per share to $4.24 and $4.63 by 2011. There is stable demand for household and personal care products, which is generally not affected by changes in the economy or by geopolitical factors. Earnings will benefit from various cost savings programs and pricing to offset higher input costs.

In 2007 the company introduced its Centennial Strategy where the company is focused on achieving double-digit annual growth in economic profit. A key driver of the strategy is to accelerate sales by growing existing brands, including expanding into adjacent categories, entering new sales channels and increasing penetration within existing countries. The company also anticipates using its strong cash flow to pursue growth opportunities and increase shareholder returns. For an update on the results from the strategy, check this press release.
Basically the company will try to deliver further growth through an ongoing focus on consumer megatrends. In addition to that the company will be targeting a 2% sales growth through product innovation. Last but not least Clorox will target margin expansion and maximizing cash flow through implementation a continued robust cost-saving program and maintaining price increases the company has taken.

The Return on Assets increased to 11% in 2008 from 7.80% in 2001. I used return on assets, since the stockholders equity portion of the balance sheet was negative after in 2004 Clorox exchanged its ownership in a subsidiary for approximately 29% of the company’s outstanding shares at the time of this transaction. In addition to that the company spent over 1.65 billion in share buybacks in 2007 and 2008.

Annual dividends have increased by an average of 13% annually since 1999, which is lower than the growth in EPS. Clorox has an ever-evolving dividend payment policy, which doesn’t stop the company from raising the annual distributions for 21 years in a row. There have been times such as in 2007 when dividend were raised twice while there are times such as 2003-2004 and 2000-2002 when dividends were not being raised for 6 to 9 quarters.

A 13 % growth in dividends translates into the dividend payment doubling every five and a half years. If we look at historical data, going as far back as 1983, The Clorox Company has actually managed to double its dividend payment every six years on average. The dividend is very well covered at the moment and is safe.

The dividend payout ratio remained above 50% until 2002. Since then 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.

Currently Clorox is trading at a P/E of 15 and yields 3.10%. I believe that the company is attractively valued at current levels and would consider adding to my position in the stock.

In comparison Procter & Gamble (PG) trades at a P/E multiple of 15 and yields 3.10%, Kimberly-Clark (KMB) trades at a P/E multiple of 14 and yields 4.30%, while Colgate Palmolive (CL) trades at a P/E multiple 20 while yielding 2.50%.

Full Disclosure: Long CL, CLX, PG, and KMB.

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- Procter & Gamble (PG) Stock Dividend Analysis
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Four Characteristics of The Best Dividend Growth Stocks

Dividends provide investors with a return on investment even when markets are down. As a result investors get paid to hold their stocks through thick and thin. It is important however to pick a stock selection strategy that fits with your financial goals. A good entry strategy is just the beginning however. Investors should also be following the strategy at all times in order to be successful.

Four important characteristics of successful dividend portfolios include entry and exit criteria, diversification, dollar cost averaging and selective dividend reinvestment.

Entry/Exit Criteria

Under my current entry criteria I am looking for companies which have consistently boosted annual distributions for at least one decade. The next step is screening whether the dividend is adequately covered, and that the dividend payout ratio does not exceed 50%. The only exception to this rule is for certain special investment vehicles such as Master Limited Partnerships, Real Estate Investment Trusts or Utilities, where I look at the trend of the dividend payout ratio. I also check to see whether there is earnings growth over the past decade and whether the company has any sustainable competitive advantage. Once the company yields more than 2.50%, has a price earnings ratio of less than 20 and has a dividend payout ratio of less than 50%, I initiate my position in the stock.

I would hold on to the stock as long as dividend payments keep getting increased regularly and would add to the position on dips. An example of an attractively valued dividend stock is Johnson & Johnson (JNJ). I would only consider selling if the dividend is cut for whatever reason. If the company stops raising the dividend I hold onto the stock, but I stop contributing new money. Currently the three stocks I have stopped contributing new money include M&T Bank (MTB), British Petroleum PLC (BP) and National Retail Properties (NNN). The three companies have failed to raise distributions for more than 4 consecutive quarters, which makes them a hold. An example of stocks I sold due to a dividend cut include American Capital (ACAS), which was sold in 2008 when it announced that it would no longer pay a quarterly distribution.

Diversification

Traditional dividend stocks included high yielding utility stocks and financials. Most financial stocks cut or completely eliminated dividends over the past two years. If investors should learn one lesson from the financial crisis of 2007 -2009, it should be to diversify your portfolio, in order to generate sustainable dividend income. Canadian Income Trust investors also learned a similar lesson in 2006, after the government decided to phase out the royalty trust corporate structure in 2011, sending stock prices and distributions per unit nose-diving. It is also important to own more than 30 stocks from as many sectors as possible, in order to prevent an unfortunate downturn in one sector or a few stocks from destroying your chances of generating sustainable dividend income. Owning more than 30 stocks makes your dividend portfolio less exposed to individual company risks, although you will still be exposed to overall market risk.

