This article originally appeared on The DIV-Net June 22, 2009.
Company Description: Cardinal Health Inc. is one of the leading wholesale distributors of pharmaceuticals, medical/surgical supplies and related products to a broad range of health care customers.
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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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On Friday June 19th after the market closed, it was reported that MFC received an enforcement notice from the Ontario Securities Commission (OSC) relating to its disclosure before March 2009 of risks related to its variable annuity guarantee and segregated funds business. The preliminary conclusion of OSC staff is that the Company failed to meet its continuous disclosure obligations related to its exposure to market price risk in its segregated funds and variable annuity guaranteed products. MFC will have the opportunity to respond to the notice before OSC staff makes a final decision about proceeding. The Company believes that its disclosure satisfied applicable disclosure requirements.
Like most insurance companies, MFC has struggled as a result of the declining equity markets. The Company has reported huge losses in excess of one billion Canadian dollars over the last two quarters. Much of which can be attributed to increasing reserves to cover long-term segregated fund and annuity guarantees. Segregated funds are popular investments similar to mutual funds but contain insurance contracts that limit risk for the investors.
MFC's U.S. ADR was down over 14% yesterday - the first full day of trading after the announcement. Other insurance companies shared the pain as shown below:
As with all sympathy declines, some are not warranted based on the circumstances. It could be a good time to invest in certain select insurance stocks.
Full Disclosure: Long AFL, MFC. See a list of all my income holdings here.
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The S&P 500 Dividend Aristocrats is a list of companies that have followed a policy of consistently increasing dividends every year for at least 25 consecutive years. A quarter of a century is a long time. Once a company has increase its dividend for that period of time, it would think twice before giving up its Aristocrat crown. This is an excellent place to look for potential dividend stocks. Here are five household names to consider:McDonald's Corporation (MCD) is the largest fast-food restaurant company in the world. Its restaurants serve a varied, yet limited, value-priced menu in more than 100 countries around the world. MCD has paid a cash dividend to shareholders every year since 1937 and has increased its dividend payments for 32 consecutive years. (Analysis)
These companies, and the other companies on the Dividend Aristocrats list, have been there before. As previously noted, I am currently reworking my dividend analysis worksheets to focus on what’s most important in selecting a dividend stock. In the new analysis stocks that have increased their dividends in 15 or more years will earn a Star.
Wal-Mart Stores, Inc. (WMT) is the largest retailer in North America. The company operates retail stores in various formats worldwide. It operates through three segments: Wal-Mart Stores, Sam's Club, and International. WMT has paid a cash dividend to shareholders every year since 1973 and has increased its dividend payments for 35 consecutive years. (Analysis)
Abbott Laboratories (ABT) is engaged in the discovery, development, manufacture and sale of a diversified line of healthcare products including: drugs, nutritional products, diabetes monitoring devices and diagnostics. ABT has paid a cash dividend to shareholders every year since 1926 and has increased its dividend payments for 37 consecutive years. (Analysis)
PepsiCo, Inc. (PEP) 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. PEP has paid a cash dividend to shareholders every year since 1952 and has increased its dividend payments for 37 consecutive years. (Analysis)
Lowe's Companies, Inc. (LOW) and its subsidiaries operate as a home improvement retailer in the United States and Canada. The company offers a range of products and services for home decoration, maintenance, repair, remodeling, and property maintenance. LOW has paid a cash dividend to shareholders every year since 1961 and has increased its dividend payments for 46 consecutive years. (Analysis)
Full Disclosure: Long MCD, WMT, ABT, PEP, LOW. See a list of all my income holdings here.
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This article originally appeared on The DIV-Net June 15, 2009.
Company Description: Emerson Electric Co. primarily makes backup power equipment for telecom and Internet providers and users, climate control components, and electric motors.
