Industrial Materials Attributes

The Industrial Materials Sector consists of companies that manufacture products or otherwise harvest a product, such as a mining company. The products are most often inputs or raw materials into another manufacturing process, such as steel producer. Many of these companies are often referred to as members of the “smokestack industry” and are classified as cyclical stocks – a stock that rises and falls in step with the economy.

Timing is important when buying an industrial stock. If you buy when business is booming you will likely pay too much, which means a very low yield. Most stocks in this sector are currently overpriced. The average yield on Industrial Sector stocks that I follow is only 1.7%. This includes only 3 stocks yielding in the 3% range., with all the others sub-3%.  Several of these sub-3% companies were yielding in excess of 4% in 2008 when the world looked bleak for Industrial stocks.

Industrial Materials Companies

Below are several leading Industrial Materials companies that I follow. The companies selected have a dividend yield of 2.00%, or higher, and have raised their dividends for at least 15 years.

RPM International Inc. (RPM)
Yield: 3.5% | Growth:2.5 % | Years: 38
RPM International Inc. makes specialty coatings and products for the structural waterproofing and corrosion control markets, as well as products for the consumer, do-it-yourself, and hobby markets.

MDU Resources Group Inc. (MDU)
Yield: 3.0% | Growth: 1.9% | Years: 20
MDU Resources Group Inc. is involved in electric and natural gas distribution, natural gas storage, gathering and transmission, construction materials and mining, and oil and natural gas production.

Nucor Corporation (NUE)
Yield: 3.0% | Growth: 0.8% | Years: 37
Nucor Corporation is the largest minimill steelmaker in the U.S., Nucor has one of the most diverse product lines of any steelmaker in the Americas.

PPG Industries, Inc. (PPG)
Yield: 2.5% | Growth: 1.9% | Years: 37
PPG is a leading manufacturer of coatings and resins, flat and fiber glass, and industrial and specialty chemicals.

Illinois Tool Works Inc. (ITW)
Yield: 2.3% | Growth: 4.8% | Years: 47
Illinois Tool Works Inc. is a diversified manufacturer that operates a portfolio of about 840 industrial and consumer businesses throughout the world.

3M Company (MMM)
Yield: 2.3% | Growth: 2.5% | Years: 52
3M Co. 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.

Harsco Corporation (HSC)
Yield: 2.3% | Growth: 1.9% | Years: 20
Harsco Corp. is a global industrial service provider and manufacturer has operations in steel mill services and access services, as well as construction.

Emerson Electric Co. (EMR)
Yield: 2.2% | Growth: 2.2% | Years: 55
Emerson Electric Co. designs and supplies product technology, and delivers engineering services and solutions to a wide range of industrial, commercial, and consumer markets around the world.

Air Products And Chemicals Inc. (APD)
Yield: 2.2% | Growth: 2.1% | Years: 29
Air Products and Chemicals Inc. is a major producer of industrial gases and electronics and specialty chemicals and also has interests in environmental and energy-related businesses.

General Dynamics (GD)
Yield: 2.1% | Growth: 10.1% | Years: 19
General Dynamics is the world’s fifth largest military contractor and also one of the world’s biggest makers of corporate jets.

United Technologies Corp. (UTX)
Yield: 2.0% | Growth: 10.4% | Years: 18
United Technologies Corp. portfolio includes Pratt & Whitney jet engines, Sikorsky helicopters, Otis elevators and Carrier air conditioners, among other products.

Pentair, Inc. (PNR)
Yield: 2.0% | Growth: 5.6% | Years: 34
Pentair Inc. makes and markets water and fluid control devices, and electrical and electronic enclosures.

Conclusion

The Industrial Materials Sector is the largest sector in my database of dividend stocks. Of the 198 stocks that I track, it currently is represented by 34 stocks (17%). As noted above, this is not a sector I am in a position to buy often, but when the time is right, I plan on taking full advantage of the opportunity. Two of my largest annualized returns (IRR) come from industrial stocks: 3M (MMM) at 46.5% and Emerson Electric Co. (EMR) at 49.7%. I wouldn’t buy them at their current valuation, but based on where they were when I purchased them, I am enjoying a healthy yield-on-cost.

Full Disclosure: Long NUE, ITW, MMM, EMR, GD, UTX. See a list of all my income holdings here.

