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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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  • Dominion Resources: Will Natural Gas E&P Make This Stock A Winner For Retirees?

    I signed on with Virginia Electric & Power Company back in 1967, fresh out of Engineering School. It was a regulated utility which provided electric power and distributed natural gas. This company became Dominion Resources (D) and grew. During my career (closing in 2000 with retirement) I saw the natural gas portion of the company morph into one of the largest oil and natural gas exploration and production companies in the country with an export terminal at Cove Point. They also operate one of the nation's largest natural gas storage systems. An excellent overview of the company is presented by Investing Insights: Dominion well positioned to outperform. After this cold winter, it appears that energy has become a prominent global commodity and there is a large differential in pricing between the United States and Europe. In fact, there is geopolitical action in Ukraine over the price of gas and source, especially Russia's pipeline through that country.

    During my career, I raised a family and saved for retirement through the Dominion Resources thrift plan, which started as company stock purchases and company match and morphed into a 401k plan by the time I retired. It was important for me to invest as much as possible each month into the company savings plan and company pension plan. The 401k allowed us to have other investments including an S&P 500 Index mutual fund in addition to Dominion stock. However, with the .com bust beginning as I retired, the S&P 500 (SPY) suffered a major pullback. Dominion had a much less pronounced drop, being a utility.

    (click to enlarge)

    I sold a few shares of Dominion during those rough days of early retirement (2000-2003) since both of my children had just married and needed all the help I could give them due to the economic downturn. As you can see from the chart above, the Great recession of 2008 also sank the S&P 500, but once again Dominion held up rather well. I bet my retirement on D stock and Pension and they came through for me twice! Now there is a speculative air about the stock based on global conditions, including climate change. I have always looked at Dominion as a dividend growth stock and will present my analysis here:

    (click to enlarge)

    As you can see Dominion has increased in price from $30 to the current level of $71.09. The forward P/E ratio is 18.98, while the price/book ratio is 3.54. The current yield is 3.38% and it is a Dividend Contender with 11 years of increasing dividends.

    StockDate of reinvestDiv Rate# SharesDividendDrip price# Shares purTotal ValueCurrent Yield
    Totals  408.42$3,733.99 78.42  
             
     02/26/14$0.60404.94$242.96$69.763.48$28,491.603.44%
     12/04/13$0.56401.42$226.00$64.133.52$25,968.823.51%
     09/04/13$0.56397.53$223.81$57.623.88$23,129.603.91%
     05/05/13$0.56393.47$221.52$54.564.06$21,689.344.13%
     02/26/13$0.56389.50$219.29$55.283.97$21,751.124.07%
     11/28/12$0.53385.48$203.15$50.434.03$19,642.734.18%
     08/29/12$0.53381.67$201.52$52.973.80$20,418.693.99%
     05/30/12$0.53377.83$199.49$51.863.85$19,793.514.07%
    D02/29/12$0.53373.91$197.43$50.473.91$19,068.854.18%
     11/30/11$0.49370.38$182.60$51.623.54$19,301.423.82%
     08/24/11$0.49366.73$180.80$49.583.65$18,363.263.98%
     05/25/11$0.49362.94$178.93$47.183.79$17,302.314.18%
     03/02/11$0.49358.99$176.98$44.793.95$16,255.964.40%
     11/24/10$0.46355.12$162.64$42.033.87$15,088.184.36%
     08/25/10$0.46351.39$160.94$43.153.73$15,323.264.25%
     05/26/10$0.46347.26$159.05$38.564.12$13,549.474.75%
     02/24/10$0.46343.18$157.18$38.534.08$13,380.004.75%
     11/25/09$0.44339.14$148.54$36.784.04$12,622.254.76%
     08/26/09$0.44334.77$146.63$33.494.38$11,357.935.23%
     05/27/09$0.44330.00$144.54$30.334.77$10,153.445.78%

    As can be seen from the spreadsheet, an investment of $10,000 on 5/27/2009 with dividend reinvestment would have grown to $28,491 today. This is 23% annual growth.

    (click to enlarge)

    Is it overvalued? I continue to reinvest in it and note that the forward P/E is 18.98. With the run up of 9.89% so far this year, I believe there is speculation about the proposed MLP spin off and export of natural gas to Europe affecting the price. I have always dripped this stock through good times and bad and only sold shares when my family needed the money.

    Conclusion: Dominion Resources is a strong contender in the oil and gas business with regulated electric and gas utilities on the side. This has been an extremely cold winter and natural gas in storage has come down considerably from normal levels. There is global pressure for increased use of natural gas to limit climate change as well as provide heat and energy for industry. This stock is a continuing buy for retirees, like myself.

    Disclosure: I am long D, SPY.

    Mar 30 3:41 AM | Link | 4 Comments
  • Interest Rate Environment 2013-2023

    Samuel Clemens said "History doesn't repeat itself, but it does rhyme". Doesn't it seem uncanny that in the aftermath of the Great Recession, we find political economics to appear similar to the prelude to World War II? I believe this phenomenon is related to the Generations as defined by Strauss & Howe.