Fair Value: I consider four calculations of fair value, see page 2 of the linked PDF for a detailed description:
EMR is trading at a discount to 1.) and 3.) above. If I exclude the high and low valuations and average the remaining two, EMR is trading at a 8.6% discount. EMR 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:
EMR earned one Star in this section for 3.) above. EMR has paid a cash dividend to shareholders every year since 1947 and has increased its dividend payments for 52 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:
EMR earned both of the available Stars in this section. The NPV MMA Diff. of the $4,373 is in excess of the $2,500 minimum I look for in a stock that has increased dividends as long as EMR has. If EMR grows its dividend at 6.4% per year, it will take 3 years to equal the cumulative earnings from a MMA yielding an estimated 20-year average rate of 4.06%. EMR earned a Star since its Years to >MMA of 3 is less than 5 years.
Other: EMR is a member of the S&P 500, a Dividend Aristocrat and a member of the Broad Dividend Achievers™ Index. Several of EMR's major end-markets are highly cyclical, but it is in a strong competitive position in most major product categories. Near-term EMR will likely experience soft end-market demand. However, the company's strong balance sheet and free cash flow should sustain them through the downturn. Long-term EMR should see continued organic revenue growth from international sales, new product introductions and bolt-on acquisitions. EMR's Risks include weak global economic growth and value-diminishing acquisitions.
Conclusion: EMR 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 EMR as a 4 Star-Buy.
Using my D4L-PreScreen.xls model, I determined the share price could increase to $38.34 before EMR's NPV MMA Differential fell to the $3,000 that I like to see for a stock with 52 consecutive years of dividend increases. At that price the stock would yield 3.44%.
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 5.2%. This dividend growth rate is below the 6.4% used in this analysis, thus providing a margin of safety. EMR has a risk rating of 1.50 which classifies it as a low risk stock.
EMR was last reviewed in November 2008. Then it received a 3-Star rating. The difference between then and now is a higher calculated estimate of the dividend growth rate and a lower estimated 20 year MMA rate. EMR is trading below its buy price of $38.34. However, due to the current economic situation I believe there will be opportunities to initiate a position at a lower level. 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 EMR (0.0% of my Income Portfolio).
What are your thoughts on EMR?
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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To gauge how levered a company is, the metric I like to look at is debt to total capital. Debt includes both long-term and short-term debt and is readily available on the liabilities side of the balance sheet. Total capital is a combination of debt and shareholders equity. When you divide debt by total capital a desirable rate is something less than 35%, but I will consider rates up to 50% on a short-term basis.
Many investors look at a return on equity (ROE) when evaluating a company. I have never liked this metric since it ignores debt portion of invested capital. From an ROE approach a highly levered company could show a good return but not be performing well. My preferred return calculation is Free Cash Flow as a percent of Total Capital Employed.
Below are five dividend stocks that with a Debt to Total Capital less than 35%:Microsoft Corporation (MSFT)- Debt to Capital: 12%- Analysis
As previously noted, I am currently reworking my dividend analysis worksheets to focus on what’s most important in selecting a dividend stock. A Debt to Total Capital less than 45% , will earn the company a star.
Microsoft is the world's largest software company. It develops PC software, including the Windows operating system and the Office application suite.
AFLAC Inc. (AFL)- Debt to Capital: 24%- Analysis
Aflac Incorporated engages in the marketing and sale of supplemental health and life insurance plans in the United States and Japan.
Nucor Corp. (NUE) - Debt to Capital: 29%- 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.
Chevron Corporation (CVX) - Debt to Capital: 9%
Chevron Corporation (formerly ChevronTexaco) is a global integrated oil company that has interests in exploration, production, refining and marketing, and petrochemicals.
Johnson & Johnson (JNJ) - Debt to Capital: 22% - Analysis
Johnson & Johnson engages in the manufacture and sale of various products in the health care field worldwide.
Full Disclosure: Long AFL, NUE, CVX, JNJ. See a list of all my income holdings here.
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Have you ever read something then paused and said well that's stating the obvious? Then upon further reflection realize what is obvious to you may not be obvious to others. This happened to me recently as I was scanning some retirement headlines.
I came across Kimberly Palmer's article titled "The Future of Social Security: Not Good". My first response was 'No duh!' After giving it more thought, I came to the conclusion that my reaction is probably in the minority.
I suspect most people believe that the U.S. government will not let Social Security fail. This is the same government that deemed certain large companies 'too big to fail' and dragged other unwilling participants into the fray. BB&T's (BBT) Chairman and CEO, Kelly King has been very outspoken on how the government has managed the TARP debacle. And now the government is 'helping' the auto industry. Watch out Detroit!
