Friday, May 22, 2015

Dividend Champions to Consider

Picking stocks is proving to be a non-trivial task as equities continue to grow in price. The PE ratios are undergoing an expansion, and yields for many stocks that I wish to purchase are falling. There are still dividend champions out on the market that I would consider fair value. As an investor in dividend stocks, I am willing to pay fair value for dividend champions. For growth oriented stocks that are less focused on the dividend, I need a percentage of safety which requires the price of the shares to be over 10% discounted.

Coca Cola is one of my favorite DGI stocks due to its consistency and dividend growth. The shares are fairly valued and the yield is over 3%. The period before 2003 is left out of the graph because of the ridiculous P/E expansion from 1996 to early 2000s (P/E went all the way up to 60!). The average P/E for KO is somewhere around 20 which appears to be the premium one has to pay to own KO. Coca Cola is a stock that offers safety during recessions. They can still maintain revenues and grow dividends even during the great recession. The drawdown is minimized by its revenue stability and dividend history.
The dividend history of KO shows that the dividend is somewhere on the above average yield at the moment. With 3.2-3.3%, the stock packs a good yield in today's low interest environment. Notice how in the early 2000s, KO's yield was pathetically low. That was caused by the excessive ramp up in P/E. Buying KO in the early 2000s from a P/E and yield point of view was not a good idea. Coca Cola, despite the strong US dollar, was comfortable this year in raising the dividend by an impressive 8.20%! This is basically clockwork. Coca Cola has been increasing dividends for 53 years and has an average increase of 9.4 and std deviation of 2.2. This year's dividend increase was right in check with historical records.

Procter & Gamble:
P&G shares have dropped off nicely in recent months. The P/E is still a tad expensive but premium prices are usually tagged onto dividend champion companies. The period before 2001 was removed from the graph due to the excessive dot com P/E expansion. P&G's earnings and dividend have slowed this year due to the surge in the US dollar and shedding of brands (dividend only raise 3% this year). P&G should be a good pick for an investor with a long term horizon. One should not expect to see much capital gain growth in P&G. P&G is a slow and steady dividend growth company. With dividends reinvested, the number of shares will snowball after a large number of years. P&G offers downside protection during recessions since P&G sells products that are needed by every person. Their earnings are relatively consistent and the maximum drawdowns are much less than the S&P500.
Comparing the yield to historical yields, the current 3.3% is a decent dividend in today's market. Compared to historical yields, the dividend is decent.

Walmart is not my most favorite DGI stock right now due to their pathetic dividend increase in 2014 and 2015 (not shown in the graph below but this info can be found on other websites). The P/E is however attractive. The chart only shows from 2006-2015 because the years before 2006 had higher than normal P/Es. Walmart has recently had P/Es around 15 and the recent selloff has put it back in line. Walmart is a safe play during recessions because of uninterrupted earnings and dividends. Check the 2007-2009 period, when earnings were still able to grow.

Walmart's yield has grown incredibly over the last decade. The dividend growth has slowed and it has maintained a dividend around 2.0-3.0%. The yield is not a good selling point for this stock, I would prefer something in the 3% range.

Exxon Mobil:
The last stock I will show today that I believe is a good value play is Exxon Mobil. We all know what happened to oil prices in the last year. Exxon's earnings has suffered. Out of all the oil companies, Exxon is extremely strong financially and sport a impressive AAA rating. It is difficult to show XOM from a P/E point of view since the company is highly cyclical. The earnings are all over the place depending on the price of oil and the economy. Instead, I will show XOM from a dividend yield and Price/Book point of view. We all need oil. It is essential to our economy and modern society. The strong get stronger. While other financially weak companies are suffering during the oil recession, Exxon can prevail with its strong balance sheets and absorb other cheap assets that weaker companies must sell at fire-sale prices to continue paying off their debts (Exxon has an impressive 9% Debt/Cap!)
Exxon offers a yield that is 3.37% at the time of this article. Yields over 3% are rare for Exxon and we are able to buy Exxon at its cheapest price (from the dividend payment point of view) compared to the last 10 years. From a P/B point of view, Exxon is also very cheap. Currently the P/E is around 2.1 which is less than the P/B of all previous years. Exxon was able to flex its financial muscles several weeks ago when it announced a 5.8% raise in its dividends! Impressive for such bad times.

Tuesday, May 19, 2015

Recent buy: O & XOM

I had cash sitting in my Roth for a long time so today I purchased:

$1040 O
$1040 XOM

Average yield is 4.1% or $85 a year added in dividends.

