Posted by
D4L |
Friday, January 30, 2009
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commentary
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Dividend cuts, such as Pfizer's (PFE) 50% slash earlier this week, along with big name companies such as General Electric (GE) and Dow Chemical (DOW) trying to convince their shareholders they won't cut their dividends still dominate the business news. What is being overlooked is the steady stream of companies stepping up to the plate and raising their dividends, as good companies do - even during recessions.
The last week saw too many dividend increases to list them all, but here are a select few that dared to declare double-digit dividend increases:
- Canadian National Railway (CNI) Increased Its Qtr. Dividend by 10% (2.25% yield)
- Pall Corp. (PLL) Raised Its Qtr. Dividend by 11.5% (2.18% yield)
- CMS Energy (CMS) Boosted Its Qtr Dividend 40% (4.25% yield)
- Alberto Culver (ACV) Increased Its Qtr. Dividend 15.4% (1.20% yield)
- RPC (RES) Raised Its Qtr. Dividend by 16.7% (3.49% yield)
- TFS Financial (TFSL) Boosted Its Dividend 40% (2.20% yield)
- D&B (DNB) Increased Qtr. Dividend 13% (1.83% yield)
In every market there are winners and losers. Find a company that consistently raises it dividend and more times than not, you have found a winner.
Full Disclosure: Long GE, CNI
(Photo: Steve Woods)
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Posted by
D4L |
Wednesday, January 28, 2009
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commentary
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Like virtually everything else in this world Dividend Stocks can be placed into a few categories based on their historic performance and expectations for the future. Here are three broad categories and some representative selections from each:
The Good
As you might guess, these dividend stocks that are doing exactly what they should do - consistently raising their dividends each year in spite of troubled economic times. Some of these companies are in sectors that are less affected by the economic downturn, but they have one thing in common, they are well-managed by executives that understand the importance of growing the companies dividends. Here are some examples of these companies:
- Johnson & Johnson (JNJ) in May 2008 increased its quarterly dividend 10.8% to $0.46/share
- Kimberly-Clark Corporation (KMB) in March 2008 increased its quarterly dividend 9.4% to $0.58/share
- McDonald's Corp. (MCD) in November 2008 increased its quarterly dividend 35.1% to $0.50/share
- Pepsico, Inc. (PEP) in June 2008 increased its quarterly dividend 13.3% to $0.425/share
- Procter & Gamble Co. (PG) in April 2008 increased its quarterly dividend 14.3% to $0.40/share
- Wal-Mart Stores Inc. (WMT) in April 2008 increased its quarterly dividend 8.2% to $0.238/share
The Bad
Companies that held their dividends flat. Dividend investors are keying on companies that can consistently raise their dividends year after year. Sometimes a company can't do this this. Instead of cutting the dividend, they hold it flat and try to weather the economic storm. This may not always be a bad thing, because it shows that management understands the importance of maintaining its dividend. Many dividend investors, myself include, may overlook a single flat year. Here are several companies that missed their last dividend increase:
- General Electric Co. (GE) last raised its dividend December 2007
- The Home Depot, Inc (HD) last raised its dividend November 2006
- Pfizer Inc. (PFE) last raised its dividend November 2007
- US Bancorp (USB) last raised its dividend December 2007
Each of the above stocks has been classified as On The Shelf. That means they 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. As I was writing this article, PFE announced Monday that it was going to slash its second quarter dividend 50%. I immediately sold the stock after its dividend cut.
The Ugly
Companies that cut their dividends. Fourth quarter 2008 was the worst period for dividend cuts since 1956 when Standard & Poor's started keeping records. Unfortunately, the carnage may not be over. UBS Securities strategist Thomas Doerflinger estimates that S&P 500 dividends per share will drop an additional 8% in 2009. That would be the largest decline since the Great Depression and only the eighth time since 1942 that dividends fell in consecutive years. Here are several companies that contributed to the 2008 decline:
- Bank of America Corporation (BAC) first dropped its dividend in December 2008
- Fifth Third Bancorp (FITB) first dropped its dividend in June 2008
- KeyCorp (KEY) first dropped its dividend in August 2008
- Regions Financial Corp. (RF) first dropped its dividend in September 2008
Long-term, the best companies to add to our dividend portfolios are those that will continue raising their dividends even during economic downturns. These stocks tend to have conservative payouts less than 50%, which allows them to maintain their dividends during the tough times. They also have growing sales and earnings - you can't continue to pay higher dividends unless you have the earnings to back it up.
