Dividends Value » WAG

15 Dividend Stocks With A 15% Yield In 15 Years *

D4L — Wed, 13 Apr 2011 07:30:02 +0000

“I skate to where the puck is going to be, not where it has been.”
- Wayne Gretzky

I know very little about hockey, but I have always loved this quote. It can be applied to so many things in life, including investing. Just as Gretzky has a vision as to where the puck is going, investors need to have a similar vision, and not get caught up on short-sighted distractions. Investing in dividend growth stocks requires a long-term vision. It is easy to run a screen and find stocks that are paying a 15% yield today; but how long will they be able to sustain it? Instead you may want to skate to where the future 15% yielders are going to be. To do that, here are some things you need to know…

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%.

My D4L-Data model includes 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%.

15 Dividend Stocks With A 15% Yield In 15 Years

Sorting the stocks in my D4L-Data model by their 15 Year YOC and throwing out some bad apples, we are left with these 15 stocks that are projected to have a 15% YOC in 15 years:

T. Rowe Price Group Inc. (TROW) operates one of the largest no-load mutual fund complexes in the United States.
Yield: 1.8% | Growth: 15.0% | 15 Year YOC: 15.0%

Cardinal Health Inc. (CAH) is one of the leading wholesale distributors of pharmaceuticals, medical/surgical supplies and related products to a broad range of health care customers.
Yield: 1.8% | Growth: 15.0% | 15 Year YOC: 15.0%

Owens & Minor Inc. (OMI) is a leading domestic distributor of medical and surgical supplies to the acute care market, a health care supply chain management company, and a direct-to-consumer (DTC) supplier of testing and monitoring supplies for diabetes.
Yield: 2.4% | Growth: 13.2% | 15 Year YOC: 15.6%

Praxair Inc. (PX) is the largest producer of industrial gases in North and South America, and the second largest worldwide. It also provides ceramic and metallic coatings.
Yield: 2.0% | Growth: 15.0% | 15 Year YOC: 15.9%

Aflac Incorporated (AFL) provides supplemental health and life insurance in the U.S. and Japan. Products are marketed at worksites and help fill gaps in primary insurance coverage. Approximately 80% of earnings comes from Japan and 20% from the U.S.
Yield: 2.3% | Growth: 15.0% | 15 Year YOC: 18.2%

Stryker Corp. (SYK) makes specialty surgical and medical products such as orthopedic implants, endoscopic items, and hospital beds.
Yield: 1.2% | Growth: 20.0% | 15 Year YOC: 18.6%

Casey’s General Stores Inc. (CASY) has over 1,500 convenience stores in the Midwest, selling food, beverage, health and automotive products.
Yield: 1.3% | Growth: 19.8% | 15 Year YOC: 19.4%

Weyco Group, Inc. (WEYS) distributes, wholesale & retail, men’s branded footwear in the U.S., Canada, Europe; it offers casual footwear, dress shoes and accessories under Florsheim, other brands.
Yield: 2.6% | Growth: 15.0% | 15 Year YOC: 21.0%

Walgreen Co. (WAG) is the largest U.S. retail drug chain in terms of revenues, this company operates more than 8,000 drug stores throughout the U.S. and Puerto Rico.
Yield: 1.7% | Growth: 18.5% | 15 Year YOC: 21.7%

Nucor Corporation (NUE) is the largest minimill steelmaker in the U.S., Nucor has one of the most diverse product lines of any steelmaker in the Americas.
Yield: 3.1% | Growth: 15.0% | 15 Year YOC: 25.5%

McDonald’s Corporation (MCD) is the largest fast-food restaurant company in the world, with about 32,500 restaurants in 117 countries.
Yield: 3.2% | Growth: 15.0% | 15 Year YOC: 26.1%

ConocoPhillips Co. (COP) is the fourth largest integrated oil company in the world, and the second largest in the U.S.
Yield: 3.3% | Growth: 15.0% | 15 Year YOC: 26.6%