Dollar Cost Averaging

After selecting the stocks to include in your portfolio, it is important to spread your purchases as a precaution to avoid paying too high prices. Few if any investors could time successfully the exact highs and lows in the stock market, which is why having a consistent strategy of making prudent purchases every so often would be a good idea. Even high quality dividend stocks such as Procter & Gamble (PG) are not immune from market fluctuations. Dollar cost averaging would have been very beneficial to investors in 2007 and 2008, although a lump sum investment in 2009 would have been better.

Selective Dividend reinvestment

Dividends could be either sitting there or get reinvested. The beauty of dividends is that it is under the discretion of the individual investor to purchase more stock, buy equity in a different company/investment or spend it another way. I do re-invest only a portion of my stocks directly; most other times however I let my dividends accumulate and I either re-invest in the same stocks or in new stocks that have been on my watch list.

Full Disclosure: Long PG, MTB, BP, NNN, JNJ



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Sixteen Dividend Companies focusing on the big picture

As a dividend investor, I purchase quality companies with solid competitive advantages, which can afford to raise dividends for many consecutive years. My holding period is theoretically forever, as long as the companies I own do not cut or eliminate their distributions. As a result my fortunes are closely linked with the underlying fundamentals of the business. If the business does well, I would keep getting paid. If my investments throw off enough income, there is no need to worry about short-term fluctuations in the stock price. Last Thursday’s action in the market, where stock indices fell by 10% in a matter of a few minutes, only to recover most of it a few minutes later, was a strong cause against relying on price returns for living off your portfolio. Focusing on market movements every few seconds is something that should be left to the sophisticated computer trading algorithms operated by investments banks on Wall Street. Dividend investing is more than relevant today, as it is one of the few strategies for main street investors to help them focus on the big picture and build wealth in the process.

During what was a turbulent week in the markets, several companies expressed enough confidence in their long-term prospects to boost distributions.

RLI Corp. (RLI), through its subsidiaries, underwrites property and casualty insurance primarily in the United States. The company raised its quarterly dividend from $0.28 to $0.29/share. This is the 36th consecutive annual dividend increase for this dividend champion. The stock yields 2.10%.

Cardinal Health, Inc. (CAH) provides health care products and services primarily in the United States. The company raised its dividend by 11% to 21.50 cents/share. This dividend achiever has consistently raised distributions for 21 consecutive years. The stock yields 2.20%.

Franklin Electric Co., Inc., (FELE) together with its subsidiaries, engages in the design, manufacture, and distribution of groundwater and fuel pumping systems. The company’s Board boosted its quarterly dividend from $0.125 to $0.13/share. The company is a member of the dividend achievers index, having raised distributions for 18 consecutive years. The stock yields 1.40%.

Talisman Energy Inc., (TLM) an upstream oil and gas company, engages in the exploration, development, production, transportation, and marketing of crude oil, natural gas, and natural gas liquids primarily in North America, the United Kingdom, Scandinavia, and Southeast Asia. The company raised its semi-annual dividend by 11% to 12.50 cents/share. This is the eighth consecutive annual dividend increase for this international dividend achiever. The stock yields 1.30%.

Molson Coors Brewing Company (TAP) brews, markets, sells, and distributes beer brands. The Board of Directors increased the quarterly dividend on its Class A and Class B common shares by 16.7 percent, or $0.04, to $0.28 per share. This is the third consecutive annual dividend increase for the brewer since 2008. The stock yields 2.50%.

Fifth Street Finance Corp. (FSC) is a fund managed by Fifth Street Capital LLC specializing in mezzanine investments. The company’s Board of Directors declared a cash dividend of $0.32 per share for the third fiscal quarter of 2010, an increase of 6.7% from the previous fiscal quarter and its third consecutive increase in the quarterly dividend. The stock yields 9.70%.

Textainer Group Holdings Limited, (TGH) through its subsidiaries, engages in the purchase, ownership, management, leasing, and disposal of intermodal containers worldwide. The company’s board of directors increased distributions by 4.30% to 24 cents/share. The stock yields 4.20%.

TECO Energy, Inc., (TE) through its subsidiaries, engages in the generation, purchase, transmission, distribution, and sale of electric energy in Florida. The board of directors approved a 2.50% increase in distributions to 20.50 cents/share. The stock yields 4.90%.

Yamana Gold Inc. (AUY) engages in the acquisition, exploration, development, and operation of gold properties. The company announced an increase of 50% to its quarterly dividend from $0.01 to $0.015. The stock yields only 0.60%, which is typical for gold producers.

