For your reading pleasure, the articles listed below contain some of the best dividend and value investing insights found on the web. They were written by various members of the Dividend Investing and Value Network (DIV-Net) over the past week:
Articles From DIV-Net Members
There are some really good articles here, please take time and read a few of them.
If you enjoyed this article, please vote for it by clicking the Buzz Up! button below.
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I currently track 100 dividend stocks in my D4L-Dashboard and have determined some of the lower rated stocks could be buys if the companies simply chose to increase their dividends. For various reasons their management has elected keep a low payout ratio and deploy the excess cash elsewhere.
To identify these stingy companies, I used the following criteria on the companies I track:
Here are seven stocks out of the 100 that I track meeting the above criteria:
Aflac Incorporated (AFL) - 4-Stars - Analysis
Aflac Incorporated engages in the marketing and sale of supplemental health and life insurance plans in the United States and Japan.
C.R. Bard Inc. (BCR) - 4-Stars
Bard (C.R.) Inc is a diversified producer of therapeutic and diagnostic medical devices has exposure to the vascular, urology, oncology, and specialty surgical markets.
Franklin Resources Inc. (BEN) - 2 Stars
Franklin Resources Inc. is one of the world's largest asset managers, serving retail, institutional and high-net-worth clients.
Donaldson Company (DCI) - 3 Stars - Analysis
Donaldson Company operates as a worldwide manufacturer of filtration systems and replacement parts.
General Dynamics (GD) - 2 Stars - Analysis
General Dynamics is the world's sixth largest military contractor and also one of the world's biggest makers of corporate jets.
Lancaster Colony (LANC) - 2 Stars
Lancaster Colony is a diversified Ohio-based company manufactures and markets consumer products; glassware and candles; and automotive accessories.
Walgreen Co. (WAG) - 3 Stars - Analysis
Walgreen Co is the largest U.S. retail drug chain in terms of revenues. It sells prescription and non-prescription drugs, beauty care, personal care, household items, candy, photofinishing, greeting cards, seasonal items and convenience foods.
You could view this from a positive perspective and say the above dividends should be very safe and the companies are in an excellent position to continue to raising them each year. In dividend investing, cash is king, but at some point management has to be willing to share it with the company's owners.
Full Disclosure: Long AFL. See a list of all my income holdings here.
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Product demand for household and personal care products is generally stable and not affected by changes in the economy or geopolitical factors. Investors know this and when the economy and the market turn down, many investors start buying defensive stocks. Since the end of the year, many non-cyclical companies have seen dramatic increases, with one notable exception, Procter & Gamble (PG).
Below are the dividend adjusted price growth from December 31, 2008 to July 31, 2009 for 5 prominent non-cyclical companies:
The above begs the question, what's wrong with PG?
The company spent the last several years investing in high-growth businesses such as beauty and divesting lower-growth staples like food. This left the company exposed to recessionary conditions. Management recently admitted that pressure on beauty and snack brands has been intense, leading to the 11 per cent decline in fourth quarter sales. PG's Chairman, A.G. Lafley, stated:“In fiscal 2009 and particularly in the fourth quarter, P&G faced one of the most difficult macroeconomic environments in decades. We made choices to focus on cash and cost discipline, maintain investments in long-term growth opportunities and to protect the structural economics of our businesses around the world. We delivered strong free cash flow - the financial lifeblood of the business - while also delivering organic sales and earnings-per-share results that balanced short-term returns and long-term investments.”
On the plus side, PG has a good management team and excellent financials. The company has a respectable Free Cash Flow Payout of 47% and a good Debt to Total Capital of 39%. None of the companies listed above, with the exception of JNJ, can boast of such strong financial metrics.
As early as May, PG's management announced plans to increase offerings of lower-priced products. This is a significant shift in its strategy of introducing increasingly sophisticated (and costly) household staples. Lafley noted that every business is working to reach more consumers by widening the price range of its products. He cited the recent success of the company's bargain-priced Gain detergent and Luvs diapers compared to the premium-priced brands, Tide and Pampers. Mr. Lafley told investors:"You have to see reality as it is. In every recession there are hosts of compensating consumer behaviors as they manage a more modest budget. We have to expand our portfolios to serve the needs of those consumers. I think a lot of that is going to last."