People’s United Financial Inc. (PBCT) provides a full range of banking and financial service products to individuals, corporations and municipal customers in the U.S. Northeast.
Yield: 6.0% | Growth: 11.3% | 15 Year YOC: 30.0%

Southside Bancshares Inc. (SBSI) primarily provides financial services to individuals, businesses, municipal entities, and non-profit organizations.
Yield: 3.7% | Growth: 16.6% | 15 Year YOC: 36.9%

Old Republic Intl (ORI) writes property and liability, mortgage guaranty, title and life, and disability insurance.
Yield: 5.4% | Growth: 15.0% | 15 Year YOC: 43.6%

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 most of the above stocks are yielding under 4%. It is also important to note that I do not believe that all the above stocks will achieve their 15 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 15 years, the rewards are potentially much higher than those of a high-yield, low growth stock.

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

(Photo Credit)

10 Dividend Stocks With With A 10%+ Dividend Growth Rate *

D4L — Wed, 06 Apr 2011 07:30:13 +0000

The difference between an income investor and a dividend growth investor is time and the understanding of how compound growth works. If you are 67 years old and need income today, you will likely select a different group of stocks than an enlightened 27 year old that doesn’t necessarily need the income today. The 27 year old has the the luxury of time to grow a superior yield, while the 67 year old may be forced to assume additional risk to buy a higher current yield. Here are some of the reasons an investor might forgo current yield in hopes of future gain…

Dividend Growth Provides For Inflation

Inflation is the silent killer for many retirement portfolios. Over time, prices tend to increase. If you rely solely on a portfolio of long-term fixed income securities, you will lose purchasing power each year as inflation robs your portfolio. Dividend growth rates on traditional high-yield stocks (e.g. utilities, REITs, etc.) are often less than inflation. However, most blue-chip dividend growth stocks grow their dividends well in excess of the annual inflation rate.

Dividend Growth Often Provides For Higher Value

The combination of a good starting yield and respectable dividend growth will often provide the investor with greater long-term value when compared to alternatives with higher current yields and lower growth dividend rates. The only way to know for sure is to run the numbers using a model such as my D4L-PreScreen.xls.

Compound Dividend Growth Is Powerful

Compound interest is what occurs when interest previously earned is added to the principle and is considered when calculating future interest – i.e. earning interest on interest. Compound dividends are like compound interest on steroids. Like compound interest, dividends are being reinvested. However, these dividends are growing which provides and added boost.

Conservative View Of Dividend Growth

The dividend growth rate is a key metric in many calculations. As such, I use a conservative estimate as follows: The minimum dividend growth rate of the 1, 3, 5, 7, 10 year compound annual growth rate or 15%, if dividends grew on average in excess of 15% for each consecutive 4 year periods, within the last 10 years of history.

10 Stocks With a 10%+ Dividend Growth Rate

General Dynamics Corp. (GD) | Yield: 2.5% | Growth: 10.1%
General Dynamics is the world’s fifth largest military contractor and also one of the world’s biggest makers of corporate jets. GD is a member of the S&P 500 a member of the Broad Dividend Achievers™ Index. The company has paid a cash dividend to shareholders every year since 1979 and has increased its dividend payments for 19 consecutive years.

Hormel Foods Corp. (HRL) | Yield: 1.9% | Growth: 10.6%
Hormel Foods Corp. company is a leading processor of branded, convenience meat products (primarily pork) for the consumer market. HRL is a member of the S&P 500, a Dividend Aristocrat and a member of the Broad Dividend Achievers™ Index and a Dividend Champion. The company has paid a cash dividend to shareholders every year since 1928 and has increased its dividend payments for 45 consecutive years.

Wal-Mart Stores Inc. (WMT) | Yield: 2.8% | Growth: 11.0%
Wal-Mart Stores, Inc. is the largest retailer in North America, WMT operates a chain of discount department stores, wholesale clubs, and combination discount stores and supermarkets. WMT is a member of the S&P 500, a Dividend Aristocrat and a member of the Broad Dividend Achievers™ Index and a Dividend Champion. The company has paid a cash dividend to shareholders every year since 1973 and has increased its dividend payments for 36 consecutive years.

