Follow the dividend investment decisions of a person who has no background in financial investment and wishes to take control of their financial future.

Small Change to Site - 31 Dec 2014 16:45

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Going forward I will no longer be displaying my portfolio. My fear is that the portfolio takes away from the journey of learning and refining skills associated with Dividend Growth Investing.

Instead I'll be listing potential dividend stocks of interest that I am tracking for the year that may lead to future analysis or write-ups here on the blog. The list of stocks could grow or shrink throughout the year as I discover more potential growth or bargain equities.

See Stocks to Watch for 2015 page for my latest list ) - Comments: 0

Last Purchase of 2014 - QCOM - 27 Dec 2014 02:33

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I thought my last purchase of THOR Industries (THO) would be my last buy of the year but I snuck in Qualcomm (QCOM) at the last minute which will add $33.60 annually to my dividend portfolio.

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Qualcomm is most fammous for deploying technology in the mobile telcom industry with its most recognizable products being ARM snapdragon processors and 3G/4G/LTE modems. While mobile is their current cash cow they are far from sitting on their laurels and heavily investing on developing or acquiring new technologies that support the Internet of Things and quickly building a portfolio of new products.

Financially QCOMM is superbly managed. The have strong earnings & free cash flow growth rates, high profit margins (30%), no long term debt, over $17 billion in cash, a current ratio of 3.73, and a dividend payout ratio of 38%.

On the dividend front, QCOM has increased its dividend for 12 straight years with an average increase of 18.7% annually over the last five years. With a low payout ratio, continuing demand in mobile technology and heavy investment for tomorrows technology Qualcomm is making a stong case for continuing as a dividend growth machine for many years to come.

While some dividend growth investors might skip QCOM due to its low div yield (currently 2.22%) I believe long term dividend growth prospects out weigh the low yield and in the long term will produce a commendable yield on cost. With an aggressive dividend growth rate I calculate a fair value range from $79 to $90 share price, with current share price as of 12/26/2014 at $76 per share this was under my low end price target and a value buy.

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- Comments: 0

4th Quarter Portfolio Growth Update - 26 Dec 2014 14:28

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Quarterly Dividend Growth
% from Div Growth 2.23%
% from New Investments 1.87%
% from Reinvested Div 0%
% from Special Dividends 0%
% Overall Growth 4.11%
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The 4th Quarter was one of my best for straight up passive dividend growth which contributed 2.23% dividend growth for just one quarter.

As mentioned in my last update Microsoft (MSFT) had 11% increase in dividends. BP (BP) surprised with a 3.4% increase in dividends despite ongoing legal and oil price concerns though I will temper no growth in 2015 considering the landscape in the oil industry right now. Bar Harbor Bank (BHB) continues with its ever continuing quarterly increases that grew 2.17% and is emerging as a dividend darling in my portfolio.

The largest surprise which I did not see coming was from Seagate (STX) who bumped up their quarterly rate by 25.58%. Every time I think STX will slow down they continually surprise and remain one of my best overall growth holdings in regards to yield and total return. To date my annual dividend yield on original cost is a whopping 8.49%, considering I bought this position 2 years ago it now yields better than most REITs and at a lower tax rate.

Looking forward to the first quarter of 2015 I have already received notifications from Maiden Holdings (MHLD) increasing its payout by 18.18% and General Electric (GE) increasing its payout by 4.55%. Other holdings I am looking forward to announce dividend increases in the first quarter include PPL (PPL) , Air Products (APD), Waste Management (WM), and HCP Inc (HCP).

Overall 2014 was a great growth year and my portfolio now yields a healthy 5.66%. Hopefully 2015 will be just as kind. - Comments: 0

New Purchase THO - 21 Dec 2014 03:31

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This month I initiated a small position in THOR Industries (THO) that should contribute $21 annually towards my 2015 dividends.

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Thor Industries specializes in Recreational Vehicles (RVs) as well as campers, special haulers, and custom buses. Their revenue over the last five years has increased year over year an average of 19% annually. Industry success is typically tied to the economy which currently accounts for most of the gains but one differentiator going forward will be retirees flush with cash looking to realize their dreams of traveling the country. Of course there are no guarantees that retirees will embrace this type of lifestyle and remains the one area of hesitancy I have and hence the small position I have started.

