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Dividend Investing

articles related to dividend based investing

Q2 2020 table of dividends
Dividend Investing

Quarterly Dividend Update: Q2 2020

by Yoda July 5, 2020

Dividend Investing for me is a long-term strategy. I like to buy great companies at good value based on historical metrics and dividend safety. Hold them for a long time, re-invest dividends and wait for compounding to do its magic. In contrast with Q1, Q2 2020 has been great for investors. From the bottom in March, the indexes almost rebounded back to their pre-Covid levels. I cannot and won’t even try to figure out what happens next. All I am planning to do is to keep buying stocks and ETF’s.  Here is my Q2 2020 quarterly dividend update:

Q2 2020 table of dividends

Total: $727 for Q2 2020 (up 40% from Q2 2019 & up 2% from Q1 2020 )

Here is a graphical view of the same data:

Q2 2020 graph

Check out my and download/make your own dividend tracking sheet here and create awesome graphs as above for free.

My Buys in Q2 2020

So, the volatile market has offered some great opportunities! Frankly speaking I was not a 100% prepared to think about what to buy. I definitely had some stocks in my watch list, but I had not looked at them in a long time. Plus I got busy with a lot of work and so did not get much time to research any new stocks. So, at first I decided to add to my existing open positions which I thought were at attractive valuation. I also added a new stock to my portfolio.

  • Added to position in A.O. Smith (AOS) in 30’s and low 40’s. They have had issues with revenue drop off in China since 2019. However, I like the safety of their dividend and their expansion in India. Eventually, they should get back to growth in revenues.
  • Added to my Cisco Systems Inc. (CSCO) position. You can read more about my complete research on Cisco Systems here.
  • I added to my position in Kontoor Brands (KTB). This is one of few stocks that is still around its March lows. They ended up having to cut their dividend. Because of this a lot of dividend based funds had to force sell this stock putting pressure on their stock price. This is still a long term hold for me. Full research here.
  • Started a position in Monmouth Real Estate Corp. (MNR). This is a REIT that is focused on industrial properties. They only have investment grade clients like FDX, AMZN, KO, HD, RTX etc. They even collected 98-99% rent during the last 3 months. Bought some at starting yields of 6.9 % and then added a bit more during the quarter.
  • I also added to my position in Starbucks (SBUX) in my Roth after selling some of my position form a taxable account.
  • Added to my position in Wells Fargo (WFC) in 20 & 30’s.
  • I used to have a small position outside my 401K in VTI before the crisis. However, last 3 months saw stocks go down so fast and come back up very fast. Working a full time job and researching what individual stocks to buy was looking difficult. I was just not finding enough time. So, I added to my existing positions which I had looked at before and opened new positions in MNR and HON only. But, throughout the crisis, I added big to my VTI position. No need to think/research much before adding to it. I am planning to continue adding to it every month. Since it will become a big part in my portfolio with all the buys, I also plan to add it to my statistics for every quarter.

I am projecting an increase to 2900$ in forward annual dividends as compared to 2103$ I made in 2019!

My Sells in Q2 2020

  • I sold my Starbucks SBUX position in taxable account and bought it in my Roth.
  • Sold my small CSCO position in taxable account and bought some in my Roth.
  • I had a small position in Trow Price (TROW). I decided to sell that from my taxable account and will focus more on my Blackrock Inc. (BLK) position.

I did have Kontoor Brands (KTB) and Disney(DIS) cut dividends in Q2 2020 to preserve cash. Both business were challenged by the virus and seems like a relevant action to take. I decided to not cut them in my portfolio as I still think they will bounce back from this over the long term.

Thoughts about Q3 2020

Upcoming quarter will have Q2 earnings from most companies in my portfolio. We will get to know more impact of the virus on companies. In the last week, we have had a steep rise in cases in many US states. Some states have hit a pause on reopening and some brought few restrictions back. It will be interesting to see if states want to close economies again or just carry on and not go back to the lock down people experienced in last 3 months. I know one thing for sure: I will keep buying stocks and ETF’s during this quarter.

Check out my complete dividend portfolio here.

Click this link for my 2019 Annual dividend income update.

Dividends stocks do come with some risk, but with precautions you can avoid the risky one’s and choose the best dividend paying/growing stocks for your portfolio. I prepared a guide where I discuss some key ratios, fundamentals, some important resources to look at while deciding to buy a dividend stock. Also find out how to get free access to Morningstar, Value Line, workaround paywall behind popular news sites like Seeking Alpha etc.  Consider signing up for free instant access to the pdf version of the insights into dividend investing.

July 5, 2020 0 comments
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Dividend Investing

Quarterly Dividend Update: Q1 2020

by Yoda March 31, 2020

Dividend Investing for me is a long-term strategy. I like to buy great companies at good value based on historical metrics and dividend safety. Hold them for a long time, re-invest dividends and wait for compounding to do its magic. To say Q1 2020 has been volatile is an understatement. Coronavirus has practically brought the world economy to a grinding halt. My heart goes out to all victims of this tragedy and urge every one to practice social distancing. While it has caused a lot of destruction, it also brought down valuations of well managed dividend paying companies to attractive levels. Here is my Q1 2020 quarterly dividend update:

q1 2020 table

Total: $706.16 for Q1 2020 (up 70% from Q1 2019 & up 20% from Q4 2019 )

Here is a graphical view of the same data:

q1 2020 graph

Check out my and download/make your own dividend tracking sheet here and create awesome graphs as above for free.

My Buys in Q1 2020

So, the volatile market has offered some great opportunities! Frankly speaking I was not a 100% prepared to think about what to buy. I definitely had some stocks in my watch list, but I had not looked at them in a long time. Plus I got busy with a lot of work and so did not get much time to research any new stocks. So, at first I decided to add to my existing open positions which I thought were at attractive valuation. I also added a new stock to my portfolio.

  • Added to my position in Abbvie Inc. (ABBV) in 70’s and then again in 60’s. I like their ability to generate cash flows. Allergan acquisition will go through later this year which will add to their earnings and also help them insulate with the upcoming patent expiration for Humira.
  • Added to position in A.O. Smith (AOS) in 30’s and low 40’s. They have had issues with revenue drop off in China since 2019. However, I like the safety of their dividend and their expansion in India. Eventually, they should get back to growth in revenues.
  • Added to my Cisco Systems Inc. (CSCO) position. You can read more about my complete research on Cisco Systems here.
  • I also added to my position in Disney (DIS). They will definitely have an impact from the shutdown. However, I believe in the long term, Disney will manage to bounce back.
  • I added to my position in Kontoor Brands (KTB). Full research here.
  • Bought more Pfizer Inc. (PFE) stock. Upcoming spin off should help them focus more on growth and dividend should also be raised faster with growth.
  • I also added to my position in Starbucks (SBUX). Crisis will impact revenues for Q1 2020 and Q2 for sure. But, they have been growing their dividend at a very fast rate and should bounce back. They even have a better shot at grabbing market share from local coffee shops around the world, since they will be able to bounce back much faster.
  • I also bought more Wells Fargo (WFC) in 30’s & 40’s. Asset cap should get removed some time this year and new CEO should help clean the image of the bank and move past their crisis.
  • REIT’s got hammered during this crisis. This gave me an opportunity to grab Realty Income (O) and Store Capital (STOR) at really cheap prices.
  • The new stock I added to was Honeywell International (HON). I like their dividend safety & diversity in revenues. They have their hands in aerospace, healthcare, construction technologies, energy etc. A bigger article on this coming up soon.
  • For full disclosure, I also bought some VTI. It was at 3% yield which might go down a bit in Q2. However I do not include this in any statistics shown in such updates.

