All in a matter of weeks we have gone from "the sky is falling" to dropping gas prices. People weren't happy before and they are not happy now. Is change and misery the only constants left in the world? Not from where I am sitting. Each week there is a steady stream of companies raising their dividends. Below are several select companies that recently announced dividend increases:
After running these companies through my D4L-PreScreen.xls model, only KIM with a NPV of MMA Differential of $6,509 warrants additional consideration. I have added it to my list of stocks waiting for a full evaluation.
MCHP has only paid dividend for six years - but it has been an impressive six year. Their 5-year dividend compound growth rate is 91.7%, 3-year is 52.5% and 1-year is 36.7%. I have been wanting to get a Tech company in my income portfolio for some time. Based on my very limited review, MCHP may be worth a second and more in-depth look. I have added it to my list of stocks to monitor.
Disclosure: No position in the aforementioned stocks.
(Photo: sanja gjenero)
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Linked here is a PDF copy of my detailed analysis of Sherwin-Williams Co (SHW) (alt.1, alt.2). Below are some highlights from the above linked analysis:
Company Description: Sherwin-Williams Co (SHW) is the largest U.S. producer of paints, is also a major seller of wallcoverings and related products primarily in North and South America with additional operations in the United Kingdom, Europe, India and China.
Fair Value: I consider four calculations of fair value, see page 2 of the linked PDF for a detailed description:
SHW is trading at a discount to 1.), 2.) and 3.) above. If I exclude the high and low valuation and average the remaining two, SHW is trading at a 12.0% discount. SHW earned a Star in this section since it is trading at a fair value.
Dividend Analytical Data: In this section I consider five factors, see page 2 of the linked PDF for a detailed description:
SHW earned one Star in this section for 3.) above. SHW has paid a cash dividend to shareholders every year since 1979 and has increased its dividend payments for 29 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)? 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:
SHW earned one Star in this section. With a NPV MMA Diff. of $3,722, SHW is above the $3,000 I look for in a company that is both an Achiever and an Aristocrat. With SHW's current yield of 2.70% and its dividend is growing at 11.1%, it would take 10 years for SHW's dividend earnings exceed the earnings from a hypothetical money market account earning 4.61%.
Other: SHW is both an S&P 500 Dividend Aristocrat and a member of The Broad Dividend Achievers™ Index. SHW's business is cyclical in nature. It relies primarily on new housing starts and remodeling. From a risk perspective, SHW is exposed to lead pigment litigation. However, with the Rhode Island Supreme Court overturning a verdict against SHW relating to lead paint, makes future negative rulings less likely.
Conclusion: SHW earned a Star in the Fair Value section, earned one Star in the Dividend Analytical Data section and one Star in the Dividend Income vs. MMA section for a net total of 3 Stars. This quantitatively rates SHW as a 3 Star-Hold.
Using my D4L-PreScreen.xls model, I determined the share price could go up to $54.22 before SHW's NPV MMA Diff. drops to the $3,000 NPV MMA Diff. I like to see. At that price SHW would yield 2.58%. I have added SHW to my watch list.
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 do not own shares of SHW (0.0% of my Income Portfolio).
What are your thoughts on SHW?
Recent Stock Analyses:
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In an utopian world, the perfect dividend stock would be one that is both high-yield and provide a high dividend growth rate. Its share price would appreciate ratable with its increasing dividend. All of this would be driven by increasing earnings and cash flow. Ok, so much for my fantasies, the perfect dividend stock just may be a balanced compromise. Consider the following:
High Yield/Low Dividend Growth: When investors first consider dividend investing, High Yield is where they usually go first. I guess it is human nature to want it now and want a lot of it. Unfortunately, high yield stocks often carry higher than average risk - there is usually a reason that the stock yield is higher than average. It could be because the company is in a limited growth industry, is in a volatile industry, experienced recent financial problems and its share price has fallen, or shareholders perceive future financial problems. I have set aside a small portion of my portfolio to invest in these types of stocks. Examples of these stocks would include:
Low Yield/High Dividend Growth: After being burned on an over-allocation of high yield stocks, would be dividend investors normally start reading-up on the subject. The first thing that they learn is that Dividend Growth is more important than Dividend Yield. While Dividend Yield will stroke you today, Dividend Growth is much more important to long-term wealth creation. Companies in this category tend to be well established, dominate in their market and in industries less affected by cyclical geopolitical factors. However, it is important to note that these stocks carry a different kind of risk. Since your long-term return is dependent on the companies increasing their dividends over many years in the future, there is a real risk of something occurring that would prevent them from executing their strategy. Examples of these stocks would include:
Moderate Yield/Moderate Dividend Growth: This is a category that is not often discussed since most dividend investors focus on the other two categories above. I would classify stocks in this category with yields from 3.5% to 8.0% and a dividend growth rate between 5% and 15%. For some this defines the perfect dividend stock - good current payment with good future opportunity for growth. These companies' stories are varied. For some, they would normally reside in one of the other two categories, but hit a bump in the road. For others they normally reside here due to their growth and risk profile. Examples of these stocks would include:
As with all investments, risk can never be eliminated. However, to minimize risk I employ an asset allocation model. In addition, I limit my investments in each of the above categories.
