Dividend Growth Stocks
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  • High-Yield, High-Return Investments To Increase Income While Waiting On Dividend Growth
    We have all heard it... Stodgy, for old people, yawn, boring! These have all been used to describe investing in dividend growth stocks. Nevertheless, I am a firm believer in dividend growth stocks for building a bullet-proof retirement portfolio. Study after study has shown that most of the historical stock market returns have come from reinvested dividends.

    My core portfolio contains traditional dividend growth stocks that are found in virtually every dividend growth portfolio. Why? Because not only do they provide a growing income but their total return over time usually beats the market. Consider these:

    ConocoPhillips Co. (COP)
    Current Yield: 3.4% | Yield On Cost: 5.1%
    First Purchased: 3/2011 | Average Annual Return: 21.0%

    Genuine Parts Co. (GPC)
    Current Yield: 2.7% | Yield On Cost: 4.6%
    First Purchased: 5/2009 | Average Annual Return: 22.5%

    Illinois Tool Works Inc. (ITW)
    Current Yield: 1.9% | Yield On Cost: 4.0%
    First Purchased: 10/2008 | Average Annual Return: 25.0%

    Johnson & Johnson (JNJ)
    Current Yield: 2.8% | Yield On Cost: 4.2%
    First Purchased: 2/2008 | Average Annual Return: 16.1%

    The Coca-Cola Company (KO)
    Current Yield: 3.0% | Yield On Cost: 3.9%
    First Purchased: 7/2007 | Average Annual Return: 15.4%

    I could go on, but you get the idea. This works incredibly well if you have some time to wait, but what can investors do it they need a higher income today?

    Over the years I've toyed with adding income focused CEFs/ETFs. For the most part this failed miserably (you can read about it here.) However, the last several years I have enjoyed some success with high-yield income funds. I attribute much of this to the low interest rate environment we are in. These funds were originally purchased to pump up the yield of my overall portfolio, while I waited for income from traditional dividend stocks to grow over time.

    Let's look at a few of the successful funds:

    Eaton Vance Tax-Advantaged Global Dividend Opportunities Fund (ETO)
    The Fund seeks high total return through investment in global common and preferred securities. I originally purchased this fund in July 2008. It cut its distribution in January 2009, then raised it in August 2013. In spite of the distribution cut, I continued to hold the ETF because the attractive yield. I also own ETO's cousin ETG, which has produced slightly better results over a shorter holding period.
    Distribution Yield: 7.2% | Yield On Cost: 9.1%
    Current Discount: 5.6% | Total Return: 14.2%

    ALPS Alerian MLP ETF (AMLP)
    The investment seeks to replicate, before fees and expenses, the Alerian MLP Infrastructure Index which provides exposure to the infrastructure component of the Master Limited Partnership asset class. I originally purchased AMLP in July 2012. AMLP is a corporation, not a fund. As such, it is liable for taxes at the corporate level, which has caused AMLP to lag its underlying index. Unlike ETO above, MLPI has increased its distribution each year that I've held it.
    Distribution Yield: 6.0% | Yield On Cost: 6.9%
    Current Premium: 0.04% | Total Return: 14.5%

    Clough Global Equity Common (GLQ)
    The Fund seeks a high total return through investment in equity, corporate and sovereign global investment grade securities and through utilizing an options strategy. The Fund has applied to the Securities and Exchange Commission for an exemption from Section 19(bb) of the 1940 Act and Rule 19b-1 thereunder permitting the Fund to make periodic distributions of long-term capital gains. I originally purchased GLQ in June 2012.
    Distribution Yield: 8.5% | Yield On Cost: 9.6%
    Current Discount: 11.65% | Total Return: 19.8%

    My portfolio philosophy is that the core portfolio should follow a time-tested path that will provide the best opportunity for a successful retirement. For me, this is a conservative dividend growth stocks approach. However, I am always looking to improve my situation. For this reason I have allocated a small portion of my portfolio to experiment with. Understanding that a significant number of experiments will fail this portion of my portfolio is limited to a defined percentage, and I don't increase it no matter how well the investments perform.

