Dividend Growth Investor

Clorox (CLX) Dividend Stock Analysis

noreply@blogger.com (D) — Fri, 18 May 2012 01:00:00 PDT

The Clorox Company (CLX) manufactures and markets consumer and institutional products worldwide. The company operates in four segments: Cleaning, Lifestyle, Household, and International. This dividend champion has paid uninterrupted dividends on its common stock since 1968 and increased payments to common shareholders every for 34 consecutive years.

The company’s last dividend increase was this week when the Board of Directors approved a 6.70% increase to 64 cents/share. Clorox ‘s largest competitors include Procter & Gamble (PG), Colgate Palmolive (CL) and Kimberly-Clark (KMB).

Over the past decade this dividend growth stock has delivered an annualized total return of 8% to its shareholders.

The company has managed to deliver 4.70% in annual EPS growth since 2002. Analysts expect Clorox to earn $4.08 per share in 2012 and $4.41 per share in 2013. In comparison Clorox earned $2.07/share in 2011. The low earnings in 2011 were caused by a $1.85/share one-time non- cash Goodwill Impairment charge related to Burt’s Bee’s business. The EPS growth comes out to 12.40% per year if the effects of this goodwill impairment are excluded.

The company has a strong brand name, which helps in having strong pricing power for its brand name products. As a result, it should be able to pass on commodity price increases to customers. Future earnings growth could be driven by innovation driven new product launches as well as international expansion. US accounts for 79% of revenues. In 2007 the company introduced its Centennial Strategy where the company is focused on achieving double-digit annual growth in economic profit. A key driver of the strategy is to accelerate sales by growing existing brands, including expanding into adjacent categories, entering new sales channels and increasing penetration within existing countries. The company also anticipates using its strong cash flow to pursue growth opportunities and increase shareholder returns. Basically the company will try to deliver further growth through an ongoing focus on consumer megatrends. In addition to that the company will be targeting a 2% sales growth through product innovation. The company projects sales growth of 3-5 percent, excluding acquisitions and expansion into new geographies through 2013. Last but not least Clorox will target margin expansion and maximizing cash flow through implementation a continued robust cost-saving program and maintaining price increases the company has taken.

The company has managed to maintain a consistently high return on assets except for 2002 and 2011. Rather than focus on absolute values for this indicator, I generally want to see at least a stable return on equity over time.

The annual dividend payment has increased by 11.30% per year over the past decade, which is lower than to the growth in EPS.

An 11% growth in distributions translates into the dividend payment doubling almost every six and a half years. If we look at historical data, going as far back as 1983 we see that Clorox has managed to double its dividend every seven years on average.

Over the past decade, the dividend payout ratio has remained below 50%, with the exception of 2002 and 2011. Excluding the goodwill impairment, the payout ratio for 2011 would have been 56%. A lower payout is always a plus, since it leaves room for consistent dividend growth minimizing the impact of short-term fluctuations in earnings.

Currently Clorox is attractively valued at 16.80 times earnings, has a sustainable dividend payout and yields 3.50%. I would consider adding to my position subject to availability of funds.

Full Disclosure: Long CLX, CL, KMB, PG

Relevant Articles:

- Procter & Gamble (PG)- A dividend stock to hold forever

- Kimberly-Clark Corporation (KMB) Dividend Stock Analysis

- 17 Cheap Dividend Aristocrats on Sale

- Top Dividend Stocks to own in 2012

Replacing appreciated investments with higher yielding stocks

noreply@blogger.com (D) — Wed, 16 May 2012 01:00:00 PDT

In my entry criteria, I look for great stocks with sustainable dividend payout, long histories of dividend growth and strong competitive advantages. I also have a minimum entry yield of 2.5%. There come times however, when the company I own keeps increasing its earnings and dividends, but the stock price rises faster than fundamentals. As a result, while my yield on cost is attractive, my current yield is less than my entry criteria.

For example, my yield on cost on W.W.Grainger (GWW) is 4%, whereas the current yield is 1.60%. My yield on cost on Family Dollar (FDO) is 3.40%, while the current yield is 1.20%. My yield on cost on Higham Institution for Savings (HIFS) is 3.60%, while the current yield is 2.20%.

The common characteristic behind these three positions is that each has delivered solid capital gains since my initial purchase.

Some investors question whether owning these stocks would make sense, given the low current yields that they are exhibiting. Replacing my positions in W.W.Grainger and Family Dollar with stocks which yield 3% currently would provide an almost doubling of my dividend income from each position.

This would be a mistake however, since nothing has fundamentally changed with these businesses. In addition, both companies have excellent growth prospects ahead of them, which will likely lead to further increases in earnings, dividends and stock prices over time. Stocks can deliver low current yields, even while the underlying business keeps growing. This will lead to a higher dividend income stream coupled with a solid potential for capital appreciation.

For example, current yields on certain quality stocks such as Procter & Gamble (PG) and Johnson & Johnson (JNJ) and Abbott (ABT) were low during the last few years of the 1990’s bull market. Investors who sold and purchased higher yielding shares would have most probably missed on the upside potential for both capital gains and dividend income. While adding to position which are overvalued might not be the best idea, holding onto these positions might be perfectly appropriate.

As a dividend investor, I expect to hold my holdings for as long as possible. This is until one of my exit rules kick in. I expect that at least several of my long term portfolio holdings will generate total returns of several hundred percent over the next decades. This will compensate for the ones that cut dividends or get bought out for example. By selling stocks simply because the current yield is low, I might risk reducing my long-term returns.

In addition, I am not a big fan of chasing yield. If I were actively replacing my income stocks with higher yielding ones, this would increase the risk to dividend income, as most higher yielding stocks have higher payout ratios. In addition, most of the higher yielding securities come from a concentrated number of sectors.

Full Disclosure: Long all stocks mentioned above

Relevant Articles:

- Margin of Safety in Dividends
- Build your own Berkshire with Dividend Paying Stocks
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- When can you retire on dividends?

Searching for Hidden Dividend Stars

noreply@blogger.com (D) — Mon, 14 May 2012 01:00:00 PDT

As a dividend growth investor, I try to maintain a disciplined approach to buying attractively valued companies. I do maintain a list with entry criterion, which I apply against a list of dividend growth stocks. I usually use the dividend champions and dividend achievers groups of stocks in my screening process. However, I try to get familiar with the story of as many companies as possible, which would help me pull the trigger once price goes into my buy territory. One process I follow in order to learn more about dividend stocks is by focusing on the weekly group of companies with consistent dividend histories which have recently announced increases in distributions. By reading the press releases indicating a dividend hike, I get to gauge the companies’ sentiment and learn more about their business.

One such company that attracted my interest is National Bankshares (NKSH), which seems to have solid fundamentals and would likely deliver good dividend growth in its semi-annual dividends for years to come. It’s a small bank that few income investors have heard of. In an environment where large banks have consistently delivered losses to shareholders, I consider small size to be a virtue of the 21st century American Bank.

The companies which announced increases in dividends over the past week include:

National Bankshares, Inc. (NKSH) operates as the bank holding company for the National Bank of Blacksburg, which provides a range of retail and commercial banking services to individuals, businesses, non-profits, and local governments in Virginia. The company raised its semi-annual dividend to 53 cents/share. This marked the 12th consecutive annual dividend increase for this dividend achiever. Yield: 3.60%

FactSet Research Systems Inc. (FDS) provides financial and economic information to investment community worldwide. The company raised its quarterly dividend by 14.80% to 31 cents/share. This marked the 14th consecutive annual dividend increase for this dividend achiever. Yield: 1.20%

Mine Safety Appliances Company (MSA) engages in the development, manufacture, and supply of products that protect people’s health and safety in the fire service, homeland security, oil and gas, construction, and other industries, as well as military worldwide. The company raised its quarterly dividend by 7.70% to 28 cents/share. This marked the 41st consecutive annual dividend increase for this dividend champion. Yield: 2.60%

NACCO Industries, Inc. (NC) engages in lift trucks, small appliances, specialty retail, and mining businesses worldwide. The company raised its quarterly dividend by 2.80% to 54.75 cents/share. This marked the 27th consecutive annual dividend increase for this dividend champion. Yield: 2 %

Costco Wholesale Corporation (COST) operates membership warehouses that offer a selection of branded and private label products in a range of merchandise categories in no-frills, self-service warehouse facilities. The company raised its quarterly dividend by 14.60% to 27.50 cents/share. This marked the 9th consecutive annual dividend increase for Costco. Yield: 1.30%

CSX Corporation (CSX), together with its subsidiaries, provides rail-based transportation services. The company raised its quarterly dividend by 16.70% to 14 cents/share. This marked the 8th consecutive annual dividend increase for CSX. Yield: 2.60%

G&K Services, Inc. (GKSR) provides branded uniform and facility services programs in the United States and Canada. The company raised its quarterly dividend by 50% to 19.50 cents/share. This marked the 8th consecutive annual dividend increase for G&K Services. Yield: 2.50%

NV Energy, Inc. (NVE), together with its subsidiaries, engages in the generation, transmission, distribution, and sale of electric energy in Nevada. The company raised its quarterly dividend by 30.80% to 17 cents/share. NV Energy has increased dividends since 2008. Yield: 4%

Franklin Electric Co., Inc. (FELE), together with its subsidiaries, engages in the design, manufacture, and distribution of groundwater and fuel pumping systems. It operates in two segments, Water Systems and Fueling Systems. The company raised its quarterly dividend by 7.40% to 14.50 cents/share. This marked the 20th consecutive annual dividend increase for this dividend achiever. Yield: 1.20%

Full disclosure: None

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- My Entry Criteria for Dividend Stocks
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T. Rowe Price Group (TROW) Dividend Stock Analysis

noreply@blogger.com (D) — Fri, 11 May 2012 01:00:00 PDT

T. Rowe Price Group, Inc. (TROW) is a publicly owned asset management holding company. The firm primarily provides its services to individual and institutional investors, retirement plans, and financial intermediaries. This dividend champion has paid uninterrupted dividends on its common stock since 1986 and increased payments to common shareholders every for 25consecutive years.

The company’s last dividend increase was in February 2012 when the Board of Directors approved a 9.70% increase to 34 cents/share. T. Rowe Price ‘s largest competitors include Blackrock (BLK), Franklin Resources (BEN) and Eaton Vance (EV).

Over the past decade this dividend growth stock has delivered an annualized total return of 14.70% to its shareholders.

The company has managed to deliver 16.10% in annual EPS growth since 2002. Analysts expect T. Rowe Price to earn $3.19 per share in 2012 and $3.64 per share in 2013. In comparison T. Rowe Price earned $2.92/share in 2011.

In a previous article I mentioned that I am bullish on asset management stocks, which are riding the long-term trends in retirement planning, which many Baby Boomers increasingly need. Long term growth in earnings is dependent on several factors including attracting new assets under management, maintaining management fees on assets under management and the overall performance of financial markets. When the stock market increases in value, assets under management generally tend to increase as well. This brings in more revenues to companies like T.Rowe Price. Mutual Funds that also perform at least as well as the average, would likely keep investors holding on to their fund shares. The costs of running a mutual fund do not increase proportionately with the amount of money under management. As a result higher amounts of assets under management provides the investment adviser with a sufficient scale that would allow them to charge lower management fees than peers, which could potentially entice investors to switch over, without hurting profitability.

T.Rowe Price is strategically positioned to make money from the wave of Baby Boomers that will be retiring between 2008 and 2024. Given the widespread appeal of such plans as the 401 (K) or IRA’s, I expect a larger portion of the population in the US to keep saving for retirement. As a result, companies like T.Rowe Price could only benefit from that trend as well. Two thirds of the company’s assets under management are in retirement accounts, which generally tend to have a lower turnover rate. A potential growth market includes Target-Date Retirement funds, which investors are finding increasingly easy to invest in. Another source for future growth could include international expansion of the company.

