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We have been through turbulent times since Ben Bernanke started talking about tapering Fed long-term bond purchases (including Treasuries and MBS). The 10-year Treasury bond interest rate has risen over 100 basis points to 2.72% since May 2, 2013. This rapid increase has caused calamity in high-yield dividend stocks and MLPs [my choices in these sectors are American Capital Agency Corp (NASDAQ:AGNC), American Capital Mortgage Investment Corp. (NASDAQ:MTGE) and Linn Co., LLC (NASDAQ:LNCO)]. With this in mind, I have decided to change the sector that I am buying to consumer cyclical, which tends to do well in a rising interest rate environment. My choice in that sector has been Ross Stores Inc. (NASDAQ:ROST) as detailed in this article. Recently, Ross had its first-quarter earnings conference call. It is a fast-growing company perfect for the present economy of low wages and slowly growing employment.

The stock chart for ROST is quite impressive for a dividend growth stock (Data from Yahoo Finance & David Fish's CCC charts):

(click to enlarge)

I will concentrate on the last 5 years:

(click to enlarge)

As can be seen from the 5-year chart, ROST has leveled off recently around $65. The current P/E is 18.03. The current yield is 1.13%, while the 5-year dividend growth rate is 27.3%. Ross has 19 years of consecutive dividend increases, but the stock price appreciation keeps the yield around the 1% level. I have updated my dividend growth study for the period 2008-2013:

Stock Date of reinvest Div Rate # Shares Dividend Drip price # Shares pur Total Value Current Yield
Totals 515.81 $730.97 266.81
06/07/13 $0.17 514.47 $87.46 $64.87 1.35 $33,460.80 1.05%
02/20/13 $0.17 512.98 $87.21 $58.70 1.49 $30,199.10 1.16%
12/03/12 $0.14 511.71 $71.64 $56.37 1.27 $28,916.65 0.99%
08/29/12 $0.14 510.69 $71.50 $69.98 1.02 $35,809.36 0.80%
06/01/12 $0.14 509.53 $71.33 $61.59 1.16 $31,453.20 0.91%
02/15/12 $0.14 508.14 $71.14 $51.23 1.39 $26,103.15 1.09%
12/16/11 $0.00 254.07 2/1 split $47.00 254.07 $23,882.58 0.00%
11/25/11 $0.11 253.74 $27.91 $85.43 .33 $21,705.04 0.52%
08/31/11 $0.11 253.38 $27.87 $76.55 .36 $19,423.91 0.57%
ROST 06/03/11 $0.11 253.03 $27.83 $79.11 .35 $20,044.68 0.56%
02/16/11 $0.11 252.63 $27.79 $71.16 .39 $18,005.30 0.62%
12/03/10 $0.08 252.33 $20.19 $65.13 .31 $16,454.12 0.49%
08/31/10 $0.08 251.92 $20.15 $49.63 .41 $12,522.89 0.64%
06/03/10 $0.08 251.56 $20.12 $56.19 .36 $14,155.33 0.57%
02/17/10 $0.08 251.13 $20.09 $47.09 .43 $11,846.00 0.68%
12/04/09 $0.06 250.82 $13.79 $43.63 .32 $10,956.98 0.50%
09/01/09 $0.06 250.51 $13.78 $45.22 .30 $11,341.99 0.49%
06/04/09 $0.06 250.16 $13.76 $39.13 .35 $9,802.59 0.56%
02/18/09 $0.06 249.71 $13.73 $30.16 .46 $7,544.88 0.73%
12/08/08 $0.05 249.29 $11.84 $28.76 .41 $7,181.55 0.66%
09/03/08 $0.05 249.00 $11.83 $40.15 .29 $10,009.18 0.47%

I have graphed the data from the table above; note the 2/1 stock split on 12/16/2011:

(click to enlarge)

It can be seen from the table that the value of a $10k investment with dividends reinvested rose to $33,460.80 for a total return of 334.6% or 27.3% per year. Ross stores is a long-term holding and the price is volatile as can be seen from the chart. However, in times such as these with global turmoil and even gold dropping along with global bonds and high-yield dividend stocks, I feel that adding to the consumer cyclical sector is the least risky investment that I can make presently.

Conclusion: When there is a turning point in Fed policy, one must take heed or fight the Fed. I have chosen to invest future dividends in Ross Stores for its growth potential. There will be sector rotation in the future and high-yield stocks will come back in favor when the long-term interest rate stops rising. It's time to take a breather and buy some clothes.

Source: Ross Stores - A Stock For Tapering