Dividend-paying stocks from low-risk, high-quality companies are a smart way to generate steady and reliable attractive income streams to replace current low risk, low yielding Treasury and bond options. Going beyond those familiar names, you can find excellent dividend-paying stocks by following a few guidelines. Look for companies that pay a dividend yield of around 3%, with positive annual dividend growth. The growth rate is key to help combat the effects of inflation. Here are three dividend-paying stocks retirees should consider for their nest egg portfolio...
Manulife Financial (MFC) is currently shelling out a dividend of $0.19 per share, with a dividend yield of 3.77%. In terms of dividend growth, the company's current annualized dividend of $0.76 is up 12.04% from last year. Newell Brands (NWL) is paying out a dividend of 0.23 per share at the moment, with a dividend yield of 4.82%. Taking a look at the company's dividend growth, its current annualized dividend of $0.92 is flat compared to last year. Currently paying a dividend of 0.36 per share, Plains All American Pipeline (PAA) has a dividend yield of 7.56%. Looking at dividend growth, the company's current annualized dividend of $1.44 is up 20% from last year.
Source: Yahoo Finance
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The search for income continues to be one of the more frustrating endeavors for investors. To make matters worse for yield-hungry investors, it now looks like the Fed may drag its heels raising rates as a result of continued global economic weakness. It could be many years before rates rise enough that bonds, bank products and treasury securities offer realistic opportunities for investors. Dividend stocks and securities have been pretty well picked over here in the U.S. as the great yield chase has been going on for almost five years.
The recent weakness in energy stocks and natural resource stocks has created some bargain income producing activities to our North. Although investors may have to accept some commodity related volatility, there are several decent dividend stocks that trade at a discount to their asset value. Investors with a long-term view of the world can get paid handsomely to wait for energy and natural resources to recover: MFC Industrial (MIL), Teck Resources (TCK) and TransAlta Corporation (TAC).
Source: NASDAQ
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Canada is one of the few developed nations that are a net exporter of energy. Canada also exports motor vehicles and parts, industrial machinery, aircraft, telecommunications equipment and electronics. The U.S. is by far its largest trading partner, accounting for about 79% of exports. The government has a debt level of 84% of GDP and the government's budget has a little deficit of 2.1% of GDP. Reason enough to look for investment alternatives outside the United States.
I screened Canadian stocks listed in America. Such companies are American Depositary Receipts (ADRs). Here are the best stocks from my screening results with cheap price ratios as well as a dividend yield of more than 2%:
1. Sun Life Financial (SLF)
2. The Cash Store Financial Services (CSFS)
3. Manulife Financial (MFC)
4. Methanex (MEOH)
5. Magna International (MGA)
Source: Guru Focus
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The markets have seen some significant gains since their March lows. Each time this occurs there is a new round of experts calling the bottom. Time and time again the market throws them a cruel twist and heads lower. Will this time be different?
Recently, Daniel Gross in a Newsweek article stated, "The Great Recession, which rolled over our financial lives like one of P.J. Keating's giant pavers, is most likely over." He went on to make the following observations in the article:
Not surprising, a lot of the hardest hit stocks have seen the largest increase off their 52 week low. Based on August 4, 2009 prices, these would include: General Electric (GE) 141%, U.S. Bank (USB) 169%, Manulife Financial Corp. (MFC) 249%, AFLAC Inc. (AFL) 268%, Bank of America (BAC) 518%.
Not all dividend stocks have fully enjoyed the recent run up. Some are still relatively close to their 52 week low and are fairly valued based on my buy price. Based on August 4, 2009 prices, here are some to consider:
I look at a market recovery as a bitter-sweet event. For a dividend investor, buying stocks at a highly depressed price is a Godsend, but for the market to remain healthy and liquid, it must eventually rise.
Full Disclosure: Long MFC, AFL, PG, SYY, MCD, WMT. See a list of all my income holdings here.
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Insurance companies make money using a very simple formula: They collect premiums from customers, then invest the premiums while waiting for the claims to come in. Hopefully, the claims will be less than the investment value, thus providing a profit for the company. This industry relies heavily on actuaries. These are people who compute premium rates based on probabilities using statistical records based giving consideration to risks and other factors. A bad assumption here could lead to a premium that is too low resulting in an ultimate loss.
