Friday, March 29, 2013
Dividend Growth Investing: A Strategy For Young Investors, Too
A new article of mine has been published on the investing website Seeking Alpha. The article is entitled Dividend Growth Investing: A Strategy For Young Investors, Too. It examines possible investing outcomes for young people who start with an aggressive growth investing strategy and then switch to dividend growth investing, compared with a person who follows a dividend growth investing strategy from the start.
Sunday, March 24, 2013
The Importance Of Valuation For Dividend Growth Investing
A new article of mine has been published on the investing website Seeking Alpha. The article is entitled The Importance Of Valuation For Dividend Growth Investing and it shows how differences in initial stock valuation can have long-term effects on portfolio value and dividend income.
Wednesday, March 13, 2013
Stock Bought: KMI
Today I bought shares of Kinder Morgan (KMI), the third-largest energy company in North America and operator of an extensive network of pipelines for transporting natural gas, crude oil, and petroleum products. I previously wrote about KMI in October 2012 when I first purchased the stock. Since that time I have been wanting to increase my position, which I decided to do today.
I bought 50 shares of KMI at the price of $36.80 per share, giving me a 4.01% yield on cost. At the current dividend rate, I can expect to receive quarterly dividends of $18.50, which will add a total of $74.00 to my annual dividend income. This purchase was made in my Roth IRA, so dividends and capital gains will not be taxed. When the positions in my taxable account and Roth IRA are considered together, I now have 90 shares of KMI and will receive combined quarterly dividends of $33.30. My forward 12-month dividend total increases to $2,387.
I have now used up the cash in both my taxable account and Roth IRA, so there will be no additional purchases this month. Considering the limited number of attractive investment opportunities available at the moment, I am actually glad that I will be sitting on the sidelines for a while.
I bought 50 shares of KMI at the price of $36.80 per share, giving me a 4.01% yield on cost. At the current dividend rate, I can expect to receive quarterly dividends of $18.50, which will add a total of $74.00 to my annual dividend income. This purchase was made in my Roth IRA, so dividends and capital gains will not be taxed. When the positions in my taxable account and Roth IRA are considered together, I now have 90 shares of KMI and will receive combined quarterly dividends of $33.30. My forward 12-month dividend total increases to $2,387.
I have now used up the cash in both my taxable account and Roth IRA, so there will be no additional purchases this month. Considering the limited number of attractive investment opportunities available at the moment, I am actually glad that I will be sitting on the sidelines for a while.
Tuesday, March 12, 2013
Dividend Increase: GIS
General Mills (GIS) is increasing its quarterly dividend by 15.2%, from $0.33 to $0.38 per share, putting the company on track for its 10th consecutive year of dividend growth (press release). The increase is effective with the August dividend payment and was announced sooner than I expected. Given that I own 70 shares of GIS, my quarterly dividend increases from $23.10 to $26.60, which will add an extra $14.00 to my annual dividend income. This dividend increase boosts my yield on cost to 3.87%. Thus far this year, there have been dividend increases for 14 of the 28 dividend growth stocks in my portfolio.
Monday, March 11, 2013
Milestone: Portfolio Value Reaches $80,000
Today my portfolio's value reached $80,000 for the very first time, closing at $80,069.51. My portfolio continues to hit new highs as the broader market does the same. This milestone comes just two months (!) after reaching $70,000 in January. My secondary investing goal is to achieve a satisfactory total return on my investments, and a steadily increasing portfolio value is an indication of progress toward that goal.
The next milestone is $90,000, which I expect to reach later this year.
The next milestone is $90,000, which I expect to reach later this year.
Thursday, March 7, 2013
Stock Bought: ROST
Today I bought shares of Ross Stores (ROST), an off-price apparel and home fashion chain in the United States. The company operates Ross Dress for Less (1,091 locations in 33 states) and dd's DISCOUNTS (115 locations in 8 states), offering brand name and designer apparel at substantial discounts to department and specialty store prices.
