Articles filed under "dividend growth"

Smart Dividend Sector For Recovery’s Next Leg

Strong (and stronger than expected) GDP and jobs growth suggest that the long awaited rise in the Federal Funds rate could come sooner in 2015 than later. If as expected that sets the 10-year Treasury back on an upward trajectory, the likes of AT&T (T) and Verizon (VZ) could come under pressure. Not for any operational pressure, just incremental selling as investors who have swarmed those high yielding stocks as bond alternatives, revert to the real deal.

But the same improving economic outlook that sets that in motion should give a nice push to technology stocks -- long an out-performer in the mid cycle stage of an economic recovery. And as Jeremy Schwartz, director of research at WisdomTree recently laid out in the Wall Street Journal, large cap tech stocks also happen to be a smart place for dividend investors. There is so much cash sloshing around in tech companies, the dividend payers should have no problem continuing to generate strong dividend growth. And valuations continue to be reasonable. “Historically, you are expected to pay a premium valuation for the growth part of the dividend market,” Mr. Schwartz says. ”You’re not today. The large-cap technology sector, for example, is quickly raising dividend payouts. That would normally lead to above-average valuations. But today, plenty of names remain fairly cheap.”

Schwartz mentioned Apple (AAPL) and Microsoft (MSFT). Apple just got back in the dividend game in 2012, but Microsoft should soon start getting plenty more ink as a dividend stalwart. Last year marked its 10-year anniversary of paying a dividend; for many institutional managers with a dividend focus, that is a typical (albeit arbitrary) hurdle a stock must scale to land in a dividend portfolio. Initiating a dividend isn’t saying much; having the capacity and strategy to keep that dividend growing is something that can only be divined over time. Microsoft has more than proven itself, nearly quadrupling its dividend payout over the past 10 years.

MSFT Dividend Chart

MSFT Dividend data by YCharts

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Hey Optimists: Oil Price Dive Puts Chevron On Sale

Global oil prices are down about 20% since a peak in June of this year, and that is dampening investor enthusiasm for the shares of major oil companies, as well. If you’re an optimist about the global economy – you believe the expansion will continue, which would in all likelihood increase use of petroleum products internationals – the dip could be an opportunity to acquire a stock that YCharts has admired strongly in recent years, Chevron (CVX).

Some of the recent oil-price pressure is due to disarray among OPEC members, as the Wall Street Journal smartly reports. There is also the increased supply coming from U.S. drilling projects, including fracking. And let’s not forget that Russia, for all its saber rattling in Ukraine, is an economically-troubled nation with really only one major source of cash from abroad: its oil and gas.

Brent Crude Oil Spot Price Chart

Brent Crude Oil Spot Price data by YCharts

So, around the world it’s pump-baby-pump, and in the short-term that’s depressed oil prices and shares of oil majors. Above one sees the decline in Brent Crude and WTI Crude and the lesser drops in Chevron, Exxon (XOM), Royal Dutch Shell (RDS.B) and BP (BP).

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Late-Cycle Nirvana: Moaty Dividends on the Cheap

With economic growth picking up a smidge, and seemingly stable enough for the Federal Reserve to get serious about a potential rate rise in the first half of next year, there’s little to suggest any need to get your inner bear on. But at the same time, with valuations anything but cheap, getting a bit more smart/defensive in your stock allocation seems like a reasonable pursuit.

Enter, the Schwab U.S. Dividend Equity ETF (SCHD). Its got the sort of high-quality large cap issues -- Johnson & Johnson (JNJ), Microsoft (MSFT) and Chevron (CVX) -- that participate plenty on the upside, but also have the nice habit of holding on better when the markets correct. And as Morningstar Analyst Abby Woodham recently noted in Morningstar magazine, about two-thirds of the portfolio is invested in stocks that have been designated by Morningstar to have a wide moat. That compares to less than 50% of the S&P 500.

For income investors, the Schwab US Dividend ETF does indeed provide a dividend yield premium to the SPDR S&P 500 ETF:

SCHD Dividend Yield (TTM) Chart

SCHD Dividend Yield (TTM) data by YCharts

The projected yield for the Schwab portfolio is an even more compelling 3.1%. (You can now find an ETF’s prospective yield on its main quote page, under the Fundamentals section on the right side of the page.)

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$150 Billion Bet: Wrong Place To Stretch For Yield

Retail yield chasers now have more than $150 billion riding on a risky income play that sure doesn't seem to provide commensurate reward opportunity. While junk-quality bank loans got some ink recently for net outflows in May, the $1.7 billion in outflows Morningstar (MORN) reported was barely a blip when measured against the $42 billion in net flows for the 12 months through May. Combined assets for retail bank loan funds and ETFs are now more than $150 billion.

Here’s what investors in the largest bank loan retail portfolio, the $7.2 billion PowerShares Senior Loan ETF (BKLN), earned in the 12 months through May, compared to the high-grade (read: boring) iShares Barclays Core Total U.S. Bond ETF (AGG):

BKLN Total Return Price Chart

BKLN Total Return Price data by YCharts

That’s pretty much all a function of yield, as the bank loan ETF has a trailing 12 month payout near 4.5%, compared to 2.2% for the high-grade portfolio that tracks the benchmark Barclays Aggregate Composite bond index of corporate and government issues.