I am projecting a increase to 2947$ in forward annual dividends as compared to 2103$ I made in 2019! I had not expected to be growing dividends so fast in 2020.

My Sells in Q1 2020

  • My big sell this quarter was General Mills (GIS). It was in my taxable account and I wanted to free up some cash to move to my Roth account and buy better dividend stocks in there.
  • Sold some of my position in National Instruments (NATI) from my taxable account. I just sell some of this position when it becomes too large, to reduce risk of too much of being in 1 stock.

Thoughts about Q2 2020

Upcoming quarter will be very interesting. Most companies will speak about impact of the crisis on their numbers. I am thinking about adding more to positions in PEP and HON for this quarter. Another REIT I am looking at is Monmouth Real Estate Corp. (MNR). Its a REIT that focuses on renting out big industrial properties to investment grade clients. Like, Amazon, Fedex, Coca Cola, IIPR etc. But I am yet to do research on it. I am also going to be looking at dividend cut announcements.So far, many companies have announced them and none of my companies that have cut or suspended their dividends. I am concerned about XOM and STOR, but I have confidence in them bouncing back in long term.

Check out my complete dividend portfolio here.

Click this link for my 2019 Annual dividend income update.

Dividends stocks do come with some risk, but with precautions you can avoid the risky one’s and choose the best dividend paying/growing stocks for your portfolio. I prepared a guide where I discuss some key ratios, fundamentals, some important resources to look at while deciding to buy a dividend stock. Also find out how to get free access to Morningstar, Value Line, workaround paywall behind popular news sites like Seeking Alpha etc.  Consider signing up for free instant access to the pdf version of the insights into dividend investing.

March 31, 2020 2 comments
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Dividend Investing

Annual Dividend Income Update 2019

by Yoda January 26, 2020

Dividend investing for me is a long-term strategy. I like to buy great companies at good value based on historical metrics,  dividend safety & future prospects. Hold them for a long time, re-invest dividends and wait for compounding to do its magic. In Q4 of 2019 I was able to add to my CSCO & PFE positions. Here is my dividend income for all of 2019:

dividend income 2019 table

Total: $2103.36 in dividend income for 2019 (up 37% from 2018 )

Here is a graphical view of the same data:

dividend income 2019 bar chartCheck out my and download/make your own dividend tracking sheet here and create awesome graphs as above for free.

Here is how much percentage of the dividend income is coming from each of the 26 stocks in my portfolio:

dividend income pie 2

My Buys in Q4 2019

  • I added to my Cisco Systems (CSCO) position in Q4 2019 quarter. Cisco had fallen more than 20% from its highs. They reported a stellar fiscal year 2019.  However, they gave weak guidance for fiscal 2020. They expected slowness due to trade war and Brexit uncertainty. CSCO seems pretty good by all dividend metrics. Great payout ratio and good cash position. Cisco is midst of transitioning from a purely hardware focused business to subscription recurring revenue business. They are getting into business of selling chips with Silicon One, getting into security and application analytics software. I like the direction and actions company is taking to future proof itself. Here is a detailed analysis on Cisco Systems and their dividend metrics.
  • I also doubled my position in Pfizer. Pfizer had announcements related to spin off plans this quarter. This has lead the stock to tumble to where I originally bought its stock. I think Pfizer would make sure that the spin off their expired patents drugs plus new Pfizer will give same in dividend income before spin off. However, I am yet to decide if I want to keep or sell the spin off after it goes through.

 I would expect my Q1 2020 quarterly dividend income to go up with help of these buys .

My Sells in this quarter

  • None!  I would like to see each quarter as this one in terms of selling.

Check out my complete dividend portfolio here.

This is how the market value is spread across various industries in my portfolio:

sector breakdown 2019

Performance for the year 2019

I was able to beat S&P 500 across my roth and traditional brokerage accounts. I did have 3 non dividend income paying stocks that also helped me to beat S&P in those accounts. My wife also started a roth account in 2019. We bought dividend income stocks in that too. Since we started it in middle of the year, I do not have concrete performance data on that. But I will track it in 2020.

Plans for 2020

Buy more dividend growth stocks in our roth accounts. Currently, I get 45% dividends from 3 stocks in my portfolio. I will try to  increase my existing positions in some holdings. I am looking at $AOS and $WFC in the near term to add to.

Dividends stocks do come with some risk, but with precautions you can avoid the risky one’s and choose the best dividend paying/growing stocks for your portfolio. I prepared a guide where I discuss some key ratios, fundamentals, some important resources to look at while deciding to buy a dividend stock. Also find out how to get free access to Morningstar, Value Line, workaround paywall behind popular news sites like Seeking Alpha etc.  Consider signing up for free instant access to the pdf version of the insights into dividend investing.

January 26, 2020 2 comments
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Dividend Investing

Cisco Systems : Analysis of CSCO dividend

by Yoda November 26, 2019

Cisco Systems Inc. (CSCO) is one of the largest networking hardware and software provider in the world. It also started giving out dividends in 2011. I wanted to analyze the safety of the CSCO dividend and look at its future prospects. We will do an overview of what Cisco Systems does and then look at its financials.

Overview of Cisco Systems Inc.

Cisco Systems Inc. (CSCO) is large cap American multinational company that focuses on building hardware/software related to computer networking, security, applications & collaboration in cloud and on-premise environments. Think of them as someone in business of building infrastructure to help world of internet function & grow. They mostly build these tools and services for enterprise customers. You might go and buy a Wi-Fi router or modem to allow you to tap into internet connection provided by your ISP. Most big business need to do this but, at a much larger scale. Most companies have their own data center. They usually setup their own private internet which employees work on. This needs to be done across multiple sites across multiple countries. They need to make sure connection is secure and only legitimate employees can connect. Employees use various devices. Companies need to make sure employees can connect using these devices from workplace or while travelling etc. The complexity involved with so many factors is huge. Cisco essentially provides their own proprietary hardware/software to help business manage their users, devices etc. connect to their own network and the global internet in a secure manner.