I think Ross is well-positioned in the current economic environment because its targeted customers are lower- and middle-income individuals, many of whom are still feeling the effects of the recession. The fact that Ross did not see any declines in revenue or earnings during the recession -- in stark contrast with most other companies -- suggests that people will buy clothes at Ross even when money is tight. In addition, Ross still has plenty of opportunities for geographic expansion, and it was not until late 2011 that it made its initial entry into the Midwest region by opening several stores in the Chicago area. New states for expansion this year include Kansas, Kentucky, and Indiana, all of which have favorable demographics for the discount retail business. I read that the company thinks there is long-term potential for 2,500 locations in the U.S., more than double the current number. Thus, I am optimistic about the company's future growth prospects.
The company's recent growth has been good, with 5-year growth rates of 9.1% for revenue and 27.5% for earnings. Improving margins (operating margin has increased from 7.0% to 12.8% over the past 5 years), good free cash flow, and consistently high returns on equity (currently 47%) suggest good management. Ross has a strong financial position, with debt/capitalization of 9%, debt/equity of 9%, 155x interest coverage, and a current ratio of 1.5. Value Line gives it a safety rating of 2 and a financial strength rating of A. S&P gives it quality and credit ratings of A+ and BBB+, respectively.
The company is a Dividend Contender, having increased its dividend for 19 consecutive years. Its 10-year dividend growth rate is 27.8% and the most recent increase was 21.4%, announced in February. The EPS payout ratio is 21% and the FCF payout ratio is 20%. The company also does substantial share repurchases, reducing its share count by 30% over the past 10 years.
I consider ROST to be fairly valued at the current price. It has a P/E of 17.0, P/S of 1.3, and PEG of 1.3. Its P/E seems quite reasonable given the strong earnings growth. To quote Warren Buffett: "It's far better to buy a wonderful company at a fair price than a fair company at a wonderful price." In a recent article, Chuck Carnevale presented data showing that it has been "historically sound to invest in Ross Stores at a P/E of 17." Morningstar gives a fair value of $64.00 and a 3-star rating, whereas S&P gives a fair value of $62.30 and a 3-star rating. The average of those two estimates is a fair value of $63.15, which implies an 11% margin of safety at my purchase price. The stock price declined over 7% today after the company reported a February same-store sales decline of 1% versus an expected gain of 1%, although overall sales were up 3%. I decided to take advantage of the dip to start a position.
I bought 25 shares of ROST at the price of $56.15 per share, giving me a 1.21% yield on cost. (If I had waited until the end of the trading day I could have got a better price, but if I were any good at intraday timing then I would be a day trader.) At the current dividend rate, I can expect to receive quarterly dividends of $4.25, which will add a total of $17.00 to my annual dividend income. This purchase was made in my Roth IRA, so dividends and capital gains will not be taxed. My forward 12-month dividend total increases to $2,299.
I mentioned previously that I require a minimum yield of 3% for stocks in my Roth IRA. I will amend that statement to say that I prefer a minimum yield of 3%, but I am willing to make exceptions. In the case of ROST, the low yield is the only negative aspect of the stock and it is outweighed by many positive aspects. Even though the stock will not contribute much to my dividend income, I expect it to be a strong total return investment. Two other stocks in my portfolio are good examples of the total return category. I started a position in Hormel Foods (HRL) in April 2012 when the stock traded at fair value with a 2.1% yield. In less than a year I have a 38% total return. I started a position in Canadian National Railway (CNI) in January 2012 when the stock traded at fair value with a 2.0% yield. In a little over a year I have a 35% total return. I do not know what my return from ROST will be in a year's time, but I am optimistic that the stock will be a satisfactory long-term investment.
ROST is the 28th stock in my portfolio (and the 2nd stock in my Roth IRA), giving me more diversification in the consumer discretionary sector. I have enough cash on hand to make one more purchase in my Roth IRA. If ROST continues to decline, then I would consider increasing my position unless there is an alternative opportunity that seems more attractive to me.
