Investor sentiment varies considerably between Whole Foods (WFM) and SuperValu (SVU), despite the fact that these two companies operate in the same (or similar) industry. This difference in sentiment is exemplified by the opinion of a one Jim Cramer, who notes that even though SuperValu has a substantially lower P/E, Whole Foods is actually the cheaper stock because of its lower PEG ratio. What's wrong with this surface analysis?
There are many articles out there explaining the best ways to purchase dividend growth stocks. You can read all about buying based on dividend growth history, valuation, debt load, economic moat and many other criteria. But, there aren't many times you'll hear about selling dividend growth stocks. There is a good reason for this. The main reason is that most dividend growth investors are long-term investors for the most part. When we, as dividend growth investors, purchase shares in a company we do so because we believe in the long-term health and fundamentals of the company. However, things change over time and it's in your best interest to monitor your positions and adapt to the changing business world. That occasionally means selling a position, if warranted.
In my opinion, there are three main reasons one would want to sell a dividend growth stock:
In my view, these would be the only real reasons you would want to sell all, or part, of a position in a dividend growth stock. If the fundamentals of the company have changed, such as the market share eroding, the earnings/revenue declining, the economic moat disappearing or management making errant decisions then it might be in your best interest to seek opportunities elsewhere. Businesses change over time, and the reasons you first invested in a company may no longer apply. In that case, it may be best to sell that position and redeploy that capital in better opportunities. Never fall in love with a stock. I promise you that will be a one-way relationship.
If the dividend is held static or, worse, cut/eliminated than this is an obvious cue to a dividend growth investor to get out and move on to a company that can continue to grow the dividend. The main tenant behind dividend growth investing is to invest in companies that can grow their dividends through increasing revenue and earnings. If the dividend is cut or eliminated that gives an investor an indication that the company can no longer increase earnings and revenue in the near future while still paying out a dividend. In most cases I'll sell a position that is paying me a reduced dividend or no dividend at all based on my investment philosophy. The only way I wouldn't do so is if I feel the company is still very healthy and is just going through a very short-term headwind and needs the additional capital to stay healthy. I wouldn't want a company to continue to pay a dividend just for the sake of doing so if it's going to hurt the long-term prospects of the company. On the other hand, most companies I invest in have healthy payout ratios and can withstand short periods of economic duress.
If a stock has become grossly overvalued due to a market run-up, this may give a dividend growth investor a great opportunity to book in some profits and use that profit to fund an investment into an undervalued dividend growth equity that has been ignored or unfairly punished by the markets. The markets are far from efficient in my opinion, and there are companies that are undervalued and overvalued on a regular basis. I would only consider selling an equity due to this criteria if I feel that the stock is almost ridiculously overpriced and due for a massive fall. In that case I'll likely sell my position and wait for a more attractive entry point down the road. You need to have a good idea of what the intrinsic value of the stock is before selling in this case.
What is most important to remember here is why not to sell a dividend growth stock. If the price of a stock falls dramatically in a short period of time, this is often NOT a reason to sell a position. You have to keep a cool head and remember the reasons you invested in the company. If the fundamentals remain the same, the dividend is in no danger, earnings and revenue appear to be growing and the valuation is attractive this is more often than not an opportunity to average down and lower your cost basis on a position. If, however, the market is is exiting a stock because of serious issues this would be a good opportunity to review the company's financial information and make sure the long-term health is intact. If it's not, then one of the above three criteria likely apply and you'll likely want to sell and redeploy that capital.
What about you? When do you consider selling a dividend growth stock?
Thanks for reading.
This article was written by Dividend Mantra. If you enjoyed this article, please consider subscribing to my feed.
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
There are some really good articles here, please take time and read a few of them.
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.
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: NoneRelevant Articles:
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It's a tough economy right now. The unemployment rate is currently at ~9.1%. I feel lucky to have a full-time job and I put in 50+ hours a week, working as hard as I possibly can to create value for my employer. But, as someone who wants to become financially independent at a young age, diversifying my income has become paramount. However with jobs scarce and my time limited, I don't see a second job in my immediate future. That's why I have a second source of income from my main job that's completely passive. This source of income will hopefully one day outpace the earnings I receive from my main job and exceed my expenses.
This second source of income has no time clock. In fact, I've never even showed up. In the past year, I've averaged over $85 per month, but haven't worked a minute. How can it be?
Dividends.
They're like my invisible helper. Whether I show up to my day job or not, the companies I have invested in will still pay me, and cash will show up in my brokerage account regardless. By investing in quality dividend growth stocks that have economic moats and growing earnings, I can leverage the power of these companies to provide me with income whether or not I have full-time work.
