Nestle S.A. (NSRGY) provides nutrition, health, and wellness products worldwide. The company is a member of the international dividend achievers index, as it has managed to increase dividends every year since 1996. In addition to that, Nestle recently sold its majority stake in Alcon (ACL), which has enabled it to pursue a massive stock buyback strategy.
Main competitors behind Nestle include Kraft Foods (KFT) and General Mills (GIS).
US investors can purchase the ADR’s of Nestle, which are traded on the pink sheets under symbol NSRGY. (or NSRGY.PK at yahoo finance). The fact that this company is traded on the pink sheets, rather than NYSE, NASDAQ or AMEX should not scare potential investors. Nestle is a global blue chip, based in Switzerland, which has not only managed to increase earnings over the past decade, but also to share the wealth with shareholders in the form of increased dividends and consistent share buybacks.
Over the past decade this dividend stock has delivered a total return of 8.60% per year.
Since 2001, Nestle has managed to increase earnings per share in Swiss Franks by 7.60% per year. The consistent stock buybacks, where the company has spent 39 billion CHF since 2005, have also aided EPS growth.
Dividends per share in local currency have increased by 12.50% per year since 2001, which was higher than the growth in EPS. The main reason behind this faster growth in distributions was the expansion of the dividend payout ratio. The dividend is paid annually, as opposed to the quarterly schedule that US companies tend to follow for distribution payments. The latest dividend increase was announced in February 2011, when distributions were increased to $1.85 CHF ($1.96/share).
Over the past decade the dividend payout ratio has expanded to over 50%. A lower payout is always a plus, since it leaves room for consistent dividend growth minimizing the impact of short-term fluctuations in earnings.
The company has been able to generate strong organic growth in key areas such as North America, Europe and Asia through several factors. Some of them include product innovation, leveraging the company’s global scale, investing in building and maintaining the company’s strong brand positions worldwide. The company has 29 billionaire brands, which have delivered strong organic growth over the past few years as well. Nestle’s long term goal is to generate 5% - 6% in annual organic sales growth, achieve sustainable improvement in EBIT and improving the trend in return on investment capital.
I own shares of Nestle. I would much rather own Nestle than Kraft (KFT) for example. I like the strong brands in the company's portfolio ( Purina is one of them). The food business is not a sexy growth business, but with the right strategy focusing on squeezing efficiencies across your value chain, expanding through innovation and strategic acquisitions, and buying back stock the company should be on track to meet its goals.
The company fits my entry criteria with its P/E of 10.90, yield of 3.20%, and with its sustainable distribution. I have recently added to my position in the stock.
Full disclosure: Long NSRGY
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I consider myself a fairly frugal person. I like cutting recurring expenses, which is why I drive a ten year old car and only have a discounted cell phone with the lowest plan possible. Saving money and investing in quality dividend stocks is just one of the strategies I utilize to increase my dividend income. Cutting expenses however can only go so far however. That’s why generating extra income is so important to me. Besides the dividend income from my portfolio, I often look for brokerage deals in order to find brokerage bonuses or free trades. I also like teaching young people how to save and invest for their future. [more]
Three consistent dividend stocks raised distributions over the past week. I define consistent dividend payers as companies which have raised dividends for at least five years in a row. These companies merit further research by dividend investors. However, I only intend to purchase stock in companies which have consistently raised dividends for at least one decade. The companies which announced dividend increases last week include: [more]
The Clorox Company (CLX) engages in the production, marketing, and sales of consumer products in the United States and internationally. The company operates through four segments: Cleaning, Lifestyle, Household, and International. The company is a dividend aristocrat which has increased distributions for 33 years in a row. The most recent dividend increase was in January, when the Board of Directors approved a 6.40% increase to 25 cents/share. The major competitors of Clorox include Procter & Gamble (PG), Colgate-Palmolive (CL) and Church & Dwight (CHD).
Over the past decade this dividend stock has delivered an annualized total return of 8.60% to its loyal shareholders.
The company has managed to deliver an impressive increase in EPS of 13.50% per year since 2001. Analysts expect Clorox to earn $3.95 per share in 2011 and $4.43 per share in 2012. This would be a nice increase from the $4.24/share the company earned in 2010. The company has managed to decrease the number of shares outstanding by 6.70% per year over the past decade through share buybacks, which has aided earnings per share growth.
