Follow the dividend investment decisions of a person who has no background in financial investment and wishes to take control of their financial future to retire from their full-time job at 60.

Build Diversity: Part 3 Healthcare - 08 Mar 2014 22:24

Tags: build_diversity

All stock information will be culled from David Fish’s “Dividend Champions List” at http://dripinvesting.org/ which provides a list of all stocks that have continually grown their annual dividend payouts for 5 years or more in a row.

Welcome to Part 3 of our “Build Diversity” series. Today we will be looking at the Healthcare sector.

To start with a list we will use basic search criteria of:

  • min div yield near 2% or greater
  • payout ratio less than 65%
  • debt to equity ratio less than 1
Company Symbol Yrs of Div Growth Div Yield Payout Ratio TTM P/E Debt/Equity
Becton Dickinson BDX 42 2.02% 46.68% 23.15 0.79
Bristol-Myers Squibb BMY 5 2.88% 93.51% 32.45 0.49
Cardinal Health CAH 17 1.78% 104.31% 58.64 0.62
Covidien plc COV 7 1.88% 37.54% 20.01 0.54
Johnson & Johnson JNJ 51 2.98% 54.89% 18.39 0.22
Medtronic Inc. MDT 36 1.98% 29.95% 15.12 0.66
National Healthcare Corp. NHC 10 2.46% 34.32% 13.94 0.02
Owens & Minor Inc. OMI 16 2.77% 56.14% 20.26 0.21
Smith & Nephew plc SNN 8 1.84% 44.93% 24.41 0.09
Span-America Medical Systems SPAN 15 2.82% 33.14% 11.74 0.00
Steris Corp. STE 9 1.83% 32.81% 17.93 0.51
Teva Pharmaceutical Indus TEVA 14 2.86% 90.64% 31.65 0.55
Utah Medical Products UTMD 10 1.88% 36.90% 19.63 0.18

The search yielded 13 stocks. Yet, one thing that immediately jumps out is the number of high valuations as seen in high P/E ratios such as Cardinal Health with a P/E of 58. As a second filter we will add the criteria of a P/E ratio less than the industry average of 21.88 which now reduces the results to 8 companies.

Company Symbol Yrs of Div Growth Div Yield Payout Ratio TTM P/E Debt/Equity
Covidien plc COV 7 1.88% 37.54% 20.01 0.54
Johnson & Johnson JNJ 51 2.98% 54.89% 18.39 0.22
Medtronic Inc. MDT 36 1.98% 29.95% 15.12 0.66
National Healthcare Corp. NHC 10 2.46% 34.32% 13.94 0.02
Owens & Minor Inc. OMI 16 2.77% 56.14% 20.26 0.21
Span-America Medical Systems SPAN 15 2.82% 33.14% 11.74 0.00
Steris Corp. STE 9 1.83% 32.81% 17.93 0.51
Utah Medical Products UTMD 10 1.88% 36.90% 19.63 0.18

For companies that have increased dividends for more than 20 consecutive years we have JNJ, & MDT. For payout ratios, JNJ and OMI are the only companies higher than 50% but even at these levels there is room to grow dividends further. Looking at debt, all 8 stocks sport a low debt/equity ratio.

Looking at average dividend growth significant differences begin to appear. While most show decent growth across the board two look weak. When looking at potential dividend growth companies it is not necessary to pursue high dividend yields as strong growth rates can effectively compensate over time. Unfortunately UTMD & NHC, with their low yield and low growth, are unattractive and removed from the list.

Company Symbol 1 Yr DGR 3 Yr DGR 5 Yr DGR 10 Yr DGR
Covidien plc COV 22.00% 15.52% 12.25% n/a
Johnson & Johnson JNJ 7.92% 7.07% 7.61% 10.84%
Medtronic Inc. MDT 6.93% 7.89% 11.56% 14.87%
National Healthcare Corp. NHC 3.33% 4.71% 6.62% n/a
Owens & Minor Inc. OMI 9.09% 10.75% 12.48% 15.20%
Span-America Medical Systems SPAN 9.28% 9.83% 8.65% 14.24%
Steris Corp. STE 11.11% 15.44% 23.36% n/a
Utah Medical Products UTMD 2.07% 1.57% 1.71% n/a

Our quick search has yielded 6 potentially attractive examples to add to your portfolio. Like any investment you should research further before purchasing any equity as this report is nothing more than a result of some surface level values and ratios.