The dividend growth rates quoted above are the average annual rates from 1998-2007.
Full Disclosure: At the time of this writing I was long in FR, ED, AFL, CNI, GE and USB.
(Photo: sanja gjenero)
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This article originally appeared on The DIV-Net July 21, 2008.
Linked here is a PDF copy of my detailed analysis of Consolidated Edison, Inc. (ED) (alt.1, alt.2). Below are some highlights from the above linked analysis:
Company Description: Consolidated Edison, Inc., through its subsidiaries, provides electric, gas, and steam utility services in the United States serving parts of New York, New Jersey and Pennsylvania.
Fair Value: I consider four calculations of fair value, see page 2 of the linked PDF for a detailed description:
ED is trading at a discount to 1.), 3.) and 4.) above. If I exclude the high and low valuation and average the remaining two, ED is trading at a 14.8% discount. ED earned a Star in this section since it is trading at a fair value.
Dividend Analytical Data: In this section I consider five factors, see page 2 of the linked PDF for a detailed description:
ED earned one Star in this section for 3.) above. ED has paid a cash dividend to shareholders every year since 1885 and has increased its cash dividend payment for 35 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)? 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:
ED earned both available Stars in this section. With a NPV MMA Diff. of $4,321, ED is well above the $3,000 I look for in a company that is both an Achiever and an Aristocrat. ED's current yield of 6.16%, exceeds the 20-year expected MMA rate of 4.61%.
Other: ED is both an S&P 500 Dividend Aristocrat and a member of The Broad Dividend Achievers™ Index. As a regulated electric and gas utility, ED produces a strong and steady cash flows. It has a solid balance sheet, an A- credit rating and operates in a historically supportive regulatory environment.
Conclusion: ED earned a Star in the Fair Value section, earned one Star in the Dividend Analytical Data section and two Stars in the Dividend Income vs. MMA section for a net total of 4 Stars. This quantitatively rates ED as a 4 Star-Buy.
Using my D4L-PreScreen.xls model, I determined the share price could go up to $41.39 before ED's NPV MMA Diff. drops to the $3,000 NPV MMA Diff. I like to see. At that price ED would yield 5.65%. I would be very comfortable adding to my position at the current price of $38.48 and a 6+% yield.
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 own shares of ED (2.9% of my Income Portfolio).
What are your thoughts on ED?
Recent Stock Analyses:
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It is a week of contrasts! We start the week with something electrifying and powerful. This kingpin has the Big Apple sitting in the palm of his hand. If he doesnt perform, he can make millions and millions of people truly miserable.
Wednesday, we meet Mr. Williams, a sensitive interior decorator. If you've got color questions? Mr. Williams has answers. He knows the difference between the colors Scanda and Gusto Gold and Recycled Glass.
Here at the D4L channel, were not into colors, but dividends. The only question I have is, will either of these two make it into my dividend portfolio? Stay tuned, we'll about to find out...
It's been an exciting week! Next week is going to be another exciting one. Don't risk missing a minute of it. You can have it all packaged and delivered directly to you free by clicking here and subscribing to the D4L Channel.
