Every week, I go through the list of dividend increases as part of my monitoring process. I usually focus on those companies that have raised dividends for at least a decade. I then focus on things like growth in earnings per share, in order to gauge the possibility of further dividend growth in the future. I also focus on valuation – even the best company in the world is not worth overpaying for. The discussion behind each company outlines my basic review process for proceeding with promising ideas or discarding them. I post it for educational purposes to my readers.
The companies that increased their dividends include:
Genuine Parts Company (GPC) distributes automotive replacement parts, industrial replacement parts, office products, and electrical/electronic materials in the United States, Canada, Mexico, Australia, New Zealand, Puerto Rico, the Dominican Republic, and the Caribbean region. The company raised its quarterly dividend by 2.70% to 67.50 cents/share. This marked the 61st consecutive annual dividend increase for this dividend king. Over the past decade, the company has managed to increase annual dividends at a rate of 6.90%/year. The company managed to grow earnings from $2.98/share in 2007 to $4.59/share in 2016. The company is expected to earn $4.77share in 2017. The stock is overvalued at 21 times forward earnings and yields 2.80%. It would be worth a second look on dips below $92/share. Check my analysis of Genuine Parts Company for more information.
Monday, February 27, 2017
Thursday, February 23, 2017
Dividend Achievers Offer Income Growth and Capital Appreciation
The NASDAQ US Broad Dividend Achievers Select Index is comprised of a select group of securities with at least ten consecutive years of increasing annual regular dividend payments. There are 272 companies in this index today. You can find all those holdings at the following location.
Peter Lynch, the legendary manager of the Fidelity Magellan Fund has mentioned the following about dividend achievers:
"The Dividend Achievers Handbook is one of my favorite bedside thrillers. Here's a simple way to succeed in Wall Street: Buy the stocks on Mergent's list and stick with them as long as they stay on the list"
The stocks he mentions in his book, "One Up on Wall Street", is Automatic Data Processing (ADP), which incidentally has kept raising distributions 25 years after his book was published.
In fact some of the best performing stocks on Wall Street over the past decade have been the dividend achievers. Dividend achievers are companies which have increased their distributions for at least ten consecutive years. They provide a superior alternative than investing in fixed income because they provide investors with the opportunity of a rising dividend payment and they could also receiving higher total returns over time as well. The premise is that higher dividends are a direct result of rising earnings, which translates into higher stock prices. When managements boost distributions, this shows what their outlook for the business and the economy really is.
Peter Lynch, the legendary manager of the Fidelity Magellan Fund has mentioned the following about dividend achievers:
"The Dividend Achievers Handbook is one of my favorite bedside thrillers. Here's a simple way to succeed in Wall Street: Buy the stocks on Mergent's list and stick with them as long as they stay on the list"
The stocks he mentions in his book, "One Up on Wall Street", is Automatic Data Processing (ADP), which incidentally has kept raising distributions 25 years after his book was published.
In fact some of the best performing stocks on Wall Street over the past decade have been the dividend achievers. Dividend achievers are companies which have increased their distributions for at least ten consecutive years. They provide a superior alternative than investing in fixed income because they provide investors with the opportunity of a rising dividend payment and they could also receiving higher total returns over time as well. The premise is that higher dividends are a direct result of rising earnings, which translates into higher stock prices. When managements boost distributions, this shows what their outlook for the business and the economy really is.
Wednesday, February 22, 2017
The Coffee Can Portfolio
I have invested in dividend growth stocks for over a decade now, and shared experiences and knowledge with you on the Dividend Growth Investor site along the way.
One of the lessons I have learned is that once I buy a solid company, I should hold on tightly and not sell no matter what "noise" I see or hear. When I evaluated my sales, I noticed that I would have been better off simply doing nothing, rather than sell to pay capital gains taxes, and to buy another company that did not do as well as the original one.
My evaluation of the Corporate Leaders Trust in 2015 confirmed the observation that time in the market trumps timing the market. It simply pays to be patient as an investor.
I recently learned of an interesting concept called the Coffee Can Portfolio:
The idea is that investors can craft a portfolio of large, blue chip stocks, and simply hold them forever. The idea is to never sell these investments, which serves several purposes.