In addition, on August 24th, PG announced that it is selling its pharmaceuticals business to Irish drug maker Warner Chilcott for around $3.1 billion. The company stated the sale was geared toward prioritizing investments in its consumer health care businesses. The deal is expected to close in November.
I still have confidence in PG and will continue to add to my position as market conditions and my allocation allows. When a company is in turmoil, it often creates the best buying opportunities.
Full Disclosure: Long JNJ, CL, KMB, CLX, PG. See a list of all my income holdings here.
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This article originally appeared on The DIV-Net August 17, 2009.
Linked here is a detailed quantitative analysis of The Coca-Cola Company (KO). Below are some highlights from the above linked analysis:
Company Description: The Coca-Cola Company is the world's largest soft drink company. It engages in the manufacture, distribution, and marketing of nonalcoholic beverage concentrates, fruit juices and syrups worldwide.
Fair Value: I consider four calculations of fair value, see page 2 of the linked PDF for a detailed description:
KO is trading at a discount to 1.) and 3.) above. The stock is trading at a 17.3% premium to its calculated fair value of $41.33. KO did not earn any Stars in this section.
Dividend Analytical Data: In this section there are three possible Stars and three key metrics, see page 2 of the linked PDF for a detailed description:
KO earned two Stars in this section for 2.) and 3.) above. The stock earned a Star as a result of its most recent Debt to Total Capital being less than 45%. KO earned a Star for having an acceptable score in at least two of the four Key Metrics measured. The company has paid a cash dividend to shareholders every year since 1893 and has increased its dividend payments for 47 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:
KO earned a Star in this section for its NPV MMA Diff. of the $1,162. This amount is in excess of the $500 target I look for in a stock that has increased dividends as long as KO has. If KO grows its dividend at 7.9% per year, it will take 2 years to equal a MMA yielding an estimated 20-year average rate of 3.9%. KO earned a check for the Key Metric 'Years to >MMA' since its 2 years is less than the 5 year target.
Other: KO is a member of the S&P 500, a Dividend Aristocrat and a member of the Broad Dividend Achievers™ Index. KO enjoys a dominant market share around the world. Margins and volumes in KO's non-carb portfolio should continue to grow as the company expands distribution and is able to hold pricing. KO's high exposure to international markets should offset small U.S. declines of the Coke unit. Coca-Cola Zero should drive trademark Coca-Cola volumes worldwide. A weakening dollar would provide an additional boost in profits. Risks would include slower than planned growth and adverse foreign currency exchange rates.
Conclusion: KO did not earn any Stars 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 total of three Stars. This quantitatively ranks KO as a 3 Star-Hold.
Using my D4L-PreScreen.xls model, I determined the share price could increase to $62.66 before KO's NPV MMA Differential fell to the $500 that I like to see for a stock with 47 consecutive years of dividend increases. At that price the stock would yield 2.62%.
Resetting the D4L-PreScreen.xls model and solving for the dividend growth rate needed to generate the target $500 NPV MMA Differential, the calculated rate is 5.4%. This dividend growth rate is lower than the the 7.9% used in this analysis, thus providing a margin of safety. KO has a risk rating of 1.50 which classifies it as a low risk stock.
KO is a great company that can produce a long resume detailing its many successes. Unfortunately, I am not the only person that has figured this out. It is not uncommon for KO to trade at a premium to its buy price. Another concern is KO's Free Cash Flow Payout, currently at 64%, tends to be higher than the 60% level that I prefer. However, this is mitigated to an extent by relatively low debt levels and predictable cash flows. KO is a stock I will buy when it dips below its buy price of $41.33. For additional information, including the stock'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 KO (3.5% of my Income Portfolio).
What are your thoughts on KO?
Related Articles:
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For your reading pleasure, the articles listed below contain some of the best dividend and value investing insights found on the web. They were written by various members of the Dividend Investing and Value Network (DIV-Net) over the past week:
Articles From DIV-Net Members
There are some really good articles here, please take time and read a few of them.
If you enjoyed this article, please vote for it by clicking the Buzz Up! button below.
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How about a list of some great dividend stocks that have long history of increasing their dividends, some for decades? These aren't just any dividend stocks they are supported by a powerful balance sheet and have a track record of generating consistent cash flows. Even better, they are well-managed, and aside from the normal bumps in the road from the economic downturn, they are doing quite well, but...
