Quick Ideas

Several bloggers focusing on dividends got together to create a virtual portfolio of dividend picks. Eight bloggers each selected three companies that pay dividends to be included in the index. Information about it can be found here, and the list is below:

Company List
Abbott (ABT-US)
ScotiaBank(BNS-T)
CML Healthcare (CLC-T)
Intel (INTC-US)
Coca Cola (KO-US)
National Bank of Canada (NA-T)
Energy Transfer Equity (ETE-US)
Novartis (NVS-US)
Walmart (WMT-US)
Husky Energy (HSE-T)
Pepsico (PEP-US)
Staples (SPLS-Q)
Canadian National Railway (CNR-T)
Canadian National Resources (CNQ-T)
Aflac (AFL-US)
Royal Bank of Canada (RY-T)
Daylight Energy (DAY-T)
Progressive Waste Solutions (BIN-T)
ConocoPhillips (COP-US)
Phillip Morris (PM-US)
Procter & Gamble (PG-US)
Enterprise Products Partners (EPD-US)
Chevron (CVX-US)
McDonalds (MCD-US)

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The purpose is to be a group project rather than a contest on stock picking. Putting forth only three choices can make for some serious swings (for instance, if this was started last year, and I had included BIP, then my three picks would have probably greatly outperformed the market, but if I had included HCBK, my three picks would have greatly underperformed the market. I analyzed and own both.) And most investors on this list are long-term investors anyway, which means the end goal is not annual increases, but a good rate of return over a longer period.

That said, the index of 24 companies is more diversified in aggregate than any of the seven individual sets of three picks, so it’s an interesting actively-selected index with low turnover to follow. A lot of the bloggers in the group are Canadian, so the index has a big Canadian segment as well as a big US segment. (I don’t know what it is about my neighbor up north, but Canada seems to output a disproportionately large number of quality dividend blogs!)

The rules are pretty simple- each of us picked three companies, and annually, virtual dividends will be collected and invested in one of the picks. In a week, I will publish my overview of why I selected the three companies that I did- Walmart, Novartis, and Energy Transfer Equity.

The following is a list of the publishers involved, and their picks, as well as my brief comments on their picks.

The Dividend Guy

The Dividend Guy has quite a bit of investing experience, and focuses on investing in companies that pay dividends that increase annually. He offers a free e-book on dividend investing. His three selections are:
Intel
Coca Cola
National Bank of Canada

I view Intel as a strong value play, and it’s on my real-life watchlist for possible purchase. Coca Cola is a nearly bulletproof pick; perhaps not at a great price, but unlikely to perform poorly. I’m not too knowledgeable about specific banks, but Canada’s banks in general are top notch.

Dividend Mantra

Dividend Mantra started investing in early 2010, but is already on a roll. His monthly income/expense reports show disciplined frugality as he amasses wealth and passive income on an everyday income. His three selections are:
ConocoPhillips
Phillip Morris Intl.
Procter & Gamble

All three are good picks, in my view. ConocoPhillips offers a large dividend, and the company split promises to increase it even more. Phillip Morris has a lot of debt, but sells cigarettes to people outside of the US and this business isn’t going away any time soon. Procter and Gamble is among the most well-known blue-chip companies, with decades and decades of consecutive dividend growth.

My Own Advisor

My Own Advisor is a Canadian DIY investor that focuses on indexes, DRIPs, and dividends. His selections are:
Bank of Nova Scotia
Abbott
CML Healthcare

Canadian banks are strong, Abbott is a premier health care and dividend pick, and CML Healthcare is an interesting smaller Canadian medical company that focuses on diagnostics.

The Passive Income Earner

The Passive Income Earner is a married Canadian man who, according to his blog, spends at least an hour per day on average researching investments. His three selections are:
Canadian National Railway
Canadian National Resources
Aflac

I’m not too familiar with Canadian National Resources. Last year, I analyzed Canadian National Railway, and am bullish towards it. Railroads have wide economic moats around their business. Aflac is his American pick, and I recently analyzed the company. It’s a fairly risky, deep value pick, but the long-term fundamental business operations of the company are solid, and I think it’s a wise pick.