CSCO in Cloud Era

However, times are changing. Cloud is the new jargon. Nearly every big company on earth is looking at implementing or has implemented some or the other cloud-based applications/solutions. Most big cloud providers like Amazon, Google & Microsoft do not use Cisco switches or hardware in their data centers. They prefer to use white box(open source) cheaper alternatives to do networking. Companies today are preferring to outsource infrastructure/networking/storage related tasks to these cloud providers. This gives them even more money/effort to focus on their core competency. So, this can represent a challenge to Cisco for future growth.

Software Defined Networking (SDN)

What is making it possible for public cloud providers to use white box hardware instead of Cisco’s hardware? A new software based approach to manage networks. Traditionally the data plane (responsible for moving data across hardware) & control plane (responsible for controlling flow) used to reside within the hardware itself. Changes in config had to be done physically at the device and by a human. However SDN separates the logic from data flow. You can now make any changes using software. The actual hardware switch/router will act on them. So, this leads to easy reconfiguration of hardware using software. Now the hardware can be by any company and the software is what matters. This is a big shift in networking industry.

what is sdn

courtesy researchgate (click/hover to remove caption)

I work on the IT programming side for a big company. I can safely say that not all applications are going to be moving to cloud anytime soon. Hence, you have a situation where 15-20% of the applications are in a public cloud, some in private cloud and rest are still on their own on-premise data centers. Moreover, cloud applications are also distributed among various providers like AWS, Azure, Google etc. I can already see we work with AWS, Azure, Oracle cloud products on top of managing our own data center. We now have requirements to make sure one application residing in one cloud can communicate with some other application in our private data center or some other cloud. This type of setup is known as a multi-cloud environment.

cisco systems multi cloud

An Exciting Opportunity

Imagine the amount of challenges this will have across multiple applications/platforms/users for networking and providing a seamless user experience. Cisco is already positioning itself as the leader in this multi-cloud space. They are now creating more software to manage networking and communications between multiple cloud environments. Here are some examples of their products:

Domain Product Competitor
Infrastructure-switches Catalyst 9000 switches with Cisco DNA software Arista Networks, Huawei, HP
Infrastructure-routing SD-WAN with Cisco DNA Juniper, Riverbed, Alcatel Lucent, Fortinet
Infrastructure-wireless Catalyst and Meraki based wireless access points HP, Ubiquiti, Extreme Networks
Application-collaboration Webex, Cisco telepresence Microsoft, Zoom, Slack
Application-analytics AppDynamics New Relic, Dynatrace
Security-endpoint AMP, Any connect VPN, Umbrella Fire Eye, Citrix, Zscaler, Fortinet
Security-cloud Cloud email security, stealth watch cloud etc. Palo Alto Networks, Fire Eye, Symantec

I am sure I have probably missed many other Cisco applications in the above table. But Cisco has some or the other cloud feature for each of the above apps/hardware.

cisco systems cloud products

They can either be found on app stores of biggest cloud providers or can be used as SaaS solution from Cisco themselves. Cisco is aggressively converting many of their hardware contracts by providing some cloud software to manage the underlying hardware. Again, this has been possible after moving logic and hardware into different layers in first diagram. Software to manage networking hardware and security is becoming more important. Then bundling this as subscription-based solution instead of customers buying the hardware & paying a one-time fee. Historically, Cisco has been a bit cyclical and there is some drop off revenues after every few years. But by moving into subscription style sales, they will address this in few years.

Cisco Systems seems to be on right path

Cisco provides application/hardware over most networking sub-categories. They do not have to be the best at everything or even one thing. Most of their products are in top 3-4 in every category. That is all they need. For any business looking for their networking needs for multi-cloud, Cisco can probably cater to everything. Provide support for everything under one roof. That is a big usp for most of their customers. Being in similar position at my job, I realize support is very important. If one company can provide me support for multiple solutions, I would like that instead of chasing customer support for 2-3 different vendors. Its not just me saying this, check out a post from reddit where multiple system and network admins talk how important support is in big companies:

cisco systems reddit feedback

Point is, it seems like Cisco is again trying to become one stop shop for everything you would need to manage multi-cloud environment at any enterprise. Cloud is immense opportunity to grow, has lots of challenges and Cisco Systems seems to be well equipped in all fronts.

A look at what cisco systems does and how it makes money Click to Share

Cisco Silicon One

On 12th Dec 2019, Cisco Systems announced it was getting into the business of selling chips. Historically, Cisco has been making and designing its own chips that go into its routers and switches. However, only way to get them was by using Cisco’s own hardware. As I mentioned above with increasing adoption of cloud, Cisco had not been able to sell its hardware to Google, Microsoft, Amazon or any big cloud provider. However, white box chips/hardware needs a lot of R&D and investment. Cisco Systems is now starting to sell these chips to any customer who wants them separately. They will do the R&D and make chips that will work in any white box router, switch or other networking hardware and design it to be more efficient. This move really helps them to start selling to these big cloud providers I mentioned above. Its a completely new business line for Cisco Systems and brings them in competition with Broadcom, Juniper which used to have their chips in this white box hardware so far.

Financials (Cisco Systems)

Here is a financial snapshot from Valueline with last 15 year results:

cisco systems financial snapshot

courtesy ValueLine (click/hover to remove caption)

Revenues

It is important to note that CSCO’s fiscal year lasts from Aug-July of every year. Keeping that in mind, in recently concluded Year 2019 in July, CSCO made about 51.9 billion in revenues. This was 5% growth as compared to fiscal 2018. Services grew by 2% and products revenue by about 6%.

cisco systems revenue 2019

If we look at revenues by different segments Cisco operates in:

cisco systems revenue by products

Security is going to be massive in the multi-cloud world. So Cisco growing 16% in that and another 15% in cloud applications segment is great to see. Switching and Router products come under the infrastructure platforms which also grew by 7%.  This segment is most challenged by SDN and good to see that Cisco grew revenues in this segment. I think this is where they are probably bundling some controller UI or software to manage routers and switches. So Cisco is already on the offensive to make sure they remain relevant in multi-cloud world.

However, in Q1 2020 ending in Oct 2019, CSCO only had a 1% increase in revenue and guided down to -4% revenues in Q2 2020. They attributed this to the weak macro environment. With Brexit and trade war between US and China still unresolved, its possible many of its customers are holding back on investing in networking equipment. Additionally, most telecoms are currently only using 4g equipment to demo 5g networks. So, less revenue on that side as well. Another reason might also be them converting one-time payments customers made, into deferred revenue subscription model. So, upfront revenue would be less as compared to previous years. But, it will be realized over the life of the contracts (multiple years).