Covidien plc (COV): Covidien plc develops, manufactures, and sells healthcare products for use in clinical and home settings worldwide.

Johnson & Johnson (JNJ): Johnson & Johnson, together with its subsidiaries, is engaged in the research and development, manufacture, and sale of various products in the health care field worldwide. The company operates in three segments: Consumer, Pharmaceutical, and Medical Devices and Diagnostics.

Medtronic Inc. (MDT): Medtronic, Inc. manufactures and sells device-based medical therapies worldwide. The company operates in two segments, Cardiac and Vascular Group, and Restorative Therapies Group.

Owens & Minor Inc. (OMI): Owens & Minor, Inc., together with its subsidiaries, operates as a healthcare logistics company. The company offers supply chain assistance to the providers of healthcare services; and the manufacturers of healthcare products, supplies, and devices.

Span-America Medical Systems (SPAN): Span-America Medical Systems, Inc. manufactures and distributes various therapeutic support surfaces and related products for the medical, consumer, and industrial markets primarily in the United States and Canada. The company operates in two segments, Medical and Custom Products.

Steris Corp. (STE): STERIS Corporation develops, manufactures, and markets infection prevention, contamination control, microbial reduction, and procedural support products and services for healthcare, pharmaceutical, scientific, research, industrial, and governmental customers worldwide. The company operates in three segments: Healthcare, Life Sciences, and STERIS Isomedix Services. - Comments: 0

Build Diversity: Part 2 Financials-Insurance - 06 Mar 2014 00:07

Tags: build_diversity

All stock information will be culled from David Fish’s “Dividend Champions List” at http://dripinvesting.org/ which provides a list of all stocks that have continually grown their annual dividend payouts for 5 years or more in a row

Welcome to Part 2 of our “Build Diversity” series. Today we will be looking at the Financial sector and more precisely Insurance companies.

To start with a list we will use basic search criteria of:

  • min div yield near 2.5% or greater
  • payout ratio less than 65%
  • debt to equity ratio less than 1
Company Symbol Yrs of Div Growth Div Yield Payout Ratio TTM P/E Debt/Equity
ACE Limited ACE 22 2.69% 24.59% 9.15 0.21
AFLAC Inc. AFL 31 2.36% 22.63% 9.60 0.34
Axis Capital Holdings Ltd. AXS 12 2.40% 25.53% 10.64 0.19
Cincinnati Financial CINF 54 3.63% 49.44% 13.61 0.16
Hanover Insurance Group THG 9 2.67% 53.24% 19.97 0.37
Maiden Holdings Ltd. MHLD 6 4.01% 57.89% 14.45 0.41
PartnerRe Limited PRE 21 2.73% 35.40% 12.97 0.13
Travelers Companies TRV 9 2.46% 20.53% 8.34 0.26

The search yielded 8 great stocks with a variety in yield and growth. For companies that have increased dividends for more than 20 consecutive years we have CINF, AFL, ACE, & PRE. All 8 stocks scored well in respect to payout ratio with the highest being MHLD hinting that there is room to grow dividends further. From a stock price valuation 7 of the stocks sport a P/E ratio less than 15 and 4 are below the industry average of 11.89 (TRV, AFL, ACE, AXS). Looking at debt, all 8 stocks carry low debt with a debt/equity ratio well below .5.

Company Symbol 1 Yr DGR 3 Yr DGR 5 Yr DGR 10 Yr DGR
ACE Limited ACE 4.17% 16.04% 12.91% 10.45%
AFLAC Inc. AFL 5.97% 7.60% 8.14% 16.82%
Axis Capital Holdings Ltd. AXS 4.17% 5.98% 6.21% 30.46%
Cincinnati Financial CINF 1.70% 1.19% 1.50% 6.41%
Hanover Insurance Group THG 10.57% 10.79% 24.76% na
Maiden Holdings Ltd. MHLD 12.50% 11.46% 29.20% na
PartnerRe Limited PRE 3.23% 7.69% 6.83% 7.87%
Travelers Companies TRV 9.50% 11.60% 10.49% 5.39%

Looking at average dividend growth significant differences begin to appear. CINF may have the longest growth history and one of the larger dividend yields it comes at price as lags most in growth over the last 10 years. THG & MHLD have the highest recent growth rates but their history may pose risk with only 9 and 6 years of consecutive increases.

