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Dividend Investment Portfolio

I attempt to screen and purchase undervalued dividend growth stocks. These companies have increased their dividend for at least 15 years and have a lower than average price to earnings (PE) ratio, a higher operating margin, a low price to book, a reasonable dividend yield and payout ratio.  This is easily my favorite part of my financial empire.

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Dividend Investment Portfolio

May 2019 Undervalued Dividend Growth Screen

by Evan May 9, 2019

Every month, I buy a lot or two (a lot is currently defined as $500) of a stock that meets certain value metrics and has increased their dividend every year for at least 20 years.  For the first time this year we had a pretty good pull back in the markets in the past few weeks, and since we have another month underway figured it was good enough time as any to see if any consistent dividend growth stocks took an unexpected larger beating.

Screening for Undervalued Dividend Growth Companies

Dividend Growth History

The very first hurdle that a company has to pass is whether it has increased its dividend for 20 or more years.  I am looking to build a sustainable income stream, and it is my hope (and all it is a hope) that if they have paid dividends for 2+ decades it is part of their DNA and so they’ll continue to do so.

I use the Dividend Champion List (25+ years of dividend growth) and part of the Dividend Contender List (10 to 24 years of dividend growth).  The lists are maintained by The DRiP Resource Center.

Price to Earnings

The first metric I screen for is Price to Earnings.  Price to earnings is defined as,

the ratio for valuing a company that measures its current share price relative to its per-share earnings.

P/E is probably the most popular way to value stocks.  If you are reading this post you should probably already know that price in it of itself is not a measure of a company’s value. In the past I have used different ratios (under 20, under industry average, under both 20 and industry average,  under 20 CAPE P/E, etc.) for calendar year 2019 I am going to focus on those stocks with a P/E under 15.

Dividend Yield and Payout Ratio

I am not dividend hunting, but I do want to get paid to have money invested with the company, so I am going to use a dividend yield of at least 2% for calendar year 2019.  Much more important than the yield is the Dividend Payout Ratio which is simply the amount of earnings per share that is being used to support the dividend.  While sources will have different views on the topic I like Dividends.com guidelines,

A range of 35% to 55% is considered healthy and appropriate from a dividend investor’s point of view. A company that is likely to distribute roughly half of its earnings as dividends means that the company is well established and a leader in its industry. It’s also reinvesting half of its earnings for growth, which is welcome.

Free Cash Flow Yield

New for 2019 is Free Cash Flow Yield.

Free cash flow measures the cash available to shareholders after a company has paid all of its bills in full. Buffett relies heavily on a similar metric that he dubs “owner earnings.”

One way to gauge a firm’s cash flow production is to examine its free cash flow yield. This is calculated by dividing free cash flow by market capitalization, or the inverse of the Price/FCF ratio. A firm with a free cash flow yield of 10%, for example, generates 10% of its total market value in cash each year. That cash, in turn, can be used to pay dividends or fund share buybacks — items that enhance shareholder returns.

Having seen a bunch of a different articles on the topic I liked this one best explaining where my gauge should be:

Having used the Free Cash Flow Yield a zillion times over the years, I have come up with these conservative parameters for my own investing.

For the more Aggressive, as well as the “Buy and Hold” investor, I would adjust everything down a notch, and for example, would make the hold from 2% to 5.9% and the buy from 6% to 9.9% and sell anything under 2%. As for shorting a stock that would be any result under zero, including any negative result. Here is a listing of those parameters for easy reference.

Since this is a pure buy and hold account I set my screener at 6%+ for Free Cash Flow Yield.

My May 2019 Watch List and Purchase

After all that screening I was left with the following securities:

  • TROW

That was it! Since I had to manually add in payout ratio last, I ended up notice that some companies were  eliminated because they weren’t spending enough on dividends:

  • AFL
  • BEN
  • NUE
  • WBA

These all had below the 35% payout ratio! Given that I have underwater puts on WBA, so I know it has taken a real beating lately!

It seems that CEO cut guidance from 7 to 12% to roughly flat early in April.  That intrigues me because this dividend aristocrat and champion has increased it’s dividend for 43 years, and I am sure during that time there were periods of slowed growth.  So I decided to pick up 10 shares of WBA which is a new position for me.

May 9, 2019 0 comment
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Dividend Investment Portfolio

April 2019 Undervalued Dividend Growth Screen and Purchase

by Evan April 11, 2019

Every month I try to make a purchase of a dividend growth stock (defined by me as any company who has consistently raised their dividend for 20+ years).  My purchases are usually between $500 and $1,000/month.  With another month underway, it is time for me to screen for possibly undervalued dividend growth stocks for my monthly purchase.

