Last week, there were ten dividend growth companies, which rewarded their shareholders with a dividend increase. This list was generated by scanning through the dividend increases for the last week, and then focusing only on these companies which are at least a dividend contender or a dividend achiever. In other words, I focused on companies which have managed to increase dividends every single year for at least a decade. This is an accomplishment that less than 400 companies in the US have managed to achieve.
Today's list includes companies that have just recently marked their tenth anniversary of annual dividend increases. It also includes two dividend champions and one dividend king. Just because a company is featured on this list, that doesn't mean it is a good idea to invest in it. Investors need to develop their own framework for evaluating companies, which is why I share mine in those weekly reviews of dividend increases.
In my case, I review the most recent dividend hike, and compare it to the ten year average. This is helpful in determining the momentum in dividend growth.
I also review the trends in earnings per share, in order to determine if we have sufficient power behind future dividend increases.
Earnings per share are helpful to calculate the dividend payout ratio as well. That indicator is helpful in determining the safety of distributions. It is also helpful in avoiding companies growing distributions without earning more money.
Last but not least, I do a valuation check by focusing on P/E ratio, expected growth in earnings and dividends and the payout. This is as subjective as it can get, but it makes some logical sense to me that higher growth companies will have higher P/E's and lower yields versus slower growing companies.
The ten dividend growth stocks that rewarded shareholders with higher distributions last week include:
American Equity Investment Life Holding Company (AEL) provides life insurance products and services in the United States.
The company approved 7.10% increase to its annual dividend, bringing the total to 30 cents/share. This marks the twenty first consecutive year a cash dividend has been declared and the sixteenth year in a row that the Company has increased its cash dividend. Over the past decade, this dividend achiever has managed to grow distributions at an annualized rate of 14.90%.
Between 2009 and 2018 earnings per share increased from $1.18 to $5.01.
The company is expected to earn $5.48/share in 2019.
The stock is cheap at 5.30 times forward earnings and yields 1%. I would add it to my list for further research.
National Bankshares, Inc. (NKSH) provides retail and commercial banking services to individuals, businesses, non-profits, and local governments.
The company raised its semi-annual dividend to 72 cents/share. This marked the 21st year of annual dividend increases for this dividend achiever. During the past decade, it has managed to hike distributions at an annualized rate of 4.20%.
National Bankshares managed to grow earnings from $1.96/share in 2008 to $2.32/share 2018.
The company is expected to generate $2.57/share in 2019.
The stock is selling at 17.90 times forward earnings and yields 3.10%.
Brown-Forman Corporation (BF.B) manufactures, bottles, imports, exports, markets, and sells various alcoholic beverages worldwide.
The company raised its quarterly dividend by 5% to 17.43 cents/share. This marks the 36th consecutive year of dividend increases at Brown-Forman, and the 74th year of paying quarterly dividends at the company. During the past decade, this dividend champion has managed to hike annual distributions at a rate of 8.10%.
Between 2009 and 2019, the company has managed to hike earnings from $0.77/share to $1.73/share.
The company is expected to generate $1.79/share in 2020.
The stock is overvalued at 37.40 times forward earnings. Brown-Forman yields 1%. The stock may be a good idea on dips below $36/share.
Royal Gold, Inc. (RGLD) acquires and manages precious metal streams, royalties, and related interests. It focuses on acquiring stream and royalty interests or to finance projects that are in production or in development stage in exchange for stream or royalty interests, which primarily consists of gold, silver, copper, nickel, zinc, lead, cobalt, and molybdenum.
Royal Gold increased its quarterly dividend by 5.70% to 28 cents/share. This increase represents the 19th consecutive annual increase to Royal Gold’s dividend since dividend payments began in 2000.
Between 2009 and 2019, the company grew earnings from $1.09/share to $1.43/share.
The company is expected to generate $2.62/share in 2019.
The stock looks overvalued at 44.60 forward earnings and offers a dividend yield of 0.95%.
Farmers & Merchants Bancorp (FMCB) operates as the bank holding company for Farmers & Merchants Bank of Central California that provides a range of banking services to businesses and individuals primarily in the mid Central Valley of California
Farmers & Merchants Bancorp raised its semi-annual dividend to 7.15/share, which is a 2.14% increase over the dividend paid during the same time last year. Farmers & Merchants Bancorp has paid cash dividends and the 55th consecutive year dividends have been increased. As a result of the reliability of our cash dividends over many decades, it remains a member of a select group of only 27 publicly traded companies referred to as Dividend Kings.
However, its dividend growth is just 3.10% annualized over the course of the past decade.
Between 2008 and 2018, the company grew earnings from $28.69/share to $56.82/share. The stock is fairly valued at 13.80 times forward earnings and offers a dividend yield of 1.80%. I do not understand why the yield is so low, and the dividend growth is so low, when there is some decent earnings growth ( although if we exclude 2018 it looks like earnings growth was slow too).
Group 1 Automotive, Inc (GPI), operates in the automotive retail industry. The company sells new and used cars, light trucks, and vehicle parts, as well as service insurance contracts; arranges related vehicle financing; and offers automotive maintenance and repair services.
Group One Automotive raised its quarterly dividend by 3.60% to 29 cents/share. This marked the eleventh consecutive year of annual dividend growth for this dividend achiever.
During the past decade, this dividend achiever has managed to grow distributions at an annualized rate of 8.30%.
Between 2009 and 2018, the company managed to increase earnings from $1.49/share to $7.83/share.
The company is expected to generate $10.60/share in 2019.
The stock looks attractively valued at 9.60 times forward earnings. Group 1 Automotive yields 1.10%.
This looks like an attractive investment today, despite the low yield. However, this company is more cyclical than I would like to see. The dividend may not be as defensible during the next recession, as sales and earnings dip. The payout ratio is low, which means that the dividend will likely be maintained even if things got as bad as during the financial crisis.
Stock Yards Bancorp, Inc. (SYBT) operates as the holding company for Stock Yards Bank & Trust Company that provides commercial and personal banking services in Louisville, Indianapolis, and Cincinnati. Its deposit products include demand deposits, savings deposits, money market deposits, and time deposits.
The company raised its quarterly dividend to 27 cents/share. This marked the eleventh consecutive year of annual dividend growth for this dividend achiever.
During the past decade, this dividend achiever has managed to grow distributions at an annualized rate of 7.80%.
The company managed to grow earnings from $1.06/share in 2008 to $2.42/share in 2018.
The company is expected to generate $2.84/share in 2019.
The stock is fairly valued at 14.40 times forward earnings and offers a dividend yield of 2.60%.It looks like an interesting candidate for further research on dips.
Muncy Bank Financial, Inc. (MYBF) provides banking products and services to individuals and businesses in Pennsylvania. It accepts savings, money market, and checking accounts.
The company raised its quarterly dividend by 6.10% to 35 cents/share. This marked the 17th consecutive annual dividend increase for this dividend achiever. Over the past decade, it has managed to grow distributions at an annualized rate of 9%.
I have been unable to find financials for the past two years, and I do not want to do too much extra digging for the purposes of tis review. The yield is 3.70% and the P/E looks to be 11.90, based on 2018 EPS of $3.19. My financial databases did not have all annual EPS datapoints loaded, and the company website didn’t have any information before 2013 ( though I could find information going back to 2009 on that report). A company like that may need extra research, which may be a risk factor or an opportunity.
Spire Inc. (SR), engages in the purchase, retail distribution, and sale of natural gas to residential, commercial, industrial, and other end-users of natural gas in the United States. The company operates through two segments, Gas Utility and Gas Marketing.
Spire raised its quarterly dividend by 5.10% to 62.25 cents/share. This marked the 17th year of annual dividend increases for this dividend achiever. Over the past decade, it has managed to boost distributions at an annualized rate of 4.10%.
Between 2008 and 2018, the company has managed to grow earnings from $3.58 to $4.33/share.
The company is expected to generate $3.75/share in 2019. I believe that dividend growth has been running on fumes over the past decade.
The stock appears overvalued at 20.55 times forward earnings. The stock yields 3.20% today.
Roper Technologies, Inc. (ROP) designs and develops software, and engineered products and solutions worldwide. The company operates in four segments: Application Software; Network Software & Systems; Measurement & Analytical Solutions; and Process Technologies.
Roper Technologies raised its quarterly dividend by 10.80% to 51.25 cents/share. This marked the 27th consecutive annual dividend increase for this dividend champion. Over the past decade, it has managed to hike distributions at an annualized rate of 19%.
Roper grew earnings from $3.01/share in 2008 to $9.05/share in 2018.
The company expects to generate $13/share in 2019.
The stock is overvalued at 27.40 times forward earnings and offers a low dividend yield of 0.60%. Roper may be a good pick to research if it dips below $260/share.
Relevant Articles:
- Twelve Dividend Growth Stocks In The News
- Nine Dividend Growth Stocks With Growing Yields on Cost
- Eleven Dividend Growth Stocks For Further Research
- Seven Dividend Growth Stocks For Further Research
Monday, November 25, 2019
Thursday, November 21, 2019
Warren Buffett’s Eight Billion Dollar Mistake
Warren Buffett is arguably the best investor in the world. He has turned Berkshire Hathaway into one of the largest companies in the world over the past 50 - 60 years.
I have studied his partnership letters, annual shareholder reports, annual shareholder meeting notes, books and academic research about him and his statements for almost a decade. I believe that anyone can learn a ton about him. The most interesting fact is that he has been able to combine ideas from various investors and businessmen to further his investing record.
When I research anything about Warren Buffett, I start going on a journey in time, and start going in multiple different directions from there. There is a lot of information to grasp. There is a lot of information to be learned, and a lot of lessons for my investing. Once I start reading and going through footnotes, books or articles mentioned, I end up with a lot more to read than I bargained for. But I always learn something new to share with you.
For example, back in the 1960s, Buffett found out about Walt Disney Company (DIS). (Source)
"We bought 5% of the Walt Disney Company in 1966. It cost us $4 million dollars. $80 million bucks was the valuation of the whole thing. 300 and some acres in Anaheim. The Pirate’s ride had just been put in. It cost $17 million bucks. The whole company was selling for $80 million. Mary Poppins had just come out. Mary Poppins made about $30 million that year, and seven years later you’re going to show it to kids the same age. It’s like having an oil well where all the oil seeps back in. Now the [numbers today are] probably different, but in 1966 they had 220 pictures of one sort or another. They wrote them all down to zero – there were no residual values placed on the value of any Disney picture up through the ‘60s. So [you got all of this] for $80 million bucks, and you got Walt Disney to work for you. It was incredible. You didn’t have to be a genius to know that the Walt Disney company was worth more than $80 million. $17 million for the Pirate’s Ride. It’s unbelievable. But there it was. And the reason was, in 1966 people said, “Well, Mary Poppins is terrific this year, but they’re not going to have another Mary Poppins next year, so the earnings will be down.” I don’t care if the earnings are down like that. You know you’ve still got Mary Poppins to throw out in seven more years, assuming kids squawk a little. I mean there’s no better system than to have something where, essentially, you get a new crop every seven years and you get to charge more each time.
$80 million dollars [sigh]. I went out to see Walt Disney (he’d never heard of me; I was 35 years old). We sat down and he told me the whole plan for the company – he couldn’t have been a nicer guy. It was a joke. If he’d privately gone to some huge venture capitalist, or some major American corporation, if he’d been a private company, and said “I want you to buy into this. This is a deal,” they would have bought in based on a valuation of $300 or $400 million dollars. The very fact that it was just sitting there in the market every day convinced [people that $80 million was an appropriate valuation]. Essentially, they ignored it because it was so familiar. But that happens periodically on Wall Street."