Working with financials it is necessary to look at the 2008/2009 crash (caused by financials) and whether or not their banking & lending siblings carried over to insurance companies.

Company Symbol 2009 2008 2007
ACE Limited ACE 5.50% 4.81% 8.33%
AFLAC Inc. AFL 16.67% 20.00% 45.45%
Axis Capital Holdings Ltd. AXS 8.11% 12.12% 10.00%
Cincinnati Financial CINF 2.62% 8.93% 6.87%
Hanover Insurance Group THG 66.67% 12.50% 33.33%
Maiden Holdings Ltd. MHLD 140.00% 0.00% 0.00%
PartnerRe Limited PRE 2.17% 6.98% 7.50%
Travelers Companies TRV 3.36% 5.31% 11.88%

Dividend increases during the crash were surprisingly strong. The only exception to the group was MHLD but that is only because they did not start increasing dividends until 2009. While insurance and banking live in the same sector they do not react in the same manner according to this data and may actually be a nice defensive position against banking & financial lending companies.

Our quick search has yielded some nice examples to add to your portfolio. Like any investment you should research further before purchasing any equity as this report is nothing more than a result of some surface level values and ratios.

ACE Limited (ACE): ACE Limited, through its subsidiaries, provides a range of insurance and reinsurance products to insureds worldwide.

AFLAC Inc. (AFL): Aflac Incorporated, through its subsidiary, American Family Life Assurance Company of Columbus, provides supplemental health and life insurance products.

Axis Capital Holdings Ltd. (AXS): AXIS Capital Holdings Limited provides specialty lines insurance and treaty reinsurance products worldwide.

Cincinnati Financial (CINF): Cincinnati Financial Corporation engages in the property casualty insurance business in the United States. It operates in five segments: Commercial Lines Property Casualty Insurance; Personal Lines Property Casualty Insurance; Excess and Surplus Lines Property Casualty Insurance; Life Insurance; and Investments.

Hanover Insurance Group (THG): The Hanover Insurance Group, Inc., through its subsidiaries, underwrites commercial and personal property, and casualty insurance products and services in the United States. It operates in four segments: Commercial Lines, Personal Lines, Chaucer, and Other.

Maiden Holdings Ltd. (MHLD): Maiden Holdings, Ltd., through its subsidiaries, provides reinsurance solutions to regional and specialty insurers primarily in the United States and Europe. It operates in three segments: Diversified Reinsurance, AmTrust Quota Share Reinsurance, and ACAC Quota Share.

PartnerRe Limited (PRE): PartnerRe Ltd., through its subsidiaries, provides reinsurance services worldwide.

Travelers Companies (TRV): The Travelers Companies, Inc., through its subsidiaries, provides various commercial and personal property, and casualty insurance products and services to businesses, government units, associations, and individuals in the United States. - Comments: 0

Build Diversity: Part 1 Industrials - 02 Mar 2014 18:02

Tags: build_diversity

Back in January I did a post on Regional Banks and it inspired me to start a new blog series called “Build Diversity”. Many naysayers to the dividend growth strategy continually state that the selection of dividend growth companies is very limiting and the largest risk is lack of diversification. This blog series is intended to disprove naysayers and help a new investor identify potential DGI companies while building a diversified portfolio.

All stock information will be culled from David Fish’s “Dividend Champions List” at http://dripinvesting.org/ which provides a list of all stocks that have continually grown their annual dividend payouts for 5 years or more in a row

To kick-off the series we will start with industrials. Industrials have never been known to rock the world with stellar high dividend yields but what they lack in yield they make up in large dividend growth increases year to year.

