Four Attractively Valued Dividend Growth Stocks For Further Research

Last week I shared with you a list of nine dividend champions, which I believed were attractively valued. Today I am sharing with you a few more companies, which I believe are attractively valued. These companies have managed to boost dividends for at least a decade, have a P/E ratio below 20, and a current yield above 2% which is covered by earnings. These are companies which are good candidates for further research. The companies include:

Abbott Laboratories (ABT) manufactures and sells health care products worldwide. Abbott is a dividend aristocrat, which has managed to boost dividends for 43 years in a row.

The company split into Abbott and Abbvie in early 2013. I bought and held shares of the legacy Abbott for years now, but my last purchase was right before the spin-off. I received plenty of disagreement for this decision of course, but I stayed the course.

Due to the split, analyzing historical data for Abbott is a little bit more challenging. The information prior to 2013 includes results for both Abbvie and Abbott. The only information for Abbott only is for the years since early 2013.

How to become a successful dividend investor

There are several guidelines about becoming a successful dividend investor. They are centered around several key points I am going to be discussing in the next three weeks. I will be updating this post with links to articles on the process of becoming a successful investor.

The series of articles over the next three weeks will be a high level summary of my dividend investment plan today. If I were to start dividend investing today, I would find the collection of posts to be of tremendous value. In other words, the articles I will be posting are similar to a free course on dividend investing.

Lesson One: How to identify your dividend investment goals?

Lesson Two: Where to search for investment opportunities?

Lesson Three: When to buy dividend paying stocks?

Lesson Four: How to analyze investment opportunities?

Lesson Five: How to Manage Your Dividend Portfolio

Lesson Six:  How to deal with new cash from dividend payments

Lesson Seven: How to monitor your dividend investments

Lesson Eight: When to sell your dividend stocks?

The paradox of saving and investing

Right now, many investors are sitting on huge unrealized gains in the companies they have bought years ago. I am in those shoes too. However, I believe that many companies are priced ahead of their fundamentals. This is why it is getting harder and harder to find quality dividend growth stocks available at attractive valuations, without having any issues to justify the low valuation.

When I was starting this blog in early 2008, there were a lot more alternatives for investing my money. At the very worst, I could simply buy Certificates of Deposit that yielded 5%, and sit on them. Equity valuations were beginning to look very appealing, and they continued being appealing through the bottom in late 2008 and early 2009. From there on, I found it easy to find quality companies selling at attractive valuations, which grew earnings and dividends for me. It was easy to run a screen, build a collection of companies that showered me with higher dividends every year, reinvest selectively and let the power of compounding do the heavy lifting for me. This was the state of my investments all the way up until early 2013.

The interesting part is that back in 2008 – 2009, I didn’t have as much money to invest, as I do today. Back in late 2007, my total net worth was slightly higher than the amount of money I can safely generate in dividends from my portfolio. I wasn’t making that much in 2009 either. Yet, valuations were very appealing at the time. For example, if I only had $15,000 to invest per year, I could have bought 750 shares of Realty Income (O) at under $20/share or 1000 shares of Altria (MO) at $15/share. The block of Realty Income would have generated $1,275 in annual dividend income, while the block of Altria shares would have generated $1,280 in annual dividend income from the get go.

Use these tools within your control to get rich

The ultimate goals of everyone reading this site is to retire wealthy and to stay retired. Financial independence provides flexibility, freedom and a lot of options in life for you. Getting there is usually the challenging part.

I have been on a quest to reach financial independence ever since I graduated college in 2007. I have spent at least a few hours per day, every day, for almost a decade now dreaming of, planning for and working towards my dividend crossover point. The dividend crossover point is the situation where my dividend income exceeds my expenses. While I am very close to this point today however, I also want to have some margin of safety in order to withstand any future shocks that might come my way.

In the process of thinking about how to reach financial independence, I have spoken to a lot of others who are working towards financial independence. I have come up with a list of a few tools that these people have used to get rich. These are tools that are within their control. While outcomes are never guaranteed in the uncertain world of long-term investing, taking maximum advantage of things within your control tilts the odds of success in your favor.

