Altria recently expanded into the cannabis business and purchased 45% of the voting interest in Cronos, a global cannabinoid company headquartered in Toronto.  Altria purchased 35% of JUUL most commonly identified as a vaping product in 2018.

I developed a watch list to narrow down possible stock purchases for further research prior to making an investment.  I am working to accumulate more shares of my initial stock purchases as I build a strong foundation for my dividend portfolio.  Altria looks to be a promising company in need of a deeper dive.  Let’s take a look at 4 important aspects to consider before buying stock in any enterprise.

Earnings/Revenue

A company cannot grow its dividend payout without generating revenue and profits.  I search for companies demonstrating strong earnings per share history (EPS) and sales revenue exhibiting an increase over the past decade.  Altria made a poor investment choice in purchasing a portion of JUUL forcing it to take a massive impairment charge and report a negative EPS for 2019.  EPS does not always give an accurate picture of how the company performs over a long period of time.  An investor utilizing EPS based on a normalized basis may get a better snapshot of earnings performance. Net income may be influenced in the short term by many different accounting principles- using normalized numbers for a long-term analysis conveys more clarity to an annual or quarterly report.  Altria’s normalized earnings per share confirm a company continuing to increase earnings over the past decade.

Sales Revenue must reflect movement upwards indicating the company exhibits positive increases in sales.  Altria is still growing top line revenue due to their unique ability to increase the cost of their product to a loyal customer base even when faced with less smokers across the United States.

An investor must do their homework before buying stock- including reading the most recent annual report at a minimum.  Look for how the company is doing in reportable segments- in Altria’s case smokable products, smokeless products, and wine.  Doing so helps gain perspective to growth inside the company.  The chart displays how each segment has performed over the past 5 years. 

Dividend and Yield

I chose to become an investor focused on dividend paying stocks.  Altria is one of the few companies on the Dividend Kings list- a select group of companies that have raised their dividend for 50 consecutive years.  Strong pass on dividend history!  Next check- has the dividend growth been above 6% over the past 5 or 10 years?  Altria surpasses this requirement showing a 5-year combined annual growth rate (CAGR) of 11% and 10-year CAGR of 10%.  The dividend is growing at an aggressive rate proving Altria is indeed dividend royalty.

My goal is to purchase companies that are yielding over 2.5% but I strive to balance against too high of yield at the same time.  I want the stock to yield less than 7% because many companies with a high yield have it for a reason.  As of the writing of this article, Altria is yielding a whopping 8.9% a definite red alert to the stock.  Altria is yielding at its highest percentage over the past 10 years.  The ability to purchase a stock near its high yield over a past decade can be a solid long-term investment, however a yield this high could indicate issues with how the stock is currently priced.

Price to Earnings Ratio

The price to earnings ratio is possibly the most common way to begin screening out stocks for investment purposes.  The lower the P/E ratio- the more value provided to the buyer of the company.  Taking a look at the current Altria P/E on yahoo finance shows a result of N/A.  The reason is due to using the reported annual EPS instead of the normalized EPS.  Another reason I advocate looking into the normalized EPS.  When substituting the normalized earnings of $3.77- the P/E ratio becomes 10.01, providing a better perspective to the investor.  Altria is trading near its average low P/E over the past decade.

Payout Ratios

My last screening criteria before determining if a stock qualifies for further research are the payout ratios.  When putting Altria’s dividend payout up against normalized EPS and Free Cash Flow per share there is not a lot of room for Altria’s payout to grow.  While reading the annual report- the company position is to keep paying up to 80% of EPS towards the dividend.  Armed with this knowledge, I am comfortable with the dividend vs. EPS and FCF ratios.

Future Estimates

Altria possess a 50-year history of raising dividends.  Even with COVID-19 affecting the investment landscape, the company is committed to continuing this tradition.  The Argus analyst report expects dividends to hit $3.74 in 2021.  Altria pulled it 2020 EPS guidance, but analysts predict $4.22 in 2020 and $4.51 in 2021.  The future earnings are able to cover the expected rise in the dividend amount.

Fair Value

I combine two analysts reports, 5-year high yield, dividend discount model and 5-year average low P/E ratio as a guide to pricing a stock.  The combination of these show a fair value price of $53.40 per share.  Altria is trading at $37.73 roughly a 30% discount to my estimated fair value.  The high over the past 52-weeks is $52.46 with the bottom set at $30.95.

Final Thoughts

Altria is considered a wide moat company by Morningstar and Marlboro is a global brand.  In the face of a declining customer base due to less smokers, Altria has been able to generate profits over the last decade.  The JUUL investment has not proven to be wise in the short term, but with attitudes towards marijuana evolving in the US, the Cronos investment shows promise.  Altria is a dividend king, rewarding long term investors with increasing payouts.  I believe Altria is a solid buy at its current price of $37.73.  I am looking to add to my position the first week of June.

Thank you for reading!

Knowing these stocks trading terms as a beginner or intermediate trader, would increase your knowledge of the stock exchange market and help you make better decisions.

You will find these terms useful when investing in stocks, mutual funds, or bonds.

1. Agent

An agent or brokerage is an individual or company that acts on behalf of a client to buy or sell shares.
The agent helps you buy shares in your proffered company.

2. Ask/Offer

The Offer is the selling price which the owner of the shares wishes to sell it.
It is the lowest price you can get a unit of the stock.

3. Annual Report

An annual report is published by a company detailing information about the firm to the public and its shareholders.

It is an important document to review before investing in the stocks of a company. It helps you determine the financial situation and solvency of the business.

4. Averaging Down

This is a situation where the price of a company’s stock goes down.

People buy into companies with lowering stock prices if they believe the price would rebound later.

5. Bear Market

This is used to describe a stock market in a downward trend or whose stock prices are consistently falling.
It is the opposite of the bull market.

6. Beta

This is a measurement of the relationship between the price of a particular stock and the movement of the whole market.

If a stock has a beta of 1.0, that means that at a point, the price of the stock moves 1.0 points and vice versa.

7. Blue Chip Stock

These are stocks of large and industry-leading companies.
They are well established with sound financial management and a solid record of dividend payment over the years.

This expression is derived from blue gambling chips, which are the highest denomination in a casino.

8. Bull Market

This is the opposite of the bear market. It is used to describe the situation when the stock market is in a consistent upward trend or stock prices consistently rising.

9. Broker

A broker is the same person as an agent. It is an individual or firm who helps you buy or sell shares and other securities for a fee.

The broker acts as an adviser for the sales and purchase of stocks.

10. Bid

A bid is the amount of money a buyer is willing to pay for a specific stock. It is the opposite of an offer.

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11. Bonds

It is promissory notes issued by the government and well-established companies to its buyers.

Bonds are considered a safe investment that brings in substantial returns. Read more on bond here.

12. Business Day

These are days when the stock market is open – which is usually the weekdays; Monday to Friday, excluding public holidays.

13. Close

This is used to describe a period of inactivity in the stock exchange market, like when the stock exchange market closes for the day. The Nigerian Stock Exchange(NSE) closes at 5 pm daily.

14. Commodities

These are the products traded on the stock exchange market.

The authorized commodities may include agricultural products and natural resources like oil stocks, gold stocks, and others.

15. Day Trading

This involves the practice of buying and selling specific stocks on the same day.
Traders who engage in day trading are called “day traders” or “active traders.”

16. Debentures

This is a debt instrument issued by companies. It is an unsecured form of investment issued based on the reputation and creditworthiness of the issuer.

17. Dividend

This is the portion of a companies’ earnings paid out to its shareholders.
When you buy a company’s shares, you buy into a company and become entitled to a quarterly or annual dividend.

