As part of my monitoring process, I review the list of dividend increases every week. I use this exercise to monitor performance on existing holdings, and also to uncover hidden gems for further research. When I purchase shares in a company at an attractive price, I expect trends in earnings per share and dividends per share to continue into the future. This dividend momentum is a very powerful force, because it can continue for decades, while richly rewarding shareholders with higher dividends and capital appreciation. However, it is also important to keep monitoring those holdings, in order to make sure that the business is still growing, and can afford to pay higher dividends to me.
It is always great to see companies I own continue to reward me with a raise. The amount of organic dividend increases I receive from my investments has always been higher than the raises I receive at work. And that is despite the fact that I have to spend a lot of time in the office, plus the obligatory after-hours commitment to the firm. This is the nice things about dividend growth investing - the companies work very hard for you, so that you don't have to.
In the past week, there were several companies on my watchlist, which raised their dividends to shareholders. With one exception, all of those have managed to reward shareholders with a dividend increase for at least ten years in a row. The exception is a spin-off from a dividend champion which had rewarded shareholders with a raise for over four decades.
The companies include:
Monday, October 30, 2017
Thursday, October 26, 2017
How to Convert a portfolio of index funds to dividend stocks?
In a previous article, I discussed various ways that investors can accumulate their nest egg. One strategy includes putting a portion in one or a few attractively valued dividend growth stocks every single month, and reinvesting dividends selectively. The other strategy involved investing in index funds, using tax advantaged accounts such as 401 (k) for example.
Traditional vehicles for saving such as index funds and target-date funds work well when you accumulate your nest egg, but could present a challenge if you try to live off them. Many retirees prefer to have a stable and growing source of income, which maintains purchasing power over time, and is not dependent on the manic-depressive swings in stock prices. Therefore, investing in dividend growth stocks is the ideal way to generate income from your nest egg in retirement, due to the stability of dividend income. Therefore, if someone were to accumulate their nest egg in other items such as index funds, but wanted to convert to dividend investing, there are two ways that they can achieve that.
The strategies outlined in this article also work for situations where you have a lump sum amount, and you are thinking of investing it.
The first strategy involves selling all funds in your portfolio, and using the proceeds immediately to create a diversified portfolio of quality dividend paying stocks.
Traditional vehicles for saving such as index funds and target-date funds work well when you accumulate your nest egg, but could present a challenge if you try to live off them. Many retirees prefer to have a stable and growing source of income, which maintains purchasing power over time, and is not dependent on the manic-depressive swings in stock prices. Therefore, investing in dividend growth stocks is the ideal way to generate income from your nest egg in retirement, due to the stability of dividend income. Therefore, if someone were to accumulate their nest egg in other items such as index funds, but wanted to convert to dividend investing, there are two ways that they can achieve that.
The strategies outlined in this article also work for situations where you have a lump sum amount, and you are thinking of investing it.
The first strategy involves selling all funds in your portfolio, and using the proceeds immediately to create a diversified portfolio of quality dividend paying stocks.
Monday, October 23, 2017
Four Dividend Growth Stocks to Consider on Dips
As part of my monitoring process, I review the list of dividend increases every week. This is in addition to the regular screening I do against the list of dividend champions and contenders.
I use this exercise as a way to monitor how companies I own are doing, and potentially uncover any attractively priced opportunities that my screens may have overlooked. Many times, I end up uncovering quality companies for further research that fit everything I am looking for, except for valuation. As a result, I tuck those companies on a waiting list. If they ever get close to my desired entry price, I get an alert and review the situations further.
In general I look for:
1) A history of dividend increases through a full economic cycle. A long streak of annual dividend increases is an indication that we have quality company with a strong track record for further research
2) A history of earnings growth. I believe that a company that grows earnings over time can withstand a large number of headwinds working against it.
3) A dividend that is well covered out of earnings. I require a margin of safety in dividends, for companies I am monitoring. I also require growth in earnings per share, in order to make sure that dividend growth does not occur solely by expansion of the dividend payout ratio
4) An attractive valuation. To me, this generally means a P/E below 20, coupled with a track record of earnings and dividend growth. A low valuation is not bullish in itself, if a company is not growing the bottom line.
