Dividend Increase: JNJ

Johnson & Johnson (JNJ) is increasing its quarterly dividend by 7.0%, from $0.57 to $0.61 per share, putting the company on track for its 50th consecutive year of dividend growth. Given that I own 35 shares of JNJ, my quarterly dividend increases from $19.95 to $21.35, which will add an extra $5.60 to my annual dividend income. This dividend increase also boosts my yield on cost to 3.87%.

Stock Split: KO

The Board of Directors at Coca-Cola (KO) has voted in favor of a 2-for-1 stock split. If it is approved by shareholders at a meeting on July 10, then the stock split would happen on August 10. It would be the 11th split in the stock's history and the first in 16 years. Given that I own 30 shares of KO, after the stock split I would own 60 shares.

Dividend Increase: CVX

Chevron (CVX) is increasing its quarterly dividend by 11.1%, from $0.81 to $0.90 per share, putting the company on track for its 25th consecutive year of dividend growth. Given that I own 20 shares of CVX, my quarterly dividend increases from $16.20 to $18.00, which will add an extra $7.20 to my annual dividend income. This dividend increase also boosts my yield on cost to 3.81%.

Dividend Growth Rates: Using The Past To Estimate The Future

A new article of mine has been published on the investing website Seeking Alpha. The article is entitled Dividend Growth Rates: Using The Past To Estimate The Future and presents a quantitative analysis of the relationship between past and future dividend growth rates.

Note that my articles appear under the username "Dividend Growth Machine."

Book Review: The Little Book of Safe Money

The Little Book of Safe Money (2010) by Jason Zweig

I enjoyed reading Zweig's chapter commentaries in The Intelligent Investor, so I decided to read this book afterward. Its purpose is to help investors keep their money safe, which is more about not losing money than it is about making money. Among other things, Zweig recommends that investors:

• Avoid excessive risks
• Do not invest money they cannot afford to lose
• Be diversified and monitor the liquidity of their assets
• Never assume any investment is guaranteed
• Avoid investing in leveraged ETFs and commodities
• Be aware of their cognitive biases
• Be on the lookout for fraudsters and opportunities that sound too good to be true

Most of what he writes is common sense that I have encountered numerous times elsewhere, so I did not learn much from this book. However, for completely naive investors or those who were severely burnt in recent market declines (these two groups appear to be the intended audience), the book may help them devise lower-risk investment strategies by emphasizing what not to do.

Note: I read this book in April 2012.

Dividend Growth Investing Strategy: Benefit From “Other Persons’ Mistakes”

A new article of mine has been published on the investing website Seeking Alpha. The article is entitled Dividend Growth Investing Strategy: Benefit From "Other Persons' Mistakes" and discusses how dividend growth investors can take advantage of broad market declines.

Note that my articles appear under the username "Dividend Growth Machine."

Stock Bought: HRL

Today I bought shares of Hormel Foods (HRL), a well-known manufacturer of food and meat products sold under brands that include Hormel, Jennie-O Turkey Store, Dinty Moore, Valley Fresh, Stagg, MegaMex, and, last but not least, SPAM.

Hormel is a solid company with several appealing features. It has had stable growth in revenue and earnings for many years, demonstrating that it is a well-run business. Its balance sheet is very strong, especially when compared with those of other companies in the food industry. Debt/equity is a mere 9.1 and the current ratio is 2.8, which are indicative of good financial health.

One of the most notable things about Hormel is the high level of insider ownership. The Hormel Foundation, established in 1941 as a nonprofit corporation for charitable and educational purposes, holds over 48% of the common stock to protect the company's independence. Given that the Hormel Foundation uses its tax-free dividends to support its projects, there is a strong incentive to maintain a growing dividend.

Hormel has paid uninterrupted dividends since going public in 1928 and has increased its dividend for 46 consecutive years. The 5-year dividend growth rate is 12.7% and this year's increase (announced in late 2011 for the first quarterly payment in 2012) was 17.6%. The payout ratio is a modest 36%.

I consider HRL to be fairly valued right now, sporting a P/E (ttm) of 16.9 (near its average historic P/E), PEG of 1.8, and P/S of 0.9. However, the stock has not fared well in recent months, underperforming the S&P 500 index year-to-date and hitting a 6-month low today after going down in 7 of the last 8 trading days. I decided that this was an opportune time to start a position in this high-quality company.