He managed to buy 5% of Disney common stock for about $4 million dollars. The next year, he sold the stock for a 50% gain in 1967. That turned his initial investment into $6 million. I wanted to test how much money he would have if he had held on to the $6 million worth of Disney stock, and hadn’t sold.
I recently obtained access to a database of historical equity prices and financial information. It included information about Disney. While the database had already adjusted share prices for the numerous stock splits, including stock dividends, it had not adjusted for the impact of these splits on cash dividends. Therefore, I could not calculate total returns.
But I saw that the ending split adjusted price was at $0.11701/share in 1967. The stock is at around $150/share today.
This means that a $6 million investment in Disney at the end of 1967 would have turned into $7.7 billion today.
Source: Global Financial Data
This assumes that he didn’t reinvest any dividends along the way for 52 years.
Obviously, this would have increased his returns substantially. The stock pays a semi-annual dividend of 88 cents/share, which turns out to $1.76/share.
By my calculations, this investment would be generating close to $90 million in annual dividend income. This is over 22 times the amount of his initial capital at stake.
I believe that Disney paid a total of $15/share over the past 50 years in dividends. I did not want to go through the reinvestment of these dividends over 50+ years, so I did not calculate reinvestments.
This is why dividends are a return on investment but also a return of investment.
It just shows that if you have a good quality company like Disney, and you purchase it and hold it for the long-term, you can do very well for yourself. The power of long-term compounding is evident when you hold on to great businesses which tend to increase intrinsic value over time. As Charlie Munger has said it, the best thing to do once you find a great business is to buy it, and then to sit on your chair. You are not going to get that many ideas to buy and hold, just as much as you are not going to get that many opportunities to flip stocks for a quick gain every year or two as well. This is a lesson that Buffett actually shared in one of his investment partnership letters and one of his shareholder letters.
Investors who frequently buy and sell stocks may make money, but they have to work hard to compound their asset base. This means that they have to sell shares and pay taxes. When you buy and hold, a large portion of unrealized capital gains never get taxes for as long as you do not sell. This is a deferred type of float from the US Government. You get more money working for you.
The lesson for me is that selling is usually a mistake. The lesson is that buy and hold works – but only for those patient enough to buy and hold for decades. The other lesson is to focus on companies with strong brands and strong competitive advantages, which have enduring qualities. The other lesson is that just because a super-investor sold, that doesn’t mean you should sell. Buffett has famously disposed shares of Disney in the 1967, American Express in 1966 and McDonald’s in 1998.
Not all of his sales were poor however. When he disposed of his shares in Freddie Mac in 2001, which was one of the rare moments where selling was timely and worth it. Some of his investments were not as good, but he didn’t sell. A prime example for that is the Berkshire Hathaway mill. Per Buffett’s calculations, if he had stuck with an insurance company from the beginning, and he had never heard about Berkshire, he would have been tens of billions of dollars richer.
Hindsight is always 20/20 of course. But I believe that we can learn a lot from these examples.
In my investing, I have noticed that companies I sell tend to do very well afterwards. The companies that I buy with the proceeds do not do as well. Plus, I tend to pay taxes on the investment gains I have generated, which means I have had less money working for me. The goal of the capitalist is to not interrupt the virtuous nature of the power of compounding. By frequently trading stocks, that’s exactly what is being done. This is an error that needs to be addressed. For the majority of you, the goal is to buy and hold, and not actively trade. This of course assumes diversified portfolios.
You should not sell, because most of your gains in your investing lifetime will come from just a handful of securities. Most investors tend to sell companies for a quick gain, but then tend to hold on to their losses. They should keep their shares, and not sell.
Of course, Buffett is a super-investor. He is not like you and me.
The same $6 million, invested in Berkshire Hathaway at the end of 1967 would have bought 315,789 shares. The price was $19/share at the end of 1967.
These shares today are worth over $104 billion.
Source: Global Financial Data
Investing is fun, isn’t it?
That being said, I still believe in buy and hold, inactivity, and letting my portfolio do the heavy lifting for me. I still believe in focusing on quality companies with solid competitive advantages, not overpaying for these quality companies, and keeping investment costs to the bone.
If you find a great company, you should do nothing once you buy it. Even if it takes a few years to show profits, the successful investor needs to show some patience. Otherwise, they would spend their investing lifetime buying high and selling low, thus compounding their mistakes and never growing their investment portfolios and dividend incomes.
Relevant Articles:
- Disney (DIS) Dividend Stock Analysis
- How Ordinary Investors Can Generate Float Like Buffett
- How to improve your investing over time
I have studied his partnership letters, annual shareholder reports, annual shareholder meeting notes, books and academic research about him and his statements for almost a decade. I believe that anyone can learn a ton about him. The most interesting fact is that he has been able to combine ideas from various investors and businessmen to further his investing record.
When I research anything about Warren Buffett, I start going on a journey in time, and start going in multiple different directions from there. There is a lot of information to grasp. There is a lot of information to be learned, and a lot of lessons for my investing. Once I start reading and going through footnotes, books or articles mentioned, I end up with a lot more to read than I bargained for. But I always learn something new to share with you.
For example, back in the 1960s, Buffett found out about Walt Disney Company (DIS). (Source)
"We bought 5% of the Walt Disney Company in 1966. It cost us $4 million dollars. $80 million bucks was the valuation of the whole thing. 300 and some acres in Anaheim. The Pirate’s ride had just been put in. It cost $17 million bucks. The whole company was selling for $80 million. Mary Poppins had just come out. Mary Poppins made about $30 million that year, and seven years later you’re going to show it to kids the same age. It’s like having an oil well where all the oil seeps back in. Now the [numbers today are] probably different, but in 1966 they had 220 pictures of one sort or another. They wrote them all down to zero – there were no residual values placed on the value of any Disney picture up through the ‘60s. So [you got all of this] for $80 million bucks, and you got Walt Disney to work for you. It was incredible. You didn’t have to be a genius to know that the Walt Disney company was worth more than $80 million. $17 million for the Pirate’s Ride. It’s unbelievable. But there it was. And the reason was, in 1966 people said, “Well, Mary Poppins is terrific this year, but they’re not going to have another Mary Poppins next year, so the earnings will be down.” I don’t care if the earnings are down like that. You know you’ve still got Mary Poppins to throw out in seven more years, assuming kids squawk a little. I mean there’s no better system than to have something where, essentially, you get a new crop every seven years and you get to charge more each time.
$80 million dollars [sigh]. I went out to see Walt Disney (he’d never heard of me; I was 35 years old). We sat down and he told me the whole plan for the company – he couldn’t have been a nicer guy. It was a joke. If he’d privately gone to some huge venture capitalist, or some major American corporation, if he’d been a private company, and said “I want you to buy into this. This is a deal,” they would have bought in based on a valuation of $300 or $400 million dollars. The very fact that it was just sitting there in the market every day convinced [people that $80 million was an appropriate valuation]. Essentially, they ignored it because it was so familiar. But that happens periodically on Wall Street."
He managed to buy 5% of Disney common stock for about $4 million dollars. The next year, he sold the stock for a 50% gain in 1967. That turned his initial investment into $6 million. I wanted to test how much money he would have if he had held on to the $6 million worth of Disney stock, and hadn’t sold.
This is a 20 year view for Disney from an old Moody's Handbook of Common Stocks from 1980:
I recently obtained access to a database of historical equity prices and financial information. It included information about Disney. While the database had already adjusted share prices for the numerous stock splits, including stock dividends, it had not adjusted for the impact of these splits on cash dividends. Therefore, I could not calculate total returns.
But I saw that the ending split adjusted price was at $0.11701/share in 1967. The stock is at around $150/share today.
This means that a $6 million investment in Disney at the end of 1967 would have turned into $7.7 billion today.
Source: Global Financial Data
This assumes that he didn’t reinvest any dividends along the way for 52 years.
Obviously, this would have increased his returns substantially. The stock pays a semi-annual dividend of 88 cents/share, which turns out to $1.76/share.
By my calculations, this investment would be generating close to $90 million in annual dividend income. This is over 22 times the amount of his initial capital at stake.
I believe that Disney paid a total of $15/share over the past 50 years in dividends. I did not want to go through the reinvestment of these dividends over 50+ years, so I did not calculate reinvestments.
This is why dividends are a return on investment but also a return of investment.
It just shows that if you have a good quality company like Disney, and you purchase it and hold it for the long-term, you can do very well for yourself. The power of long-term compounding is evident when you hold on to great businesses which tend to increase intrinsic value over time. As Charlie Munger has said it, the best thing to do once you find a great business is to buy it, and then to sit on your chair. You are not going to get that many ideas to buy and hold, just as much as you are not going to get that many opportunities to flip stocks for a quick gain every year or two as well. This is a lesson that Buffett actually shared in one of his investment partnership letters and one of his shareholder letters.
Investors who frequently buy and sell stocks may make money, but they have to work hard to compound their asset base. This means that they have to sell shares and pay taxes. When you buy and hold, a large portion of unrealized capital gains never get taxes for as long as you do not sell. This is a deferred type of float from the US Government. You get more money working for you.
The lesson for me is that selling is usually a mistake. The lesson is that buy and hold works – but only for those patient enough to buy and hold for decades. The other lesson is to focus on companies with strong brands and strong competitive advantages, which have enduring qualities. The other lesson is that just because a super-investor sold, that doesn’t mean you should sell. Buffett has famously disposed shares of Disney in the 1967, American Express in 1966 and McDonald’s in 1998.
Not all of his sales were poor however. When he disposed of his shares in Freddie Mac in 2001, which was one of the rare moments where selling was timely and worth it. Some of his investments were not as good, but he didn’t sell. A prime example for that is the Berkshire Hathaway mill. Per Buffett’s calculations, if he had stuck with an insurance company from the beginning, and he had never heard about Berkshire, he would have been tens of billions of dollars richer.
Hindsight is always 20/20 of course. But I believe that we can learn a lot from these examples.
In my investing, I have noticed that companies I sell tend to do very well afterwards. The companies that I buy with the proceeds do not do as well. Plus, I tend to pay taxes on the investment gains I have generated, which means I have had less money working for me. The goal of the capitalist is to not interrupt the virtuous nature of the power of compounding. By frequently trading stocks, that’s exactly what is being done. This is an error that needs to be addressed. For the majority of you, the goal is to buy and hold, and not actively trade. This of course assumes diversified portfolios.
You should not sell, because most of your gains in your investing lifetime will come from just a handful of securities. Most investors tend to sell companies for a quick gain, but then tend to hold on to their losses. They should keep their shares, and not sell.
Of course, Buffett is a super-investor. He is not like you and me.
The same $6 million, invested in Berkshire Hathaway at the end of 1967 would have bought 315,789 shares. The price was $19/share at the end of 1967.
These shares today are worth over $104 billion.
Source: Global Financial Data
Investing is fun, isn’t it?
That being said, I still believe in buy and hold, inactivity, and letting my portfolio do the heavy lifting for me. I still believe in focusing on quality companies with solid competitive advantages, not overpaying for these quality companies, and keeping investment costs to the bone.