After going through the list of companies that raised dividends over the past week, I identified four companies for further research.
The companies include:
I use this exercise as a way to monitor how companies I own are doing, and potentially uncover any attractively priced opportunities that my screens may have overlooked. Many times, I end up uncovering quality companies for further research that fit everything I am looking for, except for valuation. As a result, I tuck those companies on a waiting list. If they ever get close to my desired entry price, I get an alert and review the situations further.
In general I look for:
1) A history of dividend increases through a full economic cycle. A long streak of annual dividend increases is an indication that we have quality company with a strong track record for further research
2) A history of earnings growth. I believe that a company that grows earnings over time can withstand a large number of headwinds working against it.
3) A dividend that is well covered out of earnings. I require a margin of safety in dividends, for companies I am monitoring. I also require growth in earnings per share, in order to make sure that dividend growth does not occur solely by expansion of the dividend payout ratio
4) An attractive valuation. To me, this generally means a P/E below 20, coupled with a track record of earnings and dividend growth. A low valuation is not bullish in itself, if a company is not growing the bottom line.
After going through the list of companies that raised dividends over the past week, I identified four companies for further research.
The companies include:
Thursday, October 19, 2017
Rising Earnings – The Source of Future Dividend Growth
Successful dividend investors understand that a steadily rising dividend payment only tells half of the story. Most dividend paying companies that have been able to consistently raise distributions for at least one decade have enjoyed a steady pattern of earnings during that period of time.
As a dividend growth investor, my goal is to find attractively valued stocks that consistently grow their dividends. I run screens on the list of dividend champions and contenders using my secret entry criteria, and then look at the list company by company. Not surprisingly, I look for a record of increasing dividends. But I look for much more than that in a company.
In a previous article I discussed the three stages that dividend growth companies generally exist in. My goal is to focus on those in the second stage, although I might occasionally select a company from the first phase. However, I try to buy not just companies that have a record of raising dividends, but those that have decent odds of continuing that streak for the next 20 – 30 years. Not every company will achieve that, but for those that do, they would generate the bulk of portfolio dividend growth. The hidden source of dividend growth potential is expected earnings growth.
As you can tell from looking at my stock analysis reports, I look for companies that can increase earnings per share over time. Rising earnings per share can essentially provide the fuel behind future dividend growth. For example, Colgate-Palmolive (CL) has increased dividends for 53 years in a row. The company has managed to increase EPS from $1.17 in 2004 to $2.72/share for 2016. This has allowed the company to increase annual dividends from $0.48/share in 2004 to $1.55/share. The rest has been invested back into the business, to fuel potential for more earnings growth.
As a dividend growth investor, my goal is to find attractively valued stocks that consistently grow their dividends. I run screens on the list of dividend champions and contenders using my secret entry criteria, and then look at the list company by company. Not surprisingly, I look for a record of increasing dividends. But I look for much more than that in a company.
In a previous article I discussed the three stages that dividend growth companies generally exist in. My goal is to focus on those in the second stage, although I might occasionally select a company from the first phase. However, I try to buy not just companies that have a record of raising dividends, but those that have decent odds of continuing that streak for the next 20 – 30 years. Not every company will achieve that, but for those that do, they would generate the bulk of portfolio dividend growth. The hidden source of dividend growth potential is expected earnings growth.
As you can tell from looking at my stock analysis reports, I look for companies that can increase earnings per share over time. Rising earnings per share can essentially provide the fuel behind future dividend growth. For example, Colgate-Palmolive (CL) has increased dividends for 53 years in a row. The company has managed to increase EPS from $1.17 in 2004 to $2.72/share for 2016. This has allowed the company to increase annual dividends from $0.48/share in 2004 to $1.55/share. The rest has been invested back into the business, to fuel potential for more earnings growth.
Tuesday, October 17, 2017
Should I invest in General Mills?
General Mills, Inc. is a manufacturer and marketer of branded consumer foods sold through retail stores. The Company is a supplier of branded and unbranded food products to the North American foodservice and commercial baking industries. The Company has three segments: U.S. Retail, International, and Convenience Stores and Foodservice.
