Showing posts with label watchlist. Show all posts
Showing posts with label watchlist. Show all posts

Friday, August 1, 2008

brands grow dividends

This article originally appeared on The DIV-Net. If you haven't checked out The DIV-Net yet, what are you waiting for?

I previously wrote about my dividend growth philosophy. This is my investing plan that I employ through good times and bad, no matter what the market throws at me. One factor in the last point within my investment philosophy, and a factor that I consider crucial when selecting and analyzing investments, is brands.

A brand is the most valuable asset that many companies own. This product or company identity captures a corner of the consumer's mind, which is the most valuable real estate that they can own for future growth and stability. In simple terms, a strong brand offers the benefit of repeatability of sales through loyalty and trust. These factors are perfect traits for us to look for in a company that we might be considering for a long term dividend growth investment. Brands are a piece of the puzzle that can go a long way towards creating consistency, which is another key feature of a dividend growth company.Brands are one of the factors that allow the company's customers to continue to buy their products or services as the years go by. In some ways, brands can contribute in creating a 'moat' around the company that inhibits other entrants from taking market share or gaining confidence in the market.

If you ever doubt the power of brands consider the following: Some brands are confused with actual item names: Examples include Kleenex®, Band-Aid®, iPod®, and Ziploc®. Some brand names are actual words for items in different languages than they originated in. For example, 'Gillette' is the word for shaver in some developing countries. Some brand names pervade vocabulary in other ways, as an example consider the saying "That is a Band-Aid solution".

In summary, brands are a key factor that I consider when analyzing a potential dividend growth investment. Due to the loyalty, trust, and the competitive advantages that brands build, they create moats and allow companies to build consistency of sales.

Saturday, March 29, 2008

latest watchlist additions

I briefly described the process that I employ for selecting stocks for my dividend growth watchlist back in June of 2007. I maintain this list of dividend growth stocks that I tend to watch regularly on an Excel spreadsheet, complete with the prices at which they get my attention for a potential new position. Qualifying for the list is difficult, and only the cream of the crop end up on my watchlist and stay on my watchlist. A high degree of consistency in earnings and dividend growth is usually required. Consistency gives me better faith in the company's future, and at the same time allows me to better determine my buy price for the firm.

Here are two of the latest additions I've made to my watchlist. I'll elaborate on these three companies on separate posts in the future.

The Clorox Company (CLX) is an $8 Billion dollar consumer products firm that manufactures and markets brands such as Clorox, Armor All, STP, Glad, and Brita. Clorox recently acquired natural products company Burt's Bees and is very recently marketing a line of environmentally friendly cleaning goods called Green Works.

United Parcel Service Inc. (UPS) is a $75 Billion dollar package delivery and supply chain management company. Package delivery is a very easy business to understand, with very high barriers to entry, and lots of room for different added value services. In supply chain management, UPS is the industry leader and at the forefront of the continuing trend of globalization.

Thursday, January 31, 2008

hikes from my watchlist

Three stocks that are on my watchlist, but that I do not hold, just raised their quarterly dividends.

  • TransCanada Corp. (TRP) - hiked to $0.36, a raise of 6%
  • United Parcel Service (UPS) - hiked to $0.45, a raise of 7%
  • Canadian National Railway (CNR) - hiked to $0.23, a raise of 10%

Two of these companies are extremely economically sensitive, while one is certainly not.

Remember, you can always see some of the latest dividend increases in Canadian and U.S. markets by clicking on the 'see latest hikes' link on the right panel of themoneygardener.

Saturday, January 5, 2008

patching the burnt hole in my pocket

Thicken My Wallet, drafted a great post this week called Cash is an Investment Category, where he writes of the internal struggle to not be fully invested. This post hit home for me as I have found that once my cash reserves hit a certain level, I start to seriously look for stocks on sale.

Patience is such a huge attribute that a successful investor needs. It is not always easy to allow cash to pile up in your portfolio when you're mind is constantly looking to the next stock that you would like to add to, or start a position in. After all, what am I doing; what have I set out to accomplish long term? I am investing for the long term, not stockpiling cash. That being said it is easy to see that throwing money at stocks whenever you have powder dry is not always the best strategy. There is something to be said for having patience, building cash positions, and attempting to use this cash to invest in beaten down stocks when there is 'blood in the streets'.

That being said, right now I am 3.1% cash so I am getting to the point where I can afford, fee-wise, to buy something. Coincidentally there was a fire sale this week on the markets, but I'm not sure the blood has hit the streets yet. I am not going to be hasty but here are the situations I am monitoring most closely currently:

1. Bank of Nova Scotia (BNS). I opened a position in BNS back in August of 2007. Currently my adjusted cost base on the stock is $48.39. Scotia closed Friday's trading at $48 even.