If you have ever filed a claim with an insurance company, you know what an onerous task it is to get money out of them. Looking at the claims portion of the equation, it is easy to under why they want to minimize claims paid. Each dollar they don't pay you and each additional day they hold unto dollars they do pay you, is additional investment income for the company.
During an extended bull market, it is easy to take for granted that the investment portion of the formula will be positive. However, a lesson the insurance industry recently had to relearn was that the stock market does not always go up. The collapse of American International Group, Inc. (AIG) in September from ill-chosen investments was a dramatic event for those invested in the industry.
Manulife Financial Corp. (MFC), North America's largest insurance company, also has struggled as a result of the declining equity markets. The Company has reported huge losses in excess of one billion Canadian dollars in the fourth quarter of 2008 and the first quarter of 2009. 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.
Recently the sharp market rebound has provided relief to insurers such as MFC who had to set aside cash for guarantees on performance-based products. The increase in the market will also give the insurers a chance to rebuild capital and shuffle reserves.
Below are some insurers you may want to keep an eye on in the upcoming weeks, along with some company specific risks:AFLAC Inc. (AFL) - Yield: 3.04% - Analysis
Consider the risks before investing, but also keep in mind the best values come when a company is distressed.
AFL may be overexposed to the financial service sector as a result of its holdings of European bank hybrid bonds. However, the company should not suffer significant losses from its hybrid portfolio.
Manulife Financial Corp. (MFC) - Yield: 3.73%
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.
MetLife, Inc. (MET) - Yield: 2.17%
MET's risks are more of the general nature. They include a further decline in the equity markets coupled with need for additional capital and asbestos-related liability claims.
Prudential Financial, Inc. (PRU) - Yield: 1.33%
PRU's risks include currency conversion, new guaranteed minimum benefits, acquisition integration and a further sharp decline in the equity markets.
Sun Life Financial Inc. (SLF) - Yield: 3.66%
A large portion of SLF's fixed income portfolio is concentrated in the financial sector and rated BBB or below carries a higher risk of investment loss. As with the others, SLF also is susceptible a further decline in the equity markets.
Full Disclosure: Long AFL, MFC. See a list of all my income holdings here.
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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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So far in 2009, the Dividend Aristocrats have under-performed the S&P 500. However there are several dividend stocks that have done quite well and beat the S&P 500 index, and some of those companies just might surprise you!
Below are ten dividend stocks that have out-performed the S&P 500 this year through May 15, 2009:
10. Coca-Cola Co (KO) - Return: 0.4% - Yield: 3.76%
The Coca-Cola Company engages in the manufacture, distribution, and marketing of nonalcoholic beverage concentrates and syrups worldwide. Risk Rating: Low (1.50) - Analysis
9. Sysco Corp (SYY) - Return: 0.5% - Yield: 4.20%
SYSCO Corporation, through its subsidiaries, engages in the marketing and distribution of a range of food and related products primarily for foodservice industry in the United States and Canada. Risk Rating: Low (1.00) - Analysis
8. BP ADR (BP) - Return: 1.4% - Yield: 7.37%
This supermajor integrated oil company (formerly BP Amoco p.l.c.) is based in London and is the world's second largest publicly owned oil company and the fourth largest U.S. refiner. Risk Rating: Medium (1.75) - Analysis
7. 3M Co (MMM) - Return: 1.8% - Yield: 3.52%
3M Co. is a diversified technology company with a presence in various businesses, including industrial & transportation, healthcare, display & graphics, consumer & office, safety, security & protection services, and electro and communications. Risk Rating: Low (1.50) - Analysis
6. Paychex Inc (PAYX) - Return: 4.1% - Yield: 4.63%
Paychex, Inc. provides payroll and integrated human resource and employee benefits outsourcing solutions for small- to medium-sized businesses in the United States. Risk Rating: Medium (1.75) - Analysis
5. Intel Corp (INTC) - Return: 5.6% - Yield: 3.69%