First, investors will avoid fees and costs, that eat away at total returns.
Second, investors will let compounding interest work its magic.
This concept comes from an article by Robert Kirby from 1984, citing the investment performance of a client portfolio he managed. The article is titled " The Coffee Can Portfolio"
It definitely makes sense that by holding blue chip dividend stocks for the long-term, without selling, you will reduce investment costs and also reduce the impact of errors due to frequent transactions. Research has shown that investors tend to sell at the wrong times. This is why a do nothing approach may provide you with very good long-term results ( provided you also keep taxation costs low as well)
Do you follow the Coffee Can approach of not selling? I'd love to hear your thoughts on it.
One of the lessons I have learned is that once I buy a solid company, I should hold on tightly and not sell no matter what "noise" I see or hear. When I evaluated my sales, I noticed that I would have been better off simply doing nothing, rather than sell to pay capital gains taxes, and to buy another company that did not do as well as the original one.
My evaluation of the Corporate Leaders Trust in 2015 confirmed the observation that time in the market trumps timing the market. It simply pays to be patient as an investor.
I recently learned of an interesting concept called the Coffee Can Portfolio:
The idea is that investors can craft a portfolio of large, blue chip stocks, and simply hold them forever. The idea is to never sell these investments, which serves several purposes.
First, investors will avoid fees and costs, that eat away at total returns.
Second, investors will let compounding interest work its magic.
This concept comes from an article by Robert Kirby from 1984, citing the investment performance of a client portfolio he managed. The article is titled " The Coffee Can Portfolio"
It definitely makes sense that by holding blue chip dividend stocks for the long-term, without selling, you will reduce investment costs and also reduce the impact of errors due to frequent transactions. Research has shown that investors tend to sell at the wrong times. This is why a do nothing approach may provide you with very good long-term results ( provided you also keep taxation costs low as well)
Do you follow the Coffee Can approach of not selling? I'd love to hear your thoughts on it.
Tuesday, February 21, 2017
Thirteen Companies Building Wealth For Long Term Shareholders
Dividend growth investing is a very simple but effective wealth building strategy. The investor focuses on companies with a proven track record of annual dividend increases, which typically exemplifies quality in a company. The next step involves focusing on those enterprises that grow earnings and are available at attractive valuations today.
The next step in the process is the most difficult one - doing absolutely nothing after assembling your portfolio of quality dividend growth stocks, while watching your dividend income rise year over year for decades. Most dividend investors who fail, succumb to short-term thinking because they listen to the useless noise out there. The dividend investors who succeed hold patiently to their diversified portfolios over time, and end up generating a lot of dividends for decisions made decades prior to that. I always like seeing how my dividend stocks are continuing their streak of annual dividend increases.
As part of my monitoring process, I review the list of dividend increases with at least a ten year streak. The companies that met the criteria are listed below, along with my comments:
The next step in the process is the most difficult one - doing absolutely nothing after assembling your portfolio of quality dividend growth stocks, while watching your dividend income rise year over year for decades. Most dividend investors who fail, succumb to short-term thinking because they listen to the useless noise out there. The dividend investors who succeed hold patiently to their diversified portfolios over time, and end up generating a lot of dividends for decisions made decades prior to that. I always like seeing how my dividend stocks are continuing their streak of annual dividend increases.
As part of my monitoring process, I review the list of dividend increases with at least a ten year streak. The companies that met the criteria are listed below, along with my comments:
Friday, February 17, 2017
Coca-Cola (KO) Dividend Stock Analysis
The Coca-Cola Company (KO) manufactures, distributes, and markets nonalcoholic beverages worldwide. This dividend king has paid uninterrupted dividends on its common stock since 1893 and increased payments to common shareholders every for 55 years in a row. Warren Buffett’s Berkshire Hathaway (BRK.B) is the largest shareholder of the world’s largest beverage company.
The company’s last dividend increase was in February 2017 when the Board of Directors approved an 5.70% increase to 37 cents/share. Coca-Cola’s largest competitors include PepsiCo (PEP), Dr. Pepper Snapple (DPS) and Monster Beverage (MNST).
