Two High-Yielding Opportunities Still Available At Cheap Prices

onsaleI always liken the stock market to any other kind of market out there. In a bazaar you’ll have goods that are bought and sold by a manic crowd, and as such you’re likely to find expensive and cheap merchandise alike. The same goes for the stock market; however, as evidenced by the S&P 500’s meteoric run over the last few years, the odds of finding cheap merchandise that is high in quality is significantly less than it was just a few years ago. Good deals on great stocks are hard to come by, but that doesn’t mean  you stop looking or buying.

I started buying equities back in early 2010 as I decided to start living well below my means and take every penny of excess capital and invest that money in high-quality dividend growth stocks. This journey has served me well thus far, but to be honest I’d be happier if the market hadn’t run up so much in the last few years. Cheaper stocks means my limited capital goes further, and with it the future dividend income I’m buying with today’s dollars would be larger. But wishing for events that have not come to pass won’t get me anywhere; I try to take any situation and make the best out of it.

As such, I’ve been combing for opportunities over the last week or so, trying to find the best deals I can. One might think high-yielding securities are especially expensive right now, as many investors flock to the income they provide in the face of still-low interest rates present in many other asset classes like bonds and CDs. However, I think there are still some opportunities out there to be had, and today I’m going to discuss two in particular.

BP Plc (BP)

This oil giant still appears cheap, and has been cheap now for a number of years as it continues to deal with legal overhang after the unfortunate and disastrous Deepwater Horizon oil spill back in early 2010. I’m not going to go too in-depth about the legal proceedings as they currently stand, as I’ve done that before. However, what we can see here is a much smaller BP than what existed before the spill as they’ve sold off $38 billion in assets (with another $10 billion in divestments to be completed by the end of 2015) to fund the paying of fines and settlements relating to the disaster, and have focused on the best assets they can keep. Just like I would focus on my best assets if I had to sell off part of my personal wealth, BP has done the same. In particular, after some realignment, they now own almost 20% of Rosneft, one of the world’s largest oil producers. However, as Rosneft is majority owned by the Russian government, this adds unique risk to BP – especially in view of the recent tensions regarding Ukraine.

As a smaller, but more fit BP that focuses on higher-margin projects, absolute growth will take a back seat to quality. The company is only predicting 1% annual production growth through 2015, yet it also sees itself increasing operational cash flow by 50% from 2011-2014, assuming $100/barrel oil. BP has had 11 major projects started up since 2011, with an increased focus on safety. Furthermore, BP is back to a strong presence in the Gulf of Mexico after a drilling moratorium was lifted in late 2012.

The company remains committed to returning cash to shareholders. An $8 billion share buyback program that was initiated after the sale of TNK-BP to Rosneft couldn’t come at a better time as shares are cheap here. And the company remains committed to the dividend, and it has extended multiple raises since resuming its dividend in early 2011. Its raised the dividend three times since, with the last raise being 5.6%.

S&P Capital IQ predicts $6.12 EPS per ADR share in 2014, which puts the forward P/E ratio at 8 since shares are currently trading hands for just under $49/share. The yield on shares right now is 4.54% based on a $0.57 quarterly dividend per share. While 4.54% might not seem all that lucrative, there are few other equities out there that yield this high while also having the potential for so much dividend growth and capital appreciation. BP is currently a large holding for me, and I plan on buying at opportune times, depending on capital availability .

Philip Morris International Inc. (PM)

The world’s largest publicly traded cigarette company leaves little to be desired. The current yield, at 4.52%, is almost the same as BP, and also shows a lot of promise for continued dividend growth. While there are risks involved in a company that manufactures a product that is so heavily taxed and regulated around the world, the large moat around an addictive product is unlikely to abate anytime soon.

Shares in PM have not performed well lately, down some 4.5% YTD. But this should serve as opportunity for long-term holders, and I personally added to my position in late January, and PM is now my second largest holding behind Johnson & Johnson (JNJ). And this is for good reason. There are huge competitive advantages here with PM, as they have massive economies of scale, marketing and selling their products across the globe, while also spreading the risk of regulation out across multiple markets. Their crown jewel in Marlborough is the #1 cigarette brand across the world, and the company owns seven of the world’s top 15 international brands. Excluding the People’s Republic of China, the company holds an estimated 28.2% of the world’s cigarette market share.

