Another New Position Paying Me A 5% Dividend

This week I bought my first 16 shares of Royal Bank of Canada (RY). I already own The Bank of Nova Scotia (BNS) in my portfolio but was eager to add another large Canadian bank, because of their track record that goes back for more than 100 years. Royal Bank of Canada (RY) and Toronto-Dominion Bank (TD) have been on my buy list for a very long time. I’m more than happy that I finally pulled the trigger. 

RY is one of North America’s leading diversified financial services companies, providing personal and commercial banking, wealth management, insurance, investor services, and capital markets products and services on a global basis. This bank is the market leader across all key businesses in Canada. RY has more than 80,000 employees who serve more than 16 million personal, business, public sector, and institutional clients through offices in Canada, the United States, and more than 37 other countries. They are well diversified, from businesses and geographies to client segments. Founded in 1864, RY is the 11th largest bank worldwide and the 5th in North America, as measured by market capitalization.

Valuation

I hit the BUY button when the stock traded for a price of $60.19. This is equal to a P/E of 9 whereas the normal P/E ratio is just shy of 13. I think this is really a great deal. The price has made a swing back to the low 50’s in March and has already recovered with a nice 20%. At that time I bought other stocks on my buy list. At a price of $60, this still is a great opportunity. Look at the black line (price) in the FastGraphs picture below and how it always comes back to the blue line (normal P/E): regression to the mean. I’m confident I’ll eventually profit from Mr. Market’s manic depressive nature.

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Dividends

Every year since 1870, RY has been paying dividends. That’s 150 years, folks. Let that number sink in. It is a clear evidence of a strong and durable competitive advantage. In twenty years their quarterly dividend has gone up from $0.11 a share to more or less $0.80. Their dividend growth rate over twenty years is 12%. Over a period of three years their dividend growth rate is just above 3%. With a current quarterly dividend of $0.80 per share, this means my initial dividend yield is 5.10%. What a starter! The dividend in dollars depends on the USD/CAD rate. So the exact payment in dollars varies from quarter to quarter.

Payout Ratio

The increase in dividends is even more phenomenal given the fact that their payout ratio has only increased from 40% to 46% according to FastGraphs as you can see below. This percentage is right in the middle of their annual earnings which indicates they can withstand a large drop in earnings. I like that idea. During the last three years their payout ratio even dropped from 50% to 46%.

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Their goals for the future are in line with the historic records of RY. Their projected payout ratio has an upper limit of 50% according to their most recent investor presentation. I think this indicates that dividend increases during the handling and economic consequences of the coronacrisis will be in the low single digits. If RY stops increasing or even cuts its dividend during this COVID-19 pandemonium or aftermath, I’m okay with that. Because they’ll eventually come back stronger. I’ll buy even more shares of this company when their share price drops if they would announce a dividend suspense. So it’s possible this transaction requires patience and discipline to play out. But I think the scenario of a large dividend cut isn’t very likely.

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Credit Rating

RY is well-capitalized with a capital position way higher than required. RY has a common equity tier 1 (CET1) ratio, the measure of a bank’s capital strength, of 12% of risk-weighted assets (RWA). According to Basel III capital and liquidity rules, all banks must have a minimum CET1 to RWA ratio of 4.50% by 2019. This gives me confidence this 156-year old firm can resist the coronacrisis. RY have a high credit rating, also in comparison with their competitors.

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First Quarter Results

Their Q1 2020 results were in line with all growth figures mentioned before. Income numbers are up, ROE is extremely high and their CET1 ratio remains rock solid.

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We have to wait and see for the numbers of the second quarter as that quarter will contain the numbers of the paralyzed economic activities. Exactly how deep and long this downturn might be, is hard to see at this stage. Meanwhile I get paid a 5% dividend while my bank pays me a generous 0.02% on my savings account.

Did you buy a large Canadian bank lately?

Happy investing!

3 Dividend Aristocrats For Growth And Income

This is a guest post by Bob Ciura of Sure Dividend. Bob spends his time performing fundamental, bottom-up equity research on dividend stocks for Sure Dividend’s website, publication partners, and premium investing newsletters.

3 Dividend Aristocrats For Growth And Income

The recent volatility in the U.S. stock market is a reason for income investors to become more defensive. The ongoing coronavirus crisis, along with the potential for a global recession, mean that income investors could benefit by focusing on high-quality dividend growth stocks. At Sure Dividend, we believe the Dividend Aristocrats represent some of the best dividend growth stocks to buy and hold for the long-term.