Over the past decade this dividend growth stock has delivered an annualized total return of 8.90% to its shareholders.
The company’s last dividend increase was in February 2017 when the Board of Directors approved an 5.70% increase to 37 cents/share. Coca-Cola’s largest competitors include PepsiCo (PEP), Dr. Pepper Snapple (DPS) and Monster Beverage (MNST).
Over the past decade this dividend growth stock has delivered an annualized total return of 8.90% to its shareholders.
Thursday, February 16, 2017
The Most Successful Dividend Investors of all time
Dividend investing is as sexy as watching paint dry on the wall. Defining an entry criteria that selects quality dividend stocks with rising dividends over time and then patiently reinvesting these dividends while sitting on your hands is not exciting. While active traders have a plethora of hedge fund managers on the covers of Forbes magazine there are not many well-publicized successful dividend investors. Even value investing has its own superstars – Ben Graham and Warren Buffett.
I did some research and uncovered several successful dividend investors, whose stories provide reassurance that the traits of successful dividend investing I outlined in a previous post are indeed accurate.
Wednesday, February 15, 2017
Are you ignoring investment risks you know about?
I have always had a deep fascination with investing. I like learning about different ways to make money, strategies, and investments. It is always fascinating to watch how others make money in the markets, as you can always learn something from it.
Several months ago I watched a Netflix documentary called “ The Pit”. It is a documentary about open outcry trading, where people buy and sell futures on an exchange floor. A long time ago, stocks, bonds and commodity futures were traded by actual humans on a trading floor ( think NYSE for stocks or the movie " Trading Places") For 20 years, one trader said, they were told that the exchange will become electronic. Yet, it never became electronic. As a result, it was a running joke that it would become an electronic exchange one day. When it did, many of these people were out of a way to earn a livelihood.
So how does it relate to me as a dividend investor? Long term readers know that my biggest investments are in the likes of Altria (MO) and Philip Morris International (PM). Combining Philip Morris International and Altria, I have a decent sized allocation to tobacco.
Several months ago I watched a Netflix documentary called “ The Pit”. It is a documentary about open outcry trading, where people buy and sell futures on an exchange floor. A long time ago, stocks, bonds and commodity futures were traded by actual humans on a trading floor ( think NYSE for stocks or the movie " Trading Places") For 20 years, one trader said, they were told that the exchange will become electronic. Yet, it never became electronic. As a result, it was a running joke that it would become an electronic exchange one day. When it did, many of these people were out of a way to earn a livelihood.
So how does it relate to me as a dividend investor? Long term readers know that my biggest investments are in the likes of Altria (MO) and Philip Morris International (PM). Combining Philip Morris International and Altria, I have a decent sized allocation to tobacco.
Monday, February 13, 2017
Seven Dividend Stocks Rewarding Shareholders With a Raise
Every week, I review the list of dividend increases as part of my monitoring process. I usually focus my attention on companies that have managed to boost annual dividends for at least a decade. This increases the odds of identifying companies that pay dependable dividends, and are committed to growing them over time. I then also review the trends in operating performance, such as earnings per share, in order to determine whether the business can support future dividend hikes.I follow a similar,but slightly more detailed process every few weeks or so, when I screen the list of dividend champions and contenders for investment opportunities. All of this helps me familiarize with story of as many companies as possible. That way, when the right quality company is available for sale at a good valuation, I can take action.
There were several companies which raised dividends to shareholders over the past week. The companies include:
There were several companies which raised dividends to shareholders over the past week. The companies include:
Friday, February 10, 2017
How much money do you need to retire
The most important question that investors ask themselves is how much money do they need to retire. There are several things to consider, in order to answer this question. I will share those questions, and also share a rule of thumb that I have found helpful in my personal retirement planning.
1) How much money are you spending
In general, I have found that traditional rules of thumb that focused on salary income to be misleading. I prefer to focus on the spending levels in retirement. The more you save, the more you will be able to invest, and the faster you will reach financial independence. In order to get there, you need to compile a list of annual expenses from credit cards, checking accounts and other sources in order to get a reasonable gauge of past expenses. Putting everything in one place really helps in this direction.
