Recently, the following companies announced increased cash dividends:
Village Super Market (VLGEA) operates a chain of 23 ShopRite supermarkets in New Jersey and Pennsylvania. March 19th the company increased its quarterly dividend 4% to $0.25/share. The dividend is payable on April 22, 2010 to shareholders of record at the close of business on April 1, 2010. The ex-dividend date is March 30, 2010. The yield based on the new payout is 3.61%.
Williams-Sonoma (WSM) sells high-quality products for the home via its retail stores and various direct-to-customer channels. March 22nd the company raised its quarterly dividend to $0.13/share. The yield based on the new payout is 1.88%.
Raven (RAVN) provides electronic precision-agriculture products, reinforced plastic sheeting, electronics manufacturing services, specialty aeronautics, and sewn products. March 22nd the company increased its quarterly dividend to $0.16/share. The dividend is payable April 15, 2010, to shareholders of record on March 31, 2010. The ex-dividend date is March 29, 2010. RAVN is a Dividend Achiever and has raised its dividend for 24 consecutive years. The yield based on the new payout is 2.89%. [Analysis]
ConocoPhillips (COP) is the the fourth largest integrated oil company in the world. March 24th the company raised its dividend 10%. COP also announced it would sell of 10 percent of LUKOIL and other assets over the next two years. The yield based on the new payout is 4.22%.
Starbucks (SBUX) is the leading coffee roaster and retailer of high-quality coffee products in the world. March 24th the company approved its first ever quarterly cash dividend of $0.10/share. The quarterly dividend of $0.10 per share will be paid on April 23, 2010, to shareholders of record on the close of business on April 7, 2010. The yield based on the new payout is 1.58%.
Clifton Savings Bancorp (CSBK) serves northeast New Jersey through its Clifton Savings Bank, S.L.A. subsidiary with assets of $801 million. March 24th the company raised its quarterly dividend to $0.06/share. The yield based on the new payout is 2.50%.
Raytheon (RTN) the world's sixth largest military contractor, specializes in making high-tech missiles and electronics. March 24th the company increased its quarterly dividend 21% to $0.375/share. The dividend will be paid on April 29, 2010 to shareholders of record as of the close of business on April 6, 2010. The yield based on the new payout is 2.62%.
Hingham Institution for Savings (HIFS) is a Massachusetts-chartered savings bank with offices located in Hingham, South Hingham, Hull, Scituate, Cohasset, SouthWeymouth, Norwell and Boston's South End. March 25th the company raised its quarterly dividend 4.5% to $0.23/share. The dividend is is payable on April 20, 2010 to stockholders of record as of April 9, 2010. Robert H. Gaughen, Jr., President and Chief Executive Officer of the Bank, in announcing the dividend, stated, "We are proud of the fact that we have increased cash dividends to shareholders in each of the past 15 years." The yield based on the new payout is 2.83%.
Avoiding the cash trap works best when applied on a consistent basis. For a list of stocks with a long string of consecutive cash dividend increases, see this list.
Full Disclosure: No position in the aforementioned securities. See a list of all my income holdings here.
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A bond is a debt security in which the issuer agrees to repay borrowed money with interest at fixed intervals. Bondholders have a creditor stake in the company. Technically, bonds do not pay dividends, but instead they pay interest. However, bonds are an important allocation for many income investors, thus I chose to include them in this series. There are certain things an informed investor needs to understand before purchasing bonds.
Interest rates play an integral part in determining the current value of a bond. Interest rates and the price of a bond are inversely related. The longer the time until a bond matures, the more susceptible its price is to changes in interest rates. Consider two bonds, one that has a maturity of 30 years and another with a 7 day maturity. If after both bonds are sold, interest rates go up one percent, the price of both bonds will decline since new investors expect to earn the prevailing interest rate. However, the interest rate decline will affect the price of the 30 year bond more than the 7 day bond, due to the longer period of "lost" earnings. It works the same in the other direction - if interest rates drop the bond holder will sell it at higher price which lowers the yield to the market rate.
In summary, longer-term investments have lower rate volatility at the expense of higher price volatility. Therefore, the term of the bond purchased should be dictated by your long-term investment goals. If your goal is capital preservation, short-term is the most appropriate investment. If an investor is willing to hold a bond until it matures and values lower rate volatility, then a longer-term investment will likely better meet this investor's needs.
