Dividend Growth Investor

Diageo (DEO) Dividend Stock Analysis 2011

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

Diageo plc (DEO) engages in producing, distilling, brewing, bottling, packaging, distributing, developing, and marketing spirits, beer, and wine products worldwide. This international dividend achiever has paid uninterrupted dividends on its common stock since 1988 and increased payments to common shareholders every year since 1998.

Diageo’s largest competitors include Brown-Forman (BF-B), Constellation Brands (STZ) and SAB Miller (SBMRY).

Over the past decade this dividend growth stock has delivered an annualized total return of 10.20% to its shareholders.

The company has managed to deliver a 5.50% annual increase in EPS since 2001. Analysts expect Diageo to earn $5.77 per share in 2012 and $6.44 per share in 2013. In comparison Diageo earned $4.84 /share in 2011.

Diageo owns some of the best known brands in spirits, including Smirnoff, Johnnie Walker, Baileys, Guinness, Captain Morgan and Jose Cuervo. I have previously written how strong brands are good for dividend growth. Diageo has focused exclusively on organic growth in its premium brands, shedding non-core assets over the past decade, and also focusing on achieving sales growth through acquisition of other premium spirits names. Diageo has benefited from strong demand for its premium products worldwide, as evidenced by strong volume growth over the past few years. A particular bright spot is the company’s performance in emerging markets, which accounts for one third of its revenues.

The company has maintained a high return on equity of over 30% for the majority of the decade. 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 in US Dollars has increased by 7.30% per year since 2001, which is higher than the growth in EPS. With international dividend achievers, it is important to look at the trend in distributions in their base currencies. Despite the fact that the annual dividend payment appears volatile in US dollars, the growth in distributions in UK pounds has shown a consistent upward trend in distributions.

An 7% growth in distributions translates into the dividend payment doubling almost every ten years.

The company pays dividends twice per year. The interim payment is typically almost 40% of the total annual amount and is paid in April. The Final payment is approximately 60% of the total dividend and is typically paid in October.

The dividend payout ratio has mostly remained above 50%. It is just a tad above 50% currently, which means that the distributions are sustainable. A lower payout is always a plus, since it leaves room for consistent dividend growth minimizing the impact of short-term fluctuations in earnings.

Currently Diageo is attractively valued at 18.20 times earnings, has a sustainable dividend payout and yields 3%.

Full Disclosure: Long BF-B and DEO

Relevant Articles:

- International Dividend Achievers for diversification

- Strong Brands Grow Dividends

- Six Dividend Paying Sin Stocks to Consider

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Active Dividend Growth Investing

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

My strategy relates to buying quality dividend stocks which fit my criteria, then sit back and hold on until one of these three events happens. However, there are other ways for investors to actively generate income from dividend paying stocks. Although they are mostly for sophisticated investors, everyone should be aware of them.

One such strategy is active dividend investing. This relates to selling a stock when its current yield drops below a certain threshold. For example, back in 2009, investors could have purchased shares of Aflac (AFL) at $20 or less per share. As a result they would be earning a yield on cost of 6%. However, given the steep run up in the share price since then, the current yield is 2.80%.

The question that some investors ask themselves is whether it makes sense to sell a company yielding 2.80% today, and substituting it for a company which has a higher current yield. After all, this would only increase the current income that the portfolio generates. For investors who are in the distribution phase of their dividend investing lifecycle, any boost in the dividend income could be seen as a nice bonus.

I typically worry about replacing dividend stocks after I sell dividend stocks when one of these three events occur. The reason why I don’t sell stocks that have gone up so much, that their current yield is low, is because I would not want to miss out on any dividend growth potential.
For example, investors holding onto Yum! Brands (YUM), might be disappointed with the low current yield of the stock. I purchased the stock last year at $41/share. My yield on cost is almost 2.80%. The current yield on the stock is 1.80%. Theoretically, if I sold my Yum! Brands stock, and purchased shares of McDonald’s (MCD) with the proceeds, I would increase my dividend income by 50%. The current yield on McDonald’s (MCD) is 2.80%. However, I am careful not to focus too much on one aspect, which is yield. You can read more about choosing between dividend stocks in a previous article on the topic. In a potential decision of whether to sell or hold on-to Yum! Stock includes:

- Total returns

The main reason why I invest in stocks with growing dividends is the rising stream of passive income over time. The beauty of dividend growth stocks is that the increased dividends tend to lead to share price appreciation. While this process is not as linear as that of consistent dividend increases, total returns will increase your portfolio value, while also maintaining purchasing power of your principal. I believe that both McDonald’s (MCD) and Yum! Brands (YUM) have the potential to deliver strong total returns. However, given Yum! Brands strong position in China, I would expect them to slightly outperform the golden arches.

- Valuation

Valuation is important as well. Right now McDonald’s (MCD) is trading at 20 times earnings, while Yum! Brands (YUM) is trading at 24.50 times earnings. Valuation also drives total returns over time. Overpaying for stocks could result in subpar performance. Since Yum! was spun off from PepsiCo (PEP) in 1997, it has handily outperformed Mcdonald’s (MCD). Over the past five years however, McDonald’s (MCD) was able to deliver stronger price gains in comparison to Yum!.

- Dividend Growth

Over the past five year, MCD has managed to increase dividends per share at 27.50% per year and has raised distributions for 35 years in a row. YUM has been able to deliver 32.60% dividend growth over the same time frame, but has only raised distributions for eight consecutive years. The latest dividend increases of Yum! Brands however have been much higher than those for McDonald’s. In addition to that, the dividend payout ratio for Yum! Brands is much lower than the payout ratio for McDonald’s (MCD). Investors should also evaluate the risk of dividend cut, particularly if the dividend payout ratio is overextended above 60% for one of the companies.

- Earnings Growth

Over the past decade, MCD has managed to increase earnings per share at 20.70% per year. YUM has been able to deliver 13% EPS growth over the same time frame. McDonald’s generates 2.5 times the amount of sales that Yum! generates. In addition to that, the golden arches have a market capitalization that is three times the size of its rival. The future earnings growth, the expectations behind earnings growth are the fundamental factors that are going to drive dividend increases, share price growth over time. No two analysts have the same opinions on who will perform better over the next decade. This is exactly why picking one company over the other is more complicated.

- Diversification

I always stress diversification in as many sectors as possible. I also try to be exposed to several issues within a sector, in order to avoid any losses in income or principal stemming from a few bad apples. Investing is all about making assumptions and having a set of estimates of what might happen. Whether your theory materializes or not, is yet to be seen. However, by owning shares in two fast-food companies with global operations, you are better positioned than owning just one fast food company.

For example, investors who owned Wal-Mart (WMT) over the past decade have seen very little in terms of total returns. On the other hand, investors who owned Target (TGT) shares, did very during the same period. Back in the year 2000, it would have been impossible to determine which of these two companies would have outperformed the other. That’s why having an allocation to both could be a winning strategy after all.

In addition, investors who favored British Petroleum (BP) in 2009 over Chevron (CVX) for example, would have been in for a nasty surprise when BP was involved in the Gulf of Mexico oil spill. This resulted in steep declines in the company’s share price, as well as a suspension of its quarterly dividend.

Full Disclosure: Long AFL, YUM, MCD, PEP, WMT

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- Dividend Portfolios – concentrate or diversify?

- Replacing dividend stocks sold

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- How to choose between dividend stocks?

Avoid Cyclical Dividend Growth Stocks

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

For my retirement strategy, I purchase dividend paying stocks with shareholder friendly managements, that can afford to raise dividends every year. I typically tend to focus on companies which have raised annual distributions every year for over one decade. I do however try to analyze the long-term dividend histories of companies I am researching, in order to determine if there are any past events which could forecast trouble for my income stream in the future. Utilities are notorious for raising distributions for one or two decades, before cutting or freezing them for several years. After that, it is pretty easy to start raising distributions again, and the company might even reach dividend achiever status once again, while early investors might be receiving less in distributions than a decade earlier. In my dividend strategy, I try to avoid these cyclical dividend achievers.

The following companies increased distributions over the past week:

Enterprise Products Partners L.P. (EPD) provides midstream energy services to producers and consumers of natural gas, NGLs, crude oil, refined products, and petrochemicals in North America. This master limited partnership raised quarterly distributions to 62 cents/unit. This represents a 5.10% increase over the Q1 2011 distribution paid to unitholders. Enterprise Products Partners has raised distributions for 14 years in row. Yield: 5.20% (analysis)

Family Dollar Stores, Inc. (FDO) operates a chain of self-service retail discount stores primarily for low and middle income consumers in the United States. The company raised its quarterly distribution by 16.70% to 21 cents/share. This dividend aristocrat has boosted distributions for 36 years in a row. The current yield is1.50%, but my yield on cost is more than twice that much (analysis)

ONEOK, Inc. (OKE), a diversified energy company, operates as a natural gas distributor primarily in the United States. It operates through three segments: ONEOK Partners; Distribution; and Energy Services. The company raised its quarterly distribution by 9% to 61 cents/share. ONEOK has boosted distributions for 10 years in a row. The current yield is 2.80% (analysis)

ONEOK Partners, L.P. (OKS) engages in the gathering, processing, storage, and transportation of natural gas in the United States. This master limited partnership raised its quarterly distributions to 61 cents/unit, which represents a 7% increase over the distribution paid in Q1 2011. ONEOK Partners has boosted distributions for 7 years in a row. The current yield is 4.40%

The McGraw-Hill Companies, Inc. (MHP) provides various information services for financial, educational, and business information markets worldwide. It operates in four segments: Standard & Poor’s (S&P), McGraw-Hill Financial, McGraw-Hill Education (MHE), and McGraw-Hill Information & Media (I&M). The company raised its quarterly distribution by 2% to 25.50 cents/share. This dividend aristocrat has boosted distributions for 39 years in a row. The current yield is 2.20% (analysis)

CenterPoint Energy, Inc. (CNP) operates as a public utility holding company in the United States. The company raised its quarterly distribution by 2.50% to 20.25 cents/share. CenterPoint Energy has boosted distributions for 7 years in a row. The current payment is still below the 37.50 cents/share quarterly dividend paid between 1992 and 2002. Yield: 4.30%

Dominion Resources, Inc. (D), together with its subsidiaries, engages in producing and transporting energy in the United States. It operates in three segments: DVP, Dominion Generation, and Dominion Energy. The company raised its quarterly distribution by 7.10% to 52.75 cents/share. Dominion Resources has boosted distributions for 9 years in a row. The company had boosted distributions for 19 consecutive years as of 1995, before it froze the distributions until 2004. Yield: 4.20%

Pall Corporation (PLL), together with its subsidiaries, manufactures and markets filtration, purification, and separation products and integrated systems solutions worldwide. The company raised its quarterly distribution by 20% to 21 cents/share. Pall Corporation has boosted distributions for 8 years in a row. The company ended its 20 year streak of dividend increases in 2002, when it cut distributions by 47% to 9 cents/share. Yield: 1.40%

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 company raised its quarterly distribution by 76.25 cents/unit, which is an 8.10% increase over the Q1 2011 distribution. AmeriGas Partners has boosted distributions for 8 years in a row. Yield: 7.20%

The Williams Companies, Inc. (WMB), through its subsidiaries, engages in finding, producing, gathering, processing, and transporting natural gas primarily in the United States. The company increased its quarterly distribution by 3.50% to 25.875 cents/share.The company has raised distributions for 9 years in a row. Yield: 3.60%

TransMontaigne Partners L.P. (TLP) operates as a terminaling and transportation company. It provides integrated terminaling, storage, transportation, and related services for customers engaged in the distribution and marketing of light refined petroleum products, heavy refined petroleum products, crude oil, chemicals, fertilizers, and other liquid products. This master limited partnership raised quarterly distributions to 63 cents/unit, which represented a 3.30% increase over the distribution paid in Q1 2011. TransMontaigne Partners has boosted distributions for 7 years in a row. Yield: 7.30%

In order to generate sustainable dividend income, I try to avoid cyclical dividend achiever. For example ONEOK (OKE) cut its dividend payment in 1989 to from 16 cents/share to 7.50 cents/share. The distribution was not restored until 1998. It is normal for a company with a long streak of dividend increases to pause them, and that would make the stock a hold, but would not necessarily mean it is a sell.