Screening for Undervalued Dividend Growth Companies

Dividend Growth History

The very first hurdle that a company has to pass is whether it has increased its dividend for 20 or more years.  I am looking to build a sustainable income stream, and it is my hope (and all it is a hope) that if they have paid dividends for 2+ decades it is part of their DNA and so they’ll continue to do so.

I use the Dividend Champion List (25+ years of dividend growth) and part of the Dividend Contender List (10 to 24 years of dividend growth).  The lists are maintained by The DRiP Resource Center.

Price to Earnings

The first metric I screen for is Price to Earnings.  Price to earnings is defined as,

the ratio for valuing a company that measures its current share price relative to its per-share earnings.

P/E is probably the most popular way to value stocks.  If you are reading this post you should probably already know that price in it of itself is not a measure of a company’s value. In the past I have used different ratios (under 20, under industry average, under both 20 and industry average,  under 20 CAPE P/E, etc.) for calendar year 2019 I am going to focus on those stocks with a P/E under 15.

Dividend Yield and Payout Ratio

I am not dividend hunting, but I do want to get paid to have money invested with the company, so I am going to use a dividend yield of at least 2% for calendar year 2019.  Much more important than the yield is the Dividend Payout Ratio which is simply the amount of earnings per share that is being used to support the dividend.  While sources will have different views on the topic I like Dividends.com guidelines,

A range of 35% to 55% is considered healthy and appropriate from a dividend investor’s point of view. A company that is likely to distribute roughly half of its earnings as dividends means that the company is well established and a leader in its industry. It’s also reinvesting half of its earnings for growth, which is welcome.

Free Cash Flow Yield

New for 2019 is Free Cash Flow Yield.

Free cash flow measures the cash available to shareholders after a company has paid all of its bills in full. Buffett relies heavily on a similar metric that he dubs “owner earnings.”

One way to gauge a firm’s cash flow production is to examine its free cash flow yield. This is calculated by dividing free cash flow by market capitalization, or the inverse of the Price/FCF ratio. A firm with a free cash flow yield of 10%, for example, generates 10% of its total market value in cash each year. That cash, in turn, can be used to pay dividends or fund share buybacks — items that enhance shareholder returns.

Having seen a bunch of a different articles on the topic I liked this one best explaining where my gauge should be:

Having used the Free Cash Flow Yield a zillion times over the years, I have come up with these conservative parameters for my own investing.

For the more Aggressive, as well as the “Buy and Hold” investor, I would adjust everything down a notch, and for example, would make the hold from 2% to 5.9% and the buy from 6% to 9.9% and sell anything under 2%. As for shorting a stock that would be any result under zero, including any negative result. Here is a listing of those parameters for easy reference.

Since this is a pure buy and hold account I set my screener at 6%+ for Free Cash Flow Yield.

My April 2019 Watch List

For April I was left with:

Ticker Name Dividend Yield Sector P/E Ratio (LTM) Payout Ratio Free Cash Flow Yield
T AT&T Inc. 6.4% Communication Services 6.9x 38.1% 8.9%
TGT Target Corporation 3.2% Consumer Discretionary 12.8x 41.2% 6.6%
CFR Cullen/Frost Bankers, Inc. 2.7% Financials 15.0x 37.3% 9.3%
CTBI Community Trust Bancorp, Inc. 3.5% Financials 12.6x 41.2% 8.9%
FLIC The First of Long Island Corporation 3.1% Financials 14.3x 37.6% 8.6%
AROW Arrow Financial Corporation 3.1% Financials 13.5x 39.7% 8.9%

These names look very similar to the ones I have been seeing all year.  Since last month I bought a lot in CTBI and the month prior to that I bought a Lot in AROW I decided to stay away from the “Financials” sector.  That left me with AT&T and Target.  Despite owning both, I decided this month to buy my minimum (about $500) of Target.

April 11, 2019 0 comment
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Dividend Income by Quarter
Dividend Investment Portfolio

Quarter 1 2019 Dividend Growth Portfolio Review

by Evan April 5, 2019

A back of the mind g709oal of mine has always been to build my dividend growth portfolio into something bigger.  My long term goal would be to one day wake up and find that the account is something significant enough to actually throw off enough income to support at least a part of my lifestyle.  Right now, that feels like it is light years away, but maybe it can be done.  If I have any chance to get it there, it only helps me to share updates about it here, my personal finance blog.  I used to do monthly updates but I found them to be too tedious and stressful to keep up when I had trades go against me.  Instead of just trudging through them I found myself just not updating the spreadsheet, which is obviously not the right attitude given my long term goal.  Since my 2019 Goal and Objectives included getting back to basics it’s time to start sharing what I have tracking.  As such, I have decided to start sharing my quarterly investment activities and results. Much like my net worth posts, these are probably more for me than they are for others.