The U.S. government has become too big and too 'helpful' to the detriment of its citizens. The government should spend more time providing for the common defense and less time promoting the general Welfare (pun intended).
So, what are your retirement plans? Are you going to rely on the government to print your social security check and the money backing it up, or will you choose to take charge of your future and prepare for it? As it is with most things in life, those that prepare for retirement will find more success than those that don't. It is really not that hard when you start young. Here are three simple steps:
Number 3. on first blush may seem complicated, but it doesn't have to be. For those that don't want to make investing their hobby, they can focus on a few good funds like Vanguard's S&P Index Fund (VFINX) and Vanguard's Long-Term Bond ETF (BLV).
For those a little more adventurous, a strategy based on an article by Richard Jenkins titled “A simple ETF strategy for beginning investors“ has been quite effective over time. Don’t let the “beginning investors” term scare you away. The goal of this portfolio is to provide diversification over a broad allocation of stocks and bonds by holding five ETFs: iShares Lehman Aggregate Bond Fund (AGG), iShares MSCI EAFE FD (EFA), Vanguard Total Stock Market ETF (VTI), iShares DJ Real Estate Index (IYR) and iShares DJ Basic Materials (IYM).
For those comfortable in selecting and holding individual stocks, there is nothing like Dividend Stocks to provide a growing income into the future. Dividend stocks found in many dividend investors' portfolios include companies such as: McDonald's Corp. (MCD) [analysis], Johnson & Johnson (JNJ) [analysis] and The Coca-Cola Company (KO) [analysis].
Finally, you can choose not to prepare. In June 2008, I wrote about a retirement-age couple that would never retire because they chose to life five on the edge and always spent a little more than they made. Over the last year the noose has continued to tighten on Bill and Jackie (not their real names). Due to the economy and health issues work has been hard to come by. Their house is one step away from foreclosure and on the market with no buyer in sight. Bill needs surgery and the family continues to grow weary of providing for them.
Life is a choice. You can choose how you live, but you cannot choose the consequences of how you live.
Full Disclosure: Long AGG, BLV, EFA, IYM, JNJ, KO, MCD, VFINX, VTI. See a list of all my income holdings here.
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This article originally appeared on The DIV-Net June 8, 2009.
Company Description: SYSCO Corporation, through its subsidiaries, engages in the marketing and distribution of a range of food and related products primarily for food service industry in the United States and Canada.
Fair Value: I consider four calculations of fair value, see page 2 of the linked PDF for a detailed description:
SYY is trading at a discount to 1.) and 3.) above. If I exclude the high and low valuations and average the remaining two, SYY is trading at a 13.1% discount. SYY 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:
SYY earned one Star in this section for 3.) above. SYY has paid a cash dividend to shareholders every year since 1970 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:
SYY earned both of the available Stars in this section. The NPV MMA Diff. of the $22,357 is in excess of the $2,500 minimum I look for in a stock that has increased dividends as long as SYY has. If SYY grows its dividend at 12.2% per year, it will take 1 years to equal the cumulative earnings from a MMA yielding an estimated 20-year average rate of 4.06%. SYY earned a Star since its Years to >MMA of 1 is less than 5 years.
Other: SYY is a member of the S&P 500 and a member of the Broad Dividend Achievers™ Index. SYY operates in a relatively stable industry and is considered to have the largest market share. Some analysts believe the company is gaining share during these difficult times. Restaurants accounted for approximately 63% of fiscal 2008 sales. SYY should continue to see growth from acquisitions and internally generated. Risks include slowing of growth rates, sharp increases in fuel prices, and a prolonged slowdown in restaurant sales due to economic conditions.
Conclusion: SYY 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 SYY as a 4 Star-Buy.
Using my D4L-PreScreen.xls model, I determined the share price could increase to $43.11 before SYY's NPV MMA Differential fell to the $3,000 that I like to see for a stock with 38 consecutive years of dividend increases. At that price the stock would yield 2.13%.
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 4.3%. This dividend growth rate is well below the 12.2% used in this analysis, thus providing a significant margin of safety. SYY has a risk rating of 1.25 which classifies it as a low risk stock.
