For your reading enjoyment, I have highlighted several articles that the readers found of particular interest this month. I have included the article title, as well as a short description.
Four Cheap Consumer Staples For Dividend Investors
The consumer staples sector has been hated by investors over the past year or two. There are several headwinds that appear to have depressed the share prices for many quality consumer staples with reliable dividend payments. Some of these headwinds include slowing growth, threats of product obsolescence, rising interest rate and a general decrease in investor demand for these securities. After performing some reviews, I came up with a list of companies in the consumer staples sector, which are attractively priced today. I believe that each one of these companies has sustainable dividends. Each one of those companies is also growing earnings per share, which will be helpful for future dividend growth and to increase the intrinsic value of our share investments over time. All of those companies are priced below 20 times forward earnings.
Historical Performance Of The Dividend Kings List
The dividend kings list includes the most elite dividend growth companies in the US. A dividend king is a company that has managed to increase its dividends to shareholders for at least 50 years in a row.
This is a testament to the endurance and resilience of those businesses over the past 50 years. This great track record make each dividend king an excellent case study on what makes for a successful and lasting investment. For the purposes of this article, I calculated to total returns performance per year for each group of dividend kings. I assumed that portfolios were equally weighted in a tax-deferred account that qualified for commission free trades. The results were very interesting. But I like crunching data.
Dividend Investing Resources I Use
I am frequently asked by readers about resources I use. While I have discussed before the resources I use to monitor my holdings, and I have compiled before information on resources before, those lists are forever changing. As I have done this for over a decade, I continuously add, test and remove tools from my list. However, I also have to keep in mind the fact that this site is read by investors with varying levels of experience. Therefore, I decided to list a few free resources that may be helpful for any dividend investor out there.
Five Consumer Staples to Consider On Dips
I shared a list of five consumer staples with good track records of dividend growth and solid earnings growth. Unfortunately, these shares were either overvalued or close to the top of the valuation range. In general, I prefer to buy shares at a P/E ratio below 20. However, the lower the entry price, the better my chances of earning good returns and locking in a higher yield from the start.
Question to readers:
I also wanted to ask the readers about helpful articles on dividend investing they have recently read. For this exercise, please use articles from other authors. Please feel free to email me at dividendgrowthinvestor at gmail dot com.
Relevant Articles:
- 2018 Dividend Kings List
Thursday, June 28, 2018
Monday, June 25, 2018
Two Notable Dividend Increases To Consider
Last week, there were two notable dividend increases from companies I follow. Both companies are popular in the dividend investing community. I find those companies to illustrate very well the trade-off between dividend yield and dividend growth, as well as the principles of the three different phases of dividend growth.
The first company has a longer track record of annual dividend increases, albeit at a slower rate of annual growth. The payout ratio is relatively stable and the company also spots an above average yield.
The second company however has a shorter track record of annual dividend increases, but a higher rate of annual dividend growth. The payout ratio is increasing, and the company is starting to show a respectable dividend yield today.
The two notable companies which managed to increase dividends last week include:
The first company has a longer track record of annual dividend increases, albeit at a slower rate of annual growth. The payout ratio is relatively stable and the company also spots an above average yield.
The second company however has a shorter track record of annual dividend increases, but a higher rate of annual dividend growth. The payout ratio is increasing, and the company is starting to show a respectable dividend yield today.
The two notable companies which managed to increase dividends last week include:
Monday, June 18, 2018
Five Dividend Increases From Last Week
As part of my monitoring process, I review the list of dividend increases every week. I usually focus on the dividend increases for companies with a status of a dividend contender. A dividend contender is a company which has managed to grow its dividend for at least ten years in a row.
After I come up with a list of companies, I do a brief review of the most recent dividend increase relative to the ten year average. It is helpful to see whether dividend growth is staying constant or decelerating. This exercise is most helpful when done in conjunction with reviewing the dividend payout ratio, in order to check for dividend safety.
I also find it very helpful to review trends in earnings per share over the past decade, in order to determine if the business is growing or stagnant. The dividend investor has to be careful about noise in the data. This means that the information presented always needs to be put in the context of the type of business we are reviewing, and also through the lens of the big picture.
