Financial Goals for 2014!

Halfway 2013 I started my journey of becoming a Dividend Growth Investor. I sat goals for the coming years. These goals (annual dividends received) were based on the assumed dividend growth, yield, monthly deposits and stock price appreciation. For the first year this came at $500 or roughly €380 (EUR.USD-rate was around 1.3 at the time).

Recent buy: Omega Healthcare Investors

Today I've initiated a new position. With €1.250 in fresh capital and some extra dividends I purchased 59 shares of Omega Healthcare Investors Inc (OHI). As I previously wrote, OHI is a Real Estate Investment Trust ("REIT") providing financing and capital to the long-term healthcare industry with a particular focus on skilled nursing facilities located in the United States.

O or OHI: What to buy?

I am planning to make a purchase next week. Since I currently don't have any REIT exposure in my stock portfolio, I would like to add some using fresh capital. Especially considering the recent correction in stock prices due to worries about tapering and rising interest rates, this might be a good time to start a position.

Real Estate Investment Trusts
The REIT universe is quite but but I narrowed it down. I am considering two companies at the moment: Realty Income (O) and Omega Healthcare Investors (OHI). Although these companies are active in a different segment, their business is more or less the same.

Monthly update: November 2013

The month has passed and it's my favorite time, giving an update of my dividend portfolio. Generally US markets have been up. This month I didn't initiate any new position but I plan to purchase something next month if the conditions are right!

Monthly update: October 2013

The month has passed and it's my favorite time, giving an update of my dividend portfolio. Generally US markets have been up, although EUR.USD-rates have gone up. This diminishes my annual dividend stream but also my portfolio value when looked at in euro's. This month I initiated a new position in Baxter International Inc, so I don't plan on any new purchases next month.

Recent buy: Baxter International Inc.

This week I made a new purchase for my DGI-portfolio: Baxter International Inc (Baxter or BAX). Google Finance has the following description of Baxter.

"Baxter is a global, diversified healthcare company. Baxter develops, manufactures and markets products that save and sustain the lives of people with hemophilia, immune disorders, infectious diseases, kidney disease, trauma, and other chronic and acute medical conditions. The Company operated in two segments: BioScience and Medication Delivery. It is engaged in the medical devices, pharmaceuticals and biotechnology to create products that advance patient care worldwide. These products are used by hospitals, kidney dialysis centers, nursing homes, rehabilitation centers, doctors’ offices, clinical and medical research laboratories, and by patients at home under physician supervision. Baxter manufactures products in 27 countries and sells the products in more than 100 countries."

In this post I'll highlight the reasons why I think Baxter is a good addition to my portfolio.

Monthly update: September 2013

The month has passed and it's my favorite time, giving an update of my dividend portfolio. Generally markets have been stable. This month I haven't initiated any new positions although I did save up some money for a purchase next month, combined with the dividends.

Screening process

Amateur investors have their own habits in the process of screening stocks. Though probably for most DGI'ers the monthly list of David Fish is a great starting point. You can find the list at this website: http://dripinvesting.org/tools/tools.asp. The Excel-spreadsheet lists almost every (useful) indicator for companies who've paid dividends for at least 5 years (="challengers"), 10 years (="contenders") and 25+ years ("champions"). In this post I will describe some of my thinking in regards to the most recent CCC-list of August 30th.

Stock analysis: Textainer Group Holdings

Textainer Group Holdings Limited and its subsidiaries (“Textainer”) is the world's largest lessor of intermodal containers based on fleet size. The Company began operations in 1979 and as of the most recent quarter end had more than 1.9 million containers, representing more than 2.8 million TEU, in its owned and managed fleet. Textainer leases dry freight, refrigerated, and specialized containers. Each year the company is one of the largest purchasers of new containers as well as one of the largest sellers of used containers. Textainer leases containers to approximately 400 shipping lines and other lessees and sells containers to more than 1,000 customers worldwide and provides services worldwide via a network of regional and area offices, as well as independent depots. (Source: Financial Tear Sheet TGH, as of September 7)

The Single Best Investment: Creating Wealth with Dividend Growth - Lowell Miller

Often I read books just for fun and a good time. When I'm done with the book it's placed on the bookshelf, never to be opened again. A few months later I hardly remember what any of those books were about. This is not a big deal if it's a David Baldacci or Dan Brown, but for financially related books I'd like to make a difference. In this article I’ll offer my take on the book ‘The Single Best Investment: Creating Wealth with Dividend Growth’ by Lowell Miller.

Monthly update: August 2013

The month has passed and it's my favorite time, giving an update of my dividend portflio. This month I've initiated two new positions, Unilever and Coca Cola. Generally markets have been down a bit although that's not a big problem since I am not selling shares anyway.