Keep in mind that dividend growth investing isn't completely passive. It takes time and effort to research companies, keep an active eye on your portfolio and consistently buy quality companies. But, the great thing is that once your portfolio is set-up it should take minimal time to keep an eye on your investments and monitor any potential dividend holds or cuts. Once you have a large portfolio set up with quality dividend growth stocks you should be able to earn thousands of dollars a month and spend very little time actually "working" at it.
Imagine your dividend growth portfolio like a farm. You plant the seeds in the spring (your youth) and you harvest the dividends in the fall (middle and older age). I'm planting as many seeds as I can now while I'm young so that my dividend harvest can be as large and diversified as possible later in life. That way, when a storm rolls through (dividend cuts), I can lean on my other crops (companies) to keep my farm healthy!
What about you? Are you planting the seeds now?
Thanks for reading.
This article was written by Dividend Mantra. If you enjoyed this article, please consider subscribing to my feed.
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
There are some really good articles here, please take time and read a few of them.
Microsoft Corporation (MSFT) develops, licenses, and supports a range of software products and services for various computing devices worldwide. Microsoft has paid uninterrupted dividends on its common stock since 2003 and increased payments to common shareholders every year for 7 years. The company is one of four AAA rated companies in the US.
The most recent dividend increase was in September 2011, when the Board of Directors approved a 25% increase in the quarterly dividend to 20 cents/share. Microsoft ’s largest competitors include Apple (AAPL), Google (GOOG) and Oracle (ORCL).Over the past decade this dividend growth stock has delivered an annualized total return of 2.10% to its shareholders.
The company has managed to deliver a 16 % annual increase in EPS since 2001. Analysts expect Microsoft to earn $2.79 per share in 2012 and $3.08 per share in 2013. In comparison Microsoft earned $2.69 /share in 2011. The company has consistently managed to repurchase 3% of its outstanding stock since 2002.
The company’s Returns on Equty has tripled over the past decade, to a mind boggling 45% 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.
Microsoft started paying dividends in 2003, and paid a onetime special dividend of $3/share in 2004. The annual dividend payment has increased by 11.50% per year since 2005, which is lower than the growth in EPS. I would expect Microsoft to keep increasing in dividends at 10% per year at least until it reaches dividend achiever status.
A 12% growth in distributions translates into the dividend payment doubling every six years. If we look at historical data, going as far back as 2005 we see that Microsoft has managed to double its dividend almost every 6 years on average.
The dividend payout ratio has been stable between 20% and 30% since 2004. 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 Microsoft is attractively valued and is trading at 9.50 times earnings, yields 3.10% and has a sustainable forward dividend payout. I would keep Microsoft on my radar, as it would be eligible for inclusion in my dividend growth portfolio when it becomes a dividend achiever.
Full Disclosure: NoneRelevant Articles:
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There appears to be a bit of a revival in the tech industry with social media companies like LinkedIn Corp. (LNKD) and e-commerce companies like Groupon Inc. (GRPN) leading the way with blockbuster IPO's. It was just a decade ago that the giant tech bubble went bust and a lot of tech companies were left in the dust, along with the investors that put money in that bubble.
However, even with a small new tech bubble on the horizon there appears to be some value stocks in the tech space. A couple of once growth-oriented tech stocks have been making the long arduous journey to value stocks that pay a reliable and growing dividend. This is where I get interested.
Let's take a look:
Intel Corp. (INTC)
Intel is the world's largest chipmaker. Intel develops and manufactures microprocessors and sells them all over the globe.
Intel experienced huge growth from the mid-90's until late 2000 as the PC business exploded. This stock has since been range bound, bouncing between around $19 per share up to the mid-$20's for the last five years as its growth has been tempered. In those same five years, however, the dividend has grown from $0.11 per quarter in 2007 to $0.21 per quarter in 2011, almost doubling. Intel currently trades for a P/E ratio of 10.30 with very low debt. It has an entry yield of 3.52% based on current prices. It has grown dividends for 8 years, with a 5-year DGR of 14.5%. This looks like a solid value play on what once was a huge growth stock.
Microsoft Corporation (MSFT)
Microsoft develops the Windows PC operating system and MS Office software. It also produces the Xbox 360 game system console and other software.
Microsoft sings a similar song to Intel. It had a huge run-up in the 90's and came crashing down with the rest of the tech bubble in late 2000. Since then, it's been in doldrums, trading in a range just below $30 for the last 10 years. The dividend story with this stock is still new, as it's been coming on strong with the dividend growth only lately. MSFT has grown dividends for 7 years, and has a 5-year DGR of 11.4%. The company has very little debt with a debt/equity ratio of 0.2. The stock has an entry yield of 3.05% based on current prices. This stock has definitely gone from a growth stock to a solid dividend-paying value stock. It currently trades for a P/E ratio of 9.51.
What about you? Do you see value in tech right now?
Full Disclosure: I'm long INTC.
Thanks for reading.
This article was written by Dividend Mantra. If you enjoyed this article, please consider subscribing to my feed.
