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Norman Tweed
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Retiree interested in stocks and financial instruments, especially dividend producing stocks. In the 20th century, I was an electrical engineer with Dominion Resources. I use a dividend growth investment style. Quick rules of thumb for complex questions, like fair value p/e using the Gordon... More
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  • Cummins Just Raised Their Dividend 25% Is It A Buy Now?

    I have watched Cummins (NYSE:CMI) for the past several years, waiting for a pull back. It appears that this is the year.

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    Having just raised their dividend by 25% to $.975/quarter it now sports a yield of 3%. It can be seen from the FAST graph in Eric Landis's linked article that there is a considerable undervaluation at the present price. In my own valuation using the Tweedfactor there is current value of +22.57 which shows a strong buy. The high dividend growth rate (30.3% 5yr) is what sets it apart from its competitors such as Caterpillar (NYSE:CAT). CMI is a very low leveraged company with a debt/equity ratio of .22. The forward P/E ratio is 11.8. The earnings per share growth rate for the next 5 years is 11.23%. The return on equity is 21.9%.

    For a highly positive take on CMI prospects, this article by Arie Goren shows an upside to $158 (21.7%). He also points out that they produce natural gas engines and clean fuel efficient diesels. This latter point is crucial to meeting EPA and National Highway Traffic Safety Administration standards for on-highway tractors, vocational vehicles, trailers and heavy-duty pickup trucks and vans.

    If one needs industrial exposure in their portfolio, now is the time to buy CMI.

    Tags: CMI, industrials
    Jul 18 9:40 AM | Link | 10 Comments
  • Main Street Capital Corporation A Safer BDC To Hold

    My daughter's Courier Business is in need of safe cash investments to handle normal cash flow from operations. I have recommended a portfolio of dividend growth stocks covering the 11 GICS sectors. At present she is investing in the first round of filling these 11 sectors with equal weighted monthly investments. The easiest way to do this is to invest in one stock each month to fill the first round by the end of a year. There are many pitfalls in a small transportation business including truck repairs and unexpected expenses. Therefore, a regular monthly investment is not guaranteed.

    In the financial sector, I personally have invested in Prospect Capital (NASDAQ:PSEC) and have noticed the ups and downs of the entire sector and the dividend cuts that many BDCs have had over the past year. For her portfolio, I recommended a safer BDC which is a member of David Fish's Dividend Challengers: Main Street Capital (NYSE:MAIN). It has 5 years of increasing dividends with a current yield of 6.44% and a 5 yr dividend growth rate of 5.9% providing a TweedFactor (yield + dividend growth rate) of 12.34. The current P/E ratio is 13.47 which provides a -1.13 TweedFactor. However, Main Street Capital has semiannual special dividends that they regularly add during the year to maintain their status as a BDC. Their payout ratio is 83.1%.

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    An excellent comparison of MAIN with other BDCs is presented by BDC Buzz in his article Main Street Capital Continues To Outperform All Other BDCs. He points out that capital preservation and dividend coverage are key to BDC performance.

    The debt/equity ratio is .6 which gives this stock room to add more debt for investment. The maximum debt to equity ratio that a BDC can have is 1/1 and still comply with that corporate structure requirements. They also must payout 90% of earnings in dividends. Year to date, the stock is up 11.46% while the other stocks in the sector have fallen, especially those that cut dividends.

    During this flat year for the S&P 500, dividend paying stocks provide some return. However, safety of principal is paramount.

    Tags: MAIN, BDCs
    Jun 27 5:27 AM | Link | 7 Comments
  • Triangle Capital (TCAP) My New BDC

    Last year about this time I wrote PSEC Is The BDC For Me. At the time, (NASDAQ:PSEC) had a good yield of 12.58% and a low divided growth rate. The expected annual growth of the stock was 15.7% including dividends. However, I could not see the future with the oil market collapse. Prospect Capital had about 5% of it's assets in energy related stocks, but it behaved like a high risk upstream oil MLP such as (NASDAQ:LINE). It proceeded to drop like a stone with those oil stocks.

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    After they cut the dividend in January by 25% to $.0833/month the stock price followed it down to maintain the near 13% yield and closed Friday June 5, 2015 at $7.60. I had been watching it drop during the fall and decided to look for another BDC to fill its place. I had found out about high management fees of PSEC along the way and decided a lower yield, higher total return BDC would be better for sustaining my 5% portfolio yield. I add dividend income to the BDC each month as other portfolio members pay. It appeared the Triangle Capital (NYSE:TCAP) a Dividend Challenger with 8 years of increasing dividends would be acceptable.

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    This stock pays 9.59% yield with a forward P/E of 10.77. The 5 year dividend growth rate is15.5% and the TweedFactor is +5.71. It too is highly leveraged for a BDC with a debt to equity ratio of .9. However, it will provide less risk of a dividend cut and the price is less volatile then PSEC. It also approximates the Mid Cap index fund (MUTF:VIMAX) to which I am moving my portfolio benchmark.

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    Conclusion: During this transition year commemorating the 70th anniversary of victory in World War II, the market has been extremely volatile with a total gain for the S&P 500 of 2.08%. My portfolio has made 2.09% while the VIMAX has produced 4.61%. I believe we will see a slow increase in the 10 year treasury bond interest rate (TNX) to 2.5% from the 2.4% it has reached so far. This year is similar to 2013 and it appears that interest rate sensitive financial stocks like or financial sector ETFs like (NYSEARCA:VFH) are in for a better second half of the year.

    I have not sold PSEC, but will reinvest those dividends in my new BDC TCAP. My current portfolio yield is 5.38% and I am on track to maintain a 5%+ portfolio yield despite the dividend cuts in LNCO, PSEC, AGNC, and MTGE so far this year. Diversification is the name of the game during volatile times!

    Jun 06 9:42 AM | Link | 9 Comments
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  • Dividends posted from T & VZ. Bought $CMCSA @ $58.41. It may go down from here and I'll buy more.
    May 5, 2015
  • I had a limit order in for $CMCSA at $52. It is on a tear and I raised it to $59.47. Dollar cost averaging into the position.
    Feb 15, 2015
  • Agnc dividend received. Placed limit order for $PSEC @ $8.33 for 12% yield. Dollar cost averaging into position.
    Feb 7, 2015
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