Stocks Watch List – April 2015

I’m always looking out for good quality companies, and if they are under valued that’s great and if they yield high dividend income, even better! However, emphasis is on owning quality blue chip companies to grow passive dividend income.

I’ve been pondering about following companies since some time. As soon as more capital becomes available, I’ll be gnashing my teeth in some of these great companies ;)

1) ONEOK, Inc. (OKE)

ONEOK, Inc. is a diversified energy and a partner company of ONEOK Partners, holding 41% interest. It engages in processing, transportation and storage of natural gas liquids (NGL) in United States. The company was founded in 1906 and headquartered in Tulsa, Oklahoma. 

OKE has a nice dividend yield of 5.02% and a market cap of $10.06B. It ran up to $71.19 at its 52 week high, currently trading at $48.25 and is almost 32% lower. Current price provides an excellent entry point to investors, though, it could go lower in short term, however, this price point serves a good base to build on. OKE is in process of building a pipeline in Permian Basin to Mexico in west Texas. Its dividend guidance has been lowered and there may be downside risks, but, I like its valuation at this point.

2)  Royal Dutch Shell plc (RDS.B)

Royal Dutch Shell plc is an independent oil and gas company, incorporated in 2002, and based in United Kingdom. It operates in 3 primary segments: Upstream, Downstream and Corporate. Upstream is engaged in finding crude oil and gas, liquefaction and transportation of gas, Downstream in manufacturing, distribution and marketing activities and Corporate in related support functions like insurance and treasuries.

RDS.B sports a juicy dividend yield of 6.23% due to its recent drop. It touched a 52 week high of $88.13 and currently, trading at $60.40, almost close to its 52 low of $59.33. It has run into rough weather due to its recent plan to acquire BG Group for a cool sum of $70B. With this acquisition though, Shell will position itself better to compete against big oil companies. At current valuation, its provides a good opportunity to investors looking for long haul.

There are few other attractive companies that are under my radar: KMI, WPC, ABBV, CLX, VZ, POT and RY.

Full Disclosure: I plan to purchase above securities in near future.

Are you also considering to purchase these securities in future? 

Thanks for reading.

Dividend Income Update – March 2015

Its time for me to post dividend income earned from my portfolios: DRIP, HID1, HID2, & RothI enjoy sharing them as these passive dividend income provides me great inspiration and encouragement to keep chugging along and hopefully to the readers.

Wow! I scored a triple hundred plus in total passive dividend Income: $341.08 to be precise, this is the first time crossing $300.00 milestone figure. My dividend income was more than 26.61% as compared to last Dec and 299% compared to last year’s Mar. It only shows the power of Dividend Income engine. I’m that much closer to being  Financially Independent (FI) and living a life that I want to live, be independent and not have to rely on someone else.

Passive Dividend Income – Mar 2015

1. Dividend Re-Investment Plan Portfolio (DRIP) 
BHP Billiton plc (BBL): $8.25
Chevron Corp. (CVX): $20.97
ConocoPhillips (COP): $22.83
Exxon Mobil Corp (XOM): $10.45
McDonalds Corp (MCD): $17.17
Royal Dutch Shell plc (RDS.B): $4.53

2. High Dividend Income Growth Portfolio 1 (HID1)
American Capital Agency (AGNC): $11.00
BHP Billiton plc (BBL): $37.20
BP plc (BP): $30.00
ConocoPhillips (COP): $14.60
Digital Realty Trust, Inc (DLR): $17.00
Johnson & Johnson (JNJ): $7.00
Realty Income Corp (O): $9.45
Prospect Capital (PSEC): $8.33
Pimco Corp & Opportunity (PTY): $13.00
Royal Dutch Shell (RBS.B): $18.80
iShares Mortgage RE (REM): $30.09
Southern Company (SO): $5.25
Orchids Paper Products Co. (TIS): $5.25
Unilever plc (UL): $4.88

3High Dividend Income Growth Portfolio 2 (HID2)
Vanguard Hi Dividend (VYM): $8.15
Vanguard REIT Index ETF (VNQ): $8.10
Vanguard Utilities ETF (VPU): $10.30
iShares Select Dividend ETF (DVY): $9.33

4. Roth IRA
Vanguard Natural Res LLC (VNR): $5.29

Total Passive Dividend Income: $341.08

I want to own securities of Blue chip Aristocrats (companies with 25+ yrs of growing earnings) and Dividend Champions. Once the earned passive dividend income covers all my expenses, I will own my time as well and truly free from 9 to 5 tread mill.