Quarter One 2019 Investment Activity

While this is one account there are really two components.  The first has to do with the true nature of the account, dividends, which would include my monthly purchases as well the actual dividends received (and reinvested).  The second would be my naked put and other option activity.

My Q1-2019 Dividend Activity

I created three dividend growth undervalued screens and purchases in Q1:

  1. January 2019 Dividend Screen – Added to Target position
  2. February 2019 Dividend Screen – Initiated a new position in AROW
  3. March 2019 Dividend Screen  – Initiated a new position in CTBI

I received $287 in dividends this quarter which is some nice growth over Q12018’s $214.

Dividend Income by Quarter

It is kind of frustrating seeing the flatness of the trend line.  While taking off from the “seriousness” of the account for a few years hurt my trajectory, I know I sold positions from 2013, and 2014 and used that cash elsewhere that would be worth (much) more today.  Such as life, the important thing for me is to get back to the basics.

My Q1-2019 Options Activity

I am not entirely sure how to share this information in a way to show growth/retraction.  I think for right now it would be to break everything down into certain categories while tracking the entire number which was about +$2,040 for the quarter:

  • Speculative bets not otherwise categorized – ($330)
    • Pretty pissed at myself with one particular trade in here $ANGI.  I bought calls thinking the stock was going to go up…and it did! But I didn’t close out the contract for the profit, thinking that it was going to continue to rise…and it didn’t!  It ended up expiring worthless for $260 which is most of that loss.
    • Selling assigned Stock
  • Covered Calls – $115
    • Currently, I have two rather large positions relative to the size of the portfolio in $LB and $BUD. As I collect dividends on both stocks I have continue to sell covered call at or above my basis.
  • Selling of Assigned Stocks- ($630)
    • Finally just got rid of my Lending Club Stock.  I was paying margin interest on it (albeit a tiny, tiny amount) and I couldn’t sell covered calls and I wasn’t receiving a dividend to offset any of it and I just didn’t believe in the company.  Bit the bullet and took a tiny L on this one.
  • Naked Puts – $2,890
    • Clear old rolling puts – I had some legacy puts that I have been rolling for a LONG, LONG time in WYNN.  I am pretty proud of myself that I was able to manage the rolls in a responsible, and as important, profitable way.  I have one contract left that I should be able to get out of sooner than later but that will provide another nice little bump in Q2 or Q3.
    • Normal (30 to 45 day naked puts) – in the future it is my hope that the naked puts pays for purchases of dividend paying stocks and some speculative bets.

It is weird to see $2,890 in the first report, because that is not supposed to be the norm (or not at least until the portfolio gets larger).  Most of that gain is from one trade – a cleared WYNN put that went the wrong way on me then I was able to fix that netted $2,300 of that (to offset the $2k+ loss I sustained in Q4 of 2018).  It may seem complicated but it isn’t, it is from rolling naked puts.

I am going to be excited to look back on these reports and maybe learn what I am good at and what I am not good at.

April 5, 2019 0 comment
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Dividend Investment Portfolio

March 2019 Undervalued Dividend Growth Watch List and Purchase

by Evan March 8, 2019

We are into another month, so it is time for me to try and find another lot or two of possibly undervalued stocks that have increased their dividend payments to their owners for 20 or more years.  While I am a long, long ways away, the eventual goal of this account is to eventually be turn on another income stream when it is needed.

Screening for Undervalued Dividend Growth Companies

Dividend Growth History

The very first hurdle that a company has to pass is whether it has increased its dividend for 20 or more years.  I am looking to build a sustainable income stream, and it is my hope (and all it is a hope) that if they have paid dividends for 2+ decades it is ingrained in their DNA and culture and they’ll continue to do so.

I use the Dividend Champion List (25+ years of dividend growth) and part of the Dividend Contender List (10 to 24 years of dividend growth).  The lists are maintained by The DRiP Resource Center.

Price to Earnings

The first metric I screen for is Price to Earnings.  Price to earnings is defined as,

the ratio for valuing a company that measures its current share price relative to its per-share earnings.

P/E is probably the most popular way to value stocks.  If you are reading this post you should probably already know that price in it of itself is not a measure of a company’s value. In the past I have used different ratios (under 20, under industry average, under both 20 and industry average,  under 20 CAPE P/E, etc.) for calendar year 2019 I am going to focus on those stocks with a P/E under 15.