If you find a great company, you should do nothing once you buy it. Even if it takes a few years to show profits, the successful investor needs to show some patience. Otherwise, they would spend their investing lifetime buying high and selling low, thus compounding their mistakes and never growing their investment portfolios and dividend incomes.
Relevant Articles:
- Disney (DIS) Dividend Stock Analysis
- How Ordinary Investors Can Generate Float Like Buffett
- How to improve your investing over time
Monday, November 18, 2019
Nine Dividend Growth Stocks With Growing Yields on Cost
I have reviewed nine companies in this article. Each company announced a dividend increase last week, and has managed to increase distributions for at least ten years in a row. I do this exercise as part of my monitoring process.
I have listed each company, followed by a brief description of its business. Next, I listed the most recent dividend increase, and compared it to the ten year average.
After that, I looked at growth in earnings per share over the past decade, followed by forward earnings estimates. It is important to have earnings growth, because without it there is a natural limit to dividend growth.
Last but not least, I looked at valuation for each company. I like to acquire quality businesses and attractive valuations, and do not want to overpay. Overpaying results in locking in lower expected returns.
The companies for this week's review include:
Lancaster Colony Corporation (LANC) manufactures and markets specialty food products for the retail and foodservice markets in the United States. The company operates in two segments, Retail and Foodservice.
Lancaster Colony raised its quarterly dividend by 7.70% to 70 cents/share. This marked the 57th consecutive annual dividend increase for this dividend king. The company has managed to increase dividends at an annualized rate of 8.60% over the past decade.
Between 2009 and 2019, the company managed to grow earnings from $3.17/share to $5.46/share.
The average analyst expects Lancaster Colony to earn $5.60/share in 2020.
Right now the stock is overvalued at 27.90 times forward earnings. The stock yields 1.80%. It may be worth a closer look on dips below $112/share.
Matthews International Corporation (MATW) provides brand solutions, memorialization products, and industrial products worldwide.
Matthews International raised its quarterly dividend by 5% to 21 cents/share. This marked the 25th consecutive annual dividend increase for this newly minted dividend champion. During the past decade, it has managed to increase distributions at an annualized rate of 12.10%.
The company earned $1.90/share in 2009, profits declined to $1.49/share in 2014, but managed to ultimately grow it to $3.37/share in 2019. It is interesting that while revenues had been growing every single year, earnings per share took a detour between 2009 and 2014, before ultimately rebounding.
The wall street consensus is for Matthews International to earn $3.31/share in 2019.
The stock is attractively valued at 10.50 forward earnings. Matthews International yields 2.40%.
MDU Resources Group, Inc. (MDU) engages in regulated energy delivery, and construction materials and services businesses in the United States. It operates through five segments: Electric, Natural Gas Distribution, Pipeline and Midstream, Construction Materials and Contracting, and Construction Services.
The company raised its quarterly dividend by 2.50% to 20.75 cents/share. This marked the 29th consecutive annual dividend increase for this dividend champion. During the past decade, this utility has managed to grow distributions at an annualized rate of 3%.
Earnings per share decreased from $1.59 in 2008 to $1.39 in 2018. MDU Resources is expected to earn $1.58/share in 2019. The lack of earnings growth explains why dividends are not growing by much. At this stage, dividends are growing through the expansion of the dividend payout ratio. This is a stark contrast with the slow but steady growth in earnings per share for the 15 years ending in 2007.
The stock is at the high end of the valuation range at 18.40 times forward earnings and a dividend yield of 2.90%. Given the lack of earnings growth, I would give the stock a pass on further research at this time.
Sysco Corporation (SYY) markets and distributes a range of food and related products primarily to the foodservice or food-away-from-home industry in the United States, Canada, the United Kingdom, France, and internationally. It operates through three segments: U.S. Foodservice Operations, International Foodservice Operations, and SYGMA.
The company raised its quarterly dividend by 15.40% to 45 cents/share. This marked the 50th consecutive annual dividend increase for this newly minted dividend king. Over the past decade, Sysco has managed to grow distributions at an annualized rate of 5%/year.
The company earned $1.77/share in 2009, but profits dipped to $1.15/share through 2015, before rebounding to $3.20/share by 2019. Sysco is expected to earn $3.81/share in 2020.
While Sysco managed to grow revenues during that time period, the lack of earnings growth caused me to sell several years ago. I grew impatient, and sold. This is one of the lessons I am trying to instill with this blog – it is often best to just hold on to a stock through thick or thin, for as long as the dividend is not cut. Focusing too much on year over year numbers, and micromanaging management is usually counterproductive. That’s because you do not know in advance if a business is about to decline for good, or whether this is just a temporary dip. It is always best in my investing to give management the benefit of the doubt, and just hold on to my investment. From a risk management perspective, I hold on, but do not add to the stock any more. I also reinvest dividends elsewhere.
The stock is overvalued at 21.40 times forward earnings. Sysco yields 2.20%. It may be worth a closer look on dips below $76/share.
NIKE, Inc. (NKE) designs, develops, markets, and sells athletic footwear, apparel, equipment, and accessories worldwide.
The company hiked its quarterly dividend by 11.40% to 24.50 cents/share. This marked the 18th year of annual dividend increases for this dividend achiever. During the past decade, Nike has managed to grow distributions at an annualized rate of 13%/year.
Between 2009 and 2019, Nike managed to grow earnings from $0.76/share to $2.49/share.
Nike is expected to earn $2.97/share in 2019.
Right now, the stock is overvalued at 31.30 times forward earnings. Nike yields 1.05%. If Nike is available below $60/share, it may be worth a second look. I won’t hold my breath for it for the time being.
United Bankshares, Inc. (UBSI), a financial holding company, primarily provides commercial and retail banking products and services in the United States. It operates through two segments, Community Banking and Mortgage Banking.
The company raised its quarterly dividend by 3% to 35 cents/share. This marked the 45th year of annual dividend increases for this dividend champion. During the past decade, it has managed to grow distributions at an annualized rate of 1.60%.
The company hit peak earnings in 2005 of $2.33/share. After that, earnings per share kept dropping until hitting $1.55 in 2009. Earnings have gradually recovered to $2.45/share in 2018.
United Bankshares is expected to earn $2.55/share in 2019.
The stock is fairly valued at 15.50 times forward earnings and offers a dividend yield of 3.50%. The lack of meaningful earnings growth, coupled with the slow rate of dividend growth makes this company a pass for the time being.
Automatic Data Processing, Inc. (ADP) provides cloud-based human capital management solutions worldwide. It operates through two segments, Employer Services and Professional Employer Organization Services.
The company raised its quarterly dividend by 15.20% to 91 cents/share. This marked the 45th consecutive annual dividend increase for this dividend champion. During the past decade the company managed to increase dividends at an annualized rate of 10%.
The company managed to boost earnings from $2.63/share in 2009 to $5.24/share in 2019. Automatic Data Processing is expected to earn $6.17/share in 2020.
Assurant, Inc. (AIZ), provides risk management solutions for housing and lifestyle markets in North America, Latin America, Europe, and the Asia Pacific. The company operates through three segments: Global Housing, Global Lifestyle, and Global Preneed.
The company increased its quarterly dividend by 5% to 63 cents/share. This marked the 16th consecutive annual dividend increase for this dividend achiever. Over the past decade, it has managed to grow dividends at an annualized rate of 15.50%.
Between 2008 and 2018, the company’s earnings rose from $3.76/share to $3.98/share. Assurant is expected to generate $8.67/share in 2019.
The stock looks fairly valued at 15.30 times forward earnings, but offers a low yield of 1.90%. It may be worth researching further, particularly if it drops.
Snap-on Incorporated (SNA) manufactures and markets tools, equipment, diagnostics, and repair information and systems solutions for professional users worldwide. It operates through Commercial and Industrial Group, Snap-on Tools Group, and Repair Systems & Information Group segments.
The company increased its quarterly dividend by 13.70% to $1.08/share. This marked the 10th consecutive annual dividend increase for this newly minted dividend achiever. During the past decade, Snap-On has managed to boost distributions at an annualized rate of 11%.
The company managed to grow earnings from $4.07/share in 2008 to $11.87/share in 2018. Snap-on is expected to generate $12.26/share in 2019.
The stock is attractively valued at 13.30 times forward earnings and offers a dividend yield of 2.65%.
Relevant Articles:
- How to never run out of money in retirement
- Rising Earnings – The Source of Future Dividend Growth
- How to read my weekly dividend increase reports
- Dividend Investors are getting paid for waiting
I have listed each company, followed by a brief description of its business. Next, I listed the most recent dividend increase, and compared it to the ten year average.
After that, I looked at growth in earnings per share over the past decade, followed by forward earnings estimates. It is important to have earnings growth, because without it there is a natural limit to dividend growth.
Last but not least, I looked at valuation for each company. I like to acquire quality businesses and attractive valuations, and do not want to overpay. Overpaying results in locking in lower expected returns.
The companies for this week's review include:
Lancaster Colony Corporation (LANC) manufactures and markets specialty food products for the retail and foodservice markets in the United States. The company operates in two segments, Retail and Foodservice.
Lancaster Colony raised its quarterly dividend by 7.70% to 70 cents/share. This marked the 57th consecutive annual dividend increase for this dividend king. The company has managed to increase dividends at an annualized rate of 8.60% over the past decade.
Between 2009 and 2019, the company managed to grow earnings from $3.17/share to $5.46/share.
The average analyst expects Lancaster Colony to earn $5.60/share in 2020.
Right now the stock is overvalued at 27.90 times forward earnings. The stock yields 1.80%. It may be worth a closer look on dips below $112/share.
Matthews International Corporation (MATW) provides brand solutions, memorialization products, and industrial products worldwide.
Matthews International raised its quarterly dividend by 5% to 21 cents/share. This marked the 25th consecutive annual dividend increase for this newly minted dividend champion. During the past decade, it has managed to increase distributions at an annualized rate of 12.10%.
The company earned $1.90/share in 2009, profits declined to $1.49/share in 2014, but managed to ultimately grow it to $3.37/share in 2019. It is interesting that while revenues had been growing every single year, earnings per share took a detour between 2009 and 2014, before ultimately rebounding.
The wall street consensus is for Matthews International to earn $3.31/share in 2019.
The stock is attractively valued at 10.50 forward earnings. Matthews International yields 2.40%.
MDU Resources Group, Inc. (MDU) engages in regulated energy delivery, and construction materials and services businesses in the United States. It operates through five segments: Electric, Natural Gas Distribution, Pipeline and Midstream, Construction Materials and Contracting, and Construction Services.
The company raised its quarterly dividend by 2.50% to 20.75 cents/share. This marked the 29th consecutive annual dividend increase for this dividend champion. During the past decade, this utility has managed to grow distributions at an annualized rate of 3%.
Earnings per share decreased from $1.59 in 2008 to $1.39 in 2018. MDU Resources is expected to earn $1.58/share in 2019. The lack of earnings growth explains why dividends are not growing by much. At this stage, dividends are growing through the expansion of the dividend payout ratio. This is a stark contrast with the slow but steady growth in earnings per share for the 15 years ending in 2007.
The stock is at the high end of the valuation range at 18.40 times forward earnings and a dividend yield of 2.90%. Given the lack of earnings growth, I would give the stock a pass on further research at this time.
Sysco Corporation (SYY) markets and distributes a range of food and related products primarily to the foodservice or food-away-from-home industry in the United States, Canada, the United Kingdom, France, and internationally. It operates through three segments: U.S. Foodservice Operations, International Foodservice Operations, and SYGMA.