18. Exchange

The exchange is the platform where stocks and other investments are bought and sold. In Nigeria, we have the Nigeria Stock exchange market (NSE).
The United States has the New York Stock Exchange (NYSE).

19. Execution

The term is used to describe the completion of an order to buy or sell a stock.
For instance, if you put up 200 shares for sale and it is sold, the order will be said to have been executed.

20. Index

This is a benchmark that is used as a reference for traders and portfolio managers.
It indicates the level of change in the stock market and the economy.

21. Initial Public Offering (IPO)

The IPO is the first offering of a company’s stocks to the general public.
It is mostly issued by startups and smaller companies seeking for funds for expansion, and also large companies been listed on the exchange.

22. Internet Trading

Internet trading or etrade is a trading system that allows traders to buy or sell stocks from any part of the world on the internet.

Most brokers today have platforms that allow the execution of trade using the internet. The etrade feature is an essential requirement when choosing a stockbroker.

23. Limit Order

This is the minimum number of stock or stock price a seller is willing to accept, and the maximum number of shares or price a buyer is willing to pay.

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24. Listed Stocks

These are shares that are traded on the stock exchange.
The issuers pay for their stocks to be listed on the stock exchange and have to abide by its rules and regulations.

25. Margin

A margin account allows a person to take loans from a stockbroker to make a specific investment.

Some brokers have this feature; however, trading on margin is dangerous because you can lose significant amounts if you take the wrong step.

26. Market Capitalization

This is the total value of a company’s outstanding shares combined.

It is determined by multiplying all of a company’s outstanding shares by the market price of a single stock.
It is an indication of a company’s wealth.

27. Mutual Fund

This is a pool of investments belonging to various investors being managed by experts to improve their savings.

A mutual fund is a portfolio consisting of stocks, bond, treasury bills, and other securities. You can read more on mutual funds here.

28. Open

This is the period when the money exchange market is open for trading.

Most markets around the world, including the Nigerian stock exchange (NSE), open in the morning and closes in the evening.

29. Order

An order is a bid to buy or sell specific stocks. You can place an order to buy or sell 5,000 units of a particular stock as the case may be.

30. Pre-opening Session

This is a period before the formal opening of the market for the day.

It can be a few minutes to an hour, where orders retry, modification, and cancelation can be done.

31. Price Earnings (P/E) Ratio

This is a valuation of the last traded share price of a specific company to its reported 12 months earnings per share.

For instance, if a company’s current share price is N60, and its earnings per share over 12 months is N3, then the P/E ratio would be 20 (60/3).

The P.E ratio is an important tool indices to look out for before investing in stocks of a company.

32. Put Option

An option gives the investor the right to purchase a specific stock at a stated price within a period.

When a trader buys a put option, it is mostly because they believe the value of the share would fall below the stated share price.

33. Portfolio

This describes the collection of investments owned by a specific investor.

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The portfolio can range from shares of various companies to other types of securities like bonds, mutual funds, treasury bills, etc..

34. Quote

This is the information about the stocks latest trading price.

35. Risk

This is the probable chance that investment would yield actual returns.

The risk in an investment is measured by calculating the standard deviation of its past returns.

36. Sector

A sector is used to describe a group of shares from the same industries.

For instance, share from pharmaceutical companies is categorized as the medical sector.
Some traders prefer to trade in specific sectors because they are more experienced in such industries.

37. Securities

This is a certificate that indicates ownership of various investment products like stocks, bonds, mutual funds, treasury bills, option, etc.
Securities are transferable when the investment is sold.

38. Share Market

A share market is any platform where shares are sold and bought.
The money market is a classic example of a share market.

39. Spread

This is the difference between the buyer’s bid and the seller’s asking price for specific shares.

For instance, if a seller is putting up stock for sale at N80, and a buyer bids N60, the N20 difference is the spread.

40. Stock Symbol

This is an alphabetic symbol used to represent a publicly traded company on the stock exchange.

The stock symbol for Dangote Cement PLC is DANGCEM, while that of ABC transport is ABC.

41. Volatility

This is the upward and downward movement of stock prices or the whole share market.

High volatility indicates that the prices of the stocks change very quickly.

Highly volatile stocks are risky, especially if you are inexperienced.

42. Volume

This indicates the number of shares traded within a period. It is usually measured in the daily average trading volume.

43. Yield

This refers to the measure of returns on a specific investment in terms of dividend. The yield of stock investment is determined by dividing the annual dividend amount by the price paid for the stock.

Conclusively, knowing the terms used in the stock exchange market makes it easier to find your way around when investing in stocks, mutual funds, bonds, or other securities.

Endeavor to quiz yourself on these terms and others you find along the line.

Income investing has been pushed aside in favor of trying to predict the next big stock that’s gonna double your money in a mere matter of months. As people run around throwing money at volatile stocks that surge one day and crash the next, there’s a disciplined group of investors who are quietly building an ever increasing income stream from dividend paying stocks.

Today I’d like to present 8 different dividend paying stocks yielding 8% or better that can put you on the road to income investing. These picks are some of my favorites and were screened using my 8 Dividend Investing Rules. Here they are in no particular order…

Calamos Convertible Opportunities and Income Fund (CHI) is a closed-end fund portfolio with a mix of equities, convertible bonds and high-yield bonds.  CHI has an investment strategy of capital appreciation while delivering an attractive stable monthly income distribution.  Calamos Convertible Opportunities and Income Fund has an attractive yield of 8.53%.  CHI has paid a steady income distribution since the third quarter of 2002.  For further research, go to Calamos Convertible Opportunities and Income Fund.

Wells Fargo Advantage Global Dividend Opportunity Fund (EOD) is a closed-end fund investing primarily in a diversified portfolio of common stocks of U.S. and non-U.S. companies. EOD has an investment objective to seek a high level of current income. Wells Fargo Advantage Global Dividend Opportunity Fund has a secondary objective of long-term growth of capital.  has an EOD attractive yield of 11.16% and has paid a quarterly dividend since the third quarter of 2007.  For further research, go to Wells Fargo Advantage Global Dividend Opportunity Fund.

Main Street Capital Corporation (MAIN) is a principal investment firm that primarily provides long-term debt and equity capital to lower middle market companies. MAIN was recently named the 2011 Small Business Investment Company of the Year by the U.S. Small Business Administration. Currently, Main Street Capital Corporation offers a monthly dividend with a yield of 8.51%.  MAIN has paid a steady income distribution since the fourth quarter of 2007.  For further research, go to Main Street Capital Corporation.

Alpine Global Dynamic Dividend Fund (AGD) offers a unique and balanced approach to optimizing both tax-qualified dividend income and long-term growth of capital. AGD scans the globe looking for the best dividend opportunities for investors, employing a multi-cap, multi-sector, and multi-style investment approach. Alpine Global Dynamic Dividend Fund offers an attractive yield of 9.56%. AGD has been paying a monthly dividend distribution since September of 2006.  For further research, go to Alpine Global Dynamic Dividend Fund.

First Trust Active Dividend Income Fund (FAV) is a diversified, closed-end management investment company that seeks to provide a high level of current income. As a secondary objective, FAV seeks to provide capital appreciation. FAV pursues these investment objectives by investing at least 80% of its managed assets in a diversified portfolio of dividend-paying multi-cap equity securities of both U.S. and non-U.S. issuers. First Trust Active Dividend Income Fund has a handsome dividend yield of 10.63%.  FAV has been paying a quarterly dividend distribution since the fourth quarter of 2007.  For further research, go to First Trust Active Dividend Income Fund.

