New Page: Dividend Income

I have decided to add a page to the top of my blog. I have called this new page "Dividend Income" and it will include a cumulative total, as well as month-by-month tabulations of dividends received. Each month's entries will also be hyper linked to the individual blog article I posted so that you, the reader, can see which companies paid dividends and how much.

I think this will be helpful in keeping all dividend income information in one tidy spot. It will provide a clear picture of my dividend income and what kind of growth I am experiencing. I love being very direct and very forthright with my loyal readers and this will be my honest approach at providing a very transparent view into my dividend income and progress with such.

This blog is still in it's infancy stage and so I am making improvements and changes as I go. I always welcome any helpful tips or comments on how it can be improved so that it can be easier to navigate, read or gather appropriate information.

Thanks for reading.

Kimberly-Clark: Is It A Solid Pick?

I'm always on the hunt for hidden gems in the dividend-growth world. Sometimes looking for acorns in the forest leaves you scratching your head, wondering why you're not just logging the trees. I do believe in keeping an eye out for great and potentially unknown dividend-growth companies but sometimes the best known companies are that way for a reason. Kimberly-Clark fits into that category.

A little about the company, per Morningstar:

Kimberly-Clark is a leading player in the global health and hygiene category selling bathroom tissues, diapers, feminine products, and paper towels. Its brands include Kleenex, Scott, Huggies, Pull-Ups, and Kotex. Kimberly sells its products directly and distributes them through supermarkets, mass merchandisers, and drugstores, among other outlets. Sales generated outside of North America account for about 45% of the firm's consolidated sales base.

That sums things up pretty nicely. I look at Kimberly-Clark like a miniaturized version of Procter and Gamble. They are pretty focused on household goods, and paper products are something that people aren't going to stop buying tomorrow. I also like the fat that almost half of sales are generated internationally. International exposure is something I prize in my personal portfolio, the Freedom Fund.

Let's take a look at some numbers.

Earnings per share have grown 5.7% annually from 2005-2010. Not too shabby, but not explosive either. Growth has slowed since 2007.

Earnings Per Share ($)
1Q 2Q 3Q 4Q Year
2010 0.92 1.20 1.14 1.20 4.45
2009 0.98 0.97 1.40 1.17 4.52
2008 1.04 1.01 0.99 1.01 4.06
2007 0.98 1.00 1.04 1.07 4.09
2006 0.60 0.82 0.79 1.05 3.25
2005 0.93 0.88 0.68 0.82 3.31

 Revenue has grown just over 4% annually from 2005-2010. Again, not impressive, and has slowed since 2007.

Revenue (Million $)
1Q 2Q 3Q 4Q Year
2010 4,835 4,857 4,979 5,075 19,746
2009 4,493 4,727 4,913 4,982 19,115
2008 4,813 5,006 4,998 4,598 19,415
2007 4,385 4,502 4,621 4,758 18,266
2006 4,068 4,161 4,210 4,307 16,747
2005 3,906 3,987 4,001 4,009 15,903

What about dividend growth? This is the kind of stuff that makes my heart tick, but if growth in earnings and revenue have only averaged 4-5% over the last 5 years it does leave us questioning how sustainable dividend growth is. Dividend growth has averaged 7.7% annually over the last 5 years. That is a little higher than both revenue and earnings growth, which usually leads to higher payout ratios. The current payout ratio is somewhere around 63%, depending on which EPS figures you are going by. That is exceptionally high and dividend growth must either slow rapidly or earnings must increase dramatically to get this payout ratio lower. I generally prefer payout ratios under 50%, except in few cases.

Dividends Per Year ($ Per Share)
2010 2.64
2009 2.40
2008 2.32
2007 2.12
2006 1.96
2005 1.80

The lack of earnings growth over the last few years is concerning, as is the general rise in commodity prices that is going to affect the bottom line at KMB. In response to rising commodity prices KMB has decided to raise prices, which shouldn't really be a surprise to anyone. I see this in two ways. On the positive side, it leads to healthier margins. On the negative side, consumers are still fighting their way out of a nasty recession and higher prices could lead consumers to store-brand products or other competitors. Overall, I like this move. This company has to increase margins to move forward.

