Wednesday, September 16, 2015

New Position: CAT

I bought 13 shares of Caterpillar this morning, adding $40.04 to my annual dividend income. With a yield over 4%, this was too hard to resist. I've been watching CAT for a while and I'm happy to finally pull the trigger.
I now have two small positions in JNJ and CAT, and if prices remain at current levels, I intend to grow both of these over the next few months.

Stock Report: Caterpillar (CAT)

 Caterpillar is well-known in the dividend growth community. I've had CAT on my buy list for a while. I have two concerns: in recent years they've grown dividends at or near double digits. I'm not sure how they can sustain that in the current environment. The stock's been in decline like the rest of the market and a weaker China can pose growth challenges for CAT. But then again they've been doing this for a long time, and are committed to dividends.
The other mark on their record is that they didn't raise dividends in 2009. They kept paying, and didn't cut. This means that in tougher times that may happen again, and makes them not as reliable for growth as some other companies.
A stronger dollar may depress international earnings, but the stronger US economy can offset some of that. I'm looking to add CAT to my portfolio soon. This will be a new position.

Tuesday, September 8, 2015

Stock Report: Verizon (VZ)

Verizon is an interesting dividend company. They have a great track record of growing dividends. They grow slowly but steadily. They've made it through several bad years without missing or stopping growth. Verizon operates mainly subscription based services. I believe subscriptions are a good model, because people tend to stick with them more than one-off purchases, even when times get tough. For example, people on a budget are more likely to keep their mobile phone plan, and will skip going out to dinner to save money. And they'll still watch FiOS TV or use their internet at home. There is heavy competition though, including from themselves. Many people are using their phones for everything, and no longer feel they need TV packages and are cutting the cord. Cutting their home internet isn't far behind if they live in an area with good cell service and speeds. What remains is a mobile data plan, which is a commodity and under heavy competition. Verizon is investing in other types of businesses, including their Hum service for cars, and Go90 for mobile videos.

Verizon has been growing dividends for a good while and at a very manageable pace. They just raised their payout for their upcoming cycle in November. I think there are other companies with better dividend growth and that are on sale right now. Still, keep Verizon in mind for further research. I believe they'll be going to be a good dividend payer for some time to come.

I have a large position in VZ, about 10% of my portfolio. For that reason I do not plan to add to Verizon. I plan to hold on to Verizon as long as they keep paying and growing dividends.

Disclaimer: I own Verizon stock for my dividend portfolio. After my purchase, the company I work for became a wholly owned subsidiary of Verizon. 

How to Spot Sustainable Dividends

When prices drop, dividend yields go up. For if the dividends paid per share do not change, and the share price goes down, you'll get more for your investment dollars.  Example: if you buy a share that pays $5 per share for $100, your yield is 5/100 or 5 percent. If the price drops to $90, the company still pays $5 per share, and you get 5/90 or 5.6%.  The yield went up, but the dividend paid per share stayed the same.
Prices go down for different reasons. If a company does not demonstrate earnings growth, the value of the company does not increase, and hence the stock price should not naturally go up. But price is the perception of a company's value. So if there are rumors or an executive change, that could lead to uncertainty, some investors might not like that and sell the stock. If there are more sellers than buyers, the price goes down.
When the broader market is in a sell-off, we see many stocks lose value. This is no reflection on how well the business is run, or if it's making money. If we truly based stock price on a company's earnings, we should only trade the few days following their earning announcement, when we have real data to work with. Everything else is speculation.
What we do have is historical performance. We can look at how companies performed throughout the ups and downs in the market, even through recessions. You'll find that the stock market goes through stretches of increases and decreases, or bull and bear markets. If you're a value investor this will make you nervous as you'll need to time exactly where the market is in its cycle.  This is of course impossible to know. As a dividend investor, it is much easier to pick a time to buy - each and every day!  Dividend stocks go up and down just like everything else. But companies with a solid dividend strategy tend to manage well through good economic times and bad.
In our screener we use several historic data points to see how companies did in the past. This includes years dividends were paid out, if there were cuts or raises, if dividend growth was consistent, and the dividend growth rate.  If you select companies that perform well against these criteria, you can pick up shares at a discount in a down market. You'll get a better yield for a high quality stock. And you'll still get the comfort of knowing that even if a bear market is about to set in for several years, that your purchase will keep paying out, and that eventually even the price will recover. This is what we call sustainable dividend stocks.

On my short list for further research today: CFR, EMR, AEP, CTWS, JNJ, LNT, MDP, MGEE, NEE, SON, VVC.  I own JNJ and I'm looking to possibly add to my position this month.

Wednesday, September 2, 2015

RY increase

Last week RY announced an increase in their dividend payout by 2 cents, or 3%, from .077 to 0.79 per share. I'm still getting used to the US vs Canadian stock. The numbers above are in Canadian dollars. For US the numbers looks quite different. The recent payout was 0.616, and the new one should be something like 0.60 based on today's exchange rate of the stronger US dollar. 
Long story short, the increase is great, and helps offset currency fluctuations.