Intel Corporation engages in the manufacture and sale of semiconductor chips, as well as in the development of advanced integrated digital technology platforms for the computing and communications industries worldwide. Risk Rating: Medium (1.75) - Analysis
4. Canadian National Railway ADR (CNI) - Return: 7.0% - Yield: 2.24%
Canadian National Railway Company (CNI) operates Canada's largest railroad, linking customers in Canada, the U.S., and Mexico through approximately 20,400 miles of track. Risk Rating: Low (1.25) - Analysis
3. Manulife Financial Corp ADR (MFC) - Return: 8.0% - Yield: 4.78%
Manulife Financial Corporation is a life insurance company with customers in the United States, Canada and Asia. It is the holding company of The Manufacturers Life Insurance Company and John Hancock Financial Services. Risk Rating: Medium (1.75) - Analysis
2. CenturyTel Inc (CTL) - Return: 13.5% - Yield: 9.27%
CenturyTel Inc. provides a range of telephone services in 25 states, with operations concentrated in Alabama, Arkansas, Louisiana, Missouri and Wisconsin. Risk Rating: High (2.50) - Analysis
1. Royal Bank of Canada ADR (RY) - Return: 22.8% - Yield: 4.47%
Royal Bank of Canada (RBC) offers a range of banking and financial services in North America and internationally. Risk Rating: Low (1.50)
Over the same period the S&P 500 (VFINX) was down 1.2%. The returns were calculated using Yahoo's dividend adjusted stock price for December 31, 2008 as the starting point. Some interesting items to note: The list contains four ADRs (3 Canadian, 1 British). RY's dividend has been frozen since November 2007. CTL is the only High Risk stock to make the list based on my risk rating. The top five were less traditional dividend stocks that had been beaten down to low levels.
Short-term performance is never the sole reason for long-term investors to buy. What goes up significantly usually comes back down. Case in point, last years two dividend darlings, Wal-Mart (WMT) and McDonalds (MCD), found themselves in the bottom ten of this list, each down 13.2%.
Full Disclosure: Long in all the aforementioned securities. See a list of all my income holdings here.
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For many investors, the glass is always half full. Even in the darkest of times, they always see the bottom just around the corner and it really doesn't take much good news to get them into the buying mood. The month of March provided those investors with a lot to celebrate, and they did!
The Dow was up 87 points in March, but even more surprising was just how long it had been since the Dow finished in the black. You have to go all the way back to August 2008 to find the last time the Dow finished up. It wasn't just the Dow that saw large increases, the Standard & Poor's 500 Index finished March with its largest gain since October 2002, while the The Nasdaq was up 11.4% recording its best month since November 2002.
The good news carried into April with the release of better than expected housing news. The National Association of Realtors (NAR) reported pending home sales rose a seasonally adjusted 2.1% in February. Economists expected the pending sales to remain unchanged. The NAR report, considered to be a leading indicator, is based on the number of contracts signed for sales for existing homes. "The sharp decline in prices is helping to improve affordability. There are small signs that the housing market is moving toward stability." Joseph Brusuelas, a director at Moody's Economy.com, told Bloomberg News.
The manufacturing sector, to a lesser degree, joined the party. The Institute of Supply Management's manufacturing index was 36.3 in March, up slightly from the reading of 35.8 in February. In addition, construction spending fell 0.9% in February, less than the 1.9% drop economists had expected.
So, how did the dividend stocks fare? Quite well, with some of the more beaten down names making a robust recovery. Here are 10 dividend stocks along with their double-digit March performance:
It is not surprising that most of the above stocks are ones that have recently suffered the most. This highlights what all successful investors know - when stocks are down, that is your opportunity to buy them on sale, sometimes at a discount.
Finally, with this much good news, surely someone would call a bottom, and that is just what MSN Money author Tim Middleton did (sort of) in his article "Dig in: Market won't get much worse". He said "We may not have seen the absolute bottom of the bear market, but we're close enough that we can be comfortable having a lot of our money in stocks. The rally has confirmed the optimistic bent of my portfolio, and I'm going to stay this course. I expect it to blossom with the spring."
