Articles filed under "dividend growth"

From Oakmark’s Market Beaters: Value + Income

The $13 billion value-centric Oakmark mutual fund is showing no signs of let up. Its 27% gain over the past year is six percentage points ahead of the S&P 500. The fund owned 59 stocks at the end of the first quarter, but plenty of the heavy lifting has come from five of the top 10 holdings clocking gains of more than 35% over the past year, led by TE Connectivity (TEL) and DirecTV (DTV):

BAC Chart

BAC data by YCharts

For the unfamiliar, managers Bill Nygren and Kevin Grant have delivered long-term as well. The fund’s near 9% annualized gain over the past 10 years is 1.5 percentage points better than the S&P 500. The managers’ stock picking acumen actually bested the index by about 2.5 percentage points over that stretch. It’s just that fund returns are net of expenses, and the Oakmark Fund charges a very pricey 0.95% for such a large portfolio.

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Funds Buying UnitedHealth: Stunning Div Growth

With a reported seven million-plus Americans signing up for health insurance coverage through the Affordable Care Act (ACT) in its first enrollment season, the conversation has shifted from “will it fail to launch?” to, “we’ve got ourselves a viable launch.”

In a smart interview with the Independent Adviser for Vanguard Investors, Don Kilbride, manager of the standout $20 billion Vanguard Dividend Growth fund, fingered UnitedHealth Group (UNH) as a long-term beneficiary of the new federal health coverage mandate. He told the investment newsletter, “nobody will be better positioned” than UnitedHealth to manage the back-office requirements of the ACA, “and for what I think health care is going to look like over the next 25 years.”

Kilbride’s fund has a 2.4% position in United Health. He first bought the stock in early 2011, but was still adding to the stake in the fourth quarter of 2013 (the most recent portfolio data available for the mutual fund). Some other impressive funds, including T. Rowe Price (TROW) Capital Appreciation and two funds from the Dodge & Cox team were also adding to United Health positions in the fourth quarter of last year.

Despite a very strong 41% gain last year and another 9% tacked on so far in 2014, United Health is still trading at some not-hard-to-swallow valuations:

UNH PE Ratio (TTM) Chart

UNH PE Ratio (TTM) data by YCharts

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Coke Yields 3%+, Not This Cheap Since . . .

Coca-Cola (KO) has certainly hit a growth headwind over the past two years, amid declining soda consumption in North America and the emerging markets not growing fast enough to make up for that.

KO Revenue (TTM) Chart

KO Revenue (TTM) data by YCharts

During that stretch Coca-Cola stock has failed to keep pace with the market:

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Stock-Of-The-Moment For Value and Income

If you’re a what-have-you-done-for-me-lately type, Chevron (CVX) is not likely in your portfolio, or on your short list of potential adds.

CVX Total Return Price Chart

CVX Total Return Price data by YCharts

But now's the time to take a look. Chevron is setting up as a very smart stock to consider rotating into if you’re looking for a what’s-next investment after taking some profits in the pricier nooks of your portfolio.

In terms of valuation, it would be nice if a tank of gas were as cheap as Chevron stock; here we look at PE ratio and PE ratio less cash:

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Dividends: Leuthold Group’s Compelling Screen

The Leuthold Group recently highlighted an important shift in the world of dividend investing. For starters, it noted that the “golden age of dividend payers” that began in 2009 has abated since last spring. As shown in this chart, the WisdomTree Dividend ETF (DTD) outperformed the SPDR S&P 500 ETF (SPY) through April 2013.

DTD Chart

DTD data by YCharts

And that’s on price alone. Add in the dividends and the WisdomTree Dividend ETF’s total return is near 180% compared to 155% for the S&P 500 ETF.

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How To Replace Risky Junk Bond Income

If you happen to believe in the concept of being compensated for the risk you’re taking, junk bonds aren’t looking very appetizing right about now. Collin Martin, senior fixed income research analyst at the Schwab Center for Financial Research, recently pointed out that the option adjusted spread for junk bonds is near a seven year low. That’s not just because of the firming in Treasury yields compared to a year ago; just as important is the downward pressure on junk yields as income chasers have flooded the market over the past few years. As shown in this chart, the payout for the SPDR Barclays High Yield Bond etf (JNK) has been in a bit of a free fall.

