Dividend Growth Stocks
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  • Genuine Parts Company (GPC) Dividend Stock Analysis
    Linked here is a detailed quantitative analysis of Genuine Parts Company (GPC). Below are some highlights from the above linked analysis:

    Company Description: Genuine Parts Co is a leading wholesale distributor of automotive replacement parts, industrial parts and supplies, and office products.

    Fair Value: In calculating fair value, I consider the NPV MMA Differential Fair Value along with these four calculations of fair value, see page 2 of the linked PDF for a detailed description:

    1. Avg. High Yield Price
    2. 20-Year DCF Price
    3. Avg. P/E Price
    4. Graham Number

    GPC is trading at a premium to all four valuations above. The stock is trading at a 11.9% premium to its calculated fair value of $75.53. GPC did not earn any Stars in this section.

    Dividend Analytical Data: In this section there are three possible Stars and three key metrics, see page 2 of the linked PDF for a detailed description:

    1. Free Cash Flow Payout
    2. Debt To Total Capital
    3. Key Metrics
    4. Dividend Growth Rate
    5. Years of Div. Growth
    6. Rolling 4-yr Div. > 15%

    GPC earned three Stars in this section for 1.), 2.) and 3.) above. A Star was earned since the Free Cash Flow payout ratio was less than 60% and there were no negative Free Cash Flows over the last 10 years. The stock earned a Star as a result of its most recent Debt to Total Capital being less than 45%. GPC earned a Star for having an acceptable score in at least two of the four Key Metrics measured. The company has paid a cash dividend to shareholders every year since 1948 and has increased its dividend payments for 58 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) or Treasury bond? 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:

    1. NPV MMA Diff.
    2. Years to > MMA

    GPC earned a Star in this section for its NPV MMA Diff. of the $526. This amount is in excess of the $500 target I look for in a stock that has increased dividends as long as GPC has. If GPC grows its dividend at 6.6% per year, it will take 4 years to equal a MMA yielding an estimated 20-year average rate of 3.31%. GPC earned a check for the Key Metric 'Years to >MMA' since its 4 years is less than the 5 year target.

    Memberships and Peers: GPC is a member of the S&P 500, a Dividend Aristocrat, a member of the Broad Dividend Achievers™ Index and a Dividend Champion. The company's peer group includes: Advance Auto Parts Inc. (AAP) with a 0.2% yield, AutoZone Inc. (AZO) with a 0.0% yield and W.W. Grainger, Inc. (GWW) with a 1.4% yield.

    Conclusion: GPC did not earn any Stars in the Fair Value section, earned three Stars in the Dividend Analytical Data section and earned one Star in the Dividend Income vs. MMA section for a total of four Stars. This quantitatively ranks GPC as a 4-Star Strong stock.

    Using my D4L-PreScreen.xls model, I determined the share price would need to decrease to $85.84 before GPC's NPV MMA Differential decreased to the $500 minimum that I look for in a stock with 58 years of consecutive dividend increases. At that price the stock would yield 2.7%.

    Resetting the D4L-PreScreen.xls model and solving for the dividend growth rate needed to generate the target $500 NPV MMA Differential, the calculated rate is 6.4%. This dividend growth rate is slightly below the 6.6% used in this analysis, thus providing virtually no margin of safety. GPC has a risk rating of 1.50 which classifies it as a Low risk stock.

    GPC’s long string of dividend increases are supported by its strong underlying fundamentals of sales, earnings and free cash flow. From an operating standpoint, GPC has an extensive distribution network and it has built a loyal customer following over the years. The company maintains wide-ranging inventories and efficiently delivers products in minimal time.

    The company is one of my larger holdings, with much of its value coming through capital appreciation. The stock price has more than doubled since I started buying it back in 2009 at $32.50. As an investment, it has generated a compound annual return of 25% since I first purchased it.

    GPC has a well-established history of growing sales, earnings, cash flow and dividends, along with a strong balance sheet. 2014 should benefit from economic growth, acquisitions and efficient capital management. The company has strong financials stable earnings and an above-average dividend yield for its industry. In spite of the stock trading above my calculated fair value of $75.53, I will continue to look for opportunities to moderately add to my position, as my allocation allows.

    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 GPC (3.7% of my Dividend Growth Portfolio). See a list of all my dividend growth holdings here.

    Related Articles:
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    - Kimberly-Clark Co. (KMB) Dividend Stock Analysis
    - United Technologies Corp. (UTX) Dividend Stock Analysis
    - General Dynamics (GD) Dividend Stock Analysis
    - Walgreen Co. (WAG) Dividend Stock Analysis
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    Tags: [GPC] [AAP] [AZO] [GWW]


  • 7 Dividend Stocks Headed In The Right Direction
    A photograph captures a moment in time. Seconds after the flash dims a tree could have fallen on the object of the photo or the sad looking man in the photo could have been told he just won a million dollars. In much the same way a dividend stock analysis is a snapshot in time, but the real question for the savvy dividend investor is 'where is the stock headed?'


