A Review of Dividend Safety Scores
Dividend safety serves as the foundation for conservative income investing and stress-free retirement living. Companies that are able to continue paying and growing their dividends help us meet our investment goals and build wealth over time. We created Dividend Safety Scores to help investors build safe dividend portfolios and avoid companies that are most at risk of cutting their dividends. The following information is from our new Dividend Safety Scores guide, which can be found under the Resources menu for future reference. What are Dividend Safety Scores? Our Dividend Safety Score measures a company’s ability to continue paying its current dividend and helps investors find the safest sources of income for their portfolios. Dividend Safety Scores analyze the most [...]
Eli Lilly (LLY): Dividend Growth is About to Change
Eli Lilly (LLY) is a blue chip stock that has paid a consistent dividend since the early 1970s. The company’s total dividends paid have increased from 4.55 cents per share in 1972 to a projected $2.04 per share in fiscal year 2016. However, the company’s dividend growth rate has materially slowed, and the dividend payout ratio is now over 80%. Should investors be concerned that Eli Lilly could be poised for years of flat dividends or possibly even a cut to the dividend? Let’s take a look at the business. Business Analysis Eli Lilly is a global pharmaceutical company with an operating history that dates back to the late 1800s. In 2015, they generated sales [...]
7 Habits of Highly Effective Dividend Investors
Dividend investors come in all different shapes and sizes. Many of us are living off dividends in retirement, while others are investing for long-term income growth and capital appreciation. Regardless of our objectives, we are united by our desires to reduce risk and make responsible investment decisions. However, even the best of us have fallen into traps over the years. For example, numerous academic studies have shown that individual investors are incredibly poor at trying to time the market and are prone to letting their emotions get the best of them. Investors pulled $16 billion from U.S. stock funds in 2009 while stocks were at their lowest prices in a decade, according to a recent Bloomberg [...]
7 Safe Dividend Stocks That Beat Bear Markets
In the midst of the second-longest bull market ever recorded, many conservative dividend investors are feeling increasingly anxious. The S&P 500's forward P/E ratio of 17.1 sits approximately 20% above its 10-year average. To make matters even more uncomfortable for income investors, lower-for-longer interest rates have made safe haven companies such as utilities and consumer staples even more expensive relative to history. No one knows where the market will go from here, but the following companies all have strong Dividend Safety Scores and performed well during the last recession. These companies are safe income bets for buy-and-hold investors and dependable sources of retirement income. While it's hard to make a compelling valuation case for some of [...]
Merck (MRK): Slow and Steady Dividend Growth
Merck is a blue-chip dividend stock that has paid a consistent dividend since 1970 and has grown its dividend at a 1.8% annual rate over the last 10 years. They have been able to continually pay a dividend during difficult times thanks to a recession-resistant business model, attractive operating margins, and reliable free cash flow generation. This is the type of consistency I like to see for investments I consider for our Conservative Retirees dividend portfolio. Currently, the business looks attractive with a nearly 3% dividend yield and optionality for additional dividend increases; however, with many large pharmaceutical companies struggling with billion-dollar revenue drugs’ patent protection expiring, should investors continue to count on Merck’s dividend stability? Business Overview [...]
Kroger (KR): A Bargain Dividend Growth Stock or Value Trap?
Kroger (KR) is starting to get the attention of value and dividend growth investors alike after its year-to-date stock price decline of 22%. Kroger’s stock now trades for less than 15x forward earnings guidance and offers double-digit annual total return potential if management’s growth guidance is to be trusted. Even better, most of the factors weighing on Kroger’s business today have no impact on the company’s long-term earnings potential. These are usually my favorite type of investment opportunities, but readers won’t be surprised to hear that I am very reluctant to invest in any retailer – especially debt-laden, growth-challenged grocers. However, Kroger could be an exception. The company has delivered extremely reliable results for decades and [...]
Valero (VLO) Offers a High Yield, But is the Dividend Safe?
As Warren Buffett continues adding to his stake in oil refiner Phillips 66 (PSX), many investors are wondering if Valero (VLO), another refiner, is an equally attractive dividend stock. Valero offers a high yield of 4.4%, trades at less than 10x trailing earnings, and has more than doubled the S&P 500’s return over the last five years. Dividend growth has been outstanding as well. Valero’s quarterly dividend payment has increased from 5 cents per share in 2010 to 60 cents most recently. Offering a strong combination of yield and income growth, many conservative dividend investors are wondering if Valero is a good fit for their portfolios or if the company’s best days are behind it. After [...]
Target (TGT) Lowers 2016 Guidance. What About the Dividend?
Target (TGT) reported disappointing second-quarter earnings results this morning, sending the stock down more than 5%. The company lowered its full-year guidance and, like many other brick-and-mortar retailers, remains challenged as it tries to navigate the evolving consumer landscape. With Warren Buffett recently reducing his stake in Wal-Mart by nearly 30%, many dividend investors are wondering if Target offers value or is a trap. As the company struggles to generate sustainable growth, the health of its dividend is worth revisiting as well. Let's take a closer look at Target's earnings results and whether or not the stock is attractive for conservative income investors. Investors interested in a deep-dive on Target's business can review my earlier thesis [...]
Dividend Safety Analysis: General Motors (GM)
The record level of new car sales registered in the U.S. in 2015 certainly has many in the automotive industry celebrating. General Motors (GM) is even one of Warren Buffett’s top dividend stocks. However, industry groups are predicting the auto production seasonally adjusted annual rate (SAAR) to decline over the next few years. Given its tumultuous history, General Motors is nowhere close to becoming a dividend king, but can GM at least sustain its dividend during the next downturn in the auto cycle? Business Analysis Overall, the automotive industry is not a great industry to invest. It is characterized by cyclicality, tense labor relations, and high levels of competition and capital intensity. Unlike many of the dividend [...]
Dividend Safety Analysis: Cummins (CMI)
Cummins (CMI) reported a double-digit sales decline during the second quarter of 2016 and expects full-year revenue to slump about 10%. Lower truck production in North America and dismal global demand for off-highway vehicles and power generation equipment are weighing on the company. As the company’s key end markets continue reeling, investors are beginning to wonder how safe Cummins’ dividend payment is. After all, cyclical industrial businesses are not often the best place to find safe dividends. Before analyzing Cummins’ dividend, let’s quickly review the business itself. My full thesis on the company can be seen here. Cummins has been in business for nearly 100 years and recorded total sales of $19.1 billion in 2015. [...]