Colgate-Palmolive Co. (CL) | Yield: 2.9% | Growth: 12.5%
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. CL is a member of the S&P 500 and a member of the Broad Dividend Achievers™ Index and a Dividend Champion. The company has paid a cash dividend to shareholders every year since 1895 and has increased its dividend payments for 47 consecutive years.

Owens & Minor Inc. (OMI) | Yield: 2.6% | Growth: 13.2%
Owens & Minor Inc. is a leading domestic distributor of medical and surgical supplies to the acute care market, a health care supply chain management company, and a direct-to-consumer (DTC) supplier of testing and monitoring supplies for diabetes. OMI is a member of the Broad Dividend Achievers™ Index. The company has paid a cash dividend to shareholders every year since 1926 and has increased its dividend payments for 13 consecutive years.

ConocoPhillips (COP) | Yield: 3.3% | Growth: 13.2%
ConocoPhillips Co. is the fourth largest integrated oil company in the world. COP is a member of the S&P 500 a member of the Broad Dividend Achievers™ Index. The company has paid a cash dividend to shareholders every year since 1934 and has increased its dividend payments for 10 consecutive years.

Target Corp. (TGT) | Yield: 2.0% | Growth: 15.5%
Target Corp. operates about 1,500 Target and 250 SuperTarget general merchandise stores across the U.S. TGT is a member of the S&P 500, a Dividend Aristocrat and a member of the Broad Dividend Achievers™ Index and a Dividend Champion. The company has paid a cash dividend to shareholders every year since 1965 and has increased its dividend payments for 43 consecutive years.

Southside Bancshares Inc. (SBSI) | Yield: 3.2% | Growth: 16.6%
Southside Bancshares Inc. primarily provides financial services to individuals, businesses, municipal entities, and non-profit organizations. SBSI is a member of the Broad Dividend Achievers™ Index. The company has paid a cash dividend to shareholders every year since 1969 and has increased its dividend payments for 12 consecutive years.

Walgreen Co. (WAG) | Yield: 1.7% | Growth: 18.5%
Walgreen Co is the largest U.S. retail drug chain in terms of revenues, this company operates more than 8,000 drug stores throughout the U.S. and Puerto Rico. WAG is a member of the S&P 500, a Dividend Aristocrat and a member of the Broad Dividend Achievers™ Index and a Dividend Champion. The company has paid a cash dividend to shareholders every year since 1933 and has increased its dividend payments for 36 consecutive years.

Casey’s General Stores Inc. (CASY) | Yield: 1.4% | Growth: 19.8%
Casey’s General Stores Inc. has over 1,500 convenience stores in the Midwest, selling food, beverage, health and automotive products. CASY is a member of the Broad Dividend Achievers™ Index. The company has paid a cash dividend to shareholders every year since 1990 and has increased its dividend payments for 10 consecutive years.

Conclusion

If time is on your side, you should investigate if certain lower yielding stocks with a dividend growth rate fits into your long-term investment strategy. When making this evaluation, it is important to note that the sustainability of the dividend growth rate must be evaluated on a go-forward basis. Like high-yield stocks, there is increasing risk as the dividend growth rises.

Full Disclosure: Long GD, WMT, CL, OMI, COP. See a list of all my income holdings here.

(Photo Credit)

Walgreen Co. (WAG) Dividend Stock Analysis *

D4L — Mon, 21 Mar 2011 07:30:07 +0000

This article originally appeared on The DIV-Net March 14, 2011.

Linked here is a detailed quantitative analysis of Walgreen Co. (WAG). Below are some highlights from the above linked analysis:

Company Description: Walgreen Co. is the largest U.S. retail drug chain in terms of revenues, this company operates more than 8,000 drug stores throughout the U.S. and Puerto Rico.