I do like this company. I'm not sure if I love at current prices. It's current P/E ratio is at 14.75 and it's entry yield right now is at 4.32%. It's a very healthy entry yield, but one that an investor would demand in the face of possible slowing dividend growth. I think I would wait for a dip in the price on KMB before initiating a position. I think it's a solid defensive play, and it could be due for a spring in earnings and revenue if management navigates the current waters appropriately. I'm patiently waiting on the sidelines when it comes to initiating a position with Kimberly-Clark.

What about you?

Thanks for reading.

Weekend Reading - April 24, 2011

Here are some excellent articles from the past week from fellow dividend growth investors.

Can You Live Off Your Dividends?
Dividend Ninja discusses whether it's possible to live completely off of your dividends in retirement. It's a great article and one which featured a lively discussion/debate in in the comments section!

Phillip Morris International (PM) Dividend Stock Analysis
Dividend Growth Investor analyzes Phillip Morris International. This is one of my holdings and I believe in this company going forward. Great stuff!

10 Dividend Stocks For Healthy and Wealthy Retirement
Dividends 4 Life discusses how having a plan can make for a healthy and wealthy retirement. No need to stress or work until 80 years old if you put forth a clear and concise plan and invest in quality investments.

Abbott Laboratories (ABT) Dividend Stock Analysis
Dividend Monk puts forth a wonderful and in-depth analysis on one of my larger holdings: Abbott Laboratories. This is an excellent article and worth checking out if you want to invest in this company.

Quarterly Review: JAN-MAR
Dividend Partisan reviews his portfolio's first quarter performance. He's slightly behind his goals for the year, but I'm quite confident he's going to meet or exceed his goals. He's on better track than I am!

Industry Announcement: Major Integrated Oil Gas Companies
The Dividend Pig mentions how he's going to analyze major integrated oil companies in the next few weeks. Big Oil is a favorite of mine. We need it to power our cars, homes and cities. It's not going away anytime soon.

Spring Update - 2011 Personal Finance and Investing Goals
My Own Advisor reviews his goals for 2011 and discusses his performance so far. I think the most important part of this article is always to have balance. In my own life I'm sometimes a bit extreme and could always use more balance. I think it's important to save and plan, but also to live while you're alive.

GE Increases Its Dividend
Buy Like Buffett talks a little about GE and the recent dividend increase. Only you can answer whether GE is a buy for your portfolio, but I'm still currently on the sidelines with this one.

Dividend Income: April 2011
The Passive Income Earner updates us on his dividend income for the month of April. Huge numbers as always, and the kind of stuff I'm striving for. I haven't posted April's numbers yet, but I'm nowhere near this. Hopefully, within 5 years I can be earning this kind of passive income.

Thanks for reading.

Recent Buy

I'm not sure if making purchases in this market is the most prudent move. I believe the market is a little strong right now and we may see a pullback this summer. But, what if we don't? If we end the year with the DOW at 13,000, would you be better off holding cash and sitting on a historically terrible investment and all the while losing out on dividends and letting the dividend-growth machine start its magic? I believe in being prudent, but I also believe in making regular investments and keeping the contributions going. I love few things more than compound growth. The more I continue to invest, the larger that compound snowball gets.

I made two very recent moves. I decided to purchase 25 shares of HGIC at $31.92 a share on 4/19/2011. I have a large watch list of stocks that I monitor regularly. I believe the best watch list is one's own portfolio. If an investor decides to pull the trigger and invest hard earned money in a company then due diligence has been presumably performed and obviously one must have convictions about that decision. When a company that I've invested in drops far below my cost basis I look at that holding strongly. If the fundamentals haven't changed and the market has decided to punish a stock for one reason or another then I start to think investing a little more into that position and reducing my cost basis to be a prudent action. I may have entered HGIC at a richer valuation than I should have, but I believe it was worth my first entry point. I also believe that it's an even better value at it's current price. I don't want this holding to become a focus of my portfolio going forward, but I do think adding a little on weakness is a smart decision. Entry yield right now is 4.53%. This company has had strong dividend growth, as I wrote about here.