I have held SYY since January 2008. During that time it has decreased 17.5% on a dividend adjusted basis compared a 31.0% decrease for the S&P 500. Long-term, I like SYY's prospects. However, near-term SYY will continue to face pressure in its restaurants' end-market due to weak consumer discretionary spending. I will look for opportunities to judiciously increase my position in SYY when the stock is trading below my buy price of $27.56. 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 SYY (2.9% of my Income Portfolio).
What are your thoughts on SYY?
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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The main focus of dividend investing is finding and buying dividend stocks that will likely continue to raise their dividends in the future. In making this determination there are many factors to consider. One of the more important metrics to consider is the Dividend Payout Ratio.
Traditionally, this is calculated as Annual Dividend Per Share divided by Earnings Per Share (EPS). I don't particularly care for this calculation. Due to all the odd accounting rules EPS is not cash. Instead, I prefer to use a Free Cash Flow Payout Ratio.
Free Cash Flow has several different definitions, but the one I use is Operating Cash Flow less Capital Expenditures. Both of these amounts are found on the statement of cash flows. Operating cash flow starts with Net Earnings and adjusts out non-cash items, such as depreciation and amortization, and non-operating items such as land sales.
Since a business can't continue in the long-term without capital spending (machinery and equipment, etc.), capital expenditures are subtracted from operating cash flow in calculating free cash flow. It is important to note, that only "normal" capital expenditures are deducted, not acquisitions. The decision to make an acquisition is strategic, not operating.
Once calculated, Free Cash Flow is divided by diluted shares to put it on a per share basis. Finally, the annual dividend per share is divided by free cash flow per share to calculate the payout ratio. With the traditional EPS based payout ratio, many people consider 50% or below good. However, since a lot of the noise has been removed when using free cash flow, I consider a payout ratio of 60% or lower good.
The lower the payout ratio the more cash is available to increase the company's dividend. A low ratio is especially good during an economic downturn, when the amount of cash generated will likely be less.
Here are five stocks with a free cash flow payout ratio less than 30%:
1. AFLAC Inc (AFL)
Payout Ratio: 10.8% - Yield: 3.30% - Analysis
2. Nucor Corp (NUE)
Payout Ratio: 29.0% - Yield: 2.90% - Analysis
3. United Technologies Corp. (UTX)
Payout Ratio: 29.8% - Yield: 2.70% - Analysis
4. Lowe's Companies Inc. (LOW)
Payout Ratio: 23.4% - Yield: 1.80% - Analysis
5. Brady Corp. (BRC)
Payout Ratio: 26.8% - Yield: 2.70% - Analysis
I am currently reworking my dividend analysis worksheets to focus on what's most important in selecting a dividend stock. A Free Cash Flow dividend payout of less than 60%, will earn the company a star.
Full Disclosure: Long AFL, NUE, UTX. See a list of all my income holdings here.(Photo: Steve Woods)
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Vanguard Group founder Jack Bogle has not changed his tune as a result of the economic downturn. At the ripe age of 80, he is still preaching buying-and-holding domestic stocks and bonds, cheaply, in an asset allocation that's appropriate for your age. Below are some key excerpts from a recent Market Watch article.
On including bonds in your asset allocation:I have been saying for more years than I care to count not to forget bonds. And start to think about it as a rule of thumb, having your bond holdings equal your age.
Investors come to me and generally say one of two things, either 'Thank God I followed your advice,' or 'I really feel stupid for not having followed your advice.'
On the economy:We can't fix our economy now, today. We can move in a direction of fixing it, but when you think about what is happening it's very obvious: We have to save more.
The old 3% real growth which is the rate the economy has grown at, well I think that is too aggressive. We're looking at much slower economic times.
On what a slower economy means for investors:We have had a stock market crash of the largest proportions probably of the last century, with the possible exception of 1929 to 1933. We have had a big stock market crash. Do we have to have another one? I don't think so.
I would guess the market probably has it about right. I would guess that we have seen the low for the year and maybe the low for this cycle.
