5 US Stocks for High Dividend Growth

Summary

  • Some investors maybe worried about interest rate hikes.
  • Lower-yielding companies with estimated high earnings growth will likely be less affected by interest rate hikes compared to high-yielders.
  • These 5 companies could help complement the blue chip dividend payers in a dividend growth portfolio.

With the interest rate hike matter looming, investors might opt to look for investments which pay a lower yield, but have higher expected earnings growth rates.

If you’re looking for total return in investments and are not concerned about the immediate dividend income, here are 5 businesses for consideration. They are all expected to grow earnings at a rate of 10% or higher per year in the near future.

I placed them from lowest expected earnings growth to highest, assuming it’s easier to achieve lower growth than higher. So the companies appearing first are more likely to achieve their expected earnings growth. Additionally, they’re all expected to grow dividends at least 10% per year in the foreseeable future.

  1. Enbridge Inc (TSX:ENB)(NYSE:ENB) with 3% yield and 10-12% expected earnings growth.
  2. Gilead Sciences, Inc. (NASDAQ:GILD) with 1.5% yield and 11% estimated earnings growth.
  3. Union Pacific Corporation (NYSE:UNP) with 2.1% yield and 11% estimated earnings growth.
  4. Johnson Controls Inc (NYSE:JCI) with 2% yield and 12% expected earnings growth.
  5. Cummins Inc. (NYSE:CMI) with 2.2% yield and 15% estimated earnings growth.

To learn more about each of these companies, check out the Seeking Alpha article at 5 Dividend Companies With 10-15% Growth.

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Growth Has Finally Dawned On IBM As It Continues To Transform

I recently took another look at International Business Machines Corp. (NYSE:IBM). Some people thinks it’s done for as after it reached a high of $215 in 2013, it has since gone down to the $150 area and now it’s back up to the $170 area. Is IBM still a valid investment?

Here’s why I believe IBM is turning a new leaf with proof of growth.

Summary

  1. IBM is transforming its business, just like its many enterprise clients who want to extract value with new technologies such as the cloud, Big Data, analytics, social, and mobile.
  2. IBM is innovating, moving towards high value products and services, as well as developing open ecosystems and forming strategic partnerships with leading companies including Apple, Facebook, Twitter, SAP, and Tencent.
  3. Other than its Hybrid Cloud, IBM’s customizable POWER microprocessor, and Watson Analytics are also showing promising growth potential.
  4. The company is undervalued and at a high yield of 3%, its shares are attractive.

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Canadian Monthly Dividend Stocks for April 2015

Dividend stocks are attractive because they pay an income no matter what the market is doing. It’s true that some dividend stocks cut their dividends in harsh times. So, having a diversified portfolio of high quality dividend stocks will mitigate the risk of dividend cuts, and dividends received from the portfolio as a whole could even increase every year.

The index fund, iShares S&P/TSX 60 Index Fund (TSE:XIU) pays out a yield of 2.6%. Here are some monthly dividend stocks that you can consider. They pay 73% to 150% more than the index fund, respectively.

Vermilion Energy is the Best Amongst its Peers

Vermilion-Energy-logo

When thinking of Energy companies, companies like Suncor Energy, Enbridge, TransCanada, and Canadian Natural Resources come to mind. However, smaller mid cap companies can provide higher growth potential than large cap companies, and at the same time, are more established and stable than small cap companies.

Vermilion Energy Inc. (TSX:VET)(NYSE:VET) is a mid core energy company that is the best of its kind. Essentially, it is a blended play of value and growth. Vermilion Energy is diversified globally with leading positions in high netback businesses in North America, Europe, and Australia.

Vermilion Energy started investing in the Corrib natural gas project in Ireland since 2009. Finally, the capital expenditure spent will start paying off, as the project comes online in mid 2015. It will add to the company’s overall production growth as well as its cash flow.

Since 2003, Vermilion Energy has paid a reliable dividend, not having to cut it once. It yields 4.5%, and pays out a monthly dividend of $0.215 per share.

Further, Vermilion Energy has a record of creating shareholder value.

Value creation record of Vermilion Energy

Source: Vermilion Energy Investor Presentation – April 2015

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Handling the Risks of Investing in Stocks: Part 2

Summary

  • Buying stocks is a risk and reward game. We try to maximize the rewards and minimize the risks.
  • In the first part of the series, I discussed the risk of capital loss and volatility risk which come from investing in stocks, and ways to counter those risks.
  • In this part of the series, I’ll discuss valuation risk, the risk of market crashes, and individual risks.

Read part 1 of the article.

3. Valuation Risk

No matter investing for growth or income, overpaying for a company will not only reduce your returns but also increase your risk.

For example, during the internet bubble, Cisco Systems, Inc. (NASDAQ:CSCO) reached an all-time-high of $79. The price of buying at extreme overvaluation is an inevitable hard crash. To this day, it hasn’t come near that price.

graph showing Cisco's overvaluation in the internet bubble

Cisco was extremely overvalued in the internet bubble.

To counter valuation risk:

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Handling The Risks Of Investing In Stocks: Part 1

Summary

  • Buying stocks is a risk and reward game. We try to maximize the rewards and minimize the risks.
  • In the first part of the series, I’ll start by discussing the risk of capital loss and volatility risk which come from investing in stocks. And ways to counter those risks.