Like preferred stocks, many investors choose not to research and buy individual bonds. Instead, they have opted to make their bond investments in funds. Consider the following bond funds:
Vanguard Long-Term Bond ETF (BLV) - Yield: 5.16%
Vanguard Long-Term Bond ETF seeks to track the performance of a market-weighted bond index with a long-term dollar-weighted average maturity. It maintains a dollar-weighted average maturity consistent with that of the Index, which generally ranges between 15 and 30 years.
- Total Assets: $2.9 billion
- Expense Ratio: 0.14%
- Holdings: 40% US Corporate, 39% US Treasury, 8% Foreign Corp, 5% Foreign Govt, 8% Other
- Distributions: Monthly
Vanguard Intermediate-Term Bond ETF (BIV) - Yield 4.32%
The investment seeks to track the performance of a market-weighted bond index with an intermediate-term dollar-weighted average maturity.The fund maintains a dollar-weighted average maturity consistent with that of the index ranging between 5 and 10 years.
- Total Assets: $9.8 billion
- Expense Ratio: 0.14%
- Holdings: 45% US Treasury, 37% US Corporate, 9% Foreign Corp, 5% Foreign Govt, 9% Other
- Distributions: Monthly
Vanguard Short-Term Bond ETF (BSV) - Yield: 2.74%
The investment seeks to track the performance of a market-weighted bond index with a short-term dollar-weighted average maturity. The fund's dollar-weighted average maturity is not expected to exceed 3 years
- Total Assets: $9.8 billion
- Expense Ratio: 0.14%
- Holdings: 52% US Treasury, 24% US Corporate, 14% US Agency, 8% Foreign Corp, 2% Other
- Distributions: Monthly
Vanguard Total Bond Market ETF (BND) - Yield: 3.98%
The investment seeks to track the performance of a broad, market-weighted bond index. The fund maintains a dollar-weighted average maturity consistent with that of the index, ranging between 5 and 10 years.
- Total Assets: $68.8 billion
- Expense Ratio: 0.14%
- Holdings: 33% Mtg Pass-thru, 29% US Treasury, 19% US Corporate, 7% US Agency, 12% Other
- Distributions: Monthly
Invest Grade Corp Bond (LQD) - Yield: 5.44%
The investment seeks results that correspond generally to the price and yield performance, before fees and expenses, of the iBoxx $ Liquid Investment Grade index. The fund typically invests at least 90% of assets in the bonds of the underlying index, and at least 95% of assets in investment-grade corporate bonds.
- Total Assets: $12.2 billion
- Expense Ratio: 0.15%
- Holdings: 82% US Corporate, 18% Foreign Corp, 0% Other
- Distributions: Monthly
Emerging Mkts Sovereign Debt (PCY) - Yield: 6.44%
The investment seeks investment results that correspond generally to the price and yield (before fees and expensed) of an index called the DB Emerging Market USD Liquid Balanced index. The fund normally invests at least 80% of total assets in emerging markets U.S. dollar-denominated government bonds.
- Total Assets: $520.3 billion
- Expense Ratio: 0.50%
- Holdings: 80% Foreign Govt, 20% Other
- Distributions: Monthly
20+ Year Treasury Bond (TLT) - Yield 3.95%
The investment seeks results that correspond generally to the price and yield performance, before fees and expenses, of the Barclays Capital U.S. 20+ Year Treasury Bond index. The fund generally invests at least 90% of assets in the bonds of the underlying index.
- Total Assets: $2.4 billion
- Expense Ratio: 0.15%
- Holdings: 100% US Treasury
- Distributions: Monthly
Some authors have minimized the importance of bonds in a portfolio primarily focused on dividend growth securities. You can ignore them, but as the past decade has shown it may be to your own peril.
Full Disclosure: Long BLV, BIV, LQD, PCY. See a list of all my income holdings here.(Photo: Steve Woods)
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This article originally appeared on The DIV-Net March 15, 2010. Full Disclosure: At the time of this writing, I was long in LEG (1.2% of my Income Portfolio). See a list of all my income holdings here.
Company Description: Leggett & Platt Inc makes a broad line of bedding and furniture components and other home, office and commercial furnishings, as well as diversified products for non-furnishings markets.
Fair Value: I consider four calculations of fair value, see page 2 of the linked PDF for a detailed description:
LEG is trading at a discount to only 3.) above. Since LEG's tangible book value is not meaningful, a Graham number can not be calculated. The stock is trading at a 62.8% premium to its calculated fair value of $13.08. LEG 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:
LEG earned three Stars in this section for 1.), 2.) 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. The stock earned a Star as a result of its most recent Debt to Total Capital being less than 45%. LEG 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 1939 and has increased its dividend payments for 38 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:
LEG earned a Star in this section for its NPV MMA Diff. of the $563. This amount is in excess of the $500 target I look for in a stock that has increased dividends as long as LEG has. The stock's current yield of 4.88% exceeds the 3.98% estimated 20-year average MMA rate.