On having an international allocation:Decide where you want to put your money. I would say U.S. stocks, because international will do well and then it will do badly, and the same thing for emerging markets, which will do well for a while and then do badly and then do well again. I just think you don't need to go beyond U.S. stocks.
On the reported death of asset allocation and buy-and-hold investing:I am really concerned when I hear people say buy-and-hold is over. Investors, as a group, are buy-and-holders. We own the stock market, all of us together, we buy and hold it. As a group, we all have the same asset allocation. So when you hear someone say 'It's a stockpicker's market,' well if you picked well, then I picked ill, and as a group it's the same.'
You can read the entire article here. I don't agree with everything Mr. Bogle says, but I do think there is a lot we can learn from him. So what can we do to put some of the above in practice?
First, don't forget about bonds. As recently noted, treasuries and bonds tend to be less risky than equity investments, but have historically under-performed equities. When the market is climbing by double digits, it is easy to question why you are including bonds in your asset allocation. However, when the market turns down, the importance of bonds becomes very evident. I currently hold some old savings bonds (U.S.) and several funds/ETFs in my 401(k) and taxable accounts. My two favorite ETFs are Vanguard Long-Term Bond ETF (BLV) currently yielding 5.6% and iShares Barclays Aggregate Bond (AGG) currently yielding 4.7%.
Unlike Mr. Bogle, I think international investments play an important role in your asset allocation. Due to the complexities in this arena, I prefer to use indexed ETFs to meet my allocation here. In addition to a fund in my 401(k), I currently hold iShares MSCI EAFE Index (EFA) and Vanguard Emerging Markets Stock ETF (VWO). In addition, I am currently evaluating Vanguard FTSE All-World ex-US ETF (VEU).
As Mr. Bogle alluded to in the article, there are many excellent U.S. stocks to invest in. In this area I prefer to focus on great Dividend Stocks like Johnson & Johnson (JNJ) [analysis], Procter & Gamble Co. (PG) [analysis], The Coca-Cola Company (KO) [analysis] and 3M Co. (MMM) [analysis].
It seems that ever so many years the market turns down and someone declares the death of buy and hold. Even some go as far to say the Warren Buffett has lost his touch. The buy and hold investors and Mr. Buffett always seen to make a spectacular rebound, and they will once again. In the mean time, we need to focus on acquiring value and maintaining our asset allocation.
Full Disclosure: Long BLV, AGG, EFA, VWO, JNJ, PG, KO, MMM. See a list of all my income holdings here.
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Company Description: 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.
Fair Value: I consider four calculations of fair value, see page 2 of the linked PDF for a detailed description:
NUE is trading at a discount to 1.) and 2.) above. If I exclude the high and low valuations and average the remaining two, NUE is trading at a 8.9% discount. NUE 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:
NUE 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%. NUE has paid a cash dividend to shareholders every year since 1973 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:
NUE earned both of the available Stars in this section. The NPV MMA Diff. of the $28,974 is in excess of the $2,500 minimum I look for in a stock that has increased dividends as long as NUE has. If NUE grows its dividend at 15.0% per year, it will take 2 years to equal the cumulative earnings from a MMA yielding an estimated 20-year average rate of 3.64%. NUE earned a Star since its Years to >MMA of 2 is less than 5 years.
Other: NUE is a member of the S&P 500 and a member of the Broad Dividend Achievers™ Index. Although NUE is exposed to cyclical end-markets, the company has a diverse product mix and a solid share of the markets in which it competes. Also, NUE has a low total debt to assets ratio and generates substantial free cash flow. With the global steel industry consolidating via mergers, the increased concentration of production among fewer companies should result in greater pricing discipline. This should help NUE to continue generating strong free cash flow.
Conclusion: NUE earned one Star in the Fair Value section, earned three Stars in the Dividend Analytical Data section and earned two Stars in the Dividend Income vs. MMA section for a net total of six Stars. Since my scale tops out at five, this quantitatively ranks NUE as a 5 Star-Strong Buy.
Using my D4L-PreScreen.xls model, I determined the share price could increase to $91.41 before NUE's NPV MMA Differential fell to the $3,000 that I like to see for a stock with 36 consecutive years of dividend increases. At that price the stock would yield 1.53%.