Don't you hate that final "but" that always seems to come just when things are looking good? The "but" here relates to valuation. Over the last several weeks, the list of great companies that are under-valued has diminished as a result of the recent market recovery. The curse of the value-based contrarian in a rising market. Below are six stocks that have been "cursed" with increased valuations since the market's bottom on March 6, 2009:
Illinois Tool Works Inc. (ITW) – Yield: 3.00% – 2 Stars – Analysis
Illinois ToolWorks Inc. is a diversified manufacturer that operates a portfolio of about 750 industrial and consumer businesses located throughout the world. (45 consecutive years of dividend increases)
3M Co (MMM) – Yield: 2.86% – 2 Stars – Analysis
3M Co. is a diversified technology company with a presence in various businesses, including industrial & transportation, healthcare, display & graphics, consumer & office, safety, security & protection services, and electro and communications. (51 consecutive years of dividend increases)
General Dynamics Corp. (GD) – Yield: 2.65% – 3 Stars – Analysis
General Dynamics is the world's sixth largest military contractor and also one of the world's biggest makers of corporate jets. (16 consecutive years of dividend increases)
Genuine Parts Co. (GPC) – Yield: 4.26% – 3 Stars – Analysis
Genuine Parts Co is a leading wholesale distributor of automotive replacement parts, industrial parts and supplies, and office products. (53 consecutive years of dividend increases)
AFLAC Inc. (AFL) – Yield: 2.66% – 4 Stars – Analysis
Aflac Incorporated engages in the marketing and sale of supplemental health and life insurance plans in the United States and Japan. (27 consecutive years of dividend increases)
Nucor Corp. (NUE) – Yield: 2.99% – 4 Stars – Analysis
Nucor Corporation is engaged in the manufacture and sale of steel and steel products. As the largest minimill steelmaker in the U.S., Nucor has one of the most diverse product lines of any steelmaker in the Americas. (35 consecutive years of dividend increases)
So how do you overcome the overvaluation "curse"? Patience and research. What goes up usually comes down or the economic fundamentals of the business catch up with the stock price. Every stock goes on sale at some point, but usually it is at a time we are afraid to buy.
Full Disclosure: Long ITW, MMM, GD, GPC, AFL, NUE. See a list of all my income holdings here.
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"The problem with Socialism is that eventually you run out of other people's money."
- Margaret Thatcher
If you have followed the U.S. Social Security saga over the last several years, you know it is projected to run out of money soon. As it turns out "soon" just may be much sooner than previously expected. To make matters worse, it has been "broke" for some time, but through creative accounting that would land a private-sector CFO in jail, the government has been able to keep the appearance of solvency.
Bill Fleckenstein in a recent MSN Money article, discussed several issues facing Social Security. Here are some of the key points from his article:
Do you really want to bet your retirement on a system like this? I certainly won't. When planning for retirement, my underlying assumption is that Social Security will go broke before I ever receive a dime. Like everyone, I will need an income during my retirement years. I am currently planting the seeds for that income with high-quality dividend stocks that have a long track record of increasing their dividends each year. Below are some blue chip dividend stocks that eventually end up in most income investors' portfolio:
Wal-Mart Stores, Inc. (WMT) - Yield: 2.11% - Analysis
As for Social Security running out of money, I think people will be paid what was promised since the government can print all the money it needs. However, what was promised may not be enough after inflation, particularly if a lot of money is printed.
The largest retailer in North America knows how to treat customers and shareholders. WMT has rewarded investors with 35 years of consecutive dividend increases.
Abbott Laboratories (ABT) - Yield: 2.11% - Analysis
This drug manufacturer knows the best medicine for a sick portfolio is increased dividends. ABT has been dispensing higher dividends for 37 consecutive years.
Johnson & Johnson (JNJ) - Yield: 3.23% - Analysis
For 47 consecutive years this manufacturer of health care has delighted investors with increased dividends.
Procter & Gamble Co. (PG) - Yield: 3.14% - Analysis
This provider of branded consumer goods products and Dividend Aristocrat has made investors smile for 53 consecutive years with increased dividends.
Full Disclosure: Long ABT, JNJ, PG, WMT. See a list of all my income holdings here.
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This article originally appeared on The DIV-Net August 10, 2009.