While waiting for this week's feature presentations, you may want to tune in to a few of these classic episodes:
(Photo: Sem Rox)
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Like most financial company's, iStar Financial Inc. (SFI) has experienced a difficult time over the last several quarters. It has seen it share price collapse from a 52 week high of $40.55 to under $10. SFI's quarterly dividend is $0.87/share. Unfortunately, SFI has not earned its dividend the last four quarters, and it doesn't appear it will in Q2. In a July 18, 2008 earnings revision, SFI said it expects a second quarter non-GAAP loss of $1.55 to $1.45 per share with loan loss provisions of $275.0 million.
Ironically, SFI's cash has been growing over the last four quarters - from $88 million at Q2/2007 to $119 million at Q1/2008. Looking at the cash flow statement, this increase in cash has been funded via a net issuance of long-term debt. SFI's net issuance in 2007 was about $4.5 billion and in the first quarter this year it issued (net) a little over $100 million.
From an allocation standpoint, I was scheduled to purchase SFI in August. When I saw the 40+% dividend yield, a red flag went up and I began looking deeper into the company's financials. I have a small portion of my portfolio set aside for speculative stocks and SFI is by far my riskiest stock in that category.
As mentioned in my "On The Shelf" post, if a security is not performing at the desired level for additional purchases, but also is not performing badly enough to warrant a sale, then I will put it "on the shelf". By that I mean it will be set aside within my income portfolio with no additional purchases made until its outlook improves or deteriorates to the point it should be sold. SFI currently fits that description. As such I have put SFI on the shelf, until its financial condition changes for the good or bad.
Disclosure: Long in SFI
(Photo: Gabriel Doyle)
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Each Friday I highlight the Carnivals I participated in over the past week, along with any notable articles that I came across. For those readers not familiar with carnivals, it's where personal finance bloggers submit their best articles of the week with one blog serving as the host. The entries are separated into various categories such as Investing, Credit, Debt, Budgeting, Frugality, Wealth Building, Money Management, Financial Planning, Insurance, Taxes, The Economy, Real Estate, et. al.
Below are the carnivals that I participated in this week, along with a link to my article:
Articles I enjoyed reading included (in no particular order):
The DIV-Net Featured Articles
Articles From DIV-Net Members
Dividend Articles
The Wealth, Money & Life Network Featured Articles
Other Articles
There are some really good articles there, please take time and read a few of them.
(Photo: Sachin Ghodke)
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If BAC was the good-guy bank this week, here are a few of bad-boys. Wachovia (WB) reports a Q2 loss of $4.20 and cuts its dividend to $0.05. KeyCorp (KEY) cuts dividend 50% to $0.1875; Regions Financial (RF) misses Q2 EPS by $0.03 and slashes its dividend. Another two dividend Aristocrats fall off the wagon. 
With Bank of America's (BAC) big announcement this week, there appears to be life after financial crisis. Will it last? Who knows. If you are a dividend investor, it doesn't matter. If the market goes up, you can enjoy your paper-profits on recent purchases. If it goes down, it provides more opportunities to pick up some value-priced bargains. Below are several companies that increased their dividends last week:
Disclosure: Long in BAC
(Photo: Steve Woods)
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Linked here is a PDF copy of my detailed analysis of PPG Industries, Inc. (PPG) (alt.1, alt.2). Below are some highlights from the above linked analysis:
Company Description: PPG is a leading manufacturer of coatings and resins, flat and fiber glass, and industrial and specialty chemicals.
Fair Value: I consider four calculations of fair value, see page 2 of the linked PDF for a detailed description:
PPG is trading at a discount to 3.) and 4.) above. If I exclude the high and low valuation and average the remaining two, PPG is trading at a 8.7% discount. PPG earned a Star in this section since it is trading at a fair value.
Dividend Analytical Data: In this section I consider five factors, see page 2 of the linked PDF for a detailed description:
PPG earned one Star in this section for 3.) above. PPG has paid a cash dividend to shareholders every year since 1899 and has increased its quarterly cash dividend payments for 36 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)? 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:
PPG earned no Stars in this section, and had one Star deducted for a negative NPV MMA Diff. In effect, if you invested equal amounts in a MMA earning of an average of 4.61% for 20 years and PPG stock with a dividend yield of 3.41% and growing at 2.0% annually, you would end up with $1,424 less in PPG dividend earnings per $1,000 invested.