Other: LEG is a member of the S&P 500 and a member of the Broad Dividend Achievers™ Index.
Conclusion: LEG 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 LEG as a 4 Star-Buy.
Using my D4L-PreScreen.xls model, I determined the share price would need to increase to $21.97 before LEG's NPV MMA Differential decreased to the $500 minimum that I look for in a stock with 38 years of consecutive dividend increases. At that price the stock would yield 4.73%.
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 1.6%. This dividend growth rate is less than the 2.0% used in this analysis, thus providing a margin of safety. LEG has a risk rating of 1.50 which classifies it as a low risk stock.
A sign of a well managed company is the ability to increase cash flow in the face of falling sales and earnings. LEG's sales and earnings peaked in 2006. However, free cash flow per share has doubled since that time. 2010 should not be any different with S&P forcasting LEG's customer markets recovering late this year and moving to positive sales growth. Earlier this month I initiated position in LEG in spite of the fact it was trading well in excess of my $17.94 fair value price. Since then, LEG has appreciated an additional 5%. 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.
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Recently, the following companies announced increased cash dividends:
Birner Dental (BDMS) develops, acquires, and provides business services to dental practice networks in Colorado, New Mexico and Arizona. March 12th the company increased its quarterly dividend 17% to $0.20/share. The yield based on the new payout is 4.92%.
Warwick Valley Telephone Co. (WWVY) provides telephone, Internet and video services to customers in the towns of Warwick, Goshen and Wallkill, New York andWest Milford and Vernon townships, New Jersey. March 12th the company raised its quarterly dividend 9.1% to $0.24/share. The dividend is paid on March 31, 2010 to shareholders of record as of March 22, 2010. The ex-dividend date is March 18, 2010. The yield based on the new payout is 6.63%.
Lennox Int (LII) is a global provider of heating, ventilation and air conditioning and refrigeration products. March 12th the company increased its quarterly dividend 7% to $0.15/share. The dividend is payable on April 15, 2010 to stockholders of record as of March 26, 2010. The ex-dividend date is March 24, 2010. The yield based on the new payout is 1.35%.
PepsiCo (PEP) is a major international producer of branded beverage and snack food products. March 15th the company raised its quarterly dividend 7% to $0.48/share. The dividend is payable on June 30, 2010 to shareholders of record on June 4, 2010. The ex-dividend date is June 2, 2010. PEP is a Dividend Aristocrat and has raised its dividend for 38 consecutive years. The yield based on the new payout is 2.89%. [Analysis]
Astro-Med Inc. (ALOT) designs, develops, manufactures and distributes specialty printers and electronic instruments that acquire, store, analyze and present data in multiple formats. March 16th the company raised its quarterly dividend to $0.07/share. The dividend is payable on April 2, 2010 to shareholders of record on March 19, 2010. The ex-dividend date is March 17, 2010. The yield based on the new payout is 3.76%.
Mead Johnson (MJN) is a global leader in pediatric nutrition. March 17th the company increased its quarterly dividend 12.5% to $0.225/share. The dividend is payable April 1, 2010, to shareholders of record on March 24, 2010. The ex-dividend date is March 22. The yield based on the new payout is 1.75%.
Guess? Inc. (GES) offers one of the world's leading lifestyle collections of contemporary apparel and accessories for men, women and children, sold in multiple channels including wholesale, company-owned retail locations, e-commerce, and licensed stores. March 17th the company increased its quarterly dividend to $0.16/share. The yield based on the new payout is 1.37%.
Air Products (APD) is a major producer of industrial gases and electronics and specialty chemicals also has interests in environmental and energy-related businesses. March 18th the company raised its quarterly dividend by 9% to $0.49/share. The dividend is payable on May 10, 2010 to shareholders of record at the close of business on April 1, 2010. The ex-dividend is March 30. APD is a Dividend Aristocrat and has raised its dividend for 28 consecutive years. The yield based on the new payout is 2.62%.
Prospect Capital (PSEC) is a financial services company that primarily lends to and invests in middle market privately-held companies. March 18th the company raised its cash distribution to $0.41/share. This distribution marks the Company's 22nd consecutive quarterly increase. The ex-dividend date is Monday, March 29, 2010. The record date is Wednesday, March 31, 2010. The yield based on the new payout is 13.48%.