Full disclosure: Long EPD, OKS, FDO, D, MHP

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Unilever (UL) for International Dividend Diversification

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

Unilever PLC (UL) provides fast-moving consumer goods in Asia, Africa, Europe, and the Americas. This international dividend achiever has paid uninterrupted dividends on its common stock since 1937 and increased payments to common shareholders every year since 1999.

The most recent dividend increase was in June 2011, when the Board of Directors approved an 8.20 % increase in the quarterly dividend to 22.50 euro cents/share. Unilever’s largest competitors include Procter & Gamble (PG), Kraft (KFT) and Nestle (NSRGY).

Over the past decade this dividend growth stock has delivered an annualized total return of 10.30% to its shareholders.

The company has managed to deliver a 15.50% annual increase in EPS since 2001. Analysts expect Unilever to earn $2.20 per share in 2011 and $2.40 per share in 2012. In comparison Unilever earned $1.94 /share in 2010.

A large portion of the company’s revenues come from Emerging markets, where sales growth is expected to continue at a high single digit to a low double digit rate of increase. The company has also been able to pass on increases in prices of raw materials onto consumers, who purchase its branded products globally. The risk behind this strategy is if Unilever increases prices to rapidly, sales volumes might suffer as a result. Typically however, while the market for food and personal consumer products is highly competitive, demand is stable and relatively immune from economic stress. The company’s strategic plans have revealed that it expects long-term sales growth of 3%- 5% per year.

The company’s Return on Equty has followed an upward trend from 20.30% in 2001 to 33.20% in 2010. Overall, despite volatility, this indicator has remained at high levels over the past decade. 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 11.20% per year since 2001, which is in line with the growth in EPS. With international dividend achievers, it is important to look at the trend in distributions in their base currencies. Despite the fact that the annual dividend payment appears volatile in US dollars, the growth in distributions in UK pounds has shown a consistent upward trend in distributions.

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 1988 we see that Unilever has actually managed to double its dividend almost every seven and a half years on average.

The dividend payout ratio has been on the decline over the past decade. It fell from a high of 80% in 2001 to 57.60% in 2010. A lower payout is always a plus, since it leaves room for consistent dividend growth minimizing the impact of short-term fluctuations in earnings.

Unilever is a company that is headquartered in the UK and the Netherlands. In this analysis I am concentrating on the British based, American Depositary Receipts. Unilever operates as a single business entity. However, there are two owners: Unilever (NV) and Unilever (PLC) which are the two parent companies of the Unilever Group, having separate legal identities and separate stock exchange listings for their shares. You can find Unilever shares trading on NYSE as (UN) or (UL) representing NV and PLC respectively. By investing in the UK shares, I am avoiding foreign withholding of my dividends.

Currently Unilever is attractively valued at 15.90 times earnings, has a sustainable dividend payout and yields 3.60%. I would consider adding to my position in the stock on dips.

Full Disclosure: Long UL, KFT, NSRGY and PG

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- International Dividend Achievers for diversification

- Nestle (NSRGY) Dividend Stock Analysis

- Procter & Gamble (PG): the greatest dividend stock

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Eleven Dividend Kings, Raising dividends for 50+ years

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

There are several lists that dividend investors use in order to find investment ideas. The dividend achievers and the dividend champions lists are just two starting points. The lists focus mostly on companies raising distributions for over 10 for the achievers and over 25 years for the champions. There are eleven companies however, which have each managed to increase distributions for over half a century. This is no small accomplishment, given the fact that the past half a century included several recessions, oil price shocks, high inflation and interest rates and several wars.

The companies with the longest record of annual dividend increases include:

Diebold Incorporated (DBD) provides integrated self-service delivery and security systems and services primarily to the financial, commercial, government, and retail markets worldwide. The company has raised distributions for 58 years in a row. The ten year dividend growth rate is 5.80% per annum. Yield: 3.70% (analysis)

American States Water Company (AWR), engages in the purchase, production, distribution, and sale of water in California as well as in the distribution of electricity in San Bernardino Mountain communities. The company has raised distributions for 57 years in a row. The ten year dividend growth rate is 2.40% per annum. Yield: 3.20%

Dover Corporation (DOV) and its subsidiaries manufacture industrial products and components, as well as provide related services and consumables in the United States and internationally. The company operates through four segments: Industrial Products, Engineered Systems, Fluid Management, and Electronic Technologies. The company has raised distributions for 56 years in a row. The ten year dividend growth rate is 8.50% per annum. Yield: 2.10% (analysis)

Northwest Natural Gas Company (NWN) stores and distributes natural gas primarily in Oregon, Washington, and California. The company operates in two segments, Local Gas Distribution and Gas Storage. The company has raised distributions for 56 years in a row. The ten year dividend growth rate is 3.50% per annum. Yield: 3.80%

Genuine Parts Company (GPC) distributes automotive replacement parts, industrial replacement parts, office products, and electrical/electronic materials in the United States, Puerto Rico, Canada, and Mexico. The company operates in four segments: Automotive Parts Group, Industrial Parts Group, Office Products Group, and Electrical/Electronic Materials Group. The company has raised distributions for 55 years in a row. The ten year dividend growth rate is 4.80% per annum. Yield: 2.80% (analysis)

The Procter & Gamble Company (PG) provides consumer packaged goods in the United States and internationally. The company operates in three global business units (GBUs): Beauty and Grooming, Health and Well-Being, and Household Care. The company has raised distributions for 55 years in a row. The ten year dividend growth rate is 10.90% per annum. Yield: (analysis)

Emerson Electric Co. (EMR), a diversified global technology company, engages in designing and supplying product technology, as well as delivering engineering services and solutions to various industrial, commercial, and consumer markets worldwide. The company has raised distributions for 55 years in a row. The ten year dividend growth rate is 6.40% per annum. Yield: 3.20% (analysis)

3M Company (MMM) , together with subsidiaries, operates as a diversified technology company worldwide. The company has raised distributions for 53 years in a row. The ten year dividend growth rate is 6.20% per annum. Yield: 2.60% (analysis)

Cincinnati Financial Corporation (CINF), through its subsidiaries, operates in the property casualty insurance business in the United States. It operates in four segments: Commercial Lines Property Casualty Insurance, Personal Lines Property Casualty Insurance, Life Insurance, and Investment. The company has raised distributions for 51 years in a row. The ten year dividend growth rate is 8% per annum. Yield: 5.10% (analysis)

Vectren Corporation (VVC) provides energy delivery services to residential, commercial, and industrial and other customers in Indiana and west central Ohio. The company has raised distributions for 52 years in a row. The ten year dividend growth rate is 3.00% per annum. Yield: 4.80%

Parker Hannifin Corporation (PH) manufactures fluid power systems, electromechanical controls, and related components. The company has raised distributions for 54 years in a row. The ten year dividend growth rate is 11.5% per annum. Yield: 1.80%

Two other companies which could join the dividend kings list include Coca-Cola (KO) and Johnson & Johnson (JNJ), which have raised distributions for 49 years in a row.

The purpose of this list is not to provide an investment recommendation, although some of the companies above are attractively valued and fit my entry criteria. The purpose is to deliver a list of stocks which investors could use to analyze the business fundamental behind each of the companies above, which have enabled them to raise distributions for over 50 years in a row

Full Disclosure: Long PG, MMM, EMR, KO, CINF,

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Eight Dividend Increases for Long-Term Investors

noreply@blogger.com (D) — Mon, 16 Jan 2012 01:00:00 PST

Warren Buffett describes the stock market’s short term fluctuations as a voting machine, by tallying up which firms are popular and which are not. However, in the long-term the market is a weighting machine, where the fundamental strength of the companies is being evaluated. What truly matters in the long run is how well will the company execute its long term strategy in order to keep generating the rising earnings to pay higher distributions over time. As a long term investor I keep a close eye on the long-term performance of the companies I own stock in. I do however ignore daily noise about market fluctuations, news about the economy or even the recent news about Europe. I keep focusing on the long term picture and sticking to my retirement strategy of buying dividend stocks with rising distributions.

The long-term holders of the following eight companies got one step closer to financial independence, after their investments announced plans to increase distributions:

Genesis Energy, L.P. (GEL), together with its subsidiaries, operates in the midstream segment of the oil and gas industry in the Gulf Coast area of the United States. The master limited partnership raised its quarterly distributions by 2.90% to 44 cents/unit. Genesis Energy has increased distributions for 8 years in a row. Yield: 6.10%

Plains All American Pipeline, L.P. (PAA) engages in the transportation, storage, terminalling, and marketing of crude oil, refined products, and liquefied petroleum gas and other natural gas-related petroleum products (LPG) in the United States and Canada. It operates in three segments: Transportation, Facilities, and Supply and Logistics. The master limited partnership raised its quarterly distributions by 3% to $1.025/unit. Plains All American Pipeline has increased distributions for 11 years in a row. Yield: 5.60%

Pentair, Inc. (PNR) operates as a diversified industrial manufacturing company worldwide. The company raised its quarterly dividend by 10% to 22 cents/share. This dividend champion has increased distributions for 37 years in a row. The ten year dividend growth rate is 8.60% per year. Yield: 2.40%

Shaw Communications Inc. (SJR), a diversified communications company, provides broadband cable television, Internet, digital phone, telecommunications, and satellite direct-to-home services primarily in Canada and the United States. The company raised its monthly dividend by 5.40% to 8.08 CAD cents/share. Shaw Communications has increased distributions for 10 years in a row. Yield: 4.90%

Alliant Energy Corporation (LNT) operates in electric and gas utility businesses in the United States. The company raised its quarterly dividend by 5.90% to 45 cents/share. Alliant Energy has increased distributions for ten years in a row. Unfortunately for long-term holders, the current dividend is still below the record 50 cents/share paid in 2002. Yield: 4.20%

Omega Healthcare Investors, Inc. (OHI) operates as a real estate investment trust (REIT) in the United States. The company invests in healthcare facilities, principally long-term healthcare facilities in the United States. The company raised its quarterly dividend by 2.50% to 41 cents/share. This increase represents a 10.80% increase over the Q1 2011 distribution. Omega Healthcare Investors has increased distributions for ten years in a row. Unfortunately for long-term holders, the current dividend is still below the record 70 cents/share paid in 1999. Yield: 8.20%

Watsco, Inc. (WSO), together with its subsidiaries, distributes air conditioning, heating and refrigeration equipment, and related parts and supplies in the United States. The company raised its quarterly dividend by 8.80% to 62 cents/share. Watsco has increased distributions for 12 years in a row. Yield: 3.70%

Robbins & Myers, Inc. (RBN), together with its subsidiaries, engages in the design, manufacture, and marketing of engineered, application-critical equipment and systems for the energy, industrial, chemical, and pharmaceutical markets worldwide. The company raised its quarterly dividend by 11.10% to 5 cents/share. Robbins & Myers has increased distributions for 6 years in a row. Yield: 0.40%

Full Disclosure: None

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General Dynamics (GD) Dividend Stock Analysis

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

General Dynamics Corporation (GD) provides business aviation, combat vehicles, weapons systems and munitions, military and commercial shipbuilding, and communications and information technology products and services worldwide. This dividend achiever has paid uninterrupted dividends on its common stock since 1979 and increased payments to common shareholders every year for 20 consecutive years. Most recently, Warren Buffett's Berkshire Hathaway initiated a stake in General Dynamics.

