Thursday, November 13, 2014

Battlefield Oil


Gas was $2.80 for me this weekend.  That was with my gas card's 3 cents/gallon discount.  Going through my ranking system for the month 3 big oil companies were in the top 100 list.  High yields?  Good value?  Let's take a look at how the 3 end up in a battle against each other using the DFG ranking system.  I do need to work some more on that page once I have some more time.

The companies I will be looking at are all well-known companies.  ConocoPhillips (COP), Chevron Corp. (CVX) and of course ExxonMobil Corp. (XOM).  All of them are energy companies that have businesses that deal with exploration of oils and gasses, production, refinement, etc. though out the world.  XOM and CVX are both dividend champions (25+ straight years of higher dividends) while COP is an up and coming contender (10-24 straight years of higher dividends.)  

Value
ExxonMobil has the best value when I put the ranking together.  The price to earnings and sales both out did COP and CVX.  The company continues to make a ton of money.  We will see if that continues the rest of the year if prices remain low throughout the holidays.

Company
P/E
P/S
XOM
11.98
0.95
CVX
11.39
1.04
COP
11.79
1.65

Growth
There are some benefits to being smaller.  This has allowed COP to grow fast and over the last 5 years they have seen 21.1% growth.  CVX takes second with a dismal negative 1%.  XOM has had negative 3.2% over the same time and takes last place.

I am still working on learning trend lines in Excel.  2011-2012 were the tops with earnings in 2013 and the past twelve months staying steady.  The only bad year was 2008, the Great Recession, and only for COP.  The other 2 behemoths were able to weather the storm.


Quality
Again CVX shines on this as it ranked 39 companies ahead of XOM and 43 ahead of COP.  I would have expected COP to be last because of its size and cash flow.  XOM on the other had has tons of free cash but ranks very close to COP regarding quality.   XOM's high P/B is the primary driver behind the ranking.  From this perspective you would prefer CVX on dips and get more bang for your buck as the 2 have very close Debt-to-Equity ratios.

Company
MRQ Price/Book
Debt/Equity
CVX
1.47
0.15
XOM
2.23
0.12
COP
1.71
0.38

Yield
One of the more important factors for dividend investors.  This has been fluctuating quite a bit lately for oil companies.  If you were lucky you bought in the October dips and are starting off with a nice entry yield.  I look at the 5 year growth rate mainly because I look at all Champions, Contenders and Challengers.  I would prefer 10 year metric but that would weed out some good potential growth companies.

COP has been affected more by the recent swings.  I get alerts on dip sent to my phone and the texts pile up on it more than the other 2.  It's high yield and double digit growth rate over the past 5 years puts it at the top.  We will see if COP can continue the growth over the long haul.  CVX and XOM are very respectable as well.  I plan on holding all three companies eventually.

Company
Dividend Yield
5 Year Dividend Growth Rate
COP
3.82%
13.3%
CVX
3.59%
9.0%
XOM
2.93%
9.7

All the payout ratios are well below the 75% guideline pretty much every dividend investor uses.  The guideline helps us to determine if there is enough cash to cover the dividend and how likely it is to be cut (no cash).  Morningstar where I get allot of good information didn't have a payout ratio for COP for 2008 thus the dip down to 0 that year.  Being a smaller company it is still investing heavily and hasn't built up the cash reserves that the other two have.

Had problems with this chart on Excel Online so it is just an image.


News
I did a quick scan in my ShareBuilder account to check the news on all three companies.  All the news was centered around the cost of oil per barrel.  At this time I am not worried about the price.  Oil and gas are not a renewable resources so companies in this area will remain profitable until an alternate energy source overtakes them.  That might not be for decades so for now I am okay with the news.

The Winner
The final votes are in and the winner is COP.  Yes that was surprising to me as well.  I do not put a weight on yield but I think it played an important part in the overall score.  Since I already own COP I may look at the other two on dips as they are all good companies to own.  

Any of these on your radar this month?

Company
Overall Rank
COP
11
CVX
26
XOM
50

Full Disclosure: Long on COP

On a side note I have started using royalty free clip-art.


Thursday, November 6, 2014

October 2014 Budget



I always look forward to this bi-annual event of 3 paychecks in one month.  My last one was in May.  Overall it wasn't a bad month.  I did come in a little over budget (about $608.95 to be exact).  There was one of those unexpected expenses that come out of nowhere.  My wife's 2006 minivan wouldn't accelerate.  Allot of things with houses and cars seem to break in the fall with the first cold spell.  This car repair was costly.  What am I talking about all car repairs these days are costly.  If it didn't happen I would have stayed within my budget.  Oh well.  I save for car expenses so when these things happen I do not go further into debt.