On the dividend front, THO has increased its dividend for 5 straight years with an average increase of 28% and if their 2015 dividend holds (I see no reason why not) then they are on pace to make it 6 straight years. There was some difficulty with interpreting the annual dividend totals as their were large fluctuations in 2009, 2012, & 2013. These fluctuations were due to special one time dividends of $0.5, $1.5 and $1 and annual payouts had to be adjusted to accommodate to see the underlying dividend growth.

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Other features I find attractive with THO lies within its balance sheet where it carries no long term debt, has $289M of cash and a current ratio of 2.45. An area of weakness or concern is their overall margins which have weakened over-time and currently gross profit margins shrank from 13.1% to 12.8%. Going forward THO management will eventually have to improve margins in order to maintain growth.

While some dividend growth investors might skip THO due to its low div yield (2%) I believe long term dividend growth prospects out weigh the low yield and in the long term will produce a commendable yield on cost. With an aggressive dividend growth rate I calculate a fair value range from $56.83 to $64.58 share price, with current share price as of 12/19/2014 of $55 per share this was under my low end price target and a value buy. I'm not sure this is my last buy for 2014, I have my eye on Qualcomm (QCOM) and Cummins (CMI), but odds are pretty good that it is. - Comments: 0

New Purchase MHLD - 26 Nov 2014 01:03

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Today I increased my position in Maiden Holdings (MHLD) with an additional 100 shares that should contribute $52 annually towards my 2015 dividends. MHLD while a small stock with a market cap of only $960M it continues to be a bright spot as a dividend growth stock that is undervalued.

What I really like about this company is their continued focus on growing earnings and being extremely shareholder friendly. MHLD is a re-insurer and what usually makes me nervous with insurance companies is their ability to execute risk management and how or where they keep their investments.

MHLD has been implementing a strategy to exit high risk segments and entering predictable and stable operating segments. This strategy has paid off over the last three years as we have seen earning grow from $0.39 per share in 2011 to $1.18 per share in 2013.

In regards to investments, it is fairly common for insurance companies to invest in fixed income and MHLD is no different. The concern here is when interest rates rise bond prices will fall creating a potential loss. Fortunately, for MHLD, most of their fixed income bonds have a maturity of less than 10 years and only 2.2% of their bonds have a maturity greater than 10 years so if rates do rise losses will be minimal.

Of course their strength in managing risk & investments is not the only reason I invested. We can't forget about their juicy 4% dividend. In fact, MHLD has been extremely shareholder friendly with dividend increases for a CAGR of 19% and its most recent increase was 18%.

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With an aggressive dividend growth rate I calculate a fair value range from $13.71 to $15.58 share price, with current share price as of 11/25/2014 of $13.18 per share it wasn't hard to see this was under my low end price target and a value buy I couldn't pass up. - Comments: 0

I was Afraid…Briefly :) - 01 Nov 2014 13:52

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October was one wild month for investors! And, for one very brief moment, fear crept into my mind that a crash could be happening. Of course the market did not crash and rallied back. When it was over there were a lot of Monday Morning Quarterbacks out there with the “you should have…” or “should not have…” or “I told you so…” articles, blogs or opinions.

This post is nothing like that. Instead it is a summary of what I did during that turbulent month.

Calming Down

Fear first crept into my mind after consecutive days of losses in early October. This was a pattern not consistent with the market of 2014 and I knew something was up. It was at this point fear found its way into my head wondering if I was watching the start of a correction or crash. My fears are well grounded; I have lived through three major market crashes and two real estate crashes. Yet unlike what I went through years ago I would not let fear paralyze me with inaction. I reminded myself that this time will be different! I am more educated on investing than I have ever been. I just needed to stay calm and have confidence in myself.

After coming home from work I poured myself a big cup of joe, hit the books and analyzed my dividend growth portfolio. I re-read every news release to make sure nothing snuck by me. I moved onto looking at the latest quarterly reports to make sure no new risks had set in. I read industry news to see if a sector (like financials) was driving markets lower. After looking at industry reports, news, earnings trends, balance sheets, etc… I came to a simple conclusion; the same strengths and risks existed. Nothing had changed that would affect my dividend growth, if anything I saw strengths for dividends to increase.