My second move was purchasing 16 shares of PG on 4/21/11 at $63.10 per share. Procter and Gamble is a strong defensive play. Many dividend-growth investors feel PG is one of the true kings of dividend-growth with their now 55 year streak of growing dividends. I haven't written an analysis on PG yet, but the analytics on this company are widespread. It's a great company and you know what to expect. You can expect slow and steady growth and a likely 9% growth of dividend, annually. Their portfolio of products is heavily concentrated on household goods and health care products. They are extremely focused now, recently selling Pringles. I feel getting into PG at the low $60's range is a fantastic value for a long-term holding. This one isn't going to spike tomorrow but that's not what I'm looking for. I'm looking for fantastic management, a great product lineup and slow, steady growth. The entry yield right now is 3.32%.

I was going to hold out on purchasing any securities during the march of April. But, as I stated at the beginning of this article the longer you hold cash the longer it takes to get that dividend-growth machine working for you. I don't believe in buying low and selling high for capital gains. I believe in buying value and strength at fair prices and holding forever, as long as the fundamentals and reasons for purchase remain static.

Overall, I'm excited about my purchases. I purchased PG just before the ex-dividend date of 4/27/11, so I'll receive the dividend on the recently purchased shares.

Thanks for reading.

Income/Expenses for March 2011

Each month I will post my income/expenses for the previous month. I track every dollar in and out, so what you see is exactly what I earned and spent (rounded to the nearest dollar).

Income from March 2011:

$3,349--Regular Paycheck
$88--Dividends
$50--Bonus and Spiffs

Total Income: $3,488

Expenses from March 2011:

$635--Rent
$287--Car Payment
$180--Student Loans
$80--Auto Insurance
$95--Fuel
$72--Groceries
$42--Fast Food and Pizza
$35--Internet
$39--Pharmacy
$9--Mobile Phone
$619--Everything Else*

Total Expenses: $2,097

*The Everything Else category includes things I don't have a regular budget for. In this case it was a battery for my car that went dead ($49),  taxes owed to the IRS due to capital gains and dividends received in 2010 ($358), a visit to the doctor and subsequent medications ($224), a gift for my father's birthday ($16) and a website fee to Google ($10).

I managed to save 39.9% of my  net income, which is a disappointment. To be honest, I'm a little embarrassed to post this budget. I had a lot of things all converge on me at once, and a lot of the expenses truly couldn't be helped. I'm freakishly frugal at times, but you have to pay the IRS taxes due. I can't do anything about that. If anything, the high tax bill is just a reminder of how much money I made in the market last year. I also came down with a serious bacterial infection and had a high fever and it wasn't getting any better with herbal medicine and dietary measures. I had to visit a doctor and get serious medication to get rid of that. It was my first visit to a doctor in probably 5 years, but when you are sick...you have to go. My car battery died right before I got sick, so I had to replace the battery in order to start my car and get to work. I still haven't managed to get rid of the car, but with every month that goes by my plan starts to become clearer.

I did have a couple budget victories this month, namely food. I managed to get my total food expenses all the way down to $114. This is more of an absolute figure, and not something I'm going to shoot for on a regular basis. I didn't go out to eat at all, which is a nice money-saving tactic. However, eating peanut butter sandwiches and ramen noodles most of the time does get a little weary. I basically wanted to see how low I could get this figure, and this is probably the absolute lowest I'll ever get it; any lower and the money I save will be exponentially replaced with a loss in overall life satisfaction. The other victory was of course the income. I hit an all-time high in income and it definitely broke my previous record for a month's worth of net income. Coinciding my all-time high in income with an outrageously expensive month is not what I had in mind, but life is funny that way.

As I posted before, my rent will be reduced once my lease ends this summer. I hope to reduce this amount by 30% or more.

My goal is to average a 50% savings rate of my net income, monthly. I hit a rate of 52.5% in January, 54.4% in February and 39.9% in March. I have averaged 48.9% over the year so far. I am slightly below my goal but am extremely confident I will be back on pace in April and the rest of the year. Wish me luck!

Thanks for reading.

Weekend Reading - April 16, 2011

Here are some excellent articles from the past week from fellow dividend growth investors.

Reinvesting Dividends Pays Off
Dividend Growth Investor highlights why it's so important to reinvest your dividends. I follow the same strategy as he does. I reinvest the dividend monies I receive once it reaches a certain threshold instead of following a DRIP strategy.

Johnson and Johnson (JNJ) Dividend Stock Analysis
Dividend Monk analyzes a classic dividend growth stock in JNJ. It is my largest holding, so it should go without saying that I'm a fan of the company. This analysis is wonderful.