Last but not least, I also review valuations. Putting all of those pieces together has been invaluable for me in selecting investments for my dividend machine.
The five companies that raised dividends over the past week include:
After I come up with a list of companies, I do a brief review of the most recent dividend increase relative to the ten year average. It is helpful to see whether dividend growth is staying constant or decelerating. This exercise is most helpful when done in conjunction with reviewing the dividend payout ratio, in order to check for dividend safety.
I also find it very helpful to review trends in earnings per share over the past decade, in order to determine if the business is growing or stagnant. The dividend investor has to be careful about noise in the data. This means that the information presented always needs to be put in the context of the type of business we are reviewing, and also through the lens of the big picture.
Last but not least, I also review valuations. Putting all of those pieces together has been invaluable for me in selecting investments for my dividend machine.
The five companies that raised dividends over the past week include:
Thursday, June 14, 2018
Historical Performance Of The Dividend Kings List
The dividend kings list includes the most elite dividend growth companies in the US. A dividend king is a company that has managed to increase its dividends to shareholders for at least 50 years in a row.
This is a testament to the endurance and resilience of those businesses over the past 50 years. This great track record make each dividend king an excellent case study on what makes for a successful and lasting investment.
I first came up with the term dividend king in 2010. Since then, there have been hundreds of copycats who talk about the concept, without even giving me any credit.
For the purposes of today's article, I backtested the performance of the dividend kings list since the end of 2007. I used data from the compilation of historical Dividend Champions lists created by the late Dave Fish and stored by the site of Robert Allan Schwartz.
I calculated to total returns performance per year for each group of dividend kings. I assumed that portfolios were equally weighted in a tax-deferred account that qualified for commission free trades.
I followed the historical changes in the dividend kings list using information that an investor at the time would have used. Therefore, the 2008 total return was for the dividend kings available on December 31, 2007. The 2009 total return was for the dividend kings available on December 31, 2008 etc. This method assumes annual rebalancing at year-end in order to account for new additions and removals, and to equally weight the components at year-end. All of this was to ensure that this backtest doesn’t suffer from survivorship bias.
This is a testament to the endurance and resilience of those businesses over the past 50 years. This great track record make each dividend king an excellent case study on what makes for a successful and lasting investment.
I first came up with the term dividend king in 2010. Since then, there have been hundreds of copycats who talk about the concept, without even giving me any credit.
For the purposes of today's article, I backtested the performance of the dividend kings list since the end of 2007. I used data from the compilation of historical Dividend Champions lists created by the late Dave Fish and stored by the site of Robert Allan Schwartz.
I calculated to total returns performance per year for each group of dividend kings. I assumed that portfolios were equally weighted in a tax-deferred account that qualified for commission free trades.
I followed the historical changes in the dividend kings list using information that an investor at the time would have used. Therefore, the 2008 total return was for the dividend kings available on December 31, 2007. The 2009 total return was for the dividend kings available on December 31, 2008 etc. This method assumes annual rebalancing at year-end in order to account for new additions and removals, and to equally weight the components at year-end. All of this was to ensure that this backtest doesn’t suffer from survivorship bias.
Monday, June 11, 2018
Three Dividend Growth Stocks Rewarding Shareholders With a Raise
Over the past week, there were two companies that raised dividends to shareholders. For my review, I included only those companies which have managed to grow dividends for at least a decade.
The next step involves reviewing the trends in fundamentals and dividends, in order to determine if they are sustainable. Last but not least, we also review valuations, in order to determine if the companies are worth purchasing today.
The companies include:
Philip Morris International Inc. (PM) manufactures and sells cigarettes, other tobacco products, and other nicotine-containing products. The company raised its quarterly dividend by 6.50% to $1.14/share. This marked the tenth consecutive annual dividend increase for this future dividend achiever. The company has managed to grow its quarterly distribution by 9.50%/year. Earnings per share grew from $2.75/share in 2007 to $3.88/share in 2017. Philip Morris International is expected to earn $5.21/share in 2018. Unfortunately, the company has been unable to grow earnings per share since 2012. While the shares look attractively valued at 15 times forward earnings and spot a high yield of 5.70%, the lack of earnings growth and the high forward payout ratio of 87.50% is concerning. Without growth in earnings, future dividend growth will be limited. In addition, high payout ratios increase the risk of a dividend cut. As a result, I view the stock as a hold today. I view Altria (MO) as a more attractive tobacco investment.