The company has managed six consecutive years of dividend growth, after being spun-off from Altria Group Inc. (MO) in 2008. They have a dividend growth rate of 28.4% over the last five years, which is impressive. While unlikely to continue at that rate, high-single-digit growth is certainly sustainable, and really all that’s necessary to make this a suitable long-term holding. And I anticipate that growth rate to be sustainable due to new opportunities in reduced-risk products and e-cigarettes, which PM is developing platforms in rather aggressively. Furthermore, the company sees additional growth in both traditional cigarette and new products in four major markets – China, India, Bangladesh, and Vietnam- where it has little to no current exposure. These four markets account for approximately 40% of global cigarette consumption, so the potential is staggering.

Shares in PM are currently trading hands for a P/E ratio of 15.8 – which is in line with its 5-year average. However, to be able to pick up shares in a global powerhouse at 5-year average prices considering the market is priced at all-time highs is, in my opinion, an incredible opportunity. The yield is there, and so is the value and growth. I’m a big fan of PM at today’s prices, and if it weren’t already such a huge position for me I’d be buying even more.

Overall, I view the two companies above at above-average in terms of growth potential and yield, while also being below-average in terms of valuation, in consideration of where the overall market is at right now. As a long-term investor I’m currently happily invested in both of these companies and look forward to continued dividend growth on the back of profit growth from the underlying businesses.

However, risks should not be taken lightly. BP still continues to face risk in the ongoing litigation regarding the 2010 spill, as well as commodity pricing risk; if oil falls significantly from here, that could impact profitability, and their plans significantly. PM faces regulation and taxation risk, and illicit trade in counterfeit cigarettes is on the rise. And while these risks are significant, all investments include risk. I simply feel here that the potential reward at today’s prices more than compensates for the risk profiles inherent in these companies based on all known information.

Full Disclosure: Long BP, PM, JNJ, MO

How about you? A fan of these stocks at today’s prices? 

Thanks for reading.

Photo Credit: Stuart Miles/FreeDigitalPhotos.net

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57 Comments

  1. Nice calls Jason, out of the 2 my preference would be BP. I just managed to get my parents to stop smoking after 40 years and they never looked back. That said, some friends of mine went to China recently and everyone, i mean >everyone< smokes like a chimney there so there is def room for PM to keep making money. That said, my take is cigarettes will be an industry in decline over the next few decades, i can't see any catalysts unless something like marijuana takes off and spurs a whole new multibilion dollar facet, i guess it all depends on whether the government can reap plenty of tax dollars or not. We'll always need energy so my pref is BP out of the 2.

  2. I have been looking into Bp as well. However, I don’t want to pay $49-50. I think 46-47 would be an ideal entry point. Honestly I can’t decide if this company is undervalued, fairly valued, or, overvalued. It’s a great company on the mend and a great stock to add to any portfolio. The hard part, for me at least is to figure out when to pull the trigger.

  3. I agree talesfromthetape with BP over PM – I can only imagine that BP’s oil spill was quite the ‘teachable moment’, and that they are stronger going forward having survived it.

    BP’s dividend payout ratio is 46% whereas PM’s payout ratio is 72% currently – to what extent is dividend payout ratio a factor in your research and what do you consider a warning level?

  4. I was able to buy BP @ 43.32 last year & have been a happy owner. I agree it’s still a good value today. I’ve stayed away from tobacco thus far, but if I bite, PM would be my choice.

  5. Hi Jason,

    Nice post as usual. One question (sorry if not all too related to the topic but I wanted to ask you this for a long time now).

    I get all your reasons for investing the DGI way. I am from europe and we have access to the vanguard all world high dividend yield etf, with a yield of 3,7%. This etf is not available to US investors, but would you consider owning it despite all your very well known reasons why you prefer DGI if it would be available to you?

    I am asking because I get your passion for DGI, I like to analyze stocks myself. But running the numbers your average yield seems to be around this number, so I am always wondering whether it is worth the extra time spent if the yield is equal and you would probably own most of your current companies this way as well.