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(Photo Credit)

Dividends Received

Total dividends received during the month were $166.53, consisting of:

• $24.81 Wal-Mart (WMT)
• $7.78 Vanguard Intermediate-Term Bond ETF (BIV)
• $12.01 Vanguard Long-Term Bond ETF (BLV)
• $16.15 United Technologies Corp. (UTX)
• $8.71 Emerson Electric Co. (EMR)
• $18.36 Johnson & Johnson (JNJ)
• $15.47 Consolidated Edison Inc. (ED)
• $4.94 PowerShares Emerging Mkt Debt (PCY)
• $18.70 McDonald’s Corp. (MCD)
• $39.60 Harleysville Group Inc. (HGIC)

Dividend Stock Purchases

The following securities were purchased during the month:

• 34 Shares Colgate-Palmolive Co. (CL) providing $72.08 in annual dividend income
• 30 Shares Abbott Laboratories (ABT) providing $59.84 in annual dividend income
• 132 Shares Medtronic, Inc. (MDT) providing $118.80 in annual dividend income

Also, I liquidated my position in Vanguard Intermediate-Term Bond ETF (BIV).

Annualized Dividend Income

Including the above purchases, my annual PCP dividend income is now $2,200.32 at the current dividend rates. This is up $13.66 from last month’s $2,186.66 amount. The PCP has never had a monthly decline in annualized dividend income.

Portfolio Returns

• Month: 4.57%
• Year-to-date: 8.49%
• Life-to-date: 13.00% (annualized)

My PCP holdings are always available by selecting the Holdings option from the menu in the header. The next PCP update will be mid-November.

(Photo: sanja gjenero)

I. Consumer Goods (13%)

Consumer goods are items purchased for personal or household use. These would include items such as soap, detergent, cleaning supplies, toilet paper, toothpaste, candies, sodas, etc. These tend to be non-cyclical and many of the products are low cost. Since the demand for these products are less affected by the economic cycle and the industries are mature, the companies tend to generate relatively stable and predictable cash flows. These characteristics are exactly what you look for in a great dividend company. Below are some examples of companies in the consumer goods sector:

Colgate-Palmolive (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.
Analysis | Years of Dividend Growth: 47 | Yield: 2.44%

McCormick & Company (MKC) primarily produces spices, seasonings and flavorings for the retail food, food service and industrial markets. Trademarks include McCormick and Schilling.
Years of Dividend Growth: 24 | Yield: 2.70%

Procter & Gamble (PG ) is focused on providing branded consumer goods products. The Company markets its products in more than 180 countries.
Analysis | Years of Dividend Growth: 53 | Yield: 2.90%

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.
Analysis | Years of Dividend Growth: 48 | Yield: 3.35%

Kimberly-Clark Co (KMB) 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.
Analysis | Years of Dividend Growth: 38 | Yield: 4.22%

II. Financial Services (17%)

Have you ever had to pay a bank fee, origination point on a loan, or have you ever filed an insurance claim and were not satisfied with the amount of money you received? Financial stocks are cash cows – they generate large cash flows with minimal capital and ongoing expenses. Historically, these have been some of the best dividend growth stocks, at least until the industry became overly aggressive and made bad operating and investing decisions. Here are several financial companies that survived the last downturn:

Eaton Vance Corp. (EV) is a Boston-based holding company that is primarily engaged in investment management.
Years of Dividend Growth: 30 | Yield: 2.23%

T. Rowe Price Group Inc. (TROW) operates one of the largest no-load mutual fund complexes in the United States.
Analysis | Years of Dividend Growth: 30 | Yield: 2.30%

Chubb Corporation (CB) is one of the largest U.S. property-casualty insurers, Chubb has carved out a number of niches, including high-end personal lines and specialty liability lines coverage.
Years of Dividend Growth: 46 | Yield: 2.86%

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.
Analysis | Years of Dividend Growth: 23 | Yield: 4.29%

Cincinnati Financial Corp. (CINF) markets primarily property and casualty coverage; it also conducts life insurance and asset management operations.
Analysis | Years of Dividend Growth: 50 | Yield: 5.92%

III. Industrial Materials (18%)

Companies classified as industrial materials are those engaged in the manufacturing or production of machinery, raw materials or component parts for use or consumption by other industries or firms. These companies don’t make the consumer goods, but they make the machinery and supply the raw materials that are used to manufacture them. Many of these companies are mature with established markets, strong customer relationships and often hold an exclusive right to their proprietary manufacturing process. Below are some companies in the industrial materials sector:

United Technologies Corp. (UTX) is an aerospace-industrial conglomerate with a portfolio including Pratt & Whitney jet engines, Sikorsky helicopters, Otis elevators and Carrier air conditioners, among other products.
Analysis | Years of Dividend Growth: 18 | Yield: 2.55%

Dover Corporation Corp. (DOV) manufactures a broad range of specialized industrial products and sophisticated manufacturing equipment.
Years of Dividend Growth: 55 | Yield: 2.42%

Emerson Electric (EMR) primarily makes backup power equipment for telecom and Internet providers and users, climate control components, and electric motors.
Years of Dividend Growth: 53 | Yield: 2.95%