Other: PPG is both an S&P 500 Dividend Aristocrat and a member of The Broad Dividend Achievers™ Index. The company has a diversified business mix and large market shares in key products. However, commodity chemicals business and auto supply business are highly cyclical in nature. The SigmaKalon purchase expanded PPG's coatings business, while the planned sale of the auto glass businesses would reduce its exposure to the domestic auto market.
Conclusion: PPG earned a Star in the Fair Value section, earned one Star in the Dividend Analytical Data section and lost one Star in the Dividend Income vs. MMA section for a net total of one Star. This quantitatively rates PPG as a 1 Star-Very Weak stock.
Using my D4L-PreScreen.xls model, I determined the share price would have to drop to $39.62, or its dividend growth rate would have to increase to 7.8%, before PPG obtained the $3,000 NPV MMA Diff. I like to see. I don't see either happening in the near-term, so PPG won't be getting an invitation to join my portfolio.
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 do not own shares of PPG (0.0% of my Income Portfolio).
What are your thoughts on PPG?
Recent Stock Analyses:
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You may think your greatest wealth building asset is the Chevron (CVX) stock you purchased 3 years ago. Even though your brilliant purchase has appreciated over 50% in the last 3 years in the face of a bear market, it is not your greatest wealth building asset.
Traditionalist would say your home is your greatest wealth building asset. This is getting closer, but it is not your greatest wealth building asset.
Others would say your income is your greatest wealth building asset. Thought there is a lot of truth to the statement, it is still not your greatest wealth building asset.
So, what is your greatest wealth building asset? Everyone is born with it. Few realize its importance until they lose most of it. The asset is so valuable it can't be bought. Your most valuable wealth building asset is time.
As a value/dividend investor, I have learned that time can cure many mistakes and provide enormous investment leverage. Consider these stocks:
Johnson & Johnson (JNJ): Let's say on August 25, 1987 you purchased 1,529 shares of JNJ at $6.539/share or about $10,000 worth. This was JNJ's closing high for 1987. By December 31, 1987, your investment was only worth $7,156 - a 28% drop. It wouldn't be until June 9, 1989 before you closed above your original purchase price. However, if you held this stock and spent the dividends (which I don't recommend), it would have been worth $103,238 at the July 21, 2008 mid-day price of $67.52. This is about a 12% compound annual return, excluding dividends.
General Electric (GE): Same scenario, on August 20, 1987 you purchased 1,821 shares of GE at $5.49/share or about $10,000 worth. This was GE's closing high for 1987. By December 31, 1987, your investment was only worth $6,696 - a 33% drop. It wouldn't be until January 2, 1990 before you closed above your original purchase price. However, if you held this stock and spent the dividends (which I don't recommend), it would have been worth $50,638 at the July 21, 2008 mid-day price of $27.80. This is about an 8% compound annual return, excluding dividends.
Bank of America (BAC): You know the drill. On August 25, 1987 you purchased 1,397 shares of BAC at $7.156/share or about $10,000 worth. This was BAC's closing high for 1987. By December 31, 1987, your investment was only worth $6,025 - a 40% drop. It wouldn't be until August 5, 1988 before you closed above your original purchase price. However, if you held this stock and spent the dividends (which I don't recommend), it would have been worth $40,960 at the July 21, 2008 mid-day price of $29.32. This is about an 7% compound annual return, excluding dividends, for a stock that is currently battered and beaten.
In all three examples above, the stock was purchased at its high before the 1987 crash/panic. Some recovered more quickly than others, but all recovered. The key is to buy good-solid companies, and be prepared to hold them through the good and the bad. All three of the companies above are S&P Dividend Aristocrats, or companies that have increased their dividends in each of the last 25 years. How long should you plan on holding a stock? That's easy, To Infinity and Beyond!
At the time of this writing, I owned JNJ, GE and BAC.
(Photo: peter mueller)
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This article originally appeared on The DIV-Net July 14, 2008.
