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

Recent Sell/Buy (STX, SPAN) - 21 Apr 2016 16:12

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Sold my entire position in Seagate Technologies (STX 100 shares at 25.99). Seagate’s available free cash flow has been eroding at an alarming rate and if things continue they are probably looking at a dividend cut in the 3rd or 4th quarter of 2016. This was too much risk for me to bear so I sold my position and walked away with a $600 capital gain and 5 years of dividends.

It has been awhile since I made a purchase so I took advantage of weakness in Span-America Medical Systems (SPAN) by grabbing 200 shares at $17. SPAN which recently traded at $19.50 dropped sharply after they announced losing a commercial customer Sinomax which represented 10% of sales but they also followed up with the announcement that they have a new commercial customer to backfill but that will not fill the void of lost sales until mid-2017. Granted the prospects for dividend growth this year are slim but I bought this on weakness with the expectation that I will see dividend growth in 2017. - Comments: 0

Before You Sell P&G Consider This - 12 Apr 2016 23:13

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Yesterday Procter & Gamble (PG) announced a 1% increase in its quarterly dividend. Blogs and forums were buzzing with the news and many investors expressed their disappointment with the increase.

The purpose of this post is not to express disappointment but to address something I’ve seen in many posts that may be misleading some investors to sell. The comment I have seen was

“….this is one of the smallest increases in PG’s dividend growth streak, I am considering selling some or all my shares.”

While this is technically accurate by itself I would argue it is inaccurate when you factor in the inflation rate. A 1% increase with low inflation might be better than a 5% increase with high inflation. If the 1% increase is your only inspiration to sell PG right now I ask you consider the following analysis prior to making a final decision to sell.

Before I continue on with this I first need to clarify that PG’s dividend increase is not 1% from an annual perspective. The total 2016 dividend payout will be $2.671 per share and compared to 2015’s payout of $2.632 per share this is actually a 1.48% increase. Still not a great number but better than 1%.

Currently the U.S. Inflation Rate average for 2016 is 1.2% with end of year forecasts closer to 1.9%. Ouch, the dividend increase fails to match or beat forecasted inflation by 0.42%! Yet, this is not the first time PG has failed to beat inflation and in fact committed this crime 6 times before 2016.

1974 1980 1981 1983 1987 1988 2016*
Div Growth 7.12% 9.10% 8.34% .01% .93% 3.7% 1.48%
Inflation 11% 13.50% 10.30% 3.20% 3.60% 4.10% 1.90%
Difference -3.88 -4.40 -1.96 -3.19 -2.67 -0.4 -0.42
*Predicted

When looking at the table above 1983, 1987 and 2016 are the lowest three years of dividend increases but when we factor in inflation suddenly 1980, 1974, and 1983 are significantly worse. Without the table above there is no way I could explain to a reasonably sane person that a 1.48% increase is greater than a 9.10% increase.

The conclusion is that PG has had small increases in dividend growth throughout its streak and when it does occur you want it to be during a period of low inflation. When you look at 2016’s dividend growth it is not as bad as you may perceive.

On a personal note, I am a PG holder and do not plan to sell any shares based on this one data point. My concern with PG is the lack of vision management is providing on how they plan to invest all of the funds they are getting from divesting certain businesses and this is the primary reason I do not plan on adding more PG shares and currently rate PG a hold. - Comments: 0

Domtar (UFS) Revisited - 10 Apr 2016 15:22

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Domtar Corporation (UFS) designs, manufactures, markets, and distributes communications papers, specialty and packaging papers, and absorbent hygiene products in the United States, Canada, Europe, Asia, and internationally.

Last September I did a review of UFS based on their 2014 annual report and from that analysis identified areas of improvement that I would like to see. Recently UFS released their 2015 annual report and lets see how or if they improved.

Target Improvement 2015 2014
Receivables Turnover Rate 8 8.4 7.35 Pass
Return on Assets 7% 3% 7% Fail
Gross Profit Rate 30% 21% 21% Fail
Interest Rate Coverage Ratio 5 2.18 3.53 Fail

Ouch! On the surface all I see is a company maintaining existing cost structures and margins I am disappointed to not even see marginal improvements, with just this alone I would give the UFS management team a grade of C.