Lowe's Companies, Inc. (LOW),operates as a home improvement retailer in the United States, Canada, and Mexico. The company raised its quarterly dividend by 17.10% to 48 cents/share. This marked the 56th consecutive annual dividend increase for this dividend king. Over the past decade, the company has managed to grow dividends at an annual rate of 19.30%/year. Over the past decade, the company has managed to grow earnings per share by 8.20%/year to $4.09/share in 2018. Lowe's is expected to earn $5.45/share in 2019. Right now, the stock is richly valued at 18.40 times forward earnings and yields 2%.
Helmerich & Payne, Inc. (HP) primarily engages in drilling oil and gas wells for exploration and production companies. The company operates through U.S. Land, Offshore, and International Land segments. The company raised its quarterly dividend by 1.40% to 71 cents/share. This dividend champion has raised distributions for 46 years in a row. The ten year dividend growth rate is 31.60%/year. However, the rate of dividend increases since 2014 very slow, due to the slowdown in the energy sector. The stock is overvalued, given the forward earnings of $0.10/share for 2018. This is a far cry from the highest earnings of $6.65/share, achieved in 2013. In addition, the dividend doesn’t seem sustainable either. The new yield is 4.30%, though I do not believe it to be sustainable at the current rate of earnings. It is challenging to value companies with cyclical business models, because they earn most at the top of the cycle, which makes them appear cheaper than they are. At the bottom of the cycle, most of these companies tend to have very low earnings ( or even losses), which makes them to appear more expensive than their intrinsic value.
Relevant Articles:
- The ten year dividend growth requirement
- Not all P/E ratios are created equal
- Look beyond P/E ratios dividend investors
- Getting Started – The Hardest Part About Dividend Investing
- 39 Dividend Champions To Consider
The next step involves reviewing the trends in fundamentals and dividends, in order to determine if they are sustainable. Last but not least, we also review valuations, in order to determine if the companies are worth purchasing today.
The companies include:
Philip Morris International Inc. (PM) manufactures and sells cigarettes, other tobacco products, and other nicotine-containing products. The company raised its quarterly dividend by 6.50% to $1.14/share. This marked the tenth consecutive annual dividend increase for this future dividend achiever. The company has managed to grow its quarterly distribution by 9.50%/year. Earnings per share grew from $2.75/share in 2007 to $3.88/share in 2017. Philip Morris International is expected to earn $5.21/share in 2018. Unfortunately, the company has been unable to grow earnings per share since 2012. While the shares look attractively valued at 15 times forward earnings and spot a high yield of 5.70%, the lack of earnings growth and the high forward payout ratio of 87.50% is concerning. Without growth in earnings, future dividend growth will be limited. In addition, high payout ratios increase the risk of a dividend cut. As a result, I view the stock as a hold today. I view Altria (MO) as a more attractive tobacco investment.
Lowe's Companies, Inc. (LOW),operates as a home improvement retailer in the United States, Canada, and Mexico. The company raised its quarterly dividend by 17.10% to 48 cents/share. This marked the 56th consecutive annual dividend increase for this dividend king. Over the past decade, the company has managed to grow dividends at an annual rate of 19.30%/year. Over the past decade, the company has managed to grow earnings per share by 8.20%/year to $4.09/share in 2018. Lowe's is expected to earn $5.45/share in 2019. Right now, the stock is richly valued at 18.40 times forward earnings and yields 2%.