I think Ross is well-positioned in the current economic environment because its targeted customers are lower- and middle-income individuals, many of whom are still feeling the effects of the recession. The fact that Ross did not see any declines in revenue or earnings during the recession -- in stark contrast with most other companies -- suggests that people will buy clothes at Ross even when money is tight. In addition, Ross still has plenty of opportunities for geographic expansion, and it was not until late 2011 that it made its initial entry into the Midwest region by opening several stores in the Chicago area. New states for expansion this year include Kansas, Kentucky, and Indiana, all of which have favorable demographics for the discount retail business. I read that the company thinks there is long-term potential for 2,500 locations in the U.S., more than double the current number. Thus, I am optimistic about the company's future growth prospects.
The company's recent growth has been good, with 5-year growth rates of 9.1% for revenue and 27.5% for earnings. Improving margins (operating margin has increased from 7.0% to 12.8% over the past 5 years), good free cash flow, and consistently high returns on equity (currently 47%) suggest good management. Ross has a strong financial position, with debt/capitalization of 9%, debt/equity of 9%, 155x interest coverage, and a current ratio of 1.5. Value Line gives it a safety rating of 2 and a financial strength rating of A. S&P gives it quality and credit ratings of A+ and BBB+, respectively.
The company is a Dividend Contender, having increased its dividend for 19 consecutive years. Its 10-year dividend growth rate is 27.8% and the most recent increase was 21.4%, announced in February. The EPS payout ratio is 21% and the FCF payout ratio is 20%. The company also does substantial share repurchases, reducing its share count by 30% over the past 10 years.
I consider ROST to be fairly valued at the current price. It has a P/E of 17.0, P/S of 1.3, and PEG of 1.3. Its P/E seems quite reasonable given the strong earnings growth. To quote Warren Buffett: "It's far better to buy a wonderful company at a fair price than a fair company at a wonderful price." In a recent article, Chuck Carnevale presented data showing that it has been "historically sound to invest in Ross Stores at a P/E of 17." Morningstar gives a fair value of $64.00 and a 3-star rating, whereas S&P gives a fair value of $62.30 and a 3-star rating. The average of those two estimates is a fair value of $63.15, which implies an 11% margin of safety at my purchase price. The stock price declined over 7% today after the company reported a February same-store sales decline of 1% versus an expected gain of 1%, although overall sales were up 3%. I decided to take advantage of the dip to start a position.
I bought 25 shares of ROST at the price of $56.15 per share, giving me a 1.21% yield on cost. (If I had waited until the end of the trading day I could have got a better price, but if I were any good at intraday timing then I would be a day trader.) At the current dividend rate, I can expect to receive quarterly dividends of $4.25, which will add a total of $17.00 to my annual dividend income. This purchase was made in my Roth IRA, so dividends and capital gains will not be taxed. My forward 12-month dividend total increases to $2,299.
I mentioned previously that I require a minimum yield of 3% for stocks in my Roth IRA. I will amend that statement to say that I prefer a minimum yield of 3%, but I am willing to make exceptions. In the case of ROST, the low yield is the only negative aspect of the stock and it is outweighed by many positive aspects. Even though the stock will not contribute much to my dividend income, I expect it to be a strong total return investment. Two other stocks in my portfolio are good examples of the total return category. I started a position in Hormel Foods (HRL) in April 2012 when the stock traded at fair value with a 2.1% yield. In less than a year I have a 38% total return. I started a position in Canadian National Railway (CNI) in January 2012 when the stock traded at fair value with a 2.0% yield. In a little over a year I have a 35% total return. I do not know what my return from ROST will be in a year's time, but I am optimistic that the stock will be a satisfactory long-term investment.
ROST is the 28th stock in my portfolio (and the 2nd stock in my Roth IRA), giving me more diversification in the consumer discretionary sector. I have enough cash on hand to make one more purchase in my Roth IRA. If ROST continues to decline, then I would consider increasing my position unless there is an alternative opportunity that seems more attractive to me.