I believe O will fall further due to the coming rate hikes, but I prefer to DCA my way in instead of timing my luck. I consider O high quality and core to my portfolio.

I picked XOM over CVX because CVX has yet to raise their dividend after 4 qtrs and XOM is closer to its low than CVX. I am also biased to XOM's safety and AAA rating.

Monday, May 18, 2015

Recent buy: SO & UNP

SO: $300
UNP: $400

Average yield is 3.34% and will add $23.4 per year in annual dividends. These trades will be executed tomorrow morning.

Tuesday, May 12, 2015

Recent buy: BDX, SO, LMT

A couple of small buys this week. Am preferring holding cash at this time.

BDX $300
SO $150
LMT $200

I am looking forward to the falling REIT prices but many of the companies I want to put money to work are still above my comfort level. REIT's I am watching include O, WPC, VTR, OHI, HCP, HCN.

I am also finding utilities more interesting but feel that there is still more room to drop as yields are bound to rise soon. Some names of interest include SO, WEC, D, PNY, XEL.

Wednesday, May 6, 2015

Recent Dividend Increases: XOM & PEP

XOM raised dividend from $0.69 to $0.73 which is a 5.80% increase. Nice!

I was expecting a raise from CVX but they kept the dividend constant for the 5th straight quarter. They still have some quarters left to increase it before it is officially a hold. To be honest, I was not too happy with them not increasing this month.

Pepsi increased from $0.655 to $0.7025. This is a very nice 7.25% increase. Way to go Pepsi!
I am not expecting dividend increases in a while (over the summer). The next dividend raise I'm expecting is Caterpillar which pays the raise in August.

Monday, May 4, 2015

Recent buy: UNP, MMM, LMT

The theme of this week is industrials! The following companies will be added to my portfolio tomorrow morning.

LMT: $200
MMM: $500
UNP: $500

Average yield is 2.45% for a total of around $30 a year.

Friday, May 1, 2015

April 2015 Portfolio Summary

After paying for my rent, my total portfolio is now sitting at $106k. This is the first month that my account has crossed the $100k mark. There's a popular quote from Charlie Munger:
       “The first $100,000 is a b*tch, but you gotta do it.” 
I agree with the sentiment since it takes capital first to generate a snowball. After the first 100k, the second one will be easier and so on. Eventually the dividends will be so large that one's monthly contribution is less than the dividends received. By then, financial independence will be in full effect and the snowball effect will continue with exponential liftoff.