    Here are four important directional metrics that I look for when updating my stock database...

    1. Declining Shares

    Many companies sell stock to raise cash. The important question is what is the company going to do with the cash? Is it for an acquisition or "general corporate purposes?" The latter is code for the business is not generating enough cash to stay afloat on its own. I am wary of a company that consistently has more shares outstanding in the current year when compared to the prior year. As I enter updates to my database, equal or lower shares outstanding is a sign of a healthy business.

     

    2. Declining Debt

    When companies need to raise cash and selling shares is not a good option, they often will issue debt. Once again, the important question is what is the company going to do with the cash? Like issuing shares, debt for a strategic acquisition is much more palatable than for "general corporate purposes." I am wary of a company that consistently has more debt outstanding than the year before. As I enter updates to my database, I make note of companies with a declining debt balance and see that as a sign of a healthy business.

     

    3. Rising Equity

    Changes in shareholder's equity are a result of earnings, dividends paid, treasury stock purchased, stock options exercised and stock issued. If shares outstanding aren't increasing, and equity is rising then the business is generating sufficient earnings to cover dividends and share repurchases. Increasing the value of the company by running the business well is a sign of a healthy company.

     

    4. Rising Free Cash Flow/Share

    Ultimately, we want our investments to generate more free cash flow so they can pay us higher dividends. Free cash flow is an important metric in that it excludes cash generated from issuing stock or issuing debt or selling off parts of the business. Free cash flow is limited to only the cash generated from running the business.

     

    Dividend Stocks Headed In The Right Direction

    Combining the equity and debt metrics, I looked for companies with a declining Debt to Total Capital ratio, and combining the free cash flow and shares outstanding metrics, I looked for a rising free cash flow per share. Below are several companies I noted that exhibited each of the above characteristics:

    AFLAC Incorporated (AFL) provides supplemental health and life insurance in Japan (80% of earnings) and the U.S. Products are marketed at work sites and help fill gaps in primary coverage.
    Debt to Total Capital | 2008: 31%, TTM: 25%
    Free Cash Flow/Share | 2008: $9.33, TTM: $21.81
    Yield: 2.4%

    Cracker Barrel Old Country Store (CBRL) develops and operates the Cracker Barrel Old Country Store restaurant and retail concept in the United States.
    Debt to Total Capital | 2008: 89%, TTM: 45%
    Free Cash Flow/Share | 2008: $1.58, TTM: $4.42
    Yield: 3.1%

    Erie Indemnity Co. (ERIE) is a management services company that provides sales, underwriting, and policy issuance services to the policyholders of Erie Insurance Exchange in the United States.
    Debt to Total Capital | 2008: 0%, TTM: 0%
    Free Cash Flow/Share | 2008: $4.09, TTM: $16.67
    Yield: 3.7%

    International Business Machines Corp. (IBM) global capabilities include information technology services, software, computer hardware equipment, fundamental research, and related financing.
    Debt to Total Capital | 2008: 72%, TTM: 64%
    Free Cash Flow/Share | 2008: $10.85, TTM: $13.18
    Yield: 1.9%

    Johnson & Johnson (JNJ) is a leader in the pharmaceutical, medical device and consumer products industries.
    Debt to Total Capital | 2008: 22%, TTM: 18%
    Free Cash Flow/Share | 2008: $4.20, TTM: $4.64
    Yield: 2.7%

    Kimberly-Clark Co. (KMB) is a global consumer products company producing tissue, personal care and health care products. Its brands include Huggies, Pull-Ups, Kotex, Depend, Kleenex and Scott.
    Debt to Total Capital | 2008: 61%, TTM: 54%
    Free Cash Flow/Share | 2008: $3.85, TTM: $5.42
    Yield: 3.1%

    3M Company (MMM) is a diversified global company provides enhanced product functionality in electronics, health care, industrial, consumer, office, telecommunications, safety & security and other markets via coatings, sealants, adhesives, and other chemical additives.
    Debt to Total Capital | 2008: 41%, TTM: 26%
    Free Cash Flow/Share | 2008: $4.33, TTM: $6.09
    Yield: 2.6%

    Businesses can pay dividends with cash generated from many sources. They can generate cash by issuing shares, which dilutes our ownership. They can generate cash by issuing debt, which burdens the company with interest payments. Or, they can generate cash by running the business well, which neither dilutes the current shareholders' interest or burdens them with future cash payments. Which would you rather have?

    Full Disclosure: Long AFL, JNJ, KMB, MMM in my Dividend Growth Portfolio. See a list of all my dividend growth holdings here.