Dividend Ninja

Dividend Ninja switched from Mutual Funds to self-directed long-term investing with a discount brokerage. He focuses on passive indexes and blue-chip dividend payers in order to keep costs low and returns high. His three selections are:
Husky Energy
Pepsico
Staples

I consider Pepsico to be a solid choice, and while I’ve never directly investigated Staples or Husky- Stables appears to be an interesting value pick, and looking at Husky from a macro perspective as a Canadian energy producer, I’m bullish.

The Wealthy Canadian

The Wealthy Canadian invested his money starting at an early age, and in his mid-30’s, he’s semi-retired, and can leave the workforce at any time he sees fit. His three selections are:
Royal Bank of Canada
Daylight Energy
Progressive Waste Solutions

Being Canadian companies, I’m not too familiar on the details, but going with a Canadian bank, an energy producer, and a trash remover, looks like a solid set of choices to me.

Dividend Growth Investor

As an edit to this article, Dividend Growth Investor has joined as the eighth member in the project. So now there are 24 rather than 21 companies in the index, and his picks have been added to the above list. His selections are:
Enterprise Products Partners
Chevron
McDonalds

I think Dividend Growth Investor’s picks are great. EPD is a partnership, similar to my own pick of ETE, and McDonalds and Chevron are both companies that I think are excellent long-term picks.

Dividend Monk

The Dividend Monk that isn’t even really a monk. I’m an engineer by trade, and have been an avid investor for about six years now. My selections are:
Walmart
Novartis
Energy Transfer Equity

My picks span retail, health care, and energy, with a solid average dividend yield. My post explaining my picks is here.

Full Disclosure: At the time of this writing, I own shares of KO, ETE, NVS, ABT, CVX, and PG. In addition, WMT and INTC are on my watch list for possible purchase.
You can see my portfolio here.

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I recently published an article on Guru Focus called 5 Top Dividend Holdings of Seth Klarman.

I’ve been publishing a series on of articles on Guru Focus where I look into some of the world’s most well known investor’s portfolios to see what dividend companies they are holding. I’m not an advocate of actively managed funds, mainly due to the turnover (fees, taxes, etc.), but in my view it’s worthwhile to take a peek into the minds of well known investors to see what they are holding, and to see if any of the picks make good candidates for long term dividend holdings. Seth Klarman’s value investing approach may have found some decent holdings- two or three of these are probably worth looking at from a long term dividend investing viewpoint, and one of them in particular has been on my watch list for possible purchase.

I published an update on my Brookfield Infrastructure Partners (BIP) analysis on Seeking Alpha.

In the article, I explained why I think Brookfield Infrastructure is Attractively Priced. It has been one of my better performing investments, but rather than propose that people buy stocks that have already run a great distance, I’ve seen that BIP reported excellent quarterly results, decided to increase their dividend ahead of schedule based on their low payout ratio and increasing cash flows, and yet the market experienced this recent drop which included BIP stock prices. BIP has since rebounded, but the price remains reasonable based on the potential that the partnership has, in my opinion.

With August 10th’s sustained market drop, after weeks of huge declines, there are some hardy, successful, and highly profitable dividend companies trading at attractive discounts to both recent prices and fundamental value.

It’s impossible to tell what the markets will do in the coming days and weeks, but for those investing with a time frame of several years, and with an eye on dividend yields and dividend growth, there are some appealing bargains on the market right now that have diverse operations and solid balance sheets. Money can buy bigger dividend income streams during markets like this one.

Emerson Electric (EMR)

Emerson’s stock began seriously dropping shortly before this sell-off began, because the straightforward CEO mentioned that he’s seeing growth slow in the second half of 2011. This industrial company remained profitable during the market bottom of 2009, and its EPS is quickly rebounding with healthy forecasts, but the mere mention of a slowdown took huge slices off of the valuation. Emerson Electric is economically sensitive and cyclical, but large and diverse, and has a role to play in data centers, industrial automation, climate technologies, clean energy, and tools and appliances. They have invested during this market downturn to strengthen their offerings for data centers based on the current shift from an emphasis personal computing to more server-based computing. With strong emerging market exposure, and a focus on attractive industries, I view Emerson as having a bright future.