When looking for companies that are likely to build future yield, look first at those that have done it in the past. For a list of stocks with a long string of consecutive cash dividend increases, see this list.
Full Disclosure: Long PEP. See a list of all my income holdings here.
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Preferred stock is a special equity security that has properties of both equity and debt. Terms of the preferred stock are stated in a "Certificate of Designation" and all are unique to each security. However, there are some generalities. In the order of payments, preferred stock normally has preference to common stock, but are subordinate to bonds. Preferred stock usually has no voting rights, but some have a convertibility feature into common stock. Like bonds, preferred stocks are rated by the major rating agencies such as Moody's and S&P. The rating for preferred stock is generally lower since preferred dividends do not carry the same guarantees as interest payments from bonds, thus offer yields that are higher than bond market yields and common stock yields.
Given the unique nature of each individual preferred stock and the time necessary to research them, many have opted to place their preferred investments in funds. Consider the following preferred stock funds:
iShares S&P U.S. Preferred Stock Index (PFF) - Yield: 7.79%
The iShares S&P U.S. Preferred Stock Index Fund seeks investment results that correspond generally to the price and yield performance, before fees and expenses, of the S&P U.S. Preferred Stock Index.
- Total Assets: $3.3 billion
- Expense Ratio: 0.48%
- Holdings: 88% Financials, 5% Consumer Discretionary, Consumer Staples 2%, 5% Other
- Distributions: Monthly
PowerShares Financial Preferred Profile (PGF) - Yield: 8.59%
Tracks the performance of U.S. listed preferred stocks of preferred stocks issued in the US market by financial institutions and currently includes approximately 30 securities selected by Wachovia pursuant to a proprietary selection methodology.
- Total Assets: $1.5 billion
- Expense Ratio: 0.60%
- Holdings: 100% Financials
- Distributions: Monthly
PowerShares Preferred Portfolio Profile (PGX) - Yield: 7.91%
The Index is designed to replicate the total return of a diversified group of investment-grade preferred securities.
- Total Assets: $885.5 million
- Expense Ratio: 0.50%
- Holdings: 83% Financials, 17% Utilities
- Distributions: Monthly
Two additional ones to watch are SPDR Barclays Capital Convertible Bond (CWB) and SPDR Wells Fargo Preferred Stock ETF Profile (PSK). They were started in 2009, so there is very little historical data to look at. In addition, there is also Nuveen Quality Preferred Income (JTP), which is an exchange traded note (ETN) administered by JP Morgan. ETNs are linked to the performance of a market benchmark. ETNs are not equities or funds and they carry additional risk compared to an ETF. If the underwriting bank bankrupts, the value of the ETN will be eroded.
I currently do not hold any preferred stock (individually or in funds), but I am giving consideration to the funds listed above.
Full Disclosure: No position in the aforementioned securities. See a list of all my income holdings here.
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This article originally appeared on The DIV-Net March 8, 2010. Full Disclosure: At the time of this writing, I held no position in VIVO (0.0% of my Income Portfolio). See a list of all my income holdings here.
Company Description: Meridian Bioscience Inc. develops, makes and sells disposable diagnostic test kits and related products used for the rapid diagnosis of infectious diseases.
Fair Value: I consider four calculations of fair value, see page 2 of the linked PDF for a detailed description:
VIVO is trading at a discount to only 3.) above. The stock is trading at a 28.8% premium to its calculated fair value of $17.94. VIVO 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:
VIVO 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%. VIVO 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 (2000-2003, 2001-2004, 2002-2005, etc.) I consider this a key metric since dividends will double every 5 years if they grow by 15%. The company has paid a cash dividend to shareholders every year since 1990 and has increased its dividend payments for 19 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:
VIVO earned a Star in this section for its NPV MMA Diff. of the $6,457. This amount is in excess of the $1,600 target I look for in a stock that has increased dividends as long as VIVO. If VIVO grows its dividend at 15.0% per year, it will take 3 years to equal a MMA yielding an estimated 20-year average rate of 3.98%. VIVO earned a check for the Key Metric 'Years to >MMA' since its 3 years is less than the 5 year target.
Other: VIVO is a member of the Broad Dividend Achievers™ Index.
Conclusion: VIVO 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 VIVO as a 3 Star-Hold.
Using my D4L-PreScreen.xls model, I determined the share price would need to increase to $38.46 before VIVO's NPV MMA Differential decreased to the $1,600 minimum that I look for in a stock with 19 years of consecutive dividend increases. At that price the stock would yield 1.77%.
