High-Yield Dividend Growth Stock You Likely Haven’t Considered. Usually, investors have to choose between income stocks and growth stocks. If you pick a stock that offers a yield much higher than the vast majority of its peers, chances are it won’t offer much in terms of growth...
And that, my dear reader, is what makes Delek Logistics Partners LP (NYSE:DKL) special. DKL stock is one of the few double-digit yielders trading in today’s market. And yet its payout keeps on growing. Delek Logistics Partners LP is a master limited partnership (MLP) headquartered in Brentwood, Tennessee. It was created in 2012 by Delek US Holdings Inc (NYSE:DK) to own, operate, acquire, and construct crude oil and refined products logistics and marketing assets.
Source: Income Investors
Related Articles:
- When A Stock Fails To Raise Its Dividend: Is It Time To Sell?
- Dividend Stocks in Today's Market
- 5 Big-Name Dividend Stocks Crushing The S&P 500
- How To Be a Better Investor During Difficult Times
- 4 Higher-Yielding, Low Debt Stocks With A Tiny Payout Ratio
________________________________________________________________
There are many lists of dividend companies such as S&P 500 Dividend Aristocrats, US Broad Dividend Achievers™ Index and The U.S. Dividend Champions. They all have one thing in common - trying to narrow the population to the very best dividend companies. When combined, as I did with the Stock Ideas list, this is a large and daunting list of 319 unique companies. So, how do we find the Elite companies on this list?
In an effort to narrow down the list, I considered what criteria makes an Elite Dividend company. Here is what I came up with (financial data from morningstar.com):
A Long Track Record Of Consecutive Dividend Increases: Aristocrats and Champions have increased their dividends for 25 consecutive years, while Achievers have done so for 10 years. The quickest way to narrow the list down was only include companies with 35 or more years of consecutive dividend increases. This reduced the population to 65 companies.
Ability To Generate Positive Free Cash Flows: To have cash available for dividends, a company must have cash left over after paying the operating expenses and normal capital expenditures. For this I looked for companies that had positive free cash flow for the last 10 years.
Free Cash Flow Sufficient To Pay The Dividend: Free cash flow can be positive, but still not enough to cover an increasing dividend. To ensure adequate coverage, I screened for companies with a 60% or less Free Cash Flow payout ratio.
Low Debt: Dividends paid out of Free Cash Flow must compete for other needs of the business such as interest and debt payments. Lower debt and interest requirements provide more cash for dividend payments. For this item, I eliminated all companies that had a debt to total capital percent in excess of 35%.
Low Risk: An Elite Dividend company will provide you a superior return without subjecting your investment to undue risk. My usual measure of risk indirectly incorporates the stock's current valuation. I wanted this list to be valuation independent (e.g. a great stock could be on the list, but not be a buy because it is overvalued). For this measure I opted to use S&P's Qualitative Risk Assessment. This is described by S&P as "the equity analyst’s view of a given company’s operational risk, or the risk of a firm’s ability to continue as an ongoing concern. The Qualitative Risk Assessment is a relative ranking to the S&P U.S. STARS universe, and should be reflective of risk factors related to a company’s operations, as opposed to risk and volatility measures associated with share prices. The rankings include Low, Medium and High." I only included companies with a Low risk rating.
My Elite Dividends List that started with 319 companies, then dropped to 65 companies now after considering all the above, it is left with the following six companies:
Nucor Corp. (NUE) - Recent Analysis
Illinois Tool Works (ITW) - Recent Analysis
Johnson & Johnson (JNJ) - Recent Analysis
3M Company (MMM) - Recent Analysis
Procter & Gamble Co. (PG) - Recent Analysis
Genuine Parts Co. (GPC) - Recent Analysis
This is not a buy list. As noted above, the Elite Dividend List ignores valuation and other factors you must consider before purchasing one of these companies. Also, there were some very good companies that were close, but came up slightly short in just one category such as:
Full Disclosure: Long NUE, ITW, JNJ, MMM, PG, KO, SYY, PEP, WMT (my income holdings)
Related Articles:
________________________________________________________________
Asset allocation describes how an investor distributes their investments among various classes of investment options (e.g., stocks and bonds). Most successful investors will tell you that asset allocation is the most important decision you make in determining how well your portfolio performs. As noted in my recent article Charlie Munger's 10 Rules for Investment Success, he pointed out "Allocate assets wisely: Proper allocation of capital is an investor's No. 1 job."