I bought 50 shares of HRL at the price of $28.16 per share, giving me a 2.13% yield on cost. The yield is lower than I prefer, but it is the only negative aspect of the stock and outweighed by the many positive aspects. At the current dividend rate I can expect to receive $30.00 in annual dividend income from HRL, with my first quarterly dividend of $7.50 coming in May because the stock goes ex-dividend next week. If the stock price were to fall further in the coming months, then I would strongly consider increasing my position. This purchase makes HRL the 22nd stock in my portfolio and I think it complements my position in General Mills (GIS), giving me some diversification in the processed food industry.

Dividend Increase: PG

One of my dividend-growth stocks, Procter & Gamble (PG), increased its quarterly dividend by 7% today, raising the payment from $0.525 to $0.562 per share. This puts the company on track for its 56th consecutive year of dividend growth. Given that I own 50 shares of PG, my quarterly dividend increases from $26.25 to $28.10, which will add an extra $7.40 to my annual dividend income. This dividend increase also boosts my yield on cost to 3.54%.

The Psychology Of Dividend Growth Investing: Defining Success

I am pleased to announce that I have just published my first article on the investing website Seeking Alpha. The article is entitled The Psychology Of Dividend Growth Investing: Defining Success and discusses how investing success can be defined from a dividend growth perspective.

Note that my articles will appear under the username "Dividend Growth Machine" because the SA Editors did not think "Deedubs" was a suitable author name.

Book Review: The Intelligent Investor

The Intelligent Investor (1973) by Benjamin Graham
with commentary (2003) by Jason Zweig

In this classic book, which Warren Buffett called "the best book on investing ever written," Graham lays out the basic principles of an approach that has come to be known as value investing. He argues that investors in common stocks should strive to build a fairly diversified portfolio consisting of large, prominent, conservatively financed, and well-managed companies that have stable and growing earnings (and good prospects for continued growth), strong dividend records, and attractive valuations (e.g., low P/E ratios). Regarding valuation, one should seek out stocks that are trading at a discount to their companies' intrinsic values, where value is determined independently of the market through analysis of a company's earning power, assets, liabilities, and other fundamentals. These undervalued stocks provide what Graham calls a "margin of safety," which can be defined as the difference between a company's intrinsic value and the price you pay for its stock. A large margin of safety leaves room for error in valuation and is likely to produce a satisfactory return when the market eventually prices the stock at a level closer to its company's intrinsic value.

Graham succeeds in establishing that value investing is a sensible approach not just in principle, but also in practice. There are several case histories and comparisons between companies throughout the book that make clear the benefits of buying undervalued stocks and the follies of buying overvalued or "growth" stocks. In his chapter commentaries, Zweig provides more recent examples from the height of the dot-com boom in the late 20th century, showing that Graham's observations are timeless. In addition, a reprint of Buffett's classic speech "The Superinvestors of Graham-and-Doddsville" is presented in an Appendix and highlights the actual records of several individual investors who were successful by following the principles of value investing.

The discussion of value investing is augmented in several places throughout the book by Graham's thoughts on the nature and the psychology of investing. In Chapter 1, Graham makes a clear distinction between an "investor" and a "speculator," arguing that one should strive to be the former by only making investments that are judged by thorough analysis to offer safety of principal and a satisfactory return. In Chapter 8, which I think is the most important chapter in the entire book, Graham discusses how an investor should deal with market fluctuations. I feel compelled to quote two segments of text that made a strong impression on me. The first quote is from p. 203, where Graham writes:

The true investor scarcely ever is forced to sell his shares, and at all other times he is free to disregard the current price quotation. He need pay attention to it and act upon it only to the extent that it suits his book, and no more. Thus the investor who permits himself to be stampeded or unduly worried by unjustified market declines in his holdings is perversely transforming his basic advantage [the flexibility of being a shareholder of a public company] into a basic disadvantage. That man would be better off if his stocks had no market quotation at all, for he would then be spared the mental anguish caused him by other persons' mistakes of judgment.

