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Goals & Strategies - 07 Nov 2015 22:46


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

Don't Get Discouraged - 24 Oct 2015 12:52



If you are new to investing you probably did a web search and ended up at this blog and countless others. Financial blogs are a valuable resource as they can provide inspiration, new ideas, support and even create a new circle of friends. The reason why you are researching about investing is because you want to improve your life and that is the one common thread across all financial blogs, the authors are focused on improving their lives!

Yet in the same vain, financial blogs can also be extremely discouraging. If you are trying to take control of your life’s financial challenges you most likely have little to no cash. When you read about how much some of the authors can afford to invest it may start you thinking that you cannot afford to do this. Truth is that is all bullshit! If you can figure out how save $25 a month then YOU CAN DO THIS! How do I know this? Well I’ve been and still am in that very same boat.

I will admit it is tough to see that someone is saving and investing more in one month than I could in a year or that in just a year or two they have invested the same as what has taken me 15 years. But you need to remember that everyone’s situation is different and you can’t fault them for being in a better position. You need to ignore this feature of blogs and focus on you and improving your life. This is the main reason I do not list how much money I invest or receive whenever I buy or sell a stock. Try to see the positive of a financial blog and apply it where you can to your own situation.

Of course this rant is not really helping with why you came here in the first place so I’ll impart my opinions or words of wisdom based on my financial struggles as an adult over the last 30 years.

  • There is no such thing as get rich quick
  • No one will help you! Only you can help yourself
  • Steady saving and investing over a long period of time works!
  • Understand where you spend money weekly, monthly and annually
  • Be honest with yourself
  • Focus on reducing where you spend money
  • Do not think you are smarter than other investors
  • Strive to learn something new every year
  • Set small short term goals
  • Invest in things that return cash (cash in your hand is very empowering)
  • Do not compare yourself to others, only compare yourself to your goals
  • Taking control of your finances takes hard work & discipline but it does get easier as time goes on

Are these the right answers? I have no clue, I can only impart some of the lessons I learned through life and hopefully some of these will hit home for you. If these haven’t scared you away then I am extremely proud of you taking control of your life. - Comments: 0

Air Products Spin-Off - 18 Oct 2015 12:55



In September Air Products (APD) announced a tax free spin-off of their materials business (press release link). The big question dividend growth investors should ask is "how does this affect my dividend and future growth". Using APD's 2014 Annual Report here is a segment breakdown:

in millions of dollars
Sales 2014 2013 2012
Merchant Gases $4,250.7 $4,098.6 $3,662.4
Tonnage Gases $3,288.9 $3,387.3 $3,206.7
Electronics and Performance Materials $2,449.0 $2,243.4 $2,322.0
Equipment and Energy $450.4 $451.1 $420.1
Sale Totals $10,439.0 $10,180.4 $9,611.7
Materials % of sales 23.46% 22.04% 24.16%
Operating Income 2014 2013 2012
Merchant Gases $671.6 $680.5 $644.0
Tonnage Gases $484.9 $515.9 $512.0
Electronics and Performance Materials $425.3 $321.3 $425.6
Equipment and Energy $88.2 $65.5 $44.6
Operating Income Totals $1,670.0 $1,583.2 $1,626.2
Materials % of Operating Income 25.47% 20.29% 26.17%
2014 Operating Margins
Company Operating Margin 15.9%
Electronics and Performance Materials Operating Margin 17.4%

APD's materials business is a pretty decent business and they are not unloading it because of low margins, as seen by the 17.4% operating margin. The only knock I see is that sales are rather flat.

It appears APD is staying true to their 5 point improvement plan with the first point being "Focus on core products" which they define as industrial gases. By spinning off their materials it is actually more beneficial to the materials segment as they have complete control of their future and how to invest future income back into the business. This is one of the few spin-offs that actually makes sense for the business and shareholders.

In regards to dividends it will be interesting to see how this plays out. In 2014 APD paid out $627.7M in dividends and materials represented 25% of operating income. By removing the materials segment and not changing the dividend paid that will move the dividend payout ratio from 67% to 81%. That high of a payout ratio may not be sustainable, hopefully after the spin-off the dividend gets spread across the two companies so that APD can maintain their existing dividend payout ratio and give shareholders two dividend growth stocks.