In 2007 the company introduced its Centennial Strategy where the company is focused on achieving double-digit annual growth in economic profit. A key driver of the strategy is to accelerate sales by growing existing brands, including expanding into adjacent categories, entering new sales channels and increasing penetration within existing countries. The company also anticipates using its strong cash flow to pursue growth opportunities and increase shareholder returns. For an update on the results from the strategy, check thispress release.
Basically the company will try to deliver further growth through an ongoing focus on consumer megatrends. In addition to that the company will be targeting a 2% sales growth through product innovation. The company projects sales growth of 3-5 percent, excluding acquisitions and expansion into new geographies through 2013. Last but not least Clorox will target margin expansion and maximizing cash flow through implementation a continued robust cost-saving program and maintaining price increases the company has taken.
The return on assets has largely remained above 11% since 2003. I used return on assets, since the stockholders equity portion of the balance sheet was negative after in 2004 Clorox exchanged its ownership in a subsidiary for approximately 29% of the company’s outstanding shares at the time of this transaction.
The annual dividend payment has increased by 10.10% per year since 2001, which is lower than the growth in EPS.
A 10% growth in distributions translates into the dividend payment doubling every 7 years. If we look at historical data, going as far back as 1983, we see that Clorox has indeed managed to double its dividendevery seven years on average.
Over the past decade the dividend payout ratio has remained below 50% for a majority of the time with the exception of a brief period in 2001 and 2002. A lower payout is always a plus, since it leaves room for consistent dividend growth minimizing the impact of short-term fluctuations in earnings.
Currently Clorox is trading at 16.80 times earnings, yields 3.20% and has a sustainable dividend payout. The stock meets my entry criteria, and I will look forward to adding to my existing position in it.
Full Disclosure: Long CLX [more]
There are millions of baby boomers retiring and needing financial advice. I expect them to use financial advice from certified planners, which would pre-sell open and closed-end funds and other financial products. While I am a big fan of dividend investing in retirement, I understand that most investors would probably end up relying on the four percent rule. Once a product has been sold to investors, it creates a recurring income stream to the provider of funds. [more]
Back at the end of 2010, several investment bloggers invited me to a stock picking competition. Each one had to select four stock picks which they expect to perform well in 2011. The four picks that I selected were alldividend growth stocks. The companies I selected include Philip Morris International (PM), Johnson & Johnson (JNJ), Procter & Gamble (PG) and PepsiCo (PEP). You could read the reasoning behind selecting these stocks in this article.
Below you could find a brief overview of each of the four stock picks: [more]
For your weekend reading pleasure, the articles listed below contain some of the best dividend and value investing insights found on the web. They were written by various members of the Dividend Investing and Value Network over the past week:
Articles From DIV-Net Members [more]
Investors typically make money when the assets they own increase in value and/or when the assets they own deliver dividend, interest or rental income. When combined, income and price returns results in the total returns equation. One asset that has generated positive total returns every year since 2000 is gold. Investors who bet on the yellow metal have generated 17.70% annual returns over that period. Right now the precious metal is hitting all-time highs, as many investors expect that the amount of monetary stimulus by the Federal Reserve would create massive inflation in the US. This speculative frenzy is catching up quickly, as investors bid up gold through one of the many vehicles available to dabble – gold etfs, gold futures, physical gold etc. For example, one of the largest ETF's in the US with over 50 billion in assets is SPDR Gold Shares (GLD), which allows investors to easily gain exposure to gold.
In reality however, there are very few reasons to own gold, besides the expectations that it would hit some magical high point because the imaginary printing press of the FED would create massive inflation. Gold is typically perceived as a store of value and as a sort of international currency. When discussing gold investment returns however, it is obvious that years of great returns are followed by years of poor returns. It is important not to make conclusions based off a limited number of data sets exactly for this reason. Investors who chase gold higher, touting its investment performance over the past decade, should not ignore the fact that investors who purchased gold 30 years ago would have made only a 75% return. An investment in Treasury Bills or Certificates of Deposit would have outperformed the yellow metal over the same time period. So much for gold being a store of value. However, if we extend the investment horizon to include the past 36 years, we would notice that gold produced very decent returns overall.