Unilever: the Dutch P&G

Unilever is a Anglo-Dutch company, which supplies fast moving consumer goods. The two parent companies, NV and Unilever PLC (PLC), together with their group companies, operate as the Unilever Group (Unilever). The Company’s four product areas are Personal Care, Foods, Refreshment and Home Care. They have 14 brands with sales of more than €1 billion a year. The company is quite diversified, both in their products as well as their geographical markets. It's the Dutch version of Procter & Gamble.

Investing approach - Dividend Growth Investing

There are two ways to getting paid while investing – capital gains and dividends. A stock’s capital gain is significantly impacted by what the broader market does in a given period. Of course certain stocks have more risk than others, but the price of a stock is the result of short-term supply and demand and may – at times – be illogical, chunky or erratic.

On the other hand, dividends are usually paid whether the broad market is up or down. In his book ‘The Little Book of Big Dividends’ the author Charles B. Carlson mentioned that roughly 40 percent of the stock market’s long-run total return comes from dividends. Companies like Coca Cola or Procter & Gamble are making profits every quarter and returning them to their shareholders. Should we suppose to be worried if the stock price declines on broader market news? Or possibly some “earnings miss” by analysts at banks or brokers who earn their money if people speculate with their money, instead of investing with it?

Monthly update: July 2013

It's been a busy month! Earlier I've written about my start as a Dividend Growth Investor. Since the start of the month I initiated 7 new positions. The last two additions (BBL/DE) are a little riskier than other stocks, so I want to purchase my next two block of shares in low-risk companies like KO, MCD, PG or something similar.

Weyco Group Inc scores a 6 on Piotroski's method

Piotroski chose nine fundamental signals to measure three areas of the firm's financial condition: profitability, financial leverage/liquidity, and operating efficiency. In this article I will show how this method works out for Weyco Group Inc, a dividend champion which paid dividends for over 30 years. This stock came up in one of my screeners and I was curious to see how the fundamentals look.

New additions to the Dividend Growth Portfolio!

In the last week I've initiated three new positions. I wanted to blog about this earlier but everytime I started, something came up. Now without further ado, my purchases are:

• 63 shares of Intel (INTC) for $23.88 each
• 43 shares of Textainer Group Holdings (TGH) for $34.34 each 
• 28 shares of BHP Billiton (BBL) for $54.70 each

Intel

Intel yields 3.7% at current valuations and has increased dividend for 9 consecutive years. The last 5 years dividend has grown by 14% yearly compounded. Although the technology sector is quite volatile, Intel is a stock I feel comfortable purchasing. I am sure the future holds great things for our society but one of the key ingredients for further growth is technological advancement.  Intel is one of the leading companies on this front. 

Textainer buys and leases sea containers. Textainer offers a nice fat dividend of 5.4%, but is also one of the fastest dividend growers. It has raised dividends for the last 7 years and in the last 5 years it has grown dividends over 50% yearly compounded. Current payout-ratio is 45% so that means there is room to grow. Downside of this company is it's debt/equity-ratio of 2.3x. It uses debt to finance growth, however it's interest ratio is a healthy 3x. Definately one of the more riskier stocks in this portfolio but also a potential gem!

Finally, BHP Billiton. A big exploration and mining corporation. It yields over 4% and I think it was fairly cheap, because it traded near 52week lows. BBL's been raising dividends for 10 years, with yearly increases between 10-20%. As well as Textainer, BLL is a bit more risky than average. This doesn't have to be a problem but I'll try to pick less risky stocks for my next purchase.

These stocks added $200 to my yearly forward dividend which stands at $363. I plan to deposit some more money after my vacation to finalize my first part of the portfolio. After these purchases I will deposit monthly and together with dividend income will initiate new positions or add to existing ones.

Thanks for reading!

What do you think will be good additions to this portfolio? The usual suspects like KO, MCD, PG, JNJ or another company? Let me know!

New Purchase: Philip Morris International (PM)

Philip Morris International (PM) is the largest publicly traded manufacturer and marketer of tobacco products. In 2008 it spun off from Altria and got it’s own stock notation. PM produces and distributes well known brands like Marlboro, L&M, Chesterfield and Philip Morris. Markets are global and diverse; it sells almost everywhere except the USA. The USA-market is controlled by Altria. This provides a big advantage for PM as the tobacco market in USA is slowly declining, whereas there are more opportunities for new markets worldwide.

Dividend policy

PM is not a dividend challenger, contender or champion as defined by David Fish (see here) but this is only because it started in 2008. Since 2008 dividend has grown 13% compounded per year. Payout ratio was 62% in 2012 which is reasonable. It also has a share buy-back program. Until the end of 2012 PM spent $27.9 billion to repurchase shares (about 23.2% of shares outstanding). For the next 3 years a new program has begun (about $18 billion) to repurchase shares and this roughly equates to another 12% of the shares outstanding (based on $90 per share on a float of 1.63B). To finalize this section; the current yield is 3.90% which is lower than the 5-year average yield of 4.40%.