With fundamentals on solid ground I breathed a sigh of relief, if prices went down it would not change my dividend income and things would be ok.

And the Market Continued to Decline

After I calmed down I watched as my investments declined in daily 1% increments. As the decline neared its bottom, financial value indicators started lighting up on my radar screen. Suddenly there were opportunities to buy! Air Products (APD), Microsoft (MSFT), GE (GE), Analog Devices (ADI), Emerson Electric (EMR), Johnson & Johnson (JNJ), Smuckers (SJM), and Union Pacific (UNP) all looked attractive. I just needed some cash.

Unfortunately I did not have a significant amount of cash, I was fully invested. I started digging everywhere for free cash but at the end of the day it was nothing mentionable. I had to relegate myself to sitting on the sidelines watching.

Then Magic Happened

In the last week of October things started to change. Earning reports started flowing in from many of the major S&P 500 companies and most were beating expectations. The market began to rise.

As we continued on, the Fed announced what was expected; stoppage of QE stimulus and interest rates to remain low. The market kept rising.

Finally on Halloween, Japan announced its stimulus plan and the markets were inspired for one more day of gains. Like Magic the market recovered and was actually higher at the end of October than what it started. All the while I had to watch the opportunities slip away. As prices climbed most of the stocks on my radar started falling off again. In the end everything was blamed on an Ebola scare and conflict in the Middle East with the IS, for myself it was a mental test and I feel like I passed with flying colors. - Comments: 0

Game of Life - 19 Oct 2014 17:30

Tags: income life risk

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My oldest child is now 16 and just a few years away from being an adult. This got me thinking as to how she should be prepared for life which further led me to see how life in some ways is similar to a game. Their are always pieces in play and you need goals and strategies to succeed.

Odds are Against You

If you talk to a financial planner, the pieces you should have on on the board are really simple; you get a full-time job, max out retirement savings and build-up an emergency cash fund equivalent to 6 to 12 months of income. It is their belief that these are all the pieces you need to succeed in the game of life. We can call these pieces “Team Income & Assets”. Below is a summary of the pieces you are expected to place onto the game of life:

Team Income & Assets

  1. Full-time Job
  2. Emergency Savings
  3. 401K
  4. Roth IRA
  5. Social Security

But life is not as simple as financial planners lead you to believe. The opposing team we will call “Team Liabilities & Risk” and they have a heck of a lot more pieces to play with:

Team Liabilities & Risks

  1. Student Loans
  2. Rent
  3. Utilities
  4. Internet/Cable
  5. Food & Living Expenses
  6. Healthcare
  7. Maintenance (auto, home, etc…)
  8. Credit Cards & Loans
  9. Taxes
  10. Misc Insurance (auto, renters, etc…)
  11. Wedding Expense
  12. House down payment
  13. Kids
  14. Mortgage
  15. Unemployment
  16. Disability
  17. Kids College
  18. Caring for Elderly Parents
  19. Retirement

Now this is completely lopsided, 5 versus 19! How can you win with such a diverse team constantly attacking your 5 pieces?

Leveling the Playing Field

When I started off life no one told me that the opposing team would have so many pieces on the board and to make matters worse the longer you were in the game the greater the risks became. Unlike my introduction to life, I can now bestow unto my child the wisdom of my life experiences. First lesson is explaining the enemy pieces on the board. Second is to change how many pieces we have on the board.

It makes sense if you are being attacked by a diverse set of pieces that you also get a diverse set of pieces to effectively combat that onslaught. Three of your five pieces are focused on long term retirement so they sit on the game board and do nothing until the end of the game. That leaves just two pieces to carry the burden for most of your life! To change the odds in our favor we we can add some more pieces by diversifying your income. Here are the additional pieces we can possibly add:

Team Income & Assets Additions
6. Dividend Growth Investing
7. Real Estate Investing
8. Money Lending
9. Part-time Job
10. Part-time Business
11. Royalty or Residual Income
12. Annuities

Dividend Growth Investing – I personally love this one because it is available to everyone regardless of your social class, race, or ethnicity. You can start with just $50 and grow from there. Dividend growth allows for a passive income stream that can be used to help during times of unemployment, help pay some of your child’s college expenses, or fund your retirement. What is even better, the longer you employ DGI the more powerful piece you have to use in the game.