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Mid-Year Report Part Two: Not All Stocks Overpriced

As we reported in our Mid-Year Report Part One, halfway through 2014, stocks are looking pricier. As investors who choose individual stocks mull the taking of profits, eating of losses and some judicious rebalancing, it’s worth asking very broadly: what’s still cheap?

^SPX Chart

^SPX data by YCharts

Rather than search for super-low-priced shares at this point, we’re looking at the S&P 500 components and using the YCharts Stock Screener to sort out companies trading at a forward PE ratio of below 15. That gives us a pretty big list, ordered by market cap here and also featuring dividend yield and payout ratio. There are 125 stocks in all.

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Mid-Year Report: Not All Stocks Overpriced

Halfway through 2014, stocks are looking pricier. As investors who choose individual stocks mull the taking of profits, eating of losses and some judicious rebalancing, it’s worth asking very broadly: what’s still cheap?

^SPX Chart

^SPX data by YCharts

Rather than search for super-low-priced shares at this point, we’re looking at the S&P 500 components and using the YCharts Stock Screener to sort out companies trading at a forward PE ratio of below 15. That gives us a pretty big list, ordered by market cap here and also featuring dividend yield and payout ratio. There are 125 stocks in all.

And it turns out, with YCharts’ focus on value investing, we’ve written about a fair number of these stocks during the last six months.

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Dividends, Strength, Late-Bull-Market Performance

Investors hungry for income know steady dividend payers such as AT&T (T), Coca-Cola (KO), Chevron (CVX) and Procter & Gamble (PG) can sate their appetite. All currently have dividend yields above the 2.6% level on the 10-year Treasury note:

T Dividend Yield (TTM) Chart

T Dividend Yield (TTM) data by YCharts

But knowing how best to feed on income payers can significantly boost a portfolio’s ultimate payout: total return.

High yielders are a bit like fried food: the fat income yield tastes great but is not necessarily the healthiest choice for long-term returns. Stocks with standout dividend growth are the smug grilled choice: good for your long-term health if not exactly super filling for those in pursuit of current income. A new piece of research from the Leuthold Group suggests the best way to feed on dividend paying stocks is to focus on companies that serve up key quality metrics, such as high return on equity, return on assets, solid cash flow and healthy debt to equity levels.

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Procter & Gamble: You Call This A Turnaround?

Procter & Gamble (PG) landed the 31st slot in this year’s Fortune 500 ranking of America’s biggest corporations. That’s down from 20th in 2009. In an industry where revenue growth has been muted, Procter & Gamble has been near radio silent, bring up the rear when compared to Unilever (UN), Clorox (CLX) and Kimberly-Clark (KMB):

PG Operating Revenue (5 Year Growth) Chart

PG Operating Revenue (5 Year Growth) data by YCharts

Not surprisingly that translates to an equally uninspiring showing for investors. Among the largest companies in the S&P 500 index, only Exxon Mobil (XOM) has had a weaker price gain since the beginning of this bull market in March 2009.

Ever since the financial crisis, Procter & Gamble’s skew toward higher-priced goods has been out of sync with consumers tightening their household budgets here and abroad. Long know for innovation -- who knew we needed a Swiffer till they arrived? – Procter & Gamble’s pipeline has also been slow to generate the next big thing.

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After The Rebound: A Look Ahead For Apple Stock

Through the first 15 weeks of 2014 Apple (AAPL) continued its lagging performance from last year, losing 6.5% while the S&P 500 and its technology subsector posted slightly positive price gains. All that changed in late April when Apple released its fiscal second quarter results. iPhone unit sales grew 17% year-over-year, pushing revenue for the phone segment up 14%. Overall company revenue grew at a solid 5% rate. And market sentiment shifted.

AAPL Chart

AAPL data by YCharts

Since bottoming out late last June, Apple shares are up 60%.

In the quarterly earnings release Tim Cook once again delivered his promising pipeline message: ““We’re eagerly looking forward to introducing more new products and services that only Apple could bring to market.” A month later we finally got confirmation of the Beats deal; a move that is more about rebooting Apple’s music initiative (iTunes has been a drag) through Beats’ promising streaming subscription model than the trendy headphones.

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PetSmart Stock: Seriously In The Dog House

Down 22% year-to-date, PetSmart (PETM) has looked like an Internet stock instead of the fat-margin specialty retailer it is. But even with a turnaround in sales growth not expected immediately, investors can look to PetSmart’s record of returning cash in the form of a rising dividend and aggressive buybacks.

Plus, the love-your-dog-or-cat craze is hardly over and PetSmart is well-positioned with upscale merchandise and doggie daycare services to continue to capitalize on that trend. The service element helps PetSmart hang onto customers in the face of online competition on products from Amazon (AMZN) and others.

PETM Chart

PETM data by YCharts

The dividend yield is just 1.4% but the payout has risen nicely since 2009, and there’s room for more increases with payout ratio remaining very low.

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