The company raised its quarterly dividend by 15.40% to 45 cents/share. This marked the 50th consecutive annual dividend increase for this newly minted dividend king. Over the past decade, Sysco has managed to grow distributions at an annualized rate of 5%/year.
The company earned $1.77/share in 2009, but profits dipped to $1.15/share through 2015, before rebounding to $3.20/share by 2019. Sysco is expected to earn $3.81/share in 2020.
While Sysco managed to grow revenues during that time period, the lack of earnings growth caused me to sell several years ago. I grew impatient, and sold. This is one of the lessons I am trying to instill with this blog – it is often best to just hold on to a stock through thick or thin, for as long as the dividend is not cut. Focusing too much on year over year numbers, and micromanaging management is usually counterproductive. That’s because you do not know in advance if a business is about to decline for good, or whether this is just a temporary dip. It is always best in my investing to give management the benefit of the doubt, and just hold on to my investment. From a risk management perspective, I hold on, but do not add to the stock any more. I also reinvest dividends elsewhere.
The stock is overvalued at 21.40 times forward earnings. Sysco yields 2.20%. It may be worth a closer look on dips below $76/share.
NIKE, Inc. (NKE) designs, develops, markets, and sells athletic footwear, apparel, equipment, and accessories worldwide.
The company hiked its quarterly dividend by 11.40% to 24.50 cents/share. This marked the 18th year of annual dividend increases for this dividend achiever. During the past decade, Nike has managed to grow distributions at an annualized rate of 13%/year.
Between 2009 and 2019, Nike managed to grow earnings from $0.76/share to $2.49/share.
Nike is expected to earn $2.97/share in 2019.
Right now, the stock is overvalued at 31.30 times forward earnings. Nike yields 1.05%. If Nike is available below $60/share, it may be worth a second look. I won’t hold my breath for it for the time being.
United Bankshares, Inc. (UBSI), a financial holding company, primarily provides commercial and retail banking products and services in the United States. It operates through two segments, Community Banking and Mortgage Banking.
The company raised its quarterly dividend by 3% to 35 cents/share. This marked the 45th year of annual dividend increases for this dividend champion. During the past decade, it has managed to grow distributions at an annualized rate of 1.60%.
The company hit peak earnings in 2005 of $2.33/share. After that, earnings per share kept dropping until hitting $1.55 in 2009. Earnings have gradually recovered to $2.45/share in 2018.
United Bankshares is expected to earn $2.55/share in 2019.
The stock is fairly valued at 15.50 times forward earnings and offers a dividend yield of 3.50%. The lack of meaningful earnings growth, coupled with the slow rate of dividend growth makes this company a pass for the time being.
Automatic Data Processing, Inc. (ADP) provides cloud-based human capital management solutions worldwide. It operates through two segments, Employer Services and Professional Employer Organization Services.
The company raised its quarterly dividend by 15.20% to 91 cents/share. This marked the 45th consecutive annual dividend increase for this dividend champion. During the past decade the company managed to increase dividends at an annualized rate of 10%.
The company managed to boost earnings from $2.63/share in 2009 to $5.24/share in 2019. Automatic Data Processing is expected to earn $6.17/share in 2020.
Assurant, Inc. (AIZ), provides risk management solutions for housing and lifestyle markets in North America, Latin America, Europe, and the Asia Pacific. The company operates through three segments: Global Housing, Global Lifestyle, and Global Preneed.
The company increased its quarterly dividend by 5% to 63 cents/share. This marked the 16th consecutive annual dividend increase for this dividend achiever. Over the past decade, it has managed to grow dividends at an annualized rate of 15.50%.
Between 2008 and 2018, the company’s earnings rose from $3.76/share to $3.98/share. Assurant is expected to generate $8.67/share in 2019.
The stock looks fairly valued at 15.30 times forward earnings, but offers a low yield of 1.90%. It may be worth researching further, particularly if it drops.
Snap-on Incorporated (SNA) manufactures and markets tools, equipment, diagnostics, and repair information and systems solutions for professional users worldwide. It operates through Commercial and Industrial Group, Snap-on Tools Group, and Repair Systems & Information Group segments.
The company increased its quarterly dividend by 13.70% to $1.08/share. This marked the 10th consecutive annual dividend increase for this newly minted dividend achiever. During the past decade, Snap-On has managed to boost distributions at an annualized rate of 11%.
The company managed to grow earnings from $4.07/share in 2008 to $11.87/share in 2018. Snap-on is expected to generate $12.26/share in 2019.
The stock is attractively valued at 13.30 times forward earnings and offers a dividend yield of 2.65%.
Relevant Articles:
- How to never run out of money in retirement
- Rising Earnings – The Source of Future Dividend Growth
- How to read my weekly dividend increase reports
- Dividend Investors are getting paid for waiting
Thursday, November 14, 2019
The million dollar dividend portfolio for retirement
A few days ago, I posted an inspiring quote on Twitter. I stated that if you have a portfolio worth $1 million, you can easily expect to generate $30,000 in annual dividend income. I also mentioned that annual dividends would likely grow at 6%/year, which is higher than the raises received from most jobs.
This statement infuriated a lot of people out there. It was also well received by a lot of people too.
Based on reading the responses, I came to the conclusion that there are two camps of thought.
The first one consisted of individuals who are not millionaires, and do not see themselves as someone who will ever achieve financial independence. This is why they produced the most bitter responses. I felt sad for them, because I believe that anyone can reach financial independence if they are willing to live below their means, work to increase their income and cut expenses, and invest money intelligently with a long-term mindset. While everyone gets their fair share of disappointments and setbacks in life, we can at least control our reaction to these unfortunate events, and at least try to improve our financial situation. This group saw the million dollar figure, immediately became scared of what seems like an insurmountable amount of money, and concluded that it is impossible to reach it in the first place. The second group on the other hand immediately grasped the concept at hand, and understood the process to get to their goals and objectives.
The second type of responses were from individuals who were either financially independent, or had a plan in action to reach financial independence. These individuals understand the simple mechanics behind achieving financial independence, and were using the tools within their disposal to get there. These common sense tools include saving money in order to invest in assets, and hold those assets for the long-term. Some examples include buying income producing assets such as dividend stocks, real estate, index funds, businesses, which also grow wealth over time. These individuals are go-getters, who try to learn as much as possible, and improve themselves, in order to improve their lives. This group saw the million dollar figure, and immediately asked themselves how they can get there. The participants in this group knows that they should not despise the days of small beginnings. These investors know how to break down a large goal into small manageable tasks, and to conquer it along the way.
Perhaps the first group did not understand that building wealth is dependent on four simple wealth-building tools within their disposal:
1) The amount of money they save regularly, by living within their means. This includes cutting expenses, while increasing income. The math behind early retirement is simple.
2) The types of investments they select for building wealth. This could include dividend growth stocks, rental real estate, business ownership or index funds.
3) Their holding period. Being a buy and hold investor is probably the best option for most out there. By managing your behavior and investing regularly, you are following a plan and not reacting to the ups and downs of the economy. Staying the course is smarter than active trading, and results in lower costs in terms of taxes and commissions.
4) Another important tool is to educate yourself about investments all the time, while taking a firm control of your money. No one cares more about your family’s financial situation than you. This is why it is important to invest in your own financial education, avoid expensive middlemen that cost you money. It may also make a lot of sense to minimize tax liabilities by investing through tax-deferred accounts.
It is fascinating that a million-dollar portfolio can generate $30,000 in annual dividend income. A 3% yield is fairly easy to obtain today, whether you focus on building out your own portfolio one company at a time, or whether you go the ETF route. If history is of any guidance, dividend income is expected to grow faster than inflation over time. A carefully selected and diversified portfolio of dividend growth stocks can reasonably be expected to grow distributions at an annualized rate of 6%/year over time. If you are still in the accumulation phase and you can reinvest those distributions, you can easily grow portfolio dividends at a double digit percentage rate annually. By adding more money to the portfolio regularly, you are further turbocharging your dividend machine.
The nice thing about being a dividend investor is that dividend payments are more stable than share prices. It is easier to estimate future dividend payments, than to forecast what share prices will do. This is why retirees love the recurring nature of dividend payments. Dividends are more stable than share prices, which makes them an ideal source of income for my retirement. Plus, dividends represent a return on your investment, and help you avoid focusing on short-term stock price fluctuations. In essence, I am being paid to hold on to my shares when I receive dividends. In other words, dividends represent a return on investment, as well as a return of investment.
Getting to the coveted dividend crossover point, which is the point at which your dividend income covers your expenses is the ultimate goal of every investor out there. Getting to the point is a function of:
1) Amount of money you invest every month
2) The dividend income and yield you receive when you invest your money
3) The annual dividend growth for your portfolio
4) The amount of time you let your portfolio to compound for
5) Keeping your investment and tax costs to the bone
Notice that I am a firm believer in regular investing whenever I have money to invest. It makes to sense to me to even think about timing the market. I have learned that the sooner I invest in income producing assets, the sooner I can start earning dividends. While the amount of time to get to your financial independence will vary, I do believe getting there is a function of patience and perseverance.
Once you get there, you have control over your time and schedule. You can decide to continue working, to change careers, or to retire and watch Disney + all day. This is your life and your time, and you will be in charge of it. After all, you have worked hard to get there, and have done something that most people are not willing to even try.
The best part is that once you generate a healthy chunk of dividends, and you choose to stop working for money, you are joining the investor class. As an investor you are in a unique position to make money without needing to do much work, and you are getting hefty tax breaks in the process. You can do this from work, in your pajamas if you choose to.
As a result, for married couple that files jointly in the US, who earns up to $100,000 in qualified dividend income, they would owe zero in taxes to the Federal Government. Plus, they would owe zero taxes for FICA. They may owe state and local taxes. This is the best part about being financially independent however – they are location independent as well. They do not need to be in a certain place in order to generate money. A financially independent investor can travel the world, and still receive their dividends deposited neatly into their brokerage accounts. If you just move across state lines to one of the states that do not tax income, you won’t owe any taxes on income.
When you work in the accumulation phase, you end up paying high marginal tax rates to the Federal and State Governments, and you have to change employers if you want to work from a state with no income taxes. Plus, you would have to pay FICA, and you would have expenses related to
commuting and dressing in appropriate attire. Working is expensive because it ties you down to a certain area, and it sucks up most of your productive time in the week. You have less time to spend with your family, which is why you may end up outsourcing tasks to daycares, house cleaners etc.
This is the mindset I have always had about wealth building in general. I have always tried to get to the coveted financial independence spot, and have tried to accumulate all sorts of knowledge and experience to get me there. While it took a while to get to financial independence, the journey has definitely been exciting. Rather than be bitter about others successes, I have embraced them and tried to learn from them. Rather than be scared of the lofty goal of achieving financial independence, I have tried to break down the goal into smaller components and smaller targets, that are easier to accomplish. I have also focused my attention on building a system of achieving my goals, through meticulous savings, investing and patience, while also enjoying the journey along the way.
It is ironic that when I was first starting out, I was infuriating people because my first dividends were about 20 cents/month. I was scoffed at as insignificant. Nowadays, people are infuriated because the amount of dividend income seem high, and they do not believe in themselves enough to think how to get to their financial independence. It is easier to be dismissive of accomplishments, rather than try and figure out for your self how you can get there. Perhaps the lesson for me is that no matter what you do, you should do things to achieve your goals and objectives, and not try to appease everyone. Having an inner scorecard definitely helps. And that helps in the wealth building phase, because you can save much more when you don't spend money on luxury cars, expensive clothes and McMansions, in order to look better to others.