The company has managed to maintain a high return on equity in the high teens to low twenties. Rather than focus on absolute values for this indicator, I generally want to see at least a stable return on equity over time.

The annual dividend payment has increased by 15.80% per year over the past decade, which is higher than to the growth in EPS.

An 15.80% growth in distributions translates into the dividend payment doubling almost every four and a half years. If we look at historical data, going as far back as 1990 we see that T. Rowe Price has managed to double its dividend every four and a half years on average.

The dividend payout ratio has remained below 45% , with the exception of 2008 - 2009. A lower payout is always a plus, since it leaves room for consistent dividend growth minimizing the impact of short-term fluctuations in earnings.

Currently T. Rowe Price is overvalued at 20.49 times earnings, has a sustainable dividend payout and yields 2.20%. I would consider initiating position in the stock on dips below $55.

Full Disclosure: Long EV

Relevant Articles:

- Seventeen Consistent Dividend Raisers in the News

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- Dividend Macro trends: The Baby Boomer Retirement Investment

- When can you retire on dividends?

Variability in Dividend Growth Rates

noreply@blogger.com (D) — Wed, 09 May 2012 01:00:00 PDT

One of the reasons why investors are attracted to dividend paying stocks is the consistency in the amount and timing of dividend payments. Unless companies are operating in a challenging economic environment, a portfolio of well chosen blue chip dividend stocks should be able to provide a stable dividend stream of cash in investors’ brokerage accounts, which should also grow over time. Unfortunately, the rate of growth in distributions can vary significantly depending on a variety of factors, including corporate policy and overall state of the economy to name a few.

Companies do not increase dividends at the same rate every year. This is true, even for corporations which have managed to build long records of consecutive distributions increases. Each year, Boards of Directors convene in order to determine the near-term outlook for the business, as well as long-term strategic plans such as capital expenditures, acquisitions, divestitures and strategy. Nobody has a better gauge of the pulse of the business than management. As a result, after all is set and done, the board allocates a certain portion to dividends. Depending on various factors, the distribution could grow at differing rates or it could even be decreased or completely eliminated.

This is particularly true when looking at the historical dividend growth of such otherwise outstanding dividend aristocrats like PepsiCo (PEP), Emerson Electric (EMR), McDonald’s (MCD) and 3M (MMM).

Over the past decade, PepsiCo (PEP) has managed to boost annual distributions by 13.30% per year. The rate at which annual dividends increased ranged from a low of 3.50% in 2002 to a high of 20.54% in 2007. Between 1998 and 2002, PepsiCo’s distributions increased by 4% per year, followed by a 5.10% increase in 2003, before resuming their increase at double digit rates of growth. The company has boosted payouts for 41 years in a row and currently yields 3.10%. (analysis)

Over the past decade, McDonald’s (MCD) has managed to raise dividends by 27.40% per year. The rate at which annual distributions were raised ranged from a low of 4.40% in 2002 to a high of 70.20% in 2003. Between 2000 and 2002, McDonald’s distributions increased by less than 5% per year. The 70% distribution hike in 2003 started a trend of strong dividend growth. The company has boosted payouts for 35 years in a row and currently yields 2.90%.(analysis)

3M (MMM) has a ten year average dividend growth rate of 6.20% per year. The company’s dividend growth has oscillated between a low of 2% in 2009 to a high of 16.70% in 2005. The company is one of a dozen or so corporations in the world which have managed to boost dividends for over half a century. The slow distributions growth has lead to a decrease in dividend payout ratio, which increases the odds that higher dividend growth will be in place within a few years.The company has boosted payouts for 54 years in a row and currently yields 2.70%.(analysis)

Just like 3M (MMM), Emerson Electric (EMR) has managed to boost distributions for over half a century. Over the past decade, the company has managed to boost distributions by 6.40%/year. The company raised distributions by 1.40% in 2002 and 2003, which was followed by faster dividend growth through 2009. After that the company managed to boost annual distributions at a rather anemic 2%. The reason for decline in distribution growth was mostly due to weakness from its business segments, due to the tough economic position of the world economy. The company has boosted payouts for 55 years in a row and currently yields 3.30%.(analysis)

In general, there is variability between dividend growth rates in different years. Good years are followed by slow years and vice versa. At the end of the day however, future dividend growth will depend on the long-term success of the company. By properly executing its strategy, a company should be able to generate a sufficient amount of profits in order to grow and paying a higher dividend to its loyal shareholders.

Full Disclosure: Long EMR, MCD, PEP, MMM

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- Eleven Dividend Kings, Raising dividends for 50+ years
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Eighteen companies sending more cash to their shareholders

noreply@blogger.com (D) — Mon, 07 May 2012 01:00:00 PDT

There were eighteen consistent dividend growth stocks, which announced plans to boost distributions for their shareholders over the past week. Besides my screening process, my compilation of weekly dividend increases helps me stay up to date on any dividend and business developments for companies I own or for companies I might be interested in purchasing down the road. In this article, I focused only on companies which have been able to boost dividends for at least five years in a row. In the past, this process has helped me identify opportunities which I would have otherwise missed. It has also been instrumental in my accumulation of knowledge about companies, business and dividends in general.

The eighteen consistent dividend growers in the news include:

PepsiCo, Inc. (PEP) engages in the manufacture and sale of snacks, carbonated and non-carbonated beverages, dairy products, and other foods worldwide. The company raised its quarterly dividend by 4.40% to 53.75 cents/share. This marked the 41st consecutive annual dividend increase for this dividend aristocrat. Unfortunately, this marks the lowest dividend growth for PepsiCo since 2002. Yield: 3.20% (analysis)

Cardinal Health, Inc. (CAH) operates as a healthcare services company that provides pharmaceutical and medical products and services. The company raised its quarterly dividend by 10.50% to 23.75 cents/share. This marked the 23rd consecutive annual dividend increase for this dividend achiever. Yield: 2.20%

Airgas, Inc., (ARG) through its subsidiaries, engages in the distribution of industrial, medical, and specialty gases in the United States. The company raised its quarterly dividend by 25% to 40 cents/share. This marked the tenth consecutive annual dividend increase for this dividend achiever. Yield: 1.70%

Chesapeake Utilities Corporation (CPK), through its subsidiaries, operates as a diversified utility company that primarily engages in regulated energy and unregulated energy businesses. The company raised its quarterly dividend by 5.80% to 36.50 cents/share. This marked the ninth consecutive annual dividend increase for this stock. Yield: 3.50%

Weyco Group, Inc. (WEYS) engages in the distribution of men’s foot wear primarily in the United States, Canada, Europe, Australia, Asia, and South Africa. The company raised its semi-annual dividend by 6.25% to 17 cents/share. This dividend champion has raised distributions for 32 years in a row. Yield: 3%

Expeditors International of Washington, Inc. (EXPD) provides logistics services in the United States and internationally. The company raised its semi-annual dividend by 12% to 28 cents/share. This dividend achiever has raised distributions for 18 years in a row. Yield: 1.40%

Reynolds American Inc (RAI), through its subsidiaries, manufactures and sells cigarette and other tobacco products in the United States. The company raised its dividend for the second time in 12 months, to 59 cents/share. Reynolds American has managed to boost distributions for 8 consecutive years. Yield: 5.85%

Boardwalk Pipeline Partners, LP (BWP), through its subsidiaries, engages in the ownership and operation of integrated natural gas pipelines and storage systems in the United States. This master limited partnership raised its quarterly distributions to 53.25 cents/unit. Boardwalk Pipeline Partners has boosted distributions for six years in a row. Yield: 7.70%

DCP Midstream Partners, LP (DPM), together with its subsidiaries, engages in gathering, compressing, treating, processing, transporting, storing, and selling natural gas in the United States. This master limited partnership raised its quarterly distributions to 66 cents/unit. DCP Midstream Partners has boosted distributions for six years in a row. Yield: 5.80%

Alliance Resource Partners, L.P. (ARLP) engages in the production and marketing of coal primarily to utilities and industrial users in the United States. This master limited partnership raised its quarterly distributions to $1.025/unit. This dividend achiever has boosted distributions for ten years in a row. Yield: 6.45%

Alliance Holdings GP, L.P. (AHGP), is the general partner of Alliance Resource Partners (ARLP). This master limited partnership boosted quarterly distributions to 66.75 cents/unit. Alliance Holdings GP has been consistently rewarding its partners with distribution hikes since 2006. Yield: 6%

RLI Corp. (RLI), through its subsidiaries, underwrites property and casualty insurance primarily in the United States. The company raised its quarterly dividend by 6.70% to 32 cents/share. This marked the 37th consecutive annual dividend increase for this dividend champion. Yield: 1.90%

AGL Resources Inc. (GAS), an energy services holding company, distributes natural gas in Illinois, Georgia, Virginia, New Jersey, Florida, Tennessee, and Maryland. The company raised its quarterly dividend by 2.20% to 46 cents/share. This marked the 11th consecutive annual dividend increase for this dividend achiever. Yield: 1.90%

Microchip Technology Incorporated (MCHP) engages in the design, development, manufacture, and market of semiconductor products for embedded control applications. The company raised its quarterly dividend to 35 cents/share. Microchip Technology has managed to boost distributions for 11 years in a row. Yield: 4%

Northeast Utilities (NU), a public utility holding company, provides electric and natural gas energy delivery services to residential, commercial, and industrial customers in Connecticut, New Hampshire, and western Massachusetts. The company raised its quarterly dividend by 16.80% to 34.30 cents/share. Northeast Utilities has managed to boost distributions for 12 years in a row. Yield: 3.80%

VSE Corporation (VSEC) focuses on providing sustainment services for the legacy systems and equipment of the U.S. Department of Defense (DoD); and professional services to the DoD and federal civilian agencies in the United States. The company raised its quarterly dividend by 14.30% to 8 cents/share. VSE Corporation has managed to boost distributions for 8 years in a row. Yield: 1.30%

AmTrust Financial Services, Inc. (AFSI), through its subsidiaries, underwrites and provides property and casualty insurance in the United States and internationally. The company raised its quarterly dividend by 11.10% to 10 cents/share. AmTrust Financial Services has managed to boost distributions for 6 years in a row. Yield: 1.40%

Regal Beloit Corporation (RBC), together with its subsidiaries, manufactures and sells electric motors and controls, electric generators and controls, and mechanical motion control products in the United States, Asia, and internationally. The company raised its quarterly dividend by 5.60% to 19 cents/share. Regal Beloit Corporation has managed to boost distributions for 9 years in a row. Yield: 1.10%

Full Disclosure:

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Four dividend paying companies with long term growth plans

noreply@blogger.com (D) — Fri, 04 May 2012 01:00:00 PDT

Dividend growth investing is an investing strategy, where investors buy stock in companies which consistently raise distributions. This leads to higher dividend payouts overtime, and also leads to capital gains, as the market adjusts stock prices to reflect the higher income generated by the stock. Dividend growth does not just miraculously appear out of a thin air however. In order to get dividend hikes every year, the company has to generate earnings growth over time.

For example, back in 2001, Chevron Corporation (CVX) earned $1.85/share, paid a dividend of $1.325/share and traded at $44.81/share. Ten years later, in 2011 the company is earning $13.44/share, the dividend is $3.09/share. The stock is trading around very comfortable $100/share. The company is expected to distribute at least $3.24/share in 2012. Investors who purchased the stock a decade ago are sitting at handsome capital gains, and are earning 7.20% yield on cost.