Linked here is a detailed quantitative analysis of Kimberly-Clark Corporation (KMB). Below are some highlights from the above linked analysis:
Company Description: Kimberly-Clark Corporation is a global consumer products company produces tissue, personal care and health care. Its brands include Huggies, Pull-Ups, Kotex, Depend, Kleenex, Scott and Kimberly-Clark.
Fair Value: I consider four calculations of fair value, see page 2 of the linked PDF for a detailed description:
KMB is trading at a discount to 1.) and 3.) above. The stock is trading at a 23.4% premium to its calculated fair value of $46.65. KMB did not earn any Stars in this section.
Dividend Analytical Data: In this section there are three possible Stars and three key metrics, see page 2 of the linked PDF for a detailed description:
KMB earned two Stars in this section for 1.) and 3.) above. A Star was earned since the Free Cash Flow payout ratio was less than 60% and there were no negative Free Cash Flows over the last 10 years. KMB earned a Star for having an acceptable score in at least two of the four Key Metrics measured. The company has paid a cash dividend to shareholders every year since 1935 and has increased its dividend payments for 37 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:
KMB earned a Star in this section for its NPV MMA Diff. of the $549. This amount is in excess of the $500 target I look for in a stock that has increased dividends as long as KMB has. The stock's current yield of 4.17% exceeds the 3.9% estimated 20-year average MMA rate.
Other:KMB is a member of the S&P 500, a Dividend Aristocrat and a member of the Broad Dividend Achievers™ Index. The generally static demand for household and personal care products are usually not affected by changes in the economy or political events. Benefits from KMB's 2005 strategic cost reduction program have been over shadowed, for the most part, by higher commodity costs and negative foreign currency translation (2008). Risks include intense competition in developed countries, increased costs of promotions, higher commodity costs, product innovation, foreign currency and decreased consumer acceptance of products.
Conclusion:KMB did not earn any Stars 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 total of three Stars. This quantitatively ranks KMB as a 3 Star-Hold.
Using my D4L-PreScreen.xls model, I determined the share price could increase to $59.01 before KMB's NPV MMA Differential fell to the $500 that I like to see for a stock with 37 consecutive years of dividend increases. At that price the stock would yield 3.4%.
Resetting the D4L-PreScreen.xls model and solving for the dividend growth rate needed to generate the target $500 NPV MMA Differential, the calculated rate is 3.2%. This dividend growth rate is not much different than the the 3.4% used in this analysis, thus providing no margin of safety. KMB has a risk rating of 1.75 which classifies it as a medium risk stock.
KMB was once a stock I was very high on, but that has turned to growing concern. KMB has seen its Debt to Total Capital rise each year from a recent low of 37% in 2006 to 63% in its last interim report. During the same period the dividend growth rate fell from 8.9% in 2006 to 3.4% in 2009. The stock is trading well above its buy price of $46.65. I will continue to monitor the stock for changing conditions For additional information, including the stock'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 KMB (1.0% of my Income Portfolio).
What are your thoughts on KMB?
Related Articles:
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For your reading pleasure, the articles listed below contain some of the best dividend and value investing insights found on the web. They were written by various members of the Dividend Investing and Value Network (DIV-Net) over the past week:
Articles From DIV-Net Members
There are some really good articles here, please take time and read a few of them.
If you enjoyed this article, please vote for it by clicking the Buzz Up! button below.
_____________________________________________________________________
When people learn that I am an income investor it is not uncommon for them to ask why I invest in stocks instead of high yield money market accounts [MMA] or certificates of deposits [CD]. I generally start with my short answer of, "Dividend stocks have a secret ingredient that makes them a much more desirable investment."
Needless to say this usually piques their interest and normally the response is something like, "Secret ingredient? What secret ingredient?" Then I explain.Dividend Stocks Hidden Power
To the casual observer, a CD may be earning a similar rate as the dividend stock and it is federally insured, thus protecting the purchaser from loss. So it must be better, right?