Digging into the annual report the only positive I could find was the growth of their personal care products which saw sales increase 24.49% over last year. While not enough to compensate for declining paper & pulp sales it is a step in the right direction from a long term perspective.

Free cash flow, after a $100M dividend payment, was $109M, Still decent enough to keep forward dividends safe and provide some room for growth.

Because of the small positives I would give management an Overall Grade of C+.

My conclusions from last September still stand and UFS management has done nothing to change my outlook.

Last September Conclusions

  • 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

Weekly S&P Performance - 03 Apr 2016 14:16

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And the rally continues on. With the Fed not raising interest rates there appears to be a rush into dividend paying stocks as they are yielding better than bonds.

Never thought I would see the Utilities sector with such amazing returns and if you factor in dividends the sector is approaching a 20% YTD return.

S&P Weekly Sector Perf S&P YTD Sector Perf
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2016 1st Quarter Summary - 02 Apr 2016 14:15

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The first quarter of 2016 was definitely interesting with the markets dropping throughout all of January through mid-February only to see it rally throughout all of March. Market gyrations aside here is a summary of where I am.

Portfolio

My dividend quarterly income increased by 13.28% in comparison to the first quarter of 2015 which is slightly behind my goal of 15% growth. Helping with the growth were dividend increases from Maiden Holdings (MHLD), Bar Harbor Bank (BHB), Omega Healthcare (OHI), HCP Inc (HCP), and Waste Management (WM).

In regards to new purchases I added T. Rowe Price (TROW) and Westwood Holdings (WHG) in early January which were bought primarily with my end of 2015 dividends. I have not really added any new funds as I have been focusing all my extra cash into reducing my debt.

DRIP Portfolio

For the quarter I did make some minor changes as to which stocks I use a DRIP method. I cancelled the DRIP for HCP as I am not comfortable with their forward guidance and instead will just collect the dividend and reinvest elsewhere until I feel more comfortable.

I did however change the status of Ford (F) and Garmin (GRMN) to DRIP as I see both being attractive but not enough to warrant investing new money so DRIP’g the dividend to acquire more shares is a nice alternative.

Holding DRIP Start
CMI - Cummins Jun 2015
HCP - HCP, Inc. removed
MHLD – Maiden Holdings Mar 2015
MSFT - Microsoft removed
OHI - Omega Healthcare Investors Dec 2015
PG - Procter & Gamble Aug 2015
QCOM - Qualcomm Mar 2015
THO – Thor Industries Mar 2015
New F – Ford Motor Feb 2016
New GRMN - Garmin Mar 2016

Personal Update

On the home front we finally have my daughter all set for college. We completed all of the FASFA forms and she received $22,500 in scholarship money leaving a balance of $9,000. We received the financial aid package from the university and qualified for $6,000 in government loans so we have instead elected to pay the balance out of her college savings which should be enough for the first two years of tuition assuming she does her part and maintains a GPA of 3.0 or better to keep the scholarships.

On the debt front I shocked the family when I showed them we were paying $4.83 a day in interest. I have since put up a big sign on my refrigerator with the figure $4.83 to remind and inspire the family to reduce spending. It seems to be working as everyone is being very conscientious about what and how much they are buying. Another trick I am employing is paying down my credit card weekly instead of monthly. I should get my first monthly bill around mid-April and will see how effective this is.

I moved all of my old 401K assets into a rollover IRA but I was only able to invest 45% of the assets leaving me with a significant amount of cash still to deal with. For now I am not including any of the IRA dividends I am currently receiving as part of my portfolio income as it would skew the goals I have in place for my normal taxable account. I’ll keep on marching towards 100% invested by years end and will set 2017 goals for dividend growth.

I opened a ROTH IRA. It is a small balance ($100) and will probably remain that way till September as right now I am funneling 100% of surplus money into paying down debt. My goal is to eventually max this out every year going forward.

Finally I got my annual review and raise at work. The review was excellent but the raise came in at a paltry 2% which barely covers the increase in my 2016 out-of-pocket medical insurance. Comparing the 2% raise to my annual dividend growth of 13.28% actually inspires me that dividend growth investing is the right path to be on and the faster I can get off of the corporate employment path the better. - Comments: 0


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