The most recent dividend increase was in March 2011, when the Board of Directors approved a 11.90 % increase in the quarterly dividend to 47 cents/share. General Dynamics’s largest competitors include Boeing (BA), Lockheed Martin (LMT) and Textron (TXT).

Over the past decade this dividend growth stock has delivered an annualized total return of 4.40% to its shareholders.

The company has managed to deliver a 12.70% annual increase in EPS since 2001. Analysts expect General Dynamics to earn $7.22 per share in 2011 and $7.59 per share in 2012. In comparison General Dynamics earned $6.82 /share in 2010. The company has been able to buyback 0.60% of its shares outstanding every year on average over the past decade.

General Dynamic’s largest customer is the US Government, which accounts for 40% of global military spending. Given the challenging political climate, there is a high level of uncertainty behind future increases in defense spending coming out of the US. This being said, the company does have other customers in other markets and also other divisions such as the Aerospace one that is producing Gulfstream Jets. Demand in the Aerospace division will be fueled by new product introductions and demand from emerging markets. The major obstacles behind General Dynamics include inability to win any major defense contracts, major cuts in military budgets as well as a slowdown in commercial aviation.

The company’s Return on Equty has remained in a tight range between 17.50% and 22.50% over the past decade. 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 12.90% per year since 2001, which is in line with the growth in EPS.

A 13% growth in distributions translates into the dividend payment doubling almost every fie and a half years. If we look at historical data, going as far back as 1974 we see that General Dynamics has actually managed to double its dividend almost every six years on average.

The dividend payout ratio has remained in arrange between 21% and 25%. 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 General Dynamics is attractively valued at 9.50 times earnings, has a sustainable dividend payout and yields 2.80%.

Full Disclosure: None

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Top Dividend Stocks to own in 2012

noreply@blogger.com (D) — Wed, 11 Jan 2012 01:00:00 PST

The new year has just began, and there are many analysts making bold predictions. These predictions vary from cautiously optimistic about the markets and the world economy to overly pessimistic about Europe, Financial Crisis and inflation.

Unfortunately, I cannot predict the future. I do know however, that investors become successful only after they find a niche that gives them an edge in their quest for long term wealth accumulation. My niche is dividend growth stocks. These companies have managed to boost earnings and dividends for many decades, through recessions, wars, oil embargoes and double digit inflationary periods. The companies I invest in typically provide consumers in every continent with products or services they use on a daily basis. No matter what happens with the economy, people will still do grocery shopping, and spend on basic needs. This makes the business model for most of the stocks I focus on very defensive in its core.

Some of the best companies to own in 2012, make great acquisitions that I plan to hold for several decades. I mostly sell only when one of these three events occurs. The one prediction I will make is that the following companies will boost their dividends in 2012, as they have previously done for years before.

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 distributions for 49 years in a row. The 10 year annual dividend growth rate is 13%/year. The last dividend increase was 5.60% to 57 cents/share. Analysts are expecting that Johnson & Johnson will earn $5.24/share in 2012. I expect that the quarterly dividend will exceed 61 cents/share in 2012. Yield: 3.50% (analysis)

The Procter & Gamble Company (PG) provides consumer packaged goods in the United States and internationally. The company has raised distributions for 55 years in a row. The 10 year annual dividend growth rate is 10.90%/year. The last dividend increase was 9% to 52.50 cents/share. Analysts are expecting that Procter & Gamble will earn $4.20/share in 2012. I expect that the quarterly dividend will be increased to 57 cents/share in 2012. Yield: 3.20% (analysis)

McDonald’s Corporation (MCD), together with its subsidiaries, operates as a foodservice retailer worldwide. The company has raised distributions for 35 years in a row. The 10 year annual dividend growth rate is 26.50%/year. The last dividend increase was 14.75% to 70 cents/share. Analysts are expecting that McDonald's will earn $5.73/share in 2012. I expect that the quarterly dividend will reach 77 cents/share in 2012. 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 distributions for 39 years in a row. The 10 year annual dividend growth rate is 13%/year. The last dividend increase was 7.30% to 51.50 cents/share. Analysts are expecting that PepsiCo will earn $4.65/share in 2012. I expect that the quarterly dividend will reach 55 cents/share in 2012. Yield: 3.20% (analysis)

Colgate-Palmolive Company (CL), together with its subsidiaries, manufactures and markets consumer products worldwide. The company has raised distributions for 48 years in a row. The 10 year annual dividend growth rate is 12.40%/year. The last dividend increase was 9.40% to 58 cents/share. Analysts are expecting that Colgate Palmolive will earn $5.52/share in 2012. I expect that the quarterly dividend will be raised to 64 cents/share in 2012. Yield: 2.60%(analysis)

Abbott Laboratories (ABT) engages in the discovery, development, manufacture, and sale of health care products worldwide. The company has raised distributions for 39 years in a row. The 10 year annual dividend growth rate is 8.80%/year. The last dividend increase was 9.10% to 48 cents/share. Analysts are expecting that Abbott will earn $5.03/share in 2012. I expect that the quarterly dividend will be raised to 52 cents/share sometime in 2012. Yield: 3.40% (analysis)

Kimberly-Clark Corporation (KMB), together with its subsidiaries, engages in the manufacture and marketing of health care products worldwide. The company has raised distributions for 39 years in a row. The 10 year annual dividend growth rate is 9.20%/year. The last dividend increase was 6.10% to 70 cents/share. Analysts are expecting that Kimberly-Clark will earn $5.25/share in 2012. I expect that the quarterly dividend will be raised to 74 cents/share sometime in 2012. Yield: 3.90% (analysis)

3M Company (MMM), together with subsidiaries, operates as a diversified technology company worldwide. The company has raised distributions for 53 years in a row. The 10 year annual dividend growth rate is 6.10%/year. The last dividend increase was 4.80% to 55 cents/share. Analysts are expecting that 3M will earn $6.33/share in 2012. I expect that the quarterly dividend will be raised to 57.50 cents/share sometime in 2012. Yield: 2.60% (analysis)

Kinder Morgan Energy Partners, L.P. (KMP) owns and manages energy transportation and storage assets. This MLP has raised distributions for years in a row. The 10 year annual distribution growth rate is 10.90%/year. Kinder Morgan raised its quarterly distributions by 4.50% to $1.16/unit in 2011. I expect that the distribution will grow to $1.21/unit by the end of 2012. Yield: 5.60% (analysis)

Philip Morris International Inc. (PM), through its subsidiaries, manufactures and sells cigarettes and other tobacco products. The company has raised distributions since the spin-off from Altria Group in 2008. The last dividend increase was 20.30% to 77 cents/share. Analysts are expecting that Philip Morris International will earn $5.22/share in 2012. I expect that the quarterly distribution will reach 85 cents/share in 2012. Yield: 3.90% (analysis)

Wal-Mart Stores, Inc. (WMT) operates retail stores in various formats worldwide. The company has raised distributions for 37 years in a row. The 10 year annual dividend growth rate is 17.80%/year. The last dividend increase was 20.70% to 36.50 cents/share. Analysts are expecting that Wal-Mart will earn $4.93/share in 2012. I expect that the company will hike the quarterly distribution to 41 cents/share by the end of 2012. Yield: 2.50% (analysis)

The following companies should do well no matter what happens with the global economy in 2012. While they are defensive, they also have a growth kick that would enable them to generate the rising earnings stream to pay for the dividend increases in 2012 and beyond. Their diversified income streams, spread out globally, as well as the recurring nature of their products or services make them great long term holdings for any serious dividend investor. With an average yield of % ,and strong expected dividend growth, these stocks are a good list to add to a dividend portfolio.

Full Disclosure: Long all stocks listed above

Relevant Articles:

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

- The Dividend Edge

- Six Dividend Stocks to Hold Forever

- Why Dividend Growth Stocks Rock?

My Dividend Retirement Plan

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

I invest in dividend stocks, in order to generate a sufficient income stream, that would meet and exceed my expenses in retirement. Retirement to me is the point where my dividend income exceeds my expenses, which means that I no longer have to work for money. I am a big proponent of value investing, which is why I would only consider myself financially independent whenever the dividend income stream generated by my portfolio exceeds 1.5 times my annual expenses.

In order to get there, there are several simple, but crucial principles I need to follow.

The first principle in building wealth through dividend paying stocks is to spend less than what you earn. I have consistently managed to save approximately half of my after-tax income every month. In addition, any bonus or raise received has been designated to my dividend growth portfolio. It also doesn’t hurt to try looking for additional income opportunities, which are dependent on my skillset. By investing as much as possible, I can grow my portfolio and the income stream it produces very quickly. In addition, by spending half of my salary for example and keeping expenses low, I would only need 50% less than what I currently make in terms of dividend income. In addition, regular saving helps me to consistently add to my portfolio. This regular dollar cost averaging over time into positions that are attractively priced, creates another layer of safety.

The second principle is to invest your money very conservatively. I invest my money as if I would lose my job and I would have to depend on my portfolio income for my sole purpose of survival. As a result I do not chase hot stocks or try to outsmart the market through frequent trading or market timing. I have designated a simple strategy, which fits my personality and which works for me. Since I have designated the strategy, and since I have had years of experience in the markets, I know when to look for an investment opportunity. I do continuously try to learn as much as possible about markets, investing and other strategies, in order to find ways to improve.

The third principle is somewhat similar to the second. It is all about designing an investment strategy and sticking to it for most of the part. My strategy entails:

1) Stocks that have a 10 year record of consistent dividend raises
2) P/E ratios of less than 20
3) Dividend payout ratios of less than 60%. For MLPs, REITs and Utilities I evaluate each opportunity on an individual basis
4) Dividend yield exceeding 2.50%, although I do change this requirement depending on the dividend yield on the S&P 500
5) Quality characteristics such as wide moat, strong competitive advantages, strong brand names, rising earnings, decreasing number of shares etc

While I mostly stick to my strategy, I sometimes do deviate from it. I have purchased companies yielding less than 2.50%, or ones which have had less than 10 years of consistent dividend increases. I have not purchased stocks whose P/E ratio was above 20 times earnings however. Valuation is paramount in my investment decision. I typically expect that the distributions from my dividend portfolio would grow organically by about 6% per year. In comparison, dividends on Dow Jones Industrials Average grew by over 5% per year between 1920 and 2005. The rising dividend stream will maintain purchasing power of my income stream by protecting it from inflation. The types of companies I invest in include such blue chips like Johnson & Johnson (JNJ) or PepsiCo (PEP).