Full Disclosure: Long JNJ, KMB, MCD, PEP, PG, WMT, GE, HD, USB
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Posted by
D4L |
Monday, January 26, 2009
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analysis
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This article originally appeared on The DIV-Net January 19, 2009.
Linked here is a detailed quantitative analysis of Legg Mason, Inc. (LM). Below are some highlights from the above linked analysis:
Company Description: Legg Mason, Inc. is a diversified investment manager serving individual and institutional investors through offices around the United States.
Fair Value: I consider four calculations of fair value, see page 2 of the linked PDF for a detailed description:
- Avg. High Yield Price
- 20-Year DCF Price
- Avg. P/E Price
- Graham Number
LM is trading at a discount to 1.) and 2.) above. Since LM's tangible book value is not meaningful, a Graham number can not be calculated. If I exclude the high and low valuations and average the remaining two, LM is trading at a 22.8% discount. LM 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:
- Rolling 4-yr Div. > 15%
- Dividend Growth Rate
- Years of Div. Growth
- 1-Yr. > 5-Yr Growth
- Payout 15% of avg.
LM earned three Stars in this section for 1.), 2.) and 3.) above. Rolling 4-yr Div. > 15% means that dividends grew on average in excess of 15% for each consecutive 4 year period over the last 10 years (1999-2002, 2000-2003, 2001-2004, etc.) I consider this a key metric since dividends will double every 5 years if they grow by 15%. LM has paid a cash dividend to shareholders every year since 1983 and has increased its dividend payments for 27 consecutive years. Last year's dividend payout was 44%, up from 15% in 2007. Since the increase was in excess of 15 points, a Star is deducted, leaving a net of two Stars in this section.
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:
- NPV MMA Diff.
- Years to >MMA
LM earned both of the available Stars in this section. The NPV MMA Diff. of the $239,028 is in excess of the $2,500 minimum I look for in a stock that has increased dividends as long as LM has. LM's current yield of 4.64% exceeds the 3.45% estimated 20-year average MMA rate.
Other: LM is a member of the S&P 500, a Dividend Aristocrat and a member of the Broad Dividend Achievers™ Index. The company has a strong market share and boasts an impressive historic investment performance. However, recent under performance in some of LM's flagship funds may have resulted in increased client redemptions. That combined with struggling equity markets, have resulted in sharply lower asset balances. Risks include industry cyclicality, acquisition integration further market declines and poor investment performance.
Conclusion: LM earned one Star in the Fair Value section, earned two Stars in the Dividend Analytical Data section and earned two Stars in the Dividend Income vs. MMA section for a net total of five Stars. This quantitatively ranks LM as a 5 Star-Strong Buy.
Using my D4L-PreScreen.xls model, I determined the share price could increase to $85.88 before CFR's NPV MMA Differential fell to the $3,000 that I like to see. At that price the stock would yield 1.12%.
Resetting the D4L-PreScreen.xls model and solving for the dividend growth rate needed to generate the needed $3,000 NPV MMA Differential, the calculated rate is 0.5%. This dividend growth rate is substantially below the 20.0% used in this analysis.
LM has not increased its dividend since June 2007 and runs the risk of losing its status as a Dividend Aristocrat. Before initiating a position, I would wait and determine LM's dividend policy going forward. LM's buy price is $27.26. For additional information, including LM's dividend history, please refer to its data page.
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 held no position in LM (0.0% of my Income Portfolio) .
What are your thoughts on LM?
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D4L |
Sunday, January 25, 2009
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carnival
|
Each Sunday 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 ArticlesArticles From DIV-Net MembersThe Wealth, Money & Life Network Featured ArticlesOther ArticlesThere are some really good articles here, please take time and read a few of them.
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Posted by
D4L |
Friday, January 23, 2009
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commentary
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Big banks continue to struggle and rely on TARP funds to prop them up. Last week Bank of America (BAC) reported a net loss of $0.48 per share for the fourth quarter, well below the consensus of an $0.08 profit. Merrill Lynch's preliminary results indicate a fourth quarter loss of $15 billion due to the turmoil in the capital markets. The U.S. government agreed to provide BAC an additional $20 billion to assist in the Merrill acquisition. In addition, the government has agreed to provide BAC protection against certain losses on $118 billion in selected capital markets.
The TARP money comes with strings. One of which is a reduction of common dividends. BAC declared a first-quarter dividend of $.01 per share. The company's previous two dividends were $0.32 and $0.64 per share. Not to be out done, Citigroup (C) declared a quarterly dividend on the company's common stock of $0.01 per share. Its last two dividends were $0.16 and $0.32 per share.