Helmerich & Payne, Inc. (HP) primarily engages in drilling oil and gas wells for exploration and production companies. The company operates through U.S. Land, Offshore, and International Land segments. The company raised its quarterly dividend by 1.40% to 71 cents/share. This dividend champion has raised distributions for 46 years in a row. The ten year dividend growth rate is 31.60%/year. However, the rate of dividend increases since 2014 very slow, due to the slowdown in the energy sector. The stock is overvalued, given the forward earnings of $0.10/share for 2018. This is a far cry from the highest earnings of $6.65/share, achieved in 2013. In addition, the dividend doesn’t seem sustainable either. The new yield is 4.30%, though I do not believe it to be sustainable at the current rate of earnings. It is challenging to value companies with cyclical business models, because they earn most at the top of the cycle, which makes them appear cheaper than they are. At the bottom of the cycle, most of these companies tend to have very low earnings ( or even losses), which makes them to appear more expensive than their intrinsic value.
Relevant Articles:
- The ten year dividend growth requirement
- Not all P/E ratios are created equal
- Look beyond P/E ratios dividend investors
- Getting Started – The Hardest Part About Dividend Investing
- 39 Dividend Champions To Consider
Thursday, June 7, 2018
Five Consumer Staples to Consider On Dips
The other day, I shared with you a list of four attractively valued consumer staples for further review. The companies had attractive valuations, a record of dividend and earnings growth, and well covered distributions.
Today, I will share with you a short list of a few consumer staples with good track records of dividend growth and solid earnings growth. Unfortunately, these shares are overvalued today or are close to the top of the valuation range. In general, I prefer to buy shares at a P/E ratio below 20. However, the lower the entry price, the better my chances of earning good returns and locking in a higher yield from the start.
The companies I am considering on dips include:
The Clorox Company (CLX) manufactures and markets consumer and professional products worldwide. It operates through four segments: Cleaning, Household, Lifestyle, and International. The company is a dividend aristocrat, with a 41 year history of annual dividend increases. Over the past decade, it has managed to increase its dividends at a rate of 8%/year. Earnings per share grew at an annual rate of 8%/year over the past decade to $5.35/share in 2017.The company is expected to earn $6.19/share in 2018. The stock is selling at 19.70 times forward earnings and yields 3.15%. I see it as attractive below $107/share. Check my analysis of Clorox for more information about the company.
Today, I will share with you a short list of a few consumer staples with good track records of dividend growth and solid earnings growth. Unfortunately, these shares are overvalued today or are close to the top of the valuation range. In general, I prefer to buy shares at a P/E ratio below 20. However, the lower the entry price, the better my chances of earning good returns and locking in a higher yield from the start.
The companies I am considering on dips include:
The Clorox Company (CLX) manufactures and markets consumer and professional products worldwide. It operates through four segments: Cleaning, Household, Lifestyle, and International. The company is a dividend aristocrat, with a 41 year history of annual dividend increases. Over the past decade, it has managed to increase its dividends at a rate of 8%/year. Earnings per share grew at an annual rate of 8%/year over the past decade to $5.35/share in 2017.The company is expected to earn $6.19/share in 2018. The stock is selling at 19.70 times forward earnings and yields 3.15%. I see it as attractive below $107/share. Check my analysis of Clorox for more information about the company.
Monday, June 4, 2018
Four Cheap Consumer Staples For Dividend Investors
The consumer staples sector has been hated by investors over the past year or two. There are several headwinds that appear to have depressed the share prices for many quality consumer staples with reliable dividend payments. Some of these headwinds include slowing growth, threats of product obsolescence, rising interest rate and a general decrease in investor demand for these securities.
I believe that investors are overly conservative in their expectations for consumer staples today, which is why the valuations are overshooting on the downside. This is in stark contrast to the situation in 2016, when valuations were overshooting to the upside.
The market is a manic-depressive entity. Back in 2016, consumer staple stocks were red-hot and selling at high valuations relative to their growth prospects. Investors were bidding them up and happy to pay 25 – 30 times forward earnings. For example, back in 2016, General Mills was expected to earn roughly $3/share and sold as high as $69/share for a cool 23 times forward earnings.
Right now, General Mills (GIS) is still expected to earn roughly $3/share, but is selling for $42/share, for a cheap 14 times forward earnings. The business prospects for the entity were equally grim in 2016 and in 2018. The only thing that changed is the investor perception of the entity. This rosy perception triggered investors to be excited and willing to overpay dearly at 23 times earnings in 2016 for a business that was not growing. Once the perception became grimmer, investors were unwilling to pay even 14 times forward earnings in 2018 for the same entity, with the same prospects. The problem with General Mills today is that earnings per share have not grown since 2011.
