Dividends Value » CLX

Building Yield: 15 Consumer Goods Dividend Stocks *

D4L — Wed, 02 Feb 2011 07:30:08 +0000

Over the next several weeks I plan to look at different sectors that have traditionally been very friendly to dividend investors. Each of these sectors have attributes that make the companies in them potentially desirable to long-term buy-and-hold dividend growth investors. Understanding these attributes will hopefully help us to select the very best companies for our income portfolios. First up the Consumer Goods Sector…

Consumer Goods Attributes

Demand for household and personal care products is generally stable and not affected by changes in the economy or other factors. There are certain things people will continue to purchase no matter how bad the economy gets. If you lose your job, you probably won’t stop bathing, washing your clothes, brushing your teeth or stop buying toilet paper. Given the relatively low price of most consumer goods, consumers often prefer to pay a few pennies more for a name brand that they are confident with.

Raw material costs is a primary driver of profitability, and the larger more established companies are in a better position to negotiate better terms. Growth comes from a growing population and expanding into emerging markets where the people are starting to earn a wage they can not only life on, but begin to buy things we consider necessities.

Consumer Goods Companies

Below are several leading Consumer Goods companies that I follow. The companies selected have a dividend yield in excess of 2.25% and have raised their dividends for at least 5 years (all but one are in excess of 10 years).

McCormick & Company (MKC) | Yield: 2.3% | Growth: 8.3% | Years: 24
McCormick & Company Inc. manufactures, markets and distributes flavor products and other specialty food products to the entire food industry.

J.M. Smucker Company (SJM) | Yield: 2.6% | Growth: 7.6% | Years: 12
J.M. Smucker Co.’s products include coffee, fruit spreads, peanut butter, shortening and oils, ice cream toppings, health and natural foods, and beverages. The Folgers coffee business was acquired in November 2008.

Colgate-Palmolive (CL) | Yield: 2.6% | Growth: 12.5% | Years: 47
Colgate-Palmolive Company (Colgate) is a major consumer products company that markets oral, personal and household care, and pet nutrition products in more than 200 countries and territories.

Weyco Group, Inc. (WEYS) | Yield: 2.7% | Growth: 15.0% | Years: 29
Weyco Group, Inc. distributes, wholesale & retail, men’s branded footwear in the U.S., Canada, Europe; offers casual footwear, dress shoes and accessories under Florsheim, other brands.

Coca-Cola Company (KO) | Yield: 2.8% | Growth: 7.3% | Years: 48
The Coca-Cola Company is the world’s largest soft drink company, KO also has a sizable fruit juice business.

Bemis Company, Inc. (BMS) | Yield: 2.8% | Growth: 2.2% | Years: 27
Bemis Company Inc. is a leading maker of a broad range of flexible packaging and pressure-sensitive materials.

Pepsico, Inc. (PEP) | Yield: 2.9% | Growth: 6.5% | Years: 38
PepsiCo, Inc. is a major international producer of branded beverage and snack food products.

V.F. Corporation (VFC) | Yield: 3.0% | Growth: 2.1% | Years: 36
V.F. Corp is global apparel company, with leading shares in denim and daypacks. It is transforming itself into a designer and marketer of lifestyle apparel brands.

Procter & Gamble (PG) | Yield: 3.0% | Growth: 7.0% | Years: 54
The Procter & Gamble Company is a leading consumer products company markets household and personal care products in more than 180 countries.

Sonoco Products Co. (SON) | Yield: 3.1% | Growth: 1.9% | Years: 27
Sonoco Products Co. makes paper and plastic packaging products serving various industries and markets in more than 85 countries.

Avon Products, Inc. (AVP) | Yield: 3.1% | Growth: 4.8% | Years: 20
Avon Products Inc. is the world’s leading direct marketer of cosmetics, toiletries, fashion jewelry, and fragrances and has more than 5 million sales representatives worldwide.

The Clorox Company (CLX) | Yield: 3.4% | Growth: 9.3% | Years: 35
The Clorox Company is a diversified producer of household cleaning, grocery and specialty food products and is also a leading producer of natural personal care products.

H.J. Heinz Company (HNZ) | Yield: 3.8% | Growth: 1.9% | Years: 7
The H.J. Heinz Company produces a wide variety of food products worldwide, primarily condiments, convenience meals and snacks.

Kimberly-Clark Co. (KMB) | Yield: 4.1% | Growth: 6.7% | Years: 38
Kimberly Clark Corp. is a global consumer products company that produces tissue, personal care and health care. Its brands include Huggies, Pull-Ups, Kotex, Depend, Kleenex, Scott and Kimberly-Clark.