Tuesday, concern spread to Wells Fargo (WFC) after analysts at Friedman Billings Ramsey said Wells Fargo will likely cut its dividend in the first half of the year because the bank needs to conserve cash. That resulted in a 20% drop in its share price. Then yesterday, SunTrust Banks, Inc. (STI) reported a fourth quarter loss of $1.08 per share and reduced its quarterly dividend from $0.54 to $0.10 per share.
While the big banks are taking government funds and slashing dividends, here are some smaller banks standing strong by raising dividends:
- Bar Harbor Bankshares (BHB) raises dividend by 4% (Yield: 4.68)
- Hudson City Bancorp (HCBK) increases qtr. dividend to $0.14/share (Yield: 4.68)
- Comm Bancorp (CCBP) boosts qtr. dividend from $0.27 to $0.28/share (Yield: 2.86)
- Westamerica Bancorp (WABC) Boosts Qtr. Dividend $0.01 to $0.36/share (Yield: 3.36%)
Today's market has been challenging to even the most seasoned investors. Dividend stocks provide an opportunity for long-term growth and income if we follow a few simple rules.
Disclosure: No position in the aforementioned securities.
(Photo: Steve Woods)
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Posted by
D4L |
Wednesday, January 21, 2009
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commentary
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When the government wants to spend pork, but not call it pork they rebrand it as an "investment" in our future. Such is the case with the Troubled Asset Relief Program (TARP). So, as taxpayers and "investors" how have we fared with our "investment" and how does TARP fit into our dividend portfolios?
In a report issued last Friday, the Congressional Budget Office (CBO) concluded that the Treasury lost more than 25% of the $247 billion it spent as of Dec. 31 bailing out banks, according to a report released on Friday.
The CBO used a modified Black-Scholes option pricing model to value the TARP assets. The calculation was based on the present value of the dividends banks are required to pay taxpayers on the warrants issued in exchange for the funds received. The present value of the warrants was only $183 billion at December 31st, resulting in the Treasury providing a “subsidy” to the banks of $64 billion.
Terms of the TARP agreement require banks to pay back 5% annually in dividends for the first five years, and 9% after that if taxpayers haven’t been repaid. The warrants expire in 10 years. Last Thursday, Lawrence Summers, President-elect Barack Obama’s chief economic advisor, promised that the incoming administration would take steps to improve returns on TARP funds for taxpayers, in part by limiting dividend payouts to shareholders.
Prominent financial companies participating in TARP include:
- American Express Company (AXP)
- Bank of America Corporation (BAC)
- BB&T Corp. (BBT)
- U.S. Bancorp (USB)
- Wells Fargo & Co. (WFC)
Some institutions, such as Bank of America, have returned to the trough to feed again off TARP funds. As dividend investors, we must carefully consider whether or not banks participating in the TARP program should be included in our income portfolios.
Full Disclosure: Long BBT, USB
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Posted by
D4L |
Monday, January 19, 2009
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analysis
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This article originally appeared on The DIV-Net January 12, 2009.
Linked here is a detailed quantitative analysis of Cullen/Frost Bankers, Inc. (CFR). Below are some highlights from the above linked analysis:
Company Description: Cullen/Frost Bankers, Inc., through its subsidiaries, provides banking and financial services primarily in Texas.
Fair Value: I consider four calculations of fair value, see page 2 of the linked PDF for a detailed description:
- Avg. High Yield Price
- 20-Year DCF Price
- Avg. P/E Price
- Graham Number
CFR is trading at a discount to 1.) and 3.) above. If I exclude the high and low valuations and average the remaining two, CFR is trading at a 9.8% discount. CFR 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:
- Rolling 4-yr Div. > 15%
- Dividend Growth Rate
- Years of Div. Growth
- 1-Yr. > 5-Yr Growth
- Payout 15% of avg.
CFR earned one Star in this section for 3.) above. CFR has paid a cash dividend to shareholders every year since 1993 and has increased its dividend payments for 14 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:
- NPV MMA Diff.
- Years to >MMA
CFR earned both of the available Stars in this section. The NPV MMA Diff. of the $7,820 is in excess of the $7,500 minimum I look for in a stock that has increased dividends as long as CFR has. CFR's current yield of 3.75% exceeds the 3.54% estimated 20-year average MMA rate.
Other: CFR is a member of the Broad Dividend Achievers™ Index. While other financial institutions are lining up for a cash infusion from the Troubled Assets Relief Program (TARP), CFR took a line from Nancy Reagan and, ‘Just said no.’