Details of the spin-off have yet to be announced but if done correctly this could be good for everyone. - Comments: 0

Procter and Gamble Dividend Temptations - 15 Oct 2015 19:54



Over the last month and a half Procter & Gamble’s (PG) share price has dropped dramatically enough to sport a dividend yield from 3.6% to 3.8% well above its traditional yield at or near 3%. Many investors may see this as a value play but is it a wise investment at this time?

PG is a Blue Chip Dividend Aristocrat with a 59 year dividend growth streak. It has been a cornerstone of my dividend growth portfolio from day one and a longtime favorite. But from this investor’s point of view, any investment in PG is simply based on speculation more than fact. There are no signals to sell PG shares but at the same time nothing is screaming buy.

2015 for PG has been a pretty rough year. Sales have been declining which resulted in a 39% decline in earnings and a 20% decline in operating income. To top it off there is even more competition coming from low cost men’s razor clubs and a strong dollar has been negatively impacting their international earnings. Yet, as bad as these numbers sound it is still not a reason to sell.

PG is still a cash generating machine! Their gross profit rate sits at an impressive 49%. They are best in industry when converting accounts receivable into cash as seen by their receivables turnover ratio of 12.27 which means they can convert a receivable into cash in less than 30 days. And PG is far from being cash poor as they are sitting on $11.6 billion in cash and short term investments.

The most unclear signals coming from PG is their divestures. PG has been on a tear to reduce their product line-up by divesting and then focusing on a core set of products. Some of the major divestures include Duracell to Berkshire Hathaway for $2.9B and their beauty product lines to Coty for $12.5B. That will be quite a bit of cash coming in and there has been no clear direction as to how they plan to spend the cash.

Management has been very vague repeatedly stating that reducing their portfolio of products will allow for increased focus and growth on core product lines. Nice sales pitch but what are the details? How much of the funds will be invested into new capital equipment, research and development, or advertising? Are new acquisitions out of the question? Will any of it be returned to shareholders? Lots and lots of questions with no answers. Anything we as investors decide on at this time would be nothing but speculation that conditions will improve or worsen.

With an unclear future but strong cash flow it leads this investor to the conclusion of do not get seduced by the dividend yield or stock price and do not be afraid of the recent downturn in earnings. Don’t buy, don’t sell, simply just hold what you have. - Comments: 0

Some Good News For BP Investors - 11 Oct 2015 12:22


If you are a shareholder in BP good news has been tough to come by the last few years. But here is a recent development by BP owned Castrol.

Castrol has introduced a new technology for engine oil lubrication that is more efficient and can reduce oil changes to just 90 seconds! They estimate the technology will be available in 5 years and are currently in negotiations with major automakers to adopt the technology. If adoption rates are high this could be a huge Intellectual Property win for BP. Check out the video below

- Comments: 0

New Purchase (Domtar, UFS) - 10 Oct 2015 11:33



I initiated a small position in Domtar (UFS) that will increase my annual dividend by $44.80. I could have bought in a with a larger position but I stand by my original assessment (click here for original UFS review).

Though current sales are struggling for growth, their investments for future growth are well thought out and will eventually come to fruition but until then they need to continue strengthening their financials before the position can be increased further. - Comments: 0

DIVCON 2015 - 08 Oct 2015 15:48


The first time I saw the tagline DIVCON I thought it was a convention for dividend investors similar to what COMICON is to comic fans but it was not like that at all. DIVCON is a new dividend rating tool created by the San Diego based investment firm Reality Shares Advisors.


The title DIVCON is actually a play on of the U.S. Military’s DEFCON rating system and just like that system they have a scoring ratio of 1 to 5 with 5 being the best and 1 being the worst.


The DIVCON tool consists of 1200 mid to large size U.S. listed stocks and does something rather unique, it predicts who is likely to increase their dividend over the next 12 months. This is different than the analysis I normally perform as I perform to see if a company is capable of dividend growth, a subtle difference but prediction requires a different analysis than capability to grow.