Full Disclosure: Long in all the aforementioned stocks.References:
(Photo Credit)
- Surprising data on housing, manufacturing
- Dow up 87, sees first monthly gain since August
- Dig in: Market won't get much worse
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Each Sunday I highlight the Carnivals I participated in over the past week, along with any notable articles that I came across. For those readers not familiar with carnivals, it's where personal finance bloggers submit their best articles of the week with one blog serving as the host. The entries are separated into various categories such as Investing, Credit, Debt, Budgeting, Frugality, Wealth Building, Money Management, Financial Planning, Insurance, Taxes, The Economy, Real Estate, et. al.
Below are the carnivals that I participated in this week, along with a link to my article:
Articles I enjoyed reading included (in no particular order):
The DIV-Net Featured Articles
Articles From DIV-Net Members
The Wealth, Money & Life Network Featured Articles
Other Articles
There are some really good articles here, please take time and read a few of them.
(Photo: Sachin Ghodke)
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The decrease in MFC was due to currency conversion resulting from a strengthening U.S. dollar compared to the Canadian dollar. The TEG change corrects an errant share amount entered into my spreadsheet.
Once again it is time for a goals/progress update. December finally provided some relief from a dividend cut standpoint. My only cuts were in ETFs/CEFs and resulting from currency conversions. This allowed me to lower my exposure to high-yield and high risk securities. I am pleased to say that my annualized dividend income increased for the month, keeping alive the string of 13 consecutive months of increases dating back to December 2007 when I began tracking it. 2009 will be a challenge to keep the string going. I anticipate additional dividend cuts in the near-term.
My goals were defined in this December 1, 2007 Investing Goals post. I am pleased to note that both of my goals were achieved in 2008 - not may investors can say that. Below is an updated version of the table found in the original post.Description Dividend
Income
AnnualizedYield
on Cost2027 Goal 110,000 20.00% 2017 Goal 30,000 10.00% 2008 Goal 4,000 4.90% December/2007 3,054 5.00% Purchases YTD 4,424 0.91% Div. Changes YTD (47) -0.01% Sales YTD (1,795) -0.62% December/2008 5,636 5.28% Purchases 237 -0.10% Div. Changes (75) -0.07% Sales (108) -0.06% November/2008 5,582 5.51%
The above information covers the current month and year-to-date through the current month.
Click here for a Detailed Historical Progress Table.
For the month, annualized dividend income increased $54, and Yield on Cost (YOC) decreased -0.23%. These changes were driven by new purchases, dividend changes and sales. Let's examine each of the these categories:
Purchases: The $237 increase in annual dividend income and -0.10% increase in YOC related to the following purchases (yield at the time of purchase):
As a result of my focus on quality and lowering my portfolios risk, all the above purchases lowered my YOC. As noted in earlier updates, I generally expect YOC to drop each month since most new investments will yield less than my current YOC, and dividend increases will not be sufficient to offset it.
Dividend Changes: The ($75) decrease in annual dividend income and (0.07%) decrease in YOC related to the following dividend changes (a=dividend stated in annual terms, q=quarterly, m=monthly):
As previously discussed, I am over-allocated in AOD and ETO from a dividend income standpoint. Over the next several months I plan to reduce my allocation in each by selectively selling a portion of my holdings. This will position me to better withstand a dividend cut from them.
That's it for this time. The next monthly progress update will be on Saturday, February 7th.
(Photo: sanja gjenero)
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Through November 21, 2008, Berkshire Hathaway's (BRK.A) year-to-date return was -36.4%. Since last December 11th when Class A shares hit its record high of $151,650, it has lost nearly half its value closing at $77,500 on Thursday; its lowest level since August 2003. This has not gone unnoticed by shareholders. Some investors have lost confidence in the ability of BRK to pay its debts.
After the collapse of AIG driven by derivatives, many investors fear the same could happen to other insurance companies including BRK.A. Berkshire could have to pay as much as $37 billion between 2019 and 2027 under some derivative contracts if the S&P 500 index and three other stock indexes are lower than when Berkshire entered the contracts.