Leggett & Platt, Inc. (LEG) | Yield: 4.7% | Growth: 3.0% | Years: 38
Leggett & Platt Inc makes a broad line of bedding and furniture components and other home, office and commercial furnishings, as well as diversified products for non-furnishings markets.

Conclusion

The Consumer Goods is the third largest sector in my database of dividend stocks. Of the 198 stocks that I track, it currently is represented by 30 stocks (15%). As noted above this is a very important sector for dividend growth investors. It it brings yield stability and potential growth to an income portfolio. Many income and value portfolios are over-weighted in Consumer Goods, including Warren Buffett’s Berkshire Hathaway (BRK.A) at 42%. Keep the soap and toilet paper coming!

Full Disclosure: Long CL, KO, PEP, PG, CLX, KMB, LEG. See a list of all my income holdings here.

(Photo Credit)

10 Stocks Expected to Grow Their Dividends in 2011 *

D4L — Fri, 31 Dec 2010 07:30:47 +0000

In this space we normally look at companies that have recently raised their dividends. However, as the year draws to a close there were very few companies of note increasing their dividends this week. With that, I thought it would be interesting to see who were the big dividend raisers in 2010 and what we might see in 2011. Here are ten companies for your consideration:

Abbott Laboratories (ABT) in April 2010 raised its dividend 10% to $0.44/share from $0.40/share. In April 2009 it raised its dividend 11%. ABT has increased its dividend for 38 consecutive years and I expect them to do so again next year. The 2011 increase should be similar to the 2010 increase, or possibly higher, since the company’s 12-month trailing free cash flow is up significantly compared to 2009. I project a 2011 increase of 10%. The stock is currently yielding 3.7%.

Kimberly-Clark Corp. (KMB) in March 2010 raised its dividend 10% to $0.66/share from $0.60/share. In 2009 it raised its dividend 3.4%. KMB has increased its dividend for 38 consecutive years and I expect them to do so again next year. I project 2011 be lower than the 2010 increase since the company’s 12-month trailing free cash flow is down from the 2009 high. I project a 2011 increase of 8%. The stock is currently yielding 4.2%.

Clorox Company (CLX) in July 2010 raised its dividend 10% to $0.55/share from $0.50/share. In 2009 it raised its dividend 8.7%. CLX has increased its dividend for 33 consecutive years and I expect them to do so again next year. I project the 2011 increase will be similar to the 2010 increase since the company’s 12-month trailing free cash flow is flat with 2009. I project a 2011 increase of 10%. The stock is currently yielding 3.5%.

Johnson & Johnson (JNJ) in May 2010 raised its dividend 10.2% to $0.54/share from $0.49/share. In 2009 it raised its dividend 6.5%. JNJ has increased its dividend for 48 consecutive years and I expect them to do so again next year. I project the 2011 increase will be higher than the 2010 increase since the company’s 12-month trailing free cash flow is up from 2009. I project a 2011 increase of 12%. The stock is currently yielding 3.5%.

McDonald’s Corp. (MCD) in November 2010 raised its dividend 10.9% to $0.61/share from $0.55/share. In 2009 it raised its dividend 10%. MCD has increased its dividend for 34 consecutive years and I expect them to do so again next year. I project the 2011 increase will be lower than the 2010 increase since the company’s 12-month trailing free cash flow growth is less than the 2010 dividend increase. I project a 2011 increase of 7%. The stock is currently yielding 3.5%.

Wal-Mart Stores Inc. (WMT) in March 2010 raised its dividend 11% to $0.3025/share from $0.2725/share. In 2009 it raised its dividend 14.7%. WMT has increased its dividend for 36 consecutive years and I expect them to do so again next year. I project the 2011 increase will be lower than the 2010 increase since the company’s 12-month trailing free cash flow growth is less than the 2010 dividend increase. I project a 2011 increase of 5%. The stock is currently yielding 2.3%.

Eaton Vance Corp. (EV) in October 2010 raised its dividend 12.5% to $0.18/share from $0.16/share. In 2009 it raised its dividend 3.2%. EV has increased its dividend for 30 consecutive years and I expect them to do so again next year. I project the 2011 increase will be similar to the 2010 increase since the company’s 12-month trailing free cash flow is similar to 2010. I project a 2011 increase of 12%. The stock is currently yielding 2.3%.

Colgate-Palmolive Co. (CL) in March 2010 raised its dividend 20% to $0.53/share from $0.44/share. In 2009 it raised its dividend 10%. CL has increased its dividend for 47 consecutive years and I expect them to do so again next year. I project the 2011 increase will be lower than the 2010 increase since the company’s 12-month trailing free cash flow growth is lower that 2010′s growth. I project a 2011 increase of 15%. The stock is currently yielding 2.6%.