So in order to get to the financial independence, it is important to get started. Then enjoy the journey!
Relevant Articles:
- How to retire in 10 years with dividend stocks
- What are your investment goals?
- The Initial Grind Is The Hardest
- Use these tools within your control to get rich
- The Dividend Crossover Point
This statement infuriated a lot of people out there. It was also well received by a lot of people too.
Based on reading the responses, I came to the conclusion that there are two camps of thought.
The first one consisted of individuals who are not millionaires, and do not see themselves as someone who will ever achieve financial independence. This is why they produced the most bitter responses. I felt sad for them, because I believe that anyone can reach financial independence if they are willing to live below their means, work to increase their income and cut expenses, and invest money intelligently with a long-term mindset. While everyone gets their fair share of disappointments and setbacks in life, we can at least control our reaction to these unfortunate events, and at least try to improve our financial situation. This group saw the million dollar figure, immediately became scared of what seems like an insurmountable amount of money, and concluded that it is impossible to reach it in the first place. The second group on the other hand immediately grasped the concept at hand, and understood the process to get to their goals and objectives.
The second type of responses were from individuals who were either financially independent, or had a plan in action to reach financial independence. These individuals understand the simple mechanics behind achieving financial independence, and were using the tools within their disposal to get there. These common sense tools include saving money in order to invest in assets, and hold those assets for the long-term. Some examples include buying income producing assets such as dividend stocks, real estate, index funds, businesses, which also grow wealth over time. These individuals are go-getters, who try to learn as much as possible, and improve themselves, in order to improve their lives. This group saw the million dollar figure, and immediately asked themselves how they can get there. The participants in this group knows that they should not despise the days of small beginnings. These investors know how to break down a large goal into small manageable tasks, and to conquer it along the way.
Perhaps the first group did not understand that building wealth is dependent on four simple wealth-building tools within their disposal:
1) The amount of money they save regularly, by living within their means. This includes cutting expenses, while increasing income. The math behind early retirement is simple.
2) The types of investments they select for building wealth. This could include dividend growth stocks, rental real estate, business ownership or index funds.
3) Their holding period. Being a buy and hold investor is probably the best option for most out there. By managing your behavior and investing regularly, you are following a plan and not reacting to the ups and downs of the economy. Staying the course is smarter than active trading, and results in lower costs in terms of taxes and commissions.
4) Another important tool is to educate yourself about investments all the time, while taking a firm control of your money. No one cares more about your family’s financial situation than you. This is why it is important to invest in your own financial education, avoid expensive middlemen that cost you money. It may also make a lot of sense to minimize tax liabilities by investing through tax-deferred accounts.
It is fascinating that a million-dollar portfolio can generate $30,000 in annual dividend income. A 3% yield is fairly easy to obtain today, whether you focus on building out your own portfolio one company at a time, or whether you go the ETF route. If history is of any guidance, dividend income is expected to grow faster than inflation over time. A carefully selected and diversified portfolio of dividend growth stocks can reasonably be expected to grow distributions at an annualized rate of 6%/year over time. If you are still in the accumulation phase and you can reinvest those distributions, you can easily grow portfolio dividends at a double digit percentage rate annually. By adding more money to the portfolio regularly, you are further turbocharging your dividend machine.
The nice thing about being a dividend investor is that dividend payments are more stable than share prices. It is easier to estimate future dividend payments, than to forecast what share prices will do. This is why retirees love the recurring nature of dividend payments. Dividends are more stable than share prices, which makes them an ideal source of income for my retirement. Plus, dividends represent a return on your investment, and help you avoid focusing on short-term stock price fluctuations. In essence, I am being paid to hold on to my shares when I receive dividends. In other words, dividends represent a return on investment, as well as a return of investment.
Getting to the coveted dividend crossover point, which is the point at which your dividend income covers your expenses is the ultimate goal of every investor out there. Getting to the point is a function of:
1) Amount of money you invest every month
2) The dividend income and yield you receive when you invest your money
3) The annual dividend growth for your portfolio
4) The amount of time you let your portfolio to compound for
5) Keeping your investment and tax costs to the bone
Notice that I am a firm believer in regular investing whenever I have money to invest. It makes to sense to me to even think about timing the market. I have learned that the sooner I invest in income producing assets, the sooner I can start earning dividends. While the amount of time to get to your financial independence will vary, I do believe getting there is a function of patience and perseverance.
Once you get there, you have control over your time and schedule. You can decide to continue working, to change careers, or to retire and watch Disney + all day. This is your life and your time, and you will be in charge of it. After all, you have worked hard to get there, and have done something that most people are not willing to even try.
The best part is that once you generate a healthy chunk of dividends, and you choose to stop working for money, you are joining the investor class. As an investor you are in a unique position to make money without needing to do much work, and you are getting hefty tax breaks in the process. You can do this from work, in your pajamas if you choose to.
As a result, for married couple that files jointly in the US, who earns up to $100,000 in qualified dividend income, they would owe zero in taxes to the Federal Government. Plus, they would owe zero taxes for FICA. They may owe state and local taxes. This is the best part about being financially independent however – they are location independent as well. They do not need to be in a certain place in order to generate money. A financially independent investor can travel the world, and still receive their dividends deposited neatly into their brokerage accounts. If you just move across state lines to one of the states that do not tax income, you won’t owe any taxes on income.
When you work in the accumulation phase, you end up paying high marginal tax rates to the Federal and State Governments, and you have to change employers if you want to work from a state with no income taxes. Plus, you would have to pay FICA, and you would have expenses related to
commuting and dressing in appropriate attire. Working is expensive because it ties you down to a certain area, and it sucks up most of your productive time in the week. You have less time to spend with your family, which is why you may end up outsourcing tasks to daycares, house cleaners etc.
This is the mindset I have always had about wealth building in general. I have always tried to get to the coveted financial independence spot, and have tried to accumulate all sorts of knowledge and experience to get me there. While it took a while to get to financial independence, the journey has definitely been exciting. Rather than be bitter about others successes, I have embraced them and tried to learn from them. Rather than be scared of the lofty goal of achieving financial independence, I have tried to break down the goal into smaller components and smaller targets, that are easier to accomplish. I have also focused my attention on building a system of achieving my goals, through meticulous savings, investing and patience, while also enjoying the journey along the way.
It is ironic that when I was first starting out, I was infuriating people because my first dividends were about 20 cents/month. I was scoffed at as insignificant. Nowadays, people are infuriated because the amount of dividend income seem high, and they do not believe in themselves enough to think how to get to their financial independence. It is easier to be dismissive of accomplishments, rather than try and figure out for your self how you can get there. Perhaps the lesson for me is that no matter what you do, you should do things to achieve your goals and objectives, and not try to appease everyone. Having an inner scorecard definitely helps. And that helps in the wealth building phase, because you can save much more when you don't spend money on luxury cars, expensive clothes and McMansions, in order to look better to others.
So in order to get to the financial independence, it is important to get started. Then enjoy the journey!
Relevant Articles:
- How to retire in 10 years with dividend stocks
- What are your investment goals?
- The Initial Grind Is The Hardest
- Use these tools within your control to get rich
- The Dividend Crossover Point
Monday, November 11, 2019
Eleven Dividend Growth Stocks For Further Research
As part of my monitoring process, I review the list of dividend increases every week. This is helpful in checking developments for companies I own, as well as companies I am considering. Quite often, dividend increases are announced alongside the release of quarterly or annual results. It is helpful to pay attention to major developments, but it is equally important not to read too much into it, and end up micromanaging your portfolio by increasing trading activity. In general, this exercise helps me to see if my original thesis is working. If I see developments that show me that I was wrong, I will stop adding to my positions. In the case of a dividend cut, I will sell. Otherwise, I will hold on, and just allocate dividends elsewhere.
I share an article about dividend increases weekly with you, in order to show you how I go about quickly reviewing companies, and how I screen for them on the go. I am hopeful that this exercise shows readers the qualities I look for in companies, before I put them on my list for further research.
In general, I look for:
1) Minimum streak of annual dividend increases. Usually more than 10 years in a row.
2) A valuation below 20 times earnings. However, I am not as big of a stickler for it as I once were.
3) A dividend payout ratio below 60%. The obvious exceptions are companies which have a history of high payout ratios, while also raising dividends for long period of time. Companies in the Utilities, Telecom and Real Estate sectors are prime suspects off the top of my mind.
3) Earnings growth over the past decade, whether is more likely to continue and fuel future dividend increases
4) Dividend growth over the past decade exceeding inflation. I am on the lookout for acceleration or deceleration in dividend growth. When management slows down on dividend growth, this tells me that there are some headwinds along the way.
Inter Parfums, Inc., (IPAR) manufactures, markets, and distributes a range of fragrances and fragrance related products. The company operates in two segments, European Based Operations and United States Based Operations.
The company raised its quarterly dividend by 20% to 33 cents/share. This is in line with the ten year average of 20.20%/ year.
Between 2008 and 2018, the company managed to grow earnings from 77 cents/share to $1.71/share. Inter Parfums is expected to earn $1.90/share in 2019.
The stock is overvalued at 40 times forward earnings. It yields 1.70%.
Assurant, Inc. (AIZ) provides risk management solutions for housing and lifestyle markets in North America, Latin America, Europe, and the Asia Pacific. The company operates through three segments: Global Housing, Global Lifestyle, and Global Preneed.
The company raised its quarterly dividend by 5% to 63 cents/share. This marked the 16th year of annual dividend increases for this dividend achiever. During the past decade, Assurant has managed to boost distributions at an annualized rate of 1%
Between 2008 and 2018, the company managed to grow earnings from 3.76 cents/share to $3.98/share. Assurant is expected to generate $8.69/share in 2019.
The stock is fairly/ valued at 15 times forward earnings and offers a well-covered dividend yield of 1.90%. It may be worth researching further.
Snap-on Incorporated (SNA) manufactures and markets tools, equipment, diagnostics, and repair information and systems solutions for professional users worldwide. It operates through Commercial and Industrial Group, Snap-on Tools Group, and Repair Systems & Information Group segments.
Snap On declared $1.08/share quarterly dividend, which is a 13.7% increase from prior dividend of $0.95. This is the tenth consecutive annual dividend increase for this newly minted dividend achiever. During the past decade, Snap-On has managed to boost distributions at an annualized rate of 11%/year.
Over the past decade, Snap-On has managed to grow earnings from $4.07/share to $11.87/share. The company is expected to generate $12.26/share in 2019.
The stock is fairly valued at 13.60 times forward earnings and offers a well covered dividend yield of 2.60%. It may be worth following for further research.
Aaron's, Inc. (AAN) operates as an omnichannel provider of lease-purchase solutions to underserved and credit-challenged customers. It operates in three segments: Progressive Leasing, Aaron's Business, and DAMI.
The company raised its quarterly distribution by 14.30% to 4 cents/share. This marked the 17th year of annual dividend increases for this dividend achiever. Over the past decade, Aaron’s has managed to boost distributions at an annualized rate of 10.90%/year.
Between 2008 and 2018, earnings per share increased from $1.11 to $2.78. Aaron’s is expected to generate $3.93/share.
The stock is attractively valued at 14.80 times forward earnings. It yields 0.30%, but offers the opportunity for faster dividend growth and potentially higher total returns. It may be a good idea for younger investors to research.