Resetting the D4L-PreScreen.xls model and solving for the dividend growth rate needed to generate the target $1,600 NPV MMA Differential, the calculated rate is 10.4%. This dividend growth rate is less than the 15.0% used in this analysis, thus providing a margin of safety. VIVO has a risk rating of 2.00 which classifies it as a medium risk stock.
VIVO is an integrated life science company that manufactures, markets and distributes a broad range of innovative diagnostic test kits, purified reagents and related products. These products provide for early diagnosis of common medical conditions, such as gastrointestinal, viral, urinary and respiratory infections. VIVO's diagnostic products are used outside of the human body and require little or no special equipment. The company has strong market positions in the areas of gastrointestinal and upper respiratory infections, serology, parasitology and fungal disease diagnosis. VIVO markets its products to hospitals, reference laboratories, research centers, veterinary testing centers, physician offices and diagnostics manufacturers in more than 60 countries around the world. Although the stock is currently trading above my $17.94 fair value price, I view it as a company with a lot of potential; thus I have added it to my watch list. 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.
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Recently, the following companies announced increased cash dividends:
Myers Industries (MYE) manufactures a diverse range of polymer products for industrial, agricultural, automotive, commercial and consumer markets. March 5th the company increased its quarterly dividend 8% to $0.065/share. The dividend is payable April 5, 2010, to shareholders of record as of March 12, 2010. The ex-dividend date is March 10. The yield based on the new payout is 2.52%.
NYMAGIC, INC. (NYM) is an insurance holding company whose property and casualty insurance subsidiaries specialize in underwriting ocean marine, inland marine and non-marine liability insurance. March 5th the company raised its quarterly dividend to $0.10/share. The dividend is payable on April 6, 2010 to shareholders of record on March 31, 2010. The yield based on the new payout is 2.23%.
Applied Materials (AMAT) is the world's largest manufacturer of wafer fabrication equipment for the semiconductor industry. March 8th the company increased its quarterly dividend 17% to $0.07/share. The yield based on the new payout is 2.28%.
Medicis (MRX) develops and markets prescription and OTC products for the treatment of certain dermatological conditions. March 10th the company raised its quarterly dividend 50% to $0.06/share. The dividend is payable on April 30, 2010, to stockholders of record at the close of business on April 1, 2010. The ex-dividend date is March 29, 2010. The yield based on the new payout is 1.01%.
Cohen & Steers (CNS) manages high-income equity portfolios, specializing in U.S. REITs, international real estate securities, preferred securities, utilities and infrastructure securities. March 11th the company increased its quarterly dividend 100% to $0.10/share. The dividend is payable on April 16, 2010 to stockholders of record at the close of business on March 31, 2010. The ex-dividend date is March 29, 2010. The yield based on the new payout is 1.72%.
In selecting the best dividend investments, one must focus on growing cash dividends over time. For a list of stocks with a long string of consecutive cash dividend increases, see this list.
Full Disclosure: No position in the aforementioned stocks. See a list of all my income holdings here.
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Below is some background information on REITs from REIT.com:Congress created REITs in the U.S. in 1960 as a way to make investment in large-scale, income-producing real estate accessible to all investors in the same way they typically invest otherwise – through the purchase and sale of liquid securities. U.S. REITs have seen their equity market capitalization soar from $90 billion to roughly $200 billion in just the past 10 years.
The 90% distribution requirement and no corporate taxes are the reasons REITs yields are often above average. However, it is important to note that because REITs pay no income tax, they are not eligible for the special treatment as a "qualified dividends", which are normally taxed at 15%. When comparing REIT yields to investments with qualified dividends, you must always look at them on an after-tax basis.
In order for a company to qualify as a REIT in the U.S., it must comply with certain ground rules specified in the Internal Revenue Code. These include: investing at least 75 percent of total assets in real estate; deriving at least 75 percent of gross income as rents from real property or interest from mortgages on real property; and distributing annually at least 90 percent of taxable income to shareholders in the form of dividends.
Consider an example where a taxpayer with a federal marginal tax rate of 30% owns AT&T (T) with a yield of 6.56% and Universal Health Realty Income Trust (UHT) with a yield of 6.82%. On an after-tax basis T, which qualifies for the 15% tax rate, will yield 5.58%, while UHT will only yield 4.78%.