In order to generate high returns from dividends and capital gains, investors need to focus on companies which will be able to earn higher amounts in the future. Corporations that have designated roadmaps to generate higher earnings per share, increase investors odds of receiving higher distributions and enjoying capital gains in the process. Below, you could find a list of four companies which have outlined their corporate strategies of achieving high earnings per share for the next several years:

The Coca-Cola Company (KO), a beverage company, engages in the manufacture, marketing, and sale of nonalcoholic beverages worldwide. This dividend king has raised distributions for 50 years in a row.
Coca-Cola's 2020 Vision Strategy strives for a high single digit annual EPS growth throughout this decade, driven through 5%-6% annual increases in revenues as the company expects 3%-4% yearly increase in sales volumes. The company is focusing more of its attention to still beverages like waters and juices, which stand the chance of delivering strong growth over time. In addition, growth could come from emerging markets such as China and India, where the average number of servings per capita is much lower than that of the US. The company is pursuing differing strategies to capture the imaginations (and dollars) of consumers in emerging, developing and developed markets. While the company might be focusing on growth through innovation and productivity initiatives in the developed markets, it might generate growth in emerging markets by heavy investing and maximizing volumes. In addition, the company is playing on strong long-term demographic trends of continued rise in the global population, increased urbanization as well as the expected rise of the middle class worldwide. Yield: 2.70% (analysis)

The Clorox Company (CLX) manufactures and markets consumer and institutional products worldwide. The company operates in four segments: Cleaning, Lifestyle, Household, and International. This dividend champion has consistently raised distributions for 34 years in a row.
In 2007 the company introduced its Centennial Strategy where the company is focused on achieving double-digit annual growth in economic profit. A key driver of the strategy is to accelerate sales by growing existing brands, including expanding into adjacent categories, entering new sales channels and increasing penetration within existing countries. The company also anticipates using its strong cash flow to pursue growth opportunities and increase shareholder returns. For an update on the results from the strategy, check this press release.
Basically the company will try to deliver further growth through an ongoing focus on consumer megatrends. In addition to that the company will be targeting a 2% sales growth through product innovation. The company projects sales growth of 3-5 percent, excluding acquisitions and expansion into new geographies through 2013. Last but not least Clorox will target margin expansion and maximizing cash flow through implementation a continued robust cost-saving program and maintaining price increases the company has taken. Yield: 3.40% (analysis)

Kimberly-Clark Corporation (KMB), together with its subsidiaries, engages in manufacturing and marketing health care products worldwide. The company operates in four segments: Personal Care, Consumer Tissue, K-C Professional and Other, and Health Care. This dividend aristocrat has consistently raised dividends for 40 years in a row. As with other consumer products companies, the growth is likely to come from developing and emerging markets, rather than developed markets. Developed markets could benefit from cost cutting and efficiency profits, which would decrease the total price of doing business. Under the company’s global business plan, announced in 2003, it is looking for annual sales growth in the 3%-5% range, EPS growth in the mid to high single digits and dividend increases in line with earnings growth. For more on the global business plan, check this document. Yield: 3.80% (analysis)

International Business Machines Corporation (IBM) provides information technology (IT) products and services worldwide. The company operates in five segments: Global Technology Services, Global Business Services, Software, Systems and Technology, and Global Financing. This dividend achiever has rasied distributions for 17 years in a row.
IBM has publicly announced its goal to hit $20 in earnings per share by 2015. The company is one of the most consistent repurchasers of stock, having reduced the total shares outstanding by 50% since 1995. The company expects that one third of the gains would come from revenue growth driven by organic growth and acquisitions. The company is relying on growth markets, its business analytics segment, its smarter planet initiative as well as its cloud and next generation data center businesses to deliver revenue growth. Almost one third of the growth would come from share buybacks as well. The remainder would come from increased productivity in its core segments, as well as continuing its focus on offering high value to its customers. Yield: 1.70% (analysis)

Full Disclosure: Long CLX, KMB, KO, CVX

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- Three Companies expecting high dividend growth and returns
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Build your own Berkshire with dividend paying stocks

noreply@blogger.com (D) — Wed, 02 May 2012 01:00:00 PDT

I recently read the book “The Snowball” by Alice Schroeder. I have been a great follower of anything on Buffett for years, and this book definitely provided additional insight in the way the world’s richest investor thinking process.

I have long advocated the idea that Buffett is a closet dividend growth investor. After all, the perfect companies that he typically tries to invests in share the following characteristics:

1) Strong Competitive Advantages, Wide Moats, Strong Brand Names

2) A loyal customer group, willing to pay up for the product/service

3) High Returns on equity

4) Generating excess cashflow

5) Minimal capital requirements

One such perfect business that Buffett was able to purchase in 1972 was See’s Candy. The company was purchased for $25 million, when sales were $30 million, operating profits $5 million and the capital required to operate the business was $8 million. The company was selling 16 million pounds of chocolate in 1972.

Fast forward 35 years, and See's Candy was selling 31 million pounds of chocolate in 2007. This represented a 2% annual growth in sales. Sales were $383 million, while pre-tax profits were $82 million. While the required capital to run the business had increased to $40 million, the business had been able to generate $1.35 billion in pre-tax earnings. In essence, almost $1.30 billion in pre-tax profits were the excess cash flow, which were distributed to Berkshire for Warren to manage.

In fact, this strategy of purchasing businesses which generate cash flows in excess of the business reinvestment requirements, are actively sought after by Buffett. One needs to look no further than the stock portfolio which the Oracle of Omaha manages. Some of the largest holdings include strong dividend stocks such as Coca-Cola (KO), Johnson & Johnson (JNJ), Procter & Gamble (PG) and Wal-Mart (WMT) to name a few. All of these cash machines have been able to generate sufficient earnings to raise distributions to shareholders for several decades in a row. This cash is then used by Buffett to purchase more stocks or more businesses.

In essence, this strategy is similar to what dividend growth investors like to do. By creating a diversified portfolio of world class blue chip dividend paying stocks, investors are essentially creating a cash machine that would throw off enough cash to buy more shares in quality companies or to provide for in retirement.

The building blocks of a successful dividend machine could include companies like:

Johnson & Johnson (JNJ) engages in the research, development, manufacture, and sale of various products in the health care field worldwide. This dividend aristocrat has managed to raise dividends for 50 years in a row. Yield: 3.80% (analysis)

The Procter & Gamble Company (PG) provides consumer packaged goods in the United States and internationally.This dividend king has raised distributions for 56 years in a row. Yield: 3.40% (analysis)

McDonalds Corporation (MCD), together with its subsidiaries, franchises and operates McDonalds restaurants primarily in the United States, Europe, the Asia Pacific, the Middle East, and Africa. This dividend aristocrat has raised distributions for 35 years in a row. Yield: 2.90% (analysis)

Wal-Mart Stores, Inc. (WMT) operates retail stores in various formats worldwide. This dividend aristocrat, has rewarded shareholders with a dividend hike for 38 years in a row. Yield: 2.70% (analysis)

Chevron Corporation (CVX), through its subsidiaries, engages in petroleum, chemicals, mining, power generation, and energy operations worldwide. This dividend achiever has hiked distributions for 25 years in a row. Yield: 3.40% (analysis)

PepsiCo, Inc. (PEP) engages in the manufacture and sale of snacks, carbonated and non-carbonated beverages, dairy products, and other foods worldwide. This dividend aristocrat has raised distributions for 40 years in a row, and currently has a better valuation than arch rival Coca-Cola (KO). Yield: 3.10%(analysis)

For more lists of quality dividend stocks, which should be core holdings a in dividend portfolio, check this list.

Full Disclosure: Long JNJ, PG, MCD, WMT, CVX, KO, PEP

Relevant Articles:

- Warren Buffett – A Closet Dividend Investor
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- Dividend Investing Misconceptions

25 Companies raising distribution in 2012’s busiest week for dividend increases

noreply@blogger.com (D) — Mon, 30 Apr 2012 01:00:00 PDT

The past week was the busiest week for dividends increases that I have noticed in my four and a half years as a dividend blogger. There were 66 companies which raised distributions. Apparently, no one bothered to inform these Board of Directors committees about the potential for steep increases in taxes on dividend income. I chose to highlight 25 of these companies that have been able to successfully raise dividends for over 5 years in a row. Corporations’ dividend policies are typically forward looking. Companies that announce dividend increases do so, only after a careful consideration of future economic and business factors, in order to make certain that it will be able to afford the increased payout. This vote of confidence shows that few corporate boardrooms consider the risk of increases in tax rates to be a big issue. This is also a vote of confidence in the business prospects for the next few years.

The companies which announced dividend increases over the past week included:

Johnson & Johnson (JNJ) engages in the research, development, manufacture, and sale of various products in the health care field worldwide. The company raised its quarterly dividend by 7% to 61 cents/share. This confirmed my prediction from early January, that the company will boost distributions to 61 cents/share. This marked the 50th consecutive annual dividend increase for this dividend king. Yield: 3.80% (analysis)

Chevron Corporation (CVX), through its subsidiaries, engages in petroleum, chemicals, mining, power generation, and energy operations worldwide. It operates in two segments, Upstream and Downstream. The company raised its quarterly dividend by 11.10% to 90 cents/share. This marked the 25th consecutive annual dividend increase for this dividend champion. Yield: 3.40% (analysis)

Exxon Mobil Corporation (XOM) engages in the exploration and production of crude oil and natural gas, and manufacture of petroleum products, as well as transportation and sale of crude oil, natural gas, and petroleum products. The company raised its quarterly dividend by 21.30% to 57 cents/share. This marked the 30th consecutive annual dividend increase for this dividend aristocrat. Yield: 2.65% (analysis)

International Business Machines Corporation (IBM) provides information technology (IT) products and services worldwide. The company raised its quarterly dividend by 13.30% to 85 cents/share. This marked the 17th consecutive annual dividend increase for this dividend achiever Yield: 1.70% (analysis)

W.W. Grainger, Inc. (GWW) engages in the distribution of maintenance, repair, and operating supplies, as well as other related products and services for businesses and institutions primarily in the United States and Canada. The company raised its quarterly dividend by 21.20% to 80 cents/share. This marked the 41 consecutive annual dividend increase for this dividend aristocrat. Yield: 1.50% (analysis)

Parker Hannifin Corporation (PH) manufactures fluid power systems, electromechanical controls, and related components worldwide. The company raised its quarterly dividend by 5.10% to 41 cents/share. This was the second dividend increase in a year. This dividend king has raised dividends for 55 years in a row. Yield: 1.90%

Sunoco Logistics Partners L.P. (SXL) engages in the transport, terminalling, and storage of crude oil and refined products in the United States. The partnership raised its quarterly distributions to 42.75 cents/unit. This dividend achiever has raised distributions for 10 years in a row. Yield: 4.40%

AmeriGas Partners, L.P.(APU), through its subsidiary, AmeriGas Propane, L.P., operates as a retail and wholesale distributor of propane gas in the United States. The partnership raised its quarterly distributions to 80 cents/unit. This dividend achiever has raised distributions for 8 years in a row. Yield: 8.10%

Williams Partners L.P. (WPZ) focuses on natural gas transportation, gathering, treating and processing, storage, natural gas liquid fractionation, and oil transportation activities in the United States. The partnership raised its quarterly distributions to 77.75 cents/unit. Williams Partners has raised distributions for 8 years in a row. Yield: 5.50%

El Paso Pipeline Partners, L.P. (EPB) engages in the interstate storage and transportation of natural gas in the United States. The partnership raised its quarterly distributions to 89.50 cents/unit. El Paso Pipeline Partners has raised distributions for 5 years in a row. Yield: 5.90%