Expense Breakdown
Overall things are pretty much the same.  You will see the percentage increase a lot for cars (like 11%).  Most other categories were pretty much in line with the previous.  I spent a little more on food.  I made a onetime purchase of about $60 worth of grass fed ground beef.  It was on sale so I stocked up on it and froze it.  I like the taste of it and as a plus less e-coli and no antibiotics in it.




Miscellaneous
Childcare was down from the previous month.  We are still potty training both our youngest.  I expect this to drop significantly once I no longer have to buy diapers/training pants for 2 kids.

Household was up for the month.  Time is valuable and I spend most of my fall days out blowing or raking leaves.  That would take 2-3 hours each time.  My wife and I finally agreed to purchase a backpack blower off of Amazon.  I have been saving my Amazon points for some time now so I was able to reduce the cost by a couple hundred bucks.  Now I am able to do my entire yard in 1 hour.  It is even a little fun.  Oh the large leaf piles I can make for the kids to jump in.

Personal care was double from last month.  It was haircut time for me and the kids.  That trip cost me $42.  I should go back to just shaving my kids heads myself.  Who needs style right?

Clothing.  I bought a few work shirts on TJ Maxx's clearance rack for $12 apiece.  These are normally $50 shirts each.  I can't remember the last time I bought clothing at full price.  That will be it for a while as I don't wear out shirts as fast as pants or shoes.

This month was worth noting healthcare costs (again).  This was all related to a touch up to my Lasik surgery I had done earlier this year.  That surgery is being covered by my HSA but I am paying for the meds out of pocket.  Also I bought a pair of glasses for driving at night/in the rain.  There is glare at night so my doctor gave me a prescription for that.

Expense
Amount
Childcare
$53.78
Household
$337.46
Personal Care
$112.66
Clothing
$41.05
Healthcare
$192.46

Guilt Free Spending Money
I do not have a formal budget item any longer for this but I still track it.  GFSM came in at twice what I spent last month.  Eating out 8 times and my Amazon Prime membership fee where the big ones in this category.  That eating out 8 times wasn't all eating out.  I am now moving my wife's chocolate habit ($70) out of food and into this category.  I don't really consider junk food a need but more of a want.  It keeps her happy and since she has no income I don't mind treating her to it.

Investments
Everything was reinvested automatically except for my dividends from Windstream.  I talk a little about it in my dividend post.

Savings
The money I have left over from my 3rd paycheck I haven't decided what to do with yet.  Since things are tight and I don't expect any extra income for the rest of the year it will probably go into the Christmas fund.  It will be a slimmer year for the kids compared to last but that is not the point of the holidays.  Good lesson for the kids I think.

Savings rate for the Month = 33%!

Not bad for a guy with a wife and 4 kids, house, cars, etc.  Hope you did as well or better!


Image By Mister GC and courtesy of www.FreeDigitalPhotos.net

October 2014 Dividends


Macro of US QuartersOne of those odd months where I had more dividend come in my smaller taxable account vs. my IR. Here is a quick breakdown. The biggest company being Windstream where I have a large percentage of it in my taxable portfolio. I did switch this dividend to not be automatically reinvested. Instead it went to cash and I used it along with my remaining cash to purchase shares of MCD when it had a good dip this month. I haven't written about McDonald's yet but there are plenty of articles already out there on it.

I did not have a goal for total dividends set for this year since this is the first year I am actively investing in a dividend portfolio. Regardless I am doing quite well with $627.62 of income from my taxed account. This is light-year's past my total dividends from last year. The IRA is doing better at $1,168 but if I were to lose my job or retire early that income doesn't do me much good until I can withdrawal it penalty free.

What was your best buy this month on the market dip?

Full Disclosure: Long on MCD



Thursday, October 30, 2014

Recent Buy in IBM


clip_image001There have been so many articles flying around about IBM and whether it is sinking or swimming. So I read all of those and then started looking at the numbers. They look good to me so I initiated my first position in IBM and picked up a small number of shares.

Even with recent price declines the price is up there. I caught it at $163.79. It has dropped a little bit since then which makes me a little sad. What makes me not sad is the history of the great company.

The dividend contender has been raising dividends at least back to 1995 for a run of 19 years. That has averaged a dividend growth rate of 19.4% over the past 10 years and it is slowing down over time. The current year is only 12.1% which is still double digit growth that easily keeps up with inflation. 


They are pretty far down my ranking system coming in at #192. Mostly from the value at the time I put it together with September information. That was back when the price was $189. The big thing that caused the high ranking is its quality. This seems to be mostly the reason why they are going through all this restructuring to reduce debt and generate higher profits. I usually don't invest in a company with a TTM Price/Book ratio of 10.92 and such a high debt to equity ratio of 2.67. I would prefer P/B of 1 and D/E ratio of 1 as well.

However with plenty of room in the payout ratio and upwards of $13 Billion in free cash flow I think they will adjust to the next era of technology and services and keep on paying that lovely dividend.