Therefore future dividend growth will be limited and the return will be dependent on the dividend yield plus a potential expansion of the P/E multiple. This is why I see it as a hold.
In general, I try to buy into companies with growing earnings and dividends, and hold on to them for years, rather than try and “forecast” whether the P/E multiple will shrink or expand. However, if management turns the ship around and ekes out some growth in earnings and revenues, shareholders will be rewarded well.
After performing some reviews, I came up with a list of companies in the consumer staples sector, which are attractively priced today. I believe that each one of these companies has sustainable dividends. Each one of those companies is also growing earnings per share, which will be helpful for future dividend growth and to increase the intrinsic value of our share investments over time. All of those companies are priced below 20 times forward earnings.
I believe that investors are overly conservative in their expectations for consumer staples today, which is why the valuations are overshooting on the downside. This is in stark contrast to the situation in 2016, when valuations were overshooting to the upside.
The market is a manic-depressive entity. Back in 2016, consumer staple stocks were red-hot and selling at high valuations relative to their growth prospects. Investors were bidding them up and happy to pay 25 – 30 times forward earnings. For example, back in 2016, General Mills was expected to earn roughly $3/share and sold as high as $69/share for a cool 23 times forward earnings.
Right now, General Mills (GIS) is still expected to earn roughly $3/share, but is selling for $42/share, for a cheap 14 times forward earnings. The business prospects for the entity were equally grim in 2016 and in 2018. The only thing that changed is the investor perception of the entity. This rosy perception triggered investors to be excited and willing to overpay dearly at 23 times earnings in 2016 for a business that was not growing. Once the perception became grimmer, investors were unwilling to pay even 14 times forward earnings in 2018 for the same entity, with the same prospects. The problem with General Mills today is that earnings per share have not grown since 2011.
Therefore future dividend growth will be limited and the return will be dependent on the dividend yield plus a potential expansion of the P/E multiple. This is why I see it as a hold.
In general, I try to buy into companies with growing earnings and dividends, and hold on to them for years, rather than try and “forecast” whether the P/E multiple will shrink or expand. However, if management turns the ship around and ekes out some growth in earnings and revenues, shareholders will be rewarded well.
After performing some reviews, I came up with a list of companies in the consumer staples sector, which are attractively priced today. I believe that each one of these companies has sustainable dividends. Each one of those companies is also growing earnings per share, which will be helpful for future dividend growth and to increase the intrinsic value of our share investments over time. All of those companies are priced below 20 times forward earnings.
Sunday, June 3, 2018
RIP David Fish
I just learned that David Fish, who was the creator of the Dividend Champions, Contenders and Challengers list, passed away last month at the age of 68. This is a link to his obituary.
David Fish was a generous and kind man, who shared his research with dividend investors. He created, updated and freely shared the CCC list for over a decade, without expecting anything in return. Updating the list on a monthly basis for over ten years was definitely a painstaking process. His work definitely helped a lot of dividend growth investors out there, who have benefited tremendously from this research.
This type of a quiet individual, who works hard to selflessly help others is a rarity!
This is tragic news. He will be missed!
RIP David Fish
David Fish was a generous and kind man, who shared his research with dividend investors. He created, updated and freely shared the CCC list for over a decade, without expecting anything in return. Updating the list on a monthly basis for over ten years was definitely a painstaking process. His work definitely helped a lot of dividend growth investors out there, who have benefited tremendously from this research.
This type of a quiet individual, who works hard to selflessly help others is a rarity!
This is tragic news. He will be missed!
RIP David Fish
You may sign the guestbook to honor his memory.
PS: You can read his bio on the Moneypaper website from here. David Fish was a former accountant, turned investment writer and a co-manager of the MP63 Fund (DRIPX), which has beaten the S&P 500 since its inception.
PS: You can read his bio on the Moneypaper website from here. David Fish was a former accountant, turned investment writer and a co-manager of the MP63 Fund (DRIPX), which has beaten the S&P 500 since its inception.