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
There are some really good articles here, please take time and read a few of them.
Dividend growth investing is a strategy where investors purchase stock in quality companies, which have committed themselves to raising dividends for long periods of time. Dividend growers and initiators have been found to outperform the market over the past 40 years according to Ned Davis Research studies. I have previously discussed these studies in this article.
Just because one has a strategy which gives them an edge, or the ability to generate consistent returns, does not mean that all caution should be thrown to the wind. In order to be successful, investors should focus on companies with solid fundamentals, which are attractively priced and have sustainable dividend payments. In addition to that, investors should build diversified dividend portfolios, where companies from different sectors are being included.
There are ten sectors in the S&P 500 index, which I consider to be my benchmark. These sectors include Energy, Materials, Industrials, Consumer Discretionary, Consumer Staples, Health Care, Financials, Information Technology, Telecom Services and Utilities.
Today I am going to discuss the companies in the retail sector. The dividend growth stocks which are representative of the sector include:
Wal-Mart Stores, Inc. (WMT) operates retail stores in various formats worldwide. This dividend champion has raised distributions for 37 years in a row. The ten year annual dividend growth rate is 17.80%. Yield: 2.80% (analsyis)
Target Corporation (TGT) operates general merchandise stores in the United States. This dividend champion has raised distributions for 44 years in a row. The ten year annual dividend growth rate 14.90is %. Yield: 2.40% (analsyis)
Lowe's Companies, Inc. (LOW), together with its subsidiaries, operates as a home improvement retailer in the United States, Canada, and Mexico. This dividend champion has raised distributions for 49 years in a row. The ten year annual dividend growth rate is 17.60%. Yield: 2.80% (analsyis)
Walgreen Co. (WAG), together with its subsidiaries, engages in the operation of a chain of drugstores in the United States. This dividend champion has raised distributions for 36 years in a row. The ten year annual dividend growth rate is 16.50%. Yield: 2.50% (analsyis)
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. This dividend champion has raised distributions for 34 years in a row. The ten year annual dividend growth rate is 10.10%. Yield: 1.40% (analsyis)
Technically however, using Standard & Poor's classifications, Wal-Mart, Walgreen's are Consumer Staples, while Lowe's, Family Dollar and Target are examples of Consumer Discretionary stocks. The companies that are attractively priced today include Lowe's (LOW), Walgreen (WAG) and Wal-Mart Stores (WMT). Target (TGT) and Family Dollar (FDO) could be decent additions on dips below $48 and $36 respectively.
Full Disclosure: Long WMT, LOW, WAG, FDO
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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].
Dividends. There are few words I like writing or speaking more. The very word conjures up images in my mind of financial freedom, still far off in the distance. Every month of dividends collected brings me one step closer to that far off destination.
The dividends I received for the month of October were less than what I received in September. It's not a total disappointment because I'm still building my Freedom Fund, and due to such the monthly dividend totals are a bit volatile right now. I suspect that within a year or two the monthly dividend totals will be a bit more steady and rising. One aspect of my portfolio that also causes excess volatility in monthly dividend totals is the fact that I have holdings with Telefonica S.A. (TEF) that pays semi-annually and I also hold Total S.A. (TOT) that just switched to quarterly dividend distributions from a formerly semi-annual dividend schedule. My portfolio has also experienced a lot of growth this year, as I started this year with just over $20k in equities value. Without further ado:
October 2011 Dividends Received
Total dividends received for the month of October: $81.56
Another wonderful month. Although not as high as the amount I received last month, it's just one more step on a long and rewarding journey toward financial independence. As always, the biggest thing I will always remember is that this is passive income. I love to remind myself that this extra $81.56 this month came to me with no need for overtime or extra work on my part this month. It just requires me to invest in quality dividend growth stocks that pay me to own them.
I'm far behind my goal of producing $1,200 in total dividend income for the year of 2011. I have produced a total of $853.89 in dividends through October. I doubt I'll reach my goal at this point, as I would need to average over $170 per month for the last two months of the year, which is far above my average. At any rate, it's very fun keeping tabs on this and I enjoy showing the world my progress for better or worse. I knew when starting the year that a goal of producing $1,200 in dividends for 2011 was highly aggressive but I enjoy really pushing myself.
I'll update my dividend income page to reflect October's dividends.
Full Disclosure: Long MO, PM, SYY, TOT.
Thanks for reading.
This article was written by Dividend Mantra. If you enjoyed this article, please consider subscribing to my feed.
Analyst Barry Cooper believes Barrick Gold (ABX), a gold miner, is a value stock. He cites the stock's P/E ratio, which is under 10, and argues that "value investors will either step into the stock or there are no value investors left in the market". But intelligent investing is not just about isolating low multiples; for this reason, Cooper is wrong about his assertion on so many levels.
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