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Norman Tweed's  Instablog

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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  • Church & Dwight: Consumer Staples With A High Dividend Growth Rate

    I have followed the consumer staples sector for over 35 years and have owned Procter & Gamble (NYSE:PG) that long. Church & Dwight (NYSE:CHD) is in the same sector, but with an $11.15 Billion market cap. In this sector, it behaves like a mid cap stock. A good testimonial to it was written by Eli Inkrot who has thoroughly researched it. In his article he finds a 20% total return annually for the past 10 years. This compares favorably with my TweedFactor of +17.14. The P/E ratio is 28.57, while the forward P/E is 24.01. It is expensive with a 9.52% earnings per share growth rate for the next 5 years. However, as Eli stated in his article:

    " Based on that $1.7 billion in sales in 2005, Church & Dwight earned about $123 million - for a net profit margin of 7.1%. If the profit margin were to remain constant, you would see total earnings growth equal to total sales growth. Yet this was not the case with Church & Dwight. By 2014 the company was earning $414 million for a net profit margin of 12.6%. Due to a sizable uptick in profitability, total earnings for the company grew by about 14.4% per year. This first change - greatly improved margins - seemingly explains a good deal of the overall investment growth."

    I found out with Procter & Gamble back in 1980 that strong consumer staples companies demand a premium. In the long run this affects P/E multiple with consistent earnings beats.

    (click to enlarge)

    As can be seen from the price chart, growth is high. It has paused temporarily this year. The dividend growth has followed the price with a 40.1% 5yr dividend growth rate. This high growth rate has allowed it to maintain a 1.57% yield on the higher price. My price target is $89.33 showing an upside of 4.9% in the short term. I like the fact that the stock has paused and provided an entry point.

    Oct 04 10:34 AM | Link | Comment!
  • Caterpillar: The Cyclical Stock At The Bottom Of The Cycle

    Caterpillar (NYSE:CAT) is an international industrial machinery company which has been severely affected by the global downturn. The linked article by Cabot sheds some light on this situation. Mining and commodity businesses are bottoming globally as demand for commodities continues to fall to new lows. Much of this is due to the oil and gas demand cycle and strong pullback in oil and gas prices over the last year. Drilling and exploration are contracting as the glut of oil and gas continues. I believe this is the time to begin purchasing a position in CAT due to the great P/E ratio of 11.27 and forward P/E of 14.68. Since it is a leading cyclical company globally, when it turns back up-- so will the global economy. Earnings per share have grown 32.7% annually over the past 5 years while sales have grown at an annual rate of 11.2%. Earnings per share are projected to grow at 12.5% annually over the next 5 years. Due to this strong earnings growth the dividend has remained high and growing with a current yield of 4.69% with a payout ratio of 48.4%. The 5yr dividend growth rate is 9.1%. CAT is a Dividend Contender with 22 years of rising dividends. The TweedFactor is +2.

    (click to enlarge)

    Caterpillar is taking advantage of the cyclical downturn in the global economy to restructure its business. This is a trying time for employees with announced layoffs of 10,000 job cuts. However, the time for restructuring is during global pullback.

    I purchased CAT in 2012 at $90 and have watched it bob up and down around that level until today where it has hit $65.70. I consider it to be a strong buy at this level similar to the bottom of the last business cycle in 2009. My shares have grown 2% since my purchase, just reinvesting the dividends. Locking in a near 5% yield with a dividend growth rate of 9% seems like a great long-term investment to me.

    Oct 04 7:59 AM | Link | 4 Comments
  • Can Altria (MO) Provide Good Long Term Returns?

    I have watched Phillip Morris (NYSE:MO) since I first heard their ads on radio in the 1950s.

    "Call for Phillip Morrisss" was an add showing sophistication in the smoker back then. For many decades the stock provided high dividends and price appreciation as well as jobs for many people. As a result, the stock price and dividend yield grew continuously, providing capital to purchase other companies including Kraft. In 2008, the company spun off its international business as Phillip Morris International (NYSE:PM) as well as Kraft. The remaining company had just the domestic cigarette sales + 27% of SAB Miller (OTCPK:OTCPK:SBMRY, OTCPK:OTCPK:SBMRF) . There is the possibility of the acquisition of SAB Miller by Anheuser-Busch Inbev (NYSE:BUD) which can be read about here in an article by Seeking Early Retirement.

    A recent chart of MO over the last 8 years shows its continued price appreciation.

    (click to enlarge)

    It still provides a high yield and continuous appreciation. This stock is a Dividend Champion having raised its dividend each year for the past 46 years. The current yield is 4.12% with a 5yr dividend growth rate of 8.6%. The P/E ratio is 21.6 which makes it expensive. It is also highly leveraged with a debt/equity ratio of 5.01. This year's earnings growth rate is projected to be 13.3% with the next 5 years growth rate of 8.47%. With an 80% payout ratio, it is clear that the dividend is important to the company. There has been quite a bit of anti smoking agitation of the last 20 years and much in the way of law suits for wrongful death of smokers. One must be realistic if purchasing a "sin stock".

    However, if one feels that the strong returns override the negative factors, MO is still a great long-term buy providing solid returns.

    Oct 04 5:10 AM | Link | 2 Comments
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