Most insurance companies shares are significantly down since October 1st compared to the S&P 500. During that period, AFLAC Inc. (AFL) is down 41.9%, Manulife Financial Corp (NYSE:MFC) is down 60.5% and BRK.A is down 34.7%, while the S&P 500 is down 31.1%.
Derivative exposure is not the only problem facing BRK.A. The stock price of General Electric Co. (GE) and Goldman Sachs Group Inc. (GS), have fallen, rendering Mr. Buffett’s warrants to buy common shares worthless for the time being.
Personally, I think the situation is playing to BRK.A's strength - a strong balance sheet. As its competitors lose capital, they will be more conservative in writing new business. BRK.A may well step in and fill the void. What BRK.A currently owns may be worth less, but Buffett will get more opportunities to buy things at cheap prices and once again come off looking like a genius.
Full Disclosure: Long AFL, MFC, GE
Reference: Has Warren Buffett lost his touch?
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Most people would agree that an asset allocation should include a defined percentage dedicated to international investments. As a dividend investor, this has been one of the more difficult allocations within my portfolio. I have identified several difficulties in locating, acquiring and owning international stocks:1. Number of Dividend Payments per Year
Most international countries pay dividends only once or twice a year - far less than the quarterly dividends that we Americans have grown accustomed to. For me dividends are one form of feedback as to how well the company is performing. I prefer more feedback to less.
2. The Amount of the Dividend Payments
It is the custom in many international countries to payout dividends as a fixed percentage of earnings each year. This will often result in larger overall payouts, but the payouts are irregular. In America we are accustomed to steady growing dividends, valuing consistency over maximum payout.
3. The Amount and Timing of Taxes on Foreign Dividends
Most foreign countries will deduct their tax before sending you the dividend. Fortunately, most have treaties with the U.S. where you can claim a credit for the tax withheld.
4. Currency Risk
Recently as the U.S. dollar has strengthen vs. other currencies, I have seen a steady decline in the dividends received, even though none of the securities have lowered their local currency dividend.
5. Risk of Political Unrest
That wonderful dividend company you found may be located in a not so wonderful country. An unstable geopolitical environment can potentially destroy a company that is under its control.
International Income Exchange-Traded Funds (ETF)/Closed-End Funds (CEF)
I have tried to increase my international exposure by purchasing ETF/CEFs with a high percentage of international stocks. Below are three that I currently own:
The problem with this route is the investment quality, or lack thereof. These funds have woefully underperformed my individual dividend stocks.
Individual International Income Stocks
If individual stocks are out-performing the above ETF/CEFs then why not focus on individual international dividend stocks? I currently hold the following ADRs:
That is three Canadian and one British company. Not much diversification there. It shouldn't be surprising that the two countries represented above are those whose culture, government and financial markets are most similar to the U.S. Most international companies that meet my financial criteria are disqualified based on one of the five issues listed above - generally #1. I refuse to buy a dividend stock that pays less frequently than semi-annual.
Conclusion
If the numbers do not work, you should never force-buy any security just to meet an allocation. I will continue to look for promising international income ETF/CEFs and individual stocks, but I will not buy any securities below my minimum standards. I will rely on my 401(k) and capital appreciation portfolio to meet the majority of my international allocation.
Disclosure: Long AOD, ETO, PID, BP, CNI, MFC, RY
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Other ArticlesEach Friday I highlight the Carnivals I participated in over the past week, along with any notable articles that I came across. For those readers not familiar with carnivals, it's where personal finance bloggers submit their best articles of the week with one blog serving as the host. The entries are separated into various categories such as Investing, Credit, Debt, Budgeting, Frugality, Wealth Building, Money Management, Financial Planning, Insurance, Taxes, The Economy, Real Estate, et. al.
Below are the carnivals that I participated in this week, along with a link to my article:
Articles I enjoyed reading included (in no particular order):
The DIV-Net Featured Articles
Articles From DIV-Net Members
The Wealth, Money & Life Network Featured Articles
There are some really good articles here, please take time and read a few of them.