Nucor Corporation (NUE) is engaged in the manufacture and sale of steel and steel products. As the largest minimill steelmaker in the U.S., Nucor has one of the most diverse product lines of any steelmaker in the Americas.
Analysis | Years of Dividend Growth: 37 | Yield: 3.73%

RPM International Inc. (RPM) makes specialty coatings and products for the structural waterproofing and corrosion control markets, as well as products for the consumer, do-it-yourself and hobby markets.
Analysis | Years of Dividend Growth: 37 | Yield: 4.60%

It is no surprise the above three sectors carry the highest allocation in my income portfolio. To keep my asset allocation balanced, I must overweight other sectors in my non-income portfolios. In the same way that too many deserts will expose you to unnecessary health risks, being over-allocated in any sector put your portfolio at risk.

Full Disclosure: Long CL, CINF, PG, KO, KMB, HGIC, CINF, UTX, EMR, NUE. See a list of all my income holdings here.

Related Posts
- Underfunded Pension Plans: The Next Shoe To Drop?
- Four Dividend Stocks Stepping Up In The Downturn
- Five High-Yield Positive Return Investments
- A Winning Investment Strategy
- Why We Are Dividend Growth Investors

(Photo Credit)

Often when I write about a stock that is yielding 2%, 3% or even 4%, I get a question that goes something like, “Why would you buy that stock when there are better options like ‘Amalgamated Risk?’ Its currently yielding 7%, 8%, 9% or more?” With this statement the reader has possibly identified themselves as an income investor, and but definitely established the fact that they are not a dividend growth investor.

Tracking Yield On Cost

Yield-on-cost (YOC) is simply Current Annual Dividend dividend by Original Cost Per Share. YOC not a substitute for calculating an internal rate of return (IRR). The IRR calculation takes into account both capital appreciation and the timing of cash flows (purchases, sells and dividends). However, as a dividend growth investor, my primary focus is on dividend growth and since my desired holding period is forever, capital appreciation is little more than an interesting side note. YOC is much better suited for tracking dividend growth since it is individually tied to a stock and takes into account all the variations of growth rates over time, along with the timing of purchases. Also, it is useful when trying to explain to our income investor brethren why we chose the stock yielding 3% over ‘Amalgamated Risk’ at 8%.

Recently, I modified my D4L-Data model to include projections of YOC after 5, 10, 15 and 20 years. These projections are derived by growing the current yield using the dividend growth rate. As for the dividend growth rate, I use the minimum of the 1, 3, 5, 7 or 10 year compound annual growth rates; or 15% if in every consecutive 4-year period dividends grew on average in excess of 15%.

20 Dividend Stocks With A 20% Yield In 20 Years

Sorting the stocks in my D4L-Data model by their 20 Year YOC and throwing out some bad apples, we are left with these 20 stocks that are projected to have a 20% YOC in 20 years:

Lowe’s Companies (LOW) | Analysis
- Current Yield: 1.29%
- Dividend Growth: 15.0%
- 20 Year YOC: 21.12%

McGrath RentCorp (MGRC) | Analysis
- Current Yield: 3.32%
- Dividend Growth: 10.26%
- 20 Year YOC: 23.40%

Fastenal Company (FAST)
- Current Yield: 1.46%
- Dividend Growth: 15.00%
- 20 Year YOC: 23.94%

Colgate-Palmolive (CL) | Analysis
- Current Yield: 2.41%
- Dividend Growth: 12.48%
- 20 Year YOC: 25.34%

C.H. Robinson (CHRW)
- Current Yield: 1.61%
- Dividend Growth: 15.00%
- 20 Year YOC: 26.32%

Canadian National (CNI)
- Current Yield: 1.75%
- Dividend Growth: 15.00%
- 20 Year YOC: 28.69%

Walgreen Company (WAG) | Analysis
– Current Yield: 1.57%
- Dividend Growth: 15.72%
- 20 Year YOC: 29.14%

Raven Industries (RAVN) | Analysis
- Current Yield: 1.81%
- Dividend Growth: 15.00%
- 20 Year YOC: 29.65%

Eaton Vance (EV)
- Current Yield: 1.82%
- Dividend Growth: 15.00%
- 20 Year YOC: 29.72%

HCC Insurance (HCC)
- Current Yield: 1.91%
- Dividend Growth: 15.00%
- 20 Year YOC: 31.30%

Becton, Dickinson (BDX) | Analysis
- Current Yield: 1.94%
- Dividend Growth: 15.00%
- 20 Year YOC: 31.72%

IBM (IBM)
- Current Yield: 1.94%
- Dividend Growth: 15.00%
- 20 Year YOC: 31.72%

United Technologies Corp. (UTX) | Analysis
- Current Yield: 2.05%
- Dividend Growth: 15.00%
- 20 Year YOC: 33.63%

