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I’m glad you’ve stopped by; I’m Mike aka The Dividend Guy. I’m the guy behind this blog since 2010. But wait… this blog has been around since 2005… Yup, I like dividend investing so much that I bought another’s guy’s blog to continue his work in teaching and helping investors buy dividend stocks... More
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  • Top Tech Dividend Stock, Apple Or Microsoft?

    It's not always obvious that a dividend portfolio should include technology stocks but over time, that reality has been changing. Not only are some tech stocks becoming more mature but compared to many other industries, they offer more opportunities for growth. They have very solid balance sheets and have been increasingly willing to pay back shareholders in the forms of dividends. In many ways, several tech names are becoming modern name "utility" companies that are able to generate consistent revenues and profits every year.

    Ten years ago, it might have made sense to ignore tech stocks but I'd argue that these days it would be a big mistake to do so. It's likely that you'll be adding more than one name but today I wanted to focus on the two tech giants: Apple (NASDAQ:AAPL) and Microsoft (NASDAQ:MSFT).

    Dividend History

    According to my 7 investing principles, I'd prefer holding a stock that has been paying dividends for over a decade over one that just recently paid out its first dividend. In this case, I don't feel like it's as much of a factor though. Apple has made significant leadership changes (Steve Jobs to Tim Cook as CEO) and has been much more open about dealing with its huge cash reserves. That has resulted in a dividend and stock buybacks which I expect will continue for some time.

    (click to enlarge)

    A more serious concern however is Apple's rather low payout. I generally do not consider stocks that pay below 2% in my dividend portfolios but I tend to think Apple might be able to overcome this. Of course, a big reason why the yield is so small is the fact that Apple pays out a much smaller % of its earnings to investors resulting in a smaller yield than the overall market:

    (click to enlarge)

    If Apple can continue to increase the portion that it pays out, it should be able to get closer to Microsoft's yield. I don't see any viable reason why that would not happen. Yes, much of Apple's cash is stuck abroad but Apple is in the process of raising debt and will end up paying less than its interest rate. Needless to say, Apple should be able to keep up and improve that payout.

    Business Metrics

    Of course, as I always mention, dividend yield is an important metric for stock selection but it is just one metric. When investing with a long term horizon, the most important is trying to determine if they'll be able to continue paying and even increase that payout over time. I'll of course look at their business and positioning but first let's look at some numbers:

    (click to enlarge)

    Both companies have extremely strong profiles. Very little debt, etc.

    Business Environment

    It becomes very interesting when you start to compare Microsoft and Apple. They are both "tech ecosystems" but have very different business models.

    Microsoft has and continues to be all about software. It has the leading operating system (Windows) and productivity tools (Office) from which it's able to generate billions of dollars every quarter. It has used that money to build other businesses such as its Cloud-based Azure & Skydrive, the xBox and its web portals. It seems to be moving towards this new era of cloud computing at an impressive pace since Satya Nadella was named as CEO with innovation in terms of both consumer and enterprise products, an alliance with Dropbox, etc.. While Microsoft is not nearly as well positioned in the emerging mobile space, it has such a strong position in the pc space that it basically continues to enjoy being the only option for most businesses. Microsoft's future mostly depends on its ability to succeed in mobile, how it will adapt to a new cloud-based world, and the continued dominance of Windows.

    Apple on the other hand has been able to emerge as a dominant player in the smartphone market. It's easy to think that Apple is always one flop away from big trouble but I think that after successfully launching the iPod, iPhone, iPad, AppleTV, Apple Pay, it's safe to assume that Apple has to some extent mastered these launches.It has been focused on building an ecosystem that offers digital goods, payments, app stores, etc. Apple is rumoured to be working on other types of products such as smart TV's and will also be building on top of new infrastructures such as HealthKit, HomeKit and CarPlay. I also love how the company has positioned itself as an ecosystem where software and hardware developers launch products on iTunes, for HealthKit, HomeKit, etc.

    Both players are extremely well positioned and while you could make it the case for the demise of either, I'd argue that one is not significantly bigger than the other at this point.

    The Decision

    In the end, I started this research thinking I'd absolutely needed to pick one of the two but after analysis, I think that bigger portfolios should include both. They are fairly different plays on technology and if tech is the new "utility" then it becomes critical to include such names in any diversified portfolio. To be fair, many dividend portfolios have fewer names and in that case, I think I'd decide in the following way:

    -for a portfolio focused on growth in income & overall value, I'd go with Apple which has more upside but also more overall volatility

    -for a portfolio focused on current income, I think Microsoft is the clear pick

    Disclosure: The author is long AAPL.

    Tags: MSFT, AAPL
    Nov 14 11:22 AM | Link | Comment!
  • High Dividend Growth Stocks - 18 Dividend Stocks for Further Consideration

    If someone held a gun to your head and told you to choose one of two stocks: the one with the high dividend yield or the high dividend growth rate, which one would you choose?

     

    I am assuming that most people reading articles on SeekingAlpha would answer with the later.  The dividend growth is more important than high yield over the long term as those compounding dividend payments really add up.

     

    That being said, I am always on the lookout for interesting dividend growth stock opportunities to consider.  My philosophy is that since I have my overall allocation built up (still some work to do on the fixed income front), and the foundation set with a series of low cost index ETFs I am able to add the best dividend stocks to my portfolio.

     

    Dividend Stock Screening

     

    I have a screening tool that I like to use, and have set up a specific dividend stock screen that looks for undervalued stocks using a dividend yield approach.  With this method, I can find higher yielding stocks with some basic fundamental requirements that have been met.

     

    The screen requirements I have set up in this particular screen are as follows:

    1. Exchange = Not Over the Counter
    2. Price >= 0
    3. Dividend yield in year 7 is greater than 0
    4. Dividend in each of the past 7 years is higher than the year before (i.e consistent dividend growth)
    5. 7-year dividend growth rate >= 15%
    6. Current yield >= Average yield in past 7 years
    7. EPS 3-year growth is better than industry average EPS
    8. Not an ADR stock

     

    This particular screen is primarily focused on finding dividend growth stocks that are showing as undervalued based on the dividend-yield methodology.  In addition, it weeds out some of the crap by looking for companies whose 3 year EPS growth rate is better than the industry average for that company.

     

    The Dividend Screen Results

     

    Dividend Growth Screen

     

    Quick Analysis

     

    An interesting group of stocks, with some I have heard of and some I never have.  I have recently been analysing Stryker Corp. and Walgreen.  It is interesting that Lowe's is as its competitor, Home Depot, has not been performing very well as of late.  Home Depot used to be consider a strong dividend growth stock but that is no longer.  

     

    Summary

     

    The stocks, and other stocks that can be generated from any stock screen tool available on the web, can create a great list of stocks for consideration.  Go out and give them a try and identify stocks that you feel are worthy of further consideration.




    Disclosure: Long TLM
    Tags: XTO, SYK, LOW, EOG, CHRW, FDS, ATR, EXPD, LPHI, ROL, TLM, WAG, DFG, HCC, RLI, OZRK, SFG
    Dec 04 11:00 AM | Link | Comment!
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