Discount from 52-week high: 33%
P/E: 13.9
P/B: 3.5
LT Debt/Equity: 47%
Dividend Yield: 3.30%

Dover Corporation (DOV)

Dover Corporation is a collection of a diverse set of smaller engineering businesses. They make a variety of industrial products, engineered systems, fluid management solutions, and electronic technologies. The company has a long history of successful acquisitions, and this recent year has been the largest acquisition year yet. The company maintains a pretty low dividend yield with a low payout ratio and reasonable EPS and dividend growth, but this recent sell-off has been pushing the yield up to more moderate levels. In addition, Dover is part of the club of companies that has raised its dividend for over 50 consecutive years. Dover, despite being a manufacturer, has the resources and capabilities to remain profitable even in severe recessions.

Discount from 52-week high: 27%
P/E: 11.5
P/B: 2.3
LT Debt/Equity: 40%
Dividend Yield: 2.44%

Cincinnati Financial Corporation (CINF)

Cincinnati Financial, a fairly large insurer, is selling at a discount today. Dividend growth is very low, but the current dividend yield is impressive. CINF, like Dover, has raised its dividend for more than 50 consecutive years. CINF’s portfolio is modestly aggressive compared to other insurers, since in addition to its steady bond portfolio, it has a smaller but substantial stock portfolio, consisting primarily of dividend payers and master limited partnerships. I consider CINF’s equity/bond portfolio a plus compared to other insurers, which may help its long-term profitability as it deals with a difficult Midwest economy.

Discount from 52-week high: 30%
P/E: 13.3
P/B: 0.85
LT Debt/Equity: 17%
Dividend Yield: 6.66%

Novartis (NVS)

There are more than just financials and industrials on sale today. The global health care company Novartis, based in Switzerland, is a strong and sturdy business that has seen a significant stock price drop. Switzerland’s economy is very strong, which is perhaps part of the reason this stock took such a big hit; a strengthening Swiss Franc compared to the US Dollar and other currencies may continue resulting in short-term unfavorable impacts on profits for NVS. For those looking to benefit from the long-term prospects of Novartis, including their large dividend and their history of raising the dividend each year since the company as it exists today was created in the 1990s, the current valuation seems like a solid buy.

Discount from 52-week high: 16%
P/E: 12.9
P/B: 2.1
LT Debt/Equity: 23%
Dividend Yield: 4.33%

ConocoPhillips (COP)

COP, one of the largest US oil and gas producers, is splitting into upstream and downstream components in an attempt to boost shareholder returns. The dividend yield is solid, dividend growth is respectable, and this action is expected to boost the dividend further, since ConocoPhillips will maintain its dividend while the other created entity may pay a dividend as well. COP made significant poorly timed acquisitions in recent years, but the current focus on returning value to shareholders and remaining appropriately sized and potentially nimble may pay figurative and literal dividends well into the future.

Discount from 52-week high: 23%
P/E: 7.9
P/B: 1.45
LT Debt/Equity: 33%
Dividend Yield: 4.21%

Full Disclosure: I own units of EMR.
You can see my list of individual stock holdings here. I also hold broad index ETFs.

I recently published an article on Seeking Alpha that highlights six companies that have particularly high profit margins. Different industries have different typical levels of profit, so I took into account absolute profit margins, relative profit margins, and returns on equity. When a company has margins that are higher than their competitors for an extended period of time, it provides evidence that either management is highly skilled, or the company has a firm economic advantage.

6 Dividend Stocks With High Profit Margins

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Investors that are in the accumulation phase of their portfolio have the flexibility to seek high total returns from their investments rather than requiring high current yields. Companies with moderate dividend yields and substantial dividend growth rates have many of the benefits of dividend paying companies, while also achieving a significant amount of company growth. There are some high-yielding companies and partnerships that also offer high dividend growth, but most commonly, high dividend growth is found among low and moderate yielding dividend stocks with low payout ratios. I personally utilize a mix of low, moderate, and high yielding investments.

Presented below is a list of potentially attractive dividend investments that have enjoyed double-digit compounded dividend growth over the last five years, and that have recently raised their dividends by either a high-single-digit percentage or another double-digit percentage.

