Tuesday, November 20, 2012

Dividend Increase: BDX

Becton, Dickinson and Company (BDX) is increasing its quarterly dividend by 10%, from $0.45 to $0.495 per share, putting the company on track for its 41st consecutive year of dividend growth. It is great to see yet another double-digit percent increase for one of my stocks. Given that I own 25 shares of BDX, my quarterly dividend increases from $11.25 to $12.38, which will add an extra $4.52 to my annual dividend income. The increase will be effective with the last dividend payment in 2012. This dividend increase also boosts my yield on cost to 2.78%. There have been dividend increases (effective in 2012) for 24 of the 25 dividend growth stocks in my portfolio.

Dividend Increase: HRL

Hormel Foods (HRL) is increasing its quarterly dividend by 13.3%, from $0.15 to $0.17 per share, putting the company on track for its 47th consecutive year of dividend growth. It is fantastic to see a double-digit percent increase from a company with such a long dividend growth streak. Given that I own 100 shares of HRL, my quarterly dividend increases from $15.00 to $17.00, which will add an extra $8.00 to my annual dividend income. The increase will be effective with the first dividend payment in 2013. This dividend increase also boosts my yield on cost to 2.42%.

Monday, November 19, 2012

Dividend Increase: UNP

Union Pacific (UNP) is increasing its quarterly dividend by 15%, from $0.60 to $0.69 per share, putting the company on track for its 7th consecutive year of dividend growth. Given that I own 10 shares of UNP, my quarterly dividend increases from $6.00 to $6.90, which will add an extra $3.60 to my annual dividend income. The increase will be effective with the first dividend payment in 2013. This dividend increase also boosts my yield on cost to 2.61%.

Tuesday, November 13, 2012

Personal Update

I just wanted to let my blog readers know that posts will probably be infrequent or late during the next four weeks. I will be going on a series of important work-related trips that will take me out of town for a few days at a time. While I am away I probably will not be updating my blog. Each trip also requires a considerable amount of preparation, so my free time will be constrained even when I am not away. For that reason, I may not have much time to update my blog or keep up with other investing blogs. Thanks for understanding!

Dividend Increase: VOD

Vodafone Group (VOD) is increasing its "interim" dividend (the first semi-annual dividend for 2013) by 7.2%, from 3.05 to 3.27 pence per ordinary share. The exchange rate for the American Depositary Shares (1 ADS = 10 ordinary shares) will likely be determined sometime in January, but at the current exchange rate, this works out to an increase in U.S. dollars of about 9.8%. Given that I own 80 shares of VOD, my interim dividend will be about $40.73, to be paid sometime in February.

In related news, Vodafone is receiving a special dividend payment of about £2.4B from Verizon Wireless, of which £1.5B will be used to buy back shares. The company also reported an H1 net loss due to write-downs in troubled Spain and Italy. Southern Europe will likely continue to weigh on the company's operating results in the short term.

Friday, November 9, 2012

Stock Bought: NSC

Mr. Market was in a bad mood during the past few days, with major stock market indices declining by about 3% since Tuesday. Many reasons have been cited for the sell-off, such as negative reaction to the U.S. election results, fears about the looming fiscal cliff, and lousy economic news from Europe. While these macro-level issues are important, I think it is also important for investors to stay calm, maintain a long-term view, and consider taking advantage of Mr. Market's pessimism. As a dividend growth investor, I view these sell-offs as great opportunities to invest in high-quality dividend growth stocks that are trading at attractive valuations. The hard decision is not whether to buy, but what to buy, especially given my limited cash. I ultimately decided to increase my position in one of the most undervalued stocks in my portfolio.

Today I bought shares of Norfolk Southern (NSC), a major North American railroad company. This is the fourth time I have added to my position in NSC this year, with previous purchases occurring in January, March, and September.

NSC has declined over 20% in the past two months, mainly due to poor quarterly earnings (driven by a decline in coal volumes) and negative market sentiment. Today the stock fell another 2%, setting a new 52-week low. The company is undoubtedly going through a rough patch right now and analysts expect headwinds to persist into the first half of 2013. However, I continue to have a favorable view of the company's long-term growth prospects.

I also think the market has overreacted to recent events, pushing NSC even further into undervalued territory. The stock now has a P/E of 10.5 (its 5-year average P/E is 14.4), P/S of 1.7, and PEG of 0.9. Its current yield of 3.45% is well above the 5-year average of 2.40%. Using a Dividend Discount Model with a projected dividend growth rate of only 8% (which is below historic averages) and a discount rate of 11%, I calculate a fair value of $72 for NSC. Morningstar gives NSC a 4-star rating with a fair value of $85. S&P gives NSC a 4-star rating with a fair value of $67.60 and a 1-year price target of $85. Using the lowest of those estimates, NSC is currently undervalued by at least 14%.

I bought 25 shares of NSC at the price of $57.90 per share, giving me a total of 95 shares at an average price of $67.00 per share and a 2.97% yield on cost. My previous cost basis was $70.25 per share, so this purchase reduced it by 4.63%, which is a great instance of averaging down. At the current dividend rate, I can expect to receive quarterly dividends from NSC of $47.50, which is $12.50 more than before this purchase. NSC will now contribute a total of $190.00 to my annual dividend income, which is $50.00 more than before. This purchase makes NSC the largest position in my portfolio, with a weight by market value of 8.9%, which is about as large as I feel comfortable having it. Incidentally, my forward 12-month dividend total is now $2,000.