What separates good dividend stocks from MMAs and CDs is a hidden power not readily recognizable to the uninitiated - dividend growth. While a CD will pay a market interest rate for its term, its only growth is movement in the market rate at renewal, which can go either up or down. Contrast that with a good dividend stock with decades of consecutive annual dividend increases.Dividend Stocks Yield On Cost
One way to compare the earning power of two investments or an investment and a CD is to look at their Yield On Cost [YOC] over time. YOC is a simple concept where you divide annual earnings over the investment's cost. Consider this simple example of a stock with a 2.75% yield and a dividend growth rate of 7%, compared a 5-year CD paying 3.00%, where earnings in both are withdrawn when paid:Div. Stock CD Investment 10,000 10,000 Initial Yield 2.75% 3.00% Div. Growth 7.0% 0.0% Earnings Yr. 1 275 300 YOC Yr. 1 2.8% 3.0% Earnings Yr. 2 294 300 YOC Yr. 2 2.9% 3.0% Earnings Yr. 3 315 300 YOC Yr. 3 3.1% 3.0% Earnings Yr. 4 337 300 YOC Yr. 4 3.4% 3.0% Earnings Yr. 5 360 300 YOC Yr. 5 3.6% 3.0% Earnings Total 1,581 1,500 YOC Final 3.6% 3.0%
Though the dividend stock started with a lower yield of 2.75%, its final YOC after 5 years was 3.6% compared to the constant 3.0% of the CD. The key here is to find dividend stocks that are growing their dividends and will continue to do so. Since these numbers are contrived, the obvious question is how does this translate to the real world?Dividend Stocks The Last 10 Years
Below are some bellwether dividend growth stocks and their performance over the last 10 years, assuming $10,000 was spent to buy shares at the stocks 1998 high:Procter & Gamble Co. (PG) - Analysis
The above data also demonstrates another important concept - your starting point is very important. Ten years ago the stock market was higher in relative terms than now, thus the yields for most companies were lower than now. After 10 years of growth, the YOC is not much higher than the stocks current yield. However, similar growth over the next 10 years will produce a dramatically higher YOC.
1998 Dividend per Share: $0.51
1998 High Share Price: $47.41
1998 Yield on High Price: 1.1%
1998 Shares Purchased: 210 (cost: $9,956)
2008 Dividend per Share: $1.45
2008 Yield On Cost: 3.1%
Current Yield: 3.1%
Johnson & Johnson (JNJ) - Analysis
1998 Dividend per Share: $0.49
1998 High Share Price: $44.88
1998 Yield on High Price: 1.1%
1998 Shares Purchased: 222 (cost: $9,963)
2008 Dividend per Share: $1.80
2008 Yield On Cost: 4.0%
Current Yield: 3.22%
3M Co. (MMM) - Analysis
1998 Dividend per Share: $1.10
1998 High Share Price: $48.94
1998 Yield on High Price: 2.2%
1998 Shares Purchased: 204 (cost: $9,984)
2008 Dividend per Share: $2.00
2008 Yield On Cost: 4.1%
Current Yield: 2.80%
McDonald's Corp. (MCD) - Analysis
1998 Dividend per Share: $0.18
1998 High Share Price: $39.75
1998 Yield on High Price: 0.5%
1998 Shares Purchased: 251 (cost: $9,977)
2008 Dividend per Share: $1.63
2008 Yield On Cost: 4.1%
Current Yield: 3.62%
Sysco Corp. (SYY) - Analysis
1998 Dividend per Share: $0.16
1998 High Share Price: $14.34
1998 Yield on High Price: 1.1%
1998 Shares Purchased: 697 (cost: $9,995)
2008 Dividend per Share: $0.82
2008 Yield On Cost: 5.7%
Current Yield: 3.70%
(Photo Credit)
Full Disclosure: Long PG, JNJ, MMM, MCD, SYY. See a list of all my income holdings here.
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In one form or another, I get the question daily, "What do you think of the market? Where's it headed?" Normally, I politely respond as expected, but occasionally I will startle the person with a reply like, "I don't know. For me it really doesn't matter much." My investing goals are not defined by movements in the market.
Many people define the market broadly as the S&P 500. Very little of my total portfolio is in a S&P 500 index. Its movements up or down have minimal effect on my goals. As a value-based dividend investor, it is in my best interest to have stocks depressed and yields high, at least for the short-term. This provides a choice between worthy investments, unlike the the market boom years when it was a struggle to find fairly priced stocks.Focus On Solid Dividend Stocks, Not The Market
Instead of looking at the market and its direction, investors in dividend stocks should focus on quality, price and ultimate value. Below are several quality 3, 4 and 5 Star dividend stocks selling below their calculated fair value (as of 8/11/09):
The time will come at some point in the future where we once again struggle to fairly priced stocks. At that point, we will likely look back and regret not buying more when we had the opportunity.
