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

Internet Finds of the Week - 28 Nov 2015 12:03

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Interesting Articles from Last Week

The 10 Investing Commandments

Neither Bull nor Bear

How Wall Street Hijacks Your Money

Employees Pay 130% more for Health Care than a Decade Ago
This might be understated for some. I looked at my pay stubs for the last 6 years and the amount deducted for insurance increased annually in the range of 12% to 14%. This is one of the factors making you feel that you have less money to invest or spend than in years past.

Video of the Week

Gotta love the New York Stock Exchange for embracing Technicolor. I kept expecting Bugs Bunny or Daffy Duck to pop out and do something funny but alas it was not to be.

I’ll keep on sharing internet finds when I can, Enjoy the Links :) - Comments: 0

Turning the Corner to Dividend Growth - 24 Nov 2015 20:19

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I have now completed 4 full years of dividend growth investing and feel that I am finally making that turn onto Dividend Growth Street!

When I started this journey I had a specific goal to replace 20% of my income with dividends by the time I retired. With a small

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accumulation of investment money and a 15 year plan I knew exactly how much my dividend income had to increase by each and every year, 50% in the first year and then 15% each year until my goal.

Every year I had to contribute significant new funds to meet the growth rate and also to make up for the occasional investing mistake. Then came the summer of 2015. My oldest child was entering her senior year in high school and my wife and I decided to redirect all available funds to shore up our children’s college savings. Starting in June of 2015, no additional money was being used to fund the Dividend Growth Portfolio. To make matters more complex, I have a total of three children all 2 years apart so the college funding will continue for a full six more years! It is for a good cause but at what price? Thankfully the wife and I were smart enough to put college savings aside when our children were first born so the damage could have been worse.

Considering I have needed to add a decent amount of funds each and every year to meet my income growth goals I really started to wonder if I’m putting my retirement at jeopardy for the sake of my children. Did I finally become one of THOSE parents? After looking at my portfolio for 2015 I noticed something interesting, I met my 2015 goal of increasing dividends 15% without adding any new money since June.

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Holy cow, in just the fourth year of investing, the portfolio is growing organically at a significant rate. 71% of the portfolio growth was met through companies growing their dividends and reinvesting those dividends back into shares of more dividend growth companies. Of course it is not 100% organic growth but still extremely positive to stay on or near to plan while investing in my children. With a little luck, I could get a bonus or even a promotion during the next six years to add some new funds to the Dividend Growth Portfolio to keep it on track.

The next few years will be interesting to watch. After all the hard work of budgeting, saving and investing it is starting to take a life onto its own and I feel my investment vehicle making that final turn onto Dividend Growth Street. Cannot wait for the day when the turn is complete and I can just cruise down the street with no worries. - Comments: 0

Internet Finds of the Week - 21 Nov 2015 16:22

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In regards to dividend payments, Free Cash Flow is the backbone to any dividend program and to ignore free cash flow as dividend growth investor introduces massive risk. On this note I have found a wonderful video that explains free cash flow for all the newbies to dividend investing.

Also in case you missed these here are two interesting articles released earlier in the week:

Don’t Focus on Net Worth by fellow blogger Roadmap2Retire

Don't confuse 'saving' with 'not spending'

ConAgra to spin off frozen-potato business

I’ll keep on sharing internet finds when I can, Enjoy the Links :) - Comments: 0

Breathe a Little Easier with Donaldson - 21 Nov 2015 01:15

Tags: dci donaldson stock_review_2015

Donaldson Company (DCI) is an often overlooked Dividend Champion but after a recent pullback, due to lower sales & income, there is an opportunity to buy into this steady grower. DCI was often overlooked due to its low dividend yield (below 2%) but the recent pullback in share price has increased the yield to 2.34% and may be more tempting for your portfolio.

DCI is a manufacturer of air & liquid filters with a diverse business operating in two segments, engine products and industrial products. Within those sectors they serve 23 different industries with no customer representing 10% or more of total sales which translates into a broad and diverse customer base.

In regards to dividends, DCI has 29 consecutive years of dividend growth and looks to continue that streak into 2016 and beyond. DCI’s recently raised its quarterly dividend to 0.17 or 3% which is well below their traditional growth rates but opportunities exist to see a return to higher growth rates.

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FINANCIALS

Overall DCI has some declining financials but they still represent a conservatively managed company with significant profit margins. Net sales for 2015 were down 4% but the larger concern was a 20% drop in Net Income from $260M to $208M. The debt ratio of 0.57 had been steadily increasing over the last three years from 0.38 but is still manageable and respectable.