To start with a list we will use basic search criteria of:

  • min div yield near 2% or greater
  • payout ratio less than 65%
  • debt to equity ratio less than 1
Company Symbol Yrs of Div Growth Div Yield Payout Ratio TTM P/E Debt/Equity
3M Company MMM 56 2.67% 52.53% 19.69124424 0.32
Applied Industrial Tech AIT 5 1.98% 36.90% 18.64 0.00
Crane Company CR 9 1.90% 32.61% 17.16 0.29
Cummins Inc. CMI 8 1.97% 33.11% 16.81 0.25
Emerson Electric EMR 57 2.61% 61.87% 23.72 0.53
Illinois Tool Works ITW 39 2.13% 34.85% 16.36 0.49
Stanley Black & Decker SWK 46 2.58% 55.10% 21.32 0.67

Our search yielded 7 great stocks and each brings something special to the table. The highest yielding stocks (MMM, EMR, ITW, SWK) are also the elder statesman with a minimum of 39 years of consecutive annual dividend growth. But our young guns (AIT, CR, CMI) bring low payout ratios, debt/equity, and P/E ratios.

Company 1 Yr DGR 3 Yr DGR 5 Yr DGR 10 Yr DGR
3M Company 7.63% 6.55% 4.90% 6.76%
Applied Industrial Tech 9.52% 12.86% 8.92% 15.74%
Crane Company 7.41% 10.49% 8.83% 11.23%
Cummins Inc. 25.00% 37.00% 30.26% 22.32%
Emerson Electric 3.11% 7.13% 6.18% 7.71%
Illinois Tool Works 6.85% 7.10% 6.29% 12.87%
Stanley Black & Decker 10.00% 13.90% 9.46% 6.75%

Looking at average dividend growth all candidates have shown impressive long term averages and Cummins is really knocking it out with a 10 year average of 22%. But, seeing averages can be misleading. Looking at year to year growth, especially during the 2008/2009 market crash, could be more telling on how well these companies react to adversity.

INDUS_CHART.png

Of the 7 companies, only AIT failed to raise their dividend during the crisis in 2009. While impressive for the remaining companies the most impressive was CMI with a whopping 16% as well as Illinois Tool Works & Emerson Electric providing more than 7% growth though both did slowdown in the following year to only 2.42% & 1.89%.

Our quick look at Industrials have yielded some nice examples to add to your portfolio. Results yielded low risk long term dividend payers like 3M and also offers some rapid growth like Cummins Inc. Like any investment you should research further before purchasing any equity as this report is nothing more than a result of some surface level values and ratios.

3M Company (MMM): 3M Company operates as a diversified technology company worldwide. Its business segments include: General Industrial , Safety and Graphics, Electronics and Energy, Health Care, an Consumer Markets.

Applied Industrial Tech (AIT): Applied Industrial Technologies, Inc. distributes industrial products for maintenance, repair, and operational needs, as well as original equipment manufacturing

Crane Company (CR): Crane Co. manufactures and sells engineered industrial products in the United States and internationally. It operates in four segments: Aerospace & Electronics, Engineered Materials, Merchandising Systems, and Fluid Handling.

Cummins Inc. (CMI): Cummins Inc. designs, manufactures, distributes, and services diesel and natural gas engines, and engine-related component products. It operates in four segments: Engine, Components, Power Generation, and Distribution.

Emerson Electric (EMR): Emerson Electric Co., a diversified technology company, designs and supplies products and technology, and delivers engineering services and solutions to the industrial, commercial, and consumer markets worldwide.

Illinois Tool Works (ITW): Illinois Tool Works Inc. produces and sells engineered fasteners and components, equipment and consumable systems, and specialty products. The company operates through seven segments: Automotive OEM; Test & Measurement and Electronics; Food Equipment; Polymers & Fluids; Welding; Construction Products; and Specialty Products.

Stanley Black & Decker (SWK): Stanley Black & Decker, Inc. provides power and hand tools, mechanical access solutions, and electronic security and monitoring systems for various industrial applications. - Comments: 0

Progression on Goals - 01 Mar 2014 18:59

Tags:

February was a nice step in meeting every item of my 2014 goals all in thanks to Mr. Market, decent dividend increases from Dr. Pepper Snapple (DPS) & Hasbro (HAS) and finally pulling the trigger on my first buy of the year (HCP Inc).