    Full Disclosure: Long COP, GPC, ITW, JNJ, KO, ETO, AMLP in my Dividend Growth Portfolio and long GLQ in my High-Yield Portfolio. See a list of all my dividend growth holdings here.

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    (Photo Credit)

    Tags: [COP] [GPC] [ITW] [JNJ] [KO] [ETO] [AMLP] [GLQ]

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

    Company Description: Aflac Incorporated provides supplemental health and life insurance in Japan (78% of pretax operating profits) and the U.S. Products are marketed at work sites and help fill gaps in primary coverage.

    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

    AFL is trading at a premium to all four valuations above. The stock is trading at a 35.5% premium to its calculated fair value of $46.94. AFL 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%

    AFL earned two Stars in this section for 1.) and 2.) 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%. The company has paid a cash dividend to shareholders every year since 1973 and has increased its dividend payments for 32 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 $92 is below the $500 target I look for in a stock that has increased dividends as long as AFL has. If AFL grows its dividend at 4.2% per year, it will take 8 years to equal a MMA yielding an estimated 20-year average rate of 3.08%.

    Memberships and Peers: AFL 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: American Independence Corp. (AMIC) with a 0.0% yield, Unum Group (UNM) with a 1.6% yield and CNO Financial Group, Inc. (CNO) with a 1.4% yield.

    Conclusion: AFL 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 AFL as a 2-Star Weak stock.

    Using my D4L-PreScreen.xls model, I determined the share price would need to decrease to $45.60 before AFL's NPV MMA Differential increased to the $500 minimum that I look for in a stock with 32 years of consecutive dividend increases. At that price the stock would yield 3.3%.

    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 7.5%. This dividend growth rate is higher than the 4.2% used in this analysis, thus providing no margin of safety. AFL has a risk rating of 1.50 which classifies it as a Low risk stock.

    Operating in the two largest insurance markets in the world (U.S. and Japan), AFL has built a tremendous low-cost distribution system. Focusing on supplemental insurance products, AFL consistently generates excess returns for shareholders. Consistent earnings has allowed the company to increase its dividend and repurchase shares.

    Since the start of the financial crisis, The company has taken steps to de-risk its investment portfolio. This move will likely slow earnings growth over the near-term, but should lead to higher long-term value. Management expects earnings growth to rebound 2015 onwards.

    In its most recent earnings announcement, the company saw its earnings dip 0.1% over the prior year to $757 million. The decline was mostly due to a decline in sales from Japan. A weak yen/dollar exchange rate had a $0.03 negative impact on operating earnings. Including one-time items, GAAP net income in the quarter fell to $810 million or $1.78 per share from $889 million or $1.90 per share in the prior year.

    AFL is currently trading at a premium to my calculated fair value price of $46.94. The stocks yield is below my minimum, so for now I will wait on a more attractive entry point before adding 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 AFL (2.0% of my Dividend Growth Portfolio). See a list of all my dividend growth holdings here.

    Related Articles:
    - Universal HealthRealty Income Trust (UHT) Dividend Stock Analysis
    - The Clorox Company (CLX) Dividend Stock Analysis
    - W.W. Grainger, Inc. (GWW) Dividend Stock Analysis
    - Colgate-Palmolive (CL) Dividend Stock Analysis
    - More Stock Analysis

    Tags: [AFL] [AMIC] [UNM] [CNO]

  • 7 Stocks Delivering More Cash With Higher Dividends
    Many Americans are worried that they might not have enough money for retirement. Women who outlive their husbands are at special risk, with 40 percent of widows living almost exclusively on Social Security. There are a lot of worried retirees out there. So, what are your retirement plans?

    Quality low-risk dividend growth stocks make an excellent addition to our retirement portfolio, and the good news is, you don’t have to wait until you retire to figure out what income they will generate.

    Below are several select companies delivering more cash to their shareholders by raising their dividends...