    I understand your reluctance when you compare your portfolio to Vanguard ETFs from the US with the measly yield they offer.

    Please keep in mind that this is only a theoretical question. As a boglehead would say: “Stay the course”, and you have obviously found your way. Keep it up!

  6. Hi again DM,

    I like BP a lot here and won’t sell for some more time. As to PM I sold some months ago (sincerely don’t even remember when) due to a pe of 11,5 that I still expect. I would buy them again, should they reach around 64,50.– : (half next 5 years est growth plus 8) times next year avg est earnigns per share, acc ro yahoo finance. To be safer still I would multiply 64,50 times 0,70 to have a margin of safety, that would give 45.– I think for PM it is very difficult for me to reach a fair value, be it with Dividend Model or DCF, that is the reason why I use this simple valuation tool. PM also has a price to sale ratio of moe than 4. BP price to sales ratio is 0,40.

    So I think I would rather add to BP.

    Thanks for reading this.

  7. Tales,

    I know a lot of investors have moral objections to investing in tobacco companies. I don’t have such inhibitions, but I can understand where others might have these views.

    As such, I can see why you might prefer BP. I think BP has better short-term prospects, especially if they can escape further substantial litigation over and above what they’ve already faced. Over the long haul, however, I think both are fine investments at today’s prices.

    Best regards!

  8. Johnny, that would be no fun!!!!!! Only kidding of course, and I am sure DM will respond in a professional and courteous fashion, as always.
    For me though, I enjoy the research and the time spent analyzing individual companies. I look at my portfolio as individual business partners for the long haul, and just would not get that same experience with a mutual fund. Best of luck, and successful investing to you.

  9. Sunny,

    BP may very well get to that price again in the short term, as the stock faces pricing risk not only in relation to overall market pullbacks, but also commodity pricing and litigation results. We’ll see. I think it’s a great investment here at this price, but $46 or so would be even better! I’m invested even lower than that, and if it goes back down near my cost basis I’ll have a hard time not adding.

    Best wishes.

  10. Dividend Life,

    I certainly hope the company learned some valuable lessons from the spill. They’ve been touting increased measures regarding safety and security, which is most welcome considering their historic performance. I don’t see how they can’t take this seriously, and so far they’ve been much better from what I can tell.

    The dividend payout ratio is indeed important, and I always factor this in. BP’s payout ratio is low right now because they’re still not back to their previous payout (before the spill), so as they get back to that level we should see strong dividend growth over the next 3-5 years (akin to WFC). However, over the long haul, it’s hard to say whether PM or BP will be a better dividend growth play. Certainly, PM has history on its side and should face less risks to dividend cuts as BP faces cyclic commodity pricing and demand, but I think both are good plays for different reasons. Furthermore, tobacco companies always target higher payout ratios, and 73% is fine for PM here.

    Cheers!

  11. Chris,

    Nice job there! My cost basis is very similar to yours. I think that’s a fantastic price on BP shares.

    Tobacco is a hard sell for many, but I suppose that just leaves more shares for me. 🙂

    Best wishes.

  12. Johnny,

    That’s a great question there.

    My view on it is that I’d still be paying a fee for someone else to buy the same securities that I’m perfectly capable of buying myself. Even if that fee is low, once you get to a six or seven figure portfolio those fees add up quite quickly. I plan on paying next to nothing in ongoing fees once I’m actively living off of my dividend income, as my trades will be very minimal at that point. Maybe an occasional sell, but that might be it. Of course, I hope that my dividend income accelerates at a rate that’s high above the rate at which my expenses increase, and at that point I may be back to reinvesting dividends further down the line.

    Furthermore, many of these ETFs don’t have rising dividends like we see with the underlying companies. Many pay out very inconsistently, while my bills are, unfortunately, rather consistent. In the end, there’s no free lunch. I’ll stick to what I’m doing as it stands. 🙂

    Take care!

  13. Aspenhawk,

    Sorry to see you no longer a fellow shareholder, but I understand your reasoning. I personally have a hard time imagining PM at $65/share outside of a major market correction, but anything is possible. At those prices I’d have to get a third job to find the capital to load up! 🙂

    At $65/share the yield would be 5.8%, which would obviously be wonderful. And that’s before factoring in what’s sure to be a nice raise later this year. I guess we’ll see what we get!