Hercules Technology Growth Capital (HTGC) is a leading specialty finance company devoted to addressing the capital needs of venture capital and private equity-backed technology-related companies, including clean technology, life sciences and lower middle market companies at all stages of development. HTGC offers a dividend yield of 8.45%.  Hercules Technology Growth Capital has been paying a quarterly dividend distribution since the fourth quarter of 2005.  For further research on HTCG, please go to Hercules Technology Growth Capital.

The GDL Fund (GDL) is a closed-end fund whose objective is to achieve absolute returns in various market conditions without excessive risk to capital. To achieve its investment objective, GDL will invest primarily in securities of companies involved in publicly announced mergers, takeovers, tender offers and leveraged buyouts. The GDL Fund has a yield of 9.55%. GDL has been paying a quarterly dividend distribution since the second quarter of 2007.  For further research, go to The GDL Fund.

American Capital Agency Corp (AGNC) is a REIT that invests in agency pass-through securities and collateralized mortgage obligations for which the principal and interest payments are guaranteed by a U.S. Government agency or a U.S. Government-sponsored entity. AGNC has a jaw-dropping yield of 18.67%.   American Capital Agency Corp has been paying a quarterly dividend distribution since the second quarter of 2008.  For further research on AGNC, please go to American Capital Agency Corp.

(full disclosure: I own CHI, EOD, MAIN, AGD and AGNC)

This completes my list of 8 dividend paying stocks yielding 8% or better.  Dividend Paying Stocks offers analysis and commentary on the best dividend paying stocks so be sure to subscribe to our RSS feed or grab a subscription by email.  Thanks for stopping by!

3M Company is headquartered in Minneapolis, Minnesota and is listed on the New York Stock Exchange under the symbol MMM.  The company commenced operations in 1902 and labels itself as a diversified technology company.  3M Company is divided into four separate operating segments: Safety and Industrial, Transportation and Electronics, Health Care, and Consumer.  3M employs 96,000 people with manufacturing plants in 29 states and over 30 countries across the globe.

3M’s consumer business manufactures the most familiar products to shoppers.  Looking around my house- we own Post-it Notes, Scotch tape, N-95 masks (widely sought after with the continuing Covid-19 pandemic), and Scotch brite scouring pads.  We use these products on a weekly basis and while shopping do not look for generic brands to save a few dollars.  Check around your home and see how many products you have made by 3M- and while looking for the previous items, make sure you have your first aid kit stocked with 3M manufactured Ace Bandages.  These consumer goods are a few reasons why Morningstar considers 3M to be a wide moat corporation.  Let’s take a look to see if MMM is a good investment entering June, 2020.  My screening criteria is based on Earnings/Revenue, Dividend/Yield, P/E Ratio, and the Payout ratio.

Earnings/Revenue

3M Company is gigantic with nearly a $90B market cap and is listed on the Dow Jones Industrial Average.  Earnings and sales revenue are not dynamic, as expected with a corporation this size, but demonstrate gradual increases on an annual basis.  Earnings per share are growing at a 1.8% combined annual growth rate (cagr) over the past 5 years.  The chart shows a steep decline in diluted eps from 2018 to 2019.

A major reason for the earnings drop was diminished demand in the Safety and Industrial segment along with a drop in the Transportation and Electronics business.  Combined with revenue softness in China- growth in 3M’s Consumer and Health Care segments could not overcome the revenue decline.    Sales revenue display a positive 1.5% cagr over the last 5 years and Q1 results indicate an increase of 2.7% year over year bolstered by a 20% gain in the Health Care business.

Dividend/Yield

3MM is a dividend king- raising its payout to stockholders for the past 61 years.  The commitment to rewarding MMM shareholders commenced before the election of John F. Kennedy.  The investor has been rewarded by holding 3M shares for the long term.  The 5-year cagr of the dividend is 8.9% and the 10-year rate is 11.9%.  Two shares of 3M pay out 1,200 Post-it notes in dividends on an annual basis.

Currently, MMM is yielding 3.75%, above my requirement of 2.5%.  In my opinion- the stock is in the sweet spot for a dividend king.  The 3.75% yield is at a 10-year high making a purchase more appealing.  Yield is calculated by dividing the divided by the stock price, which means the current price of MMM against the dividend has not been seen for a decade.

Price/Earnings Ratio

The Price to Earnings Ratio is found by dividing the stock price by the last 12 months of earnings per share.  A high PE means the stock price is high compared to earnings, with a low PE showing more value.  I look for two aspects of the PE ratio while screening out stocks prior to making a purchase.  Is the current PE under 20 and where is it compared to the last decade?  The historical PE ratio for the 3M Company is currently at a 4-year low.  3M displays a PE ratio under a 10-year average of 19.33 making it cheaper to purchase now than in the past.  In both cases, 3M makes a strong case for continued research.

Payout Ratios

Dividend growth is important when picking the correct stock for purchase.  Investors are able to judge future dividend growth by analyzing the earnings per share and free cash flow payout ratios.  A company without enough earnings to support their dividend may slash the payout.  The current dividend is 73.8% of MMM earnings the last 12 months.  The payout percentage is the highest it has been over the past decade.  The dividend to free cash flow payout ratio is slightly better at 61.9%.  3M needs solid earnings to continue an aggressive increase in their annual dividend amount.

Future Estimates

3M Company is an established company with a spotless record pertaining to rewarding their shareholders.  The Argus analyst report predicts a small dividend increase from $5.88 this year to $6.00 in 2021.  3M pulled earnings guidance in 2020 due to the Covid-19 pandemic, but analyst estimate earnings of $8.91 per share.  3M does stand to have a solid 2020 due to its Health Care segment and after an excellent first quarter should hit estimates.  Based on these approximations- the dividends to earnings per share payout would recede below the 70% threshold in 2021.

Fair Value

Calculating fair value has many different methods- and I combine two analyst reports, 5-year high yield, dividend discount model and 5-year average low P/E ratio as a guide to pricing a stock.  The combination of these show a fair value price of $173.26 for 3M Company.

Final Thoughts

3M Company is an excellent company.  The Post-it note has become an indispensable part of business and home life, along with scotch tape and scotch pads.  The remainder of the company is positioned to benefit from an expected economic recovery in the second half of 2020.  3M is committed to their dividend and raised it for 6 decades.  3M Company has a P/E ratio at its lowest level since 2016 and at the highest yield percentage in a decade.  Top line revenue and eps is not where I want to see them based on 2019 performance, but 3M is 100-year-old company surviving many business cycles.  An investor who wants to add dividend royalty may be hard pressed to find a better opportunity to purchase

UK Pharmaceutical stocks

Pharmaceutical companies have the potential for amazing growth; had you bought $1,000 worth of shares in Mylan Inc (MYL) back in 1976, your investment at the end of the year 2000 would be worth $1.5 million; half as much again as the $1 million you would have obtained from a similar investment in Berkshire Hathaway (BRK) through that same period.

However it’s also fraught with expensive research, testing and regulation that can end in failure in the quest for a cure. In addition, once a drug is patented, it is protected for only 20 years after which competitors can make their own generic versions and typically the actual protected duration is nearer 10 to 12 years when time for clinical testing is included.

Animal Healthcare

Some of the companies listed below provide products and services for animal health care, which has some differences from human healthcare. The majority of people care deeply for the welfare of their pets and spending on animal health in the US at least has increased even during recessionary periods. It’s also less expensive to develop and release animal healthcare products because the regulatory and testing requirements are lower than for people.