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 6.0%. This dividend growth rate is well below the below the 15.0% used in this analysis, thus providing a significant margin of safety. NUE has a risk rating of 1.50 which classifies it as a low risk stock.
It is important to remember the above analysi is based on quantitative historical data and assumes the future will be similar to the past. NUE has some tough days ahead as steel prices and demand continue to decline. However, NUE is a well-run company and with its strong balance sheet is in a excellent position to ride out this recession. Although I am looking to increase my position in NUE and the stock is trading below my buy price of $43.91, I believe there will be ample opportunities in the future to buy below its current price. 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 NUE (1.2% of my Income Portfolio).
What are your thoughts on NUE?
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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Honeywell International Inc. (HON)
The company is the world's largest maker of cockpit controls, small jet engines and climate control equipment, HON also makes industrial materials and automotive products. HON has an attractive yield of over 3.5%, but with only two consecutive years of dividend increases this defense stock misfired as a defensive stock.
Northrop Grumman Corp. (NOC)
NOC is the world's third largest producer of military arms and equipment, and also has a large government IT services business. NOC is another stock with a good yield of around 3.5%, but with only five years of consecutive dividend increases it is too early to invite it into my income portfolio.
The Boeing Co. (BA)
The company is the world's second largest commercial jet and military weapons manufacturer, and the U.S.'s largest exporter. BA has an impressive dividend yield close to 4%, but with only five years of consecutive dividend increases, I am not ready to fly solo with it.
General Dynamics Corp (GD)
General Dynamics is the world's sixth largest military contractor and also one of the world's biggest makers of corporate jets. This Dividend Achiever's stock is currently yielding a little over 2.5% and has increased its dividend for the last 15 years. I was very high on GD back when I did this analysis, but with its recent increase in share price and drop in yield, I am waiting for a more favorable entry point.
United Technologies Corp (UTX)
UTX is an aerospace-industrial conglomerate whose portfolio includes Pratt & Whitney jet engines, Sikorsky helicopters, Otis elevators, and Carrier air conditioners, among other products. This Dividend Achiever's stock is currently yielding around 3% and has increased its dividend for the last 17 years. See my most recent analysis.
Aerospace and defense companies that do a lot of government work usually enjoy long contracts and are in a good position to weather economic downturns. However, to varying degrees, each of the above companies also is engaged in non-government commercial business that will be more affected by the economic downturn. There is certainly a spot for aerospace and defense in my income portfolio, but I will wait for the right time and entry price.
Full Disclosure: Long UTX. See a list of all my income holdings here.
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Some of my fellow dividend investors have accused Warren Buffett of being a closet dividend investor. I won't quite go that far, but there is significant common ground between dividend and value investors. With that said, let's take a close look at Mr. Buffett's most recent 13-F filing with the Securities and Exchange Commission.
Comparing Berkshire Hathaway's (BRK.A) December 31, 2008 13-F with its March 31, 2009 13-F, I made the following observations for Q1/2009:
Of the stocks held in BRK's 13-F portfolio, the following ones are either held in my income portfolio or are on my watch list of dividend stocks:
Coca Cola (KO) - Yield 3.34% - Analysis
The Coca-Cola Company is the largest manufacturer, distributor and marketer of nonalcoholic beverage concentrates and syrups in the world.
Johnson & Johnson (JNJ) - Yield 3.55% - Analysis
Johnson & Johnson is engaged in the research and development, manufacture and sale of a range of products in the healthcare field.
Kraft Foods (KFT) - Yield 4.44% - Analysis
Kraft is engaged in manufacturing and marketing packaged food products, including snacks, beverages, cheese, convenient meals and various packaged grocery products.
Lowes Companies (LOW) - Yield 1.89% - Analysis
Lowe's Companies, Inc. is a home improvement retailer.
M&T Bank (MTB) - Yield 5.57%
M&T Bank Corporation is a bank holding company. As of December 31, 2008, the Company had two wholly owned bank subsidiaries.
Procter & Gamble Co. (PG) - Yield 3.39% - Analysis
The Procter & Gamble Company is focused on providing branded consumer goods.
Wal-Mart Stores, Inc. (WMT) - Yield 2.19% - Analysis
Wal-Mart Stores, Inc. operates retail stores in various formats worldwide.
