Kicking Off With A 184% Increase In January 2019

Well, let’s start right away with my dividend numbers for the first month of 2019. As they say “the first blow is half the battle”. I read about other dividend investors’ tremendous progress in dividend numbers YoY and QoQ. The first month of each quarter has always been a strong month for me in terms of absolute numbers, but also percentage-wise. During the market correction in December I bought many stocks. Let’s see if these transactions added somy dollars to my dividend income in January.

The Numbers

My dividend income for 2019/01 was $216.63. In this month I got several raises as compared to the dividend payment three months ago. Walt Disney (DIS) paid me a small amount more for every share than last quarter, $0.88 which means a $0.04 raise. This is a 4.8% increase from the prior dividend. This month also included an increased dividend from Ventas (VTR) – $0.793 instead of $0.79 for every share I own. This is a 0.3% increase. January included my first dividend income from Illinois Tool Works (ITW). Also Kimco Realty (KIM) and Altria (MO) paid me more YoY and QoQ because of my additional buys during the month of December. The dividend of PepsiCo was paid in January instead of December, so that’s a bit of a cheat ☺️. This sums up to:

Bank of Nova Scotia (BNS) – $28.82

Walt Disney (DIS) – $4.40

Illinois Tool Works (ITW) – $6.00

Kimco Realty (KIM) – $70.00

Altria (MO) – $52.00

Realty Income (O) – $3.76

PepsiCo (PEP) – $8.35

Philip Morris (PM) – $6.84

Ventas (VTR) – $36.46

This makes the total amount of dividend income for this month a nice $216.63. My dividend income for the month of October 2018 was $166.05 so that’s an increase of a nice 30% QoQ. My passive income for the month of January in 2018 was $76.33 so that’s an increase of 184% YoY. Wow, that’s quite a growth rate! Here is the graph, look how beautifully the income numbers rise YoY for January:

Transactions during January

I sold my full stake in Celgene for a price of $87.05 after the acquisition offer of Bristol-Myers. With that money I bought a nice bunch of dividend stocks which were still attactively priced after the market correction in December. I added to still relatively small positions and in all cases below my average buy price. So my yield on cost got a nice boost. Here’s what I bought:

Looking Forward

Up until the last moment I hesitated between Abbvie (ABBV) and CVS Caremark (CVS). I decided to buy CVS because I let many opportunities go by in the past to buy this company at a much lower price than my first relatively small buy. My stake in the tobacco industry has risen nicely with my buys in December and January. The yields are on the high side so this promises a lot for the upcoming months in 2019. The numbers for January are staggering. It’s very cool to see this snowball effect getting bigger and bigger every month, quarter and year. What an amazing investing strategy this is.

Happy investing!

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**Triple Digit Growth Numbers In October; A 388% Increase In DGI YoY!**

The last couple of weeks I read blogs of other members of the DGI community to see how the month of October turned out. In many cases our DGI colleagues keep pushing forward by getting nice dividend increases, buying quality companies and hitting new milestones. The snowball is getting bigger and bigger. Let’s see what results I booked in October.

The Numbers

My dividend income for October was $166.05. In this month I got several raises as compared to the dividend payment three months ago. Realty Invome (O) paid me a penny more for every share than last quarter. This month also included the increased dividend from Altria (MO) – $0.80 for every share I own. Finally, the Bank of Nova Scotia (BNS) paid me CAD 0.85 instead of CAD 0.82 per share. This sums up to:

Bank of Nova Scotia (BNS) – $29.12

Kimco Realty (KIM) – $58.50

Altria (MO) – $31.20

Realty Income (O) – $3.75

Philip Morris (PM) – $6.84

Ventas (VTR) – $36.34

This makes the total amount of dividend income for this month a nice $166.05. My dividend income for the month of July 2018 was $165.45 so that’s an increase of exactly 0% QoQ. ☺️ My passive income for the month of October in 2017 was $34.02 so that’s an increase of 388% YoY. Wow, that’s quite a growth rate! Here is the graph that shows all monthly dividends YTD as compared to last year:

EF90800A-648D-4C83-8652-3519AD4DF9DD.pngLooking Forward

Hopefully the wild swings in stock prices remain for a while; BREXIT, the trade war between USA and China, oil supply/prices and rising interest rates are big macro economic issues. There is nothing better to see the stock prices of high-quality dividend paying companies getting dragged down on days of bad news items for the stock market in general. I’ve got my eyes on BLK, ITW, MO, SWK, TXN and XOM.

Happy investing!

Recent Purchase: Increasing My Starbucks Position

Hit it!