Praxair, Inc. (PX)
- Current Yield: 2.15%
- Dividend Growth: 15.00%
- 20 Year YOC: 35.17%

Owens & Minor (OMI)
- Current Yield: 2.25%
- Dividend Growth: 15.12%
- 20 Year YOC: 37.55%

Linear Technology (LLTC)
- Current Yield: 2.93%
- Dividend Growth: 15.00%
- 20 Year YOC: 47.94%

McDonald’s Corp. (MCD) | Analysis
- Current Yield: 3.12%
- Dividend Growth: 15.00%
- 20 Year YOC: 51.01%

Nucor Corporation (NUE) | Analysis
- Current Yield: 3.18%
- Dividend Growth: 15.00%
- 20 Year YOC: 52.00%

Cardinal Health, Inc. (CAH) | Analysis
- Current Yield: 2.02%
- Dividend Growth: 17.65%
- 20 Year YOC: 52.06%

Meridian Bioscien (VIVO) | Analysis
- Current Yield: 3.40%
- Dividend Growth: 15.00%
- 20 Year YOC: 55.67%

One key component of current yield is risk. If Treasuries (risk free) were paying 7%, 8% or 9%, many income investors and a significant number of dividend growth investors would divert a portion of their portfolios to them.

You will note that all the above stocks are yielding well under 4%. It is also important to note that I do not believe that all the above stocks will achieve their 20 year YOC. In much the same way high-yielding stocks often end up cutting their dividends, many of the above stocks will end up cutting their dividend growth rate. Put another way, there is risk associated low-yield high-dividend-growth stocks. However, for the high dividend growth stocks that perform well over the next 20 years, the rewards are potentially much higher than those of a high-yield, low growth stock.

Full Disclosure: Long CNI, UTX, MCD, NUE. See a list of all my income holdings here.

(Photo Credit)

It is really quite simple if you employ a sound asset allocation model and systematically invest during the good times and the bad. Easy to say, and do, when things are going well, but many people have a hard time buying into a market that has been declining for an extended period of time. To the contrary, many investors sell their positions and move to cash when things look bad. Then move back into equities once they rise for a period of time. Sell at the bottom and buy at the top is not how to make money in the market.

Many observers point to March 2009, when the S&P hit its low, as the bottom of the most recent market downturn. If you were following a disciplined approach and bought that month, you most likely are sitting on some incredible gains. Consider the stocks I purchased in March 2009:

The Coca-Cola Company (KO) | Analysis
- March 2009 Price: $39.69
- Recent Price: $54.97 up 38.5%
- Current Yield: 3.2%
- Yield-on-cost: 4.4%

3M Co. (MMM)
- March 2009 Price: $47.88
- Recent Price: $83.76 up 74.9%
- Current Yield: 2.4%
- Yield-on-cost: 4.4%

Wal-Mart Stores Inc. (WMT) | Analysis
– March 2009 Price: $48.42
- Recent Price: $54.11 up 11.8%
- Current Yield: 2.2%
- Yield-on-cost: 2.5%

Buying at the bottom is great, but buying near the bottom isn’t bad either. Consider these stocks that I picked up in April 2009:

Abbott Laboratories (ABT) | Analysis
– April 2009 Price: $44.36
- Recent Price: $52.26 up 17.8%
- Current Yield: 3.3%
- Yield-on-cost: 4.0%

Chevron Corp. (CVX) | Analysis
– April 2009 Price: $68.97
- Recent Price: $80.75 up 17.1%
- Current Yield: 3.4%
- Yield-on-cost: 3.9%

McDonald’s Corp. (MCD) | Analysis
– April 2009 Price: $55.09
- Recent Price: $69.03 up 25.3%
- Current Yield: 3.2%
- Yield-on-cost: 4.0%

United Technologies Corp. (UTX) | Analysis
– April 2009 Price: $45.16
- Recent Price: $73.69 up 63.2%
- Current Yield: 2.1%
- Yield-on-cost: 3.8%

Granted, the technique works the other way also, in that systematically investing each month will guarantee you will buy at market highs (note I didn’t say at the top). Comfort can be taken in that every protracted downturn will eventually produce an absolute bottom (i.e. a point that will never be touched again). However, throughout history highs have constantly been exceeded. Thus, there are no true tops, only recent highs. Any long-term dividend investor will tell you that the yields are better at the bottom, so forgive me for smiling the next time the market crashes.

Full Disclosure: Long ABT, CVX, KO, MCD, MMM, UTX, WMT. See a list of all my income holdings here.