  • Net Sales $2371M
  • Net Income $208M
  • Current Ratio 1.84
  • Gross Profit Rate 34%
  • Return on Assets 11%
  • Payout Ratio 43.75%
  • Debt Ratio 0.57

GROWTH

Throughout DCI’s 29 year consecutive dividend growth run they have operated under the belief that if they invest steadily in themselves that everything else will fall into a place. It is a model that has continually paid off even in low earning years such as 2001, 2009 and 2010 and though history cannot predict the future it does give promise that DCI can overcome 2015’s dismal financial performance.

In 2015 DCI continued its model of continually investing back into the company. The Capex to Depreciation ratio was 1.4 with capital expenditure spending of $94M significantly outpaced depreciation of $67M.

Research and development costs were $60M and was followed up with $106M in acquisitions. With Capex, R&D, and acquisitions this represent a total of $193M being poured back into the company for future growth. Additionally, DCI invested $256M in stock buybacks increasing the overall investment towards future growth to $449M.

Conclusion

DCI’s investments should add $10-$20M to 2016 net income and combined with the stock repurchase plan my dividend growth target is 9-12%.

In regards to financials, I would like to see stock buybacks reduced by $100M and use that cash to shore up cash on hand to increase their current ratio from 1.84 to 2.

I'd consider this a buying opportunity as long as the dividend yield stays above 2% and the company maintains internal investments into 2016. - Comments: 0

Internet Finds of the Week - 14 Nov 2015 22:31

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Found this 56 year old video from the NYSE over on YouTube. While it may make you chuckle (including what was considered a big raise back in 1959) I find it amazing that the message is still the same these many years later…

Steady savings and investment in dividend paying stocks is your best bet towards a secure future.

Also in case you missed these here are two interesting articles released earlier in the week:

4 Lessons We Learned While Digging Out of Debt

Are You Too Young To Care About Dividends?

Not sure if this will be a regular future post but will definitely share internet finds when I can, Enjoy the Links :) - Comments: 0

Annual Report Financial Analysis – Follow-up - 11 Nov 2015 23:25

Tags: annual_report financial_statements

Back in August I posted a 4 part series blog on performing an analysis on the financial statements found in most Annual Reports or 10K filings. In that series, we categorized the analysis (using the standards taught in basic accounting classes) into 4 buckets; Liquidity, Profitability, Credit Risk, and Share Holder Value.

While these 4 categories are standard I find myself continually performing a secondary financial analysis for growth potential. As such I am now updating this series to include the 5th category of Growth and have also updated the excel template
for anyone that wishes to use it.

The new growth category is broken into 2 sections; Historical Growth and Future Growth. Historical Growth is a collection of trending data that used to be part of the Profitability & Shareholder Value analysis but I have since relocated them. The Historical Growth trends include:

  • Net Sales Growth Trend
  • Net Income Growth Trend
  • Dividends Growth Trend

The Future Growth analysis consists of only two measures. The first is just a % trend analysis of research and development costs and is somewhat self-explanatory. The second measure is a ratio called the Capital Expenditure to Depreciation & Amortization (Capex Ratio for short).

The Capex Ratio is calculated by dividing Capital Expenditures by Depreciation & Amortization and both values can easily be found on the Cash Flow statement.

Capex Ratio = Capital Expenditures / Depreciation & Amortization

Note: Some companies combine depreciation & amortization into one value while others list the two separately, for the items listed separately the formula would be:

Capex Ratio = Capital Expenditures / Depreciation + Amortization

The resulting ratio value then corresponds to growth
Value Meaning
<0.9 Assets are aging
0.9 to 1.1 Assets are being kept current (maintenance & modernization)
1.1 to 1.4 Assets are being procured for growth
>1.4 Assets are being procured for aggressive growth

Of course a one year analysis can be misleading so do your homework and look at a minimum of 3 years of data. - Comments: 0

Goals & Strategies - 07 Nov 2015 22:46

Tags: 2015_goals social_security

Some good advice is to adjust goals when needed but stay on your strategy to get there. While this is usually very good advice, sometimes there are external forces that can change both.

One such external force was a recent change to Social Security that eliminates the file & suspend option. This option was fairly popular among married couples where the husband files for social security benefits and the wife also files a claim against her husband’s social security benefit but then the husband immediately suspends his payment to be collected at a future date. This allowed the husband’s benefit to continue growing while receiving some income via his wife.

The file & suspend strategy was one that I was counting on to achieve a goal I had set for age 65. Now that this feature is no longer available I will have to re-evaluate my age 65 goal and the strategies I planned to get there. This is why it is extremely important to evaluate your goals and strategies at least once a year to allow for fine tuning or, as in this case, a minor course correction. - Comments: 0


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