Walgreen Company (WAG) in March 2010 raised its dividend 27% to $0.175/share from $0.1375/share. In 2009 it raised its dividend 22%. WAG has increased its dividend for 35 consecutive years and I expect them to do so again next year. I project the 2011 increase will be lower than the 2010 increase since the company’s 12-month trailing free cash flow growth is less than the 2010 dividend increase. I project a 2011 increase of 12%. The stock is currently yielding 1.8%.

Target Corp. (TGT) in August 2010 raised its dividend 47% to $0.25/share from $0.17/share. In 2009 it raised its dividend 6.2%. TGT has increased its dividend for 43 consecutive years and I expect them to do so again next year. I project the 2011 increase will be lower than the 2010 increase since the company’s 12-month trailing free cash declined from the the 2010 level. I project a 2011 increase of 7%. The stock is currently yielding 1.7%.

Obviously, the above increases are pure speculation on my part. But in a world where cash is king, somehow great companies always find a way to increase their dividends each year.

Full Disclosure: Long ABT, KMB, CLX, JNJ, MCD, WMT, CL. See a list of all my income holdings here.

(Photo Credit)

The 2011 Dividend Aristocrats *

D4L — Wed, 15 Dec 2010 07:30:21 +0000

The S&P 500 Dividend Aristocrats is the most prestigious list of dividend stocks. The Dividend Aristocrats index is designed to measure the performance of S&P 500 constituents that have followed a policy of consistently increasing dividends every year for at least 25 consecutive years. This index is a member of the S&P Dividend Aristocrats index series.

Dividend Aristocrats constituents exhibit the following characteristics:

- Underlying Indices – S&P 500
- Weighting – Equally weighted; Constituents re-weighted quarterly
- Reconstitution – Reviewed annually in December

Among others, Dividend Aristocrats include these highly recognizable names, with years of consecutive dividend increases shown:

- 3M Co. (MMM) – 52 years
- Abbott Laboratories (ABT) – 38 years
- Clorox Co (CLX) – 35 years
- Coca-Cola Co (KO) – 48 years
- Exxon (XOM) – 28 years
- Johnson & Johnson (JNJ) – 48 years
- McDonald’s Corp (MCD) – 34 years
- Procter & Gamble (PG) – 54 years
- Wal-Mart Stores (WMT) – 36 years

Members may be deleted during the December rebalance if calendar-year dividends did not increase from the previous year, or intra-year if the stock is removed from the underlying S&P 500.

On December 2nd, S&P announced changes to the Dividend Aristocrats Index. Standard & Poor’s will perform the annual reconstitution of the S&P 500 Dividend Aristocrats Index after the close of trading on Friday, December 17, 2010.

The following stocks will be added to the Dividend Aristocrats:

- McCormick & Company (MKC)
- Hormel Foods Corp. (HRL)
- Ecolab Inc. (ECL)

The following stocks will be dropped from the Dividend Aristocrats:

- Eli Lilly And Company (LLY)
- SUPERVALU Inc. (SVU)
- Integrys Energy Group, Inc. (TEG)

After last year’s significant decline, it is good see the membership number level off. The previous two years were difficult for dividend stocks, but that is not necessarily a bad thing. During good times it is easy for companies to increase dividends, and many companies were added to the index. It is during times of adversity that we learn who the real aristocrats are.

Full Disclosure: Long MMM, ABT, CLX, KO, JNJ, LLY, MCD, PG, TEG, WMT. See a list of all my income holdings here.

(Photo Credit)

The Procter & Gamble Company (PG) Dividend Stock Analysis *

D4L — Mon, 22 Nov 2010 07:30:12 +0000

This article originally appeared on The DIV-Net November 15, 2010.

Linked here is a detailed quantitative analysis of The Procter & Gamble Company (PG). Below are some highlights from the above linked analysis:

Company Description: The Procter & Gamble Company is a leading consumer products company markets household and personal care products in more than 180 countries.

Fair Value: I consider 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

PG is trading at a discount to only 3.) above. Since PG’s tangible book value is not meaningful, a Graham number can not be calculated. The stock is trading at a slight discount to its calculated fair value of $65.10. PG earned a Star in this section since it is trading at a fair value.

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%

PG 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%. PG 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 1891 and has increased its dividend payments for 54 consecutive years.

Dividend Income vs. MMA: Why would you assume the equity risk and invest in a dividend stock if you could earn a better return in a much less risky money market account (MMA)? This section compares the earning ability of this stock with a high yield MMA. Two items are considered in this section, see page 2 of the linked PDF for a detailed description:

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

PG earned a Star in this section for its NPV MMA Diff. of the $761. This amount is in excess of the $500 target I look for in a stock that has increased dividends as long as PG has. If PG grows its dividend at 7.0% per year, it will take 2 years to equal a MMA yielding an estimated 20-year average rate of 3.4%.