    Thanks for stopping by. Hope all is well for you over there.

    Best wishes.

  14. My portfolio is getting pretty heavy on energy and consumer defensive stocks. Is this something I should be concerned about, or is it a natural side effect of DGI? I’m only halfway to 50 companies, so maybe it will all sort itself out over time.

    PM is it the top of my watchlist, but thinking I’ll add more to KMI before going with BP.

  15. DM,

    What are your thoughts on MO vs PM? Is it just value for you, or do you see an advantage with one versus another? Interested to hear your thoughts on the two.

    As far as BP – it seems like there’s a huge margin of safety here even with the potential litigation.

    Enjoying your site as always

  16. Justin,

    I think naturally you’ll find certain sectors more favorable to dividend growth investors simply based on the consistency of profits. As such, companies that tend to be defensive and excel in all market cycles tend to have longer dividend growth records. That isn’t to say you can’t find excellent opportunities in other sectors like financials, tech and REITs, but rather some sectors offer more fertile ground, if you will.

    That being said, I don’t go out of my way to diversify widely across sectors. This has happened by accident for me. I’d recommend focusing on quality before worrying about sector diversification. I like diversifying income sources as much as the next guy, but I would never sacrifice quality in order to do so. That’s why you see me a bit light on tech, for instance.

    Best wishes!

  17. Brian,

    I prefer PM over MO over the long haul. The global cigarette market is in a constant state of contraction, and volumes will likely continue to decline for the long haul. But this decline is more noticeable in developed countries like the US, where volumes are actually expected to increase modestly in developing markets. PM has exposure to the latter while MO has exposure to the former.

    However, MO has nice diversification in the form of its equity in SAB Miller, wine, etc. Over the next 10-20 years, though, I can’t see how PM doesn’t do better than MO. Even so, I like both for the the time being, but have much more exposure to PM because of my convictions.

    And I agree with you on BP. I got in at much lower prices, but I think it’s still very attractively valued. Rosneft provides some unique risk, but that’s a huge asset as well.

    Take care.

  18. “But wishing for events that have not come to pass won’t get me anywhere; I try to take any situation and make the best out of it.” Very wise words.

    I picked up some shares of BP not so long ago, I am hopeful they continue a great dividend growth trajectory. I also picked up some shares of CVX during its temporary swoon, and now it’s back to where it was, as if nothing had happened.

    Now that we are more or less done with the accumulation stage, I’ve looked back at the opportunities that we’ve had since 2010 and I can’t complain much. The market has risen beyond my liking these past two years, but I’m glad that I managed to pick up some really good deals along the way (LEG at $19.95, AFL at $33, ADP in the low $40’s, etc.). Now my task will consist of monitoring the health of the companies in our portfolio and make sure things are proceeding are they should, especially dividend increases, which now are more significant to us than ever. It’s kind of cool to watch our dividend engine keep chugging along on its own!

  19. When i read the title of the article off of my bloglist posts I though for sure KMI was one of the candidates but it’s nice to see there are some other great opportunities out there. Has PM mentioned any kind of timetable for the expansion in the new markets mentioned ? Cheers

  20. Spoonman,

    Great job there on CVX. I thought about adding to my position as well during the recent pullback in shares, but my capital is a bit tight right now. I’m not sure if I’m going to buy any stocks at all this month, which would only be the second time I’ve gone a month without buying stocks since I started this journey. We’ll see.

    It looks like you picked your opportunities nicely. I was with you on AFL; I bought quite a bit there in the low $30s. Missed out on LEG and ADP, however. And it’ll be interesting to see how you transition from the accumulation phase to living off of your dividend income. It’s certainly a wonderful transition, but I’m sure it’ll take some adjusting to at first; buying stocks can be addictive. 🙂

    Thanks for stopping by!

    Best regards.

  21. Captain,

    KMI is another fantastic opportunity. There is definitely a number of other great stocks that are attractively valued. I may follow this up with a second article to go over a couple of other opportunities, and KMI would probably be one of them. KMI is another stock where you’ve got a fantastic entry yield and very solid growth to boot.

