Procter & Gamble Stock Analysis

The Procter & Gamble Company (PG) provides consumer packaged goods in the United States and internationally. This dividend aristocrat has paid uninterrupted dividends on its common stock since 1891 and increased payments to common shareholders every for 55 consecutive years. There are only eleven companies in the world which have managed to boost distributions over half a century. One of the largest shareholders is no other but Warren Buffett’s Berkshire Hathaway (BRK.B).

The company’s last dividend increase was in April 2011 when the Board of Directors approved an 8.90% increase to 52.50 cents/share. Procter & Gamble’s largest competitors include Kimberly-Clark (KMB), Colgate-Palmolive (CL) and Clorox (CLX).

Over the past decade this dividend growth stock has delivered an annualized total return of 7.60% to its shareholders.

The company has managed to deliver an 11% annual increase in EPS since 2002. Analysts expect Procter & Gamble to earn $4.23 per share in 2012 and $4.57 per share in 2013. In comparison Procter & Gamble earned $3.93 /share in 2011.

The company’s return on equity decreased in half when it acquired Gillette in 2005. This indicator has stabilized around 19% for the past four years. 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 11.10% per year since 2002, which is equal to 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 1975 we see that Procter & Gamble has actually managed to double its dividend every seven years on average.

The dividend payout ratio has mostly remained between 40% and 50%. Currently, it is just a little bit over 50%, but it appears 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 Procter & Gamble is attractively valued at 16.50 times earnings, has a sustainable dividend payout and yields 3.20%. I consider Procter & Gamble to have the qualities of a perfect dividend stock, that should be a core holding for any serious dividend investor. I would consider adding to my position in the stock on dips.

Full Disclosure: Long CL, CLX, KMB, PG

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This article was written by Dividend Growth Investor. If you enjoyed this article, please subscribe to my feed [RSS], or have future articles emailed to you [Email] or follow me on Twitter [Twitter].

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Dividends In Railroads

What do you think of when you think of railroad companies? You probably think of trains hauling coal, industrial goods or agriculture across vast distances of tracks. Although I share those thoughts, I also think of something else: dividends. And, not only do I think of dividends but I think of growing dividends. Let's take a look at a couple of major railroad companies that not only have strong and growing businesses, but are also committed to shareholders through dividend growth.

Union Pacific Corporation (UNP)

Per Morningstar:

Omaha, Neb.-based Union Pacific is the largest public railroad in North America. Operating on 32,000 miles of track in the Western two thirds of the United States, UP's 43,000 employees generated $19.6 billion of revenue in 2011 by hauling coal, industrial products, intermodal containers, agriculture goods, chemicals, and automotive goods. UP owns about one fourth of Mexican railroad Ferromex and derives around $1 billion hauling freight to and from Mexico.

Union Pacific is currently the railroad king. They are the largest railroad in our country and management has done a great job of growing earnings and revenue while maintaining a pretty solid balance sheet.  They are currently attractively priced with a P/E ratio of 16.89 and an entry yield of 2.11%. They have grown dividends for the last 6 years, making them a Dividend Challenger. The 5-year dividend growth rate is 26.3%, which is pretty strong. They have a pretty strong balance sheet, with a debt/equity ratio of 0.5. Although earnings and revenue growth have not been explosive over the last 5 years, due to the economic downturn of 2008-2009, as the general economy recovers so will the railroad business. I don't think UNP is the most attractively valued railroad play out there, but it's the biggest company in this business and the dividend growth is very strong.

Norfolk Southern Corp. (NSC)

Per Morningstar:

Norfolk Southern is a $9.5 billion railroad operating in the Eastern United States. On 21,000 miles of track, Norfolk Southern hauls shipments of coal (29% of consolidated revenue), intermodal traffic (19%), and a diverse mix of automobile, agriculture, metal, chemical, and forest products (each 7%-14%).

Norfolk Southern is a much smaller railroad company than UNP. But, I think the valuation is more attractive here. NSC has had recent weakness in the share price, and due to such I recently entered into a position with NSC. The current P/E ratio is 13.80 and has an entry yield of 2.5%. They have grown dividends for the last 10 years, with a 5-year DGR of 19.5%. Although earnings and revenues have been relatively flat over the last 5 years, much like UNP, I think the overall improvement in the economy will bode well for this company and industry as a whole. The balance sheet is decent, with a debt/equity ratio of 0.7. They have shown commitment to growing the dividend, raising it twice in the last year, recently raising it by 9.3%, from $0.43 quarterly to $0.47 quarterly. I think investors are seeing an opportunity with NSC, and it was down as much as 2.5% earlier today and compelled me to enter in to a position with this company.

What about you? Own any railroad companies?

Full Disclosure: I'm long NSC

Thanks for reading.

This article was written by Dividend Mantra. If you enjoyed this article, please consider subscribing to my feed.

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Mirage Of Rimage's Cash

Last year at this time, Rimage looked like an attractive stock. It had both a ton of cash relative to its market cap, and a steady source of cash flow such that it could generate a great return for shareholders. But as discussed here, what it lacked was a corporate structure conducive to creating wealth for shareholders. As a result, today the stock sits some 20% lower, and the value of the company has probably fallen by more than that.

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Stock Analysis: 3M Company (MMM)

Linked here is a detailed quantitative analysis of 3M Company (MMM). Below are some highlights from the above linked analysis:

Company Description: 3M Co. is a diversified global company that provides enhanced product functionality in electronics, health care, industrial, consumer, office, telecommunications, safety & security and other markets via coatings, sealants, adhesives, and other chemical additives.