Six Companies Rewarding Shareholders With Regular Dividend Hikes

As part of my portfolio monitoring process, I evaluate the list of dividend increases every week. It is helpful to monitor how my investments are doing, and whether my investment thesis is paying out higher cash dividends over time. This monitoring is also helpful to observe other companies that raise dividends. This is another tool to uncover hidden dividend gems that few others might be focusing on.

There were six companies that managed to boost dividends last week. Of course, this is not an automatic buy – further analysis on each company needs to be done to determine if it meets the qualitative and quantitative criteria of the investor. The list includes companies that have managed to increase distributions for at least ten years in a row:

Omega Healthcare Investors, Inc. (OHI) is a real estate investment trust, which invests in healthcare facilities, primarily in long-term healthcare facilities. This REIT raised its quarterly dividend to 60 cents/share. This was the fourth consecutive quarterly increase in the past year. Omega Healthcare Investors has rewarded shareholders with a raise for 13 years in a row. The ten year average dividend growth rate is 9.90%/year.  Future dividend growth will likely be around half that rate. This REIT sells at 10.90 times last years AFFO and yields 7.10%. The AFFO is projected to grow to $3.25 - $3.30/share in 2016, up from $3.08 in 2015. The stock looks attractively valued. You may like my previous analysis of Omega Healthcare, which I may refresh for your convenience. You may also enjoy this investor presentation.

Nine Attractively Valued Dividend Stocks to Consider

As we all know, the stock market is at an all time high. That is despite the fact that earnings for the US corporations have been flat for a few quarters. Of course, it is doubtful that those earnings as whole will not be higher a decade or two from now. But in the day to day noise that many ordinary investors operate in, this sounds like an unbearably long period of time ( it shouldn’t be that way).

Many investors have been distrustful about the stock market, after a relentless rise in equities over the past 7 – 8 years. Some have sold out large amounts of stock, and are waiting on the sidelines with cash. Others have been building up cash, and are waiting for an opportunity to buy shares at a lower price. But valuations on quality assets are at the high range, and have remained their for quite some time, making that group impatient. A third group has been putting money to work every month, but is likely having a harder time finding attractively valued companies.

I understand the frustration of all groups. After all, high stock prices in relation to earnings are great for those who are looking to sell stock. However, they are not good for savers like you and me, who happen to be able to put money to work every month. While it is great to see my net worth grow so much over time, I do not like the fact that I am priced out of some of the greatest dividend paying blue chips today. After all, if entry prices are lower, this means that I can buy future dividend income at a discount. When you obtain more future income for less dollars today, you got yourself a bargain. This would allow you to reach your financial goals much closer. If you on the other hand are dealt a tougher hand with higher overall valuations, you will have to spend a few extra years of saving to compensate for the insane valuations out there. Unfortunately, the best things to do is to stick to our plan and adapt to a situation.

As a dividend investor, I go through several hurdles in my process, in order to come up with something to invest in.

The importance of having your own unique investment process

After observing market behavior for 20 years, I have come to the conclusion that many investors do not have a clue about how to make money in stocks.

There is a lot of noise out there, and a lot of opinions. Many times, you have two equally smart and successful individuals who end up reaching polar opposite conclusions, using the exact same type of information.

You are constantly bombarded by equally opposing and sometimes confusing and misleading bits and pieces of information on TV, Newspapers, Blogs, Forums, Twitter… It can get very confusing, and it is very difficult to make an educated investment decision when you get in this situation. It is equally as challenging to maintain a position that you have already established, if you are bombarded with confusing information all the time.

I have found that many individual investors get confused by all of this noise. It is difficult to go against a rich and successful investor, when you are a small time investor. It is also difficult to go against a publication that is considered to be an authority in the field. Yet, these could be just as fallible and blind sighted as the ordinary investor. This is why I believe it is important to develop my own investment methodology, and then follow it religiously.

Should you celebrate when your dividend paying company is about to be acquired?

I do not like it, when my dividend paying companies are acquisition targets.

Last week, shares of Hershey (HSY) increased to an all-time high of $117, because of news that Mondelez (MDLZ) will try to acquire the company. Many investors were happy from the one-time pop in the stock price. I myself was not overly enthusiastic. In this article, I will outline my reasoning behind this. I will also use factual examples in order to illustrate my point.