Memberships and Peers: PG is a member of the S&P 500, a Dividend Aristocrat and a member of the Broad Dividend Achievers™ Index. The company’s peer group includes: Kimberly-Clark Corporation (KMB) with a 4.2% yield, Colgate-Palmolive Co. (CL) with a 2.8% yield, and Clorox Corporation (CLX) with a 3.5% yield.

Conclusion: PG earned one Star 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 five Stars. This quantitatively ranks PG as a 5 Star-Strong Buy.

Using my D4L-PreScreen.xls model, I determined the share price would need to increase to $73.35 before PG’s NPV MMA Differential decreased to the $500 minimum that I look for in a stock with 54 years of consecutive dividend increases. At that price the stock would yield 2.63%.

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 5.7%. This dividend growth rate is below the 7.0% used in this analysis, thus providing a margin of safety. PG has a risk rating of 1.00 which classifies it as a low risk stock.

PG is one of the few premier dividend growth stocks. As a company, it is a leader in understanding consumer needs, innovative marketing and building brand loyalty. The company enjoys a tremendous benefit of scale, providing enhanced sales opportunities and cost savings compared to its smaller peers. The company’s broad product portfolio and sizable distribution network will continue to be a strengths, along with its balance sheet and free cash flow. As my allocation allows, I will continue to buy PG when it is trading below my fair value price of $65.10. For additional information, including the stock’s dividend history, please refer to its data page.

Disclaimer: Material presented here is for informational purposes only. The above quantitative stock analysis, including the Star rating, is mechanically calculated and is based on historical information. The analysis assumes the stock will perform in the future as it has in the past. This is generally never true. Before buying or selling any stock you should do your own research and reach your own conclusion. See my Disclaimer for more information.

Full Disclosure: At the time of this writing, I was long in PG (4.4% of my Income Portfolio), and also long in KMB, CL and CLX. See a list of all my income holdings here.

Related Articles:

- Abbott Laboratories (ABT) Dividend Stock Analysis
- Colgate-Palmolive Co. (CL) Dividend Stock Analysis
- Wal-Mart Stores, Inc. (WMT) Dividend Stock Analysis
- Leggett & Platt, Inc. (LEG) Dividend Stock Analysis
- More Stock Analysis

Kimberly-Clark Co. (KMB) Dividend Stock Analysis *

D4L — Mon, 15 Nov 2010 07:30:04 +0000

This article originally appeared on The DIV-Net November 8, 2010.

Linked here is a detailed quantitative analysis of Kimberly-Clark Co. (KMB). Below are some highlights from the above linked analysis:

Company Description: Kimberly Clark Corp. is a global consumer products company produces tissue, personal care and health care. Its brands include Huggies, Pull-Ups, Kotex, Depend, Kleenex, Scott and Kimberly-Clark.

Fair Value: I consider 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

KMB is trading at a discount to 1.) and 3.) above. The stock is trading at a slight discount to its calculated fair value of $63.90. KMB earned a Star in this section since it is trading at a fair value.

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%

KMB earned two Stars in this section for 1.) 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. KMB 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 1935 and has increased its dividend payments for 38 consecutive years.

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

KMB earned a Star in this section for its NPV MMA Diff. of the $1,736. This amount is in excess of the $500 target I look for in a stock that has increased dividends as long as KMB has. The stock’s current yield of 4.19% exceeds the 3.4% estimated 20-year average MMA rate.

Memberships and Peers: KMB is a member of the S&P 500, a Dividend Aristocrat and a member of the Broad Dividend Achievers™ Index. The company’s peer group includes: Procter & Gamble Co. (PG) with a 3.0% yield, Colgate-Palmolive Co. (CL) with a 2.7% yield, and Clorox Corporation (CLX) with a 3.5% yield.

Conclusion: KMB 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 total of four Stars. This quantitatively ranks KMB as a 4 Star-Buy.

Using my D4L-PreScreen.xls model, I determined the share price would need to increase to $97.58 before KMB’s NPV MMA Differential decreased to the $500 minimum that I look for in a stock with 38 years of consecutive dividend increases. At that price the stock would yield 2.71%.

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 2.2%. This dividend growth rate is well below the 6.7% used in this analysis, thus providing a reasonable margin of safety. KMB has a risk rating of 1.25 which classifies it as a low risk stock.

KMB enjoys stable demand for its household and personal care products. The company is working to increase its market share through product innovation and marketing. In the face of commodity prices above long-term averages, the company is doing a good job of closely managing its cost structure. At 51% KMB’s debt to total capital is above the 45% that I look for. However, it has trended down from 61% back in July. I will look to add to my KMB position while it is trading below my $63.90 fair value price. For additional information, including the stock’s dividend history, please refer to its data page.