“Cullen/Frost is well capitalized now and for the foreseeable future, with sufficient capital to grow our business and take advantage of acquisition opportunities," said Dick Evans, Cullen/Frost's chairman and CEO in a 2008 statement. Operating in a robust and growing Texas economy, CFR exhibits strong credit quality in its loan portfolio and tends to produce relatively stable financial results. Trading at a discount to it historical P/E, some view CFR as an attractive takeover candidate. Risks include unfavorable changes in the slope of the yield curve, operational performance and additional deterioration of the credit market.
Conclusion: CFR earned one Star in the Fair Value section, earned one Star in the Dividend Analytical Data section and earned two Stars in the Dividend Income vs. MMA section for a net total of four Stars. This quantitatively ranks CFR as a 4 Star-Buy.
Using my D4L-PreScreen.xls model, I determined the share price could increase to $44.95 before CFR's NPV MMA Differential fell to the $7,500 that I like to see. At that price the stock would yield 3.69%.
Resetting the D4L-PreScreen.xls model and solving for the dividend growth rate needed to generate the needed $7,500 NPV MMA Differential, the calculated rate is 7.6%. This dividend growth rate is virtually the same as the the 7.8% used in this analysis.
By not accepting TARP funds CFR is in a position to continue to raise its dividend. With a risk rating of 1.25 (low), it is a stock that I will consider adding to my portfolio below its buy price of $44.95. For additional information, including CFR's dividend history, please refer to its data page.
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 held no position in CFR (0.0% of my Income Portfolio) .
What are your thoughts on CFR?
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D4L |
Sunday, January 18, 2009
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carnival
|
Each Sunday 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
The Wealth, Money & Life Network Featured Articles
Other Articles
There are some really good articles here, please take time and read a few of them.
(Photo: Sachin Ghodke)
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Posted by
D4L |
Saturday, January 17, 2009
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progress
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On the third Saturday after each quarter-end I review my asset allocation and year-to-date total returns by category. The attached PDF contains my actual asset allocation as of 2008-Q4.
Asset Allocation
There are three areas that I am focusing on from an asset allocation perspective.
I. Employer/Company Stock
As discussed in the previous reviews and in "My Dirty Little Secret", I am way over-allocated in my employer's company stock. On December 31st my company stock holdings made up 36.6% of my total portfolio compared to 40.8% on September 30th and a target allocation of 40.0%. The decrease primarily resulted from a drop in my employer's share price, along with a the sale of a sizable block during the quarter. My next trading window will open in February and my new target allocation then will be 38.75% at that time.
II. International Holdings
I increased my international holdings from 11.2% to 12.1% vs. a target of 20%. As discussed in "International ETF Dividend Investing", I hope to accelerate this allocation by continuing to purchase International ETFs for inclusion in my Income ETF portfolio. The above increase was a result of a reallocation in my 401(k) plan.
III. Financial Holdings
With the continued drop in financials, my allocation in financials fell from 9.7% last quarter to 9.1%, which is below my target of 10%. This is compared to a 15% maximum. Given the current uncertainty surrounding the ability to sustain dividends by institutions participating in the TARP program, I have limited my purchases in this sector.
2008-Q4 Performance
Like the market in general, the fourth quarter was not kind to my portfolio. Below are the YTD performances of various categories along with my S&P 500 benchmark (VFINX):
- Income Stocks Q4:-20.4% Q3:-4.3% Q2:-12.4% Q1:-3.6%
- Income ETFs Q4:-27.5% Q3:-16.3% Q2:-12.8% Q1:-4.7%
- Asset Allocation Q4:-28.4% Q3:-11.9% Q2:-4.7% Q1:-3.7%
- Mutual Funds Q4:-38.0% Q3:-19.8% Q2:-10.8% Q1:-8.8%
- S&P 500 (VFINX) Q4:-36.3% Q3:-18.7% Q2:-12.8% Q1:-9.9%
I am pleased that each category, except mutual funds, is equal to or ahead of my benchmark. However, I am looking to beat the S&P over the long-run, so I don't pay a lot of attention to short-term performance either positive or negative.
The continued under-performance of mutual funds, ETFs and CEFs compared to individual stocks, has led me to no longer target a specific allocation by type of investment. I will continue to allocate my investment based origin, capitalization and sector as noted in the above-linked PDF file.
Passive Income
For Q4/2008 my passive income averaged $1,058/month, up from the $835/month in Q3. The increase related to several securities that pay an annual dividend in the fourth quarter, offset by lower interest income. This amount includes all sources of passive income in my taxable accounts, primarily interest and dividends. It excludes my Roth IRA, 401(k) and blog income (which is not passive).