Yield = 3.9%
Price/Earnings = 11.9
Price / Book = 3.1
Last time stock traded at this level = August 16, 2007, the infamous date

2. Bank of America (BAC). I opened a position in BAC back in November of 2007. BAC announces earnings on January 22, 2008, which by all accounts should be horrendous. I really don't care though. What I do care about is their juicy dividend which they have raised nicely for a long while. Unknowns in investing can be a killer. I really wish I knew what the odds were for a dividend cut. If the odds are extremely low, then I would add to my position. Right now I am paying close attention to analyst, and BAC management comments to try to get a read on this, but I realize that there may not be any assurance.

Yield = 6.4%
Price / Earnings = 9.0
Price / Book = 1.4
Last time stock traded at the level = May of 2004!

Sunday, December 16, 2007

watchlist review - what's cheap?

I am currently now sitting on about 3% cash, so I am starting to look at where I might be able to deploy it. I have spent some time updating my watchlist, while having a look at where the stocks that I watch are trading. Some stocks that I watch are in earnings decline, so they might look really cheap but nobody knows how far down the rabbit hole goes. Others have shown little or no sign of earnings decline, and yet still look cheap. These have potentially less downside risk at their current levels in my opinion*. Here is how the list breaks out currently:

Cheap Stocks (ranked cheapest first)
  1. Citigroup (C) - in earnings decline
  2. Lowes (LOW) - in earnings decline
  3. Wells Fargo (WFC) - in earnings decline
  4. Reitmans (RET.A) *
  5. Bank of America (BAC) - in earnings decline
  6. Home Depot (HD) - in earnings decline
  7. Telus (T.A) *
  8. Manulife (MFC)*
  9. Bank of Nova Scotia (BNS)*
  10. Royal Bank of Canada (RY)
  11. 3M (MMM)

Several others would be deemed to be 'Fairly Valued' including General Electric (GE), Johnson & Johnson (JNJ), Walgreen (WAG), Shoppers Drug Mart (SC), Leon's Furniture (LNF), Sun Life (SLF), Great West Lifeco (GWO), IGM Financial (IGM), Bank of Montreal (BMO), TD Bank (TD), Canadian National Railway (CNR), Canadian Pacific Railway (CP), Toromont (TIH), etc.

Expensive Stocks (ranked most expensive first)

  1. Colgate Palmolive (CL)
  2. Pepsico (PEP)
  3. TransCanada Corp. (TRP)
  4. McDonalds (MCD)
  5. Automatic Data Processing (ADP)

I think I am going to take a closer look at the stocks marked with an asterisk* above. These are stocks that are showing up as being cheap, but yet don't have much of a negative catalyst really impacting the stock as much as the others.

Post Sponsor: Search for the best loans with The Thrifty Scot and save on interest charges today. The Thrifty Scot has over 500 personal loans and secured loans available.

Friday, November 30, 2007

focusing my strategy

I believe successful investing involves developing a sound strategy and sticking with that strategy through thick and thin. After the strategy is solidified one must apply the parts of the strategy in practice over and over again. For me, the long- term strategy that I have decided to carry out is Dividend Growth Investing. The supporting key features of a holding that I always remain conscious of are demographics, and brands. Most of my holdings contain one or two of these key features. I mostly do not care what the markets quote me on my stocks day to day or week to week. My only actionable concern with the market comes when it is offering me a sale I can't resist. It's fun to follow the daily soap opera that is the financial markets but this has little to do with my long-term strategy.

The 'bible' of my stock selection process is my watchlist. I've explained in a previous post, how I develop my watchlist. I've also explained in a previous post how I go about selecting stocks for this watchlist. If developing a concrete, bulletproof strategy is considered a '10' on a scale of 1-10, then I would say I am at around an 9 right now. I've probably moved to this 9 slot from around 7-8 over the past few months, and after reading 'The Single Best Investment'. The book rung true for me, and opened up my eyes a little wider to the dividend growth strategy which I have embarked on.

As a result of my recent realization, I have decided to add some more focus to my dividend growth strategy which was already in place. Eventually I will get to a place with my holdings and watchlist where the point of clarity has been reached; then I can move on to the job at hand which is the practice of implementing the strategy over and over. This will free up more time to change diapers and mow the lawn....

The focus that I have added involves narrowing the universe of stocks in which I will invest. In the book, Miller talks about 'Creating Your Own Private Compounding Machine'. The formula for success is High Quality + High Current Dividend + High Growth of Dividend = High Total Returns. In a round about way I had been already using this strategy to select stocks, but I am now going to focus my strategy based on this idea and toss out some of the bad apples...

The Bad Apples
- not that these are not fine companies, but they just don't fit with my strategy and thus I am wasting my time keeping tabs on them.