The fourth principle involved selling underperforming shares. While I take a great amount of time analyzing companies and making sure they are priced right before I purchase them, I realize that things could change and that I should not be married to a stock that does not deliver results. In a previous article I mentioned that typically sell dividend stocks only after three events have occurred. One of these events includes dividend cuts. If a company whose stock I own lowers or eliminates dividend payment, I immediately sell and reinvest the proceeds into an investment from a similar sector that is priced attractively. For example, when I sold British Petroleum (BP) in 2010, I immediately purchased shares of Royal Dutch Shell (RDS/B). As a result, I was able to replace the dividend income to a certain extent, and still had exposure to the Energy sector.

The fifth principle is all about diversification. I try to maintain a diversified income portfolio, which has over 40 individual securities in it. The portfolio is not equally weighted, as it has been built over a long period of time. It includes a fair amount of underweight positions, which were accumulated when they were attractively valued, but are no longer fairly valued. Examples include Family Dollar (FDO) and Yum! Brands (YUM). The reason behind diversification is to ensure that the income stream is not severely affected when one or two of the stocks I own cut distributions. A dividend cut in a portfolio of less than 10 stocks will severely affect the income stream. A dividend cut in a portfolio of over 30 stocks will not affect the dividend income. In an equally weighted portfolio, even if the dividend is completely eliminated in one or two components, the total income can still grow if the other components grow distributions and if the sold stocks are replaced strategically.

The sixth principle of my wealth accumulation strategy is strategically reinvesting dividends. While I plan that my dividend growth portfolio will generate organic dividend growth of 6% per year, by reinvesting dividends, I can generate a much higher total growth in portfolio distribution income over time. Basically I am turbocharging my total dividend income by purchasing shares which rise dividend payments, then reinvesting these dividend payments and also adding new capital to the portfolio every single month. I typically wait for the amount of dividends and the amount of new capital to reach $1000 before I purchase a new or additional position in a given company. I do not automatically reinvest dividends, because I do not want to purchase additional shares in a company that overvalued.

In summary, by saving money, investing them in blue chip dividend growth stocks and reinvesting dividends and new capital, I plan to generate enough dividends to make me financially independent. I follow the six principles in my wealth accumulation and dividend income generation. My dividend income is getting closer to 40% - 45% of my expenses, after following these guidelines for a several years. In a few short years, my dividend income should be able to exceed my monthly expenses, without having to endure a lower standard of living.

Full Disclosure: Long FDO, RDS/B, JNJ, PEP

Relevant Articles:

- Living off dividends in retirement

- How to Build a Retirement Dividend Portfolio with only $1000/month?

- Margin of Safety in Dividends

- How to create a bulletproof dividend portfolio

We are not in a Dividend Bubble

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

I recently read an article titled “ Are we Witnessing a Dividend Bubble?”. While catchy titles like Dividend Bubbles and comparisons to the Nifty Fifty from the 1970's can attract readers, there is little substantive evidence to prove that we are in an actual dividend bubble. Back in 2008 I myself wrote an article where I predicted that record low interest rates might lead to a Dividend Bubble.

The Nifty Fifty was a group of one decision growth stocks, which money managers bought indiscriminately regardless of valuation. When the US economy entered a recession in 1973, the rosy earnings expectations for the high multiple Nifty Fifty turned gloomy. As a result, share prices fell sharply. The contraction was more severe for the Nifty Fifty stocks, many of which did not return to their highest stock price levels for many years.

Dividend stocks are a buy and hold for the long term type investment. Making an assumption about “dividend bubbles” based on relative outperformance in a period of less than one year does not sound convincing. While the Nifty Fifty were also considered a buy and hold type of stocks in the 1970's, the major difference is that dividend stocks are actually undervalued. In addition, few investors actually appreciate the value that dividend stocks offer to investors. Bubbles are characterized by irrational exuberance and chasing of assets regardless of their underlying fundamentals. Given the fact that only few investors appear optimistic about dividend stocks, and that fundamentals appear sound, it is premature to talk about a bubble in dividend stocks.

Given the low interest rates on US Treasuries and Certificates of Deposit (CDs), many market pundits are claiming that investors are purchasing income stocks in an effort to get higher yields on their nest eggs. These investors are supposed to be least sophisticated, and therefore these market pundits are claiming that the “smart money” should do the opposite by ignoring income stocks. While this could be true in some isolated instances, few investors typically hold large amounts of cash in fixed income instruments. Their assets are typically invested in stock and bond mutual funds. In addition, few investors simply purchase income stocks without doing any research. Given the fact that dividend stocks in general offer greater possibility for higher returns in comparison to fixed income, investors who are selling bonds and buying income stocks might be actually doing the right thing for their money. The only scenario where investors who purchase 10 or 30 year US Treasuries will generate a higher return than stocks will be if we have a Japan style deflation for the next two decades.

In my investing, I screen the dividend champions and dividend achievers lists for bargains several times a month. There are usually some overpriced stocks, many fairly priced stocks and a few that are undervalued. On average however, most dividend stocks exhibit similar characteristics to equities in general. Equities are trading at their lowest valuations in many years. Corporate balance sheets are flush with cash, and corporations are earning record amounts. As a result M&A activity is increasing, as are dividends and share buybacks.

Dividend investors typically apply a set of qualitative and quantitative criteria, before committing any funds to investments. As a result, even if a company like PepsiCo (PEP) has a wide-moat and will probably keep raising distributions for the next few decades, it should not be bought when P/E is over 20.

In conclusion, while it might seem that investors are paying more attention to dividend stocks, this has not led to any overvaluation in stock prices. On the contrary, many dividend paying corporations are flush with cash, and can afford paying higher distributions in the future. Most of these dividend stocks are attractively priced at the moment and offer a better risk/reward than fixed income securities. Given this information, there is no evidence to suggest that we are in a Dividend Bubble.

Relevant Articles:

- The next bubble in the making.

- Buy and hold dividend investing is not dead

- My Bullish Case: Stocks are cheap

- Why I am a dividend growth investor?

- Are dividend stocks a separate asset class?

Dividend Growth Portfolio - Q4 2011 Update

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

Back in September 2011, I was invited to participate in the Dividend Growth Portfolio project. This project combines the best stock picks from several bloggers that focus exclusively on dividend stocks. The complete portfolio could be seen from this page.

Each blogger selected three stocks that they viewed as attractively priced. I selected McDonal'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), together with its subsidiaries, operates as a foodservice retailer worldwide. It franchises and operates McDonald’s restaurants worldwide. This dividend aristocrat has raised distributions for 35 years in a row. In 2011, McDonald's increased quarterly dividends by 14.70% to 70 cents/share. Over the past decade, the company has managed to boost distributions by 26.50% per year. In 2010, McDonald's earned $4.58/share. Analysts expect earnings to reach $5.73/share by 2012. The stock currently is attractively valued and yields 2.80%. (analysis)

Enterprise Products Partners L.P. (EPD) provides midstream energy services to producers and consumers of natural gas, NGLs, crude oil, refined products, and petrochemicals in North America. The master limited partnership has raised distributions for 14 years in a row. In 2011, Enterprise Products Partners increased quarterly distributions by 5.10% to 61.30 cents/unit. Over the past decade, the company has managed to boost distributions by 8.30% per year. This MLPs has a sustainable distribution and yields 5.40%. (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. In 2011, Chevron increased quarterly dividends by 12.50% to 81cents/share. Over the past decade, the company has managed to boost distributions by 8.10% per year. In 2010, Chevron earned $9.48/share. Analysts expect earnings to reach $13.04/share by 2012. The stock currently is attractively valued and yields 3.10%. (analysis)

The rest of the selections can be seen from the table below. Prices were depressed in late September, which is why this portfolio is making money right now.

You could read the reasoning behind the other stock selections from the articles below:

Dividend Mantra: Introducing The Dividend Growth Index

The Dividend Guy Blog: Dividend Growth Index

Dividend Monk’s Three Picks for the Dividend Growth Index

Dividend Ninja: Introducing the Dividend Growth Index

Passive Income Earner: Introducing the Dividend Growth Index

My Own Advisor: Introducing the Dividend Growth Index

The Wealthy Canadian: The Dividend Growth Index

Full Disclosure: Long MCD, CVX, EPD

Relevant Articles:

- Dividend Growth Portfolio Project

- Dividend Growth Portfolio

- Best Dividend Stocks for 2011

- Dividend Aristocrats List for 2012

Best Dividend Stocks for 2012

noreply@blogger.com (D) — Tue, 03 Jan 2012 01:00:00 PST

Back in 2010 I was invited to participate in a stock picking competition. The objective was to identify the best four stocks for 2011. You can read the reasons behind my four selections in this article. The four stocks I selected included:

The Procter & Gamble Company (PG) provides consumer packaged goods in the United States and internationally. This dividend aristocrat has raised distributions for 55 years in a row. Over the past decade, Procter & Gamble has managed to boost dividends by 10.90% per year. Analysts are expecting further increases in EPS over the next two years to $4.57/share, which represents a 16.30% expected growth. The stocks yields 3.20% and is attractively valued at the moment. Check my analysis of the stock.

Johnson & Johnson (JNJ) engages in the research and development, manufacture, and sale of various products in the health care field worldwide. The company operates in three segments: Consumer, Pharmaceutical, and Medical Devices and Diagnostics. This dividend aristocrat has raised distributions for 49 years in a row. There are only eleven companies in the world, which have managed to accomplish this task. Over the past decade, Johnson & Johnson has managed to boost dividends by 13% per year. Analysts are expecting further increases in EPS over the next two years to $5.24/share. The stocks yields 3.50% and is attractively valued at the moment. Check my analysis of the stock.

Philip Morris International Inc. (PM), through its subsidiaries, manufactures and sells cigarettes and other tobacco products. The company was spun off from Altria Group (MO) in 2008, and has continued its predecessor’s tradition of raising dividends every year ever since. I like the company’s strong presence outside the US, and the fact that it has the ability to grow through acquisitions as well as by capitalizing on the rising populations in the emerging markets. Analysts are expecting further increases in EPS over the next two years to $5.21/share.The stock yields 3.90%. Check my analysis of Phillip Morris International.

PepsiCo, Inc. (PEP) engages in the manufacture, marketing, and sale of foods, snacks, and carbonated and non-carbonated beverages worldwide. This dividend aristocrat has raised distributions for 39 years in a row. Over the past decade, PepsiCo has managed to boost dividends by 13% per year. Analysts are expecting further increases in EPS over the next two years to $4.66/share. The stocks yields 3.10% and is more attractively valued at the moment relative to arch rival Coca Cola (KO). Check my analysis of PepsiCo.

Overall the four picks delivered a total return of 15.40% in 2011. In comparison, the S&P 500 returned 1.90% in 2011, all of which was due to dividends.