The conceptual foundation of asset allocation is the premise that the best-performing asset(s) will vary from year-to-year and is not easily predictable. By spreading your investments across various asset classes, some will be over-performing while under-performing - Don't put all your eggs in one basket. With fixed percentages on each of the asset classes you reallocate out of the better performing assets into the under-performing assets - Buy Low, Sell High.
Examples of asset allocation classes include, by asset type: Cash, Bonds, Stocks, Real Estate, Currencies, Natural Resources, Precious Metals, Collectibles, etc.
When looking at equities they can be sub-divided into additional asset classes grouped by:
- Size such as: Large-Cap, Mid-Cap and Small-Cap
- Style such as: Growth, Blend and Value
- Sector such as: Financial, Consumer, Industrial, Health-care, etc.
- Other such as: REITS, International, Emerging Markets, Life Settlements
There are a lot of tools available on the web to help you determine your asset allocation. Here are three, one very simple and the other two a little more comprehensive: Once your asset allocation is set, it is not changed often. The most common reason for changing your asset allocation is a change in your time horizon. As you approach your investment goal, such as retirement, you may want to reevaluate your risk profile. It is important to note that savvy investors typically do not change their asset allocation based on the relative performance of asset categories.
As described in my article "Process Overview and Asset Allocation", I currently allocate assets broadly by the type of investment (mutual funds, ETFs, dividend stocks) with some attention given to sectors within my dividend stocks. I am currently working on refining my process and will discuss this in future posts.
If you are interested in learning more about asset allocation, The U.S. Securities and Exchange Commission (SEC) has a good primer on asset allocation titled "Beginners' Guide to Asset Allocation, Diversification, and Rebalancing".
Related Articles:
- Charlie Munger's 10 Rules for Investment Success
- Process Overview and Asset Allocation
- Investing Goals
- Reaching Your 10-Year Investing Goal
- My Unique Investing Process
________________________________________________________________
Yesterday in part 1 of Passing the Torch, I posted the story of Jack and Jill's journey to retirement. The synopsis of the story is that Jack contributed less than one-third of what Jill contributed toward retirement, but his final nest egg was over twice as large.
When questioned by Jill how this happened the father explained that the most important aspect of investing is not how much you contribute, but when you contribute it. Attached here [JackJill.xls] is the spreadsheet used to generate the schedule comparing Jack and Jill's results.
If you want to compare how well you are doing versus Jack and Jill, find your age in column B, then on that same row enter the value of your equity investments in column K and finally enter the amount you expect to contribute each year in column J. The amounts in col J can be adjusted by years if you so desire.
After entering the above, cell K6 will display your total contributions while cell K5 will display your estimated balance at age 65. The assumed rate of return can be changed for all three in cell E4, or individually overridden in cells H4 and K4.
As always, I hope you find this model entertaining and useful.
Discussion items raised by my kids:
_____________________________
Q1: Wow, that's neat. Are you saying I can skip college, work 10 years and save $5,000 a year, then I can kick back and do whatever I want for the rest of my life?
A1: No, in the story Jack had a financially difficult life (note references to meager earnings) since he did not go to college and adequately prepare himself to raise a family.
_____________________________
Q2: But if Jack remembered the money, he could have used it to have a better life.
A2: The power of compounding is tied to time. If Jack were to make withdrawals prior to his retirement, that would significantly reduce the final amount, and in some cases eliminate the entire balance.
_____________________________
Disclaimer: This model is for illustrative and educational purposes only. The author and Dividends4Life makes no claims or assertions as to the model's accuracy, completeness, appropriateness of use, or any other claim or assertion. You should not rely on this model or base any financial decisions on it.
Related Articles:
- Passing the Torch - Part 1 of 2
- Reaching Your 10-Year Investing Goal
- Investing In What's Important
- 5 Lessons Learned About Investing
- Dividends4Life Toolbox
________________________________________________________________
An important goal for me is to train my children (12 and 10 years old) about personal finances and investing. For some odd reason their eyes glaze over whenever I start talking about NPVs, DCFs, IRRs and calculating a compound annual growth rate using a logarithmic function in Excel (go figure!). It took a while, but I finally learned that they respond to stories. Given that, I have used stories to foster their interest in personal finance and investing.
Some time ago I heard a compelling story of two twins and their financial journey. Obviously, it was not original with me and recently I found this Motley Fool article that relates the same story, albeit in a much more abbreviated form. Their version was much too short for my kids, so here is my longer version:
A long time time ago two twins were born into a middle class family. The twins were named Jack and Jill. Though they shared the same birthday, Jack and Jill were very different.