The tool takes into account several factors including free cash flow, dividend growth history, earnings growth and share buybacks. I tested the tool out with 40 different stocks of which 38 I knew had the capability to raise dividends and 2 that did not. 2 stocks scored the highest rating of 5 (very healthy), 31 stocks scored a 4 (healthy), 3 stocks scored a 3 (neutral), 1 stock scored a 2 (risky), and 3 came back as not found because they were too small (micro caps).

Those were pretty good results, the three that came back with a score of 3 (neutral) were Chevron (CVX), General Mills (GIS) and Kimberly Clark (KMB) of which CVX was one of my will not grow candidates. The lone result with a score of 2 was Ensco (ESV) which was my other will not grow candidate. I don’t necessarily agree with the GIS & KMB ratings but it did sniff out my clunkers.

According to a white paper written by Reality Shares they have been validating the model with stocks from 2001 to 2014 and boast the following effectiveness:


Apparently the model is more accurate at predicting positive growth for very healthy companies than it is at predicting zero or even negative growth. Of course one could argue that the model was not back tested far enough and needs to be back tested against a larger amount of time but it is interesting none the less.

My personal take is that I find the tool interesting and would use the tool as a reference point during my research phase. But, I would not make investing decisions based on the results and still rely on doing the due diligence of a detailed financial analysis. Regardless of a tool, it is no substitute for analyzing all of the factors that define a company’s liquidity, profitability, and credit risk. - Comments: 1

Just Bought JNJ and Here's Why - 01 Oct 2015 22:19



Last week I saw an opportunity to increase my dividend growth portfolio and purchased Johnson & Johnson (JNJ) increasing my annual dividend by $48.

Whenever you read about someone purchasing JNJ its usually followed up with "Great company with 53 years of uninterrupted dividend increases and low dividend payout ratio". These are some pretty good metrics but there are other items that define the strength of JNJ and here are the additional reasons why I jumped on the JNJ band wagon.


1. JNJ's 53 year dividend growth streak has beaten inflation every year except one (1980)


2. Their debt ratio is 0.47 and they have enough annual income to pay annual interest on that debt 38 times over

3. Their dividend growth comes primarily from earnings growth & improving margins (not by stock buybacks)

4. Over the last 3 years they have grown Net Cash from Operating Activities by 20%

5. Gross Profit Rate is a whopping 69%

6. Return on Assets has steadily improved to a current 12%

7. Massive free cash flow that consistently exceeds dividends paid - Comments: 1

Domtar (UFS) a Potential Dividend Grower - 30 Sep 2015 16:25



Domtar (UFS) is a fairly recent dividend grower drawing interest of investors with a 4% dividend yield. With a lack of long term dividend growth history, the questions on the table are; 1.) Is the dividend safe? and 2.) Can dividend growth continue into the future?

Yes the Dividend is Safe

Domtar is a Canadian based company and is the second largest paper mill supplier in North America. Their largest competitors are International Paper (IP) and privately held Georgia-Pacific. The paper industry as a whole has been experiencing declines in sales at a rate of 3% to 5% a year and Domtar is no exception. Though paper sales are declining, the paper business is very mature and generates significant cash for Domtar.

In 2014 Domtar had $5.5B in sales, $634M funds from operations and paid $84M in dividends leaving a cushion of $550M and a dividend payment that is well funded.

2014 2013 2012
Funds from Operations $634M $411M $551M
Dividends Paid $84M $67M $58M

To compensate for the industry decline in paper, Domtar has slowly been transforming and diversifying into consumer products related to their paper business.

Growing the Business

In 2011 Domtar started down a path to diversify their business to replace declining revenues and to provide new avenues for growth. Domtar had to be considerate in their choice so as not to alienate existing customers of their paper and pulp business. Another consideration was not to enter into markets already crowded that would limit growth. International Paper and Georgia Pacific had already moved into these market segments with items like napkins, paper towels, paper plates and cups. These markets were not just crowded with low growth but also had slim margins.