Today we are going to evaluate General Mills (GIS) against these simple four filters. In general:
1. I look for quality companies (evidenced by a long streak annual dividend increases)
2. I want them at an attractive valuation
3. I want EPS growth, to ensure future dividend growth and growth in intrinsic value over time
4. I want an adequate margin of safety in dividends
General Mills is a dividend achiever which has increased dividends to shareholders for 14 years in a row. The company and its predecessors have paid dividends without interruption for 119 years. Over the past decade, General Mills has managed to hike annual dividends at a rate of 10.40%/year.
Today we are going to evaluate General Mills (GIS) against these simple four filters. In general:
1. I look for quality companies (evidenced by a long streak annual dividend increases)
2. I want them at an attractive valuation
3. I want EPS growth, to ensure future dividend growth and growth in intrinsic value over time
4. I want an adequate margin of safety in dividends
General Mills is a dividend achiever which has increased dividends to shareholders for 14 years in a row. The company and its predecessors have paid dividends without interruption for 119 years. Over the past decade, General Mills has managed to hike annual dividends at a rate of 10.40%/year.
Thursday, October 12, 2017
How to determine if your dividends are safe
As dividend growth investors, our goal is to buy shares in a company that will shower us with cash for decades to come.
One of the important things to look out for in our evaluation of companies involves determining the safety of that dividend payment.
A quick check to determine dividend safety is by looking at the dividend payout ratio. This metric shows what percentage of earnings are paid out in dividends to shareholders.
In general, the lower this metric, the better. As a quick rule of thumb, I view dividend payout ratios below 60% as sustainable. A lower payout is always a plus, since it leaves room for consistent dividend growth minimizing the impact of short-term fluctuations in earnings.
For example, dividend king 3M (MMM) earned $8.16/share in 2016 and paid out $4.44 in annual dividend income per share. The dividend payout ratio is a safe 54%. This means that this dividend king is likely to continue rewarding its long-term shareholders with a dividend increase into the future. This will further extend 3M's streak of 59 consecutive annual dividend increases.
However, there are exceptions to the 60% payout ratio rule.
For example, companies in certain industries such as utilities have strong and defensible earnings streams. In addition, they can afford to distribute a higher portion of earnings as dividends to shareholders due to the stability of their business model.
One of the important things to look out for in our evaluation of companies involves determining the safety of that dividend payment.
A quick check to determine dividend safety is by looking at the dividend payout ratio. This metric shows what percentage of earnings are paid out in dividends to shareholders.
In general, the lower this metric, the better. As a quick rule of thumb, I view dividend payout ratios below 60% as sustainable. A lower payout is always a plus, since it leaves room for consistent dividend growth minimizing the impact of short-term fluctuations in earnings.
For example, dividend king 3M (MMM) earned $8.16/share in 2016 and paid out $4.44 in annual dividend income per share. The dividend payout ratio is a safe 54%. This means that this dividend king is likely to continue rewarding its long-term shareholders with a dividend increase into the future. This will further extend 3M's streak of 59 consecutive annual dividend increases.
However, there are exceptions to the 60% payout ratio rule.
For example, companies in certain industries such as utilities have strong and defensible earnings streams. In addition, they can afford to distribute a higher portion of earnings as dividends to shareholders due to the stability of their business model.
Wednesday, October 11, 2017
Two Dividend Growth Stocks On My Radar
As part of my process, I tend to screen the list of dividend growth stocks regularly, in order to identify companies for further research. I also skim company press releases for announcements related to earnings and dividends. I was able to identify two dividend growth stocks, which seem to have been punished excessively as of recently. Those companies include Walgreen and CVS.
Walgreens Boots Alliance, Inc. (WBA) operates as a pharmacy-led health and wellbeing company. It operates through three segments: Retail Pharmacy USA, Retail Pharmacy International, and Pharmaceutical Wholesale. The company is a dividend champion, which has managed to raise dividends to shareholders for 42 years in a row. The ten year dividend growth rate is 17.80%/year. Walgreens Boots Alliance has managed to grow earnings per share from $2.03 in 2007 to $3.82 in 2016. Forward estimates are for $5/share in 2017. Currently, the stock is attractively valued at 18.30 times earnings and yields 2.30%. Check my analysis of Walgreens for more information about the company.