Dividend Yield and Payout Ratio

I am not dividend hunting, but I do want to get paid to have money invested with the company, so I am going to use a dividend yield of at least 2% for calendar year 2019.  Much more important than the yield is the Dividend Payout Ratio which is simply the amount of earnings per share that is being used to support the dividend.  While sources will have different views on the topic I like Dividends.com guidelines,

A range of 35% to 55% is considered healthy and appropriate from a dividend investor’s point of view. A company that is likely to distribute roughly half of its earnings as dividends means that the company is well established and a leader in its industry. It’s also reinvesting half of its earnings for growth, which is welcome.

Free Cash Flow Yield

New for 2019 is Free Cash Flow Yield.

Free cash flow measures the cash available to shareholders after a company has paid all of its bills in full. Buffett relies heavily on a similar metric that he dubs “owner earnings.”

One way to gauge a firm’s cash flow production is to examine its free cash flow yield. This is calculated by dividing free cash flow by market capitalization, or the inverse of the Price/FCF ratio. A firm with a free cash flow yield of 10%, for example, generates 10% of its total market value in cash each year. That cash, in turn, can be used to pay dividends or fund share buybacks — items that enhance shareholder returns.

Having seen a bunch of a different articles on the topic I liked this one best explaining where my gauge should be:

Having used the Free Cash Flow Yield a zillion times over the years, I have come up with these conservative parameters for my own investing.

For the more Aggressive, as well as the “Buy and Hold” investor, I would adjust everything down a notch, and for example, would make the hold from 2% to 5.9% and the buy from 6% to 9.9% and sell anything under 2%. As for shorting a stock that would be any result under zero, including any negative result. Here is a listing of those parameters for easy reference.

Since this is a pure buy and hold account I set my screener at 6%+ for Free Cash Flow Yield.

My March 2019 Watch List

I can’t believe it, after the screens I ended up with only 4 options, and I have positions in all 4 already!

Ticker Name Dividend Yield P/E Ratio (LTM) Payout Ratio Free Cash Flow Yield
T AT&T Inc. 6.8% 6.5x 38.1% 9.5%
TGT Target Corporation 3.3% 12.2x 41.2% 6.9%
CTBI Community Trust Bancorp, Inc. 3.5% 12.8x 40.8% 8.7%
AROW Arrow Financial Corporation 3.1% 14.2x 39.6% 8.5%

So now I have to narrow the list down to one purchase for right now.  Immediately, I thought:

  • I just bought my first position in AROW last month;
  • I own a lot of TGT through out my accounts and they just had a pop from earnings (I know the second statement shouldn’t matter but it’s hard to ignore it);
  • CTBI – I know I own some shares, but have zero recollection when I bought them and I have not seen that name in a long, long time.

The CTBI interested me, because if I haven’t seen that name pop up in a while it means that the stock either had to grow to fit into the metrics above or the price has had to drop.

5yr Chart CTBISo it looks like my average purchase price is $39 and change which means my purchases had to be a few years ago. This sort of excited me to do some further research.  Why the pull back? It seems that all regional banks pulled back a bit over the same time frame, so I took a look at the most recent 10-k, and didn’t see anything alarming (granted I don’t have a ton of experience reading these reports especially as they relate to banks).

My March 2019 Purchase

I decided to purchase 15 shares of CTBI.

 

March 8, 2019 0 comment
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Monopoly card Dividend
Dividend Investment Portfolio

February 2019 Undervalued Dividend Growth Investment Screen and Purchase

by Evan February 11, 2019

We are into another month, so it is time for me to try and find another lot or two of possibly undervalued stocks that have increased their dividend payments to their owners for 20 or more years.  While I am a long, long ways away, the eventual goal of this account is to eventually be turn on another income stream when it is needed.

Screening for Undervalued Dividend Growth Companies

Dividend Growth History

The very first hurdle that a company has to pass is whether it has increased its dividend for 20 or more years.  I am looking to build a sustainable income stream, and it is my hope (and all it is a hope) that if they have paid dividends for 2+ decades it is ingrained in their DNA and culture and they’ll continue to do so.

I use the Dividend Champion List (25+ years of dividend growth) and part of the Dividend Contender List (10 to 24 years of dividend growth).  The lists are maintained by The DRiP Resource Center.

Price to Earnings

The first metric I screen for is Price to Earnings.  Price to earnings is defined as,

the ratio for valuing a company that measures its current share price relative to its per-share earnings.