Risks

Obviously there are risks with a stock like PM. Government policies can and will be stricter in the future. Think of non-smoking areas in bars, public places, etc, but also the new packages in some countries. New products like e-cigarettes could provide new markets to companies like PM. But there are at least two arguments why cigarettes are here to stay: 1) it’s addicting properties makes sure people are coming back and 2) governments “earn” a lot of money through taxes and duties. A lot has to happen for both people and governments to quit smoking or prohibit it at all.

Valuation

In this section I’ll use a few methods to value PM.

Average PE-valuation of current year

Current PE-ratio is around 16.8x. At the 52-week low price it was 15.8x and at the 52-week high price it was 18.6x. The average price of both numbers lead to $90.

Average PE-valuation of last 5 year

Current PE-ratio is around 16.8x. Historical 5-year PE-ratio is 15.5x which gives a valuation of $80.

Average yield of last 5 year

Current yield is 3.9%. Historical 5-year yield is 4.4% which gives a valuation of $80.

Discounted Cash Flow-valuation

Using the following assumptions I arrive at a fair price of about $104.

• Dividend growth rate of 12% per year for 5 years, and a perpetual DGR of 5% thereafter.
• Earnings growth of 11% for the next 5 years (source: Yahoo Finance) and 6% perpetual growth thereafter.
• Discount rate of 10%.

The average price valuation of these 4 methods is $88-89 so it seems at the current price of $87.5 PM is fairly valued.

Conclusion

PM is a so-called sin-stock. From the perspective of a share-holder however, it certainly is not! It’s dividend policy is share-holder friendly and it’s a relatively stable business. People keep smoking, whether times are good or bad. This week I bought a block of shares PM at $87.5 with a yield of 3.90%. This purchase adds almost $60 to my forward yearly dividend which stands at $163 after this purchase.

First purchases in my DGI-portfolio

Today I made my first two purchases: ExxonMobil (XOM) and Wal-Mart Stores (WMT).

ExxonMobil

Exxon Mobil Corporation, or ExxonMobil, is an American multinational oil and gas corporation. ExxonMobil is one of the largest companies in the world in terms of revenue and market capitalization.

Why do I want to own this company?

• Forward yield of 2.8% is decent and higher than the 5-year average historic yield (2.3%)
• Dividend has grown on average 10% per year in the last 10 years
• Payout-ratio is hovering around 20-30%. This is quite low and dividend payments can thus be considered relatively safe, even in times when earnings might fall short.
• Current Price/Earnings-ratio of 9.2 is lower than the 5-year average PE-ratio of 11.0 so the stockprice seems to be on the lower side.
• Diversification in geographical terms as well as operations. It is a relatively stable company with a low beta.

Of course there are concerns: geopolitical stability, protectionist policies or more long-term issues about future energy scenarios and what the role of companies like Exxon, Chevron or Royal Dutch Shell will be. These are however long term issues and may provide chances as well. These companies don't sit idle, but are actively preparing for the future.

Wall-Mart Stores

Wal-Mart Stores is a multinational retail corporation that runs chains of large discount department stores and warehouse stores. The company is one of the world's largest public corporations and the biggest private employer in the world with over two million employees.

Why do I want to own this company?

• Forward yield of 2.5% which is slightly higher than the 5-year average historic yield (2.2%)
• Dividend has grown on average 18% per year in the last 10 years!
• WMT has increased the payout ratio over the last 10 years from 18% in 2004 to 32% in 2013. This still leaves ample room for growth.
• Current Price/Earnings-ratio of 14.7 is around this years average PE-ratio and slightly higher than the 5-year average PE-ratio of 14.2. Seems like the current price is fair value; but not a bargain.
• Earning growth for the next 5 years is forecasted to be almost 10% per year.

I think both companies are great investments. Not neccesarily cheap but fair value! These purchases will bring my 12-month forward yield to $105. It's not much but it's the first step!

Starting my journey!

As of this week I will start my journey of becoming a Dividend Growth Investor (DGI). I've read a lot about the topic and feel that this type of strategy suits me very well. I've thought about investing and retiring early a lot the past few years and feel it has come together with DGI.

The coming months will be used to get my feet wet, transfer money to my broker and purchase initial positions. However I don't want to sprint ahead but thoroughly investigate the stocks I plan on investing in. On my watchlist for the coming period will be the usual suspects for any dividend growth portfolio:

• Procter & Gamble (PG)
• Coca-Cola (KO)
• McDonalds (MCD)
• Johnson & Johnson (JNJ)
• Wal-Mart Stores (WMT)
• ExxonMobile (XOM)

I feel energized! By monitoring and writing on this blog I will be able to track my progress and goals. Let me know what you think about it!