I will be sitting on the sidelines for the rest of November because I have insufficient cash for another purchase. For the next few months I anticipate being able to make only one purchase per month. On the one hand, it is unfortunate that I cannot put more money to work immediately. (In case you are wondering, if I did have more cash right now, then I would probably buy KMI and MCD.) On the other hand, it forces me to stagger my purchases over time, which could be advantageous if better opportunities arise later. Regardless, I think the most important thing is to stay disciplined by investing in good opportunities at regular intervals.

Wednesday, November 7, 2012

Dividend Increase: T

AT&T (T) is increasing its quarterly dividend by 2.3%, from $0.44 to $0.45 per share, putting the company on track for its 29th consecutive year of dividend growth. Given that I own 55 shares of T, my quarterly dividend increases from $24.20 to $24.75, which will add an extra $2.20 to my annual dividend income. The increase will be effective with the first dividend payment in 2013. This dividend increase also boosts my yield on cost to 6.55%.

Saturday, November 3, 2012

Book Review: Value Investing Today

Value Investing Today (1998, 2nd ed.) by Charles H. Brandes

This book provides a decent introduction to value investing, which is the strategy of buying stocks at discounts to the intrinsic values of their underlying companies. The first part of the book is the strongest section, giving a compelling explanation for why value investing makes sense and citing some historical data that support aspects of the strategy. Subsequent parts of the book deal with how to find stocks at attractive valuations and manage a portfolio, although I must admit that I did not really learn anything that I could use to improve my own approach to valuation. The book also has a large part on investing in foreign stocks, which I found moderately informative but somewhat secondary to the main theme. Overall, this book is about average when compared with everything else I have read about value investing.

Note: I read this book in September 2012.

Thursday, November 1, 2012

Dividend News: ADM

Archer Daniels Midland (ADM) is not increasing its dividend this year. Today the company announced its fifth consecutive quarterly dividend of $0.175 per share. I am rather disappointed by this news.

I am aware that ADM's earnings were hurt this year due to the drought, so their financial position is not strong at the moment. Despite this weakness, just last week it was disclosed that ADM had built a 14.9% stake in Australian-based GrainCorp and has bid $2.76B to acquire the entire company. Given ADM's financial position, I seriously question whether such a large acquisition attempt is a prudent action at this time. The company has raised a bit of cash through a tentative deal to sell their stake in Gruma SAB, a Mexican company that manufactures corn flour and tortillas. Presumably, the lack of dividend increase is also designed to conserve cash for the potential acquisition of GrainCorp.

The lack of a dividend increase and the questionable acquisition attempt, along with the earnings volatility, are making me rethink my investment in ADM. When I bought the stock back in January, it seemed to be very undervalued, with a P/E of 8.57, P/S of 0.23, P/B of 1.06, and PEG of 1.17. I even remember seeing a F.A.S.T. Graph that showed the extent of the undervaluation. However, whatever margin of safety I had was completed eroded by the earnings collapse, such that my total return since January is -4.9%. It is not a big loss, but I question whether the potential future return from ADM outweighs the overall risk (of capital loss and lack of dividend growth).

In a post earlier this year I outlined some conditions under which I would consider selling a stock. Three of the conditions included the dividend being frozen, the company's fundamentals deteriorating, and the company making a change such as a major acquisition. Given that ADM meets multiple conditions, I will be giving serious consideration as to whether it should remain in my portfolio. Of course, there is always the possibility that I am overreacting to recent events, so I welcome any thoughts from readers.

Monthly Review: October 2012

Here is a review of what happened in October:

Dividends: I received a total of $124.52 in dividends from the following stocks:
  • CNI: $6.47
  • GPC: $24.75
  • ITW: $15.20
  • KO: $15.30
  • MDT: $14.30
  • PM: $42.50
  • UNP: $6.00
This was a satisfactory month for dividends. I now have a year-to-date total of $1,274.19, which puts me 98.0% of the way toward my goal of receiving $1,300 in dividends for 2012. I actually achieved my goal today (November 1) thanks to a couple of dividend payments.

Dividend Increases: I was pleased to see a dividend increase announced for one of my stocks (click on the stock to see my post about the increase):
  • KMI: 2.9% increase, $1.60 more in annual dividend income
Thus far this year, there have been dividend increases for 23 of the 25 dividend growth stocks in my portfolio. I expect increases for the remaining two stocks (ADM and BDX) to be announced in November, as well as some increases that will be effective in 2013.

Savings: This month I saved $1,662 (55.9%) of my net income, which is almost identical to what I saved in September and results in year-to-date savings of $14,310.

Transactions: I bought three stocks this month (click on the transactions to see my posts about them): It was one of my busiest months for purchases this year. KMI and CMI are new positions that increase my portfolio's exposure to the energy and industrial sectors, respectively. My purchase of INTC increases the position I started in September. These purchases will increase my annual dividend income by $132.60. I did not sell any stocks for the 10th consecutive month.

Portfolio: My portfolio currently consists of 25 stocks and has a market value of $61,285.58 (including cash), which is a 1.4% increase over last month's value. The increase reflects gains from new capital and dividends being partially offset by capital losses on some existing positions.

Seeking Alpha: I published two new articles on the investing website Seeking Alpha (click on the titles to go to the articles): These articles each received a modest number of page views. In October I earned a total of $92.07 from these articles and additional page views of my previous articles, increasing my year-to-date total to $671.67. I also received my Q3 payment of $235.66, which was not included in my savings above.

Looking Ahead: November will be a slightly better month for dividends and my savings rate should remain stable. As noted above, I am expecting a few dividend increases to be announced, which is exciting. Given that I depleted my cash in October, the new capital from savings will enable me to make just one purchase this month, although I have not yet made up my mind about what I am going to buy.