P/E is probably the most popular way to value stocks.  If you are reading this post you should probably already know that price init of itself is not a measure of a company’s value. In the past I have used different ratios (under 20, under industry average, under both 20 and industry average,  under 20 CAPE P/E, etc.) for calendar year 2019 I am going to focus on those stocks with a P/E under 15.

Dividend Yield and Payout Ratio

I am not dividend hunting, but I do want to get paid to have money invested with the company, so I am going to use a dividend yield of at least 2% for calendar year 2019.  Much more important than the yield is the Dividend Payout Ratio which is simply the amount of earnings per share that is being used to support the dividend.  While sources will have different views on the topic I like Dividends.com guidelines,

A range of 35% to 55% is considered healthy and appropriate from a dividend investor’s point of view. A company that is likely to distribute roughly half of its earnings as dividends means that the company is well established and a leader in its industry. It’s also reinvesting half of its earnings for growth, which is welcome.

Free Cash Flow Yield

New for 2019 is Free Cash Flow Yield.

Free cash flow measures the cash available to shareholders after a company has paid all of its bills in full. Buffett relies heavily on a similar metric that he dubs “owner earnings.”

One way to gauge a firm’s cash flow production is to examine its free cash flow yield. This is calculated by dividing free cash flow by market capitalization, or the inverse of the Price/FCF ratio. A firm with a free cash flow yield of 10%, for example, generates 10% of its total market value in cash each year. That cash, in turn, can be used to pay dividends or fund share buybacks — items that enhance shareholder returns.

Having seen a bunch of a different articles on the topic I liked this one best explaining where my gauge should be:

Having used the Free Cash Flow Yield a zillion times over the years, I have come up with these conservative parameters for my own investing.

For the more Aggressive, as well as the “Buy and Hold” investor, I would adjust everything down a notch, and for example, would make the hold from 2% to 5.9% and the buy from 6% to 9.9% and sell anything under 2%. As for shorting a stock that would be any result under zero, including any negative result. Here is a listing of those parameters for easy reference.

Since this is a pure buy and hold account I set my screener at 6%+ for Free Cash Flow Yield.

My February 2019 Watch List

After applying the 4 very strict screens I have coming up with the following companies to take a deeper look at:

Ticker Name Dividend Yield P/E Ratio (LTM) Payout Ratio
Free Cash Flow Yield
AROW Arrow Financial Corporation 3.00% 14.0x 39.60% 8.70%
CFR Cullen/Frost Bankers, Inc. 2.70% 14.6x 37.40% 9.50%
CTBI Community Trust Bancorp, Inc. 3.50% 12.6x 40.80% 8.90%
T AT&T Inc. 6.90% 6.4x 38.10% 9.60%
TGT Target Corporation 3.60% 11.4x 41.20% 7.40%
WEYS Weyco Group, Inc. 3.40% 14.4x 48.60% 6.60%
FLIC The First of Long Island Corporation 3.10% 14.1x 43.70% 8.80%

First thing that is apparent is how many regional bank showed up! AROW, CFR, CTBI and FLIC.

My February 2019 Undervalued Dividend Growth Stock Purchase

The next step for me was to take a quick look at the outstanding shares count over the past 5 years to see if management is keeping the share count either stable, or even better, buying back shares.  To systimize even this part I am going to use MacroTrends to make sure that each stock on the watch list is within a maximum of 5% of the shares 5 years ago.  This left me with:

  • AROW (steady decline)
  • CFR
  • TGT (steady decline)
  • WEYS (decline)

I already have a position in 3 of the 4 that were left, so I decided to buy 20 shares of AROW.   Arrow Financial is a small ($500mil market cap) regional bank holding company.  According to their site,

Arrow Financial Corporation is the parent company of Glens Falls National Bank and Trust Company and Saratoga National Bank and Trust Company. Other subsidiaries include North Country Investment Advisers, Inc. and an insurance company, Upstate Agency, LLC. See below for more detail on each, or click the logos to go to their respective websites.

Our Banks

Glens Falls National Bank and Trust Company     Saratoga National Bank and Trust Company

Glens Falls National Bank and Trust Company is a community bank headquartered in Glens Falls, New York, that serves Warren, Washington, Essex, Clinton and northern Saratoga counties in upstate New York. It operates 30 banking offices and provides a wide range of financial products and services to individuals and businesses, including banking, investments and insurance.

Saratoga National Bank and Trust Company is a community bank headquartered in Saratoga Springs, New York. It serves Saratoga, Albany, Rensselaer and Schenectady counties through 10 banking offices and provides a wide range of financial products to individuals and businesses, including banking, investments and insurance.

 

February 11, 2019 2 comments
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