Full Disclosure: Long MCD, EMR. See a list of all my income holdings here.
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This article originally appeared on The DIV-Net August 3, 2009.
Linked here is a detailed quantitative analysis of RLI Corp. (RLI). Below are some highlights from the above linked analysis:
Company Description: RLI Corp, based in Peoria, IL, provides selected property, casualty and surety insurance.
Fair Value: I consider four calculations of fair value, see page 2 of the linked PDF for a detailed description:
RLI is trading at a discount to only 1.) above. The stock is trading at a 23.2% premium to its calculated fair value of $40.26. RLI did not earn any Stars in this section.
Dividend Analytical Data: In this section there are three possible Stars and three key metrics, see page 2 of the linked PDF for a detailed description:
RLI earned three Stars in this section for 1.), 2.) and 3.) above. One Star was earned for a Free Cash Flow payout ratio was less than 60% and not having any negative Free Cash Flows over the last 10 years. The stock earned another Star as a result of its most recent Debt to Total Capital being less than 45%. RLI earned a Star for having an acceptable score in at least two of the four Key Metrics measured. 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%. RLI has paid a cash dividend to shareholders every year since 1976 and has increased its dividend payments 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:
RLI earned a Star in this section for its NPV MMA Diff. of the $2,796. This amount is in excess of the $500 target I look for in a stock that has increased dividends as long as RLI has. If RLI grows its dividend at 15.0% per year, it will take 5 years to equal a MMA yielding an estimated 20-year average rate of 3.82%.
Other: RLI is a member of the Broad Dividend Achievers™ Index. 442 institutions own 79.2% of the 20 million common shares outstanding. This is higher than the average institutional ownership of the Insurance (Prop. & Casualty) Industry at 65.4%. In the last 6 months, there have been 8 insider purchases for a total of 2,000 shares, and there has been 1 insider sale of 9,000 shares.
Conclusion: RLI did not earn any Stars in the Fair Value section, earned three Stars in the Dividend Analytical Data section and earned one Star in the Dividend Income vs. MMA section for a total of four Stars. This quantitatively ranks RLI as a 4 Star-Buy.
Using my D4L-PreScreen.xls model, I determined the share price could increase to $88.72 before RLI's NPV MMA Differential fell to the $500 that I like to see for a stock with 35 consecutive years of dividend increases. At that price the stock would yield 1.19%.
Resetting the D4L-PreScreen.xls model and solving for the dividend growth rate needed to generate the target $500 NPV MMA Differential, the calculated rate is 9.7%. This dividend growth rate is well below the 15.0% used in this analysis, thus providing a margin of safety. RLI has a risk rating of 2.00 which classifies it as a medium risk stock.
What is better than a company that raises its dividend every year? A company that raises its dividend twice a year, and that is what RLI has done since 2003. RLI is a well-managed company with a strong balance sheet. Two things keep me from purchasing RLI 1.) The company's current yield at 2.14% is below the 3% minimum I look for and 2.) RLI is trading well above its buy price of $40.26. I will continue to watch the stock for a more favorable entry point. For additional information, including the stock'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 RLI (0.0% of my Income Portfolio).
What are your thoughts on RLI?
Related Articles:
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For your reading pleasure, the articles listed below contain some of the best dividend and value investing insights found on the web. They were written by various members of the Dividend Investing and Value Network (DIV-Net) over the past week:
Articles From DIV-Net Members
There are some really good articles here, please take time and read a few of them.
If you enjoyed this article, please vote for it by clicking the Buzz Up! button below.
_____________________________________________________________________
Sometimes good companies aren't good buys, and this is not always a bad thing. Often it is a result of the market over reacting in a positive direction. The stocks simply become overvalued, but their underlying fundamentals remain excellent. Below are a couple of companies that fall into this group:
Illinois Tool Works Inc. (ITW) - Yield: 3.06% - 2 Stars - Analysis
Illinois ToolWorks Inc. is a diversified manufacturer operates a portfolio of about 750 industrial and consumer businesses located throughout the world. As you can see for the information below, price is all that is keeping ITW from being a 4 Star stock:
3M Co (MMM) - Yield: 2.89% - 2 Stars - Analysis
3M Co. is a diversified technology company with a presence in various businesses, including industrial & transportation, healthcare, display & graphics, consumer & office, safety, security & protection services, and electro and communications. Like ITW above, price is all that is keeping MMM from being a 4 Star stock:
I was fortunate to purchase both of the stocks above when their prices were much lower, so I can't complain that they are no longer 4 Star buys. However, for other companies the road to fewer stars is not as appealing. Instead of a significant run up in their share price, the run up may have occurred in their debt or dividend payout percentage, or both. Here are some dividend companies and the challenges they are facing:
BP Plc (BP) - Yield: 4.67% - 1 Star
This supermajor integrated oil company (formerly BP Amoco p.l.c.) is based in London and is the world's second largest publicly owned oil company and the fourth largest U.S. refiner. With Debt to Total Capital at an acceptable level and Free Cash Flow Payout at an undesirable level, a 3 Star rating is the best BP could earn at any price.