Emerson Electric Co. (EMR) is a technology and engineering company, that provides solutions to industrial, commercial, and consumer markets worldwide.
Emerson Electric hiked its quarterly dividend by 2% to 50 cents/share. As a result, this dividend king achieved 63 consecutive years of increased dividends per share. The company has managed to hike distributions at an annualized rate of 4.70% over the past decade.
Between 2008 and 2018, Emerson Electric has managed to grow earnings from $3.06/share to $3.46/share. The company is expected to generate $3.67/share in 2019. In other words, earnings per share have been flat for over a decade. Dividend growth has been running on fumes, as evidenced by the slowdown in distributions growth. There is some pushback from activist investors, so I am hopeful that they can reinvigorate the company. Otherwise, it may be forced to end its streak of annual dividend increases in the near future.
The stock is also overvalued at 20.40 times forward earnings. While it offers a decent yield at 2.70%, its dividends are growing slowly due to stagnation in earnings per share and the higher payout ratio. I view the stock as a hold today, with dividends being allocated elsewhere.
Utah Medical Products, Inc. (UTMD) develops, manufactures, and distributes medical devices for the healthcare industry in the United States, Europe, and internationally.
The company raised its quarterly dividend by 1.80% to 27.50 cents/share. It has managed to increase dividends by 1.80%/year over the past decade. Utah Medical Products is a dividend achiever which has managed to increase distributions for 17 years in a row.
Between 2008 and 2018, Utah Medical Products has managed to boost earnings from $1.86 to $4.95/share.
The stock is slightly overvalued at 21 times earnings. Utah Medical Products yields 1.10%, but offers a very slow rate of annual dividend increases. I like the potential for capital gains, but the slow rate of dividend increases is putting me off a little bit.
KLA Corporation (KLAC) designs, manufactures, and markets process control and yield management solutions for the semiconductor and related nanoelectronics industries worldwide.
The company managed to increase distributions by 13.30% to 85 cents/share. It has managed to boost dividends for 10 years in a row. Over the past decade, KLA Corporation has managed to increase distributions at an annualized rate of 16.80%.
Between 2008 and 2018, this dividend achiever managed to boost earnings per share from $1.95 to $7.49. The company expects to earn $10.01/share in 2019.
KLA Corporation looks fairly valued at 17.40 times forward earnings and yields 1.95%. It may be worth researching, only to understand how this former dot-com darling managed to increase earnings and hit all-time-highs.
Evergy, Inc. (EVRG) engages in the generation, transmission, distribution, and sale of electricity in Kansas and Missouri.
Evergy increased its quarterly dividend by 6.30% to 50.50 cents/share. This marked the 15th consecutive annual dividend increase for this dividend achiever. Over the past decade, it has managed to increase distributions at an annualized rate of 4.30%.
Between 2008 and 2018, the company has managed to boost earnings from $1.69/share to $2.50/share. Evergy is expected to earn $2.88/share in 2019.
The stock is overvalued at 21.90 times forward earnings and yields 3.20%. It may be worth reviewing on dips.
BOK Financial Corporation (BOKF) operates as the financial holding company for BOKF, NA that provides various financial products and services in Oklahoma, Texas, New Mexico, Northwest Arkansas, Colorado, Arizona, and Kansas/Missouri. It operates through three segments: Commercial Banking, Consumer Banking, and Wealth Management.
The company hiked its quarterly distribution by 2% to 51 cents/share, bringing its track record of annual dividend increases to 15 years in row. Over the past decade, it has managed to boost distributions at an annualized rate of 8.10%.
BOK Financial managed to boost earnings per share from $2.27 to $6.63/share between 2008 and 2018. The company is expected to generate $7.35/share in 2019.
The stock is attractively valued at 11.20 times forward earnings and yields 2.50%. I like the long term trend in earnings per share, and the owner-operator behind the enterprise. The slowdown in dividend increases is giving me pause however.
WestRock Company (WRK) manufactures and sells paper and packaging solutions for the consumer and corrugated markets in North America, South America, Europe, and the Asia Pacific.
The company raised dividends by 2.20% to 46.50 cents/share. This was a much slower rate of distribution growth than the ten year average of 25.50%/year. WestRock is a dividend achiever with an 11 year record of annual dividend increases.
The company earned $1.07/share in 2008, and has managed to grow it to an estimated $3.41/share in 2019.
The stock is attractively valued at 11.80 times forward earnings and yields 4.70%. Based on the slow increase in dividends, it looks like the days of fast dividend growth are over.
Atmos Energy Corporation (ATO) engages in the regulated natural gas distribution, and pipeline and storage businesses in the United States. It operates through Distribution, and Pipeline and Storage segments.
The utility increased its quarterly distribution by 9.50% to 57.50 cents/share. This marked the 36th consecutive annual dividend increase for this dividend champion. During the past decade, it has managed to boost distributions at an annualized rate of 4.30%.
Atmos Energy earned $2/share in 2008, and is expected to earn $4.63/share in 2019.
The stock is overvalued at 23.20 times forward earnings. It yields 2.10%.
Relevant Articles:
- Six Companies Growing Dividends for Shareholders
- Best Dividend Stocks For The Long Run – 10 years later
- Evolution of the dividend kings list over the years
- Seven Dividend Paying Companies Rewarding Their Owners With a Raise
I share an article about dividend increases weekly with you, in order to show you how I go about quickly reviewing companies, and how I screen for them on the go. I am hopeful that this exercise shows readers the qualities I look for in companies, before I put them on my list for further research.
In general, I look for:
1) Minimum streak of annual dividend increases. Usually more than 10 years in a row.
2) A valuation below 20 times earnings. However, I am not as big of a stickler for it as I once were.
3) A dividend payout ratio below 60%. The obvious exceptions are companies which have a history of high payout ratios, while also raising dividends for long period of time. Companies in the Utilities, Telecom and Real Estate sectors are prime suspects off the top of my mind.
3) Earnings growth over the past decade, whether is more likely to continue and fuel future dividend increases
4) Dividend growth over the past decade exceeding inflation. I am on the lookout for acceleration or deceleration in dividend growth. When management slows down on dividend growth, this tells me that there are some headwinds along the way.
Inter Parfums, Inc., (IPAR) manufactures, markets, and distributes a range of fragrances and fragrance related products. The company operates in two segments, European Based Operations and United States Based Operations.
The company raised its quarterly dividend by 20% to 33 cents/share. This is in line with the ten year average of 20.20%/ year.
Between 2008 and 2018, the company managed to grow earnings from 77 cents/share to $1.71/share. Inter Parfums is expected to earn $1.90/share in 2019.
The stock is overvalued at 40 times forward earnings. It yields 1.70%.
Assurant, Inc. (AIZ) provides risk management solutions for housing and lifestyle markets in North America, Latin America, Europe, and the Asia Pacific. The company operates through three segments: Global Housing, Global Lifestyle, and Global Preneed.
The company raised its quarterly dividend by 5% to 63 cents/share. This marked the 16th year of annual dividend increases for this dividend achiever. During the past decade, Assurant has managed to boost distributions at an annualized rate of 1%
Between 2008 and 2018, the company managed to grow earnings from 3.76 cents/share to $3.98/share. Assurant is expected to generate $8.69/share in 2019.
The stock is fairly/ valued at 15 times forward earnings and offers a well-covered dividend yield of 1.90%. It may be worth researching further.
Snap-on Incorporated (SNA) manufactures and markets tools, equipment, diagnostics, and repair information and systems solutions for professional users worldwide. It operates through Commercial and Industrial Group, Snap-on Tools Group, and Repair Systems & Information Group segments.
Snap On declared $1.08/share quarterly dividend, which is a 13.7% increase from prior dividend of $0.95. This is the tenth consecutive annual dividend increase for this newly minted dividend achiever. During the past decade, Snap-On has managed to boost distributions at an annualized rate of 11%/year.
Over the past decade, Snap-On has managed to grow earnings from $4.07/share to $11.87/share. The company is expected to generate $12.26/share in 2019.
The stock is fairly valued at 13.60 times forward earnings and offers a well covered dividend yield of 2.60%. It may be worth following for further research.
Aaron's, Inc. (AAN) operates as an omnichannel provider of lease-purchase solutions to underserved and credit-challenged customers. It operates in three segments: Progressive Leasing, Aaron's Business, and DAMI.
The company raised its quarterly distribution by 14.30% to 4 cents/share. This marked the 17th year of annual dividend increases for this dividend achiever. Over the past decade, Aaron’s has managed to boost distributions at an annualized rate of 10.90%/year.
Between 2008 and 2018, earnings per share increased from $1.11 to $2.78. Aaron’s is expected to generate $3.93/share.
The stock is attractively valued at 14.80 times forward earnings. It yields 0.30%, but offers the opportunity for faster dividend growth and potentially higher total returns. It may be a good idea for younger investors to research.
Emerson Electric Co. (EMR) is a technology and engineering company, that provides solutions to industrial, commercial, and consumer markets worldwide.
Emerson Electric hiked its quarterly dividend by 2% to 50 cents/share. As a result, this dividend king achieved 63 consecutive years of increased dividends per share. The company has managed to hike distributions at an annualized rate of 4.70% over the past decade.
Between 2008 and 2018, Emerson Electric has managed to grow earnings from $3.06/share to $3.46/share. The company is expected to generate $3.67/share in 2019. In other words, earnings per share have been flat for over a decade. Dividend growth has been running on fumes, as evidenced by the slowdown in distributions growth. There is some pushback from activist investors, so I am hopeful that they can reinvigorate the company. Otherwise, it may be forced to end its streak of annual dividend increases in the near future.
The stock is also overvalued at 20.40 times forward earnings. While it offers a decent yield at 2.70%, its dividends are growing slowly due to stagnation in earnings per share and the higher payout ratio. I view the stock as a hold today, with dividends being allocated elsewhere.
Utah Medical Products, Inc. (UTMD) develops, manufactures, and distributes medical devices for the healthcare industry in the United States, Europe, and internationally.
The company raised its quarterly dividend by 1.80% to 27.50 cents/share. It has managed to increase dividends by 1.80%/year over the past decade. Utah Medical Products is a dividend achiever which has managed to increase distributions for 17 years in a row.
Between 2008 and 2018, Utah Medical Products has managed to boost earnings from $1.86 to $4.95/share.
The stock is slightly overvalued at 21 times earnings. Utah Medical Products yields 1.10%, but offers a very slow rate of annual dividend increases. I like the potential for capital gains, but the slow rate of dividend increases is putting me off a little bit.
KLA Corporation (KLAC) designs, manufactures, and markets process control and yield management solutions for the semiconductor and related nanoelectronics industries worldwide.
The company managed to increase distributions by 13.30% to 85 cents/share. It has managed to boost dividends for 10 years in a row. Over the past decade, KLA Corporation has managed to increase distributions at an annualized rate of 16.80%.
Between 2008 and 2018, this dividend achiever managed to boost earnings per share from $1.95 to $7.49. The company expects to earn $10.01/share in 2019.
KLA Corporation looks fairly valued at 17.40 times forward earnings and yields 1.95%. It may be worth researching, only to understand how this former dot-com darling managed to increase earnings and hit all-time-highs.
Evergy, Inc. (EVRG) engages in the generation, transmission, distribution, and sale of electricity in Kansas and Missouri.