So besides the fact that prices might go higher because of the imaginary FED printing press, why would investors want to buy gold? It is not a store of value, as its purchasing power has has been known to decrease over some periods of time ( such as the past 30 years for example). Gold is a decent store of wealth to hold on to during wars, persecutions and other unpleasant situations. However, unlike oil, there is no real economic reason to own the metal. Every year companies mine gold, create gold bars and coins, which are then stored at vaults. In the words of famous investor Warren Buffett “[Gold] gets dug out of the ground in Africa, or someplace. Then we melt it down, dig another hole, bury it again and pay people to stand around guarding it. It has no utility. Anyone watching from Mars would be scratching their head.”
In addition to that investors who own gold, end up paying up either for storage and insurance, or management fees if they invest through a gold ETF. Gold does not produce any income, which is ironic since it is touted as a stable currency. Every currency, stable or not could generate some sort of income return over a period of time, except gold. That’s why gold is particularly unfit for those who want to live off their assets. It is true that investors could sell a chunk of their gold each year in order to meet their expenses, but this would leave investors with a diminishing amount of gold. The rate of decrease of the amount of gold holdings in your portfolio would depend on the fluctuations in the commodity markets, which have been analyzed for centuries by market technicians, astrologists without any breakthrough as to where the prices will go next. To most dividend investors, owning gold doesn’t make much sense, since it is not an asset that produces income or generates any profit or economic/social gain to society. Owning gold makes as much sense as stocking up on toothpaste and calling yourself a toothpaste investor. I would much rather own an asset that not only could generate potential capital gains for me but also pays me to hold it. Dividend stocks are one such asset. Thebest dividend stocks have strong competitive advantages, which allow the companies to pass any cost increases to consumers, which lets them increase profits over time. This leads to a higher dividend payment over time as well, which provides an inflation adjusted stream of income. In other words, investors in dividend stocks would not have to sell off their holdings, in order to meet expenses. They could just pick the right dividend stocks, create a diversified dividend machine, and live off dividends. Some of the best dividend stocks that I focus on are great inflation hedges, as their dividend and earnings have grown at or above the rate of inflation over time. They produce real goods or services, that provide value to their users, who are willing to pay the right price for quality. I do not recommend purchasing Tylenol or Gillette products as an investment. I would much rather own the companies that produce those everyday products, and profit along the way.
The companies I have in mind include:
Kinder Morgan Energy Partners, L.P. (KMP) owns and manages energy transportation and storage assets. This master limited partnership has managed to boost distributions for 15 consecutive years. Yield: 6.20% (analysis)
National Retail Properties, Inc. (NNN) is a publicly owned equity real estate investment trust. The firm acquires, owns, manages, and develops retail properties in the United States. It has managed to boost distributions for 21 years in a row. Yield: 6.10% (analysis)
Philip Morris International Inc. (PM) , through its subsidiaries, engages in the manufacture and sale of cigarettes and other tobacco products in markets outside of the United States. The company has managed to raise dividends every year since it its spin off from Altria (MO) in 2008. Yield: 4% (analysis)
The Procter & Gamble Company (PG) provides consumer packaged goods in the United States and internationally. The company operates in three global business units (GBUs): Beauty and Grooming, Health and Well-Being, and Household Care. This dividend king has managed to increase dividends for 54 years in a row. The company keeps raising distributions like clockwork, as evidenced by the latest dividend hike of 9.50% in April 2010. Yield: 3.20% (analysis)
Johnson & Johnson (JNJ) engages in the research and development, manufacture, and sale of various products in the health care field worldwide. The company operates in three segments: Consumer, Pharmaceutical, and Medical Devices and Diagnostics. This dividend aristocrat has managed to boost distributions for 48 years in a row. Yield: 3.70% (analysis)
The Coca-Cola Company (KO) manufactures, distributes, and markets nonalcoholic beverage concentrates and syrups worldwide. This dividend aristocrat has increased dividends for 49 consecutive years. Yield: 3% (analysis)
Sysco Corporation (SYY), through its subsidiaries, markets and distributes a range of food and related products primarily to the foodservice industry in the United States. This dividend champion has raised dividends for 41 years in a row. Yield: 3.70% (analysis)
Full Disclosure: Long all companies mentioned above. I don't own any gold.
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