Apple – A Dividend Grower?

Another earnings report. Another home run. Apple Inc (AAPL) reported after yesterday’s market close, a Q2 EPS of $11.62 beating analyst expectations of $10.18 by $1.44. Revenues for the quarter came in at $45.6B. As the world’s largest publicly traded company, currently with a market cap of $470B, that is quite an achievement.As a quick reference, the following chart shows the great story of Apple’s trend in revenue, earnings and book value per share. On a 10-year scale, Apple boasts a revenue growth of 38%, EBITDA growth of 63.6% and book value growth of 43.5% annualized.

But as a dividend growth investor, I am more interested in the announcement of the stock split, dividend raise and the buyback plan.

Stock Split
Apple has confirmed that the stock will be split 7:1 that is targeted to be completed Jun 9, 2014; which at current levels will drop the stock price around the $75-$80. This is good news for the small investors considering to add Apple to their holdings.
Buyback
Apple is currently sitting on a cash pile of $151B of which $132B is kept overseas to lower its US tax bill. The company has decided to increase its buyback by an additional $30B through next year bringing the total to $90B. Carl Icahn should finally be able to calm down and get some sleep 🙂 It is important to note that the overseas cash cannot be used in buybacks and dividends unless Apple decides to pay the additional US tax on the amount.
Dividends
Apple started paying dividends in 2012 and much has been written by others about how this was the turn of Apple from a growth-focused stock to a value stock. This seemed to disappoint for a majority of the day-traders and investors who are in the market for a quick buck, but that news was really music to my ears. With the initiation of dividends, Apple signaled that investors can profit while staying invested without selling the position to exit the investment before realizing any profit.
The growth in dividends seem to be at a very good pace as well. From 2012 to 2013, the dividend rose 15% and yesterday’s announcement of new dividend of $3.29 signals an 8% increase. All signals seem to point that Apple may continue to be a dividend grower for years to come.
Disclosure: None. My full list of holdings can be found here.

Retire With Dividend Growth – Book Review

Retire With Dividend Growth: A Better Way is the second book from Dan Mac where he enlists the steps for the readers in order to ensure a good & comfortable retirement plan. Dan Mac runs the blog at Dividend Growth Stock Investing, and provides some great reading material on a regular basis.

Summary

The book starts off with presenting the case for dividend growth investing while pointing out some flaws in William Bengen’s 4% rule and why dividend growth investing is a better strategy. As readers of my blog know, I am a big fan of dividend growth stocks…maybe its confirmation bias, but I agree with the listings made by Dan Mac on why retiring on income produced by dividend growth stocks is better than other strategies. An excerpt from the book on the limitations:

• The biggest concern with the 4% rule is that you will run out of money when you most need it. You shouldn’t accept the possibility of running out of money when there is another strategy that can almost guarantee you never run out of money.

• Following the 4% rule requires you sell more of your investments when they are undervalued and sell less when they are overvalued. When investing, this is the exact opposite of what you want to be doing. There is a better way in which you will be making smarter investment decisions.

• If you want to leave an inheritance behind, the 4% rule reduces quite drastically the amount you will be able to pass on. Why work so hard your entire life creating a nest egg and then not be able to leave anything behind to your loved ones? There is another strategy that will have your family thanking the heavens that you were such a financially astute investor.

Why Read This Book?
Financial education and planning for your retirement is an important aspect of life that is missing from the education system. The onus is left on you, as an individual, to teach yourself on how to plan for the long term and build an investment portfolio to provide during the golden years of your lives. Books like the one in question are a great way for people to get introduced to the idea of long term planning and think about investments and take matter into their hands instead of hoping that the government would take care of their retirement via pensions.

This is an easy book to read and understand. The book also provides a chapter -by-chapter exercise to follow and work out the numbers for each reader’s case. The reader is walked-thru with the  whole planning process of determining estimates, creating shortlists of stocks and which metrics to use, account types, asset allocation with extra notes on a balanced portfolios, emergency funds, when to sell stocks etc. Dan Mac also importantly notes that the maintenance of the retirement plan involves minor adjustments as a life-long process. The book wraps up with steps to  take care of, when its time to retire – with a good discussion on tax planning for your sources of income; and managing the portfolio during retirement and passing on the fortune to your children.