Like utilities, most REITs rely on new capital either in the form of debt or equity to fund investments, pay debt and pay dividends, albeit to a lesser extent. Consider the following:
Universal Health Realty Income Trust (UHT) - Yield: 6.82%
Shares Outstanding: 2000 9m; 2008 11m
Long-Term Debt: 1999 $75.2m; 2008 $32.7m
Years of Negative Free Cash Flow: 0 of 10
National Retail Properties, Inc. (NNN) - Yield: 6.76%
Shares Outstanding: 2000 30m; 2009 79m
Long-Term Debt: 1999 $101.7m; 2009 $0m ($961.1m in short-term)
Years of Negative Free Cash Flow: 5 of 10
HCP, Inc. (HCP) - Yield: 6.12%
Shares Outstanding: 2000 102m; 2009 274m
Long-Term Debt: 2000 $1,158.9m; 2009 $5,456.1m
Years of Negative Free Cash Flow: 5 of 10
Realty Income Corporation (O) - Yield: 6.00%
Shares Outstanding: 2000 53m; 2009 103m
Total Debt: 2000 $404m; 2009 $1,354.6m
Years of Negative Free Cash Flow: 7 of 10
Essex Property Trust (ESS) - Yield: 4.56%
Shares Outstanding: 2000 18m; 2009 29m
Long-Term Debt: 2000 $595.5m; 2009 $0.0m ($1,847.4m short-term)
Years of Negative Free Cash Flow: 6 of 10
Corporate Office Properties Trust, Inc. (OFC) - Yield: 4.07%
Shares Outstanding: 2000 25m; 2009 56m
Long-Term Debt: 2000 $193.7m; 2009 $0.0m ($2,053.8m short-term)
Years of Negative Free Cash Flow: 9 of 10
Federal Realty Investment Trust (FRT) - Yield: 3.67%
Shares Outstanding: 2000 39m; 2009 59m
Long-Term Debt: 2000 $485.3m; 2009 $1,731.6m
Years of Negative Free Cash Flow: 2 of 10
Each of the above companies are growing their debt and/or shares outstanding, while not always generating sufficient cash to fund their operating expenses, including normal capital replacements (except for UHT). For a company to consistently raise its dividend, it must generate cash flows sufficient to meet operating obligations and to service outstanding debt. Since a REIT is legally required to pay out 90% of its earnings, it is less likely to eliminate its dividend, but it could drastically cut the dividend in the face of persistent weak earnings (like any company).
Similar to the utilities mentioned last week, I purchased some of the above companies many years ago, but I won't be rushing to add to increase my positions.
Full Disclosure: Long T, NNN, HCP, O. See a list of all my income holdings here.
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This article originally appeared on The DIV-Net February 28, 2010. Full Disclosure: At the time of this writing, I was long in KO (2.6% of my Income Portfolio). See a list of all my income holdings here.
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 only 3.) above. Since KO's tangible book value is not meaningful, a Graham number can not be calculated. The stock is trading at a 18.3% premium to its calculated fair value of $44.55. 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 48 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 $903. 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 7.3% per year, it will take 3 years to equal a MMA yielding an estimated 20-year average rate of 3.98%
Other: KO is a member of the S&P 500 and a member of the Broad Dividend Achievers™ Index.
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 would need to increase to $62.48 before KO's NPV MMA Differential decreased to the $500 minimum that I look for in a stock with 48 years of consecutive dividend increases. At that price the stock would yield 2.82%.
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 5.6%. This dividend growth rate is less than the 7.3% 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.
Coca-Cola is the world's most recognizable brand. KO's extensive direct distribution network enables the company to deliver its products to almost all corners of the globe with unmatched efficiency. With its relatively stable end markets, dominant market positions and strong financials, KO is type of stock dividend growth investors are looking for. The stock is currently trading slightly above my $44.55 fair value price, but the quality of the company is such that I would be willing to pay a small premium for. Definitely a buy on dips. 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.
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Recently, the following companies announced increased cash dividends:
Southwest Gas Corp. (SWX) is engaged in the business of purchasing, distributing, and transporting natural gas in portions of Arizona, Nevada, and California. February 26th the company increased its quarterly dividend 5.3% to $0.25/share. The dividend is payable June 1, 2010, to shareholders of record as of May 17, 2010. The yield based on the new payout is 3.38%.
PPL Corp. (PPL) is a holding company for PPL Utilities also has holdings in the U.K. February 26th the company increased its quarterly dividend 1.4% to $0.35/share. The dividend is payable on April 1 to shareholders of record on March 10. The ex-dividend date is March 8. PPL is a Dividend Achiever and has raised its dividend for 11 consecutive years. The yield based on the new payout is 4.83%.