The next update will be on Saturday April 18th. Thanks for reading!
(Photo: sanja gjenero)
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Posted by
D4L |
Friday, January 16, 2009
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commentary
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Someone once said that there is no such thing as bad publicity. I think Bank of America (BAC) would take exception to that statement. BAC has been in the news all week and it has not been flattering or reassuring to it shareholders. This once proud dividend aristocrat continues to struggle even after slashing its dividend.
Monday, Citigroup (C) issued some cautious comments on BAC and said investors should be braced for a very challenging 4Q. C cut Q4 EPS estimates, expects another dividend cut and expects the company raise fresh capital, but will wait for a better environment. Ultimately, C sees cumulative credit losses of $165 billion for 2008-2011, with only about 33% recognized so far.
Yesterday it was reported that BAC needs more aid from the government for its Merrill Lynch acquisition. To date, BAC has received $25 billion from the Treasury Department's Troubled Assets Relief Program (TARP). According to the The Wall Street Journal, BAC needs additional assistance to deal with an ugly quarterly report from Merrill. By mid-day Thursday shares were down 20% to around $8.
Not all news was bad this week. Instead of looking for a government handout, several companies continue to increase the cash given to their shareholders through higher dividends. Here are a few:
- Robbins & Myers (RBN) Increases Dividend to $0.04/share (Yield 0.96%)
- CVS Caremark (CVS) Boosts Qtr. Dividend 10.5% to $0.0725 (Yield 1.1%)
- Cintas (CTAS) Boosts Annual Dividend to $0.47 (Yield 2.02%)
- Linear Technology (LLTC) Boosts Qtr. Dividend to $0.22/share (Yield 3.98%)
- Monsanto (MON) Boosts Qtr Dividend 10% to $0.265 (Yield 1.38%)
- Pentair (PNR) Boosts Qtr. Dividend from $0.17 to $0.18 (Yield 2.97%)
- Shaw Communications (SJR) Raises Annual Dividend to $0.053 (Yield 3.80%)
- Family Dollar (FDO) Raises Qtr. Dividend by 8% to $0.135/share, (Yield 1.89%)
When BAC cut its dividend it no longer met the criteria for inclusion in my income portfolio. There is a reason that my most basic investing rule is to immediately sell a stock after it cuts its dividend; I BAC sold at $28.51/share after its first dividend cut.
Disclosure: No position in the aforementioned securities.
(Photo: Steve Woods)
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D4L |
Wednesday, January 14, 2009
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commentary
|
Dividend stocks are sometimes referred to as defensive stocks since many investors flee to them in an economic downturn. Their dividends, if sustainable, provide a minimum level of positive return. This cushions the downward pressure from the market. But what happens when the market turns up?
Beta is a quantitative measure of the volatility of a given security or portfolio relative to the overall market, usually the S&P 500. By definition, the market has a beta of 1.0 and securities are ranked according to how much they deviate from the market. Thus, securities with a beta above 1 are more volatile than the overall market, while those with a beta below 1 are less volatile. High-beta stocks are supposed to be riskier but provide a potential for higher returns, while low-beta stocks pose less risk but also lower returns.
Dividend stocks tend to have low betas. That means during a market downturn, they tend not to fall as much as the market in total. Hence, the term defensive stocks. It is also important to note that defensive stocks tend to be non-cyclical. Examples would include food, tobacco, oil, and utilities where demand is remains stable under difficult economic conditions. This was evidenced in my income stock's 2008 return of -20.4% vs. the S&P 500 return of -36.3% (VFINX).
Here are some of my low beta holdings:
- Chevron Corp (CVX): 5-yr Beta 0.67 (analysis)
- Pepsico Inc (PEP): 5-yr Beta 0.58 (analysis)
- Johnson and Johnson (JNJ): 5-yr Beta 0.49 (analysis)
- Kimberly-Clark Corp (KMB): 5-yr Beta 0.40 (analysis)
- Consolidated Edison Inc (ED): 5-yr Beta 0.25 (analysis)
This of coarse works against you when the market turns up. The low beta means the stocks don't increase as fast as the market in an upturn. As a dividend investor, I should expect to under-perform the market during significant bull markets. I have selected certain higher beta stocks to mitigate this shortfall. However, as a dividend investor my goal is an ever-increase stream of dividend income, not to maximize total shareholder return.