Magellan Midstream Partners, L.P. (MMP) engages in the transportation, storage, and distribution of petroleum products in the United States. The partnership raised its quarterly distributions to 84 cents/unit. This dividend achiever has raised distributions for 12 years in a row. Yield: 4.75%

Holly Energy Partners, L.P. (HEP) operates a system of petroleum product and crude pipelines, storage tanks, distribution terminals, and loading rack facilities. The partnership raised its quarterly distributions to 89.50 cents/unit. Holly Energy Partners has raised distributions for 8 years in a row. Yield: 5.90%

Vanguard Natural Resources, LLC (VNR), through its subsidiaries, engages in the acquisition and development of oil and natural gas properties in the United States. The partnership raised its quarterly distributions to 59.25 cents/unit. Vanguard Natural Resources has raised distributions for 8 years in a row. Yield: 8.30%

EV Energy Partners, L.P. (EVEP) engages in the acquisition, development, and production of oil and natural gas properties in the United States. The partnership raised its quarterly distributions to76.40 cents/unit. EV Energy Partners has raised distributions for 6 years in a row. Yield: 4.80%

Exterran Partners, L.P. (EXLP) provides natural gas contract operations services to customers in the United States. The partnership raised its quarterly distributions to 49.75 cents/unit. Exterran Partners has raised distributions for 6 years in a row. Yield: 9.10%

Artesian Resources Corporation (ARTNA), through its subsidiaries, provides water, wastewater, and engineering services on the Delmarva Peninsula. The company raised its quarterly dividend to 19.78 cents/share. This dividend achiever has raised distributions for 14 years in a row. Yield: 4.10%

Cullen/Frost Bankers, Inc. (CFR) operates as the holding company for The Frost National Bank that offers commercial and consumer banking, and other financial products and services primarily in Texas. The company raised its quarterly dividend by 4.30% to 48 cents/share. This marked the 19th consecutive annual dividend increase for this dividend achiever. Yield: 3.25%

UGI Corporation (UGI), through its subsidiaries, distributes and markets energy products and related services in the United States and internationally. The company raised its quarterly dividend by 3.80% to 27 cents/share. This marked the 25th consecutive annual dividend increase for this dividend champion. Yield: 4%

Bar Harbor Bankshares (BHB) operates as the holding company for Bar Harbor Bank & Trust that provides various banking products and services to individuals, businesses, not-for-profit organizations, and municipalities primarily in Hancock, Washington, and Knox counties. The company raised its quarterly dividend to 29 cents/share. Bar Harbor Bankshares has boosted distributions for 9 consecutive years. Yield: 3.10%

Cracker Barrel Old Country Store, Inc. (CBRL), through its subsidiaries, engages in the development and operation of the Cracker Barrel Old Country Store restaurant and retail concept in the United States. The company raised its quarterly dividend by 60% to 40 cents/share. This marked the tenth consecutive annual dividend increase for Cracker Barrel. Yield: 2.80%

BOK Financial Corporation (BOKF), a financial holding company, offers a range of financial products and services to commercial and industrial customers, and other financial institutions and consumers. The company raised its quarterly dividend by 15.20% to 38 cents/share. This was the second dividend increase in a year. BOK Financial Corporation has raised dividends for 7 years in a row. Yield: 2.80%

Ameriprise Financial Inc. (AMP), through its subsidiaries, provides a range of financial products and services in the United States and internationally. The company raised its quarterly dividend by 25% to 35 cents/share. This marked the ninth consecutive annual dividend increase for Ameriprise Financial. Yield: 2.70%

Sensient Technologies Corporation (SXT) and its subsidiaries engage in the manufacture and sale of colors, flavors, and fragrances worldwide. The company raised its quarterly dividend by 4.80% to 22 cents/share. This marked the seventh consecutive annual dividend increase for Sensient Technologies. Yield: 2.30%

The Gorman-Rupp Company (GRC) designs, manufactures, and sells pumps and related fluid control equipment and systems worldwide. The company raised its quarterly dividend by 11.10% to 10 cents/share. This marked the 40th consecutive annual dividend increase for this dividend champion. Yield: 1.35%

Valmont Industries, Inc. (VMI) produces and sells fabricated metal products, pole and tower structures, and mechanized irrigation systems in the United States and internationally. The company raised its quarterly dividend by 25% to 22.50 cents/share. This marked the 12th consecutive annual dividend increase for this dividend achiever. Yield: 0.70%

Full Disclosure: Long JNJ,CVX, XOM, GWW

Relevant Articles:

- Dividend Aristocrats List for 2012
- Should income investors worry about higher dividend taxes?
- Margin of Safety in Dividends
- Eleven Dividend Kings, Raising dividends for 50+ years

Enterprise Products Partners (EPD): A Pipeline Cash Machine

noreply@blogger.com (D) — Fri, 27 Apr 2012 01:00:00 PDT

Enterprise Products Partners L.P (EPD). provides midstream energy services to producers and consumers of natural gas, natural gas liquids (NGLs), crude oil, refined products, and petrochemicals in the United States, Canada, and Gulf of Mexico. Enterprise Products Partners is the largest pipeline master limited partnership in the US. This dividend achiever has managed to boost distributions to unitholders for 15 years in a row.

The largest competitors include Kinder Morgan Partners (KMP), Enbridge Energy Partners (EEP) and ONEOK Partners (OKE).

Since it went public in 1998, the partnership has had the following objectives in mind:

1) Invest in growth opportunities to build or acquire energy infrastructure that will generate returns on investment grate than longterm cash cost of capital
2) Provide partners with periodic increases in cash distributions and an attractive total return on investment
3) Preserve financial flexibility and maintain an investment grade balance

Few companies have specifically set the goal to increase distributions to their owners. The partnership has done a great job in accomplishing these goals.

The MLP has managed to grow organically, as well as through strategic acquisitions. In 2009, it acquired Teppco Partners, which provided geographic and business diversity to its operations. In 2011, Enterprise Products also completed the acquisition of Duncan Energy Partners. The 2010 merger with Enterprise GP Holdings, essentially eliminated incentive distribution rights, which typically cap distribution growth in mature MLPs. It has managed to balance distributions growth with the retention of distributable cash flows. As a result of the elimination of incentive distribution rights in 2010, the partnership’s cost of capital has been substantially decreased. This is good news for unitholders, because it means that there will be less of a need for raising capital exclusively through stock unit issuance.

Besides through acquisitions, Enterprise Products Partners is going to grow its portfolio of fee generating assets through its massive capital expansion program. The partnership expects to invest $6.50 billion in capital projects between 2012 and 2014, half of which will be related to Eagle Ford shale projects. These projects include over 300 miles of natural gas pipelines, a 600 million cubic feet per day cryogenic natural gas processing plant, 127 miles of NGL pipelines and 140 miles of crude oil pipelines. In the fourth quarter of 2011, the partnership completed the $1.50 billion dollar Haynesville Extension of its Acadian natural gas pipeline system. This 270-mile natural gas pipeline will have the capacity to transport up to 1.8 Bcfd of production from the Haynesville/Bossier Shale to industrial and utility markets in South Louisiana and, through connections with other pipelines, to markets in the northeastern and southeastern United States.

The ten year annual distribution growth has been 7.60%/year. At this rate, distributions would double every decade. The partnership is not a taxable entity, which means that income, gains, losses and any deductions or credits flow through on the individual unitholders’ tax returns. In addition, a large portion of MLP distributions are tax deferred. For example, I held EPD units for about 7 months in 2011, and almost all of my distribution income was tax deferred. It decreased my basis in the partnership, which means that when I sell, I will have to pay higher taxes. In addition, once my basis falls to zero, all the business income would be taxable as an ordinary income. Capital gains or losses will be treated as capital income, not ordinary. Investors in Master Limited Partnerships typically receive a Schedule K-1 ( Form 1065), instead of a 1099-DIV. Although this has scared most new investors in MLP, most tax software and even enterprising do it your self investors can handle MLP taxes easily.

Since the partnership distributes a large portion of its cash flows to unitholders, dividend payout ratio is not a good metric for evaluating distribution sustainability. Instead, the Distributable Cash Flow (DCF) is a metric that is commonly used when evaluating distributions. Essentially DCF is calculated by adding certain non-cash items such as depreciation to net income, in addition to a few cash related items. The partnership has one of the best distribution coverages in comparison to other MLPs. In 2011 it had a distributable cash flow of $3.737 billion, and distributed $2.027 billion. Granted, this DCF included $1 billion in cash proceeds from sales of assets, but it still shows how the company more than comfortably can afford to pay and even increase its distributions to unitholders.

I have accumulated the majority of my position in the partnership in the low to mid $40’s/unit. At the current distribution rate, a 5% entry yield corresponds to a price of $50.20/unit, while a 6% entry yield translates into an entry price of $41.83/unit. I would be more inclined to add to my position on dips below $42 - $44/unit.

Full disclosure: Long EPD, OKS, EEQ, KMR

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Should income investors worry about higher dividend taxes?

noreply@blogger.com (D) — Wed, 25 Apr 2012 01:00:00 PDT

I have structured my portfolio in a way, that I receive regular dividend payments every month, quarter or year. My secondary objective is to generate at least market average total returns. As an investor, my goal is to generate solid total returns. I achieve this by selecting companies, which will grow earnings, thus afford to pay higher dividends over time and hopefully will be able to sell at higher market prices in the meantime. I do not worry much about what the tax rates will be in 2013, or over the next four decades. I only worry about selecting great companies.

This might sound like heresy for many investors, who are anxiously hearing about the expiration of the current preferential treatment of dividends in 2012. This could mean that dividends will be taxed as ordinary income, the same way that bonds are taxed today. This could bring a potential 43.60% tax rate on the highest income brackets, if taxes are increased as well.

First, few people are actually making a lot with dividends. Research I have uncovered shows that the average investor in their 60’s does not make more than a few thousand dollars in annual dividend income. For a retired individual, even if dividends are taxed as ordinary income, they would likely not end up paying that much more in taxes. Of course, if you are a highly compensated lawyer or a company executive officer, chances are that you will be paying that high tax rate. Although no one likes paying taxes, there are few options that investors can choose.

One such option is to put all your money in tax-deferred accounts like IRA’s or ROTH IRA’s. Most investors typically have a large portion of their net worth tied up in IRA’s or 401 (k) plans. Unfortunately, 401 (k) plans do not offer investors much flexibility in investment options beyond the traditional mutual funds. Utilizing Roth IRA’s would essentially shield investors from paying any taxes during their accumulation period, as well as during their distribution period, as long as they take earnings out after the age of 59 ½ years. In a previous article however, I discussed that there is a $5000 annual limit in saving for retirement in a tax deferred Roth IRA account. Because of this, serious dividend investors would likely have a small amount of their assets in tax deferred accounts.

Many investors also fear the fact that an increase in dividend tax rates would cause corporations to shift their focus from paying dividends to buying back stock. In my experience as a dividend investor, I would say that the companies that have had long histories of paying and even raising distributions to shareholders will continue to do so. After all, companies like Procter & Gamble (PG) or Coca-Cola (KO) have boosted dividends for over 5 decades, while paying dividends for at least one century. The past five decades have been characterized by top marginal taxes on dividends which have been much higher than the proposed tax increase. In addition, a large portion of the population does have balances in their 401 (k) retirement accounts however. These accounts are mostly invested in mutual funds, who these days own large stakes in America’s largest publicly traded companies. As a result, I do not expect many dividend growth companies to change their payment cultures overnight.

Another reason why investors should not be worried, at least not yet, is the fact that the proposed tax increase in the 2012 budget is not set in stone. The preferential treatment on dividends might still get extended for a few years. Back in 2010, the preferential treatment on dividends was extended for two years. As with most other important decisions, I expect that the outcome related to uncertainties behind dividend tax rates will be resolved in the last minute.