(Photo: gerard79)

Yield does not come without a price. The five options looked at in prior weeks carry some form of added risk and/or complexity. Ultimately, dividend growth investors realize that long-term and sustainable high-yield investments are grown over time. This is accomplished by purchasing high-quality dividend investments with a reasonable yield and a long history of growing their dividends, and waiting for the yield on cost to grow. Consider the following stocks:

Sysco Corp. (SYY) – [Analysis]
- Current Yield: 3.36%
- Assumed Dividend Growth Rate: 6.52%
- Yield On Cost in 10 Years: 6.32%
- Yield On Cost in 20 Years: 11.89%

Coca Cola Co. (KO) – [Analysis]
- Current Yield: 3.22%
- Assumed Dividend Growth Rate: 7.32%
- Yield On Cost in 10 Years: 6.53%
- Yield On Cost in 20 Years: 13.22%

Abbott Labs (ABT) – [Analysis]
- Current Yield: 3.25%
- Assumed Dividend Growth Rate: 8.27%
- Yield On Cost in 10 Years: 7.20%
- Yield On Cost in 20 Years: 15.93%

Raven Industries Inc. (RAVN) – [Analysis]
- Current Yield: 1.85%
- Assumed Dividend Growth Rate: 15.00%
- Yield On Cost in 10 Years: 7.49%
- Yield On Cost in 20 Years: 30.31%

Kimberly Clark Corp. (KMB) – [Analysis]
- Current Yield: 4.20%
- Assumed Dividend Growth Rate: 6.67%
- Yield On Cost in 10 Years: 8.02%
- Yield On Cost in 20 Years: 15.30%

United Technologies Corp. (UTX) – [Analysis]
- Current Yield: 2.09%
- Assumed Dividend Growth Rate: 15.00%
- Yield On Cost in 10 Years: 8.46%
- Yield On Cost in 20 Years: 34.24%

Harleysville Group Inc (HGIC) – [Analysis]
- Current Yield: 4.09%
- Assumed Dividend Growth Rate: 8.00%
- Yield On Cost in 10 Years: 8.83%
- Yield On Cost in 20 Years: 19.07%

Cardinal Health Inc (CAH) – [Analysis]
- Current Yield: 1.98%
- Assumed Dividend Growth Rate: 15.00%
- Yield On Cost in 10 Years: 8.00%
- Yield On Cost in 20 Years: 32.34%

Nucor Corp. (NUE) – [Analysis]
- Current Yield: 3.15%
- Assumed Dividend Growth Rate: 15.00%
- Yield On Cost in 10 Years: 12.76%
- Yield On Cost in 20 Years: 51.60%

McDonalds Corp. (MCD) – [Analysis]
- Current Yield: 3.27%
- Assumed Dividend Growth Rate: 15.00%
- Yield On Cost in 10 Years: 13.23%
- Yield On Cost in 20 Years: 53.53%

The growth rates used above are the minimum of the compound annual dividend growth rate for the last 1, 3, 5, 7, 10 years or 15% if dividends grew on average in excess of 15% for each consecutive 4 year period, within the last 10 years. The growth rates are for illustrative purposes only. Obviously, no one can definitively say what any stock’s future dividend growth rate will be. However, there were dividend growth superstars over the past 10-years and, needless to say, there will be several in the next 10 years.

Below are links to the other five options to increase the yield in our income portfolio:

1. Increasing Dividend Yield Part I: Utilities
2. Increasing Dividend Yield Part II: REITs
3. Increasing Dividend Yield Part III: Preferred Stock
4. Increasing Dividend Yield Part IV: Bonds
5. Increasing Dividend Yield Part V: MLPs

Full Disclosure: Long SYY, KO, ABT, KMB, UTX, HGIC, NUE, MCD. See a list of all my income holdings here.

(Photo Credit)

Here is a list of notable participants:

Commerce Bancshares (CBSH) banks provide services to individuals and businesses via 217 branches and 404 ATMs in Missouri, Kansas, Illinois, Oklahoma and Colorado February 5th the company increased its quarterly dividend 3% to $0.235/share. The dividend is payable on March 26, 2010, to stockholders of record at the close of business on March 10, 2010. The ex-dividend date is March 8. CBSH is a Dividend Achiever and has raised its dividend for 42 consecutive years. The yield based on the new payout is 2.49%.

Boardwalk Pipeline Partners (BWP) engages in the interstate transportation and storage of natural gas. February 5th the company bumped its quarterly distribution to $0.50/unit. The distribution is payable on February 22, 2010, to unitholders of record as of February 15, 2010. The ex-distribution date is February 11, 2010. The yield based on the new payout is 6.66%.

Temple-Inland (TIN) is a major producer of corrugated containers and containerboard. February 5th the company boosted its quarterly dividend 10% to $0.11/share. The dividend is payable March 15, 2010, to shareholders of record March 1, 2010. The ex-dividend date is Feb 25th. The yield based on the new payout is 2.59%.