Dividend Yield & Safety of CSCO Dividend

Dividend per share as of Nov 2019 $1.4
Price as of Nov 22 2019 $44.85
Dividend Yield as of Nov 22 2019 3.12%
EPS as of Jul 2019 $2.61
EPS Payout Ratio as of Jul 2019 .5363 or 53%
Cash flow per share as of Jul 2019 14.922/4.273 billions = 3.49
Cash flow Payout ratio as of Jul 2019 (1.4/3.49)=40.11%
9-year DGR 23.02%
5-year DGR 13.146%
Latest dividend increase in 2019 6.06%

Cisco Systems pays a 1.4$ dividend annually at 3.12% yield as of Nov 2019. Moreover, the payout ratio based on eps and free cash flow both seem relatively safe as compared to other tech companies. I think Cisco has some wiggle room during this period of transiting their business to cloud and subscription base. Looking at the latest dividend increase of 6% and the 9-year average of 23%, it looks like CSCO has tempered down their raises a bit. Although, I am still expecting mid to high single digit raises going forward. 3% starting yield with 6-9% yearly increases can still help return about 10% return on dividend income every year which is great!

Ability to Service Debt and continue paying dividend

Total Debt at end of fiscal 2019 $24666 million
Total shareholders equity at end of fiscal 2019 $33571 million
Debt/Equity 24666/33571 = .734 or 73%
Operating Income as of end of fiscal 2019 $14219 million
Annual Interest payments $859 million
Interest Coverage ratio 14219/859=16.55

Cisco’s competitors have a lower d/e ratio. JNPR is at 40, ANET is at 3% & HPE is at 59%. Cisco is a highly acquisitive company. Here is a list of about 200+ acquisitions they have made since 1984. I think they’re just being very opportunistic in such a low interest rate environment. Making smart acquisitions and with a huge history, making those work. Having a interest coverage ratio of 16 means they have enough earnings to pay interests and service their debt. Cisco generates a lot of cash even after dividends and can pay debt down if it wanted to within 3 years. Thus, having debt/equity ratio a bit on the high side shouldn’t be much of a problem for a cash cow like Cisco Systems.

Trends

There is a very popular reversion to mean theory.  It says that most stock metrics tend to hover around the mean of its lifetime average. So if the PE of a stock increases to very over-valued, over time it will fall back to its mean PE ratio. Hence, I also like to look at average PE ratio and dividend yield of stock I am looking to purchase as compared to its historical values. This plays a small part in my decision-making process. Cisco only started paying dividends 8 years back in 2011. Using Macrotrends, we can see the current yield of 3.12% is higher than the overall average yield of 2.67% over 9 years.

cisco systems avg annual dividend

The fwd pe ratio as of Nov 2019 is 13.77. Average annual PE over last 11 years is about 13.37. Ignore the spike in 2018, its from tax reforms and them paying taxes to bring cash back into USA.

cisco systems avg pe ratio

As you can see both pe ratio and dividend yield seem higher or close to the average in last 9-11 years.

Risks

Cloud

As mentioned earlier, Cisco faces threat to its core hardware business which made more than 50% of it revenue in 2019. With more enterprises looking to move applications to cloud to reduce operational costs, less Cisco hardware gets purchased. But with Cisco trying to move to more subscription based business and getting into chip selling business, I think they are moving in right direction. Move to cloud is definitely happening but it will take time and till then we will be in a multi cloud environment for which Cisco seems well prepared.

Trade War

Cisco’s sales in China fell a whopping 26% from the 2018. Just as US is trying to eliminate Huawei equipment from its upcoming 5G network, Chinese government is making sure it avoids equipment from US based vendors. Although Chinese sales only comprise of about 3% of overall revenues for Cisco. However this could be a long term trend. Secondly impact of tariffs on Chinese goods also increases price of Cisco hardware coming into the US. So at least a resolution in trade war could help Cisco on one of these issues.

In Conclusion

Cisco in its most recent fiscal Q1 2020 guided revenues to be down in its fiscal Q2 by about 3-5%. They attribute it to their slowdown of sales in China, general macroeconomic environment and less investment in buying products by cable & telecom companies. With 5g standards still being finalized, slowdown in cable and telecom industries can be explained. Trade war can explain slowdown in sales in China and rest of the world as many customers seem to be delaying investments in technology improvements. They want to wait and watch because of the uncertainties. Eventually, 5g will be here. Companies won’t be able to keep delaying investments in upgrading their networking and cloud infrastructures. ANET & JNPR have both given lower guidance between SEP-NOV 2019. So, it does look like this is a broad industry issue and not just CSCO doing something wrong.  The macro economic weakness may go on for a few quarters. But, Cisco Systems CEO Robbins did mention they expect fiscal Q1 2021 to be better.

In the meanwhile, we get a cash cow paying 3+% safe yield and maybe even growing it mid-high single digits every year. This could be a good time to at least start a position for the long term in a tech stock that pays dividends. I am long CSCO.

Please check out my complete dividend portfolio and analysis of other dividend stocks.

I am by no means an expert on networking technology. So, I will also love to hear your opinion on the analysis in the comments below. Is Cisco Systems on the right path on the way to Cloud future?

References:

SDN Explaination

Cisco investor relations

Forbes article on CSCO

Disclaimer: The above are just my opinions expressed in the article. I am not your fiduciary or an investment advisor. Do not consider this as investment advice to you. This article is just for informational and entertainment purposes. Also please note that this article was published on Nov 26th. Many numbers would have changed when you are reading it. 

 

November 26, 2019 3 comments
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Dividend Investing

Quarterly Dividend Update: Q3 2019

by Yoda October 1, 2019

Dividend Investing for me is a long-term strategy. I like to buy great companies at good value based on historical metrics and dividend safety. Hold them for a long time, re-invest dividends and wait for compounding to do its magic. This quarter  I was able to double positions in 2-3 of my holdings. Here is my Q3 2019 quarterly dividend update and comparison with Q3 2018.

Q3 2019 dividend table

 

Total: $585.53 for Q3 2019 (up 44% from Q3 2018 & up 13% from Q2 2019 )

Here is a graphical view of the same data:

Q3 2019 bar chart

Check out my and download/make your own dividend tracking sheet here and create awesome graphs as above for free.