Linked here is a PDF copy of my analysis of Abbott Laboratories (ABT) (alt.1, alt.2). Below are some highlights from the above linked analysis:
Company Description: Abbott Laboratories is engaged in the discovery, development, manufacture and sale of a diversified line of healthcare products including: drugs, nutritional products, diabetes monitoring devices and diagnostics.
Fair Value: I consider four calculations of fair value, see page 2 of the linked PDF for a detailed description:
ABT is trading at a discount to only 3.) above. If I exclude the high and low valuation, and average the remaining two valuations, ABT is trading at an astounding 61.6% premium. A Star is deducted since ABT is trading at a premium in excess of 5%.
Dividend Analytical Data: In this section I consider five factors, see page 2 of the linked PDF for a detailed description:
ABT earned two Stars in this section for 3.) and 4.) above. It has paid a cash dividend to shareholders every year since 1903 and has increased its quarterly cash dividend payments for 36 consecutive years. The 1-Yr. > 5-Yr Growth metric indicates that dividend growth has been accelerating.
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)? 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:
ABT was deducted one Star in this section for 1.) above. At its current yield of 2.51% and a dividend growth rate of 7.1%, ABT will under-perform a MMA averaging 4.61% by $957 per $1,000 invested over 20 years.
Other: ABT is a member of the S&P 500, is an Achiever and an Aristocrat. Like all drug companies, ABT is facing challenges to their branded patents, drug development and regulatory issues. However, ABT has a relatively strong new product pipeline, with possible significant launches in both the medical device and pharmaceutical areas.
Conclusion: ABT lost a Star in the Fair Value section, earned two Stars in the Dividend Analytical Data section and lost one Stars in the Dividend Income vs. MMA section for a net total of 0 Stars. This quantitatively rates ABT as a 0 Star-Avoid stock.
Using my D4L-PreScreen.xls model, I determined the share price would have to drop to $40.55 for the NPV of MMA Differential to reach the $2,500 minimally acceptable level for from a company that is both an Achiever and an Aristocrat. In short, ABT is overvalued and not a good dividend investment at this time. Thus, I won't be buying ABT any time soon.
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 do not own shares of ABT (0.0% of my Income Portfolio).
What are your thoughts on ABT?
Recent Stock Analyses:
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There are a lot chemicals out there - sitting and just waiting to be used. It is one group's plan for us to ingest them. We will take an in-depth look at this on Monday. Another group plans to to surround us in their chemicals. We'll go after that group on Wednesday. Both are trying to work themselves into our daily lives. Will they? I don't know, but the more important question is will either make it into my dividend portfolio. Stay tuned, we'll find out soon...
It's going to be another memorable week. Don't risk missing a minute of it. You can have it all packaged and delivered directly to you free by clicking here and subscribing to the D4L Channel.
While waiting for this week's feature presentations, you may want to tune in to a few of these classic episodes:
(Photo: Sem Rox)
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Article sharing is one of the benefits of DIV-Net. Periodically, I plan to post on Dividends4Life some articles originally appearing on The DIV-Net to allow my readers to experience first hand the high-quality authors writing for The DIV-Net.
This article by Old School Value originally appeared on The DIV-Net July 5, 2008.
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As one of the few value investors in The DIV-Net so far, I would first like to touch on what value investing is.
Charlie Munger stated it quite clearly. Intelligent investing = value investing.
By value investing, the general population tends to think of it as bottom feeding and being cheap, but such a statement only holds true in a town called Speculatown.
Value investing is much more than buying cheap companies. It's just like how we all love to find something great in the sale bin and then brag about it to our friends. It revolves around paying less or a fair amount to its real value, referred to as intrinsic value or buying $1 for 50c.
Benjamin Graham, the father of value investing, stated in his book Security Analysis,"An investment operation is one which, upon thorough analysis, promises safety of principal and a satisfactory return. Operations not meeting these requirements are speculative."
Without data and reasoning associated with an appropriate price tag, this type of activity should be labeled "Get Rich Quick Like That Guy on TV".
Speculation is darn easy but value investing is difficult. Difficult because it requires;
Many great value investors mentioned by Warren Buffett in his famous speech, The Super Investors of Graham and Doddsville, show the track record of these great investors. They weren't able to beat the benchmark year after year, but their overall records tell the true story.