    To continue reading this article on Seeking Alpha, please click here.

    Full Disclosure: See a list of all my dividend growth holdings here.

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    (Photo Credit)


  • Weekly Links: August 17, 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:

    - Dividend Stock Analysis: Leggett & Platt, A High-Yield, Solid, Steady Performer
    - The Buffett Option Strategy
    - Weekly Purchases – 08/12/14
    - McDonald's Corp
    - Portfolio overview KW 33
    - Dogs of the Dow

    The DIV-Net Featured Articles:

    - Limiting Risk: A Little Exposure To High Yield Goes A Long Way
    - Stock Analysis of ARCP
    - Are You Just Treading Water?
    - Should EMC Corp Break Itself Apart?: FAST FUNdamental Analysis
    - 12 Higher Capitalized Stocks With Yields Over 10% You Might Like...
    - Five-Star Dividend Stocks

    Articles from D4L-News:

    3 Core Dividend Growth Stocks For Retirement Income
    There are multiple ways to fund or supplement your expenses in retirement - selling part of your retirement portfolio each year, getting a reverse mortgage if you own your home, buying high-yielding dividend stocks, owning bonds, etc. But with each of these options, you risk outliving your retirement portfolio or getting income that barely keeps up with inflation (such as with low and volatile bond interest rates) or having dividends stay flat or reduced after a good run. As of June 2014, there were 54 companies on the Dividend Aristocrats list, and the reason I picked...

    The 3% Yield Club: 25 Non-REIT, Non-MLP Dividend Stocks Yielding Over 3%
    There are plenty of non-REIT, non-MLP, high-quality dividend stocks out there with yields over 3%. That said, we recently ran a screen through our rating system and came up with our "3% Yield Club." This Club is made up of 25 Non-REIT, Non-MLP Dividend stocks with the highest Parsimony Ratings...

    Oversold Dividend Stocks to Buy
    There are other dividend payers out there, and I prefer to look for stock that are 10% or more off their 52-week highs. It suggests that, in an environment where everyone is looking for yield, that the stock has sold off for reasons that aren’t critical to its ongoing operations. That creates a buying opportunity. Here are 3 stocks I think fit that bill...

    High-Dividend Stocks Yielding 5%-Plus
    So when investors look for the best high-dividend stocks, they should seek out companies that can sustain their payouts, that are seeing their share price rise and have a decent future beyond simply the next quarterly distribution. Five such high-dividend stocks I like right now include...

    Multi-Bagger Potential with Huge Dividends – For Under $7!
    This is the strategy I used to make a lot of money in pawnshop stocks over the years. People know what a pawnshop is, but not how it makes money or how to invest in it. I did, and have done very well. I’ve found two candidates that happen to be dividend stocks. Even better, these dividend stocks are all under $7 — that means you can invest on the cheap and downside is limited...

    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 (August 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 Stock Analysis: Leggett & Platt, A Solid, Steady, High-Yield Performer
    Linked here is a detailed quantitative analysis of Leggett & Platt, Inc. (LEG). Below are some highlights from the above linked analysis:

    Company Description: Leggett & Platt Inc. makes a broad line of bedding and furniture components and other home, office and commercial furnishings, as well as products for non-furnishings markets.

    In spite of being a highly cyclical company, LEG has a long history of profitability and generating strong free cash flows. In late July, the company reported second-quarter 2014 results. Adjusted earnings came in 9% above the prior year at $0.48 per share. Over the years LEG has been a steady performer in my Dividend Growth Portfolio, as such I will continue to...

    To continue reading this article on Seeking Alpha, please click here.

    Related Articles:
    - Universal HealthRealty Income Trust (UHT) Dividend Stock Analysis
    - The Clorox Company (CLX) Dividend Stock Analysis
    - W.W. Grainger, Inc. (GWW) Dividend Stock Analysis
    - Colgate-Palmolive (CL) Dividend Stock Analysis
    - More Stock Analysis

    Tags: [LEG] [HOFT] [FLXS] [ETH]

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