Compass Minerals (CMP) produces salt for highway deicing and general trade. February 8th the company raised its quarterly dividend 10% to $0.39/share. The dividend is payable March 15, 2010, to shareholders of record as of the close of business on March 1, 2010. The ex-dividend date is February 25, 2010. The yield based on the new payout is 2.39%.

Mercury General (MCY) is an insurance holding company operating primarily in California. February 8th the company increased its quarterly dividend 2% to $0.59/share. The dividend is to be paid on March 31, 2010 to shareholders of record on March 16, 2010. The ex-dividend date is March 12, 2010. MCY is a Dividend Achiever and has raised its dividend for 23 consecutive years. The yield based on the new payout is 6.10%.

Jack Henry (JKHY) provides integrated computer systems, software and services addressing the information technology and data processing needs of banks and credit unions. February 8th the company bumped its quarterly dividend 12% to $0.095/share. The cash dividend on its common stock, par value $.01 per share, is payable on March 9, 2010, to stockholders of record as of February 24, 2010. The ex-dividend date is February 22. JKHY is a Dividend Achiever and has raised its dividend for 18 consecutive years. The yield based on the new payout is 1.77%.

United Technologies (UTX) is an aerospace-industrial conglomerate with a portfolio including Pratt & Whitney jet engines, Sikorsky helicopters, Otis elevators and Carrier air conditioners, among other products. February 8th the company boosted its quarterly dividend 10% to $0.425/share. The dividend is payable March 10 to shareowners of record at the close of business Feb. 19. The ex-dividend date is Feb. 17. UTX is a Dividend Achiever and has raised its dividend for 18 consecutive years. The yield based on the new payout is 2.60%. [Analysis]

Owens & Minor (OMI) is a leading domestic distributor of medical and surgical supplies to the acute care market. February 8th the company raised its quarterly dividend 15% to $0.265/share. The record date for the stock split and the cash dividend is March 15, 2010. The cash dividend will be payable on March 31, 2010. OMI is a Dividend Achiever and has raised its dividend for 11 consecutive years. The yield based on the new payout is 2.15%.

Nu Skin (NUS) develops and distributes personal care products and nutritional supplements. February 9th the company increased its quarterly dividend 9% to $0.125/share. The dividend will be paid on March 17, 2010, to shareholders of record on Feb. 26, 2010. The yield based on the new payout is 1.93%.

Avon Products (AVP) is the world’s leading direct marketer of cosmetics, toiletries, fashion jewelry, and fragrances, with more than 5 million sales representatives worldwide. February 9th the company bumped its quarterly dividend 5% to $0.22/share. The dividend is payable March 1, 2010, to shareholders of record February 23, 2010. The ex-dividend date is February 19, 2010. AVP is a Dividend Achiever and has raised its dividend for 21 consecutive years. The yield based on the new payout is 3.00%.

Northeast Utilities (NU) is a utility holding company serves Connecticut, western Massachusetts and New Hampshire. February 9th the company raised its quarterly dividend to $0.25625/share. The dividend is payable March 31, 2010, to shareholders of record as of the close of business on March 1, 2010. The yield based on the new payout is 4.06%.

American Science and Engineering (ASEI) develops, manufactures, markets, and sells X-ray and other inspection solutions primarily for homeland security markets. February 9th the company increased its quarterly dividend to $0.30/share. The dividend is payable on March 4, 2010 to shareholders of record at the close of business on February 22, 2010. The ex-dividend date is February 18, 2010. The yield based on the new payout is 1.61%.

Corporate Executive Board (EXBD) provides corporate executives and professionals with the insights and resources necessary to excel in their roles and to drive corporate performance. February 9th the company bumped its quarterly dividend to $0.11/share. The yield based on the new payout is 2.01%.

3M (MMM) has operations in electronics, health care, industrial, consumer, office, telecommunications, safety and security and other markets. February 9th the company boosted its quarterly dividend 3% to $0.525/share. The dividend is payable on March 12, 2010, to shareholders of record at the close of business on February 19, 2010. The ex-dividend date is February 17, 2010. MMM is a Dividend Aristocrat and has raised its dividend for 52 consecutive years. The yield based on the new payout is 2.62%.

Infinity Property and Casualty (IPCC) provides, through its subsidiaries, personal automobile insurance with a concentration on nonstandard auto insurance. February 9th the company raised its quarterly dividend 17% to $0.14/share. The dividend is payable on March 26, 2010 to holders of record on March 12, 2010. The yield based on the new payout is 1.47%.

Wyndham (WYN) operations include the sale of interests in vacation ownership resorts; facilitating the exchange and rental of access to vacation properties; and the franchising of hotels. February 10th the company bumped its quarterly dividend to $0.12/share. The yield based on the new payout is 2.12%.