Seth Klarman clarifies the idea when saying that"while others attempt to win every lap around the track, it is crucial to remember that to succeed at investing, you have to be around at the finish".
This brings me to the point of long term buy and hold. While there certainly are opportunities where the market provides short term no brainer investments, a long term buy and hold methodology will allow an investor to look at the horizon, focus on quality businesses and live a life without the computer.
By investing for the long term in quality companies, we are recognizing that we are the business partners.
As an associate member of the Dividend Investing and Value Network, I hope to bring light to great companies and value investing. I am proud to be a business partner and hope to be one with you as well.
If you enjoyed this article, please visit Old School Value and subscribe to his feed.
(Photo: sanja gjenero)
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Each Friday I highlight the Carnivals I participated in over the past week, along with any notable articles that I came across. For those readers not familiar with carnivals, it's where personal finance bloggers submit their best articles of the week with one blog serving as the host. The entries are separated into various categories such as Investing, Credit, Debt, Budgeting, Frugality, Wealth Building, Money Management, Financial Planning, Insurance, Taxes, The Economy, Real Estate, et. al.
Below are the carnivals that I participated in this week, along with a link to my article:
Articles I enjoyed reading included (in no particular order):
The DIV-Net Featured Articles
Articles From DIV-Net Members
Dividend Articles
The Wealth, Money & Life Network Featured Articles
Other Articles
There are some really good articles there, please take time and read a few of them.
(Photo: Sachin Ghodke)
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One of the areas that I am looking to increase my allocation is in the international arena. As described in an earlier article "International ETF Dividend Investing", I planned to add an international ETF to my Income ETF portfolio to help accelerate my international exposure. On a preliminary basis I identified the following candidates (information from Morningstar and yields as of 7/11/08):
WisdomTree Europe Div Fund (DEB) - 2.51% Yield (Annual)
Expense Ratio: 0.48%
Premium/Discount: 0.32%
Inception: 06-16-06
Financial Services: 29.2%
U.S.: 0%
Rejected For: Annual dividend (not frequent enough)
WisdomTree DEFA Div Fund (DWM) - 1.51% Current Yield (Annual)
Expense Ratio: 0.48%
Premium/Discount: 0.73%
Inception: 06-16-06
Financial Services: 28.61%
U.S.: 0%
Rejected For: Annual dividend (not frequent enough)
SPDR S&P International Dividend (DWX) - n/a% Current Yield (Quarterly)
Expense Ratio: na%
Premium/Discount: 0.60%
Inception: 02-12-08
Financial Services: 18.61%
U.S.: 0%
Rejected For: Insufficient information (new fund)
IShares Dow Jones EPAC Slct Dvdnd IndxFd (IDV) - 8.08% Yield (Quarterly)
Expense Ratio: 0.50%
Premium/Discount: -0.07%
Inception: 06-11-07
Financial Services: 50.70%
U.S.: 1.7%
Rejected For: Insufficient track record (new fund)
First Trst DJ STOXX Slct Dvdnd 30Indx Fd (FDD) - na% Yield (Quarterly)
Expense Ratio: 0.60%
Premium/Discount: na%
Inception: 08-27-07
Financial Services: 50.17%
U.S.: 0.0%
Rejected For: Insufficient information (new fund)
PowerShares Intnl Dividend Achievers Ptf (PID) - 4.05% Yield (Quarterly)
Expense Ratio: 0.58%
Premium/Discount: -1.12%
Inception: 09-15-05
Financial Services: 34.18%
U.S.: 6.2%
A candidate for additional consideration
Since writing "International ETF Dividend Investing", I identified the following closed-end fund for evaluation:
Eaton Vance Tax-Advantaged Glbl Div Opp (ETO) - 6.96% Yield (Monthly)
Expense Ratio: 1.06%
Premium/Discount: -12.00%
Inception: 04-24-04
Financial Services: 16.74%
U.S.: 36.5%
A candidate for additional consideration
Looking at PID's and ETO's strengths and weaknesses:
PID
ETO
For ETO, I listed "selling at a significant discount" as both a strength and weakness. It is good to buy something at $0.88 on the dollar, unless it is only worth $0.70 per dollar. The discount is so high it makes me believe the fund is holding some illiquid assets. I am attracted by its lower financial services % and longer track record. Its high U.S. holdings are a disappointment.