CVS Health Corporation (CVS) provides integrated pharmacy health care services. It operates through Pharmacy Services and Retail/LTC segments. The company is a dividend achiever, which has managed to boost its dividend for 14 years in a row. The ten year dividend growth rate is 27%/year. CVS Health has managed to grow earnings per share from $1.90 in 2007 to $4.90 in 2016. Forward estimates are for $5.88/share in 2017. Currently, the stock is attractively valued at 15.20 times earnings and yields 2.70. Check my analysis of CVS Health for more information about the company.
Walgreens Boots Alliance, Inc. (WBA) operates as a pharmacy-led health and wellbeing company. It operates through three segments: Retail Pharmacy USA, Retail Pharmacy International, and Pharmaceutical Wholesale. The company is a dividend champion, which has managed to raise dividends to shareholders for 42 years in a row. The ten year dividend growth rate is 17.80%/year. Walgreens Boots Alliance has managed to grow earnings per share from $2.03 in 2007 to $3.82 in 2016. Forward estimates are for $5/share in 2017. Currently, the stock is attractively valued at 18.30 times earnings and yields 2.30%. Check my analysis of Walgreens for more information about the company.
CVS Health Corporation (CVS) provides integrated pharmacy health care services. It operates through Pharmacy Services and Retail/LTC segments. The company is a dividend achiever, which has managed to boost its dividend for 14 years in a row. The ten year dividend growth rate is 27%/year. CVS Health has managed to grow earnings per share from $1.90 in 2007 to $4.90 in 2016. Forward estimates are for $5.88/share in 2017. Currently, the stock is attractively valued at 15.20 times earnings and yields 2.70. Check my analysis of CVS Health for more information about the company.
Monday, October 9, 2017
Three Companies Rewarding Shareholders With a Raise
As dividend growth investors we are trying to identify quality companies with an established track record of annual dividend dividend increases, which are growing earnings, have sustainable dividends, and are available at an attractive valuation. If we identify enough such companies to add to our portfolio, we will be able to generate a sufficient stream of income to live off in retirement.
I identify such companies as part of my screening process, and as part of my monitoring process.
As part of my monitoring process, I review the list of dividend increases every week. I go through this exercise, in order to check if the companies I own are going to pay me more for owning them. I also use it to uncover hidden dividend gems for further research. Most importantly, this exercise is helpful as an educational tool, used best to reiterate what we are really looking for as investors.
The companies that recently announced their intention to reward shareholders with a raise include Honeywell International (HON), RPM International (RPM) and Northwest Natural Gas Company (NWN).
RPM International Inc. (RPM) manufactures, markets, and sells specialty chemical products for industrial, specialty, and consumer markets worldwide.The company raised its quarterly dividend by 6.70% to 32 cents/share. This marked the 44th consecutive annual dividend increase for this dividend champion.
I identify such companies as part of my screening process, and as part of my monitoring process.
As part of my monitoring process, I review the list of dividend increases every week. I go through this exercise, in order to check if the companies I own are going to pay me more for owning them. I also use it to uncover hidden dividend gems for further research. Most importantly, this exercise is helpful as an educational tool, used best to reiterate what we are really looking for as investors.
The companies that recently announced their intention to reward shareholders with a raise include Honeywell International (HON), RPM International (RPM) and Northwest Natural Gas Company (NWN).
RPM International Inc. (RPM) manufactures, markets, and sells specialty chemical products for industrial, specialty, and consumer markets worldwide.The company raised its quarterly dividend by 6.70% to 32 cents/share. This marked the 44th consecutive annual dividend increase for this dividend champion.
Wednesday, October 4, 2017
Four Dividend Growth Stocks to Consider on Dips
I was able to identify a few dividend growth stocks that I find to be attractively valued today. That doesn’t mean that these companies will not decline further in share prices from here. It also doesn’t mean that those are recommendations for you to act upon. These are just a few companies that I believe are attractively valued today, and are likely to grow earnings and dividends over the next decade or so. If that thesis plays out, it is also likely that share prices will grow over time.