Full Disclosure: At the time of this writing, I was long in KMB (2.4% of my Income Portfolio). See a list of all my income holdings here.

Related Articles:

- Colgate-Palmolive Co. (CL) Dividend Stock Analysis
- Wal-Mart Stores, Inc. (WMT) Dividend Stock Analysis
- Leggett & Platt, Inc. (LEG) Dividend Stock Analysis
- The Clorox Company (CLX) Dividend Stock Analysis
- More Stock Analysis

If Only I Had Known About These Dividend Stocks… *

D4L — Wed, 10 Nov 2010 07:30:19 +0000

At one time or another, we all have thought, ‘If only knew this when I was younger.’ I purchased my first dividend stock for income in 2003. Like many newly converted income investors, I was chasing yield. I quickly built a portfolio consisting of Real Estate Investment Trusts (REITs), Master Limited Partnerships (MLPs) and high yield, high risk stocks. My portfolio’s yield was consistently in the low to mid-teens. Eventually, after some unnecessary losses, I learned there was a better way to invest in dividend stocks. Here is what I learned…

Dividend Investing is About Future Yield, Not Current Yield

I was fortunate enough to accidentally buy some good dividend stocks and hold them long enough to figure out the “secret” of dividend investing. It is not necessarily starting with a high-yield investment, but ending up with a high-yield investment. This usually occurs by buying investments with a moderate yield, a history of growing dividends and letting time do its job.

Too often we take a short-term approach, to our long-term detriment. There is a reason we don’t see infomercials selling dividend growth investment strategies. For those looking to get rich now, a disciplined approach to investing that focuses on the long-term simply isn’t appealing.

Successful Dividend Investing is About Substance, Not Style

In my aggressive growth investing years, I equated dividend investing with old folks and the inept. That was simply not my style. Time and experience have taught me there are no style points awarded in building a winning investment portfolio. In the end the long-term performance (substance) of your portfolio is all that ultimately matters, not how you got there.

I find it interesting that the same people that complain about taking a beating in the market, are the same ones who will ridicule those that follow a dividend growth strategy. For me, I enjoy having a growing income and portfolio, while not having to follow the market’s every move.

You Can’t Beat the Herd, by Following the Herd

Through the years I have settled down quite a bit. Using well-defined investment allocations, I have set boundaries and guidelines to ensure I don’t over expose my portfolio to undue risk and I employ a meticulous process when selecting investments.

Let the talking heads start a stampede to buy a stock after it has seen a significant run up. For me, I prefer to take a contrarian approach and buy stocks when they are cheaper and their yields are higher. My focus is on quality dividend growth stocks with a long record of consecutive dividend increases, such as:

	Current	Price	Yrs of
Company	Yield	Discount	Growth
Weyco Group (WEYS)	2.53%	1.5%	29
Kimberly-Clark (KMB)	4.20%	1.7%	38
Meridian (VIVO)	3.18%	7.7%	19
Abbott Labs (ABT)	3.41%	9.0%	38
Colgate (CL)	2.62%	15.4%	47
Cincinnati Fin. (CINF)	5.23%	16.4%	50
Clorox Company (CLX)	3.49%	20.3%	35
Southside Banc. (SBSI)	4.22%	35.4%	12

Starting in my 40′s, I will enjoy substantial investing success. However, if I knew in my 20′s or 30′s what I know now about dividend growth stocks, I would likely be retired now. The compounding power of growing dividends is tremendous. Start early, at some point time will change from your friend to your enemy.

Full Disclosure: Long KMB, ABT, CL, CINF, CLX. See a list of all my income holdings here.

(Photo Credit)

Colgate-Palmolive Co. (CL) Dividend Stock Analysis *

D4L — Mon, 01 Nov 2010 07:30:52 +0000

This article originally appeared on The DIV-Net October 25, 2010.

Linked here is a detailed quantitative analysis of Colgate-Palmolive Co. (CL). Below are some highlights from the above linked analysis:

Company Description: Colgate-Palmolive Company (Colgate) is a major consumer products company that markets oral, personal and household care, and pet nutrition products in more than 200 countries and territories.

Fair Value: I consider 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

CL is trading at a discount to 1.) and 3.) above. The stock is trading at a 16.1% discount to its calculated fair value of $91.57. CL earned a Star in this section since it is trading at a fair value.

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%

CL earned two Stars in this section for 1.) 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. CL 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 1895 and has increased its dividend payments for 47 consecutive years.

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

CL earned a Star in this section for its NPV MMA Diff. of the $2,603. This amount is in excess of the $500 target I look for in a stock that has increased dividends as long as CL has. If CL grows its dividend at 12.5% per year, it will take 3 years to equal a MMA yielding an estimated 20-year average rate of 3.4%. CL earned a check for the Key Metric ‘Years to >MMA’ since its 3 years is less than the 5 year target.