I’d setup a goal of earning $3500.00 in total passive dividend income at the beginning of this year and received $814.28 so far. This month of March is a big one for me and most of DGI bloggers as well. It covered some ground in the shortfall of last low month, that I’m glad to take. However, there is lot of more ground to cover to achieve a challenging target for this year.

Full Disclosure: Long in all above mentioned securities.

How did your Dividend Income do this month of March. Are you moving along the target?

Thanks for reading.

Recent Buy

I’m looking for companies that are fairly valued, have a decent dividend yield(3% to 6%) and have a fairly long history of paying dividends consistently for 10 years or more. However, there could be some cases for exceptionally good company or a strategic buy for a very long term.

Here is my purchase for the month of Mar 2015, and most likely last one for this month. This was an addition to my prior purchase of 15 positions in PM.

1) Philip Morris Intl. Inc. (PM)

Philip Morris Intl. Inc., is one of the prominent tobacco company internationally with 6 of the top 15 international brands, like Marlboro, Virginia Slims, L&M, Parliament, Merit, Bond Street, Philip Morris, Chesterfield, Lark, Muratti, Red & White. It sells its products in more than 180 markets with 15.7% share outside US. PM is headquartered in New York City, NY but does not operate in United States, where brands are owned by former owner: Altria Group (MO).

PM is trading at P/E ratio of 16.10, a healthy dividend yield of 5.21% and Market Cap of $118B. It has ran up to $91.63 at its 52 week high and currently trading at $76.79 almost 15% lower and gives an great opportunity to add or initiate positions at current valuations in my opinion.

I bought PM at $79.45 on 3/23 and added 10 positions. It will add $40.00 of annual passive income on a forward basis that will help propel me towards FI journey.

Dividend Diplomats recently bought 38 positions, Dividend Mantra considered it as the best stock idea for this year, Sure Dividend examined it for DGI Investors and many other bloggers have also recently bought it.

Full Disclosure: Long on above mentioned securities.

Thanks for reading.

Are you considering adding it to your portfolio also.

Portfolio Update – March 2015

The market in month of Feb was up by 5.62% (ETF: SPY), last month in Jan, it was down by close to 3%. The moody market never goes straight up or down but over long period, direction of market is up and will reward patient investors.

Month of Feb remained a busy month for me. I allocated capital in following securities:
Johnson & Johnson (JNJ): 10 ($1022.49)
General Electric (GE): 20 ($509.99)
Digital Realty (DLR): 10 ($663.89)

These buys in JNJ, GE, DLR will add $80.40 annually to my passive dividend income. This will push me closer to being financially independent.

My DRIP Portfolio was also active in Feb, 2015 and below positions were initiated/added:
Chevron Corp. (CVX): 10.4 ($1150)
Conoco-Philip (COP): 8.02 ($550)
Phillip-Morris (PM): 6.1 ($500)
BHP Billiton (BBL): 4.8 ($250)
The Clorox Corp. (CLX): 1.75 ($200)
Verizon Comm. Inc. (VZ): 3.05 ($150)
IBM (IBM): 0.9 ($150)
AbbVie Inc. (ABBV): 0.8 ($50)
Colgate-Palmolive Inc. (CL): 0.7 ($50)
Exxon Mobile Corp. (XOM): 0.55 ($50)

Currently, I’ve got 4 Portfolios: DRIP, HID1, HID2 and a recently added Roth IRA account. New capital is distributed across these 4 portfolios in both taxable and tax-free accounts so that I’ve freedom to enjoy my passive dividend income whenever they are able to cover all my expenses. I also contribute towards 401K account in order to get employer’s match and help lower taxes as well.

My total portfolio value at the end of February is $67,094.55. It was a big jump of 13.19% over last month of January Portfolio value of $59,274.97. This was mostly due to capital appreciation with market being happy :) and addition of extra capital in JNJ, GE, DLR and DRIPs in CVX, COP, PM, BBL, CLX, VZ, IBM, ABBV, CL, and XOM.

Last year 2014, I crossed a very important and big milestone for me, i.e, crossing half-mark across a 6-figures portfolio size. 

Full Disclosure: Long on the above mentioned securities.

Thanks for reading.

How is your portfolio doing recently and own some of these securities?

Philip Morris Examined for Dividend Investors

This is a guest post by Ben Reynolds. Reynolds founded Sure Dividend, which is dedicated to helping individual investors pursue a long-term investment strategy in high quality dividend growth stocks.