    As far as the expansion into new markets, there is nothing concrete on that. The biggest hurdle of all is China, because of the monopolistic control of the cigarette market there by the government. PM does sell products in the country, but they have a tiny market share due to government control. But I suspect as China opens its doors to foreign investment more and more over time that PM will benefit. The other markets, as far as I understand, are pretty wide open, so I think PM has some great growth potential for the future even as much of Europe, Australia, and other developed markets continue to see volume declines.

    Cheers.

  22. Do anyone of you know of a good websiter where one can generate graphs on stocks. For example if I want to look at PM earnings in comparison to the dividend over a 10 years period. I know I can just look the numbers up at generate a graph in excel but sometimes it does already exist.

  23. Jason (and all…), I thought you may find my agle on investing in big tobacco amusing. I used to be a weekend smoker, but haven’t bought a pack in a few years; and have a fairly high tolerance for folks smoking. What really irritates me, though is when the lady in the next apartment lights up on her balcony and it blows into my unit. The way I’ve made myself feel better is to by PM and MO. This way, when she smokes, instead of being completely irritated, I’m reminded that I’m making money. If she doesn’t, well, that’s a good thing, too. Either way, it’s a win.

  24. Hi DM,

    Only just beginning my own adventure into dividend growth investing and pursuing passive income, I want to thank you for being a great source of information and encouragement.

    Ontopic, while I agree with you one the companies and how they are fairly values at this point, I do feel that BP at this point is a bit too risky for my liking. While I see you acknowledge the potential risk of the Rosneft deal, I guess I see the probablillity of the eastern Ukraine situation escalating and further straining the relationship between Russia and the west to be larger than you.

    But as always, only time will tell.

    Thanks for another great post.

    Best,

    Dividend&Whisky (DW)

  25. hallar84, the best web site I’ve found for graphing stocks is F.A.S.T. Graphs. You can read about it on Seeking Alpha if you follow Chuck Carnevale or F.A.S.T. Graphs. Just search for both on Seeking Alpha and you will find numerous articles with examples of the graphs.

    One of the nice features of FAST graphs is you can create watchlist portfolios and sort by total return or dividend yield.

  26. Actually, I added BP in my Portfolio (HID1) several weeks due to the very fact that it is under valued and had margin of safety. I also have PM in my DRIP Portfolio due to good dividends. These are very good choices.

    Keep up the good work!
    PIM

  27. I agree with these two companies presenting decent value in this market. I was lucky to load up on BP under $43. The only problem is that I’m already overweight both positions at 3.5% of my portfolio each. I’m having a hard time finding value outside of Energy and Tobacco. Thanks for reiterating their strengths.

  28. I like both of the companies you mentioned. As Brent commented on above, it seems like tobacco, energy, and for a little while reits and telecoms were undervalued. I would love to buy more high yielders like T, SO and DLR but they have run up recently.

  29. Like you, Jason, I wish stocks were still on sale. But what can we do other than continue to buy? Timing the market is often a losing game.

  30. @Kaizen77 – That is exactly the reason I decided to also hold tobacco stocks. Not only the lady on the balcony, and there have been many, but every time I catch a downwind from a smoker who could care less who else smokes…I am making cashola!

  31. The best bet is to keep a list of good companies and your personal target price range and then monitor it periodically to see which you may be able to enter at the right price.

    Rarely will we be in a 2009-2010 situation again where you could buy almost any mid/large cap dividend stock and turn out well, so we all have to be more selective.

    I usually have a few on my “watch list” which I periodically update based on the sectors that I have and so on.

    My dividend portfolio in my brokerage is not very well diversified, since it has a lot of exposure to real estate, energy, telecom, and tobacco, but it’s not my entire portfolio and through my 401k I have much more diversified holdings. In the overall view, I’m not worried about being too concentrated in certain industries as long as I have some mixture and the industries aren’t interdependent (i.e. energy/telecom/tobacco/automotive/etc aren’t highly similar or related to each other, so there’s some element of diversification that I’m comfortable with).

  32. which is why I’m pumped to already have them both at a 12%+ discount!!! Good article.

    Looking into PFE right now. Along with FE.

  33. Zach,

    Thanks for stopping by!