The Dividend Aristocrats are a group of 66 stocks in the S&P 500 Index, with 25+ consecutive years of dividend increases. These stocks have maintained their dividend increases every year, even during recessions. They broadly have leadership positions in their respective industries, with durable competitive advantages.

As a result, the Dividend Aristocrats are likely to hold up relatively well, if the U.S. economy is about to enter a recession. The following three Dividend Aristocrats are good examples of companies that are likely to maintain their dividend growth, even during the coronavirus crisis.

Dividend Aristocrat #1: Pentair (PNR)

Pentair was founded in 1966. In the decades since, the company diversified itself into a number of different areas. The Pentair of today is a pure-play water company, which is a fundamentally secure industry, as water is a necessity of life. The company is now a global leader in water solutions, with 2019 revenue of $3 billion, and approximately 120 locations in 25 countries.

In 2019, adjusted earnings-per-share of $2.38 increased 1.3% from the previous year. The company remained highly profitable and registered modest growth, which allowed it to raise its dividend by 6% along with its quarterly earnings report. This represents the 44th consecutive year of dividend growth for Pentair.

Pentair should be able to continue growing its dividend in the years ahead, because of its highly defensive business model. It operates in the water solutions industry, by providing a wide range of products and services used by individuals and businesses. Pentair is not immune from recessions, but it has the ability to remain profitable because it delivers necessary products and services.

For example, while Pentair’s earnings-per-share declined by 33% in 2009, during the Great Recession, the company remained profitable and quickly returned to growth. Earnings-per-share increased by 36% in 2010 and 21% in 2011. Therefore, we believe the company will maintain its dividend even in an upcoming recession.

Dividend Aristocrat #2: Chevron Corporation (CVX)

Chevron is an oil and gas giant, with an integrated business model that includes upstream exploration and production, along with midstream storage and transportation, as well as downstream refining. It is unusual for companies operating cyclical business models (such as oil and gas) to maintain long histories of annual dividend increases. Indeed, there are just two energy sector companies on the list of Dividend Aristocrats (the other being Exxon Mobil).

Chevron has increased its dividend for 33 years in a row, including an 8% increase in 2020. Chevron recently announced it will trim 2020 capital expenditures by $4 billion, a 20% reduction. It will also suspend its share buybacks, but the company has reiterated that its dividend is its top priority.

The company’s future growth will be fueled primarily by production growth, as oil and gas prices remain at depressed levels. Fortunately, Chevron has an impressive lineup of future projects that are ramping up.  In late January, Chevron reported (1/31/20) financial results for the fourth quarter of fiscal 2019. In the quarter, production remained flat over the prior year’s quarter but in the full year it grew 4% thanks to strong growth in the Permian Basin. The company achieved record annual net oil-equivalent production of 3.06 million barrels per day in 2019. And, Chevron added approximately 494 million barrels of net oil-equivalent proved reserves in 2019.

Chevron’s annualized dividend payout of $5.16 per share represents a high yield of 6.2%. This makes Chevron one of the highest-yielding Dividend Aristocrats today. The dividend appears secure, as the company’s capital expenditure reductions and integrated business model help provide some protection against weak commodity prices.

Dividend Aristocrat #3: Leggett & Platt (LEG)

Leggett & Platt is an engineered products manufacturer. The company’s products include furniture, bedding components, store fixtures, die castings, and industrial products. The company qualifies for the Dividend Aristocrats Index as it has 48 years of consecutive dividend increases. Leggett & Platt was founded in 1883, is headquartered in Carthage, MO, and is currently valued at $3.5 billion.

The company has generated steady growth for many years, and 2019 was another year of strong results for Leggett & Platt. The company reported its fourth quarter earnings results on February 3. The company reported revenues of $1.14 billion for the quarter, which represents an 8.6% growth rate compared to the prior year’s quarter. Revenues missed the consensus analyst estimate slightly. The company’s revenue growth was based on a 13% sales gain thanks to the impact of acquisitions, while the company’s decision to exit some businesses resulted in a small headwind to revenues.

Leggett & Platt generated earnings-per-share of $0.68 during the fourth quarter, which represents a solid gain of 10% versus earnings-per-share of $0.62 during the previous year’s quarter. Leggett & Platt’s earnings-per-share for the fourth quarter also beat the analyst consensus estimate slightly.