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

WAG is trading at a discount to only 1.) above. The stock is trading at a slight discount to its calculated fair value of $42.98. WAG 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%

WAG earned two Stars in this section for 2.) and 3.) above. The stock earned a Star as a result of its most recent Debt to Total Capital being less than 45%. WAG earned a Star for having an acceptable score in at least two of the four Key Metrics measured. Rolling 4-yr Div. > 15% means that dividends grew on average in excess of 15% for each consecutive 4 year period over the last 10 years (2001-2004, 2002-2005, 2003-2006, etc.) I consider this a key metric since dividends will double every 5 years if they grow by 15%. The company has paid a cash dividend to shareholders every year since 1933 and has increased its dividend payments for 36 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

WAG earned a Star in this section for its NPV MMA Diff. of the $4,080. This amount is in excess of the $500 target I look for in a stock that has increased dividends as long as WAG has. If WAG grows its dividend at 18.5% per year, it will take 6 years to equal a MMA yielding an estimated 20-year average rate of 3.9%.

Memberships and Peers: WAG is a member of the S&P 500, a Dividend Aristocrat and a member of the Broad Dividend Achievers™ Index and a Dividend Champion. The company’s peer group includes: CVS Caremark Corporation (CVS) with a 1.5% yield, Rite Aid Corp. (RAD) with a 0.0% yield and Wal-Mart Stores Inc. (WMT) with a 2.8% yield.

Conclusion: WAG 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 WAG as a 4 Star-Buy.

Using my D4L-PreScreen.xls model, I determined the share price would need to increase to $85.71 before WAG’s NPV MMA Differential decreased to the $500 minimum that I look for in a stock with 36 years of consecutive dividend increases. At that price the stock would yield 0.82%.

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 12.1%. This dividend growth rate is well below the 18.5% used in this analysis, thus providing a margin of safety. WAG has a risk rating of 1.00 which classifies it as a Low risk stock.

With over 7,700 drugstores, WAG offers unmatched convenience with one of the the most recognized brand names in the retail pharmacy business. The company enjoys a strong market share within the relatively stable U.S. retail drug industry. However, pressures from non-traditional competitors and potential adverse legislation could quickly weaken WAG’s advantages. Although the stock is trading slightly below my $42.98 fair value price, the 1.7% dividend yield will prevent any near–term purchases. 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 held no position in WAG (0.0% of my Income Portfolio). See a list of all my income holdings here.

10 Under-Valued Dividend Stocks *

D4L — Wed, 05 Jan 2011 07:30:59 +0000

By many measures, 2010 was a great year for dividend growth stocks. There were far fewer dividend cuts and fewer companies that failed to raise their dividends at the expected time. From a valuation standpoint dividend stocks performed quite well, with many income portfolios outperforming the S&P 500.

The down side to this is that great values are harder to find. However, that is not to say they aren’t still out there. Of the 198 stocks I track, only 29 (15%) are trading below my calculated fair value, up from 7% this time last year. Here are some of the more interesting ones…

Becton, Dickinson and Co. (BDX) provides a wide range of medical devices and diagnostic products used in hospitals, doctors’ offices, research labs and other settings.
Fair Value: $109.88 | Recent Price: $84.73 | Yield: 1.6%

Owens & Minor, Inc. (OMI) is a leading domestic distributor of medical and surgical supplies to the acute care market, a health care supply chain management company, and a direct-to-consumer (DTC) supplier of testing and monitoring supplies for diabetes.
Fair Value: $35.94 | Recent Price: $29.56 | Yield: 2.4%

Wal-Mart Stores, Inc. (WMT) is the largest retailer in North America. The company operates retail stores in various formats worldwide. It operates through three segments: Wal-Mart Stores, Sam’s Club, and International.
Fair Value: $63.69 | Recent Price: $54.56 | Yield: 2.2%