15 Dividend Stocks With A 15% Yield In 15 Years
D4L has moved his website and this is a classic article on why dividend growth investing works over time. Patience is key when you invest in the way we do, and this article highlights why patience pays off.

My favourite free stock screeners
My Own Advisors highlights his favorite stock screeners. I personally use Google Finance and the screener service through my brokerage account on Scottrade.

Dividend Investing: A Steel Company With A Quality Dividend
Buy Like Buffett discusses Nucor, a company I have on my watchlist currently. It's a highly cyclical company, so finding the right time to buy is key.

The Weekly Lineup: What To Invest In Now?
Dividend Ninja discusses a little bit about asset allocation in the current market. Things are a little frothy right now and he's holding steady in some bond funds. I currently have no bond allocation, as I'm waiting for interest rates to rise to perhaps invest a little in fixed-income securities.

Restaraunts Industry Comparison
The Dividend Pig compares some major players in the restaurant industry. I think we both agree in concluding that McDonald's is the best play in that arena right now.

Dividend Yield: Bell Canada Enterprises (BCE)
The Passive Income Earner analyzed Bell Canada Enterprises. Although it's certainly a good idea to keep your eye on many companies, this one falls outside my radar due to the lack of dividend growth.

The Future of the Stock Market
Dividend Partisan asks the question: Bull or Bear? He concludes that he is a bear on the current market, which is a conclusion that I agree with. Things are a little strong right now, and patiently analyzing quality companies is a prudent move right now. No sudden moves, and make sure you invest in quality and value.

Dividends - Where Do You Include Them In Your Asset Allocation?
The Dividend Guy asks where dividends fit in your asset allocation. For me, 100% of my investment allocation is in dividend growth producing equities. I always try to keep a small amount of cash on hand for opportunities, however.

Thanks for reading.

Procter and Gamble Raises Dividend 9%

Although this is no news to dividend growth investors, Procter and Gamble recently raised its dividend by 9%.

This is just an example of how wonderful dividend growth investing can be. By owning stock in P&G I have effectively received a 9% raise. I have never received a raise at my current job, so investing in P&G has actually been more rewarding for me, relatively speaking. 9% raises in dividends will far outpace inflation in almost any circumstance outside hyperinflation. According to this source inflation rose at a pace of 1.5% last year. I'll take my 9% raises all day long in normal inflationary environments.

There are many different ways to invest and many different ways to try and make your money work for you. I work hard for my money, and the whole point of living frugally and investing is to one day have my money work hard for me. Investing in wonderful dividend growth companies when they are trading at fair or undervalued prices will ultimately deliver me that reward, in my opinion.

Thank you Procter and Gamble for continuing to make us shareholders very happy! 55 years in a row is something to be honored and is extremely commendable. I hope all my fellow P&G shareholders are also celebrating this wonderful raise.

Thanks for reading.

Diversification

I've never discussed diversification on this blog before, at least not to a major degree. I did allude to it in my recent post updating my portfolio. I'm not here to preach or educate anyone, I'm here to share ideas and learn from other investors. I really believe that the level of diversification an individual investor needs varies based on objectives, time horizon, risk profile and what you're comfortable investing in.

First off, let's define diversification. According to Investopedia, diversification is defined as follows:

A risk management technique that mixes a wide variety of investments within a portfolio. The rationale behind this technique contends that a portfolio of different kinds of investments will, on average, yield higher returns and pose a lower risk than any individual investment found within the portfolio.

Diversification strives to smooth out unsystematic risk events in a portfolio so that the positive performance of some investments will neutralize the negative performance of others. Therefore, the benefits of diversification will hold only if the securities in the portfolio are not perfectly correlated.

So, this defines diversification to a basic degree. You can diversify between companies, sectors and countries in order to limit risk and stem losses in a market slide. It's a fine line to walk, however, as you can over-diversify to the point of limiting gains.

 My personal thoughts on diversification revolves around owning two or three very strong companies in as many sectors as I can afford and find attractive. In oil I like Exxon Mobil and Chevron. I own both, and just so happen to own Total for a little foreign exposure. I think Sysco is the best foodservice distributor in America. I own a piece of that business, and feel good about it, even in the face of declining profits with higher input costs. You can see where I'm going here. Take a sector and when you start narrowing it down to who is on dividend champion/achiever lists, who is profitable, who has an economic moat and who is the leader in that particular sector you start to see a very small list. Those companies are where my attention, and therefore my money, usually end up.