The sector also tends to have less demand for generic drugs than in human healthcare, and the industry typically has many smaller drugs with higher brand loyalty with fewer large companies competing for their share. Pet owners tend to be more loyal to branded medicines and are not encouraged to try generics because the insurance industry has less reach into animal care.

Finally, there is global demand to improve animal health in terms of increasing livestock production and efficiency as well as addressing animal to human diseases (bird-flu etc).

Dividend Challengers (5-9 years of dividend growth)

Animalcare Group plc (6 years)

The Company

Formed in 1988, Animalcare Group plc (ANCR) consists of three product groups: Licensed Veterinary Medicines, Companion Animal Identification and Animal Welfare products that are sold mainly through veterinary practices. It operates primarily in the UK (90% of revenue) but is expanding into Western Europe (10% of revenue).

The Veterinary Medicines group (61% of total revenue in FY14) launched three new drugs last year to treat epilepsy in dogs, hyperthyroidism in cats and an antibiotic for cats and dogs. The Animal Identification group (19% revenue) is benefitting from a law passed in the UK requiring all dogs in the UK to have an ID chip implant by 2016, although free programs to encourage the chipping of dogs has caused some pressure on prices. The Animal Welfare group (20% revenue) continues to improve profit margin and most of its revenue is from infusion and intravenous fluid products.

Dividend History

ANCR has increased its dividend for 6 years since 2008. It first started paying dividends in 2006 but froze the dividend in 2008.

Dividend Growth

The 5-year annual dividend growth is 17% and last year’s increase was 3.8%. The current dividend gives a yield of 3.19%. ANCR’s Payout Ratio of 52% is in line with its typical range over the last 5 years. Dividend Cover is 1.87x and Net Gearing is -3%.

Management

Nothing about management in the 2014 Annual report particularly stands out to me. The company risks are quite general and there are several references to increasing and maintaining the strength of senior management. The CEO, Iain Menneer, has worked for the company for 11 years in sales, marketing and business development.

Valuation

The current P/E ratio is 16.9, down from a high of 19 in 2012. Estimated EPS growth is -5%.

Outlook

Animal Care grew 6% in FY2014 (end of June 2014). The company is debt-free, has positive cash flow and has a dividend paying policy. They plan to launch two new medicines in the second half of FY2015.

Alliance Pharma plc (6 years)

The Company

Alliance Pharma plc (APH) is an AIM-listed specialty pharmaceutical company with a £46M revenue in FY13. It does not perform any R&D of its own (having stopped development activities in 2009) but instead it acquires and licenses established drugs in niche areas. Labor costs and capital expenses such as warehousing are outsourced where possible to reduce overhead and increase flexibility. The company has been expanding its consumer product range to improve organic growth, which has required some additional expenses in marketing.

It operates in Dermatology (Hydromol), Secondary Care (Immunotherapy), Community and Consumer Products (baby powder, ulcer treatments, acne treatments and Lypsyl lip salve), Established Products and International.

Dividend History

APH first started paying dividends in 2009 and has increased them for 6 years on a Calendar year basis (5 years with FY).

Dividend Growth

Dividend payments increased by 10% in 2014 and currently provide a yield of 2.2%. Annualized growth over the last 5 years has been 68%, a high number that results from a low initial payment. The Payout Ratio is 28% and has been low since dividends commenced. Dividend Cover is 4.4x and Net Gearing is 35%.

Management

The CEO, John Dawson, founded Alliance in 1996. Alliance’s Chairman retired in 2014 and was replaced by Andrew Smith, a 10-year company non-executive director who has held a number of senior pharmaceutical positions in the US and the UK. Management promote a progressive dividend policy.

Valuation

The current P/E of 11.5 is consistent with historical values over the last 6 years. Future EPS growth is estimated to be low at 0.92%.

Outlook

Alliance have 60 products in their portfolio, the largest being 10% of sales which helps in reducing risk. The Lypsyl brand was acquired in December 2013 and the company believes they can turn sales around with marketing investments. Interim results for FY14 in September showed a 9.3% year-on-year revenue growth and half-year pre-tax profit of £5.4M compared to £6.8M in 2013.

Anpario plc (6 years)

The Company

Anpario plc (ANP) produces animal feed additives to improve health, hygiene and nutrition. It is listed on the AIM exchange with a £59M market cap. It reports in two operating segments based on geographic regions: UK / Eire (24% FY13 revenue) and International (76%). International growth was primarily in Brazil, China and Asia Pacific.

Dividend History

Dividend yield is 1.18%. The company first started paying dividends in 2009 and has increased them each year for 6 years.

Dividend Growth

The most recent increase was 16.7% in CY2014. Annualized dividend growth over 5 years is 30%. The Payout Ratio is 23% (FY13), a slight increase from the previous year’s 21%. Dividend Cover is 4x and Net Gearing is 4%.

Management

ANP’s CEO is David Bullen who joined the company in 2009 with a sales and marketing background. One of the Non-Executive directors on the Board is Peter Lawrence who also founded ECO Animal Health plc discussed further below. One of Management’s goals is to pay an increasing dividend. Risks identified in the Annual Report are very generic: competitors, raw material costs, exchange rates and Intellectual Property risks may all affect future performance.

Valuation

ANP’s P/E is 22, about average for the last 2 years when it doubled its previous average level in 2013. The share price doubled through 2013 and again through 2014. Estimated EPS Growth is 12.6%.

Outlook

Anpario is growing its operations in the US which is banning antibiotics used to promote animal growth. It believes that its natural feed additives are well positioned to take advantage of this ruling which takes is fully phased-in by 2017. Brazil has similar restrictions because it is the largest supplier of poultry to Europe, which also requires natural feed additives.

Stocks not on the list (0-4 years of dividend growth)

ECO Animal Health Group plc (4 years)

The Company

ECO Animal Health Group plc (EAH) develops, manufactures and markets pharmaceuticals for animal health. It has registered over 600 products, primarily for the treatment of pigs and poultry and has a market value of £138M. It’s an AIM-listed company that was founded in 1972 as Lawrence plc, named after its founder.

It reports in geographic segments – the UK (2% of FY14 revenue), Europe (14%), Asia (43%), Latin America (21%), North America (12%) and Rest of the World (8%).

Dividend History

ECO’s dividend yield is 1.9%. The company has a long dividend history with dividends paid yearly since 1999 but with inconsistent growth. It froze dividends in 2008 and cut them in 2010 leaving it with a 4-year dividend growth.

Dividend Growth

Dividend growth in CY14 over the previous year was 5%. The Payout Ratio in FY14 was high at 93% and currently stands at 70% TTM. Net Gearing is -14% and Dividend Cover is 0.73x.

Management

ECO’s chairman, Peter Lawrence, is also on the board of Anpario plc and the company also offered management services to Anpario in 2014. The Annual Report does not offer a lot of details about future strategy.

Valuation

ECO’s P/E remains high at 37, maintaining a similar level for the last two years and down from a previous average level of about 70 from 2009 through 2012. Estimated EPS growth is 23%.

Outlook

The largest contributor to the value of ECO’s drug licenses is the antibiotic Aivlosin at around 86% of total value. The remaining amortization period is 9 to 20 years and demand for this product in the US and Latin America remains strong.

Hikma Pharmaceuticals plc (3 years)

The Company

Hikma Pharmaceuticals plc (HIK) was formed in Jordan in 1978 and listed on the UK stock market in 2005. A £4.4B company, it develops, manufactures and markets a broad range of branded and non-branded generic products across the Middle-East & North Africa, US and Europe. The company is structured in three reporting segments – Branded (41% of FY13 revenue), Injectables (39%) and Generics (20%).