Full Disclosure: Long on IBM

Saturday, October 25, 2014

If I Had Never Had to Pay into Social Security or Medicare?

Paying into Medicare and Social Security is always a hot topic. I always wonder if I had been able to invest all the money I have put into the systems over the past 20 years of my working life what it would amount to. Let's take a look at what I will have collected or earned by investing if I live until the ripe old age of 90.
If for some reason I want to wait until I was 70 before starting to collect it looks like I could pull in $3,323 a month. Collecting that for 20 years (until 90) would equal $773,520 collected over my old man life time. Keeping it simple I am not factoring taxes that I would have to pay on this income or inflation adjustments. Over the past 20 years myself and my employers have put a total of $180,047 into the Social Security and Medicare systems. Wouldn't that be nice if the companies I worked for would have just given me this money and I could invest it as I please.
For this scenario I am going to just take the latest Champions average dividend yield of 2.65% and an average price of $64 with a 10 year dividend growth rate average of 7.9%. I also threw in a low average stock price growth of 5%. Now taking the 180K now I would have 30 years until I am 70 to reinvest dividends Punching that into the handy dandy dividend reinvestment calculator let's see what we get.
clip_image001
Now let's take that total value with dividends reinvested and punch that in. This time I am going to collect those dividends and live off of them kinda like if I was living off of social security. Will those dividends total more than $773,520 over 20 years of retirement?
clip_image002
Pretty close with total dividends paid of $616,257. Is this better? Well if I could live off of the reduced income it sure is. When you pass away your social security benefits don't pass on to your kids. The big pyramid scheme just passes them on to the next retiree in the system. Having the money as my own I would be able to gift a large sum of over 2 million dollars to my kids.
There is risk in both scenarios. Social Security could be nonexistent or very limited in another 30 years. On the other end investing is always a risk. But diversifying in over 100 companies would certainly help to minimize that risk. The upside is you are in control and as long as you manage your portfolio the dividends will keep rolling in.
Have a good weekend!
Do you think Social Security will be around for our kids or will the government get it together?








Saturday, October 18, 2014

529 College Plan vs. Dividend Stocks


One of the things you get back after reaching financial independence is your time.  You wake up in the morning and your time is yours.  No having to go to work where your time becomes theirs (someone is telling you what to do.)  Like yesterday.  It had been a long week and I was tired.  Back when I was in college if I were tired I would go and take a nap and refresh myself.  Today, no way.  Gotta get that work done so the company can make more money.  The fact that my time was not my own and I couldn't decide what was best for me really irked me.  It also cause some dividend thoughts to pop into my head.

Several good bloggers write about time so it got me thinking about my son.  He started his freshman year in high school this year and I realized how little time I have spent with him recently and even over the years.  I am comparing my time to that of my wife who got to stay home and raise all of our great kids.  I am jealous (except for when they are not listening) and would like to spend more time with them.  By the time I reach FI they will be grown up and I will have missed their childhood.  Weekends are my time with them.  The company even tried to get people to voluntarily come in Sunday to work a full day.  I made my excuses and got out of it but not sure how long that will last.

This is where my dividend thoughts started to occur.  I remembered my son has a 529 College savings plan.  A 529 plan allows the investment to grow taxed deferred and withdrawals are tax free as long as they are used to pay for college in the state you have the plan in.  I haven't touched it in a decade and don't even know how it is doing.   In taking a look it has roughly doubled in size in 10 years.  This includes the Great Recession.  The portfolio is laid out like this:

Fund
Percentage of Portfolio
Vanguard 500 Index
68%
Vanguard Extended Market Index
17%
Vanguard Developed Markets International Stock Index
15%

I think my original percentages were 70/15/15.  I would seem Extended Index has been doing well over the years and chewed away at the 500 Index fund.  I could rebalance but for now I am ok with it and will leave it as is.  The less you touch the less fees they charge.

Now would this investment have done any better just being allocated to dividend stocks of my choosing with no management fees over 10 years except for the initial broker fee to purchase them?  I chose two companies that have been on my mind recently that I don't own yet, McDonalds and Johnson & Johnson. 

Image courtesy of Morningstar.com



Would you look a MCD go.  Wow 5x growth.  So if a decade ago I had put all my son's money into MCD it would have quintupled (yes I had to look that up)!  I am assuming Morningstar.com factors in the dividends in the growth over time as well as stock valuation.  Of course you should never sink all of your money (or your kids) into one stock.  Looking at JNJ it still did better than the 529 portfolio.  A $10,000 investment almost climbed up to $30k in those 10 years.  Now I am guessing this doesn't include taxes paid each year so it is similar to the growth of the 529 plans.