Full Disclosure: Long CVX, PEP, JNJ, KMB, ED, VFINX
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D4L |
Monday, January 12, 2009
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analysis
|
This article originally appeared on The DIV-Net January 5, 2009.
Linked here is a detailed quantitative analysis of Procter & Gamble Co. (PG) (alt.1, alt.2). Below are some highlights from the above linked analysis:
Company Description: The Procter & Gamble Company (P&G) is focused on providing branded consumer goods products. The Company markets its products in more than 180 countries.
Fair Value: I consider four calculations of fair value, see page 2 of the linked PDF for a detailed description:
- Avg. High Yield Price
- 20-Year DCF Price
- Avg. P/E Price
- Graham Number
PG is trading at a discount to 1.) and 3.) above. Since PG's tangible book value is not meaningful, a Graham number can not be calculated. If I exclude the high and low valuations and average the remaining two, PG is trading at a slight discount. PG 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:
- Rolling 4-yr Div. > 15%
- Dividend Growth Rate
- Years of Div. Growth
- 1-Yr. > 5-Yr Growth
- Payout 15% of avg.
PG earned two Stars in this section for 3.) and 4.) above. PG has paid a cash dividend to shareholders every year since 1891 and has increased its dividend payments for 52 consecutive years. It's one year dividend growth rate exceeded its 5-year growth rate. This could indicate the growth rate is 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:
- NPV MMA Diff.
- Years to >MMA
PG earned one Star in this section for 1.) above. The NPV MMA Diff. of the $5,179 is in excess of the $2,500 minimum I look for in a stock that has increased dividends as long as PG has. If PG grows its dividend at 10.7% per year, it will take 7 years to equal the cumulative earnings from a MMA yielding an estimated 20-year average rate of 3.54%.
Other: PG is a member of the S&P 500, a Dividend Aristocrat and a member of the Broad Dividend Achievers™ Index. Product demand for household and personal care products is generally stable and not affected by changes in the economy or geopolitical factors. PG has historically delivered consistent sales and earnings growth near the high end of its peer group, and I see no reason for this to change over the next several years. The company continues to benefit from the Gillette acquisition and from growth prospects in new markets and categories. PG is well positioned to benefit from growth of household and personal care products in developing countries. Risks include heightened competition, unfavorable currency translation, higher commodity costs, higher promotional spending and low consumer acceptance of new products.
Conclusion: PG earned one Star in the Fair Value section, earned two Stars in the Dividend Analytical Data section and earned one Star in the Dividend Income vs. MMA section for a net total of four Stars. This quantitatively ranks PG as a 4 Star-Buy.
Using my D4L-PreScreen.xls model, I determined the share price could increase to $66.10 before PG's NPV MMA Differential fell to the $3,000 that I like to see. At that price the stock would yield 2.19%.
Resetting the D4L-PreScreen.xls model and solving for the dividend growth rate needed to generate the needed $3,000 NPV MMA Differential, the calculated rate is 8.9%. This dividend growth rate is below the 10.7% used in this analysis, providing a margin of safety.
PG is one of the true quality blue chip dividend stocks. I will continue to add to my position below my buy price of $66.10. For additional information, including PG's dividend history, please refer to its data page.
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 PG (2.4% of my Income Portfolio) .
What are your thoughts on PG?
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D4L |
Sunday, January 11, 2009
|
carnival
|
Each Sunday 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
The Wealth, Money & Life Network Featured Articles
There are some really good articles here, please take time and read a few of them.
(Photo: Sachin Ghodke)
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D4L |
Saturday, January 10, 2009
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pcp,
progress
|
On the second or third Saturday of the month I update the Pocket Change Portfolio (PCP). The table below reconciles the PCP from beginning of period to end of period for December 2008, Year-To-Date (2008) and Life-To-Date. The Portfolio Returns line provides the calculated return for the three displayed periods.
Description
| Dec-2008 | Year-To-Date | Life-To-Date
|
|---|
| Beg. Portfolio Value | 2,765.38
| -
| -
|
| Online Cash Receipts | 677.54
| 3,548.35
| 3,548.35 |
| Online Expenses | (74.40)
| (94.40) | (94.40) |
| Gross Profit | 603.14
| 3,453.95 | 3,453.95 |
| Dividends | 25.16
| 25.16 | 25.16 |
Interest Income
| 1.74
| 6.15 | 6.15 |
| Subtotal | 630.04 | 3,485.26 | 3,485.26 |
Gain/(Loss)
| 0.20
| (89.64) | (89.64) |
| Ending Portfolio Value | 3,395.62
| 3,395.62 | 3,395.62 |
Portfolio Returns
| 0.80% | (7.30%) | (7.30%) |
|
Online Cash Receipts are the collected earnings from my online endeavors. Most of which is advertising on the my various blogs. The $94.40 Online Expenses relates to registering 2 domains (dividends4life.com and thediv-net.com) for $20 and $74.40 for one years hosting. I am in the process of moving my blogs from Blogger to a self-hosted WordPress platform. The Dividends line is for dividends earned in the PCP. The Interest Income line is interest earned on cash balances in an ING account I set up for the PCP. The Gain/(Loss) line is for market changes to the PCP (realized and unrealized).