Dividend History

With a yield of 0.6%, HIK have increased dividends for three years since 2012 and paid dividends yearly since it was first listed in 2005. Hikma pays dividends in US$, so the dividend income is susceptible to currency rate changes – dividends in FY11 were frozen in US dollar terms but showed as a cut in UK pounds. It has also paid special dividends in 2013 and 2014 which are excluded in my dividend growth and history calculations.

Dividend Growth

Dividend growth in 2014 was 8% and over the last 5 years was an annualized 16.7%.
Payout Ratio is 12.9% and has been on the decline since reaching a high of 33% in 2011. Dividend Cover is 8.3x and Net Gearing is 37%.

Management

The non-executive Chairman, Samih Darwazah, is the founder of the company, which has delivered total shareholder return of 364% since 2005, beating both the FTSE-250 index (153%) and the FTSE Pharmaceutical index (87%).

Valuation

Hikma’s P/E of 19.9 is above its average from the last 10 years which has ranged from highs of 25 to lows of 17. Estimated EPS growth is expected to be -5%.

Outlook

Interim FY14 results were better than FY13 and the company’s approach to manufacture generic drugs eliminates some of the risks associated with developing drugs from scratch. It also plans to continue growth through acquisitions which adds risk. While it’s in a relatively safe position to continue dividend growth, the yield is very low and likely not worth the risk.

AstraZeneca plc (0 years)

The Company

AstraZeneca plc (AZN:LSE) is a £59B sized company spanning the entire chain of a medicine from discovery and development through to manufacturing and distribution. Their primary focus is on three areas of healthcare: Cardiovascular and Metabolic disease (CVMD); Oncology; and Respiratory, Inflammation and Autoimmunity (RIA). They are also active in the Infection, Neuroscience and Gastrointestinal (ING) disease areas.

The company is also listed as an ADR on the NYSE with the same symbol AZN.

Dividend History

The dividend yield is currently 3.8% and AstraZeneca have paid dividends at least since 1994. However, their CY14 payments were lower than 2013 and ended a 10-year growth streak that started in 2004. It was a similar story in 2002 with lower payments ending a 9-year streak.
Their interim payment of £53.1 in FY14 is lower than their previous interim payment of £59.20 so chances are they will not be starting a new dividend growth streak this year.

Dividend Growth

Their dividend payment in CY14 was a 5% decline from 2013, although the decrease is less on a FY basis. Over the last 5 years, the annualized growth was 4% and over 10 years it was 14%.
The Payout Ratio is 134 in 2013 and currently showing as 346 on a TTM period. Dividend Cover is 1.16 and Net Gearing is 41%.

Management

The former CEO retired in 2012 after a poor first quarter report. The current CEO, Pascal Sorio, joined in October 2012 from Roche AG where he headed the pharmaceuticals division. He is a doctor of veterinary medicine. Their annual report lists a whole slew of risks (a good thing) and the company has “return to growth” as one of their strategic initiatives. Management are trying to offset loss of income with growth from acquisitions as well as significant cost-reduction activities.

Valuation

AZN’s P/E is 87, while this is a high number; the value is more a result of low earnings around £0.82, than high share price. It is still over-valued though and the share price is likely to decline to compensate for lower income. Future revenue growth over the next few years is expected to be fairly low (single digits) until newer products come to market and EPS growth for the next 5 years is estimated at -6.5%.

Outlook

AstraZeneca will be losing patent protection on its top two drugs in the next two years – Nexium (2015) and Crestor (2016/17). These two drugs also have strong margins which causes an additional impact on earnings. The company has some products in their pipeline which may be very successful – Forxiga (diabetes treatment) and a cardiovascular drug, Brilinta which was recently launched.

Research Notes

1. Dividend Cover and Net Gearing values are from Investorease. The Investorease values are significantly different from those at Morningstar.co.uk so please check your own sources for more accurate details.
2. Estimated EPS Growth values from Morningstar.co.uk (Financials & Ratios > Ratios tab)
3. P/E Values from Morningstar.com (Valuation tab)
4. Investorease.com is possibly the best site I’ve come across for UK dividend history records, but it’s not always correct either. Likewise with Yahoo Finance. The majority of other sites only keep a 5-year record, if that.
5. Dividend History data is compiled from Annual Reports / Company website as the golden source when available. Yahoo Finance data is cross-checked with Investorease data and errors corrected if possible (typically arising from stock-splits, special dividends and currency rates).

Disclosure: I don’t own any of the stocks or companies listed in this article and have no intention to buy any shares in them.

To recap, in my view the best shares for stock trading are these shares with very high velocity and excessive volume, excessive volatility and a superb intra-day travelling range. When you have got these characteristics, you recognize the massive establishments and the “accelerators” are concerned in the stock. For inventory trading, you will have a direct entry day trading account from an inventory buying and selling broker that provides direct entry stock trading software. That is an absolute must have for day trading. The software program could have Level II, charts, technical indicators, etc. Direct entry signifies that your buy and promote orders are sent on to the market by you with out using a center man to place the orders for you.. The very first thing you’ll want to do before you even try stock buying and selling, and this is even when you do have some expertise, is to take a very good day trading course so that you simply really perceive how the enterprise of inventory trading works, what patterns to look for, how the markets work and the way every thing matches together. Will probably be one of the best funding you ever make. If you don’t educate yourself – you’ve higher than a ninety% likelihood of failing.* the words inventory buying and selling and day trading are interchangeable. Good luck and good trading,

For those of us looking to invest now, it is imperative to consider the tradeoffs between dividend growth expectations and initial yields. In this article, I touch on the importance of dividend growth to stock prices, the effects of dividend growth on the yield of an investment, and where I find the “sweet spot” to be in the tradeoff between growth and yield.

Dividend Growth Drives Stock Prices.

As we are all aware, most companies in Australia pay dividends, typically twice a year. The good companies are able to raise their dividend every year. For those who don’t focus on dividends, this is a nice surprise, but for those of thus that focus on dividends, we understand that this dividend growth is what enables our compounding machine to work.

If you take nothing else from this post, I want you to understand this: dividend growth drives the compounding principle. The reason this is the case is because a stock that is producing dividends is worth more if it is producing higher dividends.

Simple, right?

I’m going to say it again just so it sinks in. A stock that produces a rising dividend will become increasingly more valuable.

In order to further reinforce this point, I have created a simple table below. We start with a stock that is worth $20; the dividend is $1 per share. Then, we assume that the dividend grows at 5% per year. Check it out:

In year 10, the growth of the dividend means that the yield on cost has increased to 7.8%. This means that if our stock price was still $20, it would be trading on a 7.8% yield. If we assume, however, that the stock remains trading on a 5% yield (as was the case initially), then the stock price must have increased to $31.03. Although not the focus of this article, you should also be aware that reinvesting your dividends would mean that your principle has compounded far in excess of this 50ish percent increase.

Of course, this increase in prices is not guaranteed, and certainly won’t be a straight line, in any case. In fact, given the manias and panics in the market, a stock like this would almost certainly trade at one point on a 3% yield, and almost certainly at some point at a 7% yield. However, assuming everything else is equal, a stock price will rise as much as the dividend rises.

High Dividend Growth versus Low Dividend Growth

Unfortunately, stocks which have high dividend yields also very rarely exhibit strong growth characteristics. More often, potential investments fall into two categories: High Yield and Low Expected Growth or Low Yield and High Expected Growth. So which of these investments is more likely to deliver satisfactory returns?