How many companies should you own? There is no right answer. A lot of it will revolve around how much money with which you invest. I typically invest $1,000-$1,400 a month and usually just purchase stock in one company with that amount. If I try to split that into two transactions broker fees typically eat into potential future profits.

In my opinion, the best way to figure how much diversification is necessary is to try and weight your holdings so that no one company has more than a 15% weight in your portfolio. In my particular portfolio, the Freedom Fund, Johnson and Johnson makes up 14.4% of my total investments. That is pretty close to as high as I'd like any one company to be and will probably shy away from buying any more right now. I'd be ok with temporarily going over 15% with one company if I felt it was of particular value. There are no hard rules with investing. You have to find your own comfort zone and go with it.

Although I feel there is no right amount of diversification, I do believe one can diversify too much and enter the "diworsification" territory that Peter Lynch famously coined. This is when you diversify to the point of maximizing safety and mitigate any potential gains. If your goal is to "buy the market" you are probably best served buying index funds instead of trying to buy so many companies that your potential gains are probably minimized.

In the end, only you can answer the diversification dilemma for yourself. I think if you base it on how much money you have to invest with and try to weight your investments appropriately you will arrive at a level of diversification that is customized to your individual approach.

When I'm all done with buying investments and I reach the point where I'm living on my dividends, I plan on owning 25-30 companies in 7-8 different sectors. I think that's an appropriate amount of diversification to minimize risk and maximize gains.

What's your level of diversification?

Thanks for reading.

Weekend Reading - April 9, 2011

Here are some excellent articles from the past week from fellow dividend growth investors.

Step 3: Identify Your Core Competencies
Dividend Monk reiterates a classic investment strategy: invest in what you know.

Top Dividend Stocks of 2011, 1Q Update
Dividend Growth Investor gives us an update on the performance of his picks on the best dividend growth stocks of 2011. Looking good, and all very fine picks!

Monthly Progress Review: March
Dividend Partisan reviews his dividends received from March. His dividends received and mine are fairly close in amounts. It'll be fun watching both of our passive income grow over time.

How To Track Your Dividend Investment Performance
The Passive Income Earner gives us more great tips on tracking investments through spreadsheets.

8 Companies With Consistend Dividend Growth Over 20%
The Dividend Pig gives us info on 8 companies with great dividend growth. An excellent read.

Dividend Income Progress Update - March 2011
Dividends Value gives an update on dividend income. Obviously huge numbers here, and something to really strive for!

High Yield Canadian Stocks: Part 1
Dividend Ninja gives us his take on some high yield stocks on the Canadian market. Always interesting to see dividend growth investing in foreign markets.

Using Bonds For Passive Income
Buy Like Buffett discusses the use of bonds for passive income. It's always best to monitor your asset allocation, but I don't currently use bonds as an investment instrument due to the low interest rate environment we are in. This is certainly something I will re-evaluate once interest rates start rising.

You can learn financial tips from Guns N' Roses
My Own Advisor tells us how it's possible to learn financial advice from former Guns N' Roses bass player Duff McKagan. I have actually read his Duffonomics articles before and they are actually pretty cleverly written. Good stuff. I applaud his turn around in life.

Dividend Stocks Vs Corporate Bonds
The Dividend Guy compares dividend stocks to corporate bonds using current yields on both instruments. As I stated earlier I don't have any allocation to bonds, due to the interest environment. Dividend stocks are very attractive right now when you compare to bond yields.

Thanks for reading.

Dividend Income Update - March 2011

One of my favorite things to write about is receiving dividends. This is the juicy part of dividend growth investing. Typically my investments won't experience the kind of wild swings that growth investments will, so the excitement for me comes when I review the previous month's dividend income. I wouldn't have it any other way.

March Dividends Received

• XOM - $14.52
• CVX - $7.20
• MCD - $8.54
• JNJ - $28.62
• HGIC - $14.04
• PEP - $15.84

Total dividends received for the month of March: $88.76

This is a new record for me. Unfortunately, it took almost half my portfolio to get to this amount. I'm building every month, and I'm seeing slow, steady growth. I'm very satisfied with how the Freedom Fund is progressing.