Fair Value: In calculating fair value, I consider the NPV MMA Differential Fair Value along with these four calculations of fair value, see page 2 of the linked PDF for a detailed description:

1. Avg. High Yield Price
2. 20-Year DCF Price
3. Avg. P/E Price
4. Graham Number

MMM is trading at a discount to only 3.) above. The stock is trading at a 34.4% premium to its calculated fair value of $62.19. MMM did not earn any Stars in this section.

Dividend Analytical Data: In this section there are three possible Stars and three key metrics, see page 2 of the linked PDF for a detailed description:

1. Free Cash Flow Payout
2. Debt To Total Capital
3. Key Metrics
4. Dividend Growth Rate
5. Years of Div. Growth
6. Rolling 4-yr Div. > 15%

MMM earned two Stars in this section for 1.) and 2.) above. A Star was earned since the Free Cash Flow payout ratio was less than 60% and there were no negative Free Cash Flows over the last 10 years. The stock earned a Star as a result of its most recent Debt to Total Capital being less than 45%. The company has paid a cash dividend to shareholders every year since 1916 and has increased its dividend payments for 53 consecutive years.

Dividend Income vs. MMA: Why would you assume the equity risk and invest in a dividend stock if you could earn a better return in a much less risky money market account (MMA) or Treasury bond? This section compares the earning ability of this stock with a high yield MMA. Two items are considered in this section, see page 2 of the linked PDF for a detailed description:

1. NPV MMA Diff.
2. Years to > MMA

The NPV MMA Diff. of the $115 is below the $500 target I look for in a stock that has increased dividends as long as MMM has. If MMM grows its dividend at 3.3% per year, it will take 6 years to equal a MMA yielding an estimated 20-year average rate of 3.1%.

Memberships and Peers: MMM is a member of the S&P 500 and a member of the Broad Dividend Achievers™ Index and a Dividend Champion. The company's peer group includes: General Electric Co. (GE) with a 3.6% yield, Raven Industries Inc. (RAVN) with a 1.1% yield and Carlisle Companies Inc. (CSL) with a 1.5% yield.

Conclusion: MMM did not earn any Stars in the Fair Value section, earned two Stars in the Dividend Analytical Data section and did not earn any Stars in the Dividend Income vs. MMA section for a total of two Stars. This quantitatively ranks MMM as a 2-Star Weak stock.

Using my D4L-PreScreen.xls model, I determined the share price would need to decrease to $61.53 before MMM's NPV MMA Differential increased to the $500 minimum that I look for in a stock with 53 years of consecutive dividend increases. At that price the stock would yield 3.6%.

Resetting the D4L-PreScreen.xls model and solving for the dividend growth rate needed to generate the target $500 NPV MMA Differential, the calculated rate is 6.4%. This dividend growth rate is higher than the 3.3% used in this analysis, thus providing no margin of safety. MMM has a risk rating of 1.50 which classifies it as a Low risk stock.

MMM is the leader in many of the markets its serves with a culture that thrives on innovation. Its bottom-line focus and low-cost manufacturing have built a moat around its core businesses. The company has enjoyed strong historical earnings, dividend growth and free cash flow. In addition, the company has relatively low debt and a strong balance sheet. MMM’s has demonstrated the ability to generate strong returns on capital and free cash flows, and will likely continue to do so. MMM is a great company with an excellent future, but with a fair value of $62.19, it is not a great time to buy it.

Disclaimer: Material presented here is for informational purposes only. The above quantitative stock analysis, including the Star rating, is mechanically calculated and is based on historical information. The analysis assumes the stock will perform in the future as it has in the past. This is generally never true. Before buying or selling any stock you should do your own research and reach your own conclusion. See my Disclaimer for more information.

Full Disclosure: At the time of this writing, I was long in MMM (0.4% of my Dividend Growth Portfolio). See a list of all my dividend growth holdings here.

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This article was written by Dividends4Life. If you enjoyed this article, please subscribe to my feed [RSS], or have future articles emailed to you [Email] or follow me on Twitter [Twitter].

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Weekend Reading Links - January 22, 2012

For your weekend reading pleasure, the articles listed below contain some of the best dividend and value investing insights found on the web. They were written by various members of the Dividend Investing and Value Network over the past week:

Articles From DIV-Net Members

• Dividends4Life presented 2011-Q4 Performance Review - Portfolio up over 20% in 2011
• Dividend Growth Investor presented Eleven Dividend Kings, Raising dividends for 50+ years
• Barel Karsan presented Investment Management Out Of Favour
• Dividend Mantra presented My Goals For 2012
• The Dividend Guy presented Dividend Stock Power Ranking
• Disciplined Approach to Investing presented High Ratio Of Public Debt To GDP Constrains Economic Growth
• Triage Investing Blog presented Dividend Investor Interview III
• 40percent 20years presented H & M - Prior to closing, Sales and Gossip
• The Market Capitalist presented Video: Investing Outlook for 2012
• Dividend Monk presented Chevron Corporation: Good Value or High Risk?
• Compounding Returns presented Financing a Small Business as an Investment
• Planned Freedom presented Listen to your inner voice

There are some really good articles here, please take time and read a few of them.

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Diageo Stock Analysis

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.

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 17.90 times earnings, has a sustainable dividend payout and yields 3.10%.

Full Disclosure: Long BF-B and DEO

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This article was written by Dividend Growth Investor. If you enjoyed this article, please subscribe to my feed [RSS], or have future articles emailed to you [Email] or follow me on Twitter [Twitter].

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