JMP Group Inc., (JMP) through its subsidiaries, operates as an investment banking, asset management, and corporate credit management company in the United States. The company raised its quarterly dividends by 50% to 1.50 cents/share. The stock yields 0.80%.

Cognex Corporation (CGNX), together with its subsidiaries, provides machine vision products that capture and analyze visual information to automate tasks, primarily in manufacturing processes. The company raised dividends by 20% to 6 cents/share. The stock yields 1.10%.

Biovail Corporation (BVF), a specialty pharmaceutical company, engages in the development and commercialization of pharmaceutical products used in the treatment of specialty central nervous system disorders. The Board of Directors increased the Company’s quarterly dividend by 5.5% to $0.095 per share. The stock yields 2.30%.

Cablevision Systems Corporation (CVC), through its subsidiaries, operates as a telecommunications, media, and entertainment company. The company raised its quarterly dividend from $0.10 to $0.125 per share. The stock yields 2.10%.

Union Pacific Corporation (UNP) has approximately 32,094 route miles linking Pacific Coast and Gulf Coast ports with the Midwest and eastern United States gateways, and provides several corridors to Mexican gateways. The company’s board of directors approved an increase in the quarterly dividend on the company’s common shares by 22 percent to $0.33 per share. The stock yields 1.80%.

Occidental Petroleum Corporation (OXY), together with its subsidiaries, operates as an oil and gas exploration and production company primarily in the United States. The company increased its quarterly dividend by 15% to $0.38 cents/share. Occidental has raised dividends for eight consecutive years. The stock yields 1.90%.

Public Storage (PSA) operates as a real estate investment trust (REIT) that engages in the acquisition, development, ownership, and operation of self-storage facilities in the United States and Europe. The company raised its quarterly dividend to $0.80 per share. The stock yields 2.70%.

Full Disclosure: None

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3M Company (MMM) Dividend Stock Analysis

3M Company, together with its subsidiaries, operates as a diversified technology company worldwide. It operates in six segments: Industrial and Transportation; Health Care; Consumer and Office; Safety, Security and Protection Services; Display and Graphics; and Electro and Communications.

3M Company is a major component of the S&P 500 and Dow Industrials indexes. The company is also a dividend aristocrat, which has been consistently increasing its dividends for 52 consecutive years. Over the past decade this dividend growth stock has delivered an annual average total return of 7.90% to its shareholders.


At the same time company has managed to deliver an impressive 7.70% average annual increase in its EPS since 2000. In 2009 earnings per share fell by 7.60% to $4.52. The expectations for 2010 are for increase EPS to almost $5.15/share and an increase in EPS to $5.69 in 2011. Over the long run however, earnings for this conglomerate are relatively diversified which is a decent buffer during recessions. As the economy rebounds, revenues and profitability would improve. The company also invests almost 6% of its revenues in research and development each year, in order to deliver new products to consumers worldwide. Future growth is expected to also come from acquisitions as well as growth in emerging markets such as China and India. Sales are increasing partly due to strong demand of coatings for TV and Computer displays as well as demand for masks in response to the H1N1 virus.

The ROE has remained largely between 29% and 38% with the exception of a temporary dip in 2001 to 23%. After two years of declines in this indicator, I expect that increased profitability would lift returns in 2010.

Annual dividend payments have increased by an average of 6.50% annually since 1999, which is lower than the growth in EPS. Most recently the company increased its dividend by 3% to $0.525/quarter. MMM typically enjoys a slow dividend growth during tough economic conditions, while compensating with stronger dividend growth during boom times. 3M’s dividend is safe, given the strong cashflows that the company generates from its diversified businesses.


A 7 % growth in dividends translates into the dividend payment doubling almost every ten years. Since 1973 3M has actually managed to double its dividend payment on average almost every nine years.

The dividend payout has steadily decreased over the past decade; due to the fact the dividend growth was much slower than earnings growth. Currently the payout is at 45% which is a sustainable level. A lower payout is always a plus, since it leaves room for consistent dividend growth minimizing the impact of short-term fluctuations in earnings.


3M is currently attractively valued. The stock trades at a P/E of 19.50, yields 2.40% and has an adequately covered dividend payment. I would be a buyer of 3M on dips below $84.

Full Disclosure: Long MMM

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Procter & Gamble (PG) Time and Sales

It is volatile days like today which make me happy that I am a long term dividend investor, not subject to the whims of program traders and trading errors. Relying on the consistent and growing dividends of quality dividend stocks is a sound way to make money in any market, without losing your mind.

Below you could find snapshots of the time and sales of Procter & Gamble (PG) stock from the lows today.

And here is the stock chart from today:

Compare this chart to the chart of annual dividends. 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.

I think that Procter & Gamble is attractively valued with its low price/earnings multiple of 15, a not too high DPR. The current dividend yield is 3.10%. I would be a buyer of Procter & Gamble (PG) and other quality dividend stocks on dips.

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