Thomson Corporation (TOC)
Thomson Corp. is actually a pretty good, consistent company with decent earnings and dividend growth and amount, however I have decided to remove TOC from my watchlist for the following reasons:
  • I don't understand enough about how the company makes money.
  • Their Price / Earnings ratio is too high, for no good reason, and I can not rationalize it so I know I could never buy the stock

FedEx Corporation (FDX)

  • The dividend yield is 0.4%
  • UPS is a public company.

Starbucks Corporation (SBUX)

  • The dividend yield is 0%
I am actively researching new companies to add to my watchlist, and I have actually selected about 3 that are in the process of being added. I will discuss these new stocks at a later date.

Friday, June 15, 2007

my stock selection process

The process used when selecting a stock to consider buying is probably different for everyone. As I've mentioned before, I maintain a watchlist that I have compiled over some time. Every stock must qualify for the list. In order to qualify for the watchlist every stock had to go through my process, which I consider to be fairly stringent. I try to look at most angles, analyzing the stock both quantitatively and qualitatively. Any single factor that fails to meet my criteria will disqualify a stock. I'd like to run through a simplified example of the system that I use to select a stock that might someday be worthy of my investment dollars. My example company here is Walgreen (WAG), which is probably one of most fundamentally sound companies I've ever analyzed, a bit of a no brainer...


1. The Idea
There needs to be an initial idea to spark my interest. Due to the demographic environment in North America, if I could buy any type of retail or staple stock, I want it to cater toward the baby boomer section of the population. Reason being, that the groundwork for growth should already be laid by increasing demand over time. Shoppers Drug Mart is the premier drug store chain in Canada and was added to my watchlist long ago. I needed another choice in the sector as SC seemed to never trade near my 'buy' price, and might not for years to come. I looked south of the border where I discovered Walgreen Company (WAG) and CVS which are by far the two dominant chains. For several of the reasons below, WAG won out.

2. Earnings Growth
The first thing I always do is look at earnings growth. This can be a dis qualifier right away. Two examples of companies which I have disqualified due to their sporadic earnings growth patterns are Disney (DIS) and Caterpillar (CAT). Earnings growth does not necessarily need to be high, it just needs to be steady, smooth, and consistent, this keeps things simple, conservative, and reliable. In the case of WAG, my eyes almost popped out of my head when I looked at their 10 year EPS history, absolutely phenomenal! For the last 10 years they've grown EPS every year by roughly 15 - 20%, without exception.

3. Debt
The lower the debt/equity ratio the better, some exceptions, but low makes me feel good.
In WAG's case it is 0.00 (makes me feel warm and fuzzy :)).

4. Return on Equity
The higher the better, is the long term trend up or down? This is a good factor when comparing companies across an industry. In WAG's case the current ROE is 18.4%, and has generally been on the rise since 2002. When compared to SC (16.5%) and CVS (15.2%), it stands up well.

5. Industry Specific Factors
In retail, net margins and same store sales growth are very important. I liked what I saw here.

6. Dividends
Do they pay a healthy one? Are they growing them regularly? What's the payout ratio, is it healthy, is it increasing? Any major blips in the pattern, why?
In the case of WAG, it's certainly not my usual dividend stock, but it is important to know that they've raised their small dividend every year since 1987. The raise has averaged about about 20% in recent years. This is more of a growth stock for my portfolio. They build stores with their free cash flow, instead of paying dividends.

7. Other miscellaneous factors
Including P/B, P/S, ROA, sales growth, read company website, read annual report, others opinions of management, past Market Call guest opinions, Jim Cramer's opinion (in this case best of breed), retail investor's opinions, my interaction with company, future of industry, risks to industry, risks to company, etc. Not limited to these, and these are all taken as less important than the 6 above.


8. Valuation
I'll explain how I determine my 'buy' price in a later post, as some readers have asked this question.

Wednesday, May 2, 2007

watchlist explained

I thought I would give readers a little background on my watchlist, since I may refer to it from time to time...

It's pretty simple really, and I'm sure many of you keep watchlists. Mine is currently around 40 companies, that I wouldn't mind owning at a reasonable or rock bottom price. (I will explain in a later post how I select stocks that qualify for the list, and how I determine what is cheap.) These stocks, and only these stocks, are equities that I would be comfortable buying if the price and other factors are right. By 'other factors' I am referring to what I might want to own at the time given time due to: my outlook for the future, and my current diversification mix, among other things that include 'gut feeling'.

The list you see on the right panel of the blog called 'cheap stocks as per my watchlist', is a regularly updated list of stocks on my watchlist that I currently consider to be 'cheap'. Stocks may fall in and out of the list depending on earnings, trading price, and small revisions to my models. As I note at the bottom of this blog, I am not a financial advisor, nor a fortune teller.

my current watchlist:


stocks awaiting analysis: CLX, AXP