Yield on Cost: How to Calculate and Apply It
Yield on cost is a common metric cited by dividend investors as they measure and manage their portfolios. But is yield on cost really one of the most important financial ratios for successful dividend investing? In this article, I will provide my definition of what yield on cost is, show how to calculate it, and analyze the pros and cons of using the metric to improve investment results. What is Yield on Cost? Simply put, yield on cost measures the rate of dividend income your original investment earns today. Put another way, yield on cost is essentially the dividend yield based on your initial investment in a stock. If a company increases its dividend after you purchased [...]
How to Build a Dividend Portfolio
I previously wrote an article about measuring and managing dividend stocks, but have you ever wondered how to build a dividend portfolio in the first place? Like most things with investing, everyone has their own opinion about how to construct a portfolio. Most of the debate usually centers on how many holdings an investor should own and how their holdings should be diversified. While there is no right or wrong answer, I believe there are general guidelines that investors should remain aware of to avoid taking unnecessary risk with their dividend portfolios - especially for those living off dividends in retirement. In this article, I will review the key factors that influence a portfolio’s risk profile. Let’s [...]
Brexit: Should Dividend Investors Care?
As I write this post, stock markets around the world are reeling. The S&P 500 finished down more than 3.5%, most European markets closed down at least 6% (including double-digit losses in Italy, Spain, and Greece), and Japan's Nikkei 225 dropped by approximately 8%. We haven't seen this type of volatility since 2008. What drove today's plunge in financial markets, and should dividend investors care? In case you somehow missed the flood of headlines, Britain voted to leave the European Union (EU) late last night. Few people expected this outcome, resulting in the knee-jerk reaction across financial markets today. Leaving the EU introduces a number of consequences that could weigh on the United Kingdom's [...]
AT&T (T): No Longer Owned by Buffett, but the Dividend is Still Good
Warren Buffett sold AT&T out of Berkshire Hathaway’s portfolio of high-yield dividend stocks during the first quarter of 2016. Warren Buffett acquired his stake in AT&T during the third quarter of 2015 as a result of AT&T’s acquisition of DirecTV. Buffett had owned DirecTV prior to the acquisition (his first purchase was in 2011), so his shares converted into AT&T stock once the deal closed because the acquisition was a stock and cash transaction. Despite AT&T’s high dividend yield near 5% and seemingly cheap price-to-earnings multiple (14.2), Warren Buffett apparently thought there were more attractive options to put his money to work. Let’s take a closer look at the safety and growth potential of AT&T’s dividend [...]
Canadian National Railway (CNI): Boosting Dividends Every Year Since 1996
Canadian National Railway (CNI) has increased its dividend every year since its initial public offering in 1995, averaging 17% annual growth over that time period. Since they were deregulated in the 1980s, railroad operators have enjoyed a boom in productivity and fortified their position as an essential piece of North America’s supply chain. The slump in commodity prices has caused a number of railroad stocks to go on sale, and CN looks particularly interesting since it has less exposure to the weakest commodity – coal. Despite commodity price volatility, CN raised its dividend by 20% earlier this year and expects to continue increasing its dividend at a faster rate than overall earnings growth. Let’s take a [...]
Texas Instruments (TXN): A Free Cash Flow Machine With Double-Digit Dividend Growth
Without Texas Instruments (TXN), most of the world’s electronic equipment would not function. The company is an extremely important player in virtually every end market and maintains numerous competitive advantages. Texas Instruments has also been a free cash flow machine, converting close to 30 cents of every $1 in sales into free cash flow. Not surprisingly, the company scores strongly for Dividend Safety and Dividend Growth and has paid uninterrupted dividends for more than 50 consecutive years. Let’s take a closer look at this technology giant for our Top 20 Dividend Stocks portfolio. Business Overview Texas Instruments was founded in 1930 and primarily focuses on manufacturing analog chips (64% of revenue) and embedded processors (21%). Analog [...]
Union Pacific (UNP): High Dividend Growth and a Durable Moat
The railroad industry is extremely durable, and Union Pacific (UNP) has proven to be no exception since its founding in the 1860s. Railcars are a critical mode of transportation and move about 40% of U.S. freight as measured in ton-miles (the length freight travels). Without companies like Union Pacific, the country’s supply chain could not operate. Perhaps it is no surprise why Warren Buffett acquired leading railroad company Burlington Northern Santa Fe (BNSF) in 2010 for $34 billion, adding the company to Berkshire Hathaway’s portfolio of high quality dividend stocks. Union Pacific shares a number of qualities with BNSF and should be of interest to long-term dividend growth investors, especially since the stock has pulled back on [...]
Kraft Heinz (KHC): One of Warren Buffett’s Biggest Dividend Stocks
Kraft Heinz (KHC) accounts for nearly 20% of Berkshire Hathaway’s portfolio and is one of Warren Buffett’s favorite dividend stocks. The company maintains a wonderful portfolio of brands, sells recession-resistant products, generates dependable free cash flow, and is taking steps to further bolster its margins and earnings. These are many of the qualities I like to see for companies included in our Top 20 Dividend Stocks portfolio, so let’s see if Kraft Heinz can make the cut. Business Overview Kraft Heinz is the fifth largest food and beverage company in the world. The company was formed in 2015 after Kraft Foods Group and H.J. Heinz merged together. Heinz specialized in ketchup, sauces, meals, soups, snacks, and [...]
Home Depot (HD): A Premier Long-term Dividend Growth Stock
Home Depot (HD) has paid uninterrupted dividends since the late 1980s and is a dividend growth machine. Since making its first quarterly dividend payment of 0.044 cents per share in 1987, Home Depot’s dividend has increased to 69 cents. The quarterly dividend has also more than doubled since 2012. Home Depot possesses many of the qualities I love to see in a business. It earns a high return on invested capital, generates excellent free cash flow, maintains healthy payout ratios, operates in a slow-changing industry, and has created substantial value for shareholders over time. This is the type of business I like to own in our Top 20 Dividend Stocks portfolio. While Home Depot’s current dividend yield [...]
Crown Castle (CCI): A High Quality REIT With Healthy Dividend Growth Prospects
Crown Castle (CCI) only began paying dividends in 2014, but the company currently offers income investors a high dividend yield near 4% with 6-7% annual dividend growth potential. Crown Castle also has an attractive business model with substantial recurring revenue, excellent free cash flow generation, and extremely high incremental margins. Let’s take a closer look at Crown Castle’s business for consideration in our Top 20 Dividend Stocks portfolio. Business Overview Crown Castle began operating as a real estate investment trust (REIT) in 2014 and is the largest provider of shared wireless infrastructure in the country. Crown Castle owns approximately 40,000 towers and 16,500 miles of fiber supporting small cell networks. The company leases its towers [...]