Memberships and Peers: CL is a member of the S&P 500 and a member of the Broad Dividend Achievers™ Index. The company’s peer group includes: Procter & Gamble Co. (PG) with a 3.0% yield, Kimberly-Clark Corporation (KMB) with a 4.0% yield, and Clorox Corporation (CLX) with a 3.2% yield.

Conclusion: CL 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 total of four Stars. This quantitatively ranks CL as a 4 Star-Buy.

Using my D4L-PreScreen.xls model, I determined the share price would need to increase to $139.09 before CL’s NPV MMA Differential decreased to the $500 minimum that I look for in a stock with 47 years of consecutive dividend increases. At that price the stock would yield 1.46%.

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 6.9%. This dividend growth rate is below the 12.5% used in this analysis, thus providing a margin of safety. CL has a risk rating of 1.50 which classifies it as a low risk stock.

Demand for household and personal care products is generally stable and not affected by changes in the economy. Within personal care products, CL has focused the oral care category and has a worldwide toothpaste market share of approximately 45%. The company is also adept in utilizing sophisticated promotional tools. Near-term the CL changes in the Venezuelan bolivar could negatively affect results, but long-term the company should see above-industry-average growth with more resources being allocated to faster-growing markets. I plan to add to my position while the stock is trading below my fair value price of $91.57 and as my allocation allows. For additional information, including the stock’s dividend history, please refer to its data page.

Full Disclosure: At the time of this writing, I was long in CL (1.9% of my Income Portfolio). See a list of all my income holdings here.

Related Articles:

- Leggett & Platt, Inc. (LEG) Dividend Stock Analysis
- The Clorox Company (CLX) Dividend Stock Analysis
- HCC Insurance Holdings Inc. (HCC) Dividend Stock Analysis
- Universal Health Realty Income Trust (UHT) Dividend Stock Analysis
- More Stock Analysis

We Were Dividends, Before Dividends Were Cool *

D4L — Wed, 20 Oct 2010 07:30:55 +0000

It seems nowadays that every investing article ends with the same conclusion – you should be buying dividend stocks. They are all quoting studies citing the performance edge that dividends have enjoyed over the long-term and the value of a semi-fixed return generated from periodic dividend payments. However, you should beware of some of the information provided. Beyond the simple concepts, some of the writers are making really bad recommendations and cross-breeding dividend investing with their preferred form of investing.

Dividend growth investing is not about exit points, momentum swings, relative strength, sector rotation; instead it is about studying fundamentals, selecting superior stocks and building a portfolio with a long-term horizon. When we buy a dividend stock, we hope to hold it forever. What makes a good dividend stock? Here are some of the things I look for:

Good Business Model

Sell things that people want or need, and do it in such a way that it is difficult or impossible for others to duplicate. There is a reason that pharmaceutical companies, such as Abbott Laboratories (ABT), are so profitable. With effective drugs under patent that sustain or enhance people’s life these companies have a deep moat. Consumer goods companies like Procter & Gamble Co. (PG) and Kimberly-Clark Corporation (KMB) manufacture products such as soap, detergent and toilet paper that we just can’t do without. Sure, there may be generic substitutes, but over the years many of these products have endeared themselves to consumers who are willing to pay a few cents more for the name brand.

Strong Free Cash Flow

Dividends are paid with cash remaining after paying the operating expenses and replacement capital (free cash flow). If a company has trouble meeting these basic needs, then its dividend is perilously at risk. Companies with a low free cash flow payout (FCF) payout are well-positioned to sustain their dividend. Such companies include: Target Corporation (TGT) at 13.85% FCF Payout, Diebold, Inc. (DBD) at 17.21%, International Business Machines Corp. (IBM) at 19.48% and Walgreen Company (WAG) at 22.71%.

Acceptable Debt Level

Generating a strong free cash flow is not enough – cash has to be available to be paid as dividends. As a result of the economic downturn, many companies are feeling pressure to reduce debt to stay within their covenants and try to maintain their debt rating. If a company’s excess cash is being used to service debt, there may not be any left over to increase dividends. Companies with a low debt to total capital include: T. Rowe Price Group Inc. (TROW) at 0.00% Debt to Total Capital, Automatic Data Processing Inc. (ADP) at 0.69%, Harleysville Group Inc. (HGIC) at 13.19% and Genuine Parts Company (GPC) at 15.76%.