Real Estate Investing – This is another great source of income and there are two approaches to achieving. The first is physically buying and maintaining property while collecting rental income. Though this approach does require effort and may not be for everyone so the second approach for people that do not want to be bothered with property maintenance or collecting past due rents is to buy shares in Real Estate Investment Trusts (REITS). REITs provide the benefit (via dividends) of income but the REIT firm is burdened with the hassles of property maintenance and rent collection.

Money Lending – Sites like “Lending Tree” have opened up a new investment trend where you can lend money directly to another person at a set interest rate. Downside is you bear the risk of loan defaults. An alternative to directly lending money is buying shares in companies that do this for a living. Types of companies you can invest into are Business Development Companies (BDCs) and Mortgage REITS (mREITS).

Part-Time Job or Business – This used to be an old go to but for some reason has become an overlooked alternative. My belief is you can approach this in two ways. The first is short term that is aligned to a specific goal where all the money earned from a part-time job goes towards paying off debt or creating savings to invest in other income producing assets. The second approach is long term where you find a part-time job that you personally enjoy that not just adds additional income but could provide personal satisfaction.

Royalty or Residual Income – It is amazing the sources of royalty income available. If you are talented you can get royalties from music, art or video. You can write a book or e-book, publish photos, or even start a website with advertising. I’m sure there are other sources but these are the few I am aware of.

Annuities – These get a bad rap for their high expenses and loss of assets after you (or your spouse) passes away. But a small annuity can fit into your retirement planning as they offer a simple lifetime payment. The problem with stock, bond or even real estate investments is that you have to always monitor and adjust in order to keep your portfolio relevant. Though what would happen if you lost the capabilities to manage investments (think Alzheimer’s) or worst yet you died and your spouse has to figure it out. A small annuity income stream would help lessen the burden during these times.

Adding these 7 additional pieces to the board it is now 12 versus 19, a much fairer fight by any means.

Summary

Unfortunately I figured out the rules for the game of life pretty late and I am currently working to get some of these pieces on the board. On a more serious note, life is not a game but a true struggle of ups and downs where people really can get hurt. Financially speaking, I truly believe growing multiple sources of income and having the right insurance packages (home, life, etc…) is the key to reducing the risk in one’s life. While I am a big proponent of dividend growth investing it is not the only strategy I employ for achieving goals. Lastly, do not let fear and saving rule your life. Remember to take some time out and enjoy life. - Comments: 0

JM Smucker's (SJM) Review - 04 Oct 2014 18:30

Tags: sjm smuckers stock_review_2014

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When one thinks of JM Smucker’s (SJM) the first thing that comes to mind is peanut butter & jelly. And why not, JIF is the number one selling peanut butter brand and their jellies are also near the top.

But SJM is much more diverse than that. Some of their other major products include Pillsbury, Crisco, Hungry Jack, Folgers coffee, and Keurig coffee lines Dunkin Donuts and Millstone. Interestingly it is SJM’s coffee lines that have provided much of their earnings growth of the last few years.

Operating in the consumer goods segment it is easy to assume that SJM is a dividend growth company and your assumption would be correct. SJM has annually increased dividends for the last 12 years. So the next questions are; is the current dividend stable and are growth rates sustainable.

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Dividend Growth Rates (per share)
1-Yr 3-Yr 5-Yr 10-Yr
11.5% 12.4% 11.8% 9.5%

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Looking at some of my quick screening criteria for a DG stock we see some solid numbers:

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Dividend Growth Rate Debt/Equity Ratio
Criteria SJM Criteria SJM
>= 7.2% 11.5% < 1 0.46
Dividend Yield Payout Ratio
Criteria SJM Criteria SJM
> 3% 2.6% < 70% 47.6%

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The only weakness on the initial screen is that the current dividend rate of 2.6% is below the 3% criteria.

Looking at earnings over the last 5 years we have positive earnings growth since 2011.