The companies include:
The J. M. Smucker Company (SJM) is a manufacturer and marketer of branded food and beverage products and pet food and pet snacks in North America. The Company's segments include U.S. Retail Coffee, U.S. Retail Consumer Foods, U.S. Retail Pet Foods, and International and Foodservice. The company is a dividend achiever, which has managed to increase dividends for 20 years in a row. Over the past decade, it has managed to boost dividends at a rate of 9.80%/year. Earnings per share grew from $3.03 in 2008 to $5.11 in 2017. The company is expected to earn $7.72/share in 2018. It is selling for close to 20 times earnings and yields 3%. It could be an interesting idea below $102 - $103/share. Check my analysis of J.M. Smucker for more information about the company.
Hormel Foods Corporation (HRL) is engaged in the production of a range of meat and food products. The Company operates through five segments: Grocery Products, Refrigerated Foods, Jennie-O Turkey Store (JOTS), Specialty Foods,, and International & Other. The company is a dividend king, which has managed to increase dividends for 51 years in a row. Over the past decade, it has managed to boost dividends at a rate of 15.30%/year. Earnings per share grew from $0.55 in 2007 to $1.68 in 2016. The company is expected to earn $1.56/share in 2017. It is selling for close to 20 times earnings and yields 2.10% It could be an interesting idea below $33 - $34/share. Check my analysis of Hormel Foods for more information about the company.
The Walt Disney Company (DIS) is an entertainment company. The Company operates in four business segments: Media Networks, Parks and Resorts, Studio Entertainment, and Consumer Products & Interactive Media. The company is a dividend challenger, which has managed to increase dividends for seven years in a row. Over the past decade, it has managed to boost dividends at a rate of 18.80%/year. Earnings per share grew from $2.34 in 2007 to $5.76 in 2016. The company is expected to earn $5.81/share in 2017. It is selling for less than 20 times earnings and yields 1.60%. It could be an interesting idea below $105 - $106/share. Check my analysis of Walt Disney for more information about the company.
Altria Group, Inc.(MO) manufactures and sells cigarettes, smokeless products, and wine in the United States. The company is a dividend champion, which has managed to increase dividends for 48 years in a row. Over the past decade, it has managed to boost dividends at a rate of 11.60%/year. Earnings per share grew from $1.49 in 2007 to $3.03 in 2016. The company is expected to earn $3.26/share in 2017. It is selling for less than 20 times forward earnings and yields 4.10%. It could be an interesting idea around $61 - $63/share, or below. Check my analysis of Altria for more information about the company.
Relevant Articles:
- How to become a successful dividend investor
- Dividend Kings List for 2017
- How to value dividend stocks
- Why do I use a P/E below 20 for valuation purposes?
- Rising Earnings – The Source of Future Dividend Growth
The companies include:
The J. M. Smucker Company (SJM) is a manufacturer and marketer of branded food and beverage products and pet food and pet snacks in North America. The Company's segments include U.S. Retail Coffee, U.S. Retail Consumer Foods, U.S. Retail Pet Foods, and International and Foodservice. The company is a dividend achiever, which has managed to increase dividends for 20 years in a row. Over the past decade, it has managed to boost dividends at a rate of 9.80%/year. Earnings per share grew from $3.03 in 2008 to $5.11 in 2017. The company is expected to earn $7.72/share in 2018. It is selling for close to 20 times earnings and yields 3%. It could be an interesting idea below $102 - $103/share. Check my analysis of J.M. Smucker for more information about the company.
Hormel Foods Corporation (HRL) is engaged in the production of a range of meat and food products. The Company operates through five segments: Grocery Products, Refrigerated Foods, Jennie-O Turkey Store (JOTS), Specialty Foods,, and International & Other. The company is a dividend king, which has managed to increase dividends for 51 years in a row. Over the past decade, it has managed to boost dividends at a rate of 15.30%/year. Earnings per share grew from $0.55 in 2007 to $1.68 in 2016. The company is expected to earn $1.56/share in 2017. It is selling for close to 20 times earnings and yields 2.10% It could be an interesting idea below $33 - $34/share. Check my analysis of Hormel Foods for more information about the company.