There are a lot of companies currently listed on the ASX that I would expect to deliver strong dividend growth over the next ten years. These stocks have yields of 1.5% approximately. There are a number of other stocks which I would expect to generate moderate (mid single digit) dividend growth over the next ten years – these stocks as a generalisation trade on yield of 4.5%. Assuming the first group delivers dividend growth of 15% and the second grow at 5%, what do the potential yields look like after 10 and 20 years?

We can see from the above that the hare will eventually catch the tortoise. In fact, in year 14, I’d imagine you would have an acute case of “I should’ve’s”. But consider the number of companies that currently exist that have grown their dividend at 15% for 14 years and have been paying dividends all the while – I’m certainly not aware of any (although I’d love to be corrected!).

Given the difficulty in growing at 15% a year for a sustained period of time, I believe that investors are best served by aiming for higher initial yields and lower, and more achievable, levels of growth.

My Rule of Thumb

My guideline has always been to attempt to achieve a 10% yield on cost as soon as possible. This means I typically aim for stocks that yield 4-5% and are growing at 5-8% or better. These stocks are certainly out there, and importantly, are often high quality companies. In addition, these companies often have a history of paying dividends, and are relatively mature, allowing you to both study recent dividend trends (stable or increasing growth rates?) and project future dividend growth trends with some certainty.

There are some catches here. Some cyclical companies may appear to be paying large and growing dividends during supportive periods in the cycle – this may be unsustainable if business conditions deteriorate. Make an effort to understand whether the business is affected by cycles or not. Commodity linked companies are great examples of this.

You should also be aware of companies with high levels of debt. Nothing can destroy a promising investment as quickly as too much debt – and given debt is more senior than equity, dividends will be cut to maintain required interest payments. Be particularly cautious of companies that take on debt to pay dividends.

Cyclical companies and companies with debt issues or other concerns may appear at first look to be very attractive yield stocks. You should be cautious with stocks with very high yields (9%+). These stocks typically do not fit the description of long term compounders.

Conclusion:

Its  my belief that higher yielding but lower growth stocks will help you achieve a better investment result than low yield but higher growing stocks. These companies are generally more mature, are more committed to their dividend, and have a consistency that allows an investor greater confidence in the future prospects of the company.

The growth of the yield should be greater than inflation, ideally much higher. It is the growth of the dividend yield that allows your compounding machine to get to work – so don’t look for stocks that are high yielding but with no growth prospects. This dividend growth also drives stock price growth – so the time spent identifying the future prospects of the business may be the most important part of the investment research that you perform.

(Disclaimer: The information in this piece is personal opinion and should not be interpreted as professional investment advice.  The author makes no representations as to the accuracy, completeness, suitability, or validity of any of the information presented. As always, seek professional advice.)

One recent discussion about the lower oil prices is the likelihood of deflation which is considered a bad thing for the economy. Deflation is when prices are falling which you think would be a good thing, but it’s not so good for the larger economy. If deflation does take hold and the theory of people delaying purchases as they wait on prices to drop further holds true, then the Consumer Cyclical sector could be one of the harder hit sectors in the next year or two.

My Portfolio

Here’s my portfolio as of 4-January, showing the sectors and their current weights. The Consumer Cyclical sector is the lowest and outside the +/- 10% range, followed by Basic Materials then Consumer Defensive. For once it’s nice not to see Energy as the lowest valued which has been a recurring theme of late.

 

My dividend stock portfolio as of 04-Jan-15 showing Consumer Cyclical as the lowest sector by weight, followed by Basic Materials then Consumer Defensive.

I’m using my dividend investing rules to guide my selection.

My Consumer Cyclical dividend stocks

I have currently have positions in MCD, HD, MAR and LB in the Consumer Cyclical sector.

L Brands (LB)

L Brands (LB) is a $25B retail company selling clothing lines, personal care and beauty products. Its biggest brands are Victoria’s Secret and Bath & Body Works.

The company pays a 1.6% dividend, having increased it for the last 3 years starting 2011. Its payout ratio is 41% (ignoring the special dividend they paid last year) which is in-line with the yearly values since 2005, with the exception of 2009 when low earnings increased the ratio to 92%. The annualized dividend growth over the last 5 years is the third highest in this round-up at 18%.

Its P/E of 26 is higher than both the industry average of 24.4 and the S&P 500 average of 18.6 (and much higher than its P/E of 20 last September’s). Since 2012 LB’s P/E has always been higher than the S&P 500 although the gap is increasing. Projected EPS growth over the next 5 years is 11%.

The company isn’t on the US Dividend Champion list; I bought this stock originally in early 2013 solely because of its strong brand name and retail / media presence. It is prone to paying out special dividends (2010-12 & 2014) in addition to its ordinary dividends. Their sales numbers over Christmas beat expectations and they’ve had good 3rd quarter results so I’m expecting to see another dividend increase in their February declaration.

Home Depot (HD)

Home Depot (HD) is the world’s largest home improvement retailer with a market cap of $136B. It operates 2,200 stores in the United States, Canada and Mexico.

Home Depot is a 5 year Dividend Challenger with a current yield of 1.8%. The dividend has increased with a 5 year dividend growth rate of 16% – the third highest rate in this roundup. The payout ratio is a steady 42% which it’s held since 2011.

HD has a P/E of 24 vs. the industry average of 23.1 and the S&P of 18.6. The P/E has been higher than the S&P each year since 2008 with the biggest gap of 7 points seen in 2012. Estimated 5 year EPS growth is 16% which is the second highest in this review.

McDonalds (MCD)

McDonalds (MCD) is the world’s leading global foodservice retailer. With a market cap of $91B, it operates 35,000 locations serving approximately 70 million customers in over 100 countries every day.

The current dividend yield is 3.5%. The current 64% payout ratio has been slowly increasing from a low of 43% in 2008. MCD’s dividend growth over the last 5 years has been about 10%.

The company has a P/E of 18.4 which is less than the Industry average of 23.8 and the S&P’s 18.6. Starting from 2006, the P/E of 17.5 in 2013 was the first year since 2009 that the P/E decreased below the S&P’s average. Projected 5 year EPS growth is 5.2%, and the estimate is down 1% since September.

Marriott International (MAR)

Marriott International (MAR) is a $22B company operating several hotel chains across different price levels: Residence Inn, Courtyard, Fairfield Inn, Marriott and Renaissance among others.

MAR pays a 1% dividend which has been increasing over the last four years at a 55% annualized rate (the highest rate of increase in this review although high % growth can be misleading when the dividend payment is a small value per share). The payout ratio is 32%, a value held since 2012. Low earnings per share of $0.55 raised the P/E to 70% in 2011, but otherwise the P/O has been below 34 since 2004.

MAR is an expensive stock. It has a current P/E of 31, which is lower than the industry average of 33 but almost double the S&P Index average of 18.6. This follows a historical trend however; the P/E has been higher than the S&P for each year since 2004. Projected EPS growth for the next 5 years is 18%, the highest in this roundup.

I originally bought MAR back in 2013 when I was travelling more and staying in hotels; it wouldn’t qualify as a new purchase based on my current screener. I am interested to see where its dividend goes in the future so I’m not considering to sell it at this time. Plus I’ve always wanted to own a hotel ever since playing Monopoly.

Choosing new stocks to consider

I already have 4 stocks in this sector, with 5 being my maximum allotment so I’m not in a hurry to fill the fifth slot.

My initial screening of the Dividends Champion List is as follows:

• Include only stocks from Champions, Challengers and Contenders filtered by the sector I’m interested in (Consumer Cyclical)
• Include only stocks which have projected positive growth in both the next 1 and 5 years
• Include only stocks with a dividend yield above 2%
• Include only stocks with EPS Payout Ratio < 90%
• Include only US domestics stocks

Of the 15 companies matching that filter, I added the following 4 dividend champions to see how they compare.