My Buys in Q3 2019

  • I received some shares of Kontoor Brands (KTB) from the spin off of VF Corp (VFC) last quarter. Shares of KTB went down significantly after starting trading. Most likely due to it being small-mid cap company post spin off. Many funds that held VFC probably were forced to sell KTB due to its market cap and fund rules. I thought of it as a good long term opportunity. They are in a very boring jeans segment in the market which has stable sales. Plus the 7+% yield was a bonus. I bought some more during Q3 2019. I did more analysis on it here.
  • Doubled my position in Wells Fargo (WFC) in Q3 2019. This quarter had lots of talk about rates heading either direction. Rates were even cut for the first time in last 10 years. And then cut again. This created a lot of volatility in bank stocks.  I believe that the worst from their scandals is behind WFC now. The fed enforcing a limit to their balance sheet in the meanwhile has really helped them to focus more on good quality loans to generate income. Towards the end of the quarter WFC finally managed to assign a new CEO. New CEO probably has a lot of house cleaning to do, but I think this is definitely a step in positive direction.
  • I bought some more of Altria (MO) in Q3 2019. With all the negative news around vaping and ban on vape devices from various state and international governments, MO’s price has fallen down a lot. Although I think MO management has a lot of experience with moving through regulatory hurdles. I think MO still has a pretty good chance of working with the governments to re-introduce vape devices in a very regulated manner. WSJ had a couple of interesting articles where they mentioned how JUUL took off their flavored pods form retail stores and ever since then we have had this health crisis. It also talked about how JUUL is already in process of making applications for May 2020 with the FDA to get their devices approved for sale. The dividend in the meanwhile appears safe.
  • I also doubled my position in Pfizer. Pfizer had announcements related to spin off plans this quarter. This has lead the stock to tumble to where I originally bought its stock.

 I would expect my Q4 2019 quarterly dividend update to reflect higher dividends with the help of these buys.

My Sells in Q3 2019

  • Sold some of my position in National Instruments(NATI) from my taxable account. I just sell some of this position when it becomes too large, to reduce risk of too much of being in 1 stock.

Check out my complete dividend portfolio here.

Click this link for my Q2 2019 dividend update.

Dividends stocks do come with some risk, but with precautions you can avoid the risky one’s and choose the best dividend paying/growing stocks for your portfolio. I prepared a guide where I discuss some key ratios, fundamentals, some important resources to look at while deciding to buy a dividend stock. Also find out how to get free access to Morningstar, Value Line, workaround paywall behind popular news sites like Seeking Alpha etc.  Consider signing up for free instant access to the pdf version of the insights into dividend investing.

October 1, 2019 0 comments
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Dividend Investing

All about making a living off dividends

by Yoda July 12, 2019

Passive income has become a big topic now a days. As people become more busy and stressed, they are trying to search for alternate sources of income. Something they can earn passively. Making a living off dividends is one of the best ways to take part in investing and growing your wealth. Be warned this is not a get rich easy scheme.

Living off dividends passive income strategy requires you to put a lot of time and effort over a long term to be successful. I wanted to break down some myths about dividend investing with facts and explain how you can be successful in this strategy.

Let’s get started!

What is a Dividend?

When any public company makes a profit any year, it needs to decide what to do with its profit. This is usually called the question of capital allocation. A company can:

  1. Invest back in its business in R&D, in operations to grow more and make more profit next year.
  2. Invest in acquiring a new company and boost its return on invested capital.
  3. Return capital to shareholders in form of buying back stocks thereby boosting EPS(Earnings Per Share) or by giving dividends.

A company need not only do 1 or 2 of the above-mentioned things. They can employ all 3 strategies every year. That third point above is where dividend investing comes into picture. Dividend is essentially your share of profit in a company in which you own stock. When you purchase a stock of a company you are part owner in that company. You have the right to vote for the board of directors in the company. By voting them in, you expect them to make sensible decisions on the above 3 criteria. So, the executives in the company every year/quarter announce if they will have a dividend or not. They announce the following dates too which are important to know when investing in such stocks:

Record Date Date on which the broker will check to look who all own the stock that day to calculate how much dividend owner of stock on record will get.
Ex-Dividend Date Once you buy a stock it takes couple of days for the transaction to settle and for you to be a shareholder in the company. So, this is the date before which you need to buy the stock in your brokerage, for you to show up as the owner of the said stock by record date. This is usually 1-3 days before record date.
Payment date That’s the date on which you will get the payment of dividends in cash/stock in your account as per the company’s policy. Mostly its cash and you can re-invest it automatically or use it for buying other stocks.

Why Dividends?

Dividends are actual income (Passive Income)

No doubt capital gains via price appreciation of a stock are good. However, you need to sell the stock to realize the gain. With dividends you get a part in the profits of the company without selling the stock. You can choose to reinvest it again to get more dividends next year. Over long term, you will see your dividends compound and you would see yourself living off dividend income alone. Again mind you this can easily take from 10-25 years depending on how much you invest every year. Nothing in life is easy and dividend investing needs time and effort on your side, but its definitely possible. I know a few people already living off dividends in retirement.

Dividends force executives to be more sensible

Importance of this cannot be understated. Sometimes management makes foolish decisions to acquire companies out of their circle of competence. They spend a lot of money and years down the line, we don’t see any returns at all. A lot of such acquisitions must be written off in balance sheet in form of goodwill impairment. Having a dividend policy forces the management to make more sensible/disciplined decisions. This leads to better returns for you as an owner in the company.

Risk Management from volatility

Dividend stocks are a way to lower the risks arising from volatility in daily/monthly/yearly stock movements. Since the owners of dividend stocks get their dividends as income every year, they are more open to not selling the stock in tough times and giving the company a chance to tackle problems at hand. Many companies that have an established dividend policy also have a large base of owners who are looking for those dividends to come in like clock work and they are more forgiving of the performance of the overall appreciation of stock.

Dividends taxed favorably

Dividends are taxed favorably under the current tax scheme. You pay lesser taxes for qualified dividends as compared to your taxes on income.

Dividends Drive overall Stock returns too!

There is a lot of data and analysis done that proves companies that pay dividends outperform companies that don’t pay dividends over long periods of time. Look at this chart below for a comparison between the index of dividend stocks vs non div paying stocks (courtesy Hartford Funds):

dividend vs non dividend

As you can see in the last 4-5 decades dividend growth stocks have outperformed the whole market. Check out some articles from Hartford Funds and Raymond James which go on to give way more data on how over the long term, dividend stocks outperform non dividend paying stocks.

Dividend Yield Investing vs Dividend Growth Investing

Dividend yield is basically ratio of total dividends given out per year by the price of the stock. For e.g. if AT&T (T) pays out 2.00$ every year and its current price is 31.62$ then the yield is 6.32%. So, it might make sense to buy the stocks yielding the highest to get more income. However, do not go chasing the yield. Usually stocks with 10-20% dividends are highly risky and prone to getting dividends cut soon.  Dividend Yield Investing (DYI) focuses on having more income from your stocks. Usually people who are close to retiring and have a more conservative approach prefer dividend yield investing. Usually if you look at high yield companies they do not increase the dividends by huge amount every year. In case of AT&T its usually 1-2% per year.

Total Return= Dividend starting Yield (6.32%) + increase of 2% in dividend payout every year + capital appreciation

Meaning you get 6.32% return every year using dividends alone. I haven’t even included any stock price appreciation yet in the above calculation. Neither did i include dividend raises, nor did you sell any stocks to get this money in your pocket. See the magic of dividends?