Instead Domtar focused on long term growth and determined their best alternative was to acquire the U.S. business Attends in 2011 (the largest and leading adult incontinence diapers in North America) and closed on the Europe Attends business in 2012.


The acquisition of Attends solved two criteria for Domtar; growth and product alignment. The growth factor was a bet on an aging population that will see increased demand for incontinence products. In regards to alignment, as demand decreased on the paper pulp side of the business they converted the excess capacity into making fluff pulp which is used in the manufacture of diapers (baby & adult) and feminine products.

The acquisition of Attends was just the start of their new Personal Care business. In 2012 EAM was acquired (a leader in absorbent technologies) followed by a 2013 acquisition of Associated Hygienic Products (largest U.S. manufacturer of private label infant diapers) followed by a 2014 acquisition of Spanish company Indas (leading brand of adult incontinence in Spain).


Even though the paper products industry is in decline Domtar did not ignore that piece of the business which generates the bulk of their free cash flow. In 2013 they acquired the Xerox’s copy paper business and the deal also included the brand label “Xerox Paper” to further solidify their position as a leading supplier of paper goods.


In all Domtar has spent $1.8 billion dollars in acquisitions since 2011 and their CEO John Williams has told investors that the company has allocated an additional $1B for future acquisitions and the goal of 65% of future revenues to come from Pulp, Personal Care, and Specialty Packaging.

With all of the acquisitions Domtar has stabilized their sales and have a portfolio of products for growth. But the most interesting aspect is the percentage of sales for personal care products which has them moving slowly away from the Materials sector and into the Consumer sector.

2014 2013 2012
Sales $5.56B $5.39B $5.58B
Personal Care % of Sales 16.68% 10.5% 7.1%

Room for improvement

With Domtar slowly moving into the Consumer sector they are starting to play with the big boys like Kimberly Clark (KMB) and Procter & Gamble (PG). While their financials are pretty solid for a materials company they are not up to par with consumer companies and I have identified areas where I’d like to see Domtar improve over the coming years.

  1. Receivables Turnover Rate - Domtar’s ability to convert receivables into cash sports a ratio of 7.35 pretty good but when compared to PG ‘s 12.27 its paltry. If Domtar wishes to continue to be a dividend high flyer they need to convert their receivables at a faster rate to grow free cash flow. An acceptable target would be to improve to 8 times a year or better.
  2. Return on Assets - In 2014 Domtar drastically improved their return on assets from 1% to 7%. This has to be maintained going forward and an improvement is just icing on the cake.
  3. Gross Profit Rate - Domtar sports a 21% profit rate but if you compare it to KMB at 35% and PG at 48% it is easy to see they have a ways to go. Going forward I would like to see them grow this to 30%.
  4. Interest Rate Coverage Ratio - Though Domtar does not have a lot of debt it is rather expensive with a ratio of 3.53 versus PG at 19.92. Domtar has been improving on this front from year to year and needs to continue down this path through a combination of growing earnings and retiring more expensive long term debt to get to a factor of at least 5.


  • Domtar’s current dividend is safe and they have a growth path.
  • Moving more into the consumer market will require continued improvements to their financials.
  • Domtar would be a good small position to add to your portfolio. Would not initiate a major position until they have more dividend growth history and improved conservative set of financials. - Comments: 0

New REIT Position - 18 Sep 2015 21:53



I initiated a small position in REIT WP Carey (WPC) that will generate $65 in annual dividend income. I could have invested more but did not want more than 10% of my portfolio dedicated to REITS.

When it comes to REITS I have never been fond of mortgage REITS because the business is too complicated for me to follow. Instead, I prefer REITS with hard assets (properties). With WPC rounding out the portfolio, the property diversification is quite impressive. With just 4 REITS we have diversification in the following property types throughout the world:

  • Residential Apartments
  • Senior Housing
  • Nursing Home & Rehab Centers
  • Medical & Hospital
  • Biotech & Life Science
  • Industrial
  • Commercial Office
  • Self-Storage
  • Retail
  • Warehouse & Distribution - Comments: 0

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