I believe that the stocks I selected to be great long-term holdings for many decades to come. The companies identified above are riding multi-decade consumer trends, and have strong brands that customers are willing to pay a premium for. In addition, the products that these companies produce would likely still be purchased by consumers for several decades into the future. Rapid shifts in consumer preferences are unlikely. In other words, if you like drinking Pepsi, you would keep drinking Pepsi. As a result, I would consider these stocks to also be the best dividend stocks for 2012 as well.

The performance of the other bloggers in the competition in 2011 is listed below:

Dividend Growth Investor + 15.36%

Million Dollar Journey +3.12%

Intelligent Speculator -4.90%

Money Smarts Blog -9.55%

Where Does My Money Go -17.04%

My Traders Journal -19%

The Financial Blogger -21.73%

The Wild Investor -33.34%

Beat The Index -44.08%

Overall, I have performed very well in this competition, where I participated in 2009, 2010 and 2011. My total returns for 2009 were 26.48% and 26.08% for 2010. In comparison, S&P 500 delivered total returns of 26.35% in 2009 and 14.60% in 2010. In essence, the four picks I selected in each of the three years have outperformed the S&P 500. Whether the four picks outlined in this article outperform in 2012 is yet to be determined. Stay tuned for my next update in early April 2012.

Full Disclosure: Long PG, JNJ, PM, PEP

Relevant Articles:

- Best Dividend Stocks for 2011

- Dividend Aristocrats List for 2012

- How to invest like a Dividend Billionaire

- 2010’s Top Dividend Plays

This article was featured on Carnival of Personal Finance – “Ask the Right Questions” Edition

Becton, Dickinson and Company (BDX) Dividend Stock Analysis 2011

noreply@blogger.com (D) — Fri, 30 Dec 2011 01:00:00 PST

Becton, Dickinson and Company (BDX), a medical technology company, develops, manufactures, and sells medical devices, instrument systems, and reagents worldwide. This dividend champion has paid uninterrupted dividends on its common stock since 1926 and increased payments to common shareholders every year for 39 consecutive years.

The most recent dividend increase was in November 2011, when the Board of Directors approved a 10 % increase in the quarterly dividend to 45 cents/share. Becton Dickinson’s largest competitors include Medtronic (MDT), Baxter International (BAX) and Boston Scientific (BSC).

Over the past decade this dividend growth stock has delivered an annualized total return of 8.70% to its shareholders.

Despite soft economic outlook, the company should be able to generate higher sales in due to the sustainable demand for its diabetes products, disease testing products, and cell analysis products. The company generates over half of its sales from international operations, which is expected to increase as it grows its presence in emerging markets. The company is also active on the acquisition front as well as in investing heavily in research and development (R&D).

The company has managed to deliver a 13.50% annual increase in EPS since 2002. Analysts expect Becton Dickinson to earn $5.84 per share in 2011 and $6.45 per share in 2012. In comparison Becton Dickinson earned $5.59 /share in 2011. The company has been able to buyback 1.10% of its shares outstanding every year on average over the past decade.

The company’s Return on Equty has expanded over the past few years, from 20% in 2002 to 24% 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 17.30% per year since 2001, which is much higher than the growth in EPS. Given the low dividend payout ratio however, Becton Dickinson can afford to raise distributions faster than earnings for at least one and a half to two decades.

A 17% growth in distributions translates into the dividend payment doubling almost every four years. If we look at historical data, going as far back as 1974 we see that Becton Dickinson has actually managed to double its dividend almost every six years on average.

The dividend payout ratio has increased from 21.80% in 2002 to 29.30% in 2011. Future increases in dividends above the rate of dividend increases could lead to further expansion in this indicator. 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 Becton Dickinson is attractively valued at 13.30 times earnings, has a sustainable dividend payout and yields 2.40%. I would consider initiating a position in the stock on dips below $72.

Full Disclosure: Long MDT

Relevant Articles:

- Ten Top High Dividend Growth Stocks for Long Term Returns

- Medtronic (MDT) Dividend Stock Analysis

- Lifecycle of the dividend investor

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

Tech Dividends on the Rise

noreply@blogger.com (D) — Wed, 28 Dec 2011 01:00:00 PST

The technology sector has typically been characterized by rapid product obsolescence and the tremendous amounts of capital necessary to invest in Research and development, in order to maintain the competitive edge. The positive sides of technology include that a simple idea such as a piece of software can be widely distributed for a nominal cost, once the product is finished. The fact that companies have to come up with new innovative products all the time, since the status quo of the existing ones is challenged all the time, has historically lead to volatility in earnings. With such volatility, most companies have had to reinvest most of their earnings back into the business. This has not resulted in future growth however, as some firms ended up betting everything on themselves, while their industry niche was going into extinction.

In addition, the most successfully technology companies have been able to continuously predict and capitalize on future trends. Given the fact that the technologies ten years from now will be different that the technologies from today, a bet on tech stocks seems more like a speculation, rather than an investment. Because of the factors listed above, few tech companies have a wide moat. Most, such as Google, Microsoft, Intel or Apple have a moat, which could last for a few years. But that is until there is some ground breaking technology change or disruption, which provides consumers with a better, slicker and more advanced piece of technology. Companies such as International Business Machines (IBM), which has successfully been able to adapt for decades are the exception, rather than the norm.

Nevertheless, some companies such as International Business Machines (IBM), Intel (INTC) and Microsoft (MSFT) have been able to generate rising earnings per share over the past decade. This has enabled them to initiate a dividend, and also to increase it over time. The following companies have been able to achieve a higher annual dividend for at least five years:

Automatic Data Processing, Inc. (ADP) provides business outsourcing solutions. The company operates in three segments: Employer Services, Professional Employer Organization (PEO) Services, and Dealer Services. This dividend aristocrat has managed to boost distributions for 37 years in a row. Yield: 3.10% (analysis)

International Business Machines Corporation (IBM) provides information technology (IT) products and services worldwide. This dividend achiever has paid distributions for one century, and managed to boost distributions every year for 16 years in a row. Yield: 1.60% (analysis)

Microsoft Corporation (MSFT) develops, licenses, and supports a range of software products and services for various computing devices worldwide. This software giant has managed to raise distributions for seven consecutive year. Yield: 3.10% (analysis)

Intel Corporation (INTC) engages in the design, manufacture, and sale of integrated circuits for computing and communications industries worldwide. The worlds largest chipmaker has managed to boost dividend payouts to shareholders for eight years in a row. Yield: 3.60% (analysis)

AT&T Inc. (T), together with its subsidiaries, provides telecommunication services to consumers, businesses, and other service providers worldwide. This dividend aristocrat has boosted distributions for 27 years in a row. Yield: 5.90% (analysis)

Verizon Communications Inc. (VZ) provides communication services. The company operates through two segments, Domestic Wireless and Wireline. The telecom carrier has managed to boost distributions for seven consecutive years. Yield: 5.20%

Vodafone Group Public Limited Company (VOD) provides mobile telecommunication services worldwide. It offers mobile voice services to approximately 370 million customers; messaging services; mobile data services; fixed broadband services to approximately 6 million customers; and whole sale carrier services to approximately 40 African countries. This international dividend achiever yields 7.70%.

I am not a big fan of technology in general for my dividend portfolio. As a result, I am mostly underweight the sector. While I might miss out on some spectacular stories such as Apple (AAPL), the lack of wide moats make it difficult to commit a large portion of my portfolio to the sector. In addition, the low number of dividend achievers and aristocrats in the technology sector epitomizes the fickle nature of technology as a business in general.

Full Disclosure: Long ADP

Relevant Articles:

- Dividend Aristocrats List for 2012

- Has the time for Tech Dividends arrived?

- Dividends are Powering Up the Tech Sector

Margin of Safety in Dividends

noreply@blogger.com (D) — Wed, 21 Dec 2011 01:00:00 PST

Benjamin Graham is the father of value investing. His strategy was focused on purchasing securities where the price was much lower than the total liquidation value of the corporation. This concept of purchasing stocks with a margin of safety has made him, his investors and the investors of his followers billions of dollars in profits. The real profits from this powerful concept were realized by Warren Buffett, who purchased stock in wide-moat companies at a fraction of what their future value was going to be.

Dividend investing is a form of value investing, where investors do not realize all of their return all at once, but rather on regular and consistent intervals. Dividends provide a direct link between the financial performance of a company, and the returns of its shareholders. Sometimes the market does not recognize that certain firms are more valuable for extended periods of time, even if their earnings are higher and valuations are cheap. With dividends, value investors realize a return that puts them closer to realizing the intrinsic value of the stock, no matter what the market or the stock price does.

Not all dividend stocks are attractive bargains however, which is evidenced when applying certain quantitative and qualitative criteria. In addition, investors should analyze whether the dividend payment is sustainable. There has to be an adequate margin of safety in dividend coverage from earnings or cashlows, which would ensure prompt payment of distributions even if there was a temporary fluctuation in operating performance.

I typically look for a margin of safety in dividends in corporations to be 50%-60% or below. This means that the dividend payout ratio should not be over 60%, since it leaves room for consistent dividend growth minimizing the impact of short-term fluctuations in earnings. When a company pays out almost all of its earnings as dividends, that leaves little room for maneuvering if earnings decline. In addition, this leaves little for investing and growing the business. There are some exceptions, where investors need to look beyond dividend payout ratio in order to evaluate dividend sustainability for Real Estate Investment Trusts, Master Limited Partnerships or Business Development Corporations to name a few. For REITs, investors should look at Funds from Operations (FFO). FFO is defined as net income available to common stockholders, plus depreciation and amortization of real estate assets, reduced by gains on sales of investment properties and extraordinary items.

For example, in 2010 Realty Income (O) distributed $1.722/share in dividends, whereas earnings were $0.92/share. It’s FFO per share was $1.83/share however. Check my analysis of this REIT.

Some companies with safe dividends include:

Aflac Incorporated (AFL), through its subsidiary, American Family Life Assurance Company of Columbus (Aflac), provides supplemental health and life insurance. The company earned $4.95/share in 2010, and its annual dividend is $1.32 /share. The dividend payout ratio is 26.70%. Yield: 3.10% (analysis)

Medtronic, Inc. (MDT) manufactures and sells device-based medical therapies worldwide. The company earned $2.86/share in 2011, and its annual dividend is $0.97/share. The dividend payout ratio is 33.90%. Yield: 2.70% (analysis)

McDonald’s Corporation (MCD), together with its subsidiaries, operates as a foodservice retailer worldwide. The company earned $4.58/share in 2010, and its annual dividend is $2.80 /share. The dividend payout ratio is 61.10%. Yield: 2.90% (analysis)

Wal-Mart Stores, Inc. (WMT) operates retail stores in various formats worldwide. The company earned $4.18/share in 2010, and its annual dividend is $1.46/share. The dividend payout ratio is 34.90%. Yield: 2.50% (analysis)

Margin of safety in dividends is just one of the characteristics I look in a stock before analyzing it and eventually initiating or adding to my position in it. Nevertheless it is important to purchase shares in companies that can grow dividends and produce sustainable distributions for decades, while minimizing the risk of a dividend cut.