Good Balance between Dividend Yield and Growth

There is usually a reason why a stock’s yield is above average. Often it is the market’s way of saying it doesn’t believe the company can maintain the dividend. Most people understand this risk. However, there is also risk to a stock that has a high dividend growth rate. To maintain a high dividend growth rate the company has to grow cash available for dividends at the same rate. This is often difficult to do. Here are several companies with a good balance between dividend yield and dividend growth rate: The Coca-Cola Company (KO) 2.94% yield and 7.32% dividend growth rate, UGI Corporation (UGI) 3.06% yield and 5.70% growth, The Clorox Company (CLX) 3.24% yield and 9.35% growth, Johnson & Johnson (JNJ) 3.31% yield and 8.42% growth and Corporate Office Properties (OFC) 4.25% yield and 5.22% growth.

For those of us that have invested in dividends for years (decades for some), we know dividend growth investing is not a passing fad to be “played” then move on the next hot investment strategy. Part of me will be glad when dividend investing falls out of favor and the masses moves on.

Full Disclosure: Long ABT, PG, ADP, HGIC, CLX, GP, JNJ, KMB, KO. See a list of all my income holdings here.

(Photo Credit)

The Clorox Company (CLX) Dividend Stock Analysis *

D4L — Mon, 11 Oct 2010 07:30:20 +0000

This article originally appeared on The DIV-Net October 4, 2010.

Linked here is a detailed quantitative analysis of The Clorox Company (CLX). Below are some highlights from the above linked analysis:

Company Description: The Clorox Company is a diversified producer of household cleaning, grocery and specialty food products is also a leading producer of natural personal care products.

Fair Value: I consider 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

CLX is trading at a discount to 1.) and 3.) above. Since CLX’s tangible book value is not meaningful, a Graham number can not be calculated. The stock is trading at a 12.5% discount to its calculated fair value of $76.31. CLX earned a Star in this section since it is trading at a fair value.

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%

CLX earned two Stars in this section for 1.) 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. CLX 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 1968 and has increased its dividend payments for 35 consecutive years.

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

CLX earned a Star in this section for its NPV MMA Diff. of the $1,753. This amount is in excess of the $500 target I look for in a stock that has increased dividends as long as CLX has. If CLX grows its dividend at 9.3% per year, it will take 2 years to equal a MMA yielding an estimated 20-year average rate of 3.71%. CLX earned a check for the Key Metric ‘Years to >MMA’ since its 2 years is less than the 5 year target.

Memberships and Peers: CLX is a member of the S&P 500, a Dividend Aristocrat and a member of the Broad Dividend Achievers™ Index. The company’s peer group includes: Colgate-Palmolive (CL) with a 2.7% yield, Kimberly-Clark (KMB) with a 4.1% yield, Procter & Gamble (PG) with a 3.2% yield and WD-40 Company (WDFC) with a 2.7% yield.

Conclusion: CLX 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 total of four Stars. This quantitatively ranks CLX as a 4 Star-Buy.

Using my D4L-PreScreen.xls model, I determined the share price would need to increase to $101.25 before CLX’s NPV MMA Differential decreased to the $500 minimum that I look for in a stock with 35 years of consecutive dividend increases. At that price the stock would yield 2.17%.

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 5.3%. This dividend growth rate is well below the 9.3% used in this analysis, thus providing a margin of safety. CLX has a risk rating of 1.50 which classifies it as a low risk stock.

As a consumer goods company, CLX sells products with a stable demand that are generally not affected by changes in the economy. The company’s presence in the natural home/personal care products arena through Burt’s Bees and GreenWorks is viewed positively by environmentalists. CLX’s strategy of building its share in mid-sized categories, expanding into foreign markets and focusing on brands with long-term growth potential should provide steady cash flows well into the future. Although the stock is trading below my calculated fair value of $76.31, I am hesitant to add to my position due to its Debt To Total Capital of 97%. I would like to see this number come down some before buying. For additional information, including the stock’s dividend history, please refer to its data page.

Full Disclosure: At the time of this writing, I was long in CLX (0.5% of my Income Portfolio). I also held positions in CL, PG and KMB. See a list of all my income holdings here.

Related Articles:

- Universal Health Realty Income Trust (UHT) Dividend Stock Analysis
- Cardinal Health, Inc. (CAH) Dividend Stock Analysis
- Medtronic Inc. (MDT) Dividend Stock Analysis
- Coca-Cola Company (KO) Dividend Stock Analysis
- More Stock Analysis

12 Dividend Stocks For A Rainy Day *

D4L — Wed, 06 Oct 2010 07:30:06 +0000

A pessimist might say life is a series of bad things happening, then we die. I certainty wouldn’t go that far, but life often deals us unfortunate circumstances to work through at what seems to be the most inopportune time. During this most recent economic downturn, many people lost their jobs at a time when companies weren’t hiring. When things like this happen, those with an alternative income, including dividend growth stocks, are in a better position to deal with the circumstances thrust on them. Here are some things you can do today to prepare for your financial rainy day:

Have A Plan

If you suddenly found yourself unemployed and were unable to immediately replace the lost income, do you know what you would do? I suspect there are few families that have given a lot of thought to this. It is like buying a cemetery plot – it is not high on the list to things to consider. The drive home after receiving a pink slip is too late to start planning; at this point you should be in a position to start executing your plan.