In addition, I do not pay much attention to taxes, because there is always a tradeoff involved. I could put all my money in tax deferred accounts, but I would have to wait until I am in my late 50s before I can withdraw income without paying any penalties. Placing my investments in taxable accounts exposes me to paying taxes on dividend and realized capital gains, but allows me the flexibility to withdraw and spend money as I please. I choose to select the best dividend stocks that will grow earnings, dividends and hopefully stock prices while I hold on to them. It is much easier to rely on dividend payments, rather than to worry about stock prices, in order to sell shares for income in retirement. Dividend payments are much less volatile in comparison with capital gains, and always represent a positive return on investment. Capital gains on the other hand are not income, until they have been realized by selling stock.

Taxes are just one aspect of the investment decision making matrix. In order to make the best decision, investors need to determine whether the company they are evaluating is attractively valued, has long term upside potential, and only after that should they worry about potential bite from dividend taxes. Worrying about taxes on dividend income, is akin to purchasing dividend paying stocks only based on yield. Investors will be much better off just starting their accumulation process in taxable or tax-deferred accounts, rather than waiting until all the uncertainties are over. After all, investing is all about embracing various risks, and having the plan to address or mitigate them through your retirement strategy.

Full Disclosure: Long PG and KO

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Fourteen Companies providing reliable distribution hikes to shareholders

noreply@blogger.com (D) — Mon, 23 Apr 2012 01:00:00 PDT

My retirement strategy entails purchasing quality dividend growth stocks, which consistently raise distributions. It is very reassuring when I see that the companies I have purchased in my dividend portfolio increase dividends, and thus providing me with solid evidence that my research has been correct. Of the list of consistent dividend raisers from the past week, there were four in which I owned a position. On average, these stocks have delivered a 6.90% increase in distributions to me over the past year.

The Procter & Gamble Company (PG) provides consumer packaged goods in the United States and internationally. The company raised quarterly dividends by 7% to 56.20 cents/share. This dividend king has raised dividends for 56 years in a row. Yield: 3.40% (analysis)

Enterprise Products Partners L.P. (EPD) provides midstream energy services to producers and consumers of natural gas, natural gas liquids (NGLs), crude oil, refined products, and petrochemicals in the United States, Canada, and Gulf of Mexico. This master limited partnership raised quarterly distributions to 62.75 cents/unit, which represented a 5% increase over the same rate this time in 2011. Enterprise Products Partners has raised distributions for 15 years in a row. Yield: 5% (analysis)

Kinder Morgan Energy Partners, L.P. (KMP) operates as a pipeline transportation and energy storage company in North America. This MLP raised quarterly distributions to $1.20/unit, which represented a 5.30% increase over the same rate this time in 2011. Kinder Morgan Energy Partners has raised distributions for 15 years in a row. Yield: 5.70% (analysis)

ONEOK Partners, L.P. (OKS) engages in the gathering, processing, storage, and transportation of natural gas in the United States. This MLP raised quarterly distributions to 63.50 cent/unit, which represented a 10.40% increase over the same rate this time in 2011. ONEOK Partners has raised distributions for 7 years in a row. Yield: 4.60%

Western Gas Partners, LP (WES) , together with its subsidiaries, engages in the acquisition, ownership, development, and operation of midstream energy assets in east and west Texas, the Rocky Mountains, and the Mid-Continent. This MLP raised quarterly distributions to 46 cent/unit, which represented a 17.90% increase over the same rate this time in 2011. Western Gas Partners has raised distributions for 5 years in a row. Yield: 4%

Spectra Energy Partners, LP, (SEP) through its subsidiaries, engages in the transportation of natural gas through interstate pipeline systems, and the storage of natural gas in underground facilities in the United States. This MLP raised quarterly distributions to 48 cent/unit, which represented a 4.30% increase over the same rate this time in 2011. Spectra Energy Partners has raised distributions for 5 years in a row. Yield: 6.10%

Crestwood Midstream Partners LP (CMLP) engages in gathering, compressing, treating, processing, and transporting natural gas primarily on the Barnett Shale formation of the Fort Worth Basin in north Texas. This MLP raised quarterly distributions to 50 cent/unit, which represented a 13.60% increase over the same rate this time in 2011. Crestwood Midstream Partners has raised distributions for 6 years in a row. Yield: 7.40%

Omega Healthcare Investors, Inc. (OHI) operates as a real estate investment trust (REIT) in the United States. The company raised quarterly distributions to 42 cents/share, which represented a 10.50% increase over the same rate this time in 2011. This dividend achiever has raised distributions for 10 years in a row. Yield: 8%

The Southern Company (SO) operates as an electric utility company. It is involved in the generation, transmission, and distribution of electricity through coal, nuclear, oil and gas, and hydro resources. The company raised quarterly dividends by 3.70% to 49 cents/share. This dividend achiever has raised dividends for 11 years in a row. Yield: 4.30%

PPG Industries, Inc. (PPG) manufactures and supplies protective and decorative coatings. The company raised quarterly dividends by 3.50% to 59 cents/share. This dividend aristocrat has raised dividends for 41years in a row. Yield: 2.30% (analysis)

Sonoco Products Company (SON) provides industrial and consumer packaging products, and packaging services worldwide. The company raised quarterly dividends by 3.30% to 30 cents/share. This dividend champion has raised dividends for 29 years in a row. Yield: 3.70%

People’s United Financial, Inc. (PBCT) operates as the bank holding company for People’s United Bank that provides commercial banking, retail and business banking, and wealth management services to individual, corporate, and municipal customers. The company raised quarterly dividends by 1.60% to 16 cents/share. This dividend achiever has raised dividends for 20 years in a row. Yield: 5.20%

The Travelers Companies, Inc. (TRV), through its subsidiaries, provides various commercial and personal property and casualty insurance products and services to businesses, government units, associations, and individuals primarily in the United States. The company raised quarterly dividends by 12.20% to 46 cents/share. The Travelers Companies has raised dividends for 8 years in a row. Yield: 2.90%

Somerset Hills Bancorp (SOMH) operates as the holding company for Somerset Hills Bank, which provides commercial banking products and services primarily in Somerset, Morris, and Union Counties of New Jersey. The company raised quarterly dividends by 14.10% to 8 cents/share. Somerset Hills Bancorp has raised dividends for 8 years in a row. Yield: 3.90%

Full Disclosure: Long PG, EPD, KMR, OKS

Relevant Articles:

- My Dividend Retirement Plan
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Three Companies expecting high dividend growth and returns

noreply@blogger.com (D) — Fri, 20 Apr 2012 01:00:00 PDT

Dividend growth stocks provide investors with a rising stream of passive income, which grows over time. The consistent nature of dividend increases protects the dividend income against inflation. However, many dividend growth stocks actually tend to deliver dividend growth which typically exceeds the rate of inflation. Historically, US stocks have managed to boost dividends above the rate of inflation by 2% – 3%.

There is typically a trade-off between dividend yield and dividend growth, that investors have to put up with. Generally, companies with the highest current yields tend to distribute most of their cash flows to shareholders, which leaves little room for investment in the business. This leads to low earnings growth, that trickles down into low dividend growth. Companies with low and medium sized yields however tend to disitrbute a low portion of their earnings to shareholders, with the rest reinvested in the business, thus providing fuel for future dividend increases.

There are a few companies which meet both criteria, when purchased at the right times:

Philip Morris International Inc. (PM), through its subsidiaries, manufactures and sells cigarettes and other tobacco products. The company expects to generate 10%- 12% annual growth in earnings through its cost reduction programs, acquiring companies internationally as well as innovating in growing markets in order to position itself favorably. Phillip Morris International will be able to keep increasing dividends at the high single digit percentage points in the foreseeable future, while paying an above average yield of 3.60% today. (analysis)

ONEOK, Inc. (OKE), a diversified energy company, engages in the gathering, processing, storage, and transportation of natural gas in the United States. The company operates through three segments: ONEOK Partners, Natural Gas Distribution, and Energy Services. The company enjoys strong performance in its ONEOK Partners (OKS) segment, which has resulted in increased distributions to ONEOK from the partnership. In addition, the company has been able to generate strong cash flow from its natural gas distribution segment. ONEOK indicated in September 2011 that it expects to increase its dividend 50 percent by 2014 and affirmed a long-term dividend payout target of 60 percent to 70 percent of recurring earnings, subject to board of directors' approval. ONEOK announced today it is considering increasing its July 2012 dividend above the 4-cent-increase it provided in September 2011. Yield: 3% (analysis)

Kinder Morgan, Inc. (KMI) owns and operates energy transportation and storage assets in the United States and Canada. The company operates in six segments: Products Pipelines-KMP, Natural Gas Pipelines—KMP, CO2—KMP, Terminals—KMP, Kinder Morgan Canada—KMP, and NGPL PipeCo LLC. The company expects its acquisition of El Paso to be completed by May 2012. This combination will lead to synergies and cost savings of approximately $350 million/year. As a result of this transaction and KMI’s normal expected annual growth, KMI still expects its dividend per share to grow at an average annual rate of around 12.5 percent through 2015 from its budgeted 2011 dividend per share of $1.16. The growth of KMI is being driven by Kinder Morgan Partners (KMP), which expects to declare cash distributions of $4.98 per unit for 2012, an 8 percent increase over the $4.61 per unit it will distribute for 2011. Yield: 3.30% (analysis)

Full Disclosure: Long PM, OKS, KMR and KMI

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- Dividend Growth Stocks – The best kept secret on Wall Street

- 10 by 10: A New Way to Look at Yield and Dividend Growth

- Kinder Morgan Partners – One Company three ways to invest in it

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Dividend Investing Misconceptions

noreply@blogger.com (D) — Wed, 18 Apr 2012 01:00:00 PDT

In my four years as a dividend blogger, I have written hundreds of articles on dividend investing and weekly dividend increases. One common question that I receive from readers relates to companies raising distributions for a long period of time, yet their shares have a pretty low yield. It is obvious to long-term readers, which these comments come from visitors that have recently stumbled upon the idea of dividend investing, and therefore have plenty of reading to do before catching up.

In this article I will try to explain this common misconception. The first issue with the statement from the first paragraph is that companies cannot control the dividend yield on their shares. Companies can only influence the dollar amount of dividend payments, which leads to long streaks of consecutive dividend increases, provided that the underlying business model is sound and generates a high level of profits over time. After all, a company can only increase the numerator of the dividend yield equation, whereas the stock market is the one that determines the price of the stock at any given moment.

Investors cannot control the current dividend yield of a stock either. The main edge that dividend investors have over bond investors is the fact that dividend stocks provide the opportunity for increased distributions over time. As a result a stock investor who purchases $1000 worth of a stock yielding 2%-3% today will generate $20-$30 in annual dividend income today. If the stock keeps raising distributions and manages to double them in 10 years, the dividend income that the investor generates will double to $40-$60/year. If the stock price doubles in the process, the current yield would be 2%-3% for new investors. For the original investors however, their yield on cost, would be 4%-6%.

Let’s illustrate with a real-life example. Back in 1988 famous investor Warren Buffett began accumulating shares of Coca-Cola (KO), for his company Berkshire Hathaway (BRK.B). His split-adjusted average cost was $5.23/share. Back then the company paid a quarterly dividend of 3.75 cents/share (adjusted for three 2:1 stock splits in 1990, 1992 and 1996) for an annual distribution of 15 cents/share. The current yield was approximately 2.90%, which is the same as the dividend yield on Coca-Cola (KO) shares today. Investors who purchased Coca Cola at the end of 1988 would have paid $5.58/share, and would have expected 15 cents/share in dividend per year. Fast forward 24 years from that date and these investors would be enjoying a $1.88/share in annual dividend income. The current yield is still 2.69% for new investors. For the shrewd investors who purchased in 1988 however, the current dividend payment equates to a 33.69% yield on cost.