The Walt Disney Company (DIS) is an entertainment company. The Company operates in four business segments: Media Networks, Parks and Resorts, Studio Entertainment, and Consumer Products & Interactive Media. The company is a dividend challenger, which has managed to increase dividends for seven years in a row. Over the past decade, it has managed to boost dividends at a rate of 18.80%/year. Earnings per share grew from $2.34 in 2007 to $5.76 in 2016. The company is expected to earn $5.81/share in 2017. It is selling for less than 20 times earnings and yields 1.60%. It could be an interesting idea below $105 - $106/share. Check my analysis of Walt Disney for more information about the company.
Altria Group, Inc.(MO) manufactures and sells cigarettes, smokeless products, and wine in the United States. The company is a dividend champion, which has managed to increase dividends for 48 years in a row. Over the past decade, it has managed to boost dividends at a rate of 11.60%/year. Earnings per share grew from $1.49 in 2007 to $3.03 in 2016. The company is expected to earn $3.26/share in 2017. It is selling for less than 20 times forward earnings and yields 4.10%. It could be an interesting idea around $61 - $63/share, or below. Check my analysis of Altria for more information about the company.
Relevant Articles:
- How to become a successful dividend investor
- Dividend Kings List for 2017
- How to value dividend stocks
- Why do I use a P/E below 20 for valuation purposes?
- Rising Earnings – The Source of Future Dividend Growth
Monday, October 2, 2017
Lockheed Martin Rewards Shareholders With A Raise
Lockheed Martin Corporation (LMT), a security and aerospace company, engages in the research, design, development, manufacture, integration, and sustainment of technology systems, products, and services worldwide. It operates through four segments: Aeronautics, Missiles and Fire Control, Rotary and Mission Systems, and Space Systems.
The company raised its quarterly dividend by 9.90% to $2/share. This marked the 15th consecutive annual increase for this dividend achiever. Over the past decade, the company has managed to boost distributions at a rate of 18.40%/year. This was supported by growth in earnings per share from $7.29 in 2007 to $12.42 in 2016. Lockheed Martin is expected to earn $12.64/share in 2017.
Currently, the stock is overvalued at 24.50 times forward earnings. The stock yields 2.60%.
The company has benefitted from share buybacks over the past decade. Lockheed Martin managed to reduce the number of shares outstanding from 416 million a decade ago to 291 million in the most recent quarter. Net income from continuing operations increased from $3 billion in 2007 to $3.753 in 2017. Earnings per share also received a large boost, because the valuations were very low a decade ago. Unfortunately, today shares are overvalued, but the company keeps buying them regardless of valuation. I believe that defense contractors are expensive at or above 20 times earnings. I would be interested in the stock when valuations are in the 15 – 16 times earnings range.
Relevant Articles:
- Dividend Achievers Offer Income Growth and Capital Appreciation Potential
- Lockheed Martin Corporation (LMT) Dividend Stock Analysis 2013
- Should Dividend Investors be Defensive about these stocks?
- How to value dividend stocks
The company raised its quarterly dividend by 9.90% to $2/share. This marked the 15th consecutive annual increase for this dividend achiever. Over the past decade, the company has managed to boost distributions at a rate of 18.40%/year. This was supported by growth in earnings per share from $7.29 in 2007 to $12.42 in 2016. Lockheed Martin is expected to earn $12.64/share in 2017.
Currently, the stock is overvalued at 24.50 times forward earnings. The stock yields 2.60%.
The company has benefitted from share buybacks over the past decade. Lockheed Martin managed to reduce the number of shares outstanding from 416 million a decade ago to 291 million in the most recent quarter. Net income from continuing operations increased from $3 billion in 2007 to $3.753 in 2017. Earnings per share also received a large boost, because the valuations were very low a decade ago. Unfortunately, today shares are overvalued, but the company keeps buying them regardless of valuation. I believe that defense contractors are expensive at or above 20 times earnings. I would be interested in the stock when valuations are in the 15 – 16 times earnings range.
Relevant Articles:
- Dividend Achievers Offer Income Growth and Capital Appreciation Potential
- Lockheed Martin Corporation (LMT) Dividend Stock Analysis 2013
- Should Dividend Investors be Defensive about these stocks?
- How to value dividend stocks
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