    Glad you concur on BP. I think there’s still tremendous value there. My cost basis is less than current prices, but I wouldn’t mind at all buying here. I think a long-term investor is staring down a great opportunity at today’s prices.

    Cheers!

  34. hallar84,

    It looks like your question was answered kindly below. Thank you, luckydog17!

    I also know you can put together some pretty cool charts with YCharts. However, F.A.S.T. is really what you’re looking for; however, it’s not free.

    Best of luck!

    Take care.

  35. Kaizen77,

    That’s a great anecdote there. I concur.

    I’ve also heard some investors in tobacco companies that don’t personally smoke rationalize it by assuming the dividends will partially pay for their rising healthcare costs as a result of tobacco health problems that others have.

    I look at it like this: If it’s a company that is high in quality, produces prodigious cash flow, and shares some of that cash flow with me via rising dividends, then there’s not a lot on the list that I’d be not okay with. Tobacco companies sell a perfectly legal product, and it’s really none of my business whether someone chooses to smoke or not. It’s just a personal choice. I actually feel that of all the companies that are available for investment, tobacco companies are pretty cut and dry. Smoking is a rather passive way to die; it’s not like you’re profiting from war and instantaneous death via LMT, RTN, and other defense companies.

    Just my thoughts on it. Thanks for sharing! 🙂

    Best regards.

  36. DW,

    Thanks for stopping by. And thank you as well for the very kind words. Glad you find some inspiration here! 🙂

    It’s impossible to say what will happen with Ukraine. I personally don’t worry about macroeconomic events. I’m investing for the very long-term – think 10, 20, or 30 years. Will we still be talking about Crimea 30 years from now? It’s rather doubtful. However, we’ll still likely be using oil and natural gas 30 years from now, and I’m confident a fair amount of that usage will be sourced from BP.

    Cheers!

  37. PIM,

    Glad to have you on board as a fellow shareholder. I think both companies offer a lot to like at current prices, especially considering the lack of general value elsewhere. Solid current income backed by what should be above-average growth. We’ll see what we get. 🙂

    Take care.

  38. Brent,

    I hear you. I’m quite heavy on PM myself, so I simply cannot buy any more here. The purchase a few months ago already put me out of my comfort zone a bit.

    I could probably afford to buy a little more BP, however.

    But I hear you on the general trend. I think we have to take what the market gives us sometimes. I don’t mind going a little overweight in a position or sector if it means that I’ll have the opportunity to maybe smooth things out later down the line when values are elsewhere. I’m still building my portfolio, so it’s far from complete yet.

    Best regards!

  39. Pipeline,

    Yeah, I’m in the same boat. I simply try to capture whatever value the market is currently throwing my way. Right now, I think PM and BP offers some pretty compelling value for the long term, but they’re not the only stocks one can buy here. I also actually think DLR is still attractively valued right now; though, I’m already as heavily allocated to the company as I’d like to be.

    Cheers!

  40. DB40,

    Couldn’t agree more. I’ve been lucky to be able to buy some stocks really cheaply, and other times I’ve bought only to see a stock crater in price soon after I pulled the trigger. However, these events matter very little for me. In the end, I’m chasing the passive income over the long term. Cheaper stocks buys more dividend income, but the dividend income itself gets reinvested at greater and greater rates, which certainly goes a long way in helping when it comes to expensive stocks. Sitting on my cash waiting for cheaper prices that may or may not comes helps me not.

    Thanks for stopping by!

    Best wishes.

  41. Dan,

    I’ve never looked at FE before. Just took a glance and the P/E ratio is sky high. What’s going on there? One-time charges affecting EPS?

    Best of luck!

    Take care.

  42. Hi Jason, I have BP under my radar too. But as many others, I just can’t decide if I should buy it or not.

    I think it’s undervalued and that there is room for capital appreciation.

    On the dividend growth side though I’m not sure what to think…

    It might takes some time for BP to fully recover but I don’t see why it wouldn’t.

    Oil spills are part of the risks when investing in such companies. Unfortunately in that industry, it’s not “if” but “when” does the next oil spill will happen… BP is out of favor right now but the world needs oil and they know how to provide it. Your car doesn’t know if it’s BP’s oil or not… It’s not like a brand.. It’s a commodity.

