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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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  • Business Cycle
    1. The drawing below depicts timing of investment during the business cycle.
    2. Timing is based on the Federal Reserve interest rate for Fed Funds.
    3. It demonstrates sector rotation.
    Jan 06 10:57 AM | Link | 27 Comments
  • Buy Church & Dwight (CHD) @ $39.46

    Church & Dwight (CHD) is a consumer staples company, which makes various household products, including toothpastes, toothbrushes, condoms, and home pregnancy test kits and Arm & Hammer Baking Soda. They are well known around the world. They have a market Cap of $6.45B, a trailing p/e of 23.08 and a forward p/e of 18.8. Although they are slightly expensive at the current price of $44.94, CHD has been below $38 in 2011 and started the year at $34.51. CHD pays a 1.5% dividend yield, but the 5-yr dividend growth rate is 20.9%, with last year's dividend growth rate at 34.8%. This is a growth play in the next 2 years and could provide capital appreciation, similar to this year's 30%. Since 2000, price appreciation has averaged 20% per year. The projected 5-yr earnings per share growth rate is 18.1% (First Call).

     

    CHD earnings per share

    Year

    $2.18

    2011

    $2.39

    2012

    $2.61

    2013

    This stock showed great price resiliency during the Great Recession, with a 22% drop peak to trough. The low yield is compensated for by strong dividend growth rate and good price appreciation. The payout ratio is only 22%, due to the high growth rate of this mid-cap company. CHD has only 33.3% debt to total assets ratio. This stock should not be considered part of a core income portfolio, due to the low yield, but should be used to build up capital. Total mid-cap stocks in my portfolio are 30%.  

    Oct 15 3:13 PM | Link | Comment!
  • Buy Watsco (WSO) @ $57

     Have you ever wondered who made the repair parts for your air conditioner or other heating system? Chances are it is Watsco (WSO). Founded in 1945, this company exports parts to Latin America and the Caribbean and supplies 36 states and Puerto Rico. With the economy about to take a down turn, this is a short term play for growth and a longer term play for dividend growth investment.

     

    From the growth standpoint, the earnings per share are projected to grow from $2.86 in 2011 to 3.36 in 2012 and $4.00 in 2013. This will provide a 17.48% earnings per share growth rate next year and 19% the year after that. There is only 38.2% debt to total assets and a 3.8% dividend yield. This Dividend Contender has 10 years on increasing dividends and a 5-yr dividend growth rate of 26.9% and 35.2% for the 10 year dividend growth rate. The current p/e of 22.4 is more than justified by the combination of the 5-yr dividend growth rate and the nearly 4% yield.

     

    The stock is a cyclical stock and when the business cycle ends, it drops. The 5-yr earnings per share growth rate is -9%.

     

    WSCO earnings per share

    Year

    $2.86

    2011

    $3.36

    2012

    $4.00

    2013

    Tags: WSO
    Oct 15 11:01 AM | Link | Comment!
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