Target Corp. (TGT)

Target Corp. (TGT) is a $38B retailer operating approximately 1800 stores in the US and 130 in Canada. It was excluded from the screener this week due to its high payout ratio..

Its dividend yield is 2.8% with a payout ratio of 79% and it has increased its dividend each year for the last 47 years. The higher payout ratios of the last two years are a marked contrast to the more typical levels of 13-25% seen since 2005. The annualized dividend growth over the last 5 years is the second highest in this roundup at 26%.

With a P/E of 31.9, TGT beats both the Industry average of 21 and the S&P average of 18.6. The P/E value in 2014 is a significant departure from the pattern since 2007 when TGT’s P/E was typically 2 points lower than the S&P average. Estimated 5 year EPS growth is 12%.

Wal-Mart Stores inc. (WMT)

Wal-Mart Stores inc. (WMT) is the world’s largest retailer with a market cap of %250B and around 10,000 stores globally with its Wal-Mart and Sam’s Club stores.

It’s another Dividend Champion having increased its dividend each year for the last 41 years. Its current dividend yield is 2.2% with a payout ratio of 40%. The current payout ratio has been fairly flat since 2004, typically in the high twenties / low thirties range with the biggest increase occurring last year to 38%. The annualized dividend growth over the last 5 years is 12%.

The P/E ratio of 17.6 is below both the industry average of 21 and the S&P’s 18.6. 2014 saw a relatively large increase in P/E, putting it back to a more typical value that’s close to the S&P’s average P/E. Estimated EPS growth over the next 5 years is 5.7%.

Genuine Parts Co. (GPC)

Genuine Parts Co. (GPC) is a leading distributer of replacement automotive parts with a $13.5B market cap, primarily in the US and Canada. It also distributes industrial and office replacement parts.

Its dividend yield is 2.2% with a payout ratio of 51%. GPC is a Dividend Champion and has increased its dividend each year for the last 58 years. The Payout Ratio is holding steady at 50% and the historical trend is largely flat with 50% being the typical level since 2004. The annualized dividend growth over the last 5 years has been 7.5%.

Its P/E of 23.7 is lower than the industry average of 50 but higher than the S&P average of 18.6. The P/E has tracked the S&P’s average value fairly well since 2004; however 2014’s value is a much larger increase than the last two years. Estimated 5 year EPS growth is 7.2%.

Honorable mentions

Leggett & Platt Inc (LEG)

Leggett & Platt Inc (LEG) is a $4.5B diversified manufacturer that designs and manufactures products found in homes, offices, retail stores and automobiles. It operates in 4 segments: Residential Furnishings, Commercial Fixturing & Components, Industrial Materials and Specialized Products. The company was excluded by the screening criteria due to its high payout ratio.

The current dividend yield is 2.8% and the company has grown the dividend for each of the last 43 years. The payout ratio is 214% and it’s had some high values over the last 10 years including 278% in 2007, 137% in both 2008 & 9 and 105% in 2011. The 5 year annualized growth is 3.3%.

P/E is high at 75, beating both the industry average of 43.9 and the S&P 500 average of 18.6. The P/E has been typically higher than the S&P since 2007 but lower earnings in 2014 have pushed the P/E much higher than usual. Estimated 5 year EPS growth is 15%.

Coach (COH)

Coach is a popular dividend stock in the Apparel industry; It has a 5 year dividend history with a yield of 3.6%.

Cracker Barrel Old Country (CBRL)

I used to love eating at Cracker Barrel when I lived in Alabama and it was nearly always packed. There’s not one very close to where I live now so I’ve had to cut back on my Cracker Barrel fix which is much better for my weight. It has a 12 year history with a yield just under 4%.

What to buy?

Looking at all 7 companies, my criteria of requiring a 5 year dividend growth history eliminates LB and MAR from the start.

I’m increasing my minimum dividend yield threshold to 2.25% this year from last year’s 2% threshold. This eliminates HD with its 2.1% yield. Despite its higher growth prospect, I’m willing to wait for a lower price.

This leaves a shortlist of 4: MCD, TGT, WMT & GPC which all match my minimum criteria.

With its amazing 58 year dividend growth history, GPC loses points due to a low dividend growth rate and a fairly low yield leading to a lower projected income value.

Likewise WMT also loses points due to a lower projected income value with a low starting yield and single digit growth.

It’s more or less equal between MCD and TGT; both have the same projected income with MCD’s higher current yield offset by TGT’s higher potential growth. At 47 years TGT has the better growth history but MCD has a better payout ratio.

Here is the comparison visually.

As it happens this is my first post about buying stocks in the Telecommunications sector which has finally become my lowest weighted sector. And it’ll be a short post too for reasons that will become clear. Oh the suspense!

Communications sector

The Communications sector (or Communication Services in Morningstar parlance) consists of companies involved in communications industry, originally landline telephone, fiber optics and now wireless. Many of the telecommunications companies have essentially become Utilities because wireless connectivity is such a mainstay of everyday life here in the US now.

YTD Total Returns for the entire sector are 4.24% which is third lowest of all 11 stock sectors (Utilities remain at first place with 15.19%) beating only Consumer Cyclical and the Industrials sectors.

Here’s my portfolio as of 03 October grouped by market sector. Communications is my lowest valued sector although it remains inside my +/- 10% rule.

 

My portfolio as of 03 October showing the Communications sector as the lowest weight, followed by Industrials and Consumer Defensive.

My Communications sector dividend stocks

I currently have positions in T in the Communications sector.

AT&T

AT&T (T) is the third largest communications company in the world, below Verizon (2nd place) and China Mobile (1st place) with a market capitalization of $183B. It operates in three segments – Wireless, Wireline (landline and cable) and Other although the latter segment is only 1% of all revenue. It is additionally seeking growth through its Digital Life home automation service where it competes with Comcast among others, although the home automation industry is pretty fragmented due to lack of common standards.

T is a dividend Champion having increased its dividend for the last 30 years and it currently pays a dividend of $0.46 per share for a yield of 5.2%. It has been consistent in dividend increases; increasing them in January each year since 2004. Its current TTM payout ratio of 53% is similar to last year and 2010, although the ratio increased to 264% in 2011 reducing down to 141% in 2012 due to low earnings. The last 5 years’ annualized dividend growth from 2009 to 2014 is 2.3%.

Its P/E of 10.4 is below than the industry average of 16.2 and S&P 500 average of 18.4. With the exception of the low income 2011 and 2012, the P/E has been substantially below the S&P average so this year is no exception. T has low growth forecasts – its 5 year EPS growth estimate is 4.45%.

Other Communications stocks

I have just the one position in this sector in my portfolio, so I’m going to look at some new dividend paying stocks to see if there is something better I could purchase instead of adding to my current positions.

My usual high level screener applies as I start from the Dividend Champions list.

• Include only stocks from Champions, Challengers and Contenders filtered by the sector I’m interested in (Communications)
• Include only stocks with a dividend yield above 2%
• Include only stocks with an estimated Next Year growth > 0%
• Include only stocks with an estimated 5 Year growth > 0%
• Exclude ADRs and non-US companies

This screener found only one other stock in the US Dividend Champions list!

Verizon

Verizon (VZ) is the larger rival to A&T in what amounts to a duopoly in the US with a combined 70% market share of the wireless market. It has a $206B market capitalization. Similar to AT&T, it’s organized primarily into Wireless and Wireline segments.