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    (Photo Credit)

    Tags: [AFL] [CBRL] [ERIE] [IBM] [JNJ] [KMB] [MMM]


  • Chevron Corporation (CVX) Dividend Stock Analysis
    Linked here is a detailed quantitative analysis of Chevron Corporation (CVX). Below are some highlights from the above linked analysis:

    Company Description: Chevron Corporation is a global integrated oil company (formerly ChevronTexaco) has interests in exploration, production, refining and marketing, and petrochemicals.

    Fair Value: In calculating fair value, I consider the NPV MMA Differential Fair Value along with these four calculations of fair value, see page 2 of the linked PDF for a detailed description:

    1. Avg. High Yield Price
    2. 20-Year DCF Price
    3. Avg. P/E Price
    4. Graham Number

    CVX is trading at a discount to only 3.) above. The stock is trading at a 44.9% premium to its calculated fair value of $82.00. CVX did not earn any Stars in this section.

    Dividend Analytical Data: In this section there are three possible Stars and three key metrics, see page 2 of the linked PDF for a detailed description:

    1. Free Cash Flow Payout
    2. Debt To Total Capital
    3. Key Metrics
    4. Dividend Growth Rate
    5. Years of Div. Growth
    6. Rolling 4-yr Div. > 15%

    CVX earned two Stars in this section for 2.) and 3.) above. The stock earned a Star as a result of its most recent Debt to Total Capital being less than 45%. CVX earned a Star for having an acceptable score in at least two of the four Key Metrics measured. The company has paid a cash dividend to shareholders every year since 1912 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) or Treasury bond? 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:

    1. NPV MMA Diff.
    2. Years to > MMA

    The NPV MMA Diff. of the $256 is below the $800 target I look for in a stock that has increased dividends as long as CVX has. The stock's current yield of 3.37% exceeds the 3.31% estimated 20-year average MMA rate.

    Memberships and Peers: CVX is a member of the S&P 500, a Dividend Aristocrat, a member of the Broad Dividend Achievers™ Index and a Dividend Champion. The company's peer group includes: BP plc (BP) with a 4.7% yield, Exxon Mobil Corporation (XOM) with a 2.6% yield and ConocoPhillips (COP) with a 3.9% yield.

    Conclusion: CVX did not earn any Stars 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 total of two Stars. This quantitatively ranks CVX as a 2-Star Weak stock.

    Using my D4L-PreScreen.xls model, I determined the share price would need to decrease to $86.39 before CVX's NPV MMA Differential increased to the $800 minimum that I look for in a stock with 27 years of consecutive dividend increases. At that price the stock would yield 4.6%.

    Resetting the D4L-PreScreen.xls model and solving for the dividend growth rate needed to generate the target $800 NPV MMA Differential, the calculated rate is 5.8%. This dividend growth rate is higher than the 2.6% used in this analysis, thus providing no margin of safety. CVX has a risk rating of 1.50 which classifies it as a Low risk stock.

    CVX has an impressive business model. Its oil and gas development project pipeline is among the best in the industry with many large, multi-year projects. The company's Myanmar subsidiary was recently awarded exploration rights in Block A5 in the Rakhine basin, off the coast of Myanmar.

    However, since it operates as an integrated producer, the company is susceptible to downside risk from weakness in the global economy. CVX is reducing its refining footprint and focusing on large, long-lived upstream projects with higher margins and growth potential. As with other large multinationals, the company is finding it increasingly difficult to add reserves. Much of the remaining easily accessible reserves are owned by governments and national oil companies. As a result, CVX is focusing more on deep-water exploration.

    The company's free cash flow payout continues to to be unfavorable. This is primarily the result of increased capital expenditures (CapX). From 2008 to 2010 CapX averaged $19.7 billion. In 2011 it increased 35% to $26.5 billion, 2012 it was up an additional 17% to $30.9 billion and 2013 was up 25% to $38.0 billion. In addition, CVX had two years of negative free cash flow during the last ten years. The stock is trading at a premium to my $82.00 calculated fair value. Until I see improvement in the free cash flow payout, I will not significantly add to my position.

    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 CVX (2.8% of my Dividend Growth Portfolio). See a list of all my dividend growth holdings here.

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    - General Dynamics (GD) Dividend Stock Analysis
    - Walgreen Co. (WAG) Dividend Stock Analysis
    - Exxon Mobil Corporation (XOM) Dividend Stock Analysis
    - More Stock Analysis


    Tags: [CVX] [BP] [XOM] [COP]


  • Weekly Links: April 13, 2014
    Each Sunday I highlight any notable articles that I came across over the past week, along with any Carnivals I participated in. 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.