US High Yield Master II Option-Adjusted Spread Chart

US High Yield Master II Option-Adjusted Spread data by YCharts

Today’s low junk yields increase the risk that a backup in yields from their abnormally low levels would pressure junk total returns. And Martin throws some cautionary cold water on the notion that you can nimbly get out ahead of time, pointing out that in 2011 the Barclays U.S. Corporate High Yield Bond Index took an 11% price hit in just two months. His suggestion is get out while the getting is good:

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Retiree Study: Dividend Aristocrats; What’s Missing

The good folks at recently took a look to see how an income investor who used the Dividend Aristocrats -- stuffed with stocks including Coca-Cola (KO), Johnson & Johnson (JNJ), Sysco (SYY), Procter & Gamble (PG) and 3M (MMM) -- as the default for 60% of their portfolio would have fared compared to plunking that 60% in the S&P 500. (In both cases the other 40% was invested in a core bond fund tied to the Barclays Aggregate (AGG) index.)

If a retiree started with $1 million in 2000 and used the Dividend Aristocrats for the stock allocation, he would have nearly $1.8 million at the end of 2013. And that’s assuming our retiree made annual withdrawals that started at 4% in 2000 and were adjusted for inflation going forward. The portfolio using the straight up S&P 500 as its stock allocation came in at $838,000. If the start date is 1994, the portfolio with the Dividend Aristocrats as the stock anchor grew to $3.4 million and the portfolio using the S&P 500 reached $2.7 million by the end of 2013.

Until recently, the only way to invest in the Aristocrats through a diversified portfolio was the SPDR S&P Dividend ETF (SDY) that owns all the stocks in the S&P 1500 -- yes that’s 1500 not 500 -- that have managed to raise their dividends annually over the past 20 years. But last fall, a purer play on the S&P 500’s Aristocrats hit the ETF market. The ProShares S&P 500 Aristocrats ETF (NOBL) owns the 10% or so of the that index that has managed annual dividend hikes over the past 25 years. (Yep, 25 years for the S&P 500 Aristocrats and 20 years for the S&P 1500 Aristocrats. Go figure.)

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Honeywell Dividend Growth To Accelerate

Honeywell (HON), which has outperformed General Electric (GE) in recent years, plans to distribute an increasing share of its earnings in the form of dividends over the next five years, a change in policy.

HON Dividend Chart

HON Dividend data by YCharts

For the last five years, Honeywell has boosted its payout roughly in line with increases in earnings. In an investor presentation, Honeywell says it now plans for dividends to rise faster than earnings through 2018.

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Better Than Buffett’s Railroad? Union Pacific

Warren Buffett speaks frequently of businesses protected by a competitive moat, and few if any Berkshire Hathaway (BRK.B) units can out-do the moat enjoyed by Burlington Northern Santa Fe, the railroad Buffett bought 77.4% of (Berkshire already owned the rest) for $34 billion in 2009.

Assembling the rights-of-way to lay down tens of thousands of miles of track seems next-to-impossible at this late date, giving the existing railroads enormously lucrative franchises. You can’t buy stock directly in BNSF, as Berkshire’s rail unit is known, but, as we’ve noted in the past, Buffett didn’t buy all the railroads.

The one that most mirrors BNSF is of course Union Pacific (UNP), its roughly 32,000-thousand-mile network of track paralleling the BNSF lines covering the Western two-thirds of the U.S. And as happy as Buffett sounds about his railroad, Union Pacific holders have easily as much to cheer about.

BRK.B Chart

BRK.B data by YCharts

That chart shows performance since November 3, 2009, the day the acquisition of BNSF was announced.

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Investors Ignoring Dividend Growth? More For You!

YCharts has been harping on dividend growth, as opposed to mere current dividend yield, in dozens of articles in recent years. Why? One, a fixation on high current yield can lead investors to pricey stocks with low-growth (and low dividend-growth) prospects. And two, for long-term value investors, a growing dividend is a great way to realize above-inflation-rate income growth paid out from companies that have good overall growth prospects.

You can peruse a library of dividend growth articles on YCharts.

We offer this reminder after Brendan Conway, in Barron’s smart ETF column this past weekend, quoted Bank of America Merrill Lynch’s Savita Subramanian as calling dividend growth “something of an investor dead zone,” trading at a slight discount to higher-yielding shares.

The market strategist suggests why. With interest rates, including the 10-year Treasury rate, so low, income investors are desperate for yield and have invested heavily in fat-dividend payers, with less emphasis on the prospect of that dividend growing. Investors less (or not) interested in income, meanwhile, are piling into hot growth shares like Tesla (TSLA), Netflix (NFLX), Amazon (AMZN) and the like.

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  • CEO & Publisher Shawn Carpenter
  • Editor Jeff Bailey
  • Contributing Editors Dee Gill, Carla Fried, Emily Lambert, Bill Barnhart, Kathy Kristof, Stephane Fitch, Larry Barrett, Bill Bulkeley, Mark Henricks, Suzanne McGee, Ed Silverman, David J. Phillips, Katherine Reynolds Lewis, Theo Francis, Condrad de Aenlle, Amy Merrick
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