Sigma-Aldrich (SIAL) makes and sells a wide range of biochemicals, organic chemicals, and chromatography products. February 10th the company raised its quarterly dividend 10% to $0.155/share. SIAL is a Dividend Aristocrat and has raised its dividend for 34 consecutive years. The yield based on the new payout is 1.33%.

CSX (CSX) a major U.S. rail network, transporting bulk commodities, industrial products and intermodal containers. February 10th the company boosted its quarterly dividend 9% to $0.24/share. The dividend is payable on March 15, 2010 to shareholders of record at the close of business on February 26, 2010. The ex-dividend date is Feb. 24. The yield based on the new payout is 2.13%.

Diebold (DBD) develops, makes, and services self-service transaction systems, electronic and physical security systems. February 11th the company raised its quarterly dividend 4% to $0.27/share. The dividend is payable on Monday, March 8, to shareholders of record at the close of business on Monday, Feb. 22. The ex-dividend date is Feb. 18. DBD is a Dividend Achiever and has raised its dividend for 57 consecutive years. The yield based on the new payout is 3.87%.

SCANA Corp. (SCG) provides electric, natural gas, and telecommunications services. February 11th the company increased its quarterly dividend 1.1% to $0.475/share. The dividend is payable April 1, 2010 to shareholders of record at the close of business on March 10, 2010. The ex-dividend date is March 8, 2010. The yield based on the new payout is 5.43%.

First quarter is an exciting time for dividend growth investors as many companies elect to announce their annual dividend increases during this time. For a list of stocks with a long string of consecutive cash dividend increases, see this list.

Full Disclosure: Long MMM, UTX. See a list of all my income holdings here.

(Photo Credit)

The traditional dividend payout is expressed as a percentage and is calculated by dividing annual dividend per share by annual earnings per share (EPS). This tells the investor what percentage of earning the company is paying out as a dividend. At first blush this may seem to make a lot of sense, but it suffers from two potential problems in that 1.) earnings does not always equal cash and 2.) there is no indication of the quality of earnings.

I consider Free Cash Flow payout a better ratio.  Free Cash Flow is Operating Cash Flow less normal capital expenditures (normally the first line in the investing section of the GAAP cash flow statement). The formula for Free Cash Flow Payout is simply Annual Dividend Per Share divided by Free Cash Flow Per Share. I like to see a percentage of 70% or less.

Taking  a look at my stock database, I found the following eight dividend stocks with a free cash flow of 50% or less and rated 4 or 5 stars:

• Procter & Gamble Co. (PG) – 4-Star [Analysis]
  - FCF Payout: 42%
  - Yield: 2.90%
• Emerson Electric Co. (EMR) – 4-Star [Analysis]
  - FCF Payout: 42%
  - Yield: 3.10%
• Abbott Labs (ABT) – 4-Star [Analysis]
  - FCF Payout: 42%
  - Yield: 2.96%
• Johnson & Johnson (JNJ) – 4-Star [Analysis]
  - FCF Payout: 38%
  - Yield: 3.00%
• Harleysville Group Inc (HGIC) – 4-Star [Analysis]
  - FCF Payout: 37%
  - Yield: 3.93%
• Nucor Corp (NUE) – 4-Star [Analysis]
  - FCF Payout: 27%
  - Yield: 3.00%
• Becton Dickinson & Co. (BDX) – 5-Star [Analysis]
  - FCF Payout: 32%
  - Yield: 1.88%
• United Technologies Corp (UTX) – 5-Star [Analysis]
  - FCF Payout: 29%
  - Yield: 2.22%

The ability of a stock to sustain its dividend separates dividend growth stocks from stocks that simply pay a dividend. The latter is quite common, while the former helps define The Best Dividend Stocks in the World.

Full Disclosure: Long PG, EMR, ABT, JNJ, NUE, UTX. See a list of all my income holdings here.

(Photo Credit)

My goals were defined in this December 1, 2007 Investing Goals post and updated in my 2009 Investing Goals post. Below is an updated version of the table found in the original post.