People who are younger and have much more time to compound money usually should do Dividend Growth Investing(DGI). This is where you forgo the initial high dividend yield in favor of higher dividend increases every year. E.g. Starbucks (SBUX) yield of about 2.79% at price of 51.62$ as of 15-JUL 2018. However, if you notice the annual rate of increase of dividend over the last 5 years, its almost 20-25% annually!

Total Return = Dividend starting Yield (2.16%) + 20% increase in dividends every year + capital appreciation

Just as Einstein mentioned, compounding is the 8th wonder of world. Real magic happens if you re-invest these dividends to buy more of the same stocks. Since more stocks next year would result in even more dividends. This is where dividend growth investing also leaves dividend yield investing behind. If you continue to Dividend Re-Investment Program (DRIP) and reinvest dividends its easily possible you will have a much higher yield in 8-10 years for your DGI stock as compared to the DYI stock.

Let’s look at Starbucks and AT&T stocks as of 15th Jul 2018:

att vs sbux living off dividend in future

You can see the starting and ending yield on cost in these 2 investments above. Over time a DGI stock usually performs and returns way more money. However, it obviously comes with its risk. At&T has many years of history in successfully paying dividends. Starbucks has only 5-6 years of history paying dividends. But there are many indicators and fundamentals to look for when choosing such stocks.

Case against Dividend Investing

Dividend payout = Lower share price

This is true, every time a distribution gets paid out the price of the stock goes down by equivalent value on the payout date. People argue what’s the point of getting dividends. However, that’s just being very short term in thinking. If you plan on holding such stocks forever and you should, how should a short-term blip on payout date matter at all? Over the long term, company grows and so does the stock price!

Dividend paying companies grow less

Another argument is only companies that have stopped growing or have no use of cash, pay out dividends. Such companies cannot efficiently allocate capital and so choose to give out dividends. So capital appreciation on the stock gets hit. You won’t be able to make much off of capital gains on stock. However as mentioned earlier, good dividend stocks bought at correct price have great potential to provide above average returns.

Preferential tax treatment for dividends can change

This is a minor threat. Currently you pay less taxes on dividends as compared to short term capital gains on stock sales. However, nobody knows the future, and this can change at any time. When that happens, its possible such stocks can fall out of favor.

Dividend stocks make you miss out on fast growing industries

Usually most dividend stocks belong to consumer cyclical, consumer staples industries. Companies that have very stable fixed stream of income. Some financial companies etc. Argument is that tech stocks which grow the fastest usually never pay dividends. So, if you do not buy such stocks you are missing out on the best growing stocks in the market. However, there are big tech companies like Microsoft, Apple, Intel, Cisco etc. that pay dividends and increase them at a fast rate. Secondly, I never said to not have any non-dividend paying stock in your portfolio. Ideally you should have a balanced portfolio of stocks, bonds, REIT’s as mentioned in my earlier article on portfolio building.

Dividends are not guaranteed

This is true. In the recent past companies like Kinder Morgan Inc (KMI) and General Electric (GE) have cut their dividends. They were considered dividend stalwarts but fell into a lot of trouble and had no choice but to cut dividends. However, for such companies there were always signs. Things like payout ratio which was increasing, financial health was deteriorating, too much debt, not being shareholder friendly etc. But most of these signs were identifiable.

How much do you need for living off dividends?

There is no fixed answer to this question. You know how much you spend annually and how much you would need. For e.g., lets say you need about 45K annually in your retirement around age 60. Assuming you go on to live for another 30 years, you need about 1.3 million dollars (30*45000). Another way to think in terms of dividends is you need about a million dollar portfolio of dividend stocks to generate about 50K$ every year at 5% dividend yield. You will only be living off the dividends. Principal can still keep on growing at a healthy rate.

Also realize that its possible you do not even have to actually save a million dollars. You can just keep on investing money over 15-20 years & re-invest dividends. Your portfolio will keep on growing during that time, eventually reaching a million dollars. At that point you can simply stop investing stop re-investing and live off of dividend income.  Here is a calculator that shows how starting with 0$, investing 12000$ annually with a dividend yield of about 4% and below avg price appreciation of 5% you can get to 1.4 million dollars in 30 years.

living off dividend calculator

The above are just some numbers I plugged in. You can even do this 12K investment in your Roth account and your taxes will be 0! Feel free to play around on the calculator with different numbers, but living off dividends is definitely possible.

Best free resources to get you started with dividend investing

Dividend Condition(DIVCON) free ratings

This is a free rating system developed by the firm Reality Shares. They rank dividend stocks from highest (5) to lowest (1) depending on their probability of increasing dividends in next 12 months. They look at cash flow, future earnings, buybacks, dividend trends, etc. to come up with this rating. Although not iron clad, but its a good thing to check up on when deciding to buy a dividend stock. We have heard the saying safest dividend is the one that has just been raised. This tool allows you to find out stocks that most likely will raise it! Its also a good idea to look at their quarterly list of worst ranked (1) stocks which hints at possible divided cuts. This could allow you to highlight a stock in your portfolio and go deeper into it. Check more about them here.

Invest alongside the Superinvestors!

Its always good to have some extra information while investing. Sites like Insider Monkey, Whale Wisdom & DATAROMA allow you to see what the most famous super investors like Buffett, Munger, Bill Ruane (Sequoia Fund) etc. bought in the most recent quarter. Most of these websites have free signups which give you the most data you would ever need! I am not saying to blindly buy what Superinvestors are buying. But its always good to get more information.  Do your own research, look at fundamentals and make your own decision.

Dividends stocks do come with some risk but with right precautions you can avoid the risky one’s and choose the best dividend paying stocks for your portfolio. I created a free guide for you to get started on your journey to living off dividends. I discuss some key ratios, fundamentals, some important resources to look at while deciding to buy a dividend stock. It will show you how to get free access to Morningstar and Value Line reports and how to look at them from dividend point of view. I discuss how you can read most financial news articles from Seeking Alpha, WSJ, Barrons for free even if they are behind paywall! Consider signing up below and get the free pdf version of the insights into dividend investing research and how to keep your dividend income safe.

Check out my complete dividend portfolio of stocks.

Create your own dividend tracking google sheet with graphs and pie charts.

July 12, 2019 2 comments
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quarterly dividend update Q22019 graph
Dividend Investing

Quarterly Dividend Update: Q2 2019

by Yoda June 30, 2019

Dividend Investing for me is a long-term strategy. I like to buy great companies at good value based on historical metrics and dividend safety. Hold them for a long time, re-invest dividends and wait for compounding to do its magic. This quarter though, I decided to focus and keep/move more of my dividend stocks in my and my wife’s Roth accounts. So I did end up selling in small quantities wherever it made sense in my taxable accounts. Ideally I would like to buy and never sell. Here is my Q2 2019 quarterly dividend update and comparison with Q2 2018.

quarterly dividend update Q22019

Total: $516.76 for Q2 2019

Here is a graphical view of the same data:

quarterly dividend update Q22019 graph

My Buys in Q2 2019

  • Bought about double my existing position in A.O. Smith(AOS) when 2 firms released short articles and the stock price went down to low 40’s. My original position was in my taxable account. This year I am focused on moving a lot of my taxable dividend positions to Roth accounts. This seemed like a good opportunity to do it.
  • Doubled my position in AbbVie Inc. (ABBV ) after they announced they are buying Allergen Plc (AGN) and it fell by 16%. Dividend is still pretty safe. They even announced plan to further focus on dividends.  New company will have 18-19 billion in cash flows which is probably the main reason for the deal(diversification of revenue of course). Huge debt now becomes a concern now.  I am planning to watch this like a hawk. Need to see debt go down next year as they mentioned in their presentation.