Full Disclosure: Long all stocks mentioned above

Relevant Articles:

- Seven wide-moat dividends stocks to consider

- 40 Value Stocks that Graham Would Buy

- Why Sustainable Dividends Matter

- Five Metrics of Successful Dividend Companies

I've been included in the latest edition of the Carnival of Personal Finance hosted at Money Cactus.

McCormick & Company (MKC) Dividend Stock Analysis 2011

noreply@blogger.com (D) — Mon, 19 Dec 2011 01:00:00 PST

McCormick & Company, Incorporated (MKC) engages in the manufacture, marketing, and distribution of flavor products and other specialty food products to the food industry worldwide. It operates in two segments, Consumer and Industrial. This dividend aristocrat has paid uninterrupted dividends on its common stock since 1925 and increased payments to common shareholders every year for 26 consecutive years.

The most recent dividend increase was in November 2011, when the Board of Directors approved a 10.70% increase in the quarterly dividend to 31 cents/share. McCormick’s largest competitors include J.M. Smucker (SJM), Ralcorp (RAH) and Tootsie Roll (TR).

Over the past decade this dividend growth stock has delivered an annualized total return of 9.50% to its shareholders.

The company has managed to deliver a 11.30% annual increase in EPS since 2001. Analysts expect McCormick to earn $2.78 per share in 2011 and $3.10 per share in 2012. In comparison McCormick earned $2.75 /share in 2010.

The company will be able to generate sales growth through acquisitions and joint venture, price increases, introductions of new products and expansion in its distribution channels. Recent acquisitions include a leading brand of Polish spices and has also formed a Joint Venture with Kohinoor in India. Major risks include inability to pass on price inflation to consumers as well as consumer’s switching to generic labels. While the company has a 50% market share in generic labels domestically, these products carry lower margins. McCormick has been able to maintain its position in branded spice products through constant innovation.

The company’s Return on Equty has decreased substantially over the past decade. This indicator seems to have bottomed out and is on the rebound as of recently. 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 11.20% per year since 2001, which in line with the growth in EPS.

An 11% growth in distributions translates into the dividend payment doubling every six and a half years. If we look at historical data, going as far back as 1988 we see that McCormick has actually managed to double its dividend almost every six years on average.

The dividend payout ratio has remained consistently below 45% over the past decade. 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 McCormick is attractively valued at 17.40 times earnings, has a sustainable dividend payout and yields 2.50%. I would consider adding to my position in the stock on dips.

Full Disclosure: Long MKC

Relevant Articles:

- Dividend Aristocrats list for 2011

- Seven Dividend Aristocrats to buy on dips

- The New Dividend Aristocrats

- Lifecycle of the dividend investor

Five Dividend Hikes In the News

noreply@blogger.com (D) — Fri, 16 Dec 2011 01:00:00 PST

In the world of dividend investing, there is always a trade-off between dividend yield and dividend growth. Companies that typically spot above average yields, tend to increase distributions very slowly. Corporations which manage to increase distributions very quickly, typically tend to pay a low current yield. I believe that there is a place for both strategies in a dividend growth investor's portfolio. The high yielders provide a steady stream of distribution income today, which will likely have a hard time keeping up with inflation. The high dividend growth stocks pay low yields today, but provide a great opportunity for high yields on cost in the future coupled with strong potential for capital gains.

The Boards of Directors of five consistent dividend paying companies approveded higher dividend payments to their loyal shareholders. The following consistent dividend payers exhibited the above mentioned characteristics very closely:

Nucor Corporation (NUE), together with its subsidiaries, engages in the manufacture and sale of steel and steel products in North America and internationally. It operates through three segments: Steel Mills, Steel Products, and Raw Materials. The company raised its quarterly dividend by 0.70% to 36.50 cents/share. This marked the 39th consecutive annual dividend increase for this dividend champion. Yield: 3.80% (analysis)

Realty Income Corporation (O) engages in the acquisition and ownership of commercial retail real estate properties in the United States. This real estate investment trust raised its monthly dividend to 14.55 cents/share. Realty Income is a dividend achiever, which has increased dividends for 17 years in a row. Yield: 5.20% (analysis)

Franklin Resources Inc. (BEN) is a publicly owned asset management holding company. It manages, through its subsidiary, separate client-focused equity, fixed income, and balanced portfolios. The company raised its quarterly dividend by 8% to 27 cents/share. This marked the 31st consecutive annual dividend increase for this dividend champion. Yield: 1.10%

ABM Industries Incorporated (ABM) , through its subsidiaries, provides facility services for commercial, industrial, institutional, and retail facilities primarily in the United States. It operates in four segments: Janitorial, Engineering, Parking, and Security. The company raised its quarterly dividend by 3.60% to 14.50 cents/share. This marked the 45th consecutive annual dividend increase for this dividend champion. Yield: 2.80%

Urstadt Biddle Properties, Inc. (UBP),is a real estate investment trust (REIT) which engages in the acquisition, ownership, and management of commercial real estate properties in the United States. The company raised its quarterly dividend by 1% to 24.75 cents/share. This marked the 18th consecutive annual dividend increase for this dividend achiever. Yield: 5.73%

Full Disclosure: Long NUE and O

Relevant Articles:

- Dividend Achievers Offer Income Growth and Capital Appreciation
- Dividend Champions - The Best List for Dividend Investors
- Dividend Growth Investing Gets No Respect
- How dividend stocks protect investors from inflation

Dividend Investors – Do not forget about capital gains

noreply@blogger.com (D) — Wed, 14 Dec 2011 01:00:00 PST

When investing for income, many retirees focus on the dividend stream. Living off dividends in retirement is helpful in creating a consistent stream of income, which does not fluctuate as wildly as stock prices do. Focusing only on the distributions however, without giving much thought to anything beyond the juicy current yield could be dangerous.

Dividend investing is a process with several stages, in order to minimize risk of income reduction in retirement. The first stage should be selecting quality income candidates from a pool of securities which have certain characteristics that the dividend investor is looking for. For example, I tend to purchase companies which have consistently raised dividends for at least ten years in a row. As a result, I start my screen with the list of Dividend Achievers.

The second stage should be applying a set of entry criteria to the list of qualified candidates, in order to narrow it down to a more manageable list for further research. This set of criteria should reflect important points of the investor’s strategy, determined based off their experience in the markets and risk tolerance.

The next stage should be analyzing each security in detail. Given the wealth of data on the internet these days, many investors tend to focus on the quantitative side of analysis. While it is helpful to see the trends behind the data and it is fun to project past results, investors should not stop there. Evaluating qualitative characteristics such as branding, product mix, competitive advantages, strengths, weaknesses, opportunities, trends and industry factors should be an important part of the analysis toolset. Obtaining an understanding of the business by reading annual reports or research reports and news stories as well as observing the business operations in person would also add to the investment evaluation of the business.

While creating a diversified income stream is important, investors should also not forget about capital gains either. It is important to understand where the distributions are being derived from. There have been certain investments where investors have receiving a large portion of the distribution as a return of capital, rather than income. While the cashflow was high enogh to lure investors into the high yielding investment, the security was paying these distributions on a borrowed time. Once the capital base is depleted, investors would end up with no income and their security might be worthless.

One such security are US oil and gas royalty trusts. Most of these pass-through entities tend to pay high current distributions every month out of their royalty interests in Oil and Gas fields. As these fields get depleted however, there comes a time when there would be no longer any revenues and thus no profits to distribute to shareholders. A larger portion of the current distributions of these businesses represents a return of capital, which is logical given the fact that for every barrel of oil equivalents pumped out of the ground, there is one less barrel to be pumped in the future. Once all the barrels in the reserve have been depleted, there will be no more oil to be produced and sold.

Examples include BP Prudhoe Bay Royalty Trust (BPT), Hugoton Royalty Trust (HGT)and San Juan Basin Royalty Trust (SJT).

Dividends typically account for 40% of annual total stock market returns. The remaining 60% come from capital gains. It is also important to not forget about capital gains because they ensure that over time your principal investment maintains and even grows its purchasing power over time. That is why selecting companies which have future prospects for growth is so important.

Companies, whose future growth is virtually unlimited include:

McDonald’s Corporation, together with its subsidiaries, operates as a foodservice retailer worldwide. (MCD). This dividend aristocrat has raised distributions for 35 years in a row. Over the past decade, the company has managed to boost dividends by 26.50% per year. Yield: 2.80% (analysis)

Johnson & Johnson (JNJ) engages in the research and development, manufacture, and sale of various products in the health care field worldwide. This dividend aristocrat has raised distributions for 49 years in a row. Over the past decade, the company has managed to boost dividends by 13% per year. Yield: 3.50% (analysis)

The Procter & Gamble Company (PG) provides consumer packaged goods in the United States and internationally. This dividend aristocrat has raised distributions for 55 years in a row. Over the past decade, the company has managed to boost dividends by 10.90% per year. Yield: 3.40% (analysis)

The Coca-Cola Company (KO) manufactures, distributes, and markets nonalcoholic beverages worldwide. This dividend aristocrat has raised distributions for 49 years in a row. Over the past decade, the company has managed to boost dividends by 10% per year. Yield: 2.70% (analysis)

Unilever PLC (UL) provides fast-moving consumer goods in Asia, Africa, Europe, and the Americas. This international dividend aristocrat has raised distributions for 11 years in a row. Over the past decade, the company has managed to boost dividends by 9.20% per year. Yield: 3.70% (analysis)

Wal-Mart Stores, Inc. (WMT) operates retail stores in various formats worldwide. This dividend aristocrat has raised distributions for 37 years in a row. Over the past decade, the company has managed to boost dividends by 17.80% per year. Yield: 2.80% (analysis)

Full disclosure: Long MCD, JNJ, PG, KO, UL, WMT

Relevant Articles:

- Living off dividends in retirement

- High yield stocks for current income

- Five Metrics of Successful Dividend Companies

- Seven wide-moat dividends stocks to consider

How to invest like a Dividend Billionaire

noreply@blogger.com (D) — Mon, 12 Dec 2011 01:00:00 PST

Some of America’s richest families, own stakes in one of the oldest enterprises. The Rockefellers, Waltons, DuPonts, Johnson’s, Mellon’s control fortunes in the billions of dollars, which are spread amongst descendents of the people that accumulated the fortunes. These families have had generations of trust fund babies, which are essentially people who are expected to be retired for the rest of their lives. One common characteristic between all of these families, is that their wealth is stores in companies, which tend to pay consistently increasing dividends. The Waltons have Wal-Mart Stores (WMT), the Rockefeller's have Exxon-Mobil (XOM), the Johnsons have Johnson & Johnson (JNJ) while the Stryker Family has Stryker (SYK). The rising dividend payments generated by the companies these families own, generate the sufficient stream of income, to pay for the monthly expenses of generations of descendants. These families have essentially managed to live off dividends for decades.

Investors, who are interested in generating an income stream off their capital, that would last for several generations, should look no further than dividend growth stocks. As far as the Stryker Family is concerned, their core holding announced an 18% increase in dividend income over the past week.