The company is vulnerable to recessions as its business model is reliant on a healthy global economy. As a result, fears of a global recession have caused the stock to decline by over 40% year-to-date. But long-term investors should view this decline as a buying opportunity, as Leggett & Platt possesses durable competitive advantages. Investors should expect the company to return to growth once the coronavirus crisis is over.

In the meantime, the stock is attractively valued, with a high dividend yield. Shares trade for a price-to-earnings ratio of 11.5, while the stock has a current dividend yield of 5.6%. Therefore, future shareholder returns could be quite attractive at the current price.

Key Takeaways

The coronavirus crisis has caused fears of an upcoming recession. In times of great uncertainty, investors should focus on the best companies that are most likely to survive the crisis. This is why we continue to recommend the Dividend Aristocrats, which have proved the ability to navigate recessions while maintaining annual dividend increases to shareholders. The three Dividend Aristocrats on this list have competitive advantages and long-term growth potential that should allow them to continue raising their dividends for years to come.

 

BOOM: Setting A New Record And A 46% YoY Dividend Growth

I was very fortunate with a strong start for the year with a 43% growth YoY. The market got very volatile in February and March with the further spread of the coronavirus. I always love bouncing stock prices especially after disappointing earnings reports. So I’m really looking forward to next week as big banks will publish their first quarter results. Man, do short-term oriented people freak out. We will have down months, quarters and even years with some dividend aristocrats and dividend kings once in a while. But that’s the nature of doing business. Sometimes the road gets bumpy. And once in a while the stock market gets hit hard in an unpredictable way. Just like now. But increasing a dividend for more than 50 years should give us peace of mind to endure. Let’s trust these smart people in the boardroom, which is something different than being naive or indifferent.

Let’s see what February was all about…

The Numbers

As you can see in the table below the total of dividends for February was $394.55. A new record with a 46% increase YoY and a 12% QoQ. As you can see the new positions in comparison with February 2019, Abbie (ABBV) and Simon Property Group (SPG), contributed in a meaningful way.

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The following chart shows the monthly progress for the last four years. I like the direction: up, up, up. It looks like I’m going to pass the number of $400 within a quarter. Just wow!

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Transactions

Also in terms of buys February was an exciting month. I made three buys during the first half of the month: Broadcom (AVGO), Cisco (CSCO) and Exxon Mobil (XOM). It was clear to me I had to work on a larger exposure to the technology sector. So I finally pulled the trigger. Broadcom (AVGO) and Cisco (CSCO) are new positions which I’d love to increase at attractive valuation multiples and dividend yields in the near future.

I also decided to sell my position in Ventas (VTR) in February, because of two reasons. First, they haven’t increased their dividends for some years now and I’d like to have significant more positions with a higher dividend growth rate. The second reason is I’d like to scale down my exposure to maybe four REIT’s. With the money I got from selling Ventas (VTR) I bought (additional) shares of other companies during the second half of February, as stated in the table below.

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Additional new positions for me are Caterpillar (CAT) and T. Rowe Price (TROW). They successively have increased their dividends with 10 and 33 years. Although the streak of dividend increases for 10 years seems short, Caterpillar (CAT) has paid a cash dividend every year since the company was formed and has paid a quarterly dividend since 1933. The quarterly dividend of T. Rowe Price (TROW) has grown at an average 11% per year over the past decade. Just impressive! As you can see I also averaged down my position in Cisco (CSCO).

Looking Forward

In summary, February was another good month with high dividend growth numbers YoY and four new positions at very attractive prices and dividend yields. My total dividend income for the fist two months of 2020 was $704.71 which is already more  than the total of the first three months in 2019 ($629.02).

I’ll post my progress for the month of March shortly.

Happy investing!

Starting 2020 with 43% YoY Dividend Growth

January is already in the books, folks. The dividend investing community collected their dividends of the first month of 2020. We’re all curious how things turned out and excited to write about our progress towards financial independence. Some dividend investors have already reported excellent growth numbers and new records. My dividend growth numbers YoY were staggering as I got paid $1,200 more in 2019 in comparison with 2018. Let’s see what my numbers are for January.