Evergy increased its quarterly dividend by 6.30% to 50.50 cents/share. This marked the 15th consecutive annual dividend increase for this dividend achiever. Over the past decade, it has managed to increase distributions at an annualized rate of 4.30%.
Between 2008 and 2018, the company has managed to boost earnings from $1.69/share to $2.50/share. Evergy is expected to earn $2.88/share in 2019.
The stock is overvalued at 21.90 times forward earnings and yields 3.20%. It may be worth reviewing on dips.
BOK Financial Corporation (BOKF) operates as the financial holding company for BOKF, NA that provides various financial products and services in Oklahoma, Texas, New Mexico, Northwest Arkansas, Colorado, Arizona, and Kansas/Missouri. It operates through three segments: Commercial Banking, Consumer Banking, and Wealth Management.
The company hiked its quarterly distribution by 2% to 51 cents/share, bringing its track record of annual dividend increases to 15 years in row. Over the past decade, it has managed to boost distributions at an annualized rate of 8.10%.
BOK Financial managed to boost earnings per share from $2.27 to $6.63/share between 2008 and 2018. The company is expected to generate $7.35/share in 2019.
The stock is attractively valued at 11.20 times forward earnings and yields 2.50%. I like the long term trend in earnings per share, and the owner-operator behind the enterprise. The slowdown in dividend increases is giving me pause however.
WestRock Company (WRK) manufactures and sells paper and packaging solutions for the consumer and corrugated markets in North America, South America, Europe, and the Asia Pacific.
The company raised dividends by 2.20% to 46.50 cents/share. This was a much slower rate of distribution growth than the ten year average of 25.50%/year. WestRock is a dividend achiever with an 11 year record of annual dividend increases.
The company earned $1.07/share in 2008, and has managed to grow it to an estimated $3.41/share in 2019.
The stock is attractively valued at 11.80 times forward earnings and yields 4.70%. Based on the slow increase in dividends, it looks like the days of fast dividend growth are over.
Atmos Energy Corporation (ATO) engages in the regulated natural gas distribution, and pipeline and storage businesses in the United States. It operates through Distribution, and Pipeline and Storage segments.
The utility increased its quarterly distribution by 9.50% to 57.50 cents/share. This marked the 36th consecutive annual dividend increase for this dividend champion. During the past decade, it has managed to boost distributions at an annualized rate of 4.30%.
Atmos Energy earned $2/share in 2008, and is expected to earn $4.63/share in 2019.
The stock is overvalued at 23.20 times forward earnings. It yields 2.10%.
Relevant Articles:
- Six Companies Growing Dividends for Shareholders
- Best Dividend Stocks For The Long Run – 10 years later
- Evolution of the dividend kings list over the years
- Seven Dividend Paying Companies Rewarding Their Owners With a Raise
Thursday, November 7, 2019
Kimberly-Clark (KMB) Dividend Stock Analysis
Kimberly-Clark Corporation (KMB), together with its subsidiaries, manufactures and markets personal care, consumer tissue, and professional products worldwide. It operates through three segments: Personal Care, Consumer Tissue, and K-C Professional.
This dividend champion has paid dividends since 1935 and has increased them for 47 years in a row. The last dividend increase occurred in January 2019, when the board of directors raised the quarterly payment by 3% to $1.03/share.
Between 2008 and 2018, Kimberly-Clark managed to grow earnings from $4.05/share to $4.03/share. The figures should be adjusted upwards in my opinion for the impact of the 2018 restructuring program to the tune of $2.24/share. This would bring the figures closer to $6.27/share. If you add-in one-time items related to the US tax reform to the tune of 33 cents/share, we come up with adjusted EPS of $6.60/share. Kimberly-Clark is expected to earn $6.82/share in 2019.
Demand for company’s products is relatively stable and relatively recession resistant. There is a high probability that people will still be using tissues, toilet paper and other products that KMB produces for several decades out. Demand won’t change drastically during a recession. The company can grow earnings through new product innovation, expansion in emerging markets and taking cost out through streamlining of operations. Product marketing should keep customers continuing to buy branded products, rather than switching to generics, which are perceived as lower quality by consumers and are not really saving a lot of money per item either.
In 2019 the company unveiled its K-C Strategy 2022, whose objective is to deliver growth and create shareholder value in what is viewed as a challenging business environment. This would be achieved by growing Kimberly-Clark's iconic brand portfolio, leveraging the company's strong cost and financial discipline and allocating capital in value-creating ways. (Source:)
Key highlights:
• The company will target to grow sales in-line with, or slightly ahead of, category growth rates. Kimberly-Clark's three growth pillars are to elevate core businesses, accelerate growth in D&E markets and drive digital marketing and e-commerce. The company expects to achieve these pillars by launching differentiated product innovations, driving category development and leveraging commercial capabilities in sales and marketing.
• The company will generate savings in order to fund growth initiatives and improve margins. Focus areas will include driving ongoing supply chain productivity improvements through the FORCE program ( a 4 year cost-savings target of $1.5 billion through 2021), executing the 2018 Global Restructuring Program ( workforce reductions of 12 – 13% of headcount that could save 500 -550 million per year, while eliminating or selling manufacturing facilities.), rigorously controlling discretionary spending to sustain the company's top-tier overhead cost structure and driving further improvement in working capital.
• The company will allocate capital in value-creating ways, enabled by strong cash generation. Kimberly-Clark expects to spend capital at an annual rate of 4 to 5 percent of net sales after completing the 2018 Global Restructuring Program. In addition, the company plans to return significant amounts of cash to shareholders through dividends and share repurchases.
The company's medium-term financial objectives associated with K-C Strategy 2022 assume that category growth remains relatively modest and similar to recent conditions.
The objectives are as follows:
• Sales and organic sales growth - 1 to 3 percent annually.
• Adjusted earnings per share growth - mid-single digits annually.
• Adjusted Return On Invested Capital - at least maintain at current level.
• Dividend growth - generally in line with adjusted earnings per share growth.
The company has maintained a very consistent stock buyback program over the past year. Between 2008 and 2018, the number of shares decreased from 419 million to 350 million.
The annual dividend payment has increased by 6.20% per year over the past decade, which is higher than the growth in EPS. This has been achieved mostly due to the expansion of the dividend payout ratio. In January 2019 the Board of Directors approved a 3% increase in the quarterly annual dividend to $1.03/share. I believe that future dividend growth will likely be closer to 4% - 5%/year over the next decade, mostly driven by growth in earnings per share.
The dividend payout ratio has increased from 57% in 2008 to almost 61% in 2018. A lower payout is always a plus, since it leaves room for consistent dividend growth minimizing the impact of short-term fluctuations in earnings.
I find Kimberly-Clark to be close to fully valued at 19.60 times forward earnings. The stock yields 3% and has a sustainable distribution.
Relevant Articles:
- Seven Companies Working Hard For Their Stockholders
- Dividend Aristocrats for 2019 Revealed
- Best Dividend Stocks For The Long Run – 10 years later
- 26 Dividend Champions For Further Research
This dividend champion has paid dividends since 1935 and has increased them for 47 years in a row. The last dividend increase occurred in January 2019, when the board of directors raised the quarterly payment by 3% to $1.03/share.
Between 2008 and 2018, Kimberly-Clark managed to grow earnings from $4.05/share to $4.03/share. The figures should be adjusted upwards in my opinion for the impact of the 2018 restructuring program to the tune of $2.24/share. This would bring the figures closer to $6.27/share. If you add-in one-time items related to the US tax reform to the tune of 33 cents/share, we come up with adjusted EPS of $6.60/share. Kimberly-Clark is expected to earn $6.82/share in 2019.
Demand for company’s products is relatively stable and relatively recession resistant. There is a high probability that people will still be using tissues, toilet paper and other products that KMB produces for several decades out. Demand won’t change drastically during a recession. The company can grow earnings through new product innovation, expansion in emerging markets and taking cost out through streamlining of operations. Product marketing should keep customers continuing to buy branded products, rather than switching to generics, which are perceived as lower quality by consumers and are not really saving a lot of money per item either.
In 2019 the company unveiled its K-C Strategy 2022, whose objective is to deliver growth and create shareholder value in what is viewed as a challenging business environment. This would be achieved by growing Kimberly-Clark's iconic brand portfolio, leveraging the company's strong cost and financial discipline and allocating capital in value-creating ways. (Source:)
Key highlights:
• The company will target to grow sales in-line with, or slightly ahead of, category growth rates. Kimberly-Clark's three growth pillars are to elevate core businesses, accelerate growth in D&E markets and drive digital marketing and e-commerce. The company expects to achieve these pillars by launching differentiated product innovations, driving category development and leveraging commercial capabilities in sales and marketing.
• The company will generate savings in order to fund growth initiatives and improve margins. Focus areas will include driving ongoing supply chain productivity improvements through the FORCE program ( a 4 year cost-savings target of $1.5 billion through 2021), executing the 2018 Global Restructuring Program ( workforce reductions of 12 – 13% of headcount that could save 500 -550 million per year, while eliminating or selling manufacturing facilities.), rigorously controlling discretionary spending to sustain the company's top-tier overhead cost structure and driving further improvement in working capital.
• The company will allocate capital in value-creating ways, enabled by strong cash generation. Kimberly-Clark expects to spend capital at an annual rate of 4 to 5 percent of net sales after completing the 2018 Global Restructuring Program. In addition, the company plans to return significant amounts of cash to shareholders through dividends and share repurchases.
The company's medium-term financial objectives associated with K-C Strategy 2022 assume that category growth remains relatively modest and similar to recent conditions.
The objectives are as follows:
• Sales and organic sales growth - 1 to 3 percent annually.
• Adjusted earnings per share growth - mid-single digits annually.
• Adjusted Return On Invested Capital - at least maintain at current level.
• Dividend growth - generally in line with adjusted earnings per share growth.
The company has maintained a very consistent stock buyback program over the past year. Between 2008 and 2018, the number of shares decreased from 419 million to 350 million.
The annual dividend payment has increased by 6.20% per year over the past decade, which is higher than the growth in EPS. This has been achieved mostly due to the expansion of the dividend payout ratio. In January 2019 the Board of Directors approved a 3% increase in the quarterly annual dividend to $1.03/share. I believe that future dividend growth will likely be closer to 4% - 5%/year over the next decade, mostly driven by growth in earnings per share.
The dividend payout ratio has increased from 57% in 2008 to almost 61% in 2018. A lower payout is always a plus, since it leaves room for consistent dividend growth minimizing the impact of short-term fluctuations in earnings.
I find Kimberly-Clark to be close to fully valued at 19.60 times forward earnings. The stock yields 3% and has a sustainable distribution.
Relevant Articles:
- Seven Companies Working Hard For Their Stockholders
- Dividend Aristocrats for 2019 Revealed
- Best Dividend Stocks For The Long Run – 10 years later
- 26 Dividend Champions For Further Research
Monday, November 4, 2019
Seven Dividend Growth Stocks For Further Research
Welcome to my weekly review of dividend increases. I have done this process for over eleven years on my site, in order to share with readers how I go about monitoring my portfolio. I also review the list of dividend increases every week in order to uncover any hidden dividend gems.
I start by looking at dividend increases for the past week by US listed companies. I narrow the list down to the ones with a ten year track record of annual dividend increases. This exercise provides me with the list of companies for today’s article.
The next step in my process applies my entry criteria, in order to determine if a company is worth researching today or at some lower point. A few companies are good values today, while others may be a good idea for research if they come down in price. A third group of companies are not worth researching for me for one reason or another.