That’s exactly what I did today when I bought another bunch of shares of Starbucks. I initiated a position two weeks ago when the stock price decreased about 10% on one trading day. Mr. Market went very depressive that day and I immediately accepted his offer of $54.00 a share. The stock market offered an even better opportunity the days after the steep fall of the stock price. News about the departure of the CFO led to even more uncertainty about the direction and internal problems of Starbucks.

Shares have traded for prices below $50 this week and it will probably stay there for a while. Stocks which I already own are definitely in my buy zone again when I’m about 10% down. So today I hit the buy button and bought an additional 20 shares for a price of $48.95 including transaction fee. This adds $7.20 to my quarterly dividend income which equals to $28.80 on a yearly base. With these extra shares Starbucks will pay me $16.92 in total every three months. These two transactions lead to my average yield on cost of 2.78%. I like that. With an annual dividend growth rate of a very likely 20% in the next two years this averages up to a 4% yield on cost. That definitely tastes better than coffee, if you’d ask me!

While browsing the internet for analyses about Starbucks this week I crossed an analysis of Scuttlebutt Investor. I highly recommend his blog post about Starbucks here. He states:

“SBUX benefits from strong unit economics that are best in class among quick service restaurants and other peers. In the US the average new SBUX location generates revenue of $1.5mm (average unit volume or AUV) and generates a year 1 store profit margin of 34% or $510k. Based on an average store investment of  $700k in the US, this results in an ROI of ~75%. Compare this to a McDonalds with an ROI of ~30%, an average fast casual operator at ~40% or even Chipotle (at its peak before the food illness issues) at ~70%. This means that the average SBUX store earns back its investment a third of the way into its second year – very compelling unit economics. The math likely changes with higher investments in Reserve stores and premium Roasteries in the coming years but if these seek to elevate the overall SBUX experience and thus drive pricing power through the entire system, it’s the right move for the long term.”

These numbers show how massive the value creation of Starbucks is. I won’t go through the details of other relevant fundamentals. You can read more about that in my previous blog post about Starbucks.

Have you been buying shares of Starbucks lately or do you plan to in the month of July?

Looking forward to your view.

Recent purchase: Starbucks

 

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Wow, I didn’t see this one coming! Last week I wrote about a handful of businesses which were high on my conviction list: GIS, JNJ, KMB, SKT and VTR. I was pretty sure JNJ would become my next purchase.

But quite unexpectedly, the stock price of Starbucks came down with more than 9% on the day after its management announced a 1% growth in comparable store sales globally in Q3 FY18 instead of the previous growth numbers of 3%. Starbucks also laid out their strategic priorities and operational initiatives to accelerate growth and create long-term shareholder value. Besides a slower pace of licensed stores openings and closure of underperforming company-operated stores in densely populated areas, management announced an increase of its quarterly dividend to $0.36/share from $0.30/share and expects to return $25B to shareholders via buybacks and dividends through FY20, up from a prior target of $15B. The steep dive of its stock price and 20% increase of their quarterly dividend made me initiate a position in Starbucks.

The business

Starbucks really doesn’t need an introduction here as it’s the largest and most well-known coffee business in the world. Their culture and business model have made them a very succesful corporation in less than 50 years. It’s a fully vertically integrated business controlling much of their supply chain, from source (growing beans) to manufacturing (roasting the beans) and sales (retail stores).

The funny thing is I don’t like coffee. I don’t like it at all ☺️. In my country, the Netherlands, Starbucks still has a relatively small footprint. But wherever I see a location of Starbucks I always notice the atmosphere in their stores of putting the customers’ feeling and experience at the top of priority. I found out only recently that CEO Howard Schultz stated he wanted Starbucks to be a “place for conversation and a sense of community. A third place between work and home” (Starbucks Company Information). Schultz summarized this concept in nearly the same wording in an interview: “We’re in the business of human connection and humanity, creating communities in a third place between home and work” (Pelley, 2006).

The company clearly uses its corporate social responsibility as a way of distinguishing itself from competitors; they’re focusing on protecting the environment and encouraging fair-trade. Starbucks branding is essential for their success as their in-store experience of customer focus generates customer loyalty which creates some kind of barriers against competition. Starbucks doesn’t advertise as it wants to stay out of regular marketing methods and let the customer experience speak for itself. By doing this, they try to uphold the status of being an upscale company.

Starbucks’ differentiation technique is high quality coffee and excellent service, but customers started shifting towards cheaper alternatives of direct competitors McDonalds or Costa coffee where they got similar services. As a consequence its net margins have declined in recent years from 14.39% in 2015 to 12.89% in 2017. That’s clearly a worrisome sign, but gaining the global brand recognition of Starbucks isn’t an easy thing to do, would take a very long time and demand a major financial undertaking. That’s why the price came down significantly this week: “has their business model come under pressure?”