Abbott Laboratories (ABT) is a diversified life science company and is a leading maker of drugs, nutritional products, diabetes monitoring devices, and diagnostics.
Fair Value: $55.43 | Recent Price: $47.82 | Yield: 3.6%

Colgate-Palmolive (CL) 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: $91.57 | Recent Price: $79.79 | Yield: 2.5%

Johnson & Johnson (JNJ) is a leader in the pharmaceutical, medical device and consumer products industries.
Fair Value: $70.24 | Recent Price: $62.82 | Yield: 3.4%

Walgreen Company (WAG) is the largest U.S. retail drug chain in terms of revenues, this company operates more than 8,000 drug stores throughout the U.S. and Puerto Rico.
Fair Value: $43.77 | Recent Price: $39.32 | Yield: 1.50%

Medtronic Inc. (MDT) is a global medical device manufacturer with leadership positions in the pacemaker, defibrillator, orthopedic, diabetes management, and other medical markets.
Fair Value: $41.34 | Recent Price: $37.41 | Yield: 2.4%

Harleysville Group Inc. (HGIC) underwrites a broad array of personal and commercial coverages. These insurance coverages are marketed primarily in the Eastern and Midwestern United States.
Fair Value: $41.10 | Recent Price: $37.39 | Yield: 3.6%

Microsoft Corporation (MSFT) is the world’s largest software company, develops PC software, including the Windows operating system and the Office application suite.
Fair Value: $28.55 | Recent Price: $27.98 | Yield: 2.3%

I calculate Fair Value weighing The Mid-2 Price and the NPV MMA Price. The wieght depends on where we are in the cycle. Currently it is weighted as 25% Mid-2 price + 75% NPV MMA price. The Mid-2 Price considers four fair value calculations, Avg. High Yield Price, 20-Year DCF Price, Avg. P/E Price and Graham Number, the highest and lowest fair values are excluded and the remaining two calculations are averaged to calculate the Mid-2 price. The NPV MMA Price is where the NPV MMA value equals the NPV MMA target.

Needless to say, we need to consider a lot more than just valuation when making a stock purchase. As dividend growth investors, I would argue that dividend fundamentals are more important than valuation. As long-term buy and hold investors, we can over-come paying too much for a great stock with time. However, time is unlikely to help a fairly valued stock with poor dividend fundamentals.

Full Disclosure: Long OMI, WMT, ABT, CL, JNJ, MDT, HGIC. 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.

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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.

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13 Stocks Growing Their Cash Dividends *

D4L — Fri, 16 Jul 2010 07:30:46 +0000

Dividend growth investing in its classic form focuses on identifying solid companies with a long record of growing their dividends each year; and an expectation that they will continue to do so into the future. The focus is not solely on yield but a combination of yield and dividend growth. Often it is the lower yield, higher growth, security that will provide the best return over time.

Here are several stocks living up to shareholders’ expectations by raising their cash dividends:

Fastenal Company (FAST) distributes fasteners and other industrial and construction supplies through 2,400 stores throughout the U.S. and in a few foreign countries. July 12th the company increased its semi-annual dividend to $0.42/share. The dividend is payable September 3, 2010 to shareholders of record at the close of business on August 20, 2010. FAST is a Dividend Achiever and has raised its dividend for 17 consecutive years. The yield based on the new payout is 1.62%.

Genesis Energy (GEL) is a limited partnership that operates crude oil common carrier pipelines, is an independent gatherer and marketer of crude oil and operates a wholesale CO2 business. July 13th the partnership raised its quarterly distribution 8.7% over Q2/2009 to $0.375/unit. The distribution will be paid on August 13, 2010, to Common Unitholders of record at the close of business on August 3, 2010. The ex-distribution date is July 30, 2010. The yield based on the new payout is 7.39%.