Graham refers to "other persons' mistakes of judgment" because if you have bought a stock that is priced below its company's intrinsic value, then other people are making a mistake by selling it and driving the price down further. That's right -- it is critical to realize that you have not necessarily made a mistake if your stocks go down in price after you buy them. Your investment decisions may have been sound, but the market may be acting irrationally at the moment. The second quote is from p. 205 and comes after Graham's classic parable about the manic-depressive Mr. Market:

Basically, price fluctuations have only one significant meaning for the true investor. They provide him with an opportunity to buy wisely when prices fall sharply and to sell wisely when they advance a great deal. At other times he will do better if he forgets about the stock market and pays attention to his dividend returns and to the operating results of his companies.

I think this is sound advice that can help an investor stay disciplined and protect himself from emotionally driven reactions to market fluctuations.

I have largely restricted this review to Graham's discussion of common stocks, but he also covers preferred stocks, bonds, investment funds, advisors, and other topics. His writing style is very readable and engaging, which is quite an accomplishment for a book that is over 500 pages. (If you are interested in this book but do not want to read it all, I recommend at least reading Chapters 1, 8, and 20.) The chapter commentaries by Zweig are very good, enhancing Graham's main points and providing modern-day examples of their continued relevance. The reprinted speech by Buffett is a great bonus.

Even though I had already incorporated many aspects of value investing into my own investing approach prior to reading this book, I still learned a lot from it, especially with respect to understanding the characteristics and psychological make-up of an intelligent investor.

Note: I read this book in March 2012.

Monthly Review: March 2012

Here is a review of what happened in March:

Dividends: I received a total of $110.85 in dividends from the following stocks:

• ADM: $10.50
• BDX: $11.25
• CVX: $16.20
• JNJ: $19.95
• MCD: $24.50
• NSC: $16.45
• UTX: $12.00

This is my highest monthly total thus far this year and the first time I received more than $100 in dividends in a single month, as highlighted in a milestone post. I now have a year-to-date total of $285.37, which puts me 22.0% of the way toward my goal of receiving $1300 in dividends for 2012.

Dividend Increases: A dividend increase was announced for only one of my stocks (click on the stock to see my post about the increase):

• GD: 8.5% increase, $3.20 more in annual dividend income

Savings: This month I saved $1605 (55.0%) of my net income, which is my highest monthly total thus far this year. I am pleased that I managed to get over the 50% mark for the second month in a row. This results in year-to-date savings of $4462, which puts me 37.2% of the way toward my goal for 2012. The preceding numbers do not reflect additional savings I realized this month when I received a tax refund of $976. When the refund is included, I actually saved $2581 (66.2%) of my net income in March. However, given that the refund is a special, non-recurring item, I have excluded it from my averages and totals so I can get a better sense of my typical savings.

Transactions: I bought three stocks this month (click on each transaction to see my post about it):

• 15 shares of NSC
• 10 shares of UNP
• 30 shares of VOD

These purchases will increase my annual dividend income by $96.01. I did not sell any stocks this month. My portfolio now has 21 stocks with a market value of $50,046.40 (including cash). This month was the first time my portfolio's value reached $50,000, as highlighted in a milestone post.

Looking Ahead: In April I expect to receive even more in dividends than I did in March, which is great. April should be similar to March in terms of expenses, so I expect similar savings (no tax refund, though). One thing worth noting is that in March I was able to change my cell phone plan to a cheaper option, which will save me about $12 per month starting in April. Based on the cash currently in my brokerage account and the pending addition of new capital, I will likely be able to make 2 purchases in April, although whether I do will depend on the availability of attractive buying opportunities.

Milestone: $100 in Dividends in a Single Month

In March I received $110.85 in dividends, which is the first time I received more than $100 in dividends in a single month. This might not seem like a major milestone (especially when compared with my portfolio value reaching $50,000), but it is very important in the context of my goal to create a sustainable, rising stream of dividend income that will eventually allow me to be financially secure in retirement. Achieving that goal will inevitably require that my monthly dividend income exceed my monthly expenses, so breaking the $100 mark is a big step in that direction.

The next milestone for my monthly dividend income is $200, although I do not anticipate reaching that point until 2013.