The Numbers

My total dividend income for January was $310.16. In this month I got several raises as compared to the dividend amounts in October 2019. There were also higher dividends, because I increased several positions during the last months of 2019. You can see the dividend growth numbers QoQ and YoY right below:

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This makes the total amount of dividend income for January $310.16, meaning we crushed the number of $300 with a solid YoY dividend growth of 43%. That’s a pretty good start of the year! The $300 in monthly dividend income seems to become a new baseline for 2020 after last year’s August ($331.12) and November ($353.43). I also like the double digit growth number of 43%. You can see that the QoQ increase is a small 9%. I’m working on this with my plan to buy high-growth dividend stocks in 2020. Here is the graph YTD:

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You can see I’ve come from less than $50 exactly three years ago to more than $300 as it stands today. That already looks like a track record of a quickly and steadily growing passive income. Sometimes I get impatient as I want the dividend amounts to grow faster and more meaningful in terms of absolute numbers. But I guess on a relative basis I should be more than confident. It’s good to look back every now and then to see the real change and accomplished steps as I tend to look beyond the small, incremental changes QoQ.

Transactions during January

The oil behemoths have been in the news lately after a sell-off in their shares due to disappointing Q3 numbers and consequences of the expanded spread of the coronavirus. The oil price of a barrel WTI or Brent has dropped with as much as 20% since the beginning of the year. The volatile stock prices of Chevron (CVX), Royal Dutch Shell (RDS), ExxonMobil (XOM) isn’t likely to be only a short-term event as LNG exports from the U.S. are uneconomical at these price levels. Many exporters have contracts at fixed, higher prices. Only a steep and long production cut could drive the oil price upwards, but that would lead almost certainly to a public reaction by the U.S. government adding more uncertainties to this market. With all these headwinds I’ll keep a close eye on the big oil players.

I already took advantage of the market volatility this month by buying 19 shares of ExxonMobil (XOM) for a price of $64.65. With this buy I added an extra $66.12 to my annual dividend income. The quarterly dividend is paid in the last month of every quarter which means a small boost of $16.53 in my lower dividend income months. I currently own 76 stocks for an average price of $74.21.

Looking Forward

My total dividend income YTD is, obviously, $310.16. Going forward, the key is to save as much as I can and make smart, sound investments based on cheapness and quality. Consistently, month after month, keeping the big picture in mind.

Thanks for reading.

Happy investing!

2019, Recap & Review

As is customary around this time, it’s a good opportunity to review the year passed and the year ahead, to learn from our mistakes and to build on our successes. After my last blog post about the dividend numbers for December 2019 I decided to make a visual presentation of the year 2019. This is how this fantastic year for the stock market ended for me:

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New & Closed Positions

The most fascinating thing for me in terms of buys and sells was building my position in 3M (MMM). I was a bit early with buying severals shares just above $192 but managed it to average down towards a price of $171. If presented with the opportunity to buy more shares around $160… I’m in. Their streak of increasing their dividends with 61 years just screams quality and staying power.

I’m also glad I took advantage of buying two quality large U.S. banks at depressed Mr. Market prices. In hindsight I should have bought more shares of these businesses. I regard the lack of more money to invest with at that moment as a mistake. I always invest the total amount of money available immediately in dividend paying stocks. As a consequence of that I’m not able to buy stocks for a period of let’s say… three weeks. The next paycheck means the next buy. Sometimes I find some cash here and there which gives me an extra opportunity, but you also have to buy food to feed your kids, you know… But I’m content with initiating a position and hoping to get a rebound in 2020 to buy another bunch of JPM and WFC stocks.

I sold Celgene (CELG) with a small loss after the announcement of being acquired by Bristol-Myers Squibb Company (BMY). This was a speculative buy and once more a lesson to stick with the plan of buying dividend stocks. Another sell was Emerson Electric (EMR) after disappointing figures and several low dividend increases in a row. I sold this position with a profit around 60%. It felt unnatural to sell a dividend growth stock as I plan to never sell my shares, especially of a company with an impressive streak of increasing their dividend for 62 years. But I feel a realistic and competitive plan is missing. It wouldn’t surprise me if it turns out I was too early with my decision to sell and they’re back hitting homerun after homerun in three years. We’ll see.

Missed opportunities

2019 was also a year of some damn fine opportunities. I missed the opportunity of buying Home Depot (HD) and Lowe’s (LOW) at attractive levels of valuation. But we also had a big pullback in stock prices and valuation multiples of Goldman Sachs (GS), A.O Smith (AOS) and Broadcom (AVGO). Man, o man… I just need more money at hand. That’s probably the biggest lesson for me, folks.

Dividend Income & Portfolio Worth

How I would have loved to close 2019 with a FY dividend income above $3,000. Too bad that number isn’t in the books (yet). But closing the year with more than $1,000 or 65% extra in extra dividend income in comparison with 2018 is also something to be proud of.

