My Portfolio Monitoring Process In a Nutshell

As part of my monitoring process, I review the list of dividend increases every week. I have also found it helpful to incorporate this monitoring process with the process I use to evaluate companies quickly. I use my secret screening process, which I have been discussing in detail over the past decade.

In my screening process, I generally look for the following:

1) A minimum streak of ten consecutive annual dividend increases
2) A P/E ratio below 20.
3) A dividend payout ratio below 60% ( with an exception for certain types of securities such as REITs)
4) Annual dividend growth exceeding inflation over the past decade
5) Growth in earnings per share over the past decade, to substantiate future dividend growth

I try to put all of this information together in my evaluation of the companies I am researching. The screening process is just the first part of the evaluation of course – a more detailed analysis is needed of each security, in order to get a feel for the business. To make matters even more complicated, the parameters can be changed depending on underlying conditions.

For example, if interest rates were to get to 10%,it may be better to focus on companies with a lower P/E ratio. However, if interest rates were to stay at 2% or 3% for the foreseeable future, a P/E ratio of 30 would not be inappropriate. I came up with a P/E of 20 a decade ago, when I could easily find Treasury Bonds yielding 4% to 5%. I have not increased the P/E ratio requirement yet, because I also want to have some margin of safety, in case yields get back up to 4% over the next decade. I am stating that, in order to warn investors not to look at P/E ratios in a vacuum, while ignoring the present condition of interest rates and growth expectations of US businesses.

In addition, the screen helps me see enough of the data, which helps me to compare between two different companies. For example, if two companies sell at a P/E of 20, the one that grow earnings and dividends at 7%/year is cheaper than the one that grows earnings and dividends at 2%/year.
I also find it great to know what to look for. But it is equally great to know what to avoid.

Going back to the monitoring of dividend increases, I identified three companies which raised dividends last week, and have at least a ten year history of annual dividend increases.

I put all three companies through my screening process, and did a quick review to determine if these companies are worth pursuing further. The companies include:

Verizon Communications Inc. (VZ) offers communications, information, and entertainment products and services to consumers, businesses, and governmental agencies worldwide.

The company raised its quarterly dividend by 2.10% to 61.50 cents/share. This is the 13th consecutive year Verizon’s Board has approved a quarterly dividend increase. Over the past decade, this dividend achiever has managed to grow distributions at an annualized rate of 3.10%.
Between 2009 and 2018, Verizon managed to grow its earnings from $1.72/share to $3.76/share. Verizon is expected to generate $4.80/share in 2019.

The stock is attractively valued at 12.30 times forward earnings and offers a dividend yield of 4.10%. I alerted subscribers to my premium newsletter that I am buying Verizon when it was in the mid $50s. I would be more interested in Verizon in the low 50s and below.

Vector Group Ltd., (VGR) manufactures and sells cigarettes in the United States. It operates in two segments, Tobacco and Real Estate.

The company raised its quarterly dividend by 5% to 40 cents/share. This marked the 21st consecutive year of annual dividend increases for this dividend achiever. Over the past decade, the company has managed to boost dividends at an annualized rate of 5%.

Between 2009 and 2018, Vector Groups earnings per share grew from 22 cents/share to 48 cents/share. The company is expected to generate 37 cents/share in 2019.

I believe that the stock is overvalued at 34 times forward earnings. I do not think that the dividend is safe, given the high payout ratio. The stock yields 12.70%, which is unsustainable in my opinion.

Brady Corporation (BRC) manufactures and supplies identification solutions and workplace safety products to identify and protect premises, products, and people in the United States and internationally.

The company raised its quarterly dividend by 2.40% to 21.75 cents/share. This marked the 34th annual dividend increase for this dividend champion. During the past decade, Brady has managed to grow distributions at an annualized rate of 3%.

Over the past decade, the company managed to grow earnings from $1.32/share in 2009 to $1.73/share in 2018. The company is expected to earn $2.38/share.

The stock is a little overvalued at 21.40 times forward earnings. It yields a safe 1.70%, which is a low yield for a slow growing dividend stock. Based on 2018 earnings per share, the stock looks even more overvalued at 29.50 times earnings. Given the high P/E ratio and the low earnings and dividend growth, I view the stock as a hold.

Relevant Articles:

- Ten Dividend Growth Stocks For Retirement Income
- Should I invest in AT&T and Verizon for high dividend income?
- Why do I use a P/E below 20 for valuation purposes?
- How to value dividend stocks