During the month of December, I received a $16.80 dividend from BP and an $8.36 dividend from KO. I ended 2008 with $1,464.88 in cash. This will allow me to purchase my third stock in the PCP during the month of January. It is my goal to have sufficient earnings to purchase a stock at least once a quarter.
My PCP holdings are always available by selecting the Holdings option from the menu in the header. The next PCP update will be in early February.
(Photo: sanja gjenero)
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D4L |
Friday, January 09, 2009
|
commentary
|
Is General Electric (GE) the next major company to cut its dividend after holding it flat for a period of time? Last year, in a public statement GE CEO Jeff Immelt said that GE would hold its dividend flat through 2009. Recently, there has been mounting pressure on the company that may make that promise difficult to keep.
Last month, Standard & Poor’s (S&P) lowered its outlook on General Electric’s debt ratings to “negative”. S&P said there was at least a one-in-three chance it would cut GE’s grade from triple-A within the next two years. A rating cut would raise the company’s borrowing costs, diminishing a key advantage GE Capital has had over its competitors.
In a further tightening of the noose, Sterne Agee analyst Nick Heymann said the company likely faces a serious decision - sustain the dividend or the AAA rating. Heymann thought a rating change would not come until the first-quarter or second-quarter financial results are released in April and July, respectively.
Only a precious few companies still carry the AAA debt rating. They include Berkshire Hathaway Inc. (BRK.A), Exxon Mobil Corp (XOM), Johnson & Johnson (JNJ) and Pfizer Inc. (PFE).
For those of us who include dividends from GE stock in our retirement plan, we may want to reexamine our retirement vision.
Disclosure: Long GE, JNJ, PFE.
(Photo: Steve Woods)
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D4L |
Wednesday, January 07, 2009
|
commentary
|
For most people, 2008 will not be looked upon with fond admiration. The average investor likely suffered their largest portfolio loss in 2008, if not in dollar terms, certainly in percentage. However, if we stop and reflect, we just might find some good in 2008. With that in mind, let's consider the following:
A New Dose Of An Old Reality
Prior to every dramatic market decline is an unrealistic optimism, usually coming from the media and fed by inexperienced investors. Remember the "paradigm shift" from years gone by, where "we are now operating in a new economic environment and it is now normal for the S&P 500 P/E ratio to approach 30." The paradigm shifted back to its historical normal then, as it did now.
The old timers understand this and say things like, "when your barber and butcher start talking about the stocks they are invested in, it is time to get out of the market." The gut wrenching decline suffered last year will help purge those that really should not have been in the market. Over time this will reduce volatility.
Opportunity To Strengthen Your Portfolio
As blue chip dividend stocks rise in value, their yield shrinks to levels that make them unattractive. Dividend investors are sometimes guilty of adding more risky stocks during a bubble to maintain a reasonable portfolio yield. Here are some blue chip dividend stocks that have been trading at attractive values:
Procter & Gamble Co. (PG)
The Procter & Gamble Company (P&G) is focused on providing branded consumer goods products. The Company markets its products in more than 180 countries.
Buy Price: $66.10
Johnson & Johnson (JNJ)
Johnson & Johnson engages in the manufacture and sale of various products in the health care field worldwide.
Buy Price: $67.70
Kimberly-Clark Corporation (KMB)
This global consumer products company produces tissue, personal care and health care. Its brands include Huggies, Pull-Ups, Kotex, Depend, Kleenex, Scott and Kimberly-Clark.
Buy Price: $52.87
Some Stocks Performed Well In 2008
For all the doom and gloom we were subjected to each night during the market news, some stocks did quite well. A well diversified portfolio will produce some winners in any market. Two stocks in my portfolio that performed admirably were:
McDonald's Corp. (MCD) - 2008 TSR: 10.1%
McDonald's Corporation primarily franchises and operates McDonald's restaurants in the food service industry. These restaurants serve a varied, yet limited, value-priced menu in more than 100 countries around the world.