Last month I spoke about challenges of being in a sandwich generation and the loss of my annual bonus. Some good that came out was that my wife found a very flexible part-time job. It is only a couple hours a day and at minimum wage. But she can take time off whenever she needs to leaving her the flexibility for taking care of aging parents and replacing my loss of a bonus.

Unfortunately things at my place of employment are getting worse. Just went through a large layoff (I survived) and it just may be the tip of the iceberg for more. Yet there is silver lining, the severity of my employment status has inspired my family to dig deep to find more money saving ideas.

For the most part I have little control over my employment so I will continue to focus on what I can control such as my DGI portfolio. It is for scenarios like this that originally inspired my move to dividend growth.

chart_2feb.png

- Comments: 0

Defensive Addition to My Portfolio - 22 Feb 2014 21:33

Tags:

logo_HCP.png

Over the last 9 months REITs (Real Estate Investment Trusts) have been in a sell-off. This sell-off has finally motivated me to buy my first REIT in an effort to diversify my portfolio. In addition to increasing my portfolio diversity I also have the goal of picking a defensive stock in the case of a significant market drop by owning an alternative investment in the form of property. A REIT is easier than actually buying property and the headaches that come with it as well as also being more liquid.

I settled with a purchase of 54 shares in HCP at a price of $37 per share and a dividend yield of 5.8%. HCP’s health care property investments are the most diverse in their industry and tenant income source is just as diverse as it is spread (almost evenly) between Private investment, Medicare, & Medicaid.

Additionally HCP has increased its dividend for 29 straight years, has a 10 year dividend growth average of 2.4%, and is the only REIT currently a member of the S&P 500 Dividend Aristocrats Index. HCP is quite proud of its inclusion in the index and heavily advertises as such, of which helps attract new investment when HCP requires capital for property growth. - Comments: 0

Summary of First Quarter Increases - 15 Feb 2014 12:45

Tags:

logo_TCAP.png

In the first quarter I expected 6 stocks to increase dividends and to date I have 1 miss in Triangle Capital (TCAP).

Though TCAP did not raise their dividend they did issue a special dividend of $0.30 per share payable in two installments of March and June ($0.15 per share in each installment). While not a regular increase it is still a bump of 13% more than last years overall payment. TCAP has already been on my 2 year watch list as they had no increases last year which gives them another 10 months to recover with growth.

Financially TCAP continues to manage their portfolio and position themselves for future growth and one of the primary reasons I am giving them a full two years to get back on the div growth wagon. The second half of 2013 saw extensive loan repayments. TCAP's ability to identify strong investment candidates and to quickly turn the repayment money back into their portfolio will be key to maintaining my faith in management.

Rounding out the remainder of expected increases we had Dr. Pepper Snapple (DPS) 7.9%, PPL Corp (PPL) 1.4%, and Hasbro (HAS) 7.5%. Of course the quarter is not over and next month I am expecting news from Air Products (APD) and Waste Management (WM). - Comments: 0

DG Investing in a Taxable or Deferred Account? - 05 Feb 2014 15:23

Tags:

I occasionally get asked if using a tax deferred account (such as an IRA) is better than a taxable account for dividend growth investing and my answer is always the same; it depends.

There is no absolute right answer and much depends on your goals and where you are in life. If your goal is to create an income flow during retirement then a Roth IRA or Roth 401K is your best solution.

If you are saving to build an emergency fund then a taxable account is your best solution as you can easily access your income stream without paying early withdrawal penalties. But this all depends on your age and how far along you are towards your goal. The closer you are to your goal or nearing retirement age (within 10 years) it would make sense to start placing all or some of your future investments into a tax deferred account while you still qualify. The ability to grow dividends at an even faster rate would be yet another tool to help combat inflation during your retirement years.

Besides growing your earnings in a tax free or deferred IRA or 401K there is an additional benefit that may be realized that investors should not overlook. Some U.S. States have a classification of being “tax friendly”. Tax friendly states, such as Pennsylvania, do not tax distributions from 401(k)s, IRAs, deferred-compensation plans or other retirement accounts. If you think a Roth account solves this think again. A Roth may help with federal taxes but States are under no obligation so “tax un-friendly” states such as Connecticut are not shy about taxing Roth distributions. If you are fortunate enough to live in or plan to move to a tax friendly State then consider having some of your investments in a tax deferred account.