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Earnings Per Share
2014 2013 2012 2011 2010
EPS $5.42 $5.00 $4.06 $4.05 $4.15
EPS YoY Growth 8.4% 23.15% 0.2% -2.4%

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Looking at different price to earnings ratios and again we see positive signs that the stock is adequately priced and even lower than the industry average.

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Price to Earnings Ratios
P/E (trailing 12 months) 18.37
P/E (forward 12 months) 15.39
P/E 5 year average 18.34
P/E industry average 20.06

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On the surface, SJM’s numbers per share indicate a strong dividend grower. Yet, per share data can be somewhat misleading when factoring in share buybacks or additional share distributions. SJM’s share buyback program has reduced outstanding shares from 118,951,434 in 2010 to 104,332,241 in 2014 (a reduction of 12.3%). With slightly more than 12% of outstanding shares removed from the market it is not hard to see how this clouds our ability to see the true financial health of the company. To look past share buybacks it pays dividends (pun intended) to analyze financial statements.

First up is earnings and revenue:

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2014 2013 2012 2011 2010
Earnings $565.2M $544.2M $459.7M $479.5M $494.1M
Earnings YoY Growth 3.85% 18.38% -4.12% -2.95%
Revenue $5,610.6M $5,897.7M $5,525.8M $4,825.7M $4,605.3M
Revenue YoY Growth -4.86% 6.73% 14.5% 4.78%

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Unlike the per share numbers the financial statements are showing growth trends that aren’t that attractive. In the prepackaged food industry it is not uncommon to experience temporary periods of declining revenue growth, you see similar declines in companies like Kellogs (K), ConAgra (CAG), or General Mills (GIS). But, what all these companies have in common is their ability to invest in new products, advertising and/or acquiring other businesses to increase revenue and earnings.

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Looking at SJM investments; they are introducing 125 new products in the upcoming 2015 fiscal year and made a significant acquisition of Enray, Inc and Silocaf of New Orleans, Inc. These acquisitions will increases their product offerings in grain & coffee segments. In SJM’s latest 10Q filing they entered into a definitive agreement to acquire Sahale Snacks, Inc., a leading manufacturer and marketer of premium, branded nut and fruit snacks, for approximately $80M. So we see evidence that SJM is investing in new products and acquisitions as their primary strategy to grow earnings and revenue over the long term. What I expect from SJM in the future (2016 and beyond) is a scale down of new products and focus on improving operating costs to further increase earnings and margins down the road.

Of course buying back shares, developing new product lines or acquiring other business units is never free and is typically funded via long term debt agreements. Looking at SJM’s long term debt levels they have increased from $2.07B in 2013 to $2.28B in 2014 (an increase of 10.5%). While this may seem alarming it does make sense to aggressively borrow now while rates are low. Additionally, even with the rise in long term debt their debt to equity still stands at a respectable .46 (any number below 1 is strong) and current ratio is 1.6 (anything above 1 is a good signal).

SJM’s future growth is not guaranteed and comes with risks. SJM’s product lines are dependent on agricultural supply. A dry year or drought, like what was experienced over the summer of 2014, can drive commodity prices drastically upwards and considering much of their product depends on fruit and coffee beans it is not hard to understand how a bad growing season will impact earnings.

Another area of risk is a strengthening dollar. In the latest 10Q filing, SJM ‘s earnings on international sales were $35.4M versus sales of $298.3M in comparison to last year’s performance of $43.1M earnings and revenue of $300.1M. What we see is that in 2013 14.36% of sales went to earnings while in 2014 it dropped to 11.86%. Most of the decline was due to exchange rates and a strong dollar. With the U.S. Federal government scaling back their bond purchasing program over the next year it could very well be a catalyst for the dollar being even stronger in 2015 further hurting their earnings growth.

One final area of the financial statements to look at where share buybacks cloud your view is the actual dividends paid or as I like to call it The Real Dividend Growth Rate.

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2014 2013 2012 2011 2010
Annual Dividends Paid $238M $222.8M $213.7M $194M $166.2M
Dividends YoY Growth 6.8% 4.25% 10.15% 16.72%

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Actual dividends paid growth rate is significantly lower than the per share growth rate. Buybacks appear to contribute from 21% to 43% of dividend per share growth. Without significant earnings/revenue growth the current dividend is reliant on a combination of share buybacks and increasing the percentage of earnings paid in dividends (currently 47.6%).