Stryker Corporation (SYK), together with its subsidiaries, operates as a medical technology company worldwide. The company operates in three segments: Reconstructive, MedSurg, and Neurotechnology and Spine. The company raised its quarterly dividend by 18% to 21.25 cents/share. This marked the 19th consecutive annual dividend increase for this dividend achiever. Yield: 1.80%

Other companies, which rewarded their shareholders with dividend hikes include:

Universal Health Realty Income Trust (UHT) operates as a real estate investment trust (REIT) in the United States. The company invests in health care and human service related facilities, including acute care hospitals, behavioral healthcare facilities, rehabilitation hospitals, sub-acute facilities, surgery centers, childcare centers, and medical office buildings. The company raised its quarterly dividend by 0.80% to 61 cents/share. This marked the 23th consecutive annual dividend increase for this dividend achiever. Yield: 6.50% (analysis)

The Valspar Corporation (VAL) manufactures and distributes coatings, paints, and related products worldwide. The company raised its quarterly dividend by 11.10% to 20 cents/share. This marked the 34th consecutive annual dividend increase for this dividend champion. Yield: 2.20%

Ameriprise Financial, Inc. (AMP), through its subsidiaries, provides financial planning, products, and services primarily in the United States. The company raised its quarterly dividend by 21.70% to 28 cents/share. This marked the 8th consecutive annual dividend increase for this dividend stock. Yield: 2.30%

Enbridge Inc. (ENB) engages in the transportation and distribution of crude oil and natural gas primarily in Canada and the United States. The company raised its quarterly dividend by 15% to 28.25 CAD cents/share. Enbridge is an international dividend achiever, which has raised dividends for 17 years in a row. Yield: 3.10%

Edison International (EIX), through its subsidiaries, engages in the supply of electric energy. Its distribution system consists of approximately 60,000 circuit miles of overhead lines, 43,500 circuit miles of underground lines, and 700 distribution substations located in California. The company raised its quarterly dividend by 1.60% to 32.50 cents/share. This marked the ninth consecutive annual dividend increase for Edison International. Edison International has paid dividends for over 100 years. Yield: 3.30%

National Health Investors, Inc. (NHI), a real estate investment trust (REIT), invests in health care properties, primarily in the long-term care industry in the United States. . The company raised its quarterly dividend by 5.70% to 65 cents/share. This marked the 11th consecutive annual dividend increase for this dividend achiever. Yield: 6.10%

C.H. Robinson Worldwide, Inc. (CHRW), a third-party logistics company, provides multimodal freight transportation services and logistics solutions to companies in various industries worldwide. The company raised its quarterly dividend by 13.80% to 33 cents/share. This marked the 14th consecutive annual dividend increase for this dividend achiever. Yield: 2%

Erie Indemnity Company (ERIE) provides sales, underwriting, and policy issuance services to the policyholders of Erie Insurance Exchange in the United States. The company raised its quarterly dividend by 7.30% to 55.25 cents/share. This marked the 22nd consecutive annual dividend increase for this dividend achiever. Yield: 2.90%

AXIS Capital Holdings Limited (AXS), through its subsidiaries, provides various insurance and reinsurance products to insurers and reinsurers worldwide. The company raised its quarterly dividend by 4.30% to 24 cents/share. This marked the tenth consecutive annual dividend increase for AXIS. Yield: 3.10%

Roper Industries, Inc. (ROP) designs, manufactures, and distributes medical and scientific imaging products and software, energy systems and controls, and industrial technology products and radio frequency (RF) products and services. The company raised its quarterly dividend by 25% to 13.75 cents/share. This marked the 19th consecutive annual dividend increase for this dividend achiever. Yield: 0.70%

J&J Snack Foods Corp. (JJSF) manufactures nutritional snack foods; and distributes frozen beverages to the food service and retail supermarket industries in the United States, Mexico, and Canada. The company raised its quarterly dividend by 10.60% to 13 cents/share. This marked the 8th consecutive annual dividend increase for this dividend stock. Yield: 1%

Full Disclosure: Long UHT

Relevant Articles:

- Dividend Champions - The Best List for Dividend Investors

- Dividend Achievers Offer Income Growth and Capital Appreciation

- Living off dividends in retirement

- Is $1,000,000 enough to retire on?

International Business Machines (IBM) Dividend Stock Analysis

noreply@blogger.com (D) — Fri, 09 Dec 2011 01:00:00 PST

International Business Machines Corporation (IBM) provides information technology (IT) products and services worldwide. This dividend achiever has paid uninterrupted dividends on its common stock since 1913 and increased payments to common shareholders every year for 16 consecutive years. Most recently, billionaire investor Warren Buffett made public his 5% stake in IBM, along with his stakes in several new companies.

The most recent dividend increase was in May 2011, when the Board of Directors approved a 15.40% increase in the quarterly dividend to 75 cents/share. IBM’s largest competitors include Infosys (INFY), Wipro (WIT) and Accenture (ACN).

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 a 11.60% annual increase in EPS since 2001. Analysts expect IBM to earn $13.36 per share in 2011 and $14.79 per share in 2012. In comparison IBM earned $11.52 /share in 2010. 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.

IBM has transformed itself from a hardware company to services, solutions and software conglomerate. The company’ expansion overseas, focus on high margin software and providing solutions to customers, investing in innovation should help it in achieving its goals. The company faces some pricing pressure from competitors, and risks related to failure to transition new products successfully. However, given the company’s economies of scale, contiguous focus on building and maintaining strong client relations and drive to innovate, it should weather any near term weaknesses successfully.

The company’s Return on Equty has doubled over the past decade. 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 18.30% per year since 2001, which is higher than the growth in EPS. I would expect IBM to keep increasing in dividends at 10% per year at least for the foreseeable future.

An 18% growth in distributions translates into the dividend payment doubling every four years. If we look at historical data, going as far back as 1993 we see that IBM has actually managed to double its dividend every four and a half years on average. The company did cut distributions by 80% in 1993. If the company diverts the money it uses for share buybacks, its dividend payment could have easily topped $14/share in 2010.

The dividend payout ratio has remained low below 25% for the majority of the past decade. 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 IBM is cheap at 15.30 times earnings, has a sustainable dividend payout but yields a paltry 1.60%. I would keep IBM on my radar, and would consider it for inclusion in my dividend growth portfolio on dips below $120/share, which is the equivalent of a 2.50% yield at current dividend rates.

Full Disclosure: None

Relevant Articles:

- Microsoft (MSFT) Dividend Stock Analysis

- A record number of consistent dividend companies raise distributions

- Are Dividend Investors Benefiting from Stock Buybacks?

- Intel Corporation (INTC) Dividend Stock Analysis 2011

Dividend Aristocrats List for 2012

noreply@blogger.com (D) — Wed, 07 Dec 2011 01:00:00 PST

The Dividend Aristocrats index was created by Standard and Poor’s, to include companies in the S&P 500 which have increased dividends for at least 25 consecutive years. The types of companies included in the index are representative of several sectors, and thus the list is relatively well diversified. The stocks offer both capital appreciation potential as well as a growing dividend payment. Besides being a member of S&P 500 index, companies need to have a float of at least $3 billion, an average daily trading volume of $5 million and have increased distributions for at least 25 years in a row. Companies are deleted from the list, if they fail to increase or cut dividends in a given year.

The index is typically rebalanced once per year in December. The number of constituents bottomed at 42 in 2010, and will increase to 50 in 2012. Recently, Standard and Poor’s announced that it would not take into account special dividends in its determination of a streak of 25 years of dividend increases in a row. As a result, several new companies were added to the index:

AT&T Inc. (T), together with its subsidiaries, provides telecommunication services to consumers, businesses, and other service providers worldwide. The company has raised dividends for 27 consecutive years. Yield: 5.90% (analysis)

HCP, Inc. (HCP) is an independent hybrid real estate investment trust. It primarily invests in properties serving the healthcare industry including sectors of healthcare such as senior housing, life science, medical office, hospital and skilled nursing. The company has raised dividends for 26 consecutive years. Yield: 5.50% (analysis)

Sysco Corporation (SYY), through its subsidiaries, engages in the marketing and distribution of a range of food and related products primarily to the foodservice or food-away-from-home industry. The company has raised dividends for 42 consecutive years. Yield: 3.70% (analysis)

Illinois Tool Works Inc. (ITW) manufactures a range of industrial products and equipment worldwide. The company has raised dividends for 48 consecutive years. Yield: 3.30%

Genuine Parts Company (GPC) distributes automotive replacement parts, industrial replacement parts, office products, and electrical/electronic materials in the United States, Puerto Rico, Canada, and Mexico. The company has raised dividends for 55 consecutive years. Yield: 3.50% (analysis)

Medtronic, Inc. (MDT) manufactures and sells device-based medical therapies worldwide. The company has raised dividends for 34 consecutive years. Yield: 3% (analysis)

Colgate-Palmolive Company (CL), together with its subsidiaries, manufactures and markets consumer products worldwide. The company has raised dividends for 48 consecutive years. Yield: 2.70% (analysis)

T. Rowe Price Group, Inc. (TROW) is a publicly owned asset management holding company. The company has raised dividends for 24 consecutive years. Yield: 2.40% (analysis)

Franklin Resources Inc. (BEN) is a publicly owned asset management holding company. The company has raised dividends for 30 consecutive years. Yield: 0.90%

The only company, removed from the index includes CenturyLink (CTL).

CenturyLink, Inc. (CTL), together with its subsidiaries, operates as an integrated communications company. The company has maintained its quarterly dividend at 72.50 cents/share for two years, which is why it is being kicked out of the index after raising distributions for 37 years in a row.

The complete listing is included below:

While I initially considered the Dividend Aristocrat’s index the cream of the crop and the first stop in my dividend research, the volume and capitalization requirements have somewhat turned me off of the index. For example, companies which have managed to raise dividends for over a quarter of a century with a market capitalization of less than $3 billion and average daily volume of less than $5 million dollars would not be included. This is the reason why I prefer to use the Dividend Champions index instead. The only drawback of the Champions index is that the total returns are not calculated, whereas the total returns on the S&P Dividend Aristocrat’s index are.

Full Disclosure: Long MMM, AFL, ABT, APD, ADM, ADP, BF/B, CB, CINF, CL, CLX, KO, ED, EMR, XOM, FDO, GWW, ITW, JNJ, KMB, LOW, MKC, MCD, MHP, MDT, PEP, PG, SYY, WMT, WAG

Relevant Articles:

- Why do I like Dividend Aristocrats?

- Dividend Aristocrats List for 2010

- Dividend Aristocrats list for 2011

- Dividend Champions - The Best List for Dividend Investors

Four Income Stocks Raising Distributions

noreply@blogger.com (D) — Mon, 05 Dec 2011 01:00:00 PST

Every week, I review the list of dividend stocks, which announce dividend hikes. I tend to focus on the ones which have at least a five year record of consecutive dividend increases for future research. While I typically require at least ten years of consecutive dividend increases before I initiate a position in a given stock, familiarizing myself with potential additions several years before I pull the trigger could be a real time saver. In other words, if I like the economics of a company such as Intel (INTC) today, and the only red flag is that it hasn’t raised dividends for 10 years in a row, I would be mentally prepared to act if it is still attractively priced in a few years.