Not sure if your state is tax friendly? Check out this neat tool from Kiplinger’s that summarizes all 50 States. Kiplinger's State by State Tax Guide Link - Comments: 0

Goals Have Become Challenging - 01 Feb 2014 17:02

Tags:

It is amazing how thing change in just a month. First off I can officially say I am now part of the sandwich generation. Recently (and unfortunately) my aging in-laws require care that my wife needs to provide on a daily basis and top it off the oldest of my three children is only two years away from college.

At my place of employment one of my fears came true in that there will be no annual bonuses this March. I was really counting on that to meet my investing goal $6K of new stock purchases. My wife could get a full or even part-time job to compensate but that commitment would take away from the time she cares for her parents of which I will not deny her that. We will just have to dig a little deeper to figure out how to fund the goal.

Speaking of goals January was not polite overall. With the markets down it places both my 401K & IRA behind the curve. There are still 11 months left in the year so still time to recover. On the positive side my efforts at the start of the year to reestablish a 10% cash position in both funds has limited the downside.

On the dividend growth side I neither purchased nor sold any stocks but have accumulated $2K in cash for future purchases. Dividend payouts remained steady with no decreases but expect increase announcements starting in February. My expectations for dividends & growth was the only goal meeting my expectations and further reinforces how steady a DGI portfolio can make ones financial efforts.

Though I never buy stocks in the first month of a new year I am seeing buying opportunities with the recent market pullbacks. As of today I see buying opportunities with General Mills (GIS), McDonalds (MCD), HCP Inc. (HCP), Proctor & Gamble (PG), Dr. Pepper Snapple (DPS), Chevron (CVX), and Ensco plc (ESV). If prices continue to drop I see even more with Cummings (CMI), Coca-Cola (KO), Johnson & Johnson (JNJ), and Target, (TG).

While it looks like a tough start to the year for the overall market I definitely see DGI opportunities that meet my long term goals. If January is any indicator for the remainder of the year then 2014 may be a great opportunity for investing. Now I just need to dig deep and find opportunities to unlock some money to invest.

chart_2jan.png

- Comments: 0

Less to Invest but Peace of Mind - 19 Jan 2014 13:16

Tags:

Over the last 10 years I have been notified 3 times that my personal information may have been compromised and Target now makes the 4th. Private businesses inability to adequately secure my data over the years just re-enforces the belief that in this digital age nothing is secure.

It will be interesting to see how the Target fiasco with more than 70 million transactions of data being stolen will play out. Short term I believe they will be the poster child of cyber hacking and will pay out reparations or services provided that will be more excessive than other retailers recently hacked. Being the poster child I'm sure sales will suffer but only for a couple of quarters as most have short memories and after a year this will be a thing of the past. But, in the meantime Target has to suck it up and keep a stiff upper lip throughout. I would not be shocked if the dividend remains static this year but would be surprised if it decreases or halted.

identguard.png

That aside, I can no longer stick my head in the sand and think all businesses have my back in regards to securing personal data and have to assume some responsibility. On this note, I started a subscription to protect my identity and financial position in life. I signed up with Identity Guard for $14.99 a month that not just monitors but also provides $1 million of insurance protection and recovery assistance.

As I have posted in the past, spare money is never easy to come by and I'm always looking for ways to save and invest of which this commitment will take away from that effort. Yet, the positive is peace of mind protection. - Comments: 0

Getting a raise every month this quarter :) - 08 Jan 2014 00:16

Tags:

I love the first two quarters of a new year as two thirds of my holding announce dividend increases!

So now I sit here waiting patiently for the news announcements to be released. Kind of reminds me of being a kid again having to wait for Christmas. Gotta love this anticipation and feeling over getting a bunch of raises over the next six months.

Picture1.png

- Comments: 0


Unless otherwise stated, the content of this page is licensed under Creative Commons Attribution-ShareAlike 3.0 License