As a dividend growth investor, my goal is to buy shares in a company that exhibits certain attributes such as a wide moat, a track record of annual dividend increases and an attractive valuation. I spend a lot of my time upfront, in order to find, research and buy those ideas at the right valuation. My intention is to hold on to such a company for decades. Therefore, for this one time effort, I end up generating dividends for decades to come.

Unfortunately, things in life and business do not proceed in a linear fashion. Some of the companies I purchase for my diversified portfolio end up cutting dividends. I sell as a result of this.

The other problem I have experienced occurs when quality companies with a lot of potential get acquired. On the surface, everyone looks happy, because the shareholders can sell their stock at a premium to the going rate. Unfortunately, an acquisition could force shareholders to lock in losses if they paid too high of a price, or force them to pay taxes on capital gains.

General Mills (GIS): A Reliable Dividend Growth Stock

General Mills, Inc. (GIS) manufactures and markets branded consumer foods in the United States and internationally. It also supplies branded and unbranded food products to the foodservice and commercial baking industries. The company operates in three segments: U.S. Retail, International, and Convenience Stores and Foodservice.

General Mills is a dividend achiever, which has managed to reward patient shareholders with a dividend raise for 13 years in a row. The company has stated that it has paid dividends for over 100 years in a row.

Some of the company’s largest competitors include Campbell Soup (CPB), Hershey (HSY), Kellogg (K).

The company raised its dividend for a second time this year. The new dividend is 48 cents/share, which is 4.30% higher than the first raise announced in February. The previous raise was rather low, and had me concerned. Of course, now that we have two raises in a row, I am in a better shape.

Over the past decade, this dividend growth stock has delivered 14% annualized returns to its shareholders.. Unfortunately, the stock price has gone up a lot. This is possibly related to the offer for Hershey by Mondelez. All of a sudden, this offer reminded everyone that quality food and beverage companies more valuable. Future returns would be dependent on entry valuation, growth in earnings per share and dividend yield at the time of investment.

The real risk behind international investing

It seems like international investing is all the rage these days. It seems like everywhere I look, someone is recommending investors to add an allocation to foreign stocks. Many “experts” have claimed that individual investors should not be picking individual stocks, but they should be picking separate asset classes instead. In other words, rather than create my own portfolio of 30 – 60 individual dividend paying stocks and some fixed income, I am told that I should pick a portfolio of 10 – 15 separate asset classes, and then pay someone else to hold the stocks for me and charge me annual management fees for this "service". These experts have cost investors millions of dollars in missed opportunities. Over the past decade that I have been investing, my international stocks have done much worse than my exposure to US securities and US fixed income. I am lucky that my allocation of foreign equities has always been low. This is because I have focused my effort on US multinational companies, which generate a large portion of revenues and profits from abroad.

My other issues with international companies is that the culture of regular dividend increases that we have in the US is not prevalent. Most foreign companies pay fluctuating dividends. These dividends vary from year to year in local currencies. They fluctuate as well, when converted to US dollars. I spend US dollars. Therefore, i have less confidence in the predictability of the amount of my foreign dividends.

There is some research, which states that investors are not investing abroad, because of their home bias. I personally believe that the studies on biases are given more credit in the field of investing, than they deserve. This is because studies on biases are always quick to judge and jump to conclusions, without really offering much in terms of improving results. Most studies seem to be too backwards looking, and quick to provide explanations for things, whether this knowledge is useful for decision making or not. I came to the conclusion that biases are useless, after observing experts that shame investors into admitting how biased they are ( and selling them something in the process). However, when real money is on the line, the experts exhibit the same behaviors themselves ( which they shamed investors for in the first place). So if the experts do not use their research when money is on the line, then how good is that research? But this is not the point of this article…

In the case of adding international stocks to US portfolios, we have seen that this has been a bad decision for US investors over the past 20 years. In my personal retirement account, the small exposure to foreign stocks has turned out to be a bad decision over the past decade. In fact, buying Kinder Morgan in 2008 and 2009 has turned out to be a much better decision that buying an international index fund.