Jill was ambitious and extremely competitive. She made straight A's in school and strove to be the best she could be. Jill's parents were proud of her. They knew one day she was going to be very successful.
Now Jack was more reserved. He didn't do quite as well in school, normally making C's in most of his subjects. Jack was a dreamer, he started many projects, but never seemed to finish any of them. This concerned Jack's parents, who loved him very much.
As the years passed, Jill continued to succeed in all her endeavors. She was always looking over her shoulder to make sure she was doing better than her brother, who somehow always managed to come in second behind her.
The twins graduated high school at age 18. Jill had the best grades of anyone in her graduating class, by a wide margin, and was named the valedictorian. She had multiple scholarship offers to prestigious universities. Wanting to be a surgeon, she chose the one with the best medical school.
Jack once again didn't fare as well. Graduating in the middle of the class, he had no scholarship offers; that left the local community college as his only option. There were many forms to fill out and the admission office was not very helpful. Jack quickly tired of the process, and once again he just quit and took a job at a local hardware store earning minimum wage.
Jack's father was a wise man. He was very concerned about his son's future and tried to talk him into going to college, but Jack would not budge. Jack finally agreed to send the first $5,000 he made each year to his father who would invest it for him. Jill always being the jealous type asked 'will you handle my investments when I get out out college?' The father replied 'I sure will.'
Jill went off to college and Jack continued to live at home. He did just as he said he would and sent his father $5,000 to invest each year. But alas, at age 25 Jack met a pretty young lady and they were soon married. By the age of 28 Jack his wife had two children and his meager salary could no longer support his family and allow him to invest $5,000 each year; so once again Jack quit, and did not send any more money to his father after the 10th year. His parents were very concerned.
The years quickly went by as Jill went off to college, then medical school and finally served her residency. As in the past Jill succeeded beyond expectations. She became a well-respected and highly sought after surgeon. Jill married a doctor and they had two children.
With all the debt Jill and her husband accumulated in medical school they weren't able to start saving any money until she was 30. Jill remembered that her father agreed to manage her investments, so she sent him $5,000 a year, as Jack had done. The father being financially wise invested both Jack and Jill's money in a mutual fund that was designed to track the total market's return.
The years flew by and soon Jack and Jill were planning their retirement party. Their parents who were now in their late 80's agreed to host the gathering. Jack was the manager of the hardware store and his meager earnings did not allow him to pay much toward the party. Jill did not mind picking up the cost, since she and her husband earned a good salary.
The day finally came for the party and all in attendance had a wonderful time. As the party was beginning to break up, the father tapped his glass with a spoon to get everyone's attention. He said in a loud voice. "Before everyone leaves, I have a presentation to make. " He then relayed the story how Jack and Jill had sent him money to invest for their retirement; with Jack only sending $50,000 over 10 years before his family situation forced him to stop, and Jill sending $180,00 over 36 years. Jill beamed as she always did when besting her brother.
At this point I stopped and asked my kids "who do you think will have more money?" They both said "Jill will have way more." I respond with a "let's see".
The father said, "My job is complete, I am here to present my children their retirement accounts. " He handed each child an envelope. Jill quickly opened hers and and was pleased to see her $180,000 had grown to over $1.9 million. "Don't worry Jack, I have enough here that I can help take care of you." Before Jill could continue their father said, "that won't be necessary Jill. Jack open your envelope."
Jack opened his envelope and was amazed to see his $50,000 had grown to over $4.4 million. For the first time in their life, Jack had finished ahead of Jill and she didn't know how to handle it. "How can this be?", she asked their father. "Did you contribute extra money to Jack's account? Did you invest it differently?"
"No." replied the father. "I invested what each of you sent me into the same mutual fund. The most important thing is not how much you contribute, but when you contribute it. Here look at this schedule JackJill.pdf (alt.1, alt.2) and you will see how each of your accounts grew over the years.
Check back tomorrow and I will post a link to the Excel model I used to generate Jack and Jill's account schedule and discuss how you can use it. I will also post some tips that I picked up when discussing this with my children.
Related/Similar Articles:
- Passing the Torch - Part 2 of 2
- Dividends4Life Toolbox
- Reaching Your 10-Year Investing Goal
- Investing In What's Important
- 5 Lessons Learned About Investing
________________________________________________________________