In summary, the company has a strong balance sheet, well managed debt and a deep pipeline of new products to help increase future revenues. Yet for all of its strengths, rising agricultural commodity prices and a strong dollar will continue to hurt overall earnings growth. With a 47.6% dividend payout and continued share buyback program there is still some room to grow the dividend per share in the near term and I see an annual growth rate low of 5% and high of 8% that can be achieved without significantly growing the payout ratio above 60% over the next three years. Additionally I see no signs that he dividend will be suspended, cut or completely canceled in that time either. Based on retaining the existing dividend payout and reduced potential growth I would be interested buying if the stock price drops to below $98 a share to align with my long term DGI goals.

Note: I do not own this stock at time of this writing. - Comments: 0

3rd Quarter Portfolio Growth Update - 27 Sep 2014 14:34

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Quarterly Dividend Growth
% from Div Growth 0.12%
% from New Investments 3.28%
% from Reinvested Div 0%
% from Special Dividends -3.35%
% Overall Growth 0.06%
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Triangle Capital's (TCAP) special dividend expired in the second quarter and hit my dividend growth with a negative decline in the third. Luckily I had a new purchase in Maiden Holdings (MHLD) that essentially zeroed out the loss.

For the quarter, one stock contributed nicely to my passive growth; Bar Harbor Bank (BHB) raised their quarterly dividend by 3.2%.

This was the first quarter where there was no increase from reinvested dividends. This isn't a surprise for me as the 2nd & 3rd quarters of a new year I'm busy buying new shares with new money while I let the dividend pile up. With the 4th quarter coming up I expect to again see no growth from reinvested dividend but I do plan on investing all of my dividend that have been piling up which will probably contribute to 2015 growth.

Microsoft (MSFT) continues to be faithful with annual dividend increases. In September, MSFT announced an 11% increase in dividends starting in Nov. 2014.

Looking forward to the next quarter I'm expecting dividend increases from BP (BP), Seagate (STX) and Ensco Plc (ESV). If Bar Harbor Bank (BHB) keeps up its trend of quarterly dividend increases (currently at 13 consecutive quarters) I may have an additional bump. These increases will probably not contribute to 4th quarter growth but will be a nice start to 1st quarter of next year. - Comments: 0

New Stock Position - 27 Jul 2014 01:10

Tags: ge general_electric

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With the recent pullback in GE's stock price I initiated a small position on Friday 7/25 at a share price of 25.76 which will provide $50 annually to my dividend portfolio.

While I needed an industrial to diversify my portfolio I was not entirely sold on GE's future. Many DG investors over the last two years have been buying shares on the faith of GE's return to its historically legendary performance. But I wasn't convinced that GE was completely out of the woods in regards to risk. I could have initiated a larger position but until certain numbers improve I'll keep a small position.

Starting with the bad numbers. Their debt to equity ratio came in at a whopping 2.38 while most of their competitors have a debt/equity ratio of 1 or less. But in fairness GE has been slowly reducing their debt load over the last 3 years. Another concern is their payout ratio sitting at roughly 60% and again in comparison to their peers who have a ratio below 50% seems to be a bit steep and when vital money may be needed for investment.

Now the good. Revenues are forecasted to grow at an annual rate of 7% over the next 5 years and when combined with a stock repurchase program it makes a dividend growth rate of 7-8% annually very achievable. Reducing exposure to the financial sector is another positive. GE has been slowly divesting GE Capital's assets to reduce over exposure to one industry (it was their down fall in the crash of 2008-09). Looking to exit the appliance business, GE invested heavily to make its appliance segment more efficient and competitive globally which is making the divestiture a more attractive deal than it was just 5-6 years ago. While some might see this as a negative it really isn't, the appliance business while doing well with sales carries very slim margins. As an investor I'd rather see money invested with products or services that have higher profit margins.

Finally the risk. Going forward GE will be acquiring Alstom's power generating business at a cost of $10 billion. There are many what-if scenarios so the future is still unclear. I plan on giving it 2 years to see how this business has been integrated and contributes to profit margins. - Comments: 0

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