(Photo: Sachin Ghodke)
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I continue to be unhappy with the performance of the income ETFs. The dividends tend to be volatile and unpredictable, which is not what a dividend investor is looking for.Once again it is time for a goals/progress update. With several dividend cuts in October, I am pleased to say that my annualized dividend income still managed to eek out an increase for the month. This kept alive the string of consecutive months of increases dating back to November 2007 when I began tracking it. November 2008 will be a challenge to keep the string going as, I have already experienced one dividend cut. I am well ahead of my 2008 goal; thus, it is unlikely I will fall below it.
My goals were defined in this December 1, 2007 Investing Goals post. Below is an updated version of the table found in the original post.Description Dividend
Income
AnnualizedYield
on Cost2027 Goal 110,000 20.00% 2017 Goal 30,000 10.00% 2008 Goal 4,000 4.90% Dec/2007 3,054 5.00% Purchases YTD 3,236 0.55% Div. Changes YTD 46 0.08% Sales YTD (844) -0.25% October/2008 5,492 5.38% Purchases 850 0.37% Div. Changes 25 0.03% Sales (724) -0.31% September/2008 5,341 5.29%
The above information covers the current month and year-to-date through the current month.
Click here for a Detailed Historical Progress Update Table.
For the month, annualized dividend income increased $151, and Yield on Cost (YOC) increased 0.09%. These changes were driven by new purchases, dividend changes and sales. Let's examine each of the these categories:
Purchases: The $850 increase in annual dividend income and 0.37% increase in YOC related to the following purchases (yield at the time of purchase):
I had higher than normal funds to invest in October due to the sale of the three stocks described below and the third month of a quarter provides the highest dividends in my portfolio. All the above purchases, except BP and AOD lowered my YOC. As noted in earlier updates, I generally expect YOC to drop each month since most new investments will yield less than my current YOC, and dividend increases will not be sufficient to offset it.
Since some of the securities sold were in my risky category, I was comfortable taking a calculated risk on one of the securities. The AOD purchase was opportunistic. I fully expect a future dividend cut, but on the day I bought it, I believed the closed-end fund was trading at a significant discount to the underlying securities. Since I purchased it about a month ago, it is up around 35% in this tough market. Combine that with its previously declared forth quarter dividend (37.05% yield), AOD has the potential to be quite profitable.
Dividend Changes: The $25 increase in annual dividend income and 0.03% increase in YOC related to the following dividend changes (a=dividend stated in annual terms, q=quarterly, m=monthly):
That's it for this time. The next monthly progress update will be on Saturday, December 6th.
(Photo: sanja gjenero)
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Linked here is a PDF copy of my detailed analysis of Emerson Electric Co (EMR) (alt.1, alt.2). Below are some highlights from the above linked analysis:
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 slight premium. 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 two Stars in this section for 3.) and 4.) above. EMR has paid a cash dividend to shareholders every year since 1947 and has increased its dividend payments for 51 consecutive years. It's one year dividend growth rate exceeded its 5-year growth rate. This could indicate the growth rate is accelerating.
Dividend Income vs. MMA: Why would you assume the equity risk and invest in a dividend stock if you could earn a better return in a much less risky money market account (MMA)? This section compares the earning ability of this stock with a high yield MMA. Two items are considered in this section, see page 2 of the linked PDF for a detailed description:
EMR earned no Stars in this section. The NPV MMA Diff. of the $2,043 is below 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 5.9% per year, it will take 8 years to equal the cumulative earnings from a MMA yielding an estimated 20-year average rate of 4.61%.
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. EMR's business outlook over the next two years appear strong. The company should see continued organic revenue growth from international sales, new product introductions and bolt-on acquisitions. EMR's business efficiency and operating metrics should improve, further strengthening its free cash flow growth. Risks include weak global economic growth and potential value-diminishing acquisitions.
Conclusion: EMR earned one Star in the Fair Value section, earned two Stars in the Dividend Analytical Data section and did not earn any Stars in the Dividend Income vs. MMA section for a net total of three Stars. This quantitatively ranks EMR as a 3 Star-Hold.