I'm still behind my goal of producing $1,200 in total dividends for the year of 2011. I have produced a total of $157.01 in total dividends for the first three months of the year. I have a long way to go, and I know that my goal is extremely lofty considering where I started the year and also considering my income level. This blog will keep me honest all the way through.

Thanks for reading.

Freedom Fund Update

Another month is over and it's that time to update the Dividend Portfolio once again. I've decided to name my portfolio. Most hedge funds and mutual funds name their respective fund, and since I manage my own fund I figured I would name it.

My portfolio will now be called Freedom Fund.

I decided to name it that, because freedom is exactly what I'm looking for. By investing in dividend growth stocks I'm looking for freedom from the rat-race. I'm looking for freedom from being a wage-slave. This blog is documenting that journey. From here on, I will likely refer to my portfolio as the Freedom Fund.

I have updated the weightings that each company have, as they have changed from March due to market gyrations, as well as my recent purchases of JNJ and TEF. I haven't made any other changes to the listing of the Freedom Fund, but I may include information on yield, DGR and other possible specs in the future.

I now own shares of 15 companies. I think this is an appropriate diversification level for me right now, based on the total size and market value of my holdings. I will discuss diversification in the near future, as there is a lot of disagreements between how much diversification is really necessary for an individual investor. I think the two most famous sides of each camp are Warren Buffett and Peter Lynch. Warren Buffett believes in concentrated bets on a few smart investments. Peter Lynch was famous for seemingly never coming across a stock he didn't like. I don't have a necessary goal in mind for how much diversification I'd like to have, but I think having shares of 25-30 companies when I'm all done is probably appropriate.

My total equities market value is currently at: $28,845.28.

This is an increase from my last published value of: $26,735.65. This increase is mostly due to my infusion of cash towards the end of March, with which I made my two purchases. 

Overall, I'm satisfied with the progress of the Freedom Fund. I like all my holdings currently, the only one I have any thoughts of making a change with is perhaps TOT. It is not a dividend growth stock and I purchased it when the rig went down in the Gulf last summer. I think it's still attractively valued and I purchased it with a yield near 7%, so my yield-on-cost is very attractive. I am holding on due to those two reasons.

I hope for continued success with the Freedom Fund.

Thanks for reading.

Weekend Reading - April 2, 2011

Here are some excellent articles from the past week from fellow dividend growth investors.

Gold versus Dividend Stocks
Dividend Growth Investor compares gold to dividend stocks. Excellent article, and I definitely agree with his assertion. Gold has no utility and does not produce income, therefore it's not a good investment choice for me.

Five Quircky Portfolios for an April's Fool
Dividend Monk gives some examples of Aprils Fool's portfolios. Really interesting article!!

Why Dividend Stocks Are Evil
Dividends Value discusses why dividend stocks are evil. Beware: this article may empower you!

Dividend Portfolio Update: April
Dividend Partisan updates his portfolio. Some really interesting additions, including yearly dividend income.

Will the Playbook save RIM?
Dividend Ninja compares the new Playbook from RIM to the iPad from Apple. He also asks whether this new product can help RIM's future and whether Apple can continue their strong innovation record going forward. Interesting read.

5 Reasons to Be Bearish on The Market
The Dividend Guy discusses his thoughts about why he's bearish on the overall market for the year. I'm long on everything and I'm a net buyer of stocks. So I continue to cost-average into my positions.

Carrots or Consequences?
My Own Advisor writes about whether it could be a good idea to force people into saving more of their net income. It's really a shame that more people don't do this by nature.

Dividend Yield: Shaw Communications
The Passive Income Earner analyzes Shaw Communications, a communication and media company. Interesting financials, but doesn't have the dividend growth I look for.

Dividend Stocks That Are Solid Buys
Buy Like Buffett lists a few stocks currently on his radar. I am long WMT, but I will maintain it as a small position and probably will not add to it anytime soon.

Cracker Barrel: An Old Country Store With No Cash
The Dividend Pig analyzes Cracker Barrel. Interesting pick, and not a company I had thought about investing in before. His analysis leads me to believe I made the right choice.

Thanks for reading.