Recommendation
For long term investors, I recommend this book as it provides with some good overview of investment strategies and things to keep in mind while building your portfolio. However, if you are a seasoned dividend growth investor, a lot of the information may come as something you are already familiar with. The book also takes a very education-oriented approach, so other dividend growth investors can learn a thing or two about how to educate others about dividend growth.

Retire With Dividend Growth: A Better Way is available on Amazon for $4.93. Click here to buy.

Search for all other book reviews.

 

Dividend Yield vs. Dividend Growth

Dividend Growth Investing involves not only picking dividend paying stocks, but stocks that grow their dividends year after year. Investing in stocks for income requires dividend growth investors to find a balance between the current dividend yield and the dividend growth rate (DGR). 
 
As a dividend growth investor, I want to build a dividend income stream to achieve financial independence. It is as important to build the present income stream as is the growth of dividends over time. Ideally I want the rate of dividend growth to beat the inflation rate by a few percentage points. This article takes a look at my portfolio holdings and present a visual representation of the current yield and the 5-year DGR.


A couple of items to note from the chart below are: only stocks are included (all funds from my holdings have been left out), and one stock – IAMGold (IMG.TO) is missing, as it recently cut their dividends to 0.

Observations

  • I want the equities either high on the y-axis or far to the right (within reason…as being too far to the right can be a red flag).
  • The numbers presented here are the current yields. I have held some of these stocks for years and the yield-on-cost is higher.
  • As the dividends rise, year after year, those equities will start moving to the right (when considering yield-on-cost)
Some observations about specific equities:
  • BCE Inc’s (BCE.TO) dividend growth rate is unsustainable at 25%, especially with its current payout ratio at 85% of earnings. I expect BCE to come down lower on the graph to a more normal level.
  • CHS Inc (CHSCP) has no dividend growth and although it has a good yield, I will be considering selling this position.
  • Only two equities are below the 2% yield line (far to the left) – The Jean Coutu Group Inc (PJC.A.TO) and Qualcomm Inc (QCOM). However, they both have high dividend growth rate (15.3% and 13.66% respectively), so I am not too concerned about the current low yield.
  • Wells Fargo & Co (WFC) saw a dividend cut during the financial crisis which made it drop below the 0% DGR line. However, WFC has started raising its dividends again, so I expect that to start moving up.

Overall, I am happy with the layout of the stocks I hold. In addition, I hold funds which are high yielders providing me with more income currently which I use to reinvest into my stock holdings.

 
What do you think of this representation? I think visually it provides me a viewpoint akin to a birds eyeview for my portfolio.
 
Full Disclosure: Long all equities mentioned here. My full list of holdings is available here.

7 Reasons to Own Dividend Stocks

Dividend Growth Investing
Dividend stocks have come to the forefront in the last few years after the drop in interest rates from the Fed. Investors hungry for yield have rushed to dividend stocks, and rightly so, as a source of income. This list points out the best reasons to hold dividend stocks in your portfolio.
1. Investing vs. Trading: Staying invested in great companies provides you with income as opposed to growth focused stocks where you need to sell and exit the investment to realize any profit. The buy-low-sell-high mantra needs great timing to succeed, which has been proven extremely hard to pull-off even by professional investors.
2. Passive Income: Dividends can provide investors who want to achieve financial independence with an income stream. If your nest egg is big enough, you can retire on the passive income generated through dividend stocks.
3. Stability: Corporations that pay dividends are established companies with proven record and have reliable revenues year after year. Unless the company faces a disastrous situations where their core business is at risk, dividend paying stocks are more stable and follow more predictable patterns over time.
4. Resilience: In recessionary times, dividend stocks tend to perform better. A company that can maintain to pay its dividends through rough times demonstrates the quality of its business. These companies are bottom bound with better financial fundamentals.
5. Feedback: Once dividends are paid out, they are yours. They are not empty promises or financial trickery where numbers can be cooked and you have to take a company’s word for it. This gives the investors assurance that the company is really generating the profits that it claims to have.
6. Inflation: Inflation eats into a saver’s coffers. Dividend growth stocks increase their payouts year after year beating the inflation rate enabling your funds to grow with better returns.
7. Compounding: Investing in dividend stocks allows you all of the above and when the dividends are reinvested and grown over a number of years, the compounding effect can be truly staggering. Time is one of the biggest factors when it comes to taking an advantage of the compounding effect.
What are your thoughts on dividend investing? Have I missed anything else? Leave a comment.