Philip Morris was a recent buy of Passive Income Mavericks and owned by Dividend Diplomats also. I’m long Philip Morris International as well. This article discusses the investment merits of Philip Morris International, including the company’s current valuation and future growth prospects.

Business Overview

Philip Morris is the largest cigarette stock in the world; it has a market cap of $120 billion. Philip Morris sells branded tobacco products internationally.  The company’s flagship brand is Marlboro.  Altria (Philip Morris’ parent company) sells the same branded tobacco products exclusively in the U.S.  The businesses split about 7 years ago so Philip Morris could pursue a fully international strategy and Altria could pursue a different business strategy in the U.S.

Philip Morris operates in 4 geographical segment.  Each segment is shown below along with the percentage of operating income each segment produces:

  • Eastern Europe, Middle East, & Africa:  34% of total operating income
  • European Union:  31% of total operating income
  • Asia:  26% of total operating income
  • Latin America & Canada:  9% of total operating income

As the bullet points above show, Philip Morris’ operating income is highly geographically diversified.  The Eastern Europe, Middle East, & Africa segment is its largest based on operating income, followed closely by the European Union and Asia segments.  Latin America & Canada generate the smallest portion of operating income for Philip Morris.

Fundamentals & Dividend Metrics

Philip Morris stock has an exceptionally high 5.1% dividend yield.  Additionally, the company has a price-to-earnings ratio of just 16.3 and a payout ratio of 65%.  The company maintains a fairly high payout ratio as it returns much of its cash flows to shareholders in the form of dividends.  Philip Morris has paid increasing dividends for 31 consecutive years, including its history as a part of Altria.

Since separating from Altria, Philip Morris has grown revenue per share at 8.6% a year.  Dividends have grown at more than 10% a year over the same time period.  In addition, Philip Morris has a fairly low stock price standard deviation of 24%.  The company ranks very highly using The 8 Rules of Dividend Investing thanks to its extremely high dividend yield, solid growth rate, fairly low payout ratio, and long dividend history.

Future Growth Prospects

Philip Morris is expecting an 8% to 10% currency neutral earnings-per-share growth rate in 2010, around the same growth rate the company has experienced over the last several years.  Adding in the company’s 5%+ dividend yield gives investors an expected total return of 13% to 15%; not bad for a boring cigarette company.

Philip Morris is growing earnings-per-share despite operating in the slowly declining cigarette industry.  Here’s how Philip Morris is growing in spite of lower cigarette volume:

  • Market share gains
  • Lower operating costs
  • Higher prices
  • Share repurchases and effective capital allocation

Philip Morris raises its cigarette prices whenever taxes increase.  Since the demand curve for cigarettes is relatively inelastic (people keep buying them no matter the price – within reason), the company can raise prices more than cigarette tax increases, and increase its margins in the process.

Slowly declining cigarette volume has caused Philip Morris to analyze its operations and become more efficient.  This has helped reduced operating costs for the company and increased margins further.  Additionally, the company continues to slowly gain market share in many of its major markets around the world.  This is due primarily to the company’s extremely strong Marlboro brand.

Finally, Philip Morris’ management is excellent at capital allocation.  The company currently pays a 5% dividend yield.  It has been taking on long-term debt with an interest rate at less than 4% and using much of these funds to repurchase shares.  This is a prime example of excellent capital allocation.  By borrowing money at less than 4% and repurchasing shares that the company pays 5% on, it is increasing current cash flows while simultaneously reducing share count.

Additional Growth Prospects

In addition to Philip Morris’ core business growth, the company has other growth prospects that could speed growth in the future.  The company is working in tandem with Altria (makes you wonder how ‘split’ the companies really are) to develop heated tobacco products.  The new brand of heated cigarettes and e-cigarettes could be the future of the industry.  Adoption rate has been slower than expected, but the category is still growing rapidly.  If these new categories take off, Philip Morris could potentially benefit greatly.

Final Thoughts

Philip Morris is a perfect example of a high quality business trading at a fair price (if not slightly undervalued) with a very shareholder friendly and competent management team. The company has an expected total return of 13% to 15% a year from dividends (5%) and earnings-per-share growth (8% to 10%).  This is a great company to buy for long-term oriented investors looking for both capital appreciation and high current income.

Disclaimer: This post is meant for educational or informational use only. Before making any investment, please do own research and consult with an investment professional or tax professional.

Thanks for reading.