Saturday, July 13, 2013

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.

Friday, July 12, 2013

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
Logo 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!

Sunday, July 7, 2013

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%.

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.

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.

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.

Tuesday, July 2, 2013

First purchases in my DGI-portfolio

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


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!