China has a legendary tea-drinking culture that goes back thousands of years. However, coffee consumption in China has nearly tripled in the past four years, with imports of coffee growing 16% a year compared to about 2% in the U.S., according to the International Coffee Organization and the U.S. Department of Agriculture. An average person in mainland China consumes just three cups of coffee per year compared to 250 cups per person in the U.K. and 363 cups in the U.S., according to Euromonitor International. The growth figures and potential are staggering especially in some large cities like Beijing, Guangzhou and Shanghai. Starbucks relies heavily on China as one of their long-term growth markets besides the U.S. The Starbucks’ China/Asia Pacific segment is growing like crazy with revenues up 54% to $1.2 billion in the second quarter. Urbanization and industrialization will remain big societal factors in China and will thrive their economy. Consuming Western products is a luxury fashion statement for the rapidly growing middle class and millenials in particular. So Starbucks is just spot-on with their strategy of aggresively growing the footprint of company owned stores in China. There’s a huge potential.

The purchase

I have to say that I was a bit early for the show and bought 27 shares for the price of exactly $54 a piece (including transaction fee) on Wednesday, the 20th of June. That equals to a forward P/E of 22.5. I hesitated to buy two chunks of smaller amounts, but unfortunately I didn’t. The price ultimately declined to around $50 a share. I’m confident with this P/E number as growth prospects for the longer term are still intact. I preyed for this stock quite a time and felt excited stepping in.

At the P/E ratio of 22.5, I closed in a forward dividend yield of 2.67%. They’re paying me $0.36 per quarter. So 27 shares totals to $38.88 on a yearly basis. This is definitely below my preferred step-in yield of 4%, but the dividend growth and payout ratio are phenomenal. Hopefully, market expectations stay depressed for a longer period of time which would give me the opportunity to double down on this one. I read fellow investors expected the stock price to continue its decline in the short-term towards prices around $48. I really hope so, instead of analyst firms making recommendations to buy or hold shares. Starbucks’ dividend yield is already at an all-time high, but a price of $48 would mean doubling down on a dividend yield of exactly 3%. “Where can I sign, sir?

Starbucks has increased their quarterly dividend for 7 years in a row. That’s not a hell of a streak, but I’m convinced their shareholders rewards program will lean heavily on increasing their quarterly dividend in the future. They would become a dividend contender by then and that’s the first line to cross for getting credibility as a dividend growth stock. The most recent 20% increase is in line with previous ones; the 5 year dividend growth rate is in the 20-25% range. Applying the 72-rule means increasing the dividend annually with 20% will result in a double in just 3.5 years. Sweet! In fact, the 5-year yield on cost of Starbucks sits around 6.60% at the moment which is ranked higher than 99% of the 398 companies in the restaurants industry according to GuruFocus.

The dividend payout ratio based on analysts consensus of earnings of $2.66 in 2019 and a ftm dividend of $1.44 comes down to 54%. This gives the company enough opportunities to continue increasing their dividends in the future. Add in the prospective stock buybacks and a consensus average earnings growth rate of 14% as expected by analysts and you have to conclude we’re into something good.

GuruFocus states that Starbucks highest return on capital (Joel Greenblatt) was 121.97% which equals the current return on capital. These numbers are beyond comprehension. This is surely a good business as it creates tremendous value for its shareholders. Their RoC is even ranked higher than 93% of the 332 companies in the global industry!

The company announced an addition of $10B to their shareholder returns program in cash and share buybacks, up from its $15B for FY20. That’s more than 33% of the company’s market capitalization. Nice!

Well, that’s it. Adding a good business with a high dividend growth rate and tremendous business growth prospects doesn’t seem a bad thing to do. I like to end with a nice quote of Howard Schultz: “We’re not in the coffee business serving people, we’re in the people business serving coffee.”

What did you buy lately and have you considered buying shares of Starbucks?