    Articles you might find interesting:

    - Best 2014 Dividend stocks Returns & TSX60 Ex Dividend Date
    - Markets are made up of people
    - New Purchases - Family Dollar (FDO) - 04/08/14
    - Retire With Growing Dividends
    - Rule The Air

    The DIV-Net Featured Articles:

    - Big-Name Dividend Stocks Crushing The S&P 500
    - Retirement Wake Up Call
    - General Mills: Close To Being Generally Interesting
    - Why I Eventually Want To Be Invested In 50 Companies: Income Diversification
    - Stock Analysis of Clorox
    - Why I Hold 100% Of My Equity Investments In A Taxable Account

    Articles from D4L-News:

    Dividend Growth Stocks to Buy
    Starting with portfolio of dividend growth stocks with a decent yield and strong payout improvement history can help put your retirement plans within reach. I personally recommend these three dividend growth stocks to buy and hold while the quarterly checks pile up...

    The Positive Psychology Of Dividend Growth Investing
    When I began following a dividend growth strategy about 7-8 years ago, my view of stock ownership changed in many ways. What I want to focus on in this article is how it changed my psychological approach to the market. Prior to becoming a dividend growth investor, I viewed my stocks as opportunities to gain or lose money from the market. After adopting dividend growth investing, I view the stocks that I own as providing opportunities to profit from the successes of the companies themselves. The psychological impact should be obvious...

    High-Yield MLPs to Put on Your Radar
    It’s the right asset class at the right time, and to get you started, I’ll give you my top MLP right now, along with three more that look like attractive candidates I might recommend for the Cash Machine portfolio in the future, and also a fund playing on MLP...

    6 Dividend Stocks To Add As Cornerstones
    Having completed a dividend stock analysis across 5 industries, I've put together 6 stocks that would make great cornerstones to any dividend income portfolio. These stocks were chosen based on beta, dividend track record, dividend yield and payout ratio. The most important metric when choosing these 6 cornerstone stocks is to see how stable dividend payments are and how often dividends are increased...

    UBS High-Conviction, High-Dividend Stocks to Buy
    As volatility continues to climb in the stock market, investors that buy quality dividend-paying industry leaders to place in their portfolios stand to weather a market correction much better than those with a momentum stock laden portfolio. Here are the highest yielding, High Conviction stocks to buy at UBS. All of the stocks on the list are rated as Outperform...

    Click Here For More Dividend News

    There are some really good articles here, please take time and read a few of them.

    D4L-Premium Services Updated:
    The D4L-Dashboard, Analytical Reports, D4L-Data, and The D4L-Newsletter (April edition) have been updated and are available at the D4L-Premium Services web site at: [Click Here] Not a subscriber? [Click Here] for for more information on the benefits of these services, sample reports, pricing and subscription information.

    (Photo: Sachin Ghodke)
     



  • Dividend Income Progress Update - March 2014
    Once again it is time for a goals/progress update. I am pleased to report that annualized dividend income increased in March, extending the streak to 45 consecutive months of increases after June 2010's decline. Since I began publicly tracking annualized dividend income in November 2007, it has increased in 74 of the last 76 months.

    My goals were defined in this December 1, 2007 Investing Goals post and last updated in my 2014 Investing Goals post. Below is an updated version of the table found in the original post.

    Description Dividend
    Income
    Annualized
    Yield
    on Cost
    2027 Goal 110,000 n/a
    2017 Goal 42,000 n/a
    2014 Goal 30,000 n/a
    December/2013 26,580 4.54%
    Purchases YTD 1,761 -0.04%
    Div. Changes YTD 128 0.03%
    Sales YTD -642 0.01%
    March/2014 27,827 4.54%
    Purchases 595 -0.02%
    Div. Changes 26 0.00%
    Sales -216 0.01%
    February/2014 27,422 4.55%

    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 $405, and Yield on Cost (YOC) was dawn -0.01%. This month's changes were a net of new purchases and dividend changes (no sales during the month). Let's examine each of the these categories:

    Purchases: Purchases this month increased my annual dividend income by $595 and decreased yield on cost -0.02%. As noted in earlier updates, I generally expect YOC to drop in most months since new investments will yield less than my current YOC, and dividend increases will not normally be sufficient to offset the decline.

    Dividend Changes: The $26 increase in annual dividend income and no (0.00%) increase in YOC related to the following dividend changes (a=dividend stated in annual terms, q=quarterly, m=monthly):

    - $12 Consolidated Edison, Inc. (ED) $0.615q>0.63q
    - $14 Owens & Minor Inc. (OMI) $0.24q>$0.25q

    Sales: There were no sales in the month of March.

    That's it for this time. The next monthly progress update will be early May.

    Full Disclosure: Long, all the aforementioned securities, except NSC. See a list of all my dividend growth holdings here.

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    - 8 Higher-Yielding Financial Services Stocks With Rising Dividends
    - 5 Quality Dividend Stocks To Take The Emotion Out Of Investing
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    (Photo: sanja gjenero)


    Tags: [ED] [OMI]






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