Wednesday, March 6, 2013
Dividend Increase: GD
General Dynamics (GD) is increasing its quarterly dividend by 9.8%, from $0.51 to $0.56 per share, putting the company on track for its 22nd consecutive year of dividend growth. (Their press release indicates it's their 16th consecutive annual dividend increase, but they must be counting in fiscal years; the streak is higher in calendar years.) Given that I own 20 shares of GD, my quarterly dividend increases from $10.20 to $11.20, which will add an extra $4.00 to my annual dividend income. This dividend increase also boosts my yield on cost to 3.20%. Thus far this year, there have been dividend increases for 12 of the 27 dividend growth stocks in my portfolio.
Saturday, March 2, 2013
Monthly Review: February 2013
Here is a review of what happened in February:
Dividends: I received a total of $172.69 in dividends from the following stocks:
Dividend Increases: I was pleased to see dividend increases announced for three stocks (click on each stock to see my post about the increase): Thus far this year, there have been dividend increases for 11 of the 27 dividend growth stocks in my portfolio. The mean increase has been 8.0%.
Savings: This month I saved $1,605 (55.2%) of my net job income, which is a nice improvement over last month. My savings increased due to lower discretionary spending and no annual expenses.
Transactions: I bought two stocks during the month (click on each transaction to see my post about it):
Portfolio: My portfolio (taxable account and Roth IRA together) currently consists of 27 stocks and has a market value of $78,200.48 (including cash), which is a 9.9% increase over last month's value. It was a solid month for both dividends and capital gains, although the bulk of the increase reflects a contribution of $5,000 in new capital to my Roth IRA. Note that on my Portfolio page I now distinguish between stocks and cash held in my taxable account and Roth IRA.
Seeking Alpha: This month I did not publish any new articles on the investing website Seeking Alpha. However, I received $14.24 from page views of my previous articles, increasing my Q1 total to $190.49.
Looking Ahead: March will be another great month for dividends, exceeding the $200 mark. It will be a light month for dividend increases, with an announcement expected only from GD. My savings rate should be around the same level as in February. If that turns out to be the case, then my March savings will fully replenish the money I borrowed from my cash reserve to make the maximum contribution to my Roth IRA for 2012. Note that I still have enough cash remaining from that contribution to make two more purchases. I am hoping that the sequester rattles the market and creates some good buying opportunities.
Dividends: I received a total of $172.69 in dividends from the following stocks:
- ABBV: $18.00
- ABT: $6.30
- GIS: $23.10
- HRL: $17.00
- KMI: $14.80
- PG: $28.10
- T: $24.75
- VOD: $40.64
Dividend Increases: I was pleased to see dividend increases announced for three stocks (click on each stock to see my post about the increase): Thus far this year, there have been dividend increases for 11 of the 27 dividend growth stocks in my portfolio. The mean increase has been 8.0%.
Savings: This month I saved $1,605 (55.2%) of my net job income, which is a nice improvement over last month. My savings increased due to lower discretionary spending and no annual expenses.
Transactions: I bought two stocks during the month (click on each transaction to see my post about it):
- 45 shares of VOD
- 60 shares of MSFT (in my Roth IRA)
Portfolio: My portfolio (taxable account and Roth IRA together) currently consists of 27 stocks and has a market value of $78,200.48 (including cash), which is a 9.9% increase over last month's value. It was a solid month for both dividends and capital gains, although the bulk of the increase reflects a contribution of $5,000 in new capital to my Roth IRA. Note that on my Portfolio page I now distinguish between stocks and cash held in my taxable account and Roth IRA.
Seeking Alpha: This month I did not publish any new articles on the investing website Seeking Alpha. However, I received $14.24 from page views of my previous articles, increasing my Q1 total to $190.49.
Looking Ahead: March will be another great month for dividends, exceeding the $200 mark. It will be a light month for dividend increases, with an announcement expected only from GD. My savings rate should be around the same level as in February. If that turns out to be the case, then my March savings will fully replenish the money I borrowed from my cash reserve to make the maximum contribution to my Roth IRA for 2012. Note that I still have enough cash remaining from that contribution to make two more purchases. I am hoping that the sequester rattles the market and creates some good buying opportunities.
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