Conclusion 
If I had taken more time to learn about investing a decade ago my son's savings may have more than doubled.  To put my son's savings into good solid blue chip dividend payers he would probably be sitting on a large nest egg for college.  Would the tax free withdrawal for college outweigh the growth of individual stocks?  Probably on JNJ it would balance out for a kid who has little to no income (less taxes).  ForMCD you would still come out ahead. 

As always the key is to find the blend of dividend companies that are still growing and pay an ever increasing dividend.  The fees the 529 plan charges every year whittle away at the funds and spreading your investments across too many companies does seem to lessen the growth.  This seems like a good topic for another day. 


As an investor would you put your money in a 529?

Full Disclosure: Long on the 529 plan but do not own MCD or JNJ

Sunday, October 12, 2014

Automatic Investment Blunder or Benefit

Usually this post is about recent purchases.  I had more than I expected thanks to a blunder on my part.  With ShareBuilder they have these automatic investment plans.  Depending on what schedule you have selected it will purchase your plan that Tuesday.  Unfortunately I had it set to When funds are available.  So my plan kept an eye on my balance and kept on purchasing until I caught it.  Nothing like an email while you're at work that you just purchased more stocks you never intended to buy at an unknown price.  I had to wait until I was out of a meeting then raced back to my desk and secretly logged into my account to see what was going on.  Needless to say it is now turned off.  What did I get (twice)?  Well let's take a look.

Date
Company
Shares
Price
Entry Yield
9/23
NUS
11.8624
42.15
3.3%
9/23
HMN
17.2117
29.05
3.17%
9/30
NUS
11.1023
44.68
3.1%
9/30
HMN
17.2473
28.99
3.17%

Nu Skin Enterprises Inc. (NUS)
Nu Skin, founded in 1984,  is a direct selling company of personal care products and falls in the Consumer Defensive sector of the market.  They are branding themselves as an anti-aging company and are based out of Utah.  Companies like this develop products to help reduce the effects of age on skin and  pharmaceuticals to promote prolonging your life.  My wife doesn't use any of these products yet but I know allot of women who do.  Surprisingly allot of their revenue comes from China.  They are in 53 markets worldwide and recently declared a dividend of $.345 per share.  I just missed the Ex-Div date of September 12.

Key Statistics
I must have used my August ranking to find this gem as I didn't do one at all for September.  Wow did that month fly by.  They were ranked 4 out of the triple C companies (Champions, Contenders and Challengers).  My focus is on purchasing companies that have consistently increased dividends.  The U.S Dividend Champions spreadsheet is my starting point in my ranking system.  They are a dividend Contender having increased dividends for 14 years.

Value Rank
Growth Rank
Quality Rank
Yield Rank
Overall Score
TTM Payout Ratio
9
17
179
30
235
25.6

A low P/E ratio (currently at 9.03) was the key driver for the Value Rank.  The yield at both times of purchase was 3% or above.   Growth has been very good at 42% over the past 5 years.  This and growing EPS each year helped it get up to #17 in the growth category.  EPS may dip this year compared to last year unless there is a big surprise.  Prior to this year though EPS climbed each year since 2006.  This dip is one of the reasons for the today's price.  I was able to get this company at yields above 3%.  It has been trending upward the past few weeks so the yield is again below 3%.  It has been one of the few stocks gaining in the past few weeks.  The growth rate of the dividend over the past 5 years has been excellent.  With a low payout ratio I see growth continuing (but maybe not at 22% like the past). 


Nu Skin Wrap-up
The drop in the stock price this year is due to a lawsuit that very well may kick them out of China.  Like I said above China is a pretty big chunk of their revenue thus why I did not want to invest too much.  This double purchase has me slightly worried so I will have to keep an eye on their free cash flow and the outcome of this lawsuit.  Prior to this year they had quite a bit of cash but over the past twelve it is negative.

Horace Mann Educators Corp.
Back in August HMN was reviewed.  They ranked 1 above on my ranking system.  Entry yield was above 3% and the other key ratios still looked good at the time of purchase.  Looking at it today P/E is at 11.4 which is way below the 20 for  me to consider.  Neither Morningstar or ShareBuilder had enough information for me to figure out the free cash flow.  Yahoo shows $120M TTM leveraged free cash flow.  They are still doing well so I am OK with the double purchase here.

Value Rank
Growth Rank
Quality Rank
Yield Rank
Overall Score
TTM Payout Ratio
35
92
20
45
192
33.6

Conclusion
Overall I am happy with the investments into these companies.  Caught HMN slightly lower on the second buy.  Both of the purchases were both above my entry yield of 3%.  My only worry is the lawsuit that may affect dealings in China for Nu Skin.  But without that lawsuit NUS may never have gotten onto my radar.  I must admit researching companies is allot more time consuming that I originally thought.  I can see why most people go for funds.  I enjoy the research but wish I had more time to dig deeper and gain a better understanding of the qualitative factors.


Good purchase on NUS?  What do you all think?

Full Disclosure: Long on NUS and HMN