    By the way it’s been 25 years this year that Exxon Valdez has had a major oil spill. Look at Exxon today… It’s one of the best dividend growth stocks out there. I bought some shares at 90$ recently…

    But there’s a point that tickles me a lot about BP.

    When I look at dividend stocks, I like to use this tool to check the past dividend growth :

    http://www.buyupside.com/calculators/dividendgrowthrateinclude.php?symbol=bp&submit=Display+Chart

    Based on this tool, we can see that BP has not been a great dividend compounder over the long run. Actually, since 1987, the dividend grew only by around 36%, less than 1.15% annualized because they decreased it on many occasions… This is lower than inflation…

    If you look at Exxon, Wal Mart, McDo, JNJ etc… You’ll see the kind of graph I prefer.

    My guess is that BP is undervalued and that there is room for the dividend to grow in the short term. There is also a lot of room for capital appreciation. But if I buy it, I think it will not be a “hold forever stock” and that I will have to monitor it closely and sell it if they cut or decrease the dividend.

    What do you think of CH Robinson Worldwide?

  43. Allan,

    Well, there’s no doubt that BP isn’t the classic kind of dividend growth stock that you’ll find in KO, JNJ, etc. And finding 30+ years of consecutive dividend growth in a commodity stock is rather uncommon. Which is what makes CVX and XOM all the more impressive. However, when looking at cumulative dividends in absolute terms, an investor who owned BP well before the spill and held all the way to today didn’t do so bad. I don’t know if BP will ever be a classic dividend growth play, or more of a high-yielding, slower-growth play like Shell, but I think the opportunity for capital appreciation and dividend growth is pretty solid here, on the back of an already attractive yield.

    I’ve never taken a good look at CHRW, but it appears that they’ve paid the same dividend for six quarters in a row now. I wonder what’s up with that? The P/E ratio appears a bit high for me, and the yield consequently a tad low. Nothing real crazy, especially considering where the broader market is at. But I don’t know if that’s a real compelling opportunity for me right now.

    Best wishes!

  44. Kingkang,

    To be totally honest, if it doesn’t pay a dividend I don’t even look at it. That doesn’t mean it’s not a fantastic investment, but rather it doesn’t fit my goals and needs.

    As an investor, it’s critical you identify what you need out of investments and base your decisions around that.

    Cheers!

  45. I have been pondering what to do with my yearly ROTH contribution of $5500. I typically put the whole nut into 1 stock around this time of year and never sell.

    The funny thing is – I have been debating these exact 2 stocks BP and PM. I am pretty sure that this year I will select BP.

    Good Luck,
    Roger H

  46. Lots of great companies pay great dividends. have you ever considered what happens if we get inflation? Or do you ever look for more growth, at least in some parts of your portfolio?

  47. Roger,

    I don’t think you can go wrong with either one at these prices. Glad to see we’re on the same page, and thinking of the same stocks! 🙂

    Best of luck with the choice, and enjoy those dividends!

    Best wishes.

  48. No Nonsense Landlord,

    Great questions there.

    I’ve absolutely considered inflation. This is exactly why I invest the way I do: Most of the companies I’ve invested in have long-term track records of rewarding shareholders with rising income via dividend raises, and these raises are typically well over the rate of inflation over the long haul. So as inflation raises my expenses by 3% or so per year over the long term, I’m receiving 6-10% raises in income.

    As far as growth, I wouldn’t invest in a company that wasn’t growing. If they’re not growing they can’t sustain dividend growth, as dividends are paid as a portion of profit. I consider valuation, but if a company isn’t expected to grow then I would never put my capital at risk.

    Cheers!

  49. I love these posts because they usually get me to invest more cash into strong dividend companies. This one is no exception. Reading through the comments I notice other companies which I have become investors, not sure they are all due to DM or not, but thanks for the ones that are! in Feb I invested in KMI, in March I invested in GE, and in April I invested in BP. Thanks for the great site!

  50. Dave,

    Wow, those are some nice buys there. Hard to say what happens in the short term, but I can’t imagine you’re not happy over the long haul with that basket of companies. And know that I’m also putting my money where my mouth is, so I’m right there with you. 🙂

    Best regards.

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