In fact, Coca-Cola stock yielded less than 2% for approximately 14 years after the purchase, yet the company managed to increase dividends every year. Many investors consider yield on cost to be a useless tool. It could be countered, that it is useless for the investors who lack the patience to make a purchase, and then quietly sit back and watch it pay higher dividends over time. The goal of every dividend investor should be to make an investment that pays them higher distributions in the future. Whether the yield on cost is truly a useless metric or not should be left to academicians and market theorists to decide. For ordinary dividend investors, the higher dividend checks received every quarter are sufficient positive reinforcement that their strategies are working correctly.

Full Disclosure: Long KO

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- Yield on Cost Matters

- The Dividend Edge

- Living off dividends in retirement

- Warren Buffett – A Closet Dividend Investor

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MLP’s deliver consistent distribution increases

noreply@blogger.com (D) — Mon, 16 Apr 2012 05:53:00 PDT

The list of dividend increases over the past week was dominated by Master Limited Partnerships. Most of the MLPs are pipeline companies, which are engaged in the transportation of oil and natural gas from the source to the final customer. Pipeline MLPs have shown a consistent growth in quarterly distributions as a group, despite the economic turbulence we have lived under over the past five years. This is mostly due to the fact that most pipelines are natural monopolies in a given area, and they typically manage to increase fees each year at least by the rate of inflation. In addition, while prices of the commodities they transport fluctuate on a daily basis, aggregate volumes of oil and gas in the US is pretty stable year over year.

The following dividend growth companies raised distributions over the past week:

Plains All American Pipeline, L.P. (PAA), through its subsidiaries, engages in the transportation, storage, terminalling, and marketing of crude oil, refined products, and liquid petroleum gas (LPG) products in the United States and Canada. The company operates in three segments: Transportation, Facilities, and Supply and Logistics. This dividend achiever raised quarterly distributions to $1.045/unit, which was 7.70% above the distribution paid in the same time in 2011. Plains All American Pipeline has increased distributions for 12years in a row. Yield: 5.30%

Genesis Energy, L.P. (GEL) operates in the midstream segment of the oil and gas industry in the Gulf Coast region of the United States. It operates through three divisions: Pipeline Transportation, Refinery Services, and Supply and Logistics. This MLP raised quarterly distributions to 45 cents/unit, which was 10.40% above the distribution paid in the same time in 2011. Genesis Energy has increased distributions for 9 years in a row. Yield: 5.80%

Targa Resources Partners LP (NGLS) provides midstream natural gas and natural gas liquid (NGL) services in the United States. The company operates in two divisions, Natural Gas Gathering and Processing, and Logistics and Marketing. This MLP raised quarterly distributions to 62.25 cents/unit, which was 11.70% above the distribution paid in the same time in 2011. Targa Resources Partners has increased distributions for 7 years in a row. Yield: 6.10%

Tanger Factory Outlet Centers, Inc. is a REIT, which engages in acquiring, developing, owning, operating, and managing factory outlet shopping centers. The company raised its quarterly dividend by 5% to 21 cents/share. This marked the 19th consecutive annual dividend increase for this dividend achiever. Yield: 2.90%

Healthcare Services Group, Inc. (HCSG), together with its subsidiaries, provides housekeeping, laundry, linen, facility maintenance, and dietary services to nursing homes, retirement complexes, rehabilitation centers, and hospitals in the United States. It operates in two segments, Housekeeping and Dietary. The company raised its quarterly dividend to 16.25 cents/share, which was 3.20% above the distribution paid in the same period in 2011. Healthcare Services Group has raised dividends for 10 years in row. Yield: 3.20%

While MLPs have been great performers over the past decade, several factors could bring a halt to their distribution growth. Since most MLPs distribute all of their cash flows to unitholders, the only way they could grow is by selling additional debt or units in the markets. If interest rates increase, this will increase the cost of capital for these companies, and will reduce investor appetite for the sector.

Full Disclosure: None

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- Master Limited Partnerships (MLPs) – an island of opportunity for dividend investors

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- MLPs for tax-deferred accounts

Abbott Laboratories is Cheaper than you think

noreply@blogger.com (D) — Fri, 13 Apr 2012 01:00:00 PDT

In a previous article, I discussed how dividend investors should analyze the earnings of each company they own in detail, in order to obtain an understanding behind the real valuation behind the business. I discussed how AT&T (T) and Coca-Cola (KO) appeared cheaper than usual. Today, I will discuss another example of a situation, where I had to dig deeper, before obtaining the full picture behind Abbott Lab’s valuation.

I have been a shareholder of Abbott Labs (ABT) for many years. Just like many other investors, I am cheerful about the announced split in two separate publicly traded companies, which will unlock shareholder value. I am also optimistic about the prospects of each of the separate divisions to continue increasing shareholder wealth by continuing the culture of boosting dividends. Abbott Labs is a dividend aristocrat, and has managed to boost distributions every year for 40 years in a row.

As I discussed earlier, I initiate or add to my positions in two or three dividend stocks every month. As part of my process of screening for attractively valued stocks each month, I noticed that a few good companies were not part of my buy listing. I was expecting to add to my existing position in Abbott within a few months. This inconsistency startled me, since in my recent analysis of the stock, I had concluded that it was still a great buy. I glanced at the company’s profile in Yahoo Finance and Google Finance, only to see that it was trading at 20 times earnings. Yahoo and Google Finance sites are currently showing $3 in earnings per share for the company. Given the current dividend payout of $2.04/share, this makes the payout ratio to be a very high at 68%. This is consistent with a public utility, but not with a dividend growth company such as Abbott Laboratories.

This made me further investigate the trends in quarterly earnings per share over the past year. I noticed that over the past five quarters, the trend in EPS looks something like this:

From the company’s press release:

Diluted earnings per share, excluding specified items, were $1.18, at the high end of Abbott's previous guidance range, reflecting 12.4 percent growth. Diluted earnings per share under Generally Accepted Accounting Principles (GAAP) were $0.19, net of specified items, including a $1.5 billion pre-tax reserve related to previously disclosed litigation.

2011 Net Earnings Excluding Specified Items excludes after-tax charges of $1.4 billion, or $0.92 per share, related to litigation reserves (see Footnote 3 above), $75 million, or $0.05 per share, associated with the acquisition of Solvay Pharmaceuticals and $78 million, or $0.05 per share, for previously announced cost reduction initiatives and other. These items were partially offset by a favorable adjustment to tax expense of $51 million, or $0.03 per share, as a result of the resolution of various prior years' international and U.S. tax positions.

In my analysis of earnings and dividend payout ratios, I tend to focus on income from continuing operations. I exclude one-time events, in order to focus on recurring profits and normalize earnings per share. After reading this news release, investors would notice that these one time non cash charges accounted for 99 cents/share. By adding them to EPS from continuing operations of 19 cents/share, we come up with $1.18/share in actual earnings. This brings the total earnings per share for the past four quarters to $3.99/share. As a result of this adjustment, the price earnings multiple decreases from 20 to 15.

Full Disclosure: Long ABT

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Dividend Stocks for Inflation Adjusted Income Stream

noreply@blogger.com (D) — Wed, 11 Apr 2012 01:46:00 PDT

One of the biggest challenges that retirees face is inflation. Inflation decreases the purchasing power of the dollar every year. Over the past decade, inflation has averaged 2.40% per year, which has been slightly below the long-term average of 3% annually. Even if inflation were to continue to remain around 3% for the next few decades, this would affect the standard of living of retired investors over time. At a 3% annual inflation rate, the purchasing power of your income would be decreased by half in 24 years. As a result, investors relying on fixed income such as US Treasury bonds, would be faced with an income source which purchases less each year. In addition, given the low current yields on US Treasuries, investors these days have few options to invest for income besides dividend stocks.

A portfolio of carefully selected dividend stocks could provide investors with regular recurring dividend payments which have the potential to grow over time. Many investors tend to forget that dividend stocks represent partial ownership of real businesses. As inflation increases prices for goods and services, companies with strong pricing power tend to pass on price increases to consumers thus preserving and even increasing profits. Companies that tend to have strong pricing power, tend to have strong brand names and quality products which consumers desire and are willing to pay a premium price for. Consumers who prefer the taste of Pepsi will pay for the brand name product rather than generic cola or Coca-Cola and vice versa for consumers who like Coca Cola products. For example, I was able to purchase a 24 oz bottle of Coca Cola in 2003 for $1 at Wal-Mart, whereas today I would have to pay at least $1.50 today.

Another important factor when selecting companies for one’s income portfolio is whether the company has a history of consistent dividend increases that exceeds one decade. A company that generates so much in excess cash flows that manages to grow the business, while distributing higher amounts to shareholders in the form of dividends and share buybacks is a must hold for retirees who are living off dividends.

Five dividend stocks with strong brand names which have provided a rising stream of their shareholders for generations include:

The Coca-Cola Company (KO) manufactures, distributes, and markets nonalcoholic beverages worldwide. The company has raised dividends for 50 years in a row. Over the past decade, the company has managed to boost distributions by 10.10% per year, handily beating the 2.40% annual inflation rate during this period. Yield: 2.80% (analysis)

PepsiCo, Inc. (PEP) engages in the manufacture, marketing, and sale of foods, snacks, and carbonated and non-carbonated beverages worldwide. The company has raised dividends for 40 years in a row. Over the past decade, the company has managed to boost distributions by 13.30% per year, handily beating the 2.40% annual inflation rate during this period. Yield: 3.10% (analysis)

Wal-Mart Stores, Inc. (WMT) operates retail stores in various formats worldwide. The company has raised dividends for 38 years in a row. Over the past decade, the company has managed to boost distributions by 17.90% per year, handily beating the 2.40% annual inflation rate during this period. Yield: 2.60% (analysis)

Johnson & Johnson (JNJ) engages in the research and development, manufacture, and sale of various products in the health care field worldwide. The company has raised dividends for 49 years in a row. Over the past decade, the company has managed to boost distributions by 12.40% per year, handily beating the 2.40% annual inflation rate during this period. Yield: 3.50% (analysis)

The Procter & Gamble Company (PG) provides consumer packaged goods in the United States and internationally. The company has raised dividends for 55 years in a row. Over the past decade, the company has managed to boost distributions by 10.90% per year, handily beating the 2.40% annual inflation rate during this period. Yield: 3.10% (analysis)

Unilever PLC (UL) provides fast-moving consumer goods in Asia, Africa, Europe, and the Americas. The company has raised dividends for 49 years in a row. Over the past decade, the company has managed to boost distributions by 9.90% per year, handily beating the 2.40% annual inflation rate during this period. Yield: 3.70% (analysis)

McDonald’s Corporation (MCD), together with its subsidiaries, operates as a foodservice retailer worldwide. The company has raised dividends for 35 years in a row. Over the past decade, the company has managed to boost distributions by 27.40% per year, handily beating the 2.40% annual inflation rate during this period. Yield: 2.80% (analysis)

Full Disclosure: Long MCD, UL, PG, JNJ, PEP, KO, WMT

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- Dividend Growth Index, Q1 2012 Update

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Investors Get Paid for Holding Dividend Stocks

noreply@blogger.com (D) — Mon, 09 Apr 2012 01:00:00 PDT

In a previous article I discussed that I use S&P 500 as my benchmark for dividend returns and total returns. One of the drawbacks of this comparison is the fact that sometimes the composition of the index is out of sync with the composition of a typical dividend growth portfolio. For example, in the late 1990’s and early 2000’s, technology stocks which paid no dividends were added to S&P 500, which diluted the yield. In 2008 and 2009, a large portion of financial companies cut or eliminated distributions, months before the market started crashing. For example, Citigroup (C) cut its dividend in January 2008, while the market was still close to multi-year highs. As part of my strategy, I usually sell when a stock I hold cuts or eliminates distributions. However, using data from the S&P 500 as a proxy for the stock market, one can still draw valuable conclusions about dividend investing in general.