Using my D4L-PreScreen.xls model, I determined the share price would need to drop to $30.36 for EMR's NPV MMA Diff. to be around the $3,000 that I like to see. At that price EMR would yield 3.95%.
Resetting the D4L-PreScreen.xls model and solving for the dividend growth rate needed to generate the $3,000 NPV MMA Differential I'm looking for, the calculated rate is 6.8%. This dividend growth rate is above the 5.9% used in this analysis.
Like its rating of 3 Stars, I am lukewarm on adding EMR to my income portfolio. Given the stocks cyclical nature of the stock, I would require a higher NPV MMA Differential of $5,000, which would lower the buy below price to $26.91.
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?
Recent Stock Analyses:
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This article originally appeared on The DIV-Net October 31, 2008.
Linked here is a PDF copy of my detailed analysis of Dover Corp (DOV) (alt.1, alt.2). Below are some highlights from the above linked analysis:
Company Description: Dover Corp. manufactures a broad range of specialized industrial products and sophisticated manufacturing equipment..
Fair Value: I consider four calculations of fair value, see page 2 of the linked PDF for a detailed description:
DOV is trading at a discount to 1.) and 3.) above. Since DOV's tangible book value is not meaningful, a Graham number can not be calculated. If I exclude the high and low valuations and average the remaining two, DOV is trading at a 25.6% discount. DOV 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:
DOV earned two Stars in this section for 3.) and 4.) above. DOV has paid a cash dividend to shareholders every year since 1947 and has increased its dividend payments for 53 consecutive years. It's one year dividend growth rate exceeded its 5-year growth rate. This could indicate the growth rate is accelerating.
Dividend Income vs. MMA: Why would you assume the equity risk and invest in a dividend stock if you could earn a better return in a much less risky money market account (MMA)? This section compares the earning ability of this stock with a high yield MMA. Two items are considered in this section, see page 2 of the linked PDF for a detailed description:
DOV earned one Star in this section for 1.) above. The NPV MMA Diff. of the $4,650 is in excess of the $2,500 minimum I look for in a stock that has increased dividends as long as DOV has. If DOV grows its dividend at 7.6% per year, it will take 5 years to equal the cumulative earnings from a MMA yielding an estimated 20-year average rate of 4.61%.
Other: DOV is a member of the S&P 500, a Dividend Aristocrat and a member of the Broad Dividend Achievers™ Index. I would place DOV in the more risky category since it operates different businesses as stand-alone entities and its exposure to cyclical end markets. DOV continues to improve its ability to generate strong free cash flow as a result of discontinuing 20 low-margin, capital-intensive businesses over the past two years, and replacing them with 17 new high-margin/steady-growth operations. Risks include weaker industrial, energy and electronics markets; along with value-diminishing acquisitions.
Conclusion: DOV earned one Star in the Fair Value section, earned two Stars in the Dividend Analytical Data section and earned one Star in the Dividend Income vs. MMA section for a net total of four Stars. This quantitatively ranks DOV as a 4 Star-Buy.
Using my D4L-PreScreen.xls model, I determined a share price of $26.10 would result in a NPV MMA Diff. around the $3,000 level that I like to see. At that price DOV would yield 3.45%.
Resetting the D4L-PreScreen.xls model and solving for the dividend growth rate needed to generate the $3,000 NPV MMA Differential I'm looking for, the calculated rate is 6.4%. This dividend growth rate is below the 7.6% used in this analysis, thus providing a small margin of safety.
As of the October 24, 2008 close, DOV was trading at $26.27, slightly above my $26.10 Buy Below price. If I were looking to initiate a position in DOV, I would do so on dips below $26.10.
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 DOV (0.0% of my Income Portfolio) .
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Other ArticlesEach Friday I highlight the Carnivals I participated in over the past week, along with any notable articles that I came across. For those readers not familiar with carnivals, it's where personal finance bloggers submit their best articles of the week with one blog serving as the host. The entries are separated into various categories such as Investing, Credit, Debt, Budgeting, Frugality, Wealth Building, Money Management, Financial Planning, Insurance, Taxes, The Economy, Real Estate, et. al.
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There are some really good articles here, please take time and read a few of them.
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