SUPERVALU Inc. (SVU) - Yield: 4.67% - 0 Stars
SUPERVALU INC. is one of the largest U.S. food wholesalers, this company is also one of the biggest supermarket retailers in the U.S. With Debt to Total Capital at an undesirable level and Free Cash Flow Payout at an acceptable level (but with some years negative), a 3 Star rating is the best SVU could earn at any price.
The Hershey Company (HSY) - Yield: 2.89% - 0 Stars
The Hershey Company engages in the manufacture, marketing, distribution, and sale of various types of chocolate and confectionery, refreshment and snack products, and food and beverage enhancers in the United States and internationally. With both Debt to Total Capital and Free Cash Flow Payout at undesirable levels, a 2 Star rating is the best HSY could muster at any price.
Of the three, I believe BP stands the best chance of recovery. Though BP recently froze its dividend at $0.84/share (ADR), higher oil prices should lead to higher FCF and a dividend increase, it could easily add a fourth Star and once again enter the buy zone. I don't have a lot of confidence in the other two.
Before buying a stock with hopes things will soon improve, it is a good idea to run some sensitivities to see where, or if, the stock can make a recovery. Modeling is cheap, selling an undesirable stock usually isn't.
Full Disclosure: Long ITW, MMM, BP. See a list of all my income holdings here.
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The markets have seen some significant gains since their March lows. Each time this occurs there is a new round of experts calling the bottom. Time and time again the market throws them a cruel twist and heads lower. Will this time be different?
Recently, Daniel Gross in a Newsweek article stated, "The Great Recession, which rolled over our financial lives like one of P.J. Keating's giant pavers, is most likely over." He went on to make the following observations in the article:
Not surprising, a lot of the hardest hit stocks have seen the largest increase off their 52 week low. Based on August 4, 2009 prices, these would include: General Electric (GE) 141%, U.S. Bank (USB) 169%, Manulife Financial Corp. (MFC) 249%, AFLAC Inc. (AFL) 268%, Bank of America (BAC) 518%.
Not all dividend stocks have fully enjoyed the recent run up. Some are still relatively close to their 52 week low and are fairly valued based on my buy price. Based on August 4, 2009 prices, here are some to consider:
I look at a market recovery as a bitter-sweet event. For a dividend investor, buying stocks at a highly depressed price is a Godsend, but for the market to remain healthy and liquid, it must eventually rise.
Full Disclosure: Long MFC, AFL, PG, SYY, MCD, WMT. See a list of all my income holdings here.
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It has been nearly a month since the introduction of the D4L-Dashboard. Since this premium service was designed for the serious dividend investor looking for more frequent visibility into more dividend stocks, I was moderately surprised and humbled at the positive response D4L-Dashboard received during its first month. As a thanks to those who subscribed, I want to offer an additional premium feature as part of your subscription.
Each week, as part of the process of updating the D4L-Dashboard I look at several companies and either create a new analysis or freshen the data of an existing analysis.
Also, before I buy a company or publish a review of it, I will update its Analytical Report. Good companies are not always good buys. Sometimes things change.
I have decided to make these analytical reports available as premium content with new ones posted each weekend for subscribers. My goal is to update each of the companies followed (quickly approaching 100 dividend companies) at least once a quarter and provide access to the most recent analytical report on the Analytical Report page.
The D4L Premium Services are designed for the serious dividend investor. If you have not yet subscribed, please see the Overview and Subscribe page for more information on the benefits of these services, sample reports, pricing and subscription information. The premium section can always be accessed via the Premium menu option on the top-right of the menu bar above.
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