Recently, the stock market had its best quarter since the late 1990s. Currently, stocks are close to some of the highest levels since 2008. However, stock index investors have seen the value of their equities barely register any capital gains since 2000. At the same time, prices have oscillated wildly, falling from 1500 on the S&P 500 to less than 800 two times over the past twelve years. Investors who were relying on large-cap US stocks at the beginning of the new millennium, have depleted a large portion of their portfolios, as they sell stocks to pay expenses.

While prices have mostly remained flat, earnings and dividends have increased. Companies in the S&P 500 earned $48.17 and paid $16.69 in dividends in 1999. In 2011, companies in the S&P 500 earned $86.55 and paid $26.43 in dividends. As a result, As a result, the P/E ratio has decreased from 30.50 in 1999 to 14.50 in 2011. During the same time period, the dividend yield has increased from a paltry 1.14% to a slightly more respectable 2.10% in 2011. As mentioned previously, the reason for the low yield is the fact that not all companies pay dividends and the fact that several of the ones that do, distribute small amounts of earnings.

When you look at the annual returns since 2000, one could see that annual returns have ranged from a 26% increase in 2003 to a 38% decrease in 2008. One fact that illustrates the allure of dividends is that investors kept getting paid for holding on to their stocks. In fact, the reason why so many investors are increasingly embracing dividend investing is the fact that they are receiving a positive return on investment every year, no matter where the market goes. With the right selection criteria in mind, investors could easily designate a portfolio that provides a sufficient stream of dividend income to meet their expenses in any market environment, without having to sell shares.

A sample portfolio of 30 dividend growth securities, representative of the ten sectors that comprise S&P 500, which is built over time, could provide a very good entry yield in the range of 3% - 4%. In addition, this portfolio would likely generate higher dividend payments each year, as the companies in it raise distributions annually. A few starter companies fitting this purpose, which are also core holdings of many dividend growth investors include:

Abbott Laboratories (ABT) engages in the discovery, development, manufacture, and sale of health care products worldwide. This dividend aristocrat has raised distributions for 40 years in a row. The ten year dividend growth rate is 8.70% per annum. Yield: 3.30% (analysis)

The Coca-Cola Company (KO), a beverage company, engages in the manufacture, marketing, and sale of nonalcoholic beverages worldwide. This dividend king has raised distributions for 50 years in a row. The ten year dividend growth rate is 10.10% per annum. Yield: 2.80% (analysis)

Chevron Corporation (CVX), through its subsidiaries, engages in petroleum, chemicals, mining, power generation, and energy operations worldwide. This dividend achiever has raised distributions for 24 years in a row. The ten year dividend growth rate is 8.80% per annum. Yield: 3.10% (analysis)

Wal-Mart Stores, Inc. (WMT) operates retail stores in various formats worldwide. This dividend aristocrat has raised distributions for 38 years in a row. The ten year dividend growth rate is 17.90% per annum. Yield: 2.50% (analysis)

AT&T Inc. (T), together with its subsidiaries, provides telecommunications services to consumers, businesses, and other providers worldwide. This dividend aristocrat has raised distributions for 28 years in a row. The ten year dividend growth rate is 5.30% per annum. Yield: 5.60% (analysis)

Intel Corporation (INTC) designs, manufactures, and sells integrated digital technology platforms primarily in the Asia-Pacific, the Americas, Europe, and Japan. The company has managed to boost distributions for eight consecutive years. Yield: 3% (analysis)

Full Disclosure: Long ABT, KO, CVX, WMT

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McGraw-Hill (MHP) Dividend Stock Analysis

noreply@blogger.com (D) — Fri, 06 Apr 2012 01:00:00 PDT

The McGraw-Hill Companies, Inc. (MHP) provides information services for the financial, education, commercial, and commodities markets worldwide. The company operates in four segments: Standard & Poor’s Ratings, S&P Capital IQ/S&P Indices, Commodities & Commercial, and McGraw-Hill Education. This dividend aristocrat has paid uninterrupted dividends on its common stock since 1937 and increased payments to common shareholders every for 39 consecutive years.

The company’s last dividend increase was in January 2012 when the Board of Directors approved a 2% increase to 25.50 cents/share. McGraw-Hill ‘s largest competitors include Moody’s (MCO), Pearson (PSO) and Reed Elsevier (RUK).

Over the past decade this dividend growth stock has delivered an annualized total return of 6.10% to its shareholders.

The company has managed to deliver 7.10% in annual EPS growth since 2002. Analysts expect McGraw-Hill to earn $3.30 per share in 2012 and $3.64 per share in 2013. In comparison McGraw-Hill earned $2.75/share in 2011.

McGraw-Hill Companies will separate in two different companies by the end of 2012 – McGraw-Hill Financial and McGraw-Hill Education. This will allow each business to be more focused and will unlock value for shareholders in total. The Education division will be spun off through a tax-free distribution of shares to stockholders. The financial division is in talks with CME Group and Dow Jones to create a joint venture focusing on indexes – S&P/Dow Jones, in which MHP will have a 73% stake. New business ventures, as well as strategic acquisitions could bolster the bottom line in future years. In addition, as there is rising amount of savings in index funds and ETF’s, the company should benefit through the fees it charges for the underlying indexes.
One of the major risks behind the Financial division is increased regulation from governments and governmental organizations throughout the world concerning the role of rating agencies and their operations.

I would find the Education business to be having better economics, as textbooks typically come up with newer editions very often, which leads to a consistent revenue stream for the publisher. In addition, I expect a higher rate of students enrolling in colleges, which should be good for business. As our society becomes more complex, the need for education increases, which should add to the bottom line of companies like MHP Education.

The company has managed to increase Return on Equity from 28.20% in 2002 to 45.20% in 2011. Rather than focus on absolute values for this indicator, I generally want to see at least a stable return on equity over time.

The annual dividend payment has increased by 7.80% per year over the past decade, which is higher than to the growth in EPS.

An 8% growth in distributions translates into the dividend payment doubling almost every nine years. If we look at historical data, going as far back as 1989 we see that McGraw-Hill has managed to double its dividend every eleven and a half years on average.

The dividend payout ratio has mostly remained between 30% and 39% , with the exception of 2007. A lower payout is always a plus, since it leaves room for consistent dividend growth minimizing the impact of short-term fluctuations in earnings.

Currently McGraw-Hill is fairly valued at 16.30 times earnings, has a sustainable dividend payout and yields 2.10%. I would consider adding to my position in the stock on dips below $40.

Full Disclosure: Long MHP

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Dividend Growth Index, Q1 2012 Update

noreply@blogger.com (D) — Wed, 04 Apr 2012 01:00:00 PDT

Back in September 2011, several dividend bloggers selected three of their most promising long-term picks in order to create a sample dividend growth portfolio. Unlike other stock competitions, the goal of this initiative was to identify the best picks from a long-term perspective, which are expected to be held for years.

Each blogger selected three stocks that they viewed as attractively priced. I selected McDonald’s (MCD), Chevron (CVX) and Enterprise Product Partners (EPD). You could read more about the reasoning behind these selections in this article.

McDonald’s Corporation (MCD) franchises and operates McDonald’s restaurants primarily in the United States, Europe, the Asia Pacific, the Middle East, and Africa. This dividend aristocrat has raised dividends for 35 years in a row. The ten year dividend growth rate is 27.40%/year. Analysts are expecting strong sales momentum from 2011 to continue, as consumers are attracted to the company’s menu. Yield: 2.90% (analysis)

Chevron Corporation (CVX), through its subsidiaries, engages in petroleum, chemicals, mining, power generation, and energy operations worldwide. It operates in two segments, Upstream and Downstream. This dividend achiever has raised distributions for 24 years in a row. The ten year dividend growth rate is 8.80%/year. High oil prices should benefit the Chevron, which has embarked on a multitude of new projects to uncover more reserves of the black gold. Yield: 3%(analysis)

Enterprise Products Partners L.P. (EPD) provides midstream energy services to producers and consumers of natural gas, natural gas liquids (NGLs), crude oil, refined products, and petrochemicals in the United States, Canada, and Gulf of Mexico. The largest master limited partnership has raised distributions for 15 years in a row. Steep run-up in high-yielding stocks have pushed the yield to 5%. The ten year distribution growth rate is 7.60%/year. Enterprise Products Partners has raised distributions every quarter for the past 30 quarters, and made K-1 packages available to unitholders on its website. (analysis)

The complete dividend portfolio could be viewed below:

Full disclosure Long CVX, EPD, MCD, ABT, KO, WMT, PEP, AFL, PM, PG

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2012’s Best Dividend Stocks, Q1 Update

noreply@blogger.com (D) — Mon, 02 Apr 2012 01:00:00 PDT

For a four straight year in a row, I participated in a friendly stock picking competition. The four stock picks that I selected have been chosen as if I was choosing long-term investments. As a dividend investor, my holding period is essentially forever, until one of these three events occurs. All of the stock picks I selected make great long term investments, because they represent companies that have strong brand names, strong competitive advantages and have plenty of growth opportunities ahead of them. This enables them to record increasing earnings every year, which then trickles down into dividend hikes every year for the loyal shareholders.

The four companies I chose were the same ones as the 2011 selections:

PepsiCo, Inc. (PEP) engages in the manufacture and sale of snacks, carbonated and non-carbonated beverages, dairy products, and other foods worldwide. It operates in four divisions: PepsiCo Americas Foods, PepsiCo Americas Beverages, PepsiCo Europe; and PepsiCo Asia, Middle East, and Africa. This dividend aristocrat has rewarded shareholders with dividend hikes for 39 consecutive years. The ten year dividend growth rate is 13.30%.year and the current yield is 3.10%. (analysis)

Philip Morris International Inc. (PM), through its subsidiaries, manufactures and sells cigarettes and other tobacco products. The company has raised distributions each year since the spin off from Altria Group (MO) in 2008. Yield: 3.60% (analysis)

Johnson & Johnson (JNJ) engages in the research, development, manufacture, and sale of various products in the health care field worldwide. This dependable dividend aristocrat has raised distributions for 49 consecutive years. The ten year dividend growth rate is 12.40%.year and the current yield is 3.50%. (analysis)

The Procter & Gamble Company (PG) provides consumer packaged goods in the United States and internationally. This dividend king has raised distributions for 55 years in a row, which has only been accomplished by only eleven companies worldwide. The ten year dividend growth rate is 10.90%.year and the current yield is 3.10%. (analysis)

The performance of other bloggers is included below:

Where Does My Money Go 35.91%
Intelligent Speculator 16.37%
Dividend Mantra 13.71%
Wild Investor 11.78%
My Traders Journal 11.17%
Beating The Index 10.87%
Million Dollar Journey 7.84%
The Passive Income Earner 4.77%
Dividend Growth Investor 4.43%
The Financial Blogger 0.10%

My picks have managed to match or outperform S&P 500 in every year of the competition. This is mostly due to the fact that the past has been a turbulent time for stock investors in general. Dividend investing is a slow and steady approach, which might lag during rapid increases in stock prices but would provide a steady cushion during flat or declining markets. To most dividend investors however stock prices are of secondary importance. When one is living off dividends, all they are interested in is the sustainability and growth of the dividend income stream generated from their portfolios. The four steady eddies above have managed to boost distributions by 10.50% on average over the past 12 months. The average yield on all four is 3.30%.