In addition, Buffett continues to hold a position in several stocks that I sold over the last twelve months for either cutting or failing to raise their dividend. Those are:
Bank of America Corporation (BAC) - Yield 0.35%
Bank of America Corporation (Bank of America) is a bank holding company and a financial holding company.
General Electric (GE) - Yield 9.20%
General Electric Company is a diversified technology, media and financial services company.
The Home Depot, Inc. (HD) - Yield 3.89%
The Home Depot, Inc.is a home improvement retailer selling an assortment of building materials, home improvement and lawn and garden products, and provide a number of services.
SunTrust Banks, Inc. (STI) - Yield 3.04%
SunTrust Banks, Inc. is a diversified financial services holding company whose businesses provide a range of financial services to consumer and corporate clients.
U.S. Bancorp (USB) - Yield 1.04%
U.S. Bancorp operates as a financial holding company and a bank holding company. U.S. Bancorp provides a range of financial services, including lending and depository services, cash management, foreign exchange, and trust and investment management services.
It is not surprising that the most famous value investor holds several dividend stocks. Historically, stocks that pay dividends have out-performed those that don’t. When you buy dividend stocks at a discount, it’s like turbo-charging your return!
Full Disclosure: Long in JNJ, KO, MTB, PG, WMT . See a list of all my income holdings here.
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This article originally appeared on The DIV-Net May 18, 2009.
Company Description: Aflac Incorporated engages in the marketing and sale of supplemental health and life insurance plans in the United States and Japan.
Fair Value: I consider four calculations of fair value, see page 2 of the linked PDF for a detailed description:
AFL is trading at a discount to 1.) and 3.) above. If I exclude the high and low valuations and average the remaining two, AFL is trading at a 10.2% discount. AFL 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:
AFL 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%. AFL has paid a cash dividend to shareholders every year since 1973 and has increased its dividend payments for 27 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:
AFL earned both of the available Stars in this section. The NPV MMA Diff. of the $45,186 is in excess of the $2,500 minimum I look for in a stock that has increased dividends as long as AFL has. If AFL grows its dividend at 16.7% per year, it will take 2 years to equal the cumulative earnings from a MMA yielding an estimated 20-year average rate of 3.64%. AFL earned a Star since its Years to >MMA of 2 is less than 5 years.
Other: AFL is a member of the S&P 500, a Dividend Aristocrat and a member of the Broad Dividend Achievers™ Index. AFL has a solid balance sheet with debt to total capital of 24% in the most recent interim reporting period. In addition, the company generates significant free cash flows with a free cash flow dividend payout of only 11%. It has a strong market position and proven management with a consistent track record for share repurchases and dividend increases. AFL mainly invests in high-quality corporate debt and has no subprime holdings. Risks include investment losses, unfavorable movements in the yen/dollar exchange rate, lower premium growth and difficulties recruiting agents.
Conclusion: AFL earned one Star in the Fair Value section, earned three Stars in the Dividend Analytical Data section and earned two Stars in the Dividend Income vs. MMA section for a net total of six Stars. Since my scale tops out at five, this quantitatively ranks AFL as a 5 Star-Strong Buy.
Using my D4L-PreScreen.xls model, I determined the share price could increase to $85.38 before AFL's NPV MMA Differential fell to the $3,000 that I like to see for a stock with 27 consecutive years of dividend increases. At that price the stock would yield 1.31%.
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 6.1%. This dividend growth rate is well below the below the 16.7% used in this analysis, thus providing a significant margin of safety. AFL has a risk rating of 2.00 which classifies it as a medium risk stock.
AFL is an interesting stock. Quantitatively it has everything an income investor looks for in a company: low debt, strong cash flows, low dividend payout ratio and a long history of increasing its dividend. However, it is a financial company and has a large exposure to other financial services companies, particularly European banks via hybrid bonds. I see this more as a limiting factor of near-term share price appreciation, not its ability to continue growing its dividend. I will continue to add to my position when the stock is trading below its $38.42 buy price and as my allocation allows. 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 AFL (2.0% of my Income Portfolio).
What are your thoughts on AFL?
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