Enterprise Products (EPD) is an integrated provider of natural gas and natural gas liquids services, including processing, fractionation, storage, transportation, and terminalling. July 13th the partnership increases its quarterly distribution 5.5% to $0.575/unit. The quarterly distribution will be paid on Thursday, August 5, 2010, to unitholders of record as of the close of business on Friday, July 30, 2010. The ex-distribution date is July 28, 2010. EPD is a Dividend Achiever and has raised its dividend for 12 consecutive years. The yield based on the new payout is 6.21%.

Duncan Energy Partners (DEP) transports, markets, and stores natural gas, as well as in transporting and storing natural gas liquids (NGLs) and petrochemicals in the U.S. July 13th the partnership raised its quarterly distribution 3.4% to $0.45/unit. The distribution will be paid Friday, August 6, 2010, to unitholders of record at the close of business on Friday, July 30, 2010. The ex-distribution date is July 28, 2010. The yield based on the new payout is 6.31%.

Cummins (CMI) i a leading manufacturer of truck engines also makes stand-by power equipment and industrial filters. July 13th the company increased its quarterly dividend 50% to $0.2625/share. The dividend is payable on Sept. 1 to shareholders of record on August 23. The ex-dividend date is August 21. The yield based on the new payout is 1.42%.

Healthcare Services Group (HCSG) provides housekeeping, laundry, linen, facility maintenance and food services to hospitals and other health care facilities. July 13th the company increases its quarterly dividend 4.5% to $0.23/share. The dividend is payable on August 6, 2010 to shareholders of record at the close of business July 23, 2010. The ex-dividend date is July 21, 2010. The yield based on the new payout is 4.96%.

National Semi (NSM) is a leading manufacturer of a broad line of semiconductors, including analog, digital and mixed-signal integrated circuits. July 14th the company raised its quarterly dividend 25% to $0.10/share. The dividend will be paid on Oct. 12, 2010 to shareholders of record at the close of business on Sept. 20, 2010. The ex-dividend date is September 16, 2010. The yield based on the new payout is 2.79%.

Walgreen (WAG) is the largest U.S. retail drug chain and operates more than 7,500 drug stores throughout the U.S. and Puerto Rico. July 14th the company increased its quarterly dividend 27% to $0.175/share. The dividend is payable Sept. 11, 2010, to shareholders of record Aug. 19, 2010. The ex-dividend date is August 15, 2010. WAG is a Dividend Aristocrat and has raised its dividend for 35 consecutive years. The yield based on the new payout is 2.38%.

ONEOK Partners (OKS) is a leading transporter of natural gas and natural gas liquids (NGLs) in the Mid-Continent area to market centers in the U.S. July 14th the partnership raised its quarterly distribution to $1.12/unit. The distribution is payable August 13, 2010, to unitholders of record as of July 30, 2010. The ex-distribution date is July 28, 2010. The yield based on the new payout is 6.55%.

National Retail Properties (NNN) invests in high-quality, freestanding retail properties subject to long-term net leases with major retail tenants. July 15th the REIT raised its quarterly dividend 1.3% to $0.38/share. The dividend is payable August 16, 2010 to common shareholders of record on July 30, 2010. The ex-dividend date is July 28, 2010. NNN is a Dividend Achiever and has raised its dividend for 19 consecutive years. The yield based on the new payout is 6.67%.

PPG Industries (PPG) is a leading manufacturer of coatings and resins, flat and fiber glass, and industrial and specialty chemicals. July 15th the company increased its quarterly dividend 1.9% to $0.55/share. The dividend is payable September 10, 2010, to shareholders of record August 10, 2010. The ex-dividend date is August 6, 2010. PPG is a Dividend Achiever and has raised its dividend for 37 consecutive years. The yield based on the new payout is 3.40%.

ONEOK (OKE) is an integrated natural gas company also has an energy marketing and trading business. July 15th the company raised its quarterly dividend 5% to $0.46/share. The dividend is payable August 13, 2010, to shareholders of record at the close of business July 30, 2010. The ex-dividend date is July 28, 2010. The yield based on the new payout is 4.00%.