Aflac (AFL)

Aflac, a large health and life insurer, has an interesting business model. Rather than target individuals, Aflac markets its insurance through businesses, which then can offer Aflac’s insurance products to individuals, who then can keep their Aflac insurance even if they leave the job. This allows Aflac to keep prices competitive. In addition, Aflac has strong customer loyalty both in the United States and especially in Japan.

Dividend Yield: 2.65%
5-Year Dividend Growth Rate: 20%
Most Recent Dividend Increase: 7%
Payout Ratio: 27%

Medtronic (MDT)

Medtronic is the largest independent durable medical technology company. Through its seven segments, Cardiac Rhythm Disease Management, Spinal, Cardiovascular, Neuromodulation, Diabetes, Surgical Technologies, and Phsyio-control, Medtronic is growing internationally. The company fuels its EPS and dividend growth both through company growth and share repurchases. The company was once highly overvalued, but over the last few years has had a rather low and attractive valuation, in my opinion. The balance sheet is decent, and company-wide growth is rather consistent.

Dividend Yield: 2.64%
5-Year Dividend Growth Rate: 19%
Most Recent Dividend Increase: 8%
Payout Ratio: 34%

General Mills (GIS)

Based in Minnesota, General Mills holds a collection of powerful brands, including Cheerios, Green Giant, Haagen-Dazs, Betty Crocker, Yoplait, and more. The company as founded back in the 1800s, and although there are is currently a lot of competition with its products, and there’s risk of commodity costs affecting profitability, General Mills operates in a defensive industry. Slow revenue growth is a problem, but cost-cutting has allowed the company to continue net income growth, and share repurchases have boosted EPS growth further.

Dividend Yield: 3.23%
5-Year Dividend Growth Rate: 10%
Most Recent Dividend Increase: 9%
Payout Ratio: 45%

McDonalds (MCD)

McDonalds offers predictable and highly scalable growth, and shareholder friendly management. The company is much larger than its rivals, with much higher brand recognition and advertising spending, and even more promising, the company’s net profit margin at over 20% is in a whole different league compared to its rivals. With a decent balance sheet and strong cash flows, MCD is able to support and grow its dividend over the long term. The company has a long history of consecutive revenue growth with an exception in 2009, and offers both company-wide growth and per-share growth. McDonald’s sells its products to nearly as many customers per day as the total current population of South Korea.

Dividend Yield: 2.83%
5-Year Dividend Growth Rate: 27.5%
Most Recent Dividend Increase: 11%
Payout Ratio: 52%

Molson Coors (TAP)

Molson Coors seems to be a value stock among larger brewers, and has strengthened its position with a joint venture with SABMiller. The downsides are that the company’s strong Canadian segment is not growing, and beer sales in the UK have encountered poor returns due to reduced on-premises drinking and unfavorable currency changes. The company does face larger competitors, but still has strong market share in both the US and Canada. The balance sheet is fairly strong, and is much stronger than it was a few years ago.

Dividend Yield: 2.82%
5-Year Dividend Growth Rate: 11%
Most Recent Dividend Increase: 14%
Payout Ratio: 35%

ConocoPhillips (COP)

COP, one of the larger integrated oil companies, has given shareholders good returns over this past decade, and maintained dividend growth through the sharply falling oil prices of 2008 and 2009. The company maintains a strong balance sheet, but not as strong as some of the company’s larger rivals. Most interestingly, the company announced plans to split into two separate publicly traded entities- an Exploration and Production company that will remain as ConocoPhillips, and a separate Refining and Marketing company. If this were to occur, according to CEO and Chairman Jim Mulva, this means there would be an incremental dividend increase for shareholders, because ConocoPhillips will continue paying its current absolute dividend to shareholders (with plans to continue raising it), and this new downstream entity which will be spun off to shareholders may begin paying a dividend as well.

Dividend Yield: 3.51%
5-Year Dividend Growth Rate: 13%
Most Recent Dividend Increase: 20%
Payout Ratio: 32%

Full Disclosure:
As of this writing, I own shares in MDT, but have no positions in any of the other companies mentioned.
You can see my full list of individual holdings here.