PID is almost an inverse image. It is trading at a reasonable discount with a low expense ratio and U.S. holdings. Its higher financial services are a disappointment.
Historically over their common life, ETO has out-performed PID, but experienced higher volatility. So what's a guy to do? I took a lesson from my wife and bought them both. Together, they will offset some of the other's weaknesses. I will also continue to monitor some of the more interesting ETFs above.
At the time of this writing I owned ETO and PID.
(Photo: sanja gjenero)
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Linked here is a PDF copy of my analysis of Lowe's Companies, Inc. (LOW) (alt.1, alt.2). Below are some highlights from the above linked analysis:
Company Description: Lowe's Companies, Inc. and its subsidiaries operate as a home improvement retailer in the United States and Canada. The company offers a range of products and services for home decoration, maintenance, repair, remodeling, and property maintenance.
Fair Value: I consider four calculations of fair value, see page 2 of the linked PDF for a detailed description:
LOW is trading at a discount to all four of the metrics above. If I exclude the high and low valuation, and average the remaining two valuations, LOW is trading at an astounding 41.4% discount. A Star is added since LOW is trading at a fair value.
Dividend Analytical Data: In this section I consider five factors, see page 2 of the linked PDF for a detailed description:
LOW earned three Stars in this section for 1.), 2.) and 3.) above. LOW has paid a cash dividend to shareholders every year since 1961 and has increased its quarterly cash dividend payments for 25 consecutive years (calendar). The Rolling 4-yr Div. > 15% means that LOW has grown its dividend in excess of 15% in every consecutive 4 year period during the last 10 years. This metric identifies a company that has historically grown its dividend on a high and consistent basis.
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)? 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:
LOW earned one Star in this section for 1.) above. I like to see a NPV MMA Diff. of $3,000 for a company that is both an Achiever and an Aristocrat; and $10,000 for a company that is neither. At $13,836, LOW's NPV MMA Diff. is quite strong.
Other: LOW is a member of the S&P 500, is an Achiever and an Aristocrat. The home improvement retail industry is cyclical in nature and is strongly reliant on economic growth. Home ownership rates are near historical highs and the homes are aging. That coupled with an increased net worth of baby boomers make for a powerful long-term driver for LOW's growth. In addition, LOW has favorable growth opportunities in for international expansion in both Canada and Mexico.
Conclusion: LOW earned a Star in the Fair Value section, earned three Stars in the Dividend Analytical Data section and one Stars in the Dividend Income vs. MMA section for a net total of 5 Stars. This quantitatively rates LOW as a 5 Star-Strong Buy.
Using my D4L-PreScreen.xls model, I determined the share price could go up to $29 before LOW dropped to the $3,000 NPV MMA Diff. I like to see; or its long-term dividend growth could drop to 15.9% and LOW would still be a buy. As a long-time Home Depot (HD) shareholder, I have not been pleased with HD as a retail operation. I would drive past HD to shop at LOW. This has created a desire in me to own LOW, but the numbers never would work - until now. Barring a significant change in LOW's fundamentals or valuation, I will likely initiate a position in LOW during the month of August.
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 do not own shares of LOW (0.0% of my Income Portfolio).
What are your thoughts on LOW?
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No, not that Financial Crisis but the one in my portfolio. Over the last quarter my investments in the financial sector stayed put at 10.8%, in spite of not buying any individual financial stocks. I didn't have to look far to find the problem. At the end of June I had the following ETFs and Closed-end Funds in my income portfolio:
Alpine Total Dynamic Dividend Fund - 16.29% Yield - (AOD)
Alpine Total Dynamic Dividend Fund (the Fund) is a diversified, closed-end management investment company. The Fund has an investment objective to invest in equity securities that provide high current dividend income. The Fund also focuses on long-term growth of capital as a secondary investment objective.
% Financial: 19.04%
SPDR S&P Dividend - 5.02% Yield - (SDY)
The Fund seeks to replicate as closely as possible, before expenses, the price and yield of the S&P High Yield Dividend Aristocrats Index. The Fund uses a passive management strategy designed to track the price and yield performance of the Dividend Index.