Prepare to Execute Your Plan

Schools and businesses have fire drills for a reason. We all know we need to get out of a burning building, but do we really know how until we practice. Recently, my employer had a fire drill and too many people were going down the stairs on one side of the building and this created a traffic jam. If it had been a real fire many would have lost their lives.

In the same regard, it would make sense to take your plan and play “what if I lost my job today. ” You need to understand the answers to these questions: How long can I go without finding a replacement job? Will my plan permanently damage my financial position? What adverse effect will this have on my family (kids’ college, braces, house payments, etc.)? What is the worse case scenario? How will we fare in the worse case scenario?

Develop Alternative Income Streams

One of the best ways to ensure financial success is to develop alternative income steams. If one stream dries up, you have others to fall back on. We all have things we are good at, most can be packaged in a way to provide alternative income. Again, this is not something you can quickly develop the day you are terminated.

Dividend Growth Stocks

One of the best alternative income sources are dividend growth stocks. Just like a regular job they can provide you a steady AND growing income. With advance planning, your income portfolio can become the foundation of your contingency plan. Here are several dividend stalwarts to consider when building your income portfolio:

General Dynamics (GD) is the world’s fifth largest military contractor and also one of the world’s biggest makers of corporate jets. The company has paid dividends since 1979 and has increased them the last 19 years. Current yield: 2.61%

Colgate-Palmolive Company (CL) is a consumer products company, whose products are marketed throughout the world. Colgate’s Oral Care products include toothpaste, toothbrushes, oral rinses, dental floss and pharmaceutical products. The company has paid dividends since 1895 and has increased them the last 47 years. Current yield: 2.64%

Medtronic Inc. (MDT) is a global medical device manufacturer has leadership positions in the pacemaker, defibrillator, orthopedic, diabetes management and other medical markets. The company has paid dividends since 1977 and has increased them the last 33 years. Current yield: 2.68%

The Coca-Cola Company (KO) is the world’s largest soft drink company. It engages in the manufacture, distribution, and marketing of nonalcoholic beverage concentrates, fruit juices and syrups worldwide. The company has paid dividends since 1893 and has increased them the last 48 years. Current yield: 3.01%

McDonald’s Corporation (MCD) is the largest fast-food restaurant company in the world, with about 32,500 restaurants in 117 countries. The company has paid dividends since 1976 and has increased them the last 34 years. Current yield: 3.03%

The Procter & Gamble Company (PG) is a leading consumer products company markets household and personal care products in more than 180 countries. The company has paid dividends since 1891 and has increased them the last 54 years. Current yield: 3.21%

Abbott Laboratories (ABT) is engaged in the discovery, development, manufacture and sale of a diversified line of healthcare products including: drugs, nutritional products, diabetes monitoring devices and diagnostics. The company has paid dividends since 1926 and has increased them the last 38 years. Current yield: 3.29%

The Clorox Company (CLX) is a diversified producer of household cleaning, grocery and specialty food products is also a leading producer of natural personal care products. The company has paid dividends since 1968 and has increased them the last 35 years. Current yield: 3.30%

Johnson & Johnson (JNJ) engages in the manufacture and sale of various products in the health care field worldwide. The company has paid dividends since 1944 and has increased them the last 48 years. Current yield: 3.41%

Sysco Corporation (SYY), 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. The company has paid dividends since 1970 and has increased them the last 39 years. Current yield: 3.44%

Harleysville Group Inc. (HGIC) is a regional holding company for property and casualty insurance companies that operates in 32 states, primarily in the eastern half of the U.S. The company has paid dividends since 1986 and has increased them the last 24 years. Current yield: 4.12%

AT&T Inc. (T) provides telephone and broadband service, and the company holds full ownership of AT&T Mobility (formerly Cingular Wireless). AT&T Corp. was acquired in late 2005 and BellSouth in late 2006. The company has paid dividends since 1984 and has increased them the last 27 years. Current yield: 5.87%

The Bottom Line

Even if you never lose your job, one day you will retire and will face a very similar situation. Your salary will go away, replaced by much smaller Social Security payment, and possibly a pension payment (for a shrinking group of employees). More and more retirees have to manage their nest egg to ensure you don’t run out of money. A good plan, the ability to execute and multiple revenue streams including blue-chip dividend growth stocks will make the transition much easier.

Full Disclosure: Long GD, CL, MDT, KO, MCD, PG, ABT, CLX, JNJ, SYY, HGIC, T. See a list of all my income holdings here.