I was working on a few metrics on well known DGI stocks and decided to publish a couple of thoughts here in my blog. Basically, I picked several stocks that are all around articles in the income & dividend section. I picked 12 stocks that were chosen in several articles as the most favored by various contributors. These are... XOM, CVX, MCD, KMB, KO, PG, JNJ, PEP, SO, CL, GIS, O. I wrote about O in a previous instablog so I'm excluding it from this analysis. Also, this stock requires a different set of metrics because REITs are valued in terms of funds from operations and not earnings.
The first metric that I wanted to analyze is the payout ratio. I had an idea about the dividend coverage but I didn't imagine that some of these companies were paying almost 100% of earnings.
The next metric I chose was Price to Earnings Ratio. Anything above 18 is a bit frothy in my opinion. 5 of these stocks are trading above 25x earnings.
One of the qualities that DGI authors always point out is the potential these stocks have for reliable dividend growth. This is in fact true, as shown below.
Now for the tricky part. Earnings don't follow this trend, not even close actually.
I prepared a spreadsheet with the compound annual growth rate for both earnings and dividend growth. Here's what I found...
|DIV CAGR||EPS CAGR||(b - a)|
Dividends have increased at an astonishing pace, however, earnings per share are - in some cases - negative. The period is 2010-2015 (6 years), and I used the current trailing twelve months earnings as an estimate for year end 2015. This may prove to be a little too optimistic, with corporate earnings suffering due to dollar strength and other circumstances.
I didn't devote plenty of time to this analysis, it's more of a "share as I think" kind of thing. If there are any factual errors, I kindly urge the reader to point them out.
In my opinion this seems like a perfect storm. Chase for yield + high payouts + declining earnings + interest rate risk = Be careful.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.