    In the middle of last year (2013), the Federal Reserve mentioned tapering of its bond buying program and immediately, the 10 year treasury bond interest rate rose from its low of 1.61% to over 2%, culminating in 3% by the end of the year. When this abrupt change occurred, high-yield stocks and REITs dropped in price anticipating a loss of spread between what they could borrow at and what they could make purchasing assets. This was similar to 1941 when the 10 year bond rate bottomed. After that the next 10 years saw a range-bound 10 year treasury bond interest rate of ~2.5%. During this time there was a considerable need for government financing of World War II and its aftermath. I contend that we are seeing the same process today.

    (click to enlarge)

    10 year treasuries 1926-2011

    (click to enlarge)

    (click to enlarge)

    With this benign setting, I believe REITs and other high-yield instruments will prosper at least until 2017. The spread will be reduced as the Fed finishes tapering and begins to raise the short term Fed Funds rate, but even that will be a slow process. I will maintain 25% allocation to bond-like investments that pay high-yield during this period. This will counteract the gyrations of War talk and economic collapse of emerging markets.

    Disclosure: I am long AGNC, MTGE, LNCO.

    Mar 24 10:16 AM | Link | 6 Comments
  • Trade In Intel For Qualcomm

    Back in 2011, I purchased Intel (INTC) for it's yield + dividend growth rate and wrote this article at the time of that purchase Three Dividend Stocks selected by Gordon Model. Since that time Intel has been cyclical and continued to raise the dividend although at a receding pace. This past summer, they missed the dividend increase. I purchased INTC for growth of a 4% yield which seems to have come to an end.

    (click to enlarge)

    Recently, I have read disturbing facts about their mobile chips here losing out to competitors, such as Qualcomm (QCOM). Today I read Qualcomm's growing Dividend and decided to run a dividend growth study for that stock. From David Fish's CCC charts, I find that QCOM has a P/E of 18.99 and a yield of 1.89%. The 5-yr dividend growth rate is 16%, while 5-yr earnings per share growth rate is 16.7%. The Tweed Factor is -1.1~ a buy. It appears from the Qualcomm's growing Dividend article that the company is proposing to "increase the dividend by more than it's earnings growth". The fact that Qualcomm is the leader in mobile communications makes the income stream fairly steady. Let's look at the stock price for the past 5 years:

    (click to enlarge)

    It appears to be growing steadily with a rapid rebound after the dip in mid 2010. Next, lets look at the dividend growth study.

    StockDate of reinvestDiv Rate# SharesDividendDrip price# Shares purTotal ValueCurrent Yield
    Totals  320.23$1,388.19 26.23  
     11/27/13$0.35318.71$111.55$73.561.52$23,555.781.90%
     08/30/13$0.35317.03$110.96$66.281.67$21,124.032.11%
     06/03/13$0.35315.29$110.35$63.231.75$20,046.112.21%
     03/06/13$0.25314.11$78.53$66.671.18$21,020.361.50%
     12/05/12$0.25312.88$78.22$63.631.23$19,986.931.57%
     09/05/12$0.25311.60$77.90$60.681.28$18,985.711.65%
     05/30/12$0.25310.25$77.56$57.451.35$17,901.341.74%
     02/29/12$0.22309.18$66.47$62.181.07$19,291.261.38%
     11/21/11$0.22307.96$66.21$54.271.22$16,779.171.58%
     08/24/11$0.22306.58$65.92$47.931.38$14,760.501.79%
    QCOM05/25/11$0.22305.43$65.67$56.991.15$17,472.241.51%
     02/23/11$0.19304.42$57.84$57.011.01$17,412.681.33%
     11/22/10$0.19303.21$57.61$47.621.21$14,496.361.60%
     08/25/10$0.19301.72$57.33$38.461.49$11,661.371.98%
     05/26/10$0.19300.08$57.02$34.881.63$10,523.892.18%
     02/24/10$0.17298.74$50.79$37.871.34$11,364.121.80%
     11/23/09$0.17297.63$50.60$45.551.11$13,607.671.49%
     08/26/09$0.17296.57$50.42$47.531.06$14,146.381.43%
     05/27/09$0.17295.39$50.22$42.431.18$12,583.461.60%
     02/25/09$0.16294.00$47.04$33.931.39$10,022.461.89%

    It can be seen that a hypothetical investment of $10,000 on February 25, 2009 would have grown to $23,555 by November 2013 with the dividends reinvested for a total return of 18.6% per year. It should be noted how well the dividend held up through this capital growth. I have graphed the results below to make this more clear:

    (click to enlarge)

    Conclusion: I like what I see in QCOM and will trade my position in INTC for QCOM immediately.

    One should perform their own due diligence before making any investment.

    Disclosure: I am long INTC, .

    Additional disclosure: I have an order out to sell INTC and buy QCOM.

    Jan 07 3:20 AM | Link | 3 Comments
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