The next step involves determining what your retirement may look like. Perhaps you will not be commuting one or two hours per day to work, and you won’t be needing professional business attire. So certain expenses would be taken out from the budget. However, if you expect to be doing more travelling, you may need to incorporate those numbers. If you are able to downsize your home, or plan to move to another location, this should also be taken into consideration.
If you expect to spend more in retirement, this means you may need a larger nest egg to support you. However, if you expect to spend less in retirement, you may get by on a smaller nest egg.
1) How much money are you spending
In general, I have found that traditional rules of thumb that focused on salary income to be misleading. I prefer to focus on the spending levels in retirement. The more you save, the more you will be able to invest, and the faster you will reach financial independence. In order to get there, you need to compile a list of annual expenses from credit cards, checking accounts and other sources in order to get a reasonable gauge of past expenses. Putting everything in one place really helps in this direction.
The next step involves determining what your retirement may look like. Perhaps you will not be commuting one or two hours per day to work, and you won’t be needing professional business attire. So certain expenses would be taken out from the budget. However, if you expect to be doing more travelling, you may need to incorporate those numbers. If you are able to downsize your home, or plan to move to another location, this should also be taken into consideration.
If you expect to spend more in retirement, this means you may need a larger nest egg to support you. However, if you expect to spend less in retirement, you may get by on a smaller nest egg.
Wednesday, February 8, 2017
7 Dividend Growth Stocks on Sale
My goal is to purchase quality companies that grow earnings and dividends at an attractive price. Most members of the dividend champions list exhibit characteristics of a quality company. After all, only a company with a strong business can afford to consistently grow earnings and dividends every single year for a quarter of a century.
To come up with the companies below, I started with a custom made list of the dividend champions I keep at Yahoo Finance. Being a dividend champion fulfills the quality criterion.
I then sorted the list by P/E ratio, and picked the companies with a P/E below 20. I have a maximum P/E requirement in order to avoid overpaying for companies. Even the best company in the world is not worth overpaying for.
The next step in the process included evaluating trends in earnings per share and dividends per share. As I mentioned above, I want companies that can grow earnings per share over time. This will drive future increases in dividends, and protect the purchasing power of my income in retirement. I do not want companies that increase dividends merely by increasing their payout ratios, or who have slowed down on dividend increases because their earnings are stagnant.
The companies include:
To come up with the companies below, I started with a custom made list of the dividend champions I keep at Yahoo Finance. Being a dividend champion fulfills the quality criterion.
I then sorted the list by P/E ratio, and picked the companies with a P/E below 20. I have a maximum P/E requirement in order to avoid overpaying for companies. Even the best company in the world is not worth overpaying for.
The next step in the process included evaluating trends in earnings per share and dividends per share. As I mentioned above, I want companies that can grow earnings per share over time. This will drive future increases in dividends, and protect the purchasing power of my income in retirement. I do not want companies that increase dividends merely by increasing their payout ratios, or who have slowed down on dividend increases because their earnings are stagnant.
The companies include:
Monday, February 6, 2017
Eight Dividend Stocks Rewarding Shareholders With A Raise
Every week, I review the list of dividend increases as part of my monitoring process. I usually focus on companies I already own. However, I also focus on companies that have raised dividends for at least a decade, in order to observe their performance from the grounds up. Over the past week, there were several companies that raised dividends. In the case of Diageo, I missed this company during my review last week, which is why I wanted to include it here. I have highlighted the ones that have managed to reward shareholders with a raise for at least ten years in a row. The companies include:
Diageo plc (DEO) produces, markets, and sells alcoholic beverages worldwide It offers scotch whiskey, gin, vodka, rum, beer and spirits, Irish cream liqueurs, wine, Raki, tequila, Canadian and American whiskey, Cachaça, and brandy, as well as adult beverages and ready to drink products. The UK based company raised its interim dividend by 4.90% to 23.70 pence/share. This international dividend company has increased dividends for 19 years in a row. (The UK currency is the British pound, and each pound is divided into 100 pence). Dividends on the ordinary shares are normally paid twice a year: an interim dividend in April and a final dividend in October. The approximate split between the two payments is 40:60. This would translate into an increase in the October payment to 38.40 pence/share, for a total annual dividend of 62.10 pence share.