I believe that even with a large market crash, my monthly contributions (as long as I still have my job) will be able to offset any losses incurred. I view market crashes as an opportunity to accumulate more shares in quality businesses. More shares equates to more dividends. My primary objective is income growth, so the price of my portfolio is secondary. The strongest companies will not decrease dividends during market collapses but increase them, as seen in the 2008-2009 disaster when many dividend aristocrats continued chugging along. My portfolio aims at accumulating shares in stable businesses that are non-cyclical. I do hold cyclical stocks but they are of a lesser percentage. I prefer holding businesses that receive the average person's dollar, no matter the economic condition. There will always be a demand for food, drinks, electricity, health, soap, toothpaste, and toilet paper no matter what recession we are in. I aim to own businesses that can provide services for the basic needs.
Ticker Sector Value PE Yield Annual Divs Beta Weight Credit
MO Staples $8,469.86 20.43 4.11% $348.11 0.55 7.95% BBB+
JNJ Health $6,366.34 17.91 2.80% $178.26 0.58 5.97% AAA
V Financial $4,970.77 29.36 0.73% $36.29 0.81 4.66% A+
PM Staples $4,917.16 17.52 4.80% $236.02 0.94 4.61% A-
CHD Staples $4,606.13 27.22 1.64% $75.54 0.46 4.32% A-
PEP Staples $4,646.28 22.28 2.74% $127.31 0.43 4.36% AA-
T Telecom $4,095.52 31.01 5.46% $223.62 0.40 3.84% BBB+
ABBV Health $3,945.87 57.43 3.17% $125.08 1.27 3.70% A
KMI Energy $3,968.37 47.92 4.17% $165.48 0.64 3.72% BBB-
O REIT $3,772.83 46.53 4.83% $182.23 0.39 3.54% BBB+
GIS Staples $3,598.30 24.11 3.16% $113.71 0.17 3.38% A
PX Materials $3,345.37 21.42 2.33% $77.95 0.80 3.14% A
MKC Staples $3,062.30 23.29 2.10% $64.31 0.55 2.87% A+
AAPL Tech $2,847.58 17.38 1.46% $41.57 0.81 2.67% AA+
KO Staples $2,581.05 25.89 3.23% $83.37 0.51 2.42% AA-
XOM Energy $2,597.53 11.71 3.11% $80.78 0.90 2.44% AAA
KRFT Staples $2,406.89 48.95 2.60% $62.58 0.76 2.26% BBB+
ROST Discret $2,411.92 23.01 0.92% $22.19 0.76 2.26% A-
CVX Energy $2,302.15 10.76 3.93% $90.47 1.16 2.16% AA
PG Staples $2,142.87 23.82 3.20% $68.57 0.43 2.01% AA
KMB Staples $1,992.57 29.61 3.17% $63.16 0.21 1.87% A
SBUX Discret $1,915.85 29.58 1.33% $48.85 0.78 1.80% A-
UNP Industrial $1,845.35 18.35 2.04% $37.65 0.94 1.73% A
TJX Discret $1,808.72 20.81 1.28% $23.15 0.65 1.70% A
UTX Industrial $1,771.58 16.33 2.22% $39.33 1.12 1.66% A
VZ Telecom $1,715.91 21.09 4.36% $74.81 0.37 1.61% BBB+
SO Utilities $1,486.60 20.56 4.69% $69.72 0.08 1.39% A-
MCD Discret $1,493.83 21.98 3.48% $51.99 0.36 1.40% AA-
DIS Discret $1,457.75 24.56 1.04% $15.16 1.17 1.37% A
WMT Staples $1,270.90 15.85 2.49% $31.65 0.46 1.19% AA
TROW Financial $1,230.81 18.27 2.55% $31.39 1.42 1.15% N/A
PH Industrial $1,125.30 16.65 2.09% $23.52 1.67 1.06% A
CAT Industrial $860.01 14.00 3.20% $27.52 1.65 0.81% A
HCP REIT $699.21 20.93 5.57% $38.95 0.38 0.66% BBB+
EMR Industrial $737.70 18.83 3.17% $23.39 1.28 0.69% A
BDX Health $698.28 24.39 1.69% $11.80 0.90 0.66% BBB+
AMGN Health $590.20 21.64 1.97% $11.63 0.57 0.55% A
LMT Industrial $500.38 17.06 3.17% $15.86 0.61 0.47% A-
….. …..2 …..3 …..4 …..5 …..6 …..7 …..8 Credit
Cash Cash $6,342.95 5.95%
. .. Total w/ cash Eq. Yield Annual Divs Beta Avg ….. …2
$106,598.96 3.04% $3,015.47 0.68

My allocation in healthcare and financials grew last month. I added a lot to ABBV on the lows and also added more to Visa. Right now, all the sectors seem relatively even in weighting except for Staples. I plan to keep the Staples sector heavy but would like to increase my REIT, utilities, and industrial exposure more. REITs and utilities will definitely have to wait because of my belief that rising interest rates are going to come, and any increase will send these shares plummeting. Here is a short snippet from JP Morgan on one of the articles in my accounts. In my opinion, interest rate sensitive investments should be held off until after the hike. It will be prudent to wait and then back the truck up when the securities are beaten up and offer a healthier yield.
The picture below shows my stock allocation. I have to work on the heavy weighting on some of my stocks. Their percentage should come down in the coming months as I continue to add more to other securities. I have a lot of teeny tiny starting positions which still have to grow larger. My goal is to try and limit the number of teeny tiny starting positions since it makes it difficult for me to keep up with all the companies.
In terms of earnings so far, foreign exchange rates for the US dollar have hurt many of the multinationals in my portfolio. Nothing too surprising except for the beat by Phillip Morris which shot up shares from $75 to $85. Hopefully this cash flow machine will come back down in price so I can add more before the next quarter's dividend. Several companies have missed revenue estimates but overall many have maintained or beat earnings estimates. I am hoping at the moment that multinationals like MMM, CL, KO, and PG will fall lower since I am always looking to add to these quality companies. The PE of a lot of these multinational companies I hold are now higher since their earnings have decreased due to the strong dollar.

April 2015 Dividends Received

April was not a bad month for dividends. TROW paid a special dividend this month so the dollars received were slightly skewed.

Taxable BAX $13.56
KO $13.35
KMB $15.66
WMT $5.42
MO $61.12
PM $58.22
TROW $29.49
KRFT $15.54
401K MO $24.96
MKC $16.00
Roth KO $6.65
O $15.15
TOTAL: $275.12

My goal is to hit over $300 for every month in dividends before the end of this year. The red bars were goals I set earlier. So far things seem to be on track as long as my dividends are not cut.