Buy Price: $46.31
Wal-Mart Stores, Inc. (WMT) - 2008 TSR: 19.9%
Wal-Mart Stores, Inc. operates retail stores in various formats worldwide. It operates through three segments: Wal-Mart Stores, Sam's Club, and International.
Buy Price: $62.40
In times of financial difficulty, consumers look for value. Both Wal-Mart and and McDonalds built their empires on delivering value to their customers.
What will 2009 bring? I don't know the specifics, but I do know it will bring opportunity and more importantly, it will bring us closer to the next great turnaround.
Full Disclosure: Long PG, JNJ, KMB, WMT, MCD
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D4L |
Monday, January 05, 2009
|
admin
|
I got a recent email that Dividends4Life was thought to have infected a reader with the Prunnet Virus. I found one of the ad networks that I use exhibited suspicious behavior and removed it. I Googled it and found it had been a source of Malware in the past. I have pulled all ads from that network.
If you have recently visited Dividends4Life, I recommend you scan your computer. The person who was infected cured their problem with the free malwarebytes anti-malware software.
I hope my actions have solved the problem, please let me know if you observe any suspicious behavior while visiting Dividends4Life.
D4L
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D4L |
Monday, January 05, 2009
|
analysis
|
This article originally appeared on The DIV-Net December 29, 2008.
Linked here is a detailed quantitative analysis of PepsiCo, Inc. (PEP) (alt.1, alt.2). Below are some highlights from the above linked analysis:
Company Description: PepsiCo, Inc. (PepsiCo) is a global snack and beverage company. The Company manufactures, markets and sells a range of salty, convenient, sweet and grain-based snacks, carbonated and non-carbonated beverages and foods.
Fair Value: I consider four calculations of fair value, see page 2 of the linked PDF for a detailed description:
- Avg. High Yield Price
- 20-Year DCF Price
- Avg. P/E Price
- Graham Number
PEP is trading at a discount to 1.), 2.) and 3.) above. If I exclude the high and low valuations and average the remaining two, PEP is trading at a 21.9% discount. PEP 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:
- Rolling 4-yr Div. > 15%
- Dividend Growth Rate
- Years of Div. Growth
- 1-Yr. > 5-Yr Growth
- Payout 15% of avg.
PEP earned one Star in this section for 3.) above. PEP has paid a cash dividend to shareholders every year since 1952 and has increased its 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:
- NPV MMA Diff.
- Years to >MMA
PEP earned both of the available Stars in this section. The NPV MMA Diff. of the $16,099 is in excess of the $2,500 minimum I look for in a stock that has increased dividends as long as PEP has. If PEP grows its dividend at 13.0% per year, it will take 2 years to equal the cumulative earnings from a MMA yielding an estimated 20-year average rate of 3.54%. PEP earned a Star since its Years to >MMA of 2 is less than 5 years.
Other: PEP is a member of the S&P 500, a Dividend Aristocrat and a member of the Broad Dividend Achievers™ Index. PEP's global market positions and stable end markets produce consistent and strong cash flows. The company continues to find domestic and international growth opportunities. PEP's product innovation strategy is considered trend-setting for the industry. Though carbonated soft drinks remain the most popular beverage, PEP recognizes that non-carbonated soft drinks are a faster growing category. The company is focusing on the health and wellness trends. It has eliminated trans fats from many of its snack foods, and is introducing "good for you" foods under the Quaker Oats brand. Risks include the highly competitive and very mature nature of it products, also with more exposure to foreign markets, political and currency risks also increase.
Conclusion: PEP earned one Star in the Fair Value section, earned one Star in the Dividend Analytical Data section and earned two Stars in the Dividend Income vs. MMA section for a net total of four Stars. This quantitatively ranks PEP as a 4 Star-Buy.
Using my D4L-PreScreen.xls model, I determined the share price could increase to $92.09 before PEP's NPV MMA Differential fell to the $3,000 that I like to see. At that price the stock would yield 1.79%.
Resetting the D4L-PreScreen.xls model and solving for the dividend growth rate needed to generate the needed $3,000 NPV MMA Differential, the calculated rate is 6.4%. This dividend growth rate is well below the 13.0% used in this analysis, providing a reasonable margin of safety.
PEP is a good value and and an excellent dividend stock. I will continue to add to my position below my buy price of $69.88. For additional information on PEP, including it dividend history, please refer to its data page.
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 PEP (2.0% of my Income Portfolio) .
What are your thoughts on PEP?
Recent Stock Analyses:
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