The line between all numbers of FY dividend income is rising nicely. I’m very content with that and very curious how things will develop in 2020 but also beyond 2020. A nice indicator for 2020 is the forward twelve months of dividend income as of December 31st 2019. That’s already a figure of $3,621. This means an increase in dividend income of 20% already. And we’ve only just begun…

The market value of my stock portfolio was more or less $93,000 at the end of 2019. An increase of $32K means my portfolio saw an increase of almost 50% during 2019. That’s a pretty number and is partly a consequence of a steep decline in stock prices in December 2018. As you can see, I only invested $13K new capital.

Concluding Remarks

Some dividend investors write about their portfolios worth over $500,000 and their FY dividend income crushing the number of $10,000 in 2019. That seems far away in the future, while I also know that’s where I’m heading eventually if I keep focused and disciplined. What a prospect that is.

In my next post I’ll write about my goals for 2020, personally and financially. This will be the first time for me and I already notice the inspiration I get from setting some bars for myself. As they say “If you continuously compete others, you become bitter, but if you continuously compete with yourself you become better.”

Happy investing!

December, A 45% Growth YoY In Dividend Income To End 2019

With this blog post about my dividend income for December an amazing year of progress to financial independence comes to an end. It’s getting more excited each and every year. I will write a separate blog post about the year 2019 and my goals for 2020.

Income numbers December

The amount of dividend income for month 2019/12 was $191.35. Three companies paid me more than last quarter as a consequence of a raise or larger position. Here’s the breakdown:

Bank of America (BAC) – $7.02

BlackRock (BLK) – $13.20

Cummins (CMI) – $13.11

Johnson & Johnson (JNJ) – $7.60

3M (MMM) – $41.76

Norfolk Southern (NSC) – $5.64

Realty Income (O) – $3.86

Southern Company (SO) – $21.70

Stanley Black & Decker (SWK) – $8.28

Union Pacific (UNP) – $5.82

Wells Fargo (WFC) – $13.77

Exxon Mobil (XOM) – $49.59

Progress

My passive income for the month of September 2019 was $192.92 That means a decrease of 1% QoQ; The progress YoY is more meaningful; my dividend income for December last year was $131.95 so that’s an awesome increase of 45% YoY. Let’s look at the graph YTD:

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Buys In December

During this month I bought 20 shares of Simon Property Group (SPG) for a price of $145.98. You can read more about this purchase in this article. It still trades at an attractive valuation with a P/AFFO of 13.5 and a dividend yield of 5.78%.

Dividend Income FY 2019

Including this month I collected a nice FY $2,961.57. This means I closed this year with an increase of 65% YoY. WOW!

Thanks for stopping by and feel free to comment.

Happy investing!

Another Record Month Of Dividend Income, A 53% Growth YoY

The year 2019 has come to an end. This means we can draw up the balance. I think 2019 will turn out to be a year in which the snowball effect of compounding really took shape. But there are still two months of dividend income to report about on my blog: November and December. Let’s start with November. December will follow shortly.

Income numbers November

For this month my total amount of dividend income was $353.43. This is the highest amount of monthly dividend income so far. It seems we’re already heading towards a quarterly dividend of $400, after crushing the number of $300 only recently in August. We are steaming up!

Three companies paid me more than last quarter as a consequence of a raise or larger position. Here’s the breakdown:

Apple (AAPL) – $16.94

Abbvie (ABBV) – $64.20

CVS Caremark (CVS) – $17.00

Delta Air Lines (DAL) – $9.26

Realty Income (O) – $3.86

Omega Healthcare (OHI) – $67.00

Starbucks (SBUX) – $19.27

Tanger Factory Outlets (SKT) – $62.13

AT&T (T) – $85.68

Texas Instruments (TXN) – $8.10

This makes the total amount of dividend income for this month a nice $353.43. My dividend income in August 2019 was $331.12 so that’s an increase of 7% QoQ. My passive income for November 2018 was $230.73 so that’s a very welcome 53% YoY growth. This means another high double-digit growth number, I love it! You can see that four companies contribute a very large part to my dividend income. It’s clear I have to diversify more than I used to do: more companies and a more equal distribution. This will be one of my goals for 2020. Here is the graph that shows all monthly dividends YTD as compared to last year:

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Transactions during November

I didn’t buy any stocks in November, because I wanted some extra money to invest with towards the end of 2019.

Looking Forward

I earned $2,770.27 in dividend income YTD, which means I surpassed the FY 2018 dividend income of $1,793.09 with almost $1,000.

Thanks for for your time.

Happy investing!