Piedmont Natural Gas (PNY) distributes natural gas to 1,016,000 residential, commercial and industrial customers in portions of North Carolina, South Carolina and Tennessee. February 26th the company raised its quarterly dividend 3.7% to $0.28/share. The dividend is payable April 15, 2010, to shareholders of record at the close of business on March 25, 2010. The ex-dividend date is March 23. PNY is a Dividend Achiever and has raised its dividend for 32 consecutive years. The yield based on the new payout is 4.25%.
The Andersons (ANDE) operates in the agriculture and transportation markets in the U.S. February 26th the company increased its quarterly dividend 3% to $0.09/share. The dividend is payable April 22, 2010, to shareholders of record on April 1, 2010. The ex-dividend date is March 30, 2010. The yield based on the new payout is 1.08%.
Hanover Insurance (THG) offers insurance and financial products and services in the areas of risk management and asset management. February 26th the company raised its quarterly dividend 33% to $0.25/share. The dividend is payable March 22, 2010, to shareholders of record at the close of business on March 8, 2010. The yield based on the new payout is 2.34%.
Fred's (FRED) operates about 650 company-owned general merchandise stores and markets goods and services to 24 franchised Fred's stores in the southeastern U.S. February 26th the company raised its quarterly dividend 33% to $0.04/share. The dividend is payable on March 15, 2010, to shareholders of record as of March 5, 2010. The ex-dividend date is March 3, 2010. The yield based on the new payout is 1.50%.
Qualcomm (QCOM) focuses on developing products and services based on its advanced wireless broadband technology. March 1st the company raised its quarterly dividend to $0.19/share and announced that it will buyback up to $3 billion in common stock. The yield based on the new payout is 1.95%.
General Dynamics (GD) is the world's sixth largest military contractor and also one of the world's biggest makers of corporate jets. March 3rd the company increased its quarterly dividend 10.58% to $0.42/share. The dividend is payable May 7, 2010, to shareholders of record on April 9. The ex-dividend date is April 7, 2010. The yield based on the new payout is 2.30%.
Wal-Mart (WMT) operates a chain of discount department stores, wholesale clubs, and combination discount stores and supermarkets; and is the largest retailer in North America. March 4th the company raised its annual dividend 11% to $1.21/share. The next quarterly dividend will be paid on April 5, 2010 to shareholders of record on March 12, 2010. The ex-dividend date is March 10. WMT is a Dividend Aristocrat and has raised its dividend for 36 consecutive years. The yield based on the new payout is 2.24%. [Analysis]
American Greetings (AM) is the world's largest publicly owned greeting card company with operations in more than 70 countries. March 4th the company raised its quarterly dividend by 17% to $0.14/share. The quarterly dividend will be paid on April 5, 2010 to shareholders of record at the close of business on March 23, 2010. The yield based on the new payout is 2.71%.
WGL Holdings (WGL) provides natural gas service in theWashington, DC, metropolitan area and surrounding regions, including Maryland and Virginia. March 4th the company raised its quarterly dividend 2.7% to $0.3775/share. The new dividend is payable May 1, 2010, to shareholders of record on April 9, 2010. The ex-dividend date is April 7, 2010. The yield based on the new payout is 4.52%.
Not all dividend paying companies take pride in raising their dividends each year. For a list of stocks with a long string of consecutive cash dividend increases, see this list.
Full Disclosure: Long WMT. See a list of all my income holdings here.
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What's the difference between a Ponzi scheme and a utility company? Before I answer that question, let's look at what a Ponzi scheme is. Wikipedia defines it as:A fraudulent investment operation that pays returns to separate investors from their own money or money paid by subsequent investors, rather than from any actual profit earned. The Ponzi scheme usually entices new investors by offering returns other investments cannot guarantee, in the form of short-term returns that are either abnormally high or unusually consistent. The perpetuation of the returns that a Ponzi scheme advertises and pays requires an ever-increasing flow of money from investors to keep the scheme going.