% Financial: 33.97%
Vanguard Financials ETF - 4.08% Yield - (VFH)
The Fund seeks to track the performance of a benchmark index that measures the investment return of financial stocks; specifically the MSCI U.S. Investable Market Financials Index. This is an index of stocks of large-, mid-, and small-size U.S. companies within the financials sector.
% Financial: 97.93%
Vanguard Dividend Appreciation ETF - 2.02% Yield - (VIG)
The Fund seeks to track the performance of the Dividend Achievers Select Index that measures the investment return of common stocks of companies that have a record of increasing dividends over time.
% Financial: 12.68%
Vanguard REIT ETF - 5.38% Yield - (VNQ)
The Fund seeks to track the investment performance of the Morgan Stanley REIT Index by investing at least 98% of its assets in stocks issued by real estate investment trusts.
% Financial: 0.00%
Vanguard High Dividend Yield - 3.65% Yield - (VYM)
The Fund seeks to track the performance of a benchmark index that measures the investment return of common stocks of companies that are characterized by high dividend yield.
% Financial: 23.83%
As you can see all the ETFs and closed-end funds above, except VNQ, include heavy allocations in the financial sector. Since I am targeting no more than 10% investment in the financial sector, this presents a problem. So what's the solution? Here is what I am going to do:
This exercise demonstrates the importance of knowing your asset allocation, including what is hidden in ETFs and funds. I have decided to take take this portion of my income portfolio in a different direction. Thursday, we'll look at its new focus and where it fits in my overall asset allocation.
(Photo: sanja gjenero)
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This article originally appeared on The DIV-Net July 7, 2008.
Linked here is a PDF copy of my analysis of Eli Lilly and Co. (LLY) (alt.1, alt.2). Below are some highlights from the above linked analysis:
Company Description: Eli Lilly and Company discovers, develops, manufactures and sells prescription drugs that offers a wide range of treatments for neurological disorders, diabetes, cancer, and other conditions. The company also sells animal health products.
Fair Value: I consider four calculations of fair value, see page 2 of the linked PDF for a detailed description:
LLY is trading at a discount to 1.) and 3.) above. If I exclude the high and low valuation, and average the remaining two valuations, LLY is trading at a 9.3% premium. A Star is deducted since LLY is trading at a premium in excess of 5%.
Dividend Analytical Data: In this section I consider five factors, see page 2 of the linked PDF for a detailed description:
LLY earned two Stars in this section for 3.) and 4.) above. It has paid a cash dividend to shareholders every year since 1885 and has increased its quarterly cash dividend payments for 40 consecutive years. The 1-Yr. > 5-Yr Growth metric indicates that dividend growth has been accelerating.
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)? 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:
LLY earned one Star in this section for 1.) above, and was very close to earning a Star for 2.) above. A company earns a Star for Years to >MMA if it less than 5 years and LLY is at 5 years.
Other: LLY is a member of the S&P 500, is an Achiever and an Aristocrat. Drug companies are facing challenges to their branded patents, drug development and regulatory issues. However, LLY's drug portfolio has limited near-term patent expiration exposure and it has a healthy pipeline in place.
Conclusion: LLY lost a Star in the Fair Value section, earned two Stars in the Dividend Analytical Data section and earned one Stars in the Dividend Income vs. MMA section for a net total of 2 Star. This quantitatively rates LLY as a 2 Star-Weak stock.
LLY is a good example of why you don't stop with a mechanical quantitative analysis. The NPV MMA Diff. is one of the main metrics I look at and at $4,355 it exceeds the $3,000 I look for in a company that is both an Achiever and an Aristocrat. In the case of LLY, the rating is purely a valuation issue and even there it is extraordinarily close. If LLY had closed at $45.10, instead of the $46.98 used in this valuation, this $1.88 (4%) decline would have made LLY a 4-Star Buy.
Using my D4L-PreScreen.xls model, I determined the dividend growth rate could drop more than a full point to 5.7% and still generate the $3,000 NPV of MMA Differential that I look for from a company that is both an Achiever and an Aristocrat. I have added LLY to my watch list.
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 do not own shares of LLY (0.0% of my Income Portfolio).
What are your thoughts on LLY?
Recent Stock Analyses:
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