If I’m not better off investing in a stock, why bother the time, effort, and the cost of capital? I have the opportunity cost of not being able to use that money, while I’m holding that stock.

1. Risk of Capital Loss

Stocks on major exchanges can be bought and sold easily. However, the flip side of this liquidity is that it’s also very easy to sell at a loss. Some make a better investor in real estate because it is less liquid, even though one usually needs to get a mortgage to buy a house because the investment is much bigger.

When investing in a stock, there’s a chance that the company could go bankrupt. However, the odds are in the investor’s favor if he or she invests only in companies whose rewards outweigh the risks. So, the more likely scenario is to sell at a loss emotionally after the price of the stock goes down.

If that happens, then, you need to ask yourself why you sold at a loss. Did you no longer believe in the company you chose? Did something change from the story of when you made your purchase? Or was it due to emotion?

To counter the risk of capital loss:

  • Record why you bought the company in the first place.
  • If it’s for a short-term trade, decide the holding period and at what price range you plan to sell. Do that ahead of time without emotions.
  • Know thyself. That is, know your temperament, risk level, time horizon, experience, and test the waters if you have to.
  • Buy at reasonable valuations.
  • Have an investing plan and update the plan as you go.

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Morningstar Individual Investor Conference this Saturday

If you didn’t know already, Morningstar’s Individual Investor Conference is coming soon. The live online conference starts at 9 a.m. Central Daylight Time. Topics covered include:

  • Making Money Last in Retirement
  • Model Portfolios for Retirement Savers
  • a couple sessions on funds
  • Morningstar’s Dividend Playbook

To see a summary of what each of the above sessions is about, check out the agenda page.
If you’re interested, you can still register at http://register.webcastgroup.com/L4/?wid=05795010620

Canadian Dividend Stocks to Buy Now: March 2015

Dividend stocks are attractive because they pay an income whether the market is going up, sideways, or even going down. Here are some dividend stocks which you can consider. The stocks I’m about to mention pays 115% to 165% more income than the index iShares S&P/TSX 60 Index Fund (TSE:XIU), which pays out a yield of 2.6%.

High Dividend Canadian Companies

This list shows the current yields, and I believe are good starting yields to start buying into these companies if they are a fit for your portfolio.

Buy Northern Property REIT for Income and Capital Gains

Northern Property REIT logo

Northern Property REIT (TSX:NPR.UN) is a real estate investment trust which owns housing properties, such as rental apartments and town homes. It collects rent from a diversified portfolio of properties located across seven provinces in Canada.

Northern Property REIT has paid a monthly distribution for 12 years and have never reduced it. So income investors can have a peace of mind owning it for current income. Right now, it pays a monthly distribution of $0.1358 per unit with a yield of 6.9%.

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Stay the Course: See Compounding Results in the Early Years of a Dividend Growth Strategy

Summary

  • I’m in my late twenties, and in the early years of my compounding journey with my dividend growth portfolio.
  • How do I stay the course in being invested and receiving a growing income while the market goes up and down everyday?
  • I have 2 spreadsheets to track my growing dividends. One for the anticipated dividends and another for the actual dividends received.

In the first 10 years, it’s hard to notice the effects of compounding. However, after that, it really starts to take off. A dividend growth portfolio could eventually run itself without you having to contribute new money if you employ an income growth strategy. That’s why it’s time in the market that matters. Time and the rate of compounding is what makes compounding work. Of course, contributing as much as you can regularly to the portfolio and buying what’s priced at a value matters just as much.

How I Stay the Course in the Early Years of Compounding

When I started using the dividend growth investing strategy, I didn’t expect it to be so slow in showing results. For example, on a given day, I only receive a $10 dividend pay check. I soon forget about it because it’s so small! You don’t feel the compounding until a decade down the road.
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Why Warren Buffett Sold Exxon Mobil And Bought Suncor Energy

Summary

  • Berkshire Hathaway sold out of its stakes in Exxon Mobil and ConocoPhillips.
  • And added more shares of Suncor Energy.
  • Reason 1: US dollar to the Canadian dollar is at decade’s low.
  • Reason 2: The Canadian Dollar is correlated to the oil price.
  • Reason 3: Suncor Energy is a quality company priced at a value.

Overview

Berkshire Hathaway (NYSE:BRK.A) (NYSE:BRK.B) reported its Q4 2014 moves. It sold out of its stakes in Exxon Mobil (NYSE:XOM) and ConocoPhillips (NYSE:COP). However, it added mores shares of Suncor Energy (NYSE:SU).

Some Reasons Why Mr. Buffett sold some US big oil companies but bought Suncor Energy

Reason 1: US dollar to 1 Canadian dollar is at Decade’s Low

It currently takes ~$0.80 USD to exchange for ~$1 CAD, which is at the decade’s low. That means, around this exchange rate, Berkshire Hathaway would have bought the Suncor Energy shares at a 20% discount based on the foreign exchange rate alone.

Reason 2: Canadian dollar is Correlated to the Oil Price

The oil price’s lowest points were in 2009 and the present day, which matches the low points of the Canadian dollar compared to the US dollar historically. So, there’s a correlation between the oil price and the Canadian dollar. Low oil price implies low Canadian dollar in comparison to the US dollar, and vice versa. If one believes, oil price will head higher again, then one should also believe the Canadian dollar will head higher again.
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