Omega Healthcare (OHI) invests in and provides financing to the long-term care industry. Its portfolio includes health care facilities in 27 states. July 15th the REIT increased its quarterly dividend 12.5% to $0.36/share.The dividend is to be paid August 16, 2010 to common stockholders of record on July 30, 2010. The ex-dividend date is July 28, 2010. The yield based on the new payout is 6.90%.

Selecting stocks with increasing dividends is critical for an income growth strategy. The above list contains stocks that recently raised their dividends; it is not a list of recommend buys. As always, due diligence should be performed before buying or selling any stock. For a list of stocks with a long string of consecutive cash dividend increases, see this list.

Full Disclosure: Long NNN. See a list of all my income holdings here.

(Photo Credit)

20 Dividend Stocks With A 20% Yield In 20 Years *

D4L — Wed, 05 May 2010 05:01:00 +0000

There are income investors and Dividend Growth investors. While the distinction is rather simple, it slips past many casual observers. Income investors are investing for maximum current income, while dividend growth investors are looking to maximize income over an extended period of time — usually sacrificing current income for potential greater future earnings.

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

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%

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)

4 Dividend Stocks Raising Dividends and Expectations *

D4L — Fri, 16 Apr 2010 10:30:19 +0000

Have you ever pondered the concept of forever or infinity? It is truly mind boggling! What is even more astonishing is that when I buy a stock, my target holding period is forever. For most people, myself included, that is hard to grasp and to carry out. When things start going bad, our primal instinct of flight kicks in and we want to sell. In many cases, that is the time we should be buying. Holding a stock through an economic downturn is much easier when it pays a rising dividend.

Below are several companies giving their shareholders a reason not to sell by increasing their cash dividends:

Enterprise Products Partners (EPD) is an integrated provider of natural gas and natural gas liquids services, including processing, fractionation, storage, transportation, and terminalling. April 13th the partnership increased its quarterly distribution to $0.5675/unit. The quarterly distribution will be paid on Thursday, May 6, 2010, to unit holders of record as of the close of business on Friday, April 30, 2010. The ex-dividend date is April 28. The yield based on the new payout is 6.36%.

Genesis Energy (GEL) is a limited partnership focused on the midstream segment of the oil and gas industry in the Gulf Coast region of the United States. April 14th the partnership raised its quarterly distribution 8.9% over the first quarter 2009 to $0.3675/unit. The distribution will be paid on May 14, 2010, to Common Unitholders of record at the close of business on May 4, 2010. The ex-dividend date is April 30, 2010. The yield based on the new payout is 7.20%.

HB Fuller (FUL) is an international manufacturer of adhesives, sealants, paints and specialty construction products. April 15th the company increased its quarterly dividend 2.9% to $0.07/share. FUL is a Dividend Achiever and has raised its dividend for 41 consecutive years. The yield based on the new payout is 1.17%.

Donegal (DGICA) offers personal and commercial lines of insurance to businesses and individuals in 18 Mid-Atlantic, Midwestern and Southeastern states. April 15th the company raised its quarterly dividend 2.2% to $0.115/share. The dividend is payable May 17, 2010 to stockholders of record as of the close of business on May 3, 2010. The yield based on the new payout is 3.08%.

In addition to the above dividend raisers, the following Dividend Aristocrats declared regular quarterly cash dividends:

April 12th Walgreens (WAG) declared a quarterly dividend of $0.1375/share with a 1.5% yield. The dividend is payable June 12, 2010, to shareholders of record May 20, 2010. The ex-dividend date is May 6, 2010. [Analysis]

Pitney Bowes (PBI) on April 12 declared a quarterly dividend of $0.365/share with a 5.9% yield. The dividend is payable June 12, 2010, to shareholders of record on May 14, 2010. The ex-dividend date is May 12, 2010.

April 15th Consolidated Edison, Inc. (ED) declared a quarterly dividend of $0.595/share with a 5.3% yield. The dividend is payable June 15, 2010, to stockholders of record as of May 12, 2010. The ex-dividend date is May 10, 2010.