VZ has been promoted this year to a Dividend Contender, having increased its dividend for the last 10 years. Its current dividend of $0.55 gives it a yield of 4.3%. It has been increasing dividends consistently in October since 2009 and annualized dividend growth over the last 5 years is 4%. Its TTM payout ratio is currently 45% and has been greater than 100% for four years from 2009 through 2012, reaching a high of over 600% in 2012.

VZ’s P/E of 10.7 is similar to AT&T’s P/E, being well below the industry average of 16.2 and the S&P’s 18.4. For the most part over the last ten years, the P/E has been higher than the S&P average, but so far this year it’s below the 2013 level of 12.3. Projected EPS growth over the next 5 years is 6.5%.

Honorable mentions

British Telecom

British Telecom (BT) is excluded by my dividend screener since it’s a UK stock but it’s certainly worth considering if you’re looking outside the US, although yield is lower at 2.6% and a shorter dividend growth history at 5 years.

Vanguard Telecommunications ETF (VOX)

One way to gain instant diversification in this sector is the Vanguard Telecommunications ETF (VOX). I like ETFs in the sense that they’re lower risk since they hold more stocks than I can possibly manage and because they trade commission-free, they’re a cheaper way to get into investing. On the flip side, the fund isn’t focused on dividend stocks (although it pays a distribution annually), so it has a lower annual distribution of around 3% with an Expense Ratio of 0.14%.

In VOX’s case, it holds a total of 30 Communication stocks in its current portfolio although the top ten stocks occupy 70% of the net assets. It includes VZ, T, SBA, Century Link, Windstream, Frontier, T-Mobile and Sprint among its holdings.

What to buy?

T has a number of negatives against it; because of its high yield, its dividend payment is a projected 16% of my total dividend income next year which is above the 7.5% limit I’ve set myself. It also has a dividend growth rate below the 3% target I’ve set, so I’ve decided not to add to this position this time. So I’m going to start a new position in VZ and let the two stocks duke it out in my portfolio.

Here’s the outcome visually.

The score column shows the ranking I’m using and summarizes my analysis, it’s calculated from a weighting of the different criteria added together and aids me in valuing one stock over another. It tends to favor higher yields and stable payments.

My purchases this week

I’m adding to my Vanguard funds too this month as I continue investing the money from my house sale earlier this year.

So total purchases this week will be:

• $300 Individual Stocks (VZ)

where the VZ shares are via an automatic trade from my Sharebuilder account.

This purchase should increase my yearly dividend income by about $12 and it’ll happen tomorrow.

Full disclosure: I am long T.

Sources: Morningstar, Finviz & Yahoo Finance. While every attempt is made for accuracy, mistakes can happen. Please conduct your own research and due diligence before making any stock purchase. Your investing goals and criteria for stocks are likely different than mine.

Previous Purchase

Quote of the day

A man, as a general rule, owes very little to what he is born with – a man is what he makes of himself.

Day Trading means that you buy and sell stocks during the same day, while Swing Trading involves buying at one price and selling at another later on. Day traders usually trade with a much smaller amount of capital than swing traders because they can be more active throughout the day.

This post will cover both strategies so you can decide which one is right for you!

What is day trading and swing trading?

So first things first – what does it mean when you’re day trading and swing trading the currency market? Let’s start with some definitions:

• Day trading is the act of buying and selling currency in an exchange for profit in a single day. Day traders typically hold positions or trades ranging from seconds to hours, but not more than one day.
• Swing trading refers to long-term investments that typically last between one week and six months where investors buy currencies when they are cheap then sell them when their value rises again later on.

A popular strategy for Day Trading and Swing Trading the Currency Market is to enter the market price using limit order with stop loss set below the entry point. That way, you’ll secure your profits as well as potential downside protection if needed.

Let’s take GBP for example (British Pound Sterling) – let us say that its current price is $1.38 per GBP. If you Day Trade or swing trade Bitcoin, you’ll need to buy at that price. As the day progresses, it may be worth closer to $2 per GBP, and if that was your stop-loss point for Day Trading/swing trading (meaning the price where you would sell), then higher profits could have been made!

This is just one example – Day Trading and Swing Trading derive from many different strategies based on what currency they’re dealing with.

Here are some key takeaways:

• Day traders typically hold positions or trades ranging from seconds to hours, but not more than one day.
• Swing trading refers to long-term investments that usually last between one week and six months where investors buy currencies when they are cheap then sell them when their value rises again later on.

Trading currencies with a broker

Day trading and swing trading require the use of a broker. Day traders rely on their brokers to execute trades, while swing traders can trade through their broker or hold positions overnight with it for extra profit potential.

Finding the right brokerage is critical because some are better suited for day or swing trading than others.

Here are a few things that you would want to look out for when choosing a broker for day trading/swing trading:

• Day trading/swing trading capabilities
• Cost for trades (the lower, the better)
• The account minimums and how they vary concerning different markets, instruments, or trade sizes. Some brokers require a higher initial deposit before allowing traders to day trade more actively, while others offer premium features such as margin lending at low cost.

For more information, you might want to check out this article on Investopedia – Everything that You Need to Know about Choosing a Forex Broker.

The risks of currency trading

As with every investment, there are risks inherent in Day Trading and Swing Trading the Currency Market that you will have to consider.

Day trading, in particular, has a high risk of losing money because it is such an unbalanced investment. You will only be able to trade part of your account at any given time, and if you happen to have a bad day when some significant events occur that affect the currency market, then you are likely going to end up being out-of-pocket.

As for swing trading, you will also need to weigh the risk of holding on too long. If you expect a market rally, for example, and the rally never materializes, then there is an increased chance that your position will end up being closed at a loss.

Trading tips for beginners

It goes without saying that it’s essential to know what risks are associated with Day Trading or Swing Trading. Take steps to protect yourself, and be sure not to overstep your limits. Day trading is a fast-paced market where trades can occur in minutes or hours before they reverse direction.

Consider the following tips:

• Keep tabs on the currencies that you day trade/swing trade on. As the old saying goes – knowledge is power, and the more you know about the currencies you’re trading, the better you’ll be able to make informed decisions.
• Keep an eye out for, and know, your exit strategy before Day Trading or Swing Trading any currency. Know what limits are reasonable and how much time you have for a trade before it needs to be exited with minimal losses
• The best Day Traders/Swing Traders know that Day Trading and Swing Trading are long-term games. Day trading should be done in moderation, while swing traders are often more active over long periods.
• The keys to Day Trading or Swing Trading successfully include patience for both the highs and lows, which means not reacting emotionally when Day Traders/Swing Trades go sideways. Day Trading or Swing trading is a game of probabilities, and not every trade will be profitable.
• Don’t Day Trade/Swing Trade after consuming alcohol, drugs, etc. Day Trading and Swing Trading the Currency Market should always be done with clear judgement to avoid poor decisions that could lead you into serious financial trouble.
• Study how Day Trading/Swing Trading works. Day trading is a game of probabilities, and not every Day Trade will be profitable. Day traders must rely on their knowledge, skills, and understanding to try to beat the odds to make money Day Trading or Swing trading currencies
• Day traders should have some contingency plan to help them exit Day Trading or Swing trading trade with minimal losses. Day traders should also have an exit strategy before Day Trading or Swing trading any currency.

Conclusion

 If you’re looking for a profitable trading strategy, day trading or swing trading may be the answer. However, these strategies require plenty of practice and knowledge to reap consistent profits.

Finding your winning strategy is difficult without some trial-and-error first. Trading takes time and patience – just like any other skill that needs developing! To help hone your skills, we recommend using a demo account with virtual currency so that you can experience different market scenarios over and over again until you find one that works best for you.