Stock Ideas for June 2018

We’re almost halfway 2018 and it looks like this year is going to be a solid year in terms of conscientiously investing my savings in dividend growth stocks. Throughout this year I’ve been able to buy stocks every month and in some cases I really locked in some nice yields. Wild swings in the stock market gave us the opportunity to buy terrific companies at low or reasonable valuations. The last twelve months I’ve put most of my monthly savings in REITs – KIM, O, OHI, SKT, VTR – and other companies like MO, PEP, T and XOM. These are all high-yielding stocks. I really like that idea. And yes, some have a low dividend growth rate. It’s true that the dividend growth rate matters in a big way for increasing our net worth. But when these stocks trade for such low valuations, I really think there’s no harm in investing your money in dividend growth stocks with a lower than average dividend growth rate for a while. Besides, I’m convinced that some names will show higher growth numbers in a year or two. Let’s get back to the subject, please…

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This Friday I will be able to invest a welcome amount of fresh capital of $1.000. The last couple of days I’ve been thinking about which stocks to buy. I really like that feeling of knowing these investments will get me a nice and growing income for the years ahead. The looming trade wars of the USA with China and the EU and the prospect of rising interest rates have resulted in some great businesses trading at low or reasonable valuations and high dividend yields.

I’d love to buy me a beaten down business in the consumer goods sector again. Last month I started a position in PEP. Man, was I excited about this buy! It’s really cool to see people standing in front of you at the grocery store, paying for drinks and snacks of the company you own. The stocks which are currently (still) on the buy list for many dividend growth investors lately are GIS, KHC, KMB, PEP and PG. My favorites are GIS and KMB. I don’t own stocks of these companies yet.

I’m not a big fan of KHC for example. I’d love to own a part of their flagship product Heinz. It’s an amazing product and it has been around for more than 150 years. My little daughters are already insisting on their dollop of ketchup at dinner. No matter what we eat ☺️. I think the Board will get the company on track with cost reductions and slimming down their product portfolio. Buffett is very positive about 3G Capital and their cost cutting strategy for KHC. That’s a real plus. But, I don’t feel quite comfortable about their pile of debt and dividend growth in the future. I don’t know, maybe I’m too pessimistic on this company.

Additions to existing positions like SKT and VTR is also an attractive possibility. Prices have gone up lately and I feel like the pessimism has shifted towards a more neutral stand by the market. I do think these stocks will remain volatile this year so there’s a big chance this opportunity will last for a while. But, who knows? Their dividends are safe and yield around 6.0% at the moment.

JNJ is also on my radar again. This is a true gem, as we all know. It’s a wonderful and a steadily growing business, yielding just shy of 3% these days. I’d love to add this quality name to my basket.

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*: Heinz had built up quite a track record regarding paying dividends and was a Dividend Aristocrat for more than a decade until it lowered its dividend back in 2003. Since 2004, Heinz has increased its dividend annually. Kraft was a spinoff from Mondelez International. As a standalone company Mondelez put together a respectable track record of dividend growth that goes back to the early 2000s. In the years following the financial crisis Mondelez kept its dividend flat for a couple of years.

So, it all comes down to a choice for GIS, JNJ, KMB, SKT or VTR. Isn’t that a sweet problem?

What is on your buy list for the month of June?

First article

Dear visitor,

This is my first article online, ever. I’m very excited about my decision to write a blog on my journey to financial independence. It has been on my mind for quite some time now, but I finally pulled the trigger. I’m sure it will be an adventurous journey with steep hills and valley lows, feelings of satisfaction and regret, and thoughts of conceit and humbleness along the way. At times of fear and panic in the stock markets, I’ll have to be prepared to walk alone, strengthened by the words of wise investors who took the path towards financial independence before me. While at times of greed and hysteria, lots of people will rush in the stock markets to chase the hottest companies which hopefully will make me walk on with gentle pace. Are you still with me? 😳

I really feel passionate about dividend investing as it gives me the time to build a portfolio of stakes in long existing, terrific companies. Diversification by investing in various sectors and companies in different maturity stages reduce my risk of significant loss in capital and dividend income. At the contrary, substantial price increases of the stocks that I own, leads to accumulating my wealth; I win. When stock prices fall bigly, I have the opportunity to average down or buy stakes in other terrific companies which lead to an increase in my dividend income; I win. Don’t you just love this money game?

So, what’s this blog all about? Well, if you just let me… I’ll share my buys and sells on this blog as well as my thoughts on dividend paying companies and my personal pitfalls regarding to investing. Periodically, I’ll also write about my progress towards financial independence by informing you about the increases in my dividend income and wealth accumulation.

Hopefully, visitors will feel encouraged to comment on my articles as exchanging our ideas and thoughts will sharpen our minds. I certainly do not pretend to know everything, or even… to know anything. There’s only one thing that matters for me and I think for other investors in this regard and that is: “How to become a better investor?”

Well, that’s it for now. It’s time to walk the talk. So, I’ll pick up my bag to continue my journey, step by step. I’m sure that I’ll meet some interesting fellow travellers along the way.

(End of Prelude) ☺️