The type of review I do focuses on growth in dividends per share that is fueled by growth in earnings per share. I also review recent dividend increases and compare them to the ten year average. Recent dividend increases are a good barometer for management sentiment towards their short-term business environment. I also review valuation of course, in order to determine the point at which a company may be worth researching. I always try to do the work of researching a company, before investing. That way, I have a record of the reasons why I bought in the first place, which is helpful for my education as an investor.
The companies I that made the cut for today’s review include:
The Estée Lauder Companies Inc. (EL) is one of the world’s leading manufacturers and marketers of quality skin care, makeup, fragrance and hair care products.
The company raised its quarterly dividend by 12% to 48 cents/share. This marked the tenth consecutive annual dividend increase for this newly minted dividend achiever. Over the past decade, the company has managed to grow distributions at an annualized rate of 19%.
Between 2009 and 2019, Estee Lauder managed to grow earnings from 55 cents/share to $4.82/share. The company is expected to generate $5.89/share in 2020.
The stock is overvalued a 31.70 times forward earnings and offers a dividend yield of 1%. Estee Lauder may be a good idea on dips below $120/share.
Rockwell Automation, Inc. (ROK) provides industrial automation and information solutions worldwide. It operates in two segments, Architecture & Software; and Control Products & Solutions.
The company raised its quarterly dividend by 5% to $1.02/share. This marked the tenth consecutive annual dividend increase for this newly minted dividend achiever. Over the past decade, the company has managed to grow distributions at an annualized rate of 12.10%.
Between 2008 and 2018, the company managed to grow its earnings from $3.90/share to $4.21/share. It is expected to earn $8.59/share in 2019.
The stock is slightly overvalued at 20.70 times forward earnings. The stock yields 2.30. It may be worth a look on dips below $172/share.
UMB (UMBF) offers personal banking, commercial banking, healthcare services and institutional banking, which includes services to mutual funds and alternative-investment entities and registered investment advisors. UMB operates banking and wealth management centers throughout Missouri.
The company increased its quarterly dividend by 3.30% to 31 cents/share. This marked the 28th consecutive annual dividend increase for this dividend champion. Over the past decade, the company has managed to grow distributions at an annualized rate of 6.20%.
Between 2008 and 2018, UMB Financial has managed to increase earnings from $2.38/share to $3.93/share. UMB Financial is expected to generate $4.76/share in 2019.
The stock is fairly valued at 13.90 times forward earnings but offers a low dividend yield of 1.90%. This is a low yield for a bank. The slowing dividend growth is a concern.
Cintas Corporation (CTAS) provides corporate identity uniforms and related business services primarily in North America, Latin America, Europe, and Asia. It operates through Uniform Rental and Facility Services and First Aid and Safety Services segments.
The company increased its annual dividend by 24.40% to $2.55/share. This is the 36th consecutive year that the annual dividend has increased, which is every year since Cintas’ initial public offering in 1983. Over the past decade, this dividend champion has managed to boost distributions at an annualized rate of 16.10%.
Between 2009 and 2019, Cintas has managed to grow earnings from $1.48/share to $7.99/share.
Cintas is expected to generate $8.59/share in 2020.
The stock is overvalued at 31.30 times forward earnings. Cintas yields 0.95%. The stock may be worth a look on dips below $172/share, which may be possible if we get another decline like the one from December 2018.
Black Hills Corporation (BKH), operates as an electric and natural gas utility company in the United States. It operates through Electric Utilities, Gas Utilities, Power Generation, and Mining segments.
The company hiked its quarterly distribution by 5.90% to 53.50 cents/share. This marked the 49th consecutive annual dividend increase for this dividend champion. Over the past decade, the company has managed to grow distributions at an annualized rate of 3.30%.
The company managed to grow earnings from $2.75/share in 2008 to $3.54/share in 2018. The company is expected to earn $3.46/share in 2019.
The stock is overvalued at 23 times forward earnings. It offers a dividend yield of 2.70%. I like the acceleration of dividend growth in recent history relative to the ten year average, but I find the valuation to be too rich at present levels.
DTE Energy (DTE) is a Detroit-based diversified energy company involved in the development and management of energy-related businesses and services nationwide.
The company raised its quarterly dividend by 7% to $1.0125/share. This event marked the 11th consecutive annual dividend increase for this dividend achiever. During the past decade, DTE has managed to boost distributions at an annualized rate of 5.20%.
Between 2008 and 2018, the company managed to boost earnings from $3.34/share to $6.17/share.
The company is expected to generate $6.25/share in 2019.
The stock is overvalued at 20.30 times forward earnings. DTE Energy yields 3.20%. While low interest rates have pushed valuations for utilities upwards, I would like to be able to acquire shares at a lower valuation.
Mercury General Corporation (MCY), engages in writing personal automobile insurance in the United States.
The company raised its quarterly dividend by 0.40% to 63 cents/share. This marked the 33rd consecutive annual dividend increase for this dividend champion. Over the past decade, the company has managed to boost distribution’s at an annualized rate of 0.80%.
Earnings per share have gone all over the place over the past decade, oscillating between a high of $7.32/share in 2019 to a low of -$4.42/share in 2008. The company is expected to generate $2.85/share in 2019.
Mercury General is trading at 17 times forward earnings, yields 5.20% and has a payout ratio of 88%. I am not interested in the company at this point, given the slow rate of dividend growth, high payout ratio and inconsistent earnings trend.
Relevant Articles:
- Twelve Dividend Growth Stocks In The News
- Dividend Momentum from Five Dividend Growth Stocks
- Four Dividend Paying Companies For Further Research
- How to value dividend stocks
- Four Dividend Growth Stocks Rewarding Shareholders With A Raise
I start by looking at dividend increases for the past week by US listed companies. I narrow the list down to the ones with a ten year track record of annual dividend increases. This exercise provides me with the list of companies for today’s article.
The next step in my process applies my entry criteria, in order to determine if a company is worth researching today or at some lower point. A few companies are good values today, while others may be a good idea for research if they come down in price. A third group of companies are not worth researching for me for one reason or another.
The type of review I do focuses on growth in dividends per share that is fueled by growth in earnings per share. I also review recent dividend increases and compare them to the ten year average. Recent dividend increases are a good barometer for management sentiment towards their short-term business environment. I also review valuation of course, in order to determine the point at which a company may be worth researching. I always try to do the work of researching a company, before investing. That way, I have a record of the reasons why I bought in the first place, which is helpful for my education as an investor.
The companies I that made the cut for today’s review include:
The Estée Lauder Companies Inc. (EL) is one of the world’s leading manufacturers and marketers of quality skin care, makeup, fragrance and hair care products.
The company raised its quarterly dividend by 12% to 48 cents/share. This marked the tenth consecutive annual dividend increase for this newly minted dividend achiever. Over the past decade, the company has managed to grow distributions at an annualized rate of 19%.
Between 2009 and 2019, Estee Lauder managed to grow earnings from 55 cents/share to $4.82/share. The company is expected to generate $5.89/share in 2020.
The stock is overvalued a 31.70 times forward earnings and offers a dividend yield of 1%. Estee Lauder may be a good idea on dips below $120/share.
Rockwell Automation, Inc. (ROK) provides industrial automation and information solutions worldwide. It operates in two segments, Architecture & Software; and Control Products & Solutions.
The company raised its quarterly dividend by 5% to $1.02/share. This marked the tenth consecutive annual dividend increase for this newly minted dividend achiever. Over the past decade, the company has managed to grow distributions at an annualized rate of 12.10%.
Between 2008 and 2018, the company managed to grow its earnings from $3.90/share to $4.21/share. It is expected to earn $8.59/share in 2019.
The stock is slightly overvalued at 20.70 times forward earnings. The stock yields 2.30. It may be worth a look on dips below $172/share.
UMB (UMBF) offers personal banking, commercial banking, healthcare services and institutional banking, which includes services to mutual funds and alternative-investment entities and registered investment advisors. UMB operates banking and wealth management centers throughout Missouri.
The company increased its quarterly dividend by 3.30% to 31 cents/share. This marked the 28th consecutive annual dividend increase for this dividend champion. Over the past decade, the company has managed to grow distributions at an annualized rate of 6.20%.
Between 2008 and 2018, UMB Financial has managed to increase earnings from $2.38/share to $3.93/share. UMB Financial is expected to generate $4.76/share in 2019.
The stock is fairly valued at 13.90 times forward earnings but offers a low dividend yield of 1.90%. This is a low yield for a bank. The slowing dividend growth is a concern.
Cintas Corporation (CTAS) provides corporate identity uniforms and related business services primarily in North America, Latin America, Europe, and Asia. It operates through Uniform Rental and Facility Services and First Aid and Safety Services segments.
The company increased its annual dividend by 24.40% to $2.55/share. This is the 36th consecutive year that the annual dividend has increased, which is every year since Cintas’ initial public offering in 1983. Over the past decade, this dividend champion has managed to boost distributions at an annualized rate of 16.10%.
Between 2009 and 2019, Cintas has managed to grow earnings from $1.48/share to $7.99/share.
Cintas is expected to generate $8.59/share in 2020.
The stock is overvalued at 31.30 times forward earnings. Cintas yields 0.95%. The stock may be worth a look on dips below $172/share, which may be possible if we get another decline like the one from December 2018.
Black Hills Corporation (BKH), operates as an electric and natural gas utility company in the United States. It operates through Electric Utilities, Gas Utilities, Power Generation, and Mining segments.
The company hiked its quarterly distribution by 5.90% to 53.50 cents/share. This marked the 49th consecutive annual dividend increase for this dividend champion. Over the past decade, the company has managed to grow distributions at an annualized rate of 3.30%.
The company managed to grow earnings from $2.75/share in 2008 to $3.54/share in 2018. The company is expected to earn $3.46/share in 2019.
The stock is overvalued at 23 times forward earnings. It offers a dividend yield of 2.70%. I like the acceleration of dividend growth in recent history relative to the ten year average, but I find the valuation to be too rich at present levels.
DTE Energy (DTE) is a Detroit-based diversified energy company involved in the development and management of energy-related businesses and services nationwide.
The company raised its quarterly dividend by 7% to $1.0125/share. This event marked the 11th consecutive annual dividend increase for this dividend achiever. During the past decade, DTE has managed to boost distributions at an annualized rate of 5.20%.
Between 2008 and 2018, the company managed to boost earnings from $3.34/share to $6.17/share.
The company is expected to generate $6.25/share in 2019.
The stock is overvalued at 20.30 times forward earnings. DTE Energy yields 3.20%. While low interest rates have pushed valuations for utilities upwards, I would like to be able to acquire shares at a lower valuation.
Mercury General Corporation (MCY), engages in writing personal automobile insurance in the United States.
The company raised its quarterly dividend by 0.40% to 63 cents/share. This marked the 33rd consecutive annual dividend increase for this dividend champion. Over the past decade, the company has managed to boost distribution’s at an annualized rate of 0.80%.
Earnings per share have gone all over the place over the past decade, oscillating between a high of $7.32/share in 2019 to a low of -$4.42/share in 2008. The company is expected to generate $2.85/share in 2019.
Mercury General is trading at 17 times forward earnings, yields 5.20% and has a payout ratio of 88%. I am not interested in the company at this point, given the slow rate of dividend growth, high payout ratio and inconsistent earnings trend.
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