If you invest in good solid stocks that increase their dividends on a consistent basis, day-to-day share movements will not concern you. For a list of stocks with a long string of consecutive cash dividend increases, see this list.

Full Disclosure: Long ED. See a list of all my income holdings here.

(Photo Credit)

Seven Stocks Expected to Grow Their Dividends in 2010 *

D4L — Thu, 31 Dec 2009 11:30:51 +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 might be the big dividend raisers in 2010. Here are seven companies for your consideration:

Procter & Gamble Co. (PG) in April 2009 raised its dividend 10% to $0.44/share from $0.40/share. PG has increased its dividend for 53 consecutive years and I expect them to do so again next year. 2010′s increase may not be as strong since 2009′s free cash flow was down 8.5% from 2008. However, it is still strong and the trailing 12-months is above the 2008 level. Also, PG’s 2009 share count is down in and its cash balance is up. Given this, I project a 2010 increase of 6-8%. The stock is currently yielding 2.9%. [Analysis]

Colgate-Palmolive Co. (CL) in April 2009 also raised its dividend 10% to $0.44/share from $0.40/share. CL has increased its dividend for 46 consecutive years and I expect them to do so again next year. The 2010 increase should be higher then 2009′s since the company’s 12-month trailing free cash flow is up over 41% compared to 2008. The company’s most recet cash balance is up 52% and shares outstanding are down. I project a 2010 increase of 10-12%. The stock is currently yielding 2.1%.

W.W. Grainger Inc. (GWW) in May 2009 raised its dividend 15% to $0.46/share from $0.40/share. GWW has increased its dividend for 38 consecutive years and I expect them to do so again next year. The 2010 increase could be higher since the company’s 12-month trailing free cash flow is up over 62% compared to 2008 and its most recent cash balance is up nearly 70%. I project a 2010 increase of 15-17%. The stock is currently yielding 1.8%. [Analysis]

Abbott Laboratories (ABT) in April 2009 raised its dividend 11% to $0.40/share from $0.36/share. ABT has increased its dividend for 37 consecutive years and I expect them to do so again next year. The 2010 increase should be similar to the 2009 increase since the company’s 12-month trailing free cash flow is down slightly (2%) compared to 2008, but it is currently sitting on 18% more cash. I project a 2010 increase of 10%. The stock is currently yielding 2.9%. [Analysis]

Wal-Mart Stores Inc. (WMT) in March 2009 raised its dividend 15% to $0.2725/share from $0.2375/share. WMT has increased its dividend for 35 consecutive years and I expect them to do so again next year. This cash generating machine continues to hum with a 10% increase (12-month trailing) in free cash flow compared to 2008. The more impressive statistic is the 12-month trailing cash flow is 2.4 time higher than the 2008 amount. I project a 2010 increase of 10%. The stock is currently yielding 2.0%. [Analysis]

Walgreen Company (WAG) in August 2009 raised its dividend 22% to $0.1375/share from $0.1125/share. WAG has increased its dividend for 34 consecutive years and I expect them to do so again next year. This is another cash generating machine that saw a 2009 free cash flow increase of 168% compared to 2008 and the 2009 ending cash balance is 4.7 time higher than 2008′s. I project a 2010 increase of 15-20%. The stock is currently yielding 1.5%. [Analysis]

AFLAC Inc. (AFL) in February 2009 raised its dividend 17% to $0.28/share from $0.24/share. AFL has increased its dividend for 27 consecutive years and I expect them to do so again next year. In spite of all the negative publicity aimed at the financial sector, AFL’s free cash flow has grew approximately 15% the last 12 months compared to 2008 and its most recent cash balance has nearly doubled from the 2008 level. I project a 2010 increase of 10%. The stock is currently yielding 2.4%. [Analysis]

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, AFL, PG, WMT. See a list of all my income holdings here.