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 $193, and Yield on Cost (YOC) decreased (0.10%). This month’s changes were a net of new purchases, dividend changes and sales. Let’s examine each of the these categories:

Purchases: The $226 increase in annual dividend income and (0.09%) decrease in YOC related to the following purchases (yield at the time of purchase):

• $87 Nucor Corporation (NUE) 3.38%
• $56 United Technologies Corp. (UTX) 2.25%
• $83 Vanguard Inter. Bond (BIV) 4.29%

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 $5 decrease in annual dividend income and (0.03%) decrease in YOC related to the following dividend changes (a=dividend stated in annual terms, q=quarterly, m=monthly):

• $5 Vanguard Inter. Bond ETF (BIV) $3.41a>$3.48a 0.00%
• $11 Vanguard Long Bond ETF (BLV) $3.90a>$4.00a 0.01%
• $1 iShares Invest Grade Bond (LQD) $5.72a>$5.74a 0.00%
• ($20) Eaton Vance Global Dividend Fund (ETO) $1.53a>$1.46a -0.02%
• ($2) Emerging Mkts Debt (PCY) $1.60a>1.59a -0.01%

Sales: The ($28) decrease in annual dividend income and 0.02% increase in YOC related to the following sale:

• ($28) M&T Bank Corp. (MTB) 0.02%

I sold my entire position in MTB after the company announced another $0.70/share dividend. This ensured that 2009′s dividend will be flat with 2008.

I have exceeded my revised estimate of annualized dividend income of $7,000. However, I will fall short of my my original goal of $8,000.

That’s it for this time. The next monthly progress update will be early January.

(Photo: sanja gjenero)

High Yield/Low Growth

I would classify dividend stocks with a yield over 5% and dividend growth less than 2% in this group. This is probably the most popular group, particularly among those new to income investing. It is human nature to want it now and lots of it, and high yield stocks appear to deliver that desire. However, there is often a reason the stock’s yield is so high and many times the investor learns the hard way the yield is not always sustainable. Examples of stocks in the high yield/low growth group include:

• National Retail Properties, Inc. (NNN) – Yield: 7.12 – Dividend Growth: 1.4%
• Integrys Energy Group, Inc. (TEG) – Yield: 6.63 – Dividend Growth: 1.5%
• Realty Income Corporation (O) – Yield: 6.61 – Dividend Growth: 2.1%
• CenturyTel Inc. (CTL) – Yield: 5.97 – Dividend Growth: 0.0%

Low Yield/High Growth

I would classify dividend stocks with a yield less than 2.5% and dividend growth greater than 7.5% in this group. Low yield and high growth dividend stocks are the other extreme of high yield and low growth stocks. Their long-term risk is associated with growing the yield-on-cost over time. If the dividend growth rate is cut, the investor’s future earnings and yield will also be cut. Stocks in this group would include:

• Aflac Incorporated (AFL) – Yield: 2.44 – Dividend Growth: 16.7% [Analysis]
• United Technologies Corp. (UTX) – Yield: 2.25 – Dividend Growth: 15.0% [Analysis]
• Eaton Vance Corp. (EV) – Yield: 2.05 – Dividend Growth: 15.0%
• Colgate-Palmolive Company (CL) – Yield: 2.02 – Dividend Growth: 10.3%
• Wal-Mart Stores, Inc. (WMT) – Yield: 2.01 – Dividend Growth: 11.3% [Analysis]
• Canadian National Railway Company (CNI) – Yield: 1.63 – Dividend Growth: 15.0%
• Lowe’s Companies, Inc. (LOW) – Yield: 1.53 – Dividend Growth: 15.0% [Analysis]

Moderate Yield/Moderate Growth

I would classify dividend stocks with a yield between 2.5% to 5% and a dividend growth rate between 2% to 7.5% in this group. This is a good compromise between the above too extremes. It is an approach focusing on a moderate yield and dividend growth rate. Keeping these two metrics at a reasonable level will help reduce the likelihood of either being cut. Companies in this group are your traditional dividend growth stocks, as seen from the list below:

• Chubb Corp. (CB) – Yield: 2.88 – Dividend Growth: 6.1% [Analysis]
• The Procter & Gamble Company (PG) – Yield: 2.81 – Dividend Growth: 7.3% [Analysis]
• Johnson & Johnson (JNJ) – Yield: 3.00 – Dividend Growth: 7.5% [Analysis]
• Automatic Data Processing Inc. (ADP) – Yield: 3.09 – Dividend Growth: 5.5% [Analysis]
• Emerson Electric Co. (EMR) – Yield: 3.13 – Dividend Growth: 6.4% [Analysis]
• Chevron Corporation (CVX) – Yield: 3.41 – Dividend Growth: 5.1%
• SYSCO Corporation (SYY) – Yield: 3.39 – Dividend Growth: 4.3% [Analysis]

In my personal investing strategy, I incorporate measured participation in each of the above groups. My primary focus is on the Moderate Yield/Moderate Growth stocks, believing that over time this group carriers the highest probability of success. The remaining two groups offer the potential for above average returns – as long as they continue to perform at the estimated level, which is often difficult to do over time.

Full Disclosure: Long NNN, TEG, O, CTL, AFL, UTX, WMT, CNI, CB, PG, JNJ, ADP, EMR, CVX, SYY. See a list of all my income holdings here.

(Photo Credit)