Dividend Comparison – Media

Media companies have an immense power to reach large populations and influencing them. There are many different kinds of way people consume and entertain themselves – from radio to television to movies, music, vacation resorts etc. The surprising part of this whole mass media empire is that it is only a handful (6-8) of companies who control over 90% of the market share. These companies are truly conglomerates in their own sense.Earlier this year, Comcast bought full stake of NBC Universal from GE earlier this year for $16.7B and I have been thinking of looking into the various entertainment and media companies as a potential investment. Following are the media giants and their dividend comparison.

The Media Giants

Company Name
Ticker
Market
Cap
Quote
P/E
Yield
Payout
Ratio
5-yr
DGR
Comcast/NBC CMCSA $117B $44.68 18.83 1.75% 27% 41.74%
21st Century Fox
News Corp
FOX
NWSA
$70B
$8.6B
$30.92
$14.93
11.92
5.18
0.56%
1.14%
7%
NA
9.1%
NA
Walt Disney DIS $120B $66.98 20.35 1.12% 23% 16.4%
Viacom
CBS Corp
VIA
CBS
$35B
$32B
$72.41
$52.89
17.58
19.86
1.66%
0.91%
27%
18%
NA
-13.99%
Time Warner TWX $57.5B $61.70 19.02 1.86% 33% 7.86%
Sony SNE $22.4B $22.19 95.26 1.25% 64% 3.66%

Subsidiaries

A table of subsidiaries below shows the extent of each company’s empire. Each company has a major stake in various fields of the industry.
Comcast/
NBC
Fox/
News Corp
Walt Disney
Viacom/
CBS
Time Warner
Sony
Broadcast TV NBC Fox ABC CBS,
The CW (50%)
The CW
(50%)
Cable
USA Network,
SyFy, Bravo, E!
FX, National
Geographic
ABC Family,
A&E (50%),
Disney Chnl
MTV,
Nickelodeon,
Comedy Central,
Showtime
TNT, TBS,
HBO
Movie Universal Studios 20th Century
Fox
Walt Disney
Pictures
Paramount Pictures,
CBS Films
Warner Bros Columbia Pictures
Theme park/
Resorts
Universal Parks
& Resorts
Walt Disney
Parks & Resorts
Nickelodeon
Resort Orlando
Parque Warner
Madrid (5%)
Publishing Wall St Journal,
The Times
Marvel, Disney
Publishing
Simon & Shuster DC Comics,
Time, People,
Sports Illus
News MSNBC Fox News ABC News Now CNN, HLN
Business CNBC Fox Business
Sports NBC Sports Fox Sports ESPN CBS Sports NBA TV
Recod label Fox Music Disney Music CBS Records Warner Music Sony Music
Internet iVillage, Fandango,
Hulu (32%)
News Corp. Digital
Media, Hulu (36%)
Disney Interactive,
Hulu (32%)
MTV News Media,
CBS Interactive
Flixter (32%) Sony Online
Entertainment

Disney and Comcast (esp after NBC Universal acquisition) are the largest conglomerates of the mass media industry with market caps of $120B and $117B respectively. The two companies also look very well diversified across the businesses. They have attractive 5-yr dividend growth rates, but the yields are quite low (<2%). The yields are not attractive enough for me to initiate a position, but I will continue to keep an eye on these two.

Disclosure: None.

Disclaimer: The information provided here is for educational purposes only. All opinions here are my personal opinions and should not be taken as financial advice. I am not qualified to be a financial advisor. Always consult with your financial advisor before investing in any of the companies mentioned on this blog.