The four consistent dividend stocks, whose boards approved dividend hikes over the past week included:

Ecolab Inc. (ECL) develops and markets products and services for the hospitality, foodservice, healthcare, and industrial markets primarily in the United States. The company increased its quarterly dividend by 14.30% to 20 cents/share. This marked the 20th consecutive dividend increase for this dividend achiever. Yield: 1.40%

Graco Inc. (GGG) designs, manufactures, and markets systems and equipment to move, measure, control, dispense, and spray fluid materials. It operates in three segments: Industrial, Contractor, and Lubrication. The company increased its quarterly dividend by 7.10% to 22.50 cents/share. This marked the 15th consecutive dividend increase for this dividend achiever. Yield: 2.10%

OGE Energy Corp. (OGE), together with its subsidiaries, operates as an energy and energy services provider that offers physical delivery and related services for electricity and natural gas primarily in the south central United States. The company increased its quarterly dividend by 4.70% to 39.25 cents/share. This marked the 6th consecutive dividend increase for OGE Energy Corporation. Yield: 3.00%

Wisconsin Energy Corporation (WEC) engages in the generation, distribution, and sale of electric energy and steam. The company increased its quarterly dividend by 15.40% to 30 cents/share. This marked the 9th consecutive dividend increase for Wisconsin Energy Corporation. Yield: 3.60%

Full Disclosure: None

Relevant Articles:

- The ten year dividend growth requirement

- Intel Corporation (INTC) Dividend Stock Analysis

- Dividend Achievers Offer Income Growth and Capital Appreciation

- Four important dates for dividend investors

V.F. Corporation (VFC) Dividend Stock Analysis 2011

noreply@blogger.com (D) — Fri, 02 Dec 2011 01:00:00 PST

V.F. Corporation (VFC) designs and manufactures, or sources from independent contractors various apparel and footwear products primarily in the United States and Europe. This dividend champion has paid uninterrupted dividends on its common stock since 1941 and increased payments to common shareholders every year for 39 consecutive years.

The most recent dividend increase was in October 2011, when the Board of Directors approved a 14.30% increase in the quarterly dividend to 72 cents/share. V.F. Corporation’s largest competitors include Coach (COH), Ralpha Lauren (RL) and PVH Corp (PVH).

Over the past decade this dividend growth stock has delivered an annualized total return of 18.50% to its shareholders.

The company has managed to deliver a 17.70% annual increase in EPS since 2001. Analysts expect V.F. Corporation to earn $8.04 per share in 2011 and $9.31 per share in 2012. In comparison V.F. Corporation earned $5.18 /share in 2010.

I last analyzed the stock in 2010, but never managed to pull the trigger, given the fact that I know little about apparel. I have been skeptical of most apparel and footwear industries, but V.F. Corp has managed to defy my skepticism. The company seems to have strong brands and pricing power, which could explain the reason why it has been able to earn sufficient amounts of excess cash to pay higher distributions for almost 4 decades.

In early 2011 the company updated its long-term targets to reflect confidence in its future. In short V.F. Corporation aims to add $5 billion in organic revenue growth and $5 in earnings per share over the next five years from 2010 levels. Strong growth in its highly profitable international and direct-to-consumer businesses is expected to fuel an expansion in operating margins to 15%. Over the next five years, the company’s goal is to grow international revenues by 15% annually to comprise 40% of total revenues. V.F. Corporation’s management team also expects 15% growth in its direct-to-consumer businesses, which should account for about 22% of revenues by 2015.

The company’s acquisition of Timberland Brand, will help it acquire a strong lifestyle brand, and would result in higher sales as well as $35 million in annual synergies. This acquisition is expected to add at least 50 cents/share in 2011, at least $1/share by 2012 and $2/share by 2015.

The company’s Return on Equty has been on a slow decline since hitting a high at 23% in 2003. This indicator seems to have hit a bottom in 2009, and is currently on the rebound. 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 11.20% per year since 2001, which is lower than the growth in EPS. I would expect V.F. Corporation to keep increasing in dividends at 10% per year at least for the foreseeable future.

An 11% growth in distributions translates into the dividend payment doubling every six and a half years. If we look at historical data, going as far back as 1986 we see that V.F. Corporation has actually managed to double its dividend every 8 years on average.

The dividend payout ratio has remained sustainable for the majority of the past decade. 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 V.F. Corporation overvalued and is trading at 22 times earnings, yields 2.10% but has a sustainable dividend payout. I am excited about the growth opportunities behind this stock, and the potential for dividend growth and capital gains. I would keep V.F. Corporation on my radar, and would consider it for inclusion in my dividend growth portfolio on dips below $115/share.

Full Disclosure: None

Relevant Articles:

- Twelve Dividend Machines Boosting Dividends

- Why Sustainable Dividends Matter

- Dividend Aristocrats list for 2011

- Diversifying into small and mid cap dividend stocks

How to Build a Retirement Dividend Portfolio with only $1000/month

noreply@blogger.com (D) — Wed, 30 Nov 2011 01:00:00 PST

Most articles on retirement investing assume that a lump sum of approximately $1 million is invested in order to provide income in retirement. In reality however, few individuals receive a lump-sum of such proportions all at once. Instead, many individual investors end up with a substantial nest-egg through long-term saving and investing. This long-term investing utilizes the power of compounding during the time it took to accumulate the nest egg. With dividend investing, instead of focusing on an asset number, investors typically focus on generating a specific amount of income. In a previous article I discussed the ways to increase your dividend income.

The way that younger dividend investors should approach retirement is no different. They should save a set amount of funds each month and purchase quality dividend stocks that are attractively priced at the time. After that, they should strive to reinvest dividends selectively or using drips. As they build their portfolios over time, investors in the accumulation stage should also avoid concentrating their efforts on just a handful of stocks. In order to have a properly diversified portfolio, which will withstand dividend cuts during financial crises, investors in the accumulation stage should hold at least 30 individual domestic and international securities representative of the ten market sectors in the S&P 500.

Diversification is not a silver bullet however, as certain risks, such as market risk cannot be diversified away, unless of course a non-correlated asset such as Real Estate or Fixed Income is added to the portfolio mix. In addition, investors should not diversify for the sake of diversification, and should stick to purchasing quality dividend stocks and attractive valuations.

So how can one accumulate a dividend portfolio that would generate sufficient dividend income in retirement?

I ran the numbers using the following assumptions:

An investor saves $1000/month and is able to allocate them to dividend growth stocks which yield 3% at the time and grow distributions at 7% per year. At that rate the distributions will double every ten years. This investor will also re-invest the accumulated dividends into more shares of dividend growth stocks yielding 3% which grow distributions at 7% per year.
This means that in year 21, this investor will be able to generate over $20,000 in annual dividend income based off the $240,000 investment. The purchasing power of this investment will be cut in half assuming a 3% annual rate of inflation.

In order to increase their dividend income, the investor should either save a higher amount of money every month or they should let their investment compound for a longer period of time. Saving $2000/month will generate over $41,000 in dividend income in year 21. If one saves $2000/month for 30 years however, this would lead to an annual dividend income of $118,000 by year 31.

The types of dividend growth stocks that investors could purchase include:

PepsiCo, Inc. (PEP) engages in the manufacture, marketing, and sale of foods, snacks, and carbonated and non-carbonated beverages worldwide. The company has managed to boost dividends for 39 consecutive years, and has also managed to increase them by 13% per year over the past decade. Yield: 3.20% (analysis)

Wal-Mart Stores, Inc. (WMT) operates retail stores in various formats worldwide. The company has managed to boost dividends for 37 consecutive years, and has also managed to increase them by 17.80% per year over the past decade. Yield: 2.80% (analysis)

Abbott Laboratories (ABT) engages in the discovery, development, manufacture, and sale of health care products worldwide. The company has managed to boost dividends for 39 consecutive years, and has also managed to increase them by 8.80% per year over the past decade. Yield: 3.80% (analysis)

Colgate-Palmolive Company (CL), together with its subsidiaries, manufactures and markets consumer products worldwide. The company has managed to boost dividends for 48 consecutive years, and has also managed to increase them by 12.40% per year over the past decade. Yield: 2.70% (analysis)

Kimberly-Clark Corporation (KMB), together with its subsidiaries, engages in the manufacture and marketing of health care products worldwide. The company has managed to boost dividends for 39 consecutive years, and has also managed to increase them by 9.20% per year over the past decade. Yield: 4.20% (analysis)

In addition, this example did not account for taxes. If investors could afford to stash away as much as possible in tax deferred accounts which let them compound their investments tax free for decades, they will avoid paying the tax man every year out of their investment returns. The drawback is that withdrawals from such accounts are difficult and costly to make if one wants to retire before the age of 59.

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- How to increase your dividend income with these four dividend stocks

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This post was featured in the Carnival of Persona Finance

Five Show me the money dividend stocks

noreply@blogger.com (D) — Mon, 28 Nov 2011 01:00:00 PST

Investors can realize a return on investment either in the form of capital gains or whenever they receive a dividend. Capital gains are tricky, since if they are not realized they could disappear and quickly turn into unrealized losses. The volatile market environment over the past several months has lead to trillions of dollars in stock market losses worldwide. As a result, more investors are seeking to invest in stable corporations, which provide positive feedback every quarter in the form of cash dividends. Particularly of interest are the stocks of these companies which not only pay a stable dividend, but can also afford to grow that dividend. As a result, investors of such dividend paying stocks are not at the mercy of the market in order to generate returns from their investments. They could afford to patiently wait on the sidelines, and get paid for doing so, while the irrational Mr. Market zig-zags.

The following dividend growth stocks raised distributions to shareholders over the past week:

McCormick & Company, Incorporated (MKC) engages in the manufacture, marketing, and distribution of flavor products and other specialty food products to the food industry worldwide. It operates in two segments, Consumer and Industrial. The company raised its quarterly distributions by 10.70% to 31 cents/share. This marked the 26th consecutive annual dividend increase for this dividend champion. Yield: 2.70% (analysis)

Becton, Dickinson and Company (BDX), a medical technology company, develops, manufactures, and sells medical devices, instrument systems, and reagents worldwide. The company raised its quarterly distributions by 9.80% to 45 cents/share. This marked the 99th consecutive annual dividend increase for this dividend champion. Yield: 2.50% (analysis)

Hormel Foods Corporation (HRL), together with its subsidiaries, produces and markets various meat and food products in the United States and Internationally. The company raised its quarterly distributions by 17.60% to 15 cents/share. This marked the 46th consecutive annual dividend increase for this dividend champion. Yield: 2.10%

Lancaster Colony Corporation (LANC) engages in the manufacture and marketing of consumer products focusing primarily on specialty foods for the retail and foodservice markets in the United States. The company operates in two segments, Specialty Foods, and Glassware and Candles. The company raised its quarterly distributions by 9.10% to 36 cents/share. This marked the 49th consecutive annual dividend increase for this dividend champion. Yield: 2.20%

United Bankshares, Inc. (UBSI), through its subsidiaries, provides commercial and retail banking services and products in the United States. The company raised its quarterly distributions by 3.30% to 31 cents/share. This marked the 38th consecutive annual dividend increase for this dividend champion. Yield: 5%

Full Disclosure: Long MKC

Relevant Articles:

- Becton, Dickinson and Company (BDX) Dividend Stock Analysis

- McCormick & Company (MKC) Dividend Stock Analysis

- Dividend Champions - The Best List for Dividend Investors

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