Investors who plan on living off dividends in retirement should own at least 30 individual securities, in order to have adequate diversification of their portfolios.

Full Disclosure: Long PEP, PM,PG ,JNJ

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AT&T (T) Dividend Stock Analysis

noreply@blogger.com (D) — Fri, 30 Mar 2012 01:00:00 PDT

AT&T Inc. (T), together with its subsidiaries, provides telecommunications services to consumers, businesses, and other providers worldwide. This dividend aristocrat has paid uninterrupted dividends on its common stock since 1984 and increased payments to common shareholders every for 28 consecutive years. The company’s previous name was SBC Communications, but after acquiring legacy AT&T in 2006, assumed the name of the legacy telecom giant.

The company’s last dividend increase was in December 2011 when the Board of Directors approved a 2.30% increase to 44 cents/share. AT&T ‘s largest competitors include Verizon (VZ), Sprint-Nextel (S) and Deutsche Telecom (DTEGY).

Over the past decade this dividend growth stock has delivered an annualized total return of 2.50% to its shareholders.

The company has managed to deliver zero growth in EPS since 2002. Analysts expect AT&T to earn $2.36 per share in 2012 and $2.54 per share in 2013. In comparison AT&T earned $2.20 /share in 2011, before several onetime charges (discussed below).

In the prior year, AT&T looked cheaper than usual due to one-time accounting items. This year, the company looks more expensive than it should be, again due to onetime events. From the company’s Q4 press release:

Fourth-quarter 2011 net income attributable to AT&T totaled $(6.7) billion, or $(1.12) per diluted share. Excluding significant non-cash charges of $0.65 from the actuarial loss on benefit plans and $0.48 for directory asset impairments, along with a one-time charge of $0.44 for termination of the T-Mobile USA acquisition and a one-time gain of $0.03 from a tax settlement, adjusted earnings per share was $0.42.

My outlook on the US telecom industry is neutral at the very best. The telecom industry does not operate in the utility like monopoly environment that the “old” AT&T used to operate prior to its break-up in 1984. The wireline business is slowly dying, as more consumers are replacing fixed-line phone service with cellular phones. The issue with cell phones is that switching between carriers is very easy, and the levels of service have been pretty consistent between all of the major wireless carriers. As a result, the wireless service is becoming more of a commodity, with the main issue being that the telecom industry requires huge capital costs to operate, upgrade

existing network equipment and maintain service. One differentiator for customers looking to switch is the type of phones a telecom carrier offers. AT&T was the exclusive carrier in the US for the iPhone until 2011, when both Verizon and Sprint added it to their line of phone offerings. Unfortunately, it is difficult to predict the next big thing in phones, which will drive customers to stick to a carrier for a longer period of time.

The company’s return on equity has been on the rebound since reaching a low of 8.60 in 2006. Rather than focus on absolute values for this indicator, I generally want to see at least a stable return on equity over time.

The annual dividend payment has increased by 5.40% per year over the past decade, which is higher than to the growth in EPS.

A 5.50% growth in distributions translates into the dividend payment doubling almost every thirteen years. If we look at historical data, going as far back as 1984 we see that AT&T has managed to double its dividend every fourteen years on average.

The dividend payout ratio has consistently remained above 50%. The company is essentially distributing almost all of its earnings back to shareholders, leaving little room for future growth. A lower payout is always a plus, since it leaves room for consistent dividend growth minimizing the impact of short-term fluctuations in earnings.

Currently AT&T is fairly valued at 13.80 times earnings, has a very high dividend payout and yields 5.80%. I do not plan on initiating a position in the stock.

Full Disclosure: None

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The Lost Decade: Opportunity of a Lifetime for Dividend Investors

noreply@blogger.com (D) — Wed, 28 Mar 2012 01:00:00 PDT

The “Lost Decade” in stocks is the period since 2000, when stocks in general have been mostly flat. The reason behind the so called lost decade, is the fact that stocks were overvalued during the last leg of the 1999 – 2000 bull market run. Investors typically have a short term memory of financial market events. Over a decade ago, demand for speculative internet stocks with no earnings or revenues were high, and the good times were expected to keep on going forever. Now, after two severe stock market declines due to the tech and financial sector implosions, investors are again projecting the past onto the future. This time however, investors are forecasting doom and gloom. In a previous article I discussed the fact that stocks are cheap. In fact, stock valuations are at their lowest levels in years.

One of the biggest arguments against purchasing quality dividend stocks is that they have been “dead money” over the past decade. Some investors who read my site have mentioned that companies like Intel (INTC), Medtronic (MDT), Coca Cola (KO), Wal-Mart (WMT) and Abbott (ABT) come to mind due to the fact that they delivered very little in total returns over the past decade. Once again, investors are comparing apples to oranges. In general, these four stocks were much overvalued in the year 2000. Today, they are attractively priced.

Intel Corporation (INTC) engages in the design, manufacture, and sale of integrated circuits for computing and communications industries worldwide. While the company earned $1.51/share in 2000, when the stock price ended the year at $30.06/share, for a P/E of 20, this EPS figure did not take into account the implosion of the tech sector. In fact, one of the reasons why I haven’t ventured in to the stock was that Intel did not exceed its year 2000 EPS until 2010. In 2001, EPS collapsed to just $0.19/share. Sometimes measures like P/E ratios should be taken with a grain of salt when dealing with cyclical companies in the technology, automotive and materials sectors for example. The stock has a P/E of 11.70, and yields 3% today however, which makes it a buy when it reaches a dividend achiever status. (analysis)

The Coca-Cola Company (KO) manufactures, distributes, and markets nonalcoholic beverages worldwide. In 2000, the company earned $0.88/share, while the stock closed the year at $60.94. The P/E ratio was rich at 69 times earnings, while the annual dividend of 68 cent/share delivered a yield of 1.10%. Today Coca Cola trades at 19.30 times earnings and yields 2.90%. (analysis)

Medtronic, Inc. (MDT) manufactures and sells device-based medical therapies worldwide. In 2000, the company earned $0.91/share, while the stock closed the year at $60.38. The P/E ratio was rich at 66 times earnings, while the annual dividend of 20 cents/share delivered a yield of 0.30%. Today, Medtronic sells at 12.20 times earnings and yields 2.50% (analysis)

Wal-Mart Stores, Inc. (WMT) operates retail stores in various formats worldwide. In 2000, the company earned $1.25/share, while the stock closed the year at $53.13. The P/E ratio was rich at 42 times earnings, while the annual dividend of 24 cent/share delivered a yield of 0.50%. These days, the world’s largest retailer trades at 13.40 times earnings and yields 2.60% (analysis)

Abbott Laboratories (ABT) engages in the discovery, development, manufacture, and sale of health care products worldwide. In 2000, the company earned $1.78/share, while the stock closed the year at $48.44. The P/E ratio was rich at 27 times earnings, while the annual dividend of 76 cent/share delivered a yield of 1.60%. Currently, he company trades at 15.10 times earnings and yields 3.40%. (analysis)

Full Disclosure: Long KO, WMT, MDT, ABT

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Should dividend investors care about Apple’s Dividend?

noreply@blogger.com (D) — Mon, 26 Mar 2012 01:00:00 PDT

Over the past week Apple Computer (AAPL) announced that it will pay dividends for the first time since 1996. Investors will receive $2.65/quarterly distribution starting in the third quarter of 2012. This is positive news for shareholders, as the company was hoarding almost $100 billion in cash on its balance sheet. Otherwise, this stash would have been spent on acquisitions, which might not have benefitted the bottom line by much. After all, the company has been able to go from $6 billion to $108 billion in revenues in a decade mostly as a result of innovation and offering unique products to consumers.

As a dividend growth investor, I do require at least ten years of consecutive dividend increases, before I initiate a position in a company. This is to protect me from investing in companies which have been able to boost distributions based on short-term economic or business events. After all, the Motorla RAZR was once the “cool” phone to have in the mid 2000’s, and the Sony Walkman was the main game in town in the 1980’s for listening to music. While I strongly doubt Apple will be able to increase revenues 20 times over the next decade, if it maintains innovating and delivering to its loyal following of consumers, it should do well.

Other companies in the dividend news include:

Raytheon Company (RTN) , together with its subsidiaries, provides electronics, mission systems integration, and other capabilities in the areas of sensing, effects, and command, control, communications, and intelligence systems, as well as a range of mission support services in the United States and internationally. The company raised its quarterly distributions by 16.30% to 50 cents/share. Raytheon has raised dividends for 8 years in a row. Yield: 3.90%

W. P. Carey & Co. LLC (WPC), together with its subsidiaries, provides long-term sale-leaseback and build-to-suit transactions for companies worldwide and manages a global investment portfolio. The company raised its quarterly distributions to 56.50 cents/share. W. P. Carey & Co. LLC is a dividend achiever has raised dividends for 15 years in a row. The company is planning on converting to a REIT later in 2012, which would lead to a higher annual distribution for shareholders coupled with simplified tax reporting. Yield: 4.90%

Full Disclosure: None

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Colgate-Palmolive (CL) Dividend Stock Analysis 2012

noreply@blogger.com (D) — Fri, 23 Mar 2012 01:00:00 PDT

Colgate-Palmolive Company (CL), together with its subsidiaries, manufactures and markets consumer products worldwide. This dividend champion has paid uninterrupted dividends on its common stock since 1895 and increased payments to common shareholders every for 48 consecutive years. The company’s last dividend increase was in February 2012 when the Board of Directors approved a 6.90% increase to 62 cents/share. Colgate-Palmolive ‘s largest competitors include Procter & Gamble (PG), Kimberly-Clark (KMB) and Clorox (CLX).

Over the past decade this dividend growth stock has delivered an annualized total return of 7% to its shareholders.

The company has managed to deliver a 9.40% annual increase in EPS since 2002. Analysts expect Colgate-Palmolive to earn $5.38 per share in 2012 and $5.90 per share in 2013. In comparison Colgate-Palmolive earned $4.94 /share in 2011. The company has managed to consistently repurchase 1.30% of its outstanding shares on average in each year over the past decade.

Colgate generates over 60% of its sales from outside of the US. The growing emerging markets in Latin America and Asia and the rising middle class in these markets could present an excellent opportunity for Colgate Palmolive. Latin America accounts for one third of sales, while Asia/Africa accounts for over one fifth of sales. The issue with overexposure to Latin America is that the continent has been prone to currency devaluations, which could impact profitability. Another issue could come from rising commodity costs, which could pressure margins and profitability despite expectations for rising volumes. Given the strong brand names of many of Colgate’s products however, the company could mitigate this by passing on cost increases to consumers.

The company has a very high return on equity of 101%. Rather than focus on absolute values for this indicator, I generally want to see at least a stable return on equity over time.

The annual dividend payment has increased by 13.60% per year over the past decade, which is higher than to the growth in EPS.

A 14% growth in distributions translates into the dividend payment doubling almost every five years. If we look at historical data, going as far back as 1981 we see that Colgate-Palmolive has managed to double its dividend every seven and a half years on average.

The dividend payout ratio has increased from a low of 33% in 2002 to 46% in 2011. A lower payout is always a plus, since it leaves room for consistent dividend growth minimizing the impact of short-term fluctuations in earnings.

Currently Colgate-Palmolive is attractively valued at 19.50 times earnings, has a sustainable dividend payout and yields 2.60%. I recently added to my position in the stock, which I find attractively valued on dips below $99.

Full Disclosure: Long CL, PG, CLX, KMB

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