 I would expect my Q3 quarterly dividend update to reflect higher dividends with the help of these buys.

My Sells in Q2 2019

  • Sold my small position in Coca-Cola Company(KO) at gain from my taxable account, purely to move proceeds to Roth. I might start building a position back in KO but not at these prices.
  • Sold my small position in Vodafone Plc(VOD) at loss from my taxable account, again moving proceeds to Roth. Plus this was leading to some dividend being withheld and not being able to re-invest dividends owing to foreign entity in my broker’s account.
  • Sold my 1 stock position in Apple Inc.(AAPL) at gain from my taxable account again to move money to Roth. I would like to start a position again in this maybe if it gets back to Dec-Jan 145$ prices.
  • Sold some of my position in National Instruments(NATI) from my taxable account. I just sell some of this position when it becomes too large, to reduce risk of too much of 1 stock.

Check out my complete dividend portfolio here.

Click this link for my Q1 2019 dividend update.

Check out my and download/make your own dividend tracking sheet here.

Dividends stocks do come with some risk, but with precautions you can avoid the risky one’s and choose the best dividend paying stocks for your portfolio. I prepared a guide where I discuss some key ratios, fundamentals, some important resources to look at while deciding to buy a dividend stock. Also find out how to get free access to Morningstar, Value Line, workaround paywall behind popular news sites like Seeking Alpha etc.  Consider signing up for free instant access to the pdf version of the insights into dividend investing.

June 30, 2019 0 comments
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Dividend Investing

Quarterly Dividend Update: Q1 2019

by Yoda April 22, 2019

Dividend Investing for me is a long-term strategy. I like to buy great companies when they are out of favor. Hold them for a long time, re-invest dividends and wait for compounding to do its magic. I have been investing in dividend stocks for the last 3-5 years, but only started recording my dividend income since 2018. I decided to share my dividend investing journey on a quarterly basis from Q1 2019 on wards.

Here are the results from Q1 2019 and comparison with Q1 2018:

quarterly dividend update q12019

Total: $412.37 for Q1 2019

Here is a graphical view of the same data:

quarterly dividend update q12019 graph

My Buys in Q1 2019

  • Bought about 33% more position in DIS (Walt Disney Company) a few weeks before the Disney+ streaming announcement.
  • Bought some more of T (AT&T) purely for income.
  • Increased 50% more position in MO (Altria) in February.
  • A starter position in XOM (Exxon Mobil Corporation) and ABBV (AbbVie Inc.) in February.

Most of these buys in Q1 2019 did not contribute to any dividend income in Q1. But I would expect my Q2 income to grow much faster with the busy buying quarter I had in Q1.

My Sells in Q1 2019

None!

Check out my complete dividend portfolio here.

Please consider subscribing for quarterly updates to my dividend portfolio.

April 22, 2019 0 comments
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Dividend Investing

My Dividend Investing Portfolio

by Yoda April 21, 2019

After index investing, my next favorite investing strategy is Dividend Investing. You can read about it a lot over here. In this article I wanted to give details on my dividend portfolio. I divide my stocks into various sectors. Although, I do not have any target percentages for any sector. I plan on buying stocks based on their valuation and opportunities Mr. Market produces, not based on a target percentage for each sector. I am still young and do not want to restrict myself  by only buying a limited amount of some individual stock. Maybe a 5k position is large in my portfolio as of today but 10-15 years later it might not even be half of what I want each position to be. I plan on holding these holdings for a long time and re-investing dividends to create that compounding effect. Most of my stocks are in either my or my wife’s Roth accounts. Some dividend stocks although, are in my individual broker account which I purchased when I did not know too much about tax efficient investing. Read more about tax efficient investing here.

I will try to keep this portfolio as much updated as possible. Without much delay here is my current dividend stock portfolio (As of 31st MAR 2020):

Ticker Company Name Sector Quote Dividend Amount Dividend Yield Research Article Link
ABBV AbbVie Inc Health Care 76.19 4.72 6.20%
AOS A. O. Smith Corp Industrial 37.81 0.96 2.54%
BLK BlackRock, Inc. Financials 439.97 14.52 3.30% BLK Analysis
CSCO Cisco Systems, Inc. Information Technology 39.31 1.44 3.66% CSCO Analysis
DIS Walt Disney Co Consumer Discretionary 96.6 1.76 1.82%
HON Honeywell International Inc. Industrials 133.79 3.28 2.45%%
KTB Kontoor Brands Inc Consumer Discretionary 19.17 2.24 11.68%% KTB Analysis
LW Lamb Weston Holdings Inc Consumer Staples 57.91 0.92 1.61%
MO Altria Group Inc Consumer Discretionary 38.67 3.36 8.69%
NATI National Instruments Corp Information Technology 33.08 1.04 3.14%
O Realty Income Corp Real Estate 49.86 2.79 5.60%
PEP PepsiCo, Inc. Consumer Staples 120.10 3.82 3.18%
PFE Pfizer Inc. Health Care 32.64 1.52 4.66%
PM Philip Morris International Inc. Consumer Discretionary 72.96 4.68 6.41%
PSX Phillips 66 Consumer Staples 53.65 3.6 6.71%
QCOM QUALCOMM, Inc. Information Technology 67.65 2.48 3.67%
SBUX Starbucks Corporation Consumer Discretionary 65.74 1.64 2.49%
STOR Store Capital Corp Real Estate 18.12 1.4 7.73%
T AT&T Inc. Telecom 29.15 2.08 7.14%
TCEHY TENCENT HOLDING/ADR Information Technology 49.09 0.115 0.23%
TGT Target Corporation Consumer Discretionary 92.97 2.64 2.84%
TROW T. Rowe Price Group Inc Financials 97.65 3.60 3.69%
VFC VF Corp Consumer Discretionary 54.08 1.92 3.55%
WFC Wells Fargo & Co Financials 28.7 2.04 7.11%
XOM Exxon Mobil Corporation Energy 37.97 3.48 9.17%

Dividend Portfolio by Sector Breakdown

portfolio pie 2020 q1

 

Do remember, this is just a listing of all the dividend stocks I own and their per share metrics as of As of 31st MAR 2020. This doesn’t represent my own size of individual positions or my yield on cost on these stocks.

