Wednesday, February 26, 2020

Recent Buy – GOOGL

A quick update on a recent purchases in Baby R2R’s portfolio from last week.
Frequent readers may be aware that in addition to the education fund, I run a Nest Egg fund for Baby R2R where I earmark a portion of my portfolio and track it as part of her Nest Egg.

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Saturday, February 22, 2020

Twelve Dividend Growth Stocks Raising Distributions to Investors Last Week

There were twelve dividend growth stocks which raised dividends to their investors. All of these companies have a minimum ten year track record of annual dividend increases.

A ten year streak of annual dividend increases is a good filter to weed out most cyclical stocks and those that have simply gotten lucky by riding a short-term trend of economic prosperity. On average, a ten year period covers a full economic cycle or two on average. While the current economic cycle is over ten years old, I still find the ten year minimum streak of annual dividend increases to be a good initial filter. After all, it weeds out companies that may have fallen on hard times even during this period of economic prosperity. As an investor, I am looking for the business model that can deliver sustainable profits over several periods of economic contraction and expansion. I am not looking to get rich quick overnight - I want a company that can compound earnings, dividends and net worth for decades into the future. That't the type of company to put in my portfolio, and just let the power of compounding do the heavy lifting for me.

That initial filter needs to be evaluated further by observing trends in dividend payout ratios, and understanding the phase of dividend growth that the company is in.

The twelve companies raising dividends over the past week include:

This is not an automatic buy however.  It is a list for further research I generated, as part of my monitoring process.

In general, I look for several quantitative factors when evaluating a company:

1) A ten year track record of annual dividend increases
2) A dividend payout ratio below 60% ( adjusted for MLPs, REITs and Utilities, Telecom and Tobacco, known for high payout ratios, but dependable earnings streams) I also want the dividend payout to be flat or stuck in a range over time, rather than increasing
3) Dividend Growth above the rate of inflation (I will consider a smaller growth if yield is high and sustainable)
4) A P/E ratio below 20 ( however I may bend my guideline if I like everything else)
5) Rising earnings per share over time, which I believe to be the fuel behind future dividend increases

I have had this list of screening criteria codified since at least 2010. It is fascinating to see others borrow the ideas and use it over the past decade.

This list is not a list of rules, but a list of guidelines. As I gain more experience, and as the investment environment changes, I will add/correct/modify each guideline. There is logic behind each step, which is helpful for me in deciding when I should stick to the criteria religiously or whether I should ignore some aspects of it. This is where having your own process gives you an advantage in investing. If you blindly copy someone else's method without understanding it, you may be in for a rude awakening.

For an example of how I analyze companies, please check my analysis of T.Rowe Price Group (TROW)

I find United Parcel Service (UPS) to be attractively valued today, although the business does face some challenges from different directions. Check my analysis of UPS for more information about the company.

The most fascinating company on this list is Nu Skin Enterprises (NUS), which I last analyzed 7 years ago. I did not like the company in 2013, and I do not like the business model today either. The stock has generated zero in returns since then. Stock investing is tough, because the company was the best performing stock on the S&P 500 in 2013, more than tripling, before giving all gains back in 2014 and then slowly drifting lower.
Update: Once I created the table and calculated the data, I realized that I missed out on two dividend increases from last week. Those include PepsiCo (PEP) and Nexterra (NEE). PepsiCo (PEP) raised its quarterly dividend by 7.06% to $1.0225/share. This was the 48th consecutive annual dividend increase for this dividend champion. The company has a ten year annualized dividend growth rate of 7.89%. The stock yields 2.78% and sells at a forward P/E of 24.87. Nexterra (NEE) raised its quarterly dividend by 12% to $1.40/share. This marked the 25th consecutive annual dividend increase for this newly minted dividend champion. The forward yield is 2%, and the stock sells for a forward P/E of 30.72. The company has a ten year dividend growth rate of 10.22% annualized.
Thank you for reading!

Relevant Articles:

My Entry Criteria for Dividend Stocks
Let dividends do the heavy lifting for your retirement
Give your investments time to compound
Dividend Investing – Science versus Intuition

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Monday, February 3, 2020

7 High Yield, High Risk Dividend Securities

It is not unusual after I publish a list of stocks to get a comment or two asking why those stocks and not these stocks. Often the real thrust of the question is why buy those low yield stocks when you can buy these high yield stocks. The answer involves risk and its management.

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Thursday, January 30, 2020

Three Dividend Growth Stocks For Further Research

As part of my monitoring process, I review the list of dividend increases every single week. This exercise helps me to monitor the organic dividend growth for my portfolio, and ensure that I am on track to meet my long term objectives of ensuring that my dividend income increases purchasing power over time.

This exercise also helps me to identify hidden dividend gems for further research. It is helpful to review the list of dividend increases, go through press releases, check my files and make updates from there. I try to narrow the list down to focus on companies that have managed to increase distributions for at least ten years in a row. I then further narrow the list down as I go through each company's fundamentals, valuation and determine which companies show promise for further research.

That's how I came up with a list of these three companies for further research. While the first two are a little pricey today, I like their fundamentals. I would not hesitate to add at the right price.

The third company seems fairly valued today, though that doesn't mean it won't be cheaper a few months from now.

The companies for further research include:

Kimberly-Clark Corporation (KMB), together with its subsidiaries, manufactures and markets personal care, consumer tissue, and professional products worldwide. It operates through three segments: Personal Care, Consumer Tissue, and K-C Professional.

The company’s board of directors approved a 3.90% increase it the quarterly dividend to $1.07/share. This marked the 48th consecutive annual dividend increase for this dividend champion. The rate of dividend growth has been slowing down, compared to the ten year annualized growth of 6.20%.
Between 2008 and 2019, earnings per share went from $4.04 to $6.24

Kimberly-Clark is expected to earn between $5.95/share to $6.65/share in 2020.

The stock is not cheap at 23 times earnings. Kimberly-Clark offers a dependable yield of 3% today. It may not be a bad company to look at on dips to $120 - $132/share and even lower. Check my analysis of Kimberly-Clark for more information about the company,

Air Products and Chemicals, Inc. (APD) provides atmospheric gases, process and specialty gases, equipment, and services worldwide.

The company raised its quarterly dividend by 15.50% to $1.34/share. This was the 38th consecutive annual dividend increase for this dividend champion.

Over the past decade, Air Products & Chemicals has managed to grow distributions at an annualized rate of 9.60%.

Between 2008 and 2019, Air Products & Chemicals has managed to grow earnings from $4.15/share to $7.94/share. The company expects to earn between $9.35 to $9.60/share in 2020.
The stock is overvalued at 26.10 times forward earnings and yields 2.20%. The stock may be a better value on dips below $190/share.

Comcast Corporation (CMCSA) operates as a media and technology company worldwide. It operates through Cable Communications, Cable Networks, Broadcast Television, Filmed Entertainment, Theme Parks, and Sky segments.

The company raised its quarterly dividend by 9.50% to 23 cents/share. This marked the 12th consecutive annual dividend increase for this dividend achiever. Comcast has managed to grow distributions at an annualized rate of 22.70%/year over the past decade.

Between 2008 and 2019, Comcast managed to grow earnings from 43 cents/share to $3.13/share. Analysts are expecting earnings per share to hit $3.28 in 2020.

The stock is attractively valued at 13.60 times forward earnings and yields 2.06%.

Relevant Articles:

Seven Notable Dividend Increases From Last Week
Kimberly-Clark (KMB) Dividend Stock Analysis
What is intrinsic value?
Seven Companies Working Hard For Their Stockholders

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