Diageo plc (DEO) produces, markets, and sells alcoholic beverages worldwide It offers scotch whiskey, gin, vodka, rum, beer and spirits, Irish cream liqueurs, wine, Raki, tequila, Canadian and American whiskey, Cachaça, and brandy, as well as adult beverages and ready to drink products. The UK based company raised its interim dividend by 4.90% to 23.70 pence/share. This international dividend company has increased dividends for 19 years in a row. (The UK currency is the British pound, and each pound is divided into 100 pence). Dividends on the ordinary shares are normally paid twice a year: an interim dividend in April and a final dividend in October. The approximate split between the two payments is 40:60. This would translate into an increase in the October payment to 38.40 pence/share, for a total annual dividend of 62.10 pence share.
Friday, February 3, 2017
3 Dividend Stocks Trading At A Discount
This guest post has been wrote by Mike McNeil, passionate investor, founder of Dividend Stocks Rock and author of The Dividend Guy Blog.
As the S&P 500 just finished its 8th consecutive year with positive returns, the crash of 2008 has become merely an old souvenir for many.
Source: Ycharts
As the S&P 500 just finished its 8th consecutive year with positive returns, the crash of 2008 has become merely an old souvenir for many.
Source: Ycharts
Wednesday, February 1, 2017
How to allocate capital
The biggest fallacy out there is that each dollar reinvested by companies will automatically translate into more profits.
Unfortunately, real life does not work this way. There are issues with that. There is law of diminishing returns. There is the competitive nature of business and various physical constraints.
Research from Fama and French has uncovered that companies which reinvest a higher portion of earnings, tend to do worse than companies which reinvest a lower portion of their earnings. Companies in general have done a terrible job at allocating capital.
Most dividend investors intuitively understand this. For example, a company like Target (TGT) is a better value at $62 than at $85. Therefore, it makes sense to invest dollars into Target at a lower valuation, since that provides better margin of safety and higher future dividend income potential. Buying a stock at 12.60 times earnings and 3.80% yield is better than buying at 18 times earnings and a 2.80% yield. Of course, as the company has not really grown its store base for several years, we may be seeing the limits to its growth. This is why paying a dividend may be the optimal capital allocation decision.
Most great companies that we talk about on this site have been able to grow dividends per share for decades. These companies have accomplished that because they are of high quality, have branded products, and are able to generate high returns on invested capital. These companies generate a lot of excess capital, that they do not know what to do with. This is how companies like Coca-Cola (KO), Altria (MO) and McDonald's (MCD) have delivered substantial shareholder wealth over the past 50 years. Having too much cash is a good problem to have of course. It allows you to grow your business, and still shower your shareholders with cash. I will discuss a few examples below, which will provide more detail on my main thesis above.
Unfortunately, real life does not work this way. There are issues with that. There is law of diminishing returns. There is the competitive nature of business and various physical constraints.
Research from Fama and French has uncovered that companies which reinvest a higher portion of earnings, tend to do worse than companies which reinvest a lower portion of their earnings. Companies in general have done a terrible job at allocating capital.
Most dividend investors intuitively understand this. For example, a company like Target (TGT) is a better value at $62 than at $85. Therefore, it makes sense to invest dollars into Target at a lower valuation, since that provides better margin of safety and higher future dividend income potential. Buying a stock at 12.60 times earnings and 3.80% yield is better than buying at 18 times earnings and a 2.80% yield. Of course, as the company has not really grown its store base for several years, we may be seeing the limits to its growth. This is why paying a dividend may be the optimal capital allocation decision.
Most great companies that we talk about on this site have been able to grow dividends per share for decades. These companies have accomplished that because they are of high quality, have branded products, and are able to generate high returns on invested capital. These companies generate a lot of excess capital, that they do not know what to do with. This is how companies like Coca-Cola (KO), Altria (MO) and McDonald's (MCD) have delivered substantial shareholder wealth over the past 50 years. Having too much cash is a good problem to have of course. It allows you to grow your business, and still shower your shareholders with cash. I will discuss a few examples below, which will provide more detail on my main thesis above.
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