Please check out my latest quarterly dividend update here. Check out my buys and rare sells for the latest quarter.

Also check out how I get my financial news from WSJ and Barron’s for free every day.

 

April 21, 2019 2 comments
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Dividend Investing

Blackrock Inc: BLK stock analysis

by Yoda November 3, 2018

Since many of you know dividend investing is one of my fav styles of investing. I wanted to start a new series of articles on dividend stocks. I plan to discuss fundamentals of the business I am buying, some very basic technical metrics to judge safety of dividend over long term. My plan on dividend investing is mostly to buy high quality companies at decent or undervalued prices. Focus more on the income that is being generated using dividends, re-invest and hold for the long term. These articles will also help me to revisit my theory on buying the stock in first place in future when deciding if ever to sell.

So without any other delays, a stock I have been looking at recently is BlackRock Inc.

Overview of BlackRock Inc (BLK)

BlackRock is one of the largest asset management firms in the world. Basically, they are responsible for managing over 6 trillion dollars in various types of assets like fixed income, stocks etc. World’s biggest universities hand over the keys to blackrocktheir endowment funds to BlackRock to manage it and grow. World’s biggest companies ask Blackrock to manage their pensions funds and grow them. Some of the world’s biggest wealth funds, tax exempt institutions, charities etc. engage in services of BlackRock to manage their money. Blackrock in turn charges them fees to do it. Apart from this, they also own the iShares brand of etfs. If you want to do index investing but want more liquidity in selling and buying your shares, you would look towards ETFs. ETFs like IEMG (emerging markets), ITOT(Total US stock market), IVV(US S&P 500) are products of the Blackrock family. These cost almost nothing to make, all they do is package different individual stocks and sell them together as 1 security and collect some fees every year on it. They already have country specific, industry specific, dividends specific ETFs. ETFs inherently reduce risk since it allows you to diversify. and provide liquidity. They are very popular among all type of investors retail/institutional or individual. Blackrock is the largest ETF provider in the world!

Tollbooth in the investment world

All this makes Blackrock analogous to Visa and Mastercard in payments world. Just like Visa/Mastercard charge fee on any transaction done across the world using their cards, BlackRock charges fee to people holding their investment assets. They charge it every year! So its not like a one time transaction fee either. It’s like a toll booth on the superhighway of investing. Lots of people/institutions/retail clients invest in assets and some/most of them will use assets packaged by BlackRock and pay fees to hold them.

Best part is as the total assets under management grows for BlackRock, the more fee discounts they can offer to their clients thereby growing even more. The services Blackrock offers are also very sticky. An institutional client or a retail investor with significant portion of their wealth invested and managed by BlackRock is not going to sell everything and switch to a new provider just because someone else offered lower fee. I think BlackRock has excellent moat in form of its size and brand. They are one of the absolute go to places for big institutional clients looking to manage their money.

Dividend Yield

As of Oct 25 2018 is 3.31% with 12.52$ payout per share per year

Dividend history & Growth

BlackRock has a pretty good history of increasing and growing dividends every year since 2003 except for 2009 when they froze it. For 2009 I think companies can be excused if they had a pause in dividend growth because of the worldwide scenario going on at that time. They could have just cut the dividend in 09 but they decided to just freeze it. This seems to suggest me that the management is invested in growing and increasing dividends year over year.  The dividend over last 5 years has grown around at 13.18%. Such growth rate is just great! What is there to not like about this history and growth rate?

Payout Ratio & Dividend Safety

blackrock valueline

Courtesy Valueline Inc.

Looking at the past 15 years of data from Valueline, we can identify the following about dividend safety:

Dividend per share as of 2018 $12.02
EPS as of end of 2018 $26.93
EPS Payout ratio (12.02/26.93)*100 = 44.63%
Cashflow per share as of 2018 $29.08
Cashflow Payout ratio (12.02/29.08)*100 = 41.33%

So with payout ratio in 40’s it seems like BLK makes enough money to cover dividends. This also allows BLK to withstand competition in race to 0 over commission fees. BLK has the scale and the money to innovate and take market share from other companies in its field.

Total Debt as of end of 2018 $6000 million
Total Shareholder’s equity as of end of 2018 $32374 million
DEBT/Equity .185 or 18%
Operating Income as of 2018 $5531 million
Annual Interest payments $175 million from Annual statement
Interest Coverage ratio 5531/175 = 31.60

.18 or 18% debt to equity ratio tells us, Blackrock has not used much debt to finance its assets and growth. Its competitors like State Street is at .53 or 53% Northern Trust is at .34 or 34%.  Interest coverage ratio of 31 suggests that BLK should have no problems paying its interest obligations every year. It generates enough money to cover them 31 times! This is a good spot to be in. In case of a crisis, BLK should be able to support its debt obligations which will allow it to ensure dividend is also paid there after.

Trends

There is a very popular reversion to mean theory.  It says that most stock metrics tend to hover around the mean of its lifetime average. So if the PE of a stock increases to very over-valued, over time it will fall back to its mean PE ratio. Hence, I also like to look at average PE ratio and dividend yield of stock I am looking to purchase as compared to its historical values. This plays a small part in my decision-making process. Looking at BLK historical PE, it’s been around 13-17. This chart below doesn’t include the latest price decline in month of October and including that, fwd pe today is around 12-13 PE. I think this is below the average in last 12 years.

blackrock pe

Next coming up to the dividend yield, historically seems to range between 1.5 to 2.5%. Again, today the yield is close to 3.1%. Kind of the highest its been in last 12 years!

blackrock div yield

Looking at revenues and net income over the last 10 years from Morningstar shows us the following(in millions):

revenue blackrock

As you can see both revenue and net income have gone up in the correct direction over last 10 years. This just means management is great at growing the business and making it more efficient.

Positive trends tell us that BlackRock is just a great company that has reduced to reasonable levels in the last few months.

In Conclusion

BlackRock seems to be a fundamentally strong company with great dividend starting yield at around 3% at present. I usually only care about my dividend income and safety of that dividend. The dividend growth and payout ratio with BLK seems very good at current levels. I like to keep the whole process of picking dividend stocks simple and easy. Even if the stock drops more good for me since that means my DRIP will get more of BLK stock. If it goes up again good for me. I would just let the stock DRIP and reinvest all dividends. Usually I buy in lots and bought my first lot here. I will slowly buy more lots and build BLK into a full position for me over the next year or so.

If you liked this article, it will help us immensely if you can share it with your social circle.

Disclaimer: The above are just my opinions expressed in the article. I am not your fiduciary and not a financial advisor. Do not consider this as investment advice to you. This article is just for informational and entertainment purposes only. Please do your own research before making investment decisions or talk to a fiduciary. 

November 3, 2018 0 comments
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