In effect, a Ponzi scheme pays yesterday's investors with money from today's investors. It works great until there aren't enough new investors to pay the old investors. In a similar manner, most utility companies rely on new capital either in the form of debt or equity to fund investment and to pay dividends. Consider the following:
Atmos Energy Corp. (ATO) - Yield: 4.88%
Shares Outstanding: 2000 31m; 2009 92m
Long-Term Debt: 2000 363.2m; 2009 2,159.5m
Years of Negative Free Cash Flow: 5 of 10
Black Hills Corp. (BKH) - Yield: 5.10%
Shares Outstanding: 2000 22m; 2009 38m
Long-Term Debt: 1999 160.7m; 2008 719.2m
Years of Negative Free Cash Flow: 7 of 10
Connecticut Water Service Inc. (CTWS) - Yield: 4.01%
Shares Outstanding: 2000 7m; 2009 8m
Long-Term Debt: 1999 65.4m; 2008 92.2m
Years of Negative Free Cash Flow: 5 of 10
California Water Service Group (CWT) - Yield: 3.29%
Shares Outstanding: 2000 15m; 2009 20m
Long-Term Debt: 1999 156.6m; 2008 373.5m
Years of Negative Free Cash Flow: 10 of 10
Consolidated Edison, Inc. (ED) - Yield: 5.52%
Shares Outstanding: 2000 212m; 2009 276m
Long-Term Debt: 2000 5,415.4m; 2009 9,854.0m
Years of Negative Free Cash Flow: 6 of 10
MGE Energy Inc. (MGEE) - Yield: 4.40%
Shares Outstanding: 2000 16m; 2008 22m
Long-Term Debt: 1999 148.6m; 2008 272.5m
Years of Negative Free Cash Flow: 7 of 10
Middlesex Water Co. (MSEX) - Yield: 4.31%
Shares Outstanding: 2000 10m; 2008 13m
Long-Term Debt: 1999 82.5m; 2008 118.2m
Years of Negative Free Cash Flow: 10 of 10
Progress Energy, Inc. (PGN) - Yield: 6.48%
Shares Outstanding: 2000 157m; 2008 260m
Long-Term Debt: 1999 3028.6m; 2008 10,659.0m
Years of Negative Free Cash Flow: 5 of 10
Integrys Energy Group, Inc. (TEG) - Yield: 6.17%
Shares Outstanding: 2000 26m; 2008 76m
Long-Term Debt: 1999 634.5m; 2008 2,396.7m
Years of Negative Free Cash Flow: 10 of 10
Each of the above companies are growing their debt and shares outstanding while generating insufficient cash to fund their operating expenses, including normal capital replacements, in at least 5 of the last 10 years. For a company to consistently raise its dividends, it must generate strong cash flows sufficient to meet operating obligations and to service outstanding debt. When the day comes that these companies can not raise enough capital to fund the operating requirements, the first source of additional cash will likely come in the form of a lower or eliminated dividend.
So, back to the original question, what is the difference between a Ponzi scheme and a utility? The answer is simply disclosure. All the above information on these companies was made available via S.E.C. filings. Unlike Bernard Madoff, these companies are telling you exactly what they are doing, thus there is no intent to defraud. I own some of the companies above, but I won't be rushing to add to increase my positions.
Caveat emptor!
Full Disclosure: Long ED, PGN, TEG. See a list of all my income holdings here.
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This article originally appeared on The DIV-Net February 22, 2010. Full Disclosure: At the time of this writing, I held no position in WAG (0.0% of my Income Portfolio). See a list of all my income holdings here.
Company Description: 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.
Fair Value: I consider four calculations of fair value, see page 2 of the linked PDF for a detailed description:
WAG is trading at a discount to 1.) and 3.) above. The stock is trading at a slight premium to its calculated fair value of $33.49. WAG 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:
WAG 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%. WAG 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 (2000-2003, 2001-2004, 2002-2005, etc.) I consider this a key metric since dividends will double every 5 years if they grow by 15%. The company has paid a cash dividend to shareholders every year since 1933 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:
WAG earned a Star in this section for its NPV MMA Diff. of the $1,477. This amount is in excess of the $500 target I look for in a stock that has increased dividends as long as WAG has. If WAG grows its dividend at 15.7% per year, it will take 7 years to equal a MMA yielding an estimated 20-year average rate of 3.98%.
Other: WAG is a member of the S&P 500, a Dividend Aristocrat and a member of the Broad Dividend Achievers™ Index.
Conclusion: WAG 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 WAG as a 3 Star-Hold.
Using my D4L-PreScreen.xls model, I determined the share price would need to increase to $48.65 before WAG's NPV MMA Differential decreased to the $500 minimum that I look for in a stock with 35 years of consecutive dividend increases. At that price the stock would yield 1.13%.
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 12.7%. This dividend growth rate is less than the 15.7% used in this analysis, thus providing only a margin of safety. WAG has a risk rating of 1.00 which classifies it as a low risk stock.
With over 7,000 drugstores, WAG offers unmatched convenience with one of the the most recognized brand names in the retail pharmacy business. The company enjoys a strong market share within the relatively stable U.S. retail drug industry. However, pressures from non-traditional competitors and potential adverse legislation could quickly weaken WAG's advantages. Although the stock is trading slightly above my $33.49 fair value price, the sub-2.% dividend yield will prevent any near--term purchases. 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.
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