Income investors looking for high yields should consider Master Limited Partnerships, or MLPs for short. These companies widely have high yields above 5%. But investors should not be solely focused on yield alone—it is even more important to invest in the highest-quality companies with secure payouts.
Investors want to avoid investing in companies that cut their distributions. Instead, income investors should stick to companies that have the ability to raise their payouts on a regular basis.
For example, Enterprise Products Partners (EPD) has a 6% yield, and more importantly has a very secure distribution. The payout is more than covered by the company’s strong cash flow, and future growth will allow Enterprise Products to continue raising its dividend each year.
Enterprise Products Partners is the largest energy Master Limited Partnership (MLP), based on market capitalization of $63 billion. It is a midstream MLP, with services including storage and transportation of oil and gas. Enterprise Products Partners has $57 billion of assets at the end of 2018. Its assets include approximately 50,000 miles of pipelines, 260 million barrels of storage capacity for NGL (Natural Gas Liquids), crude oil, and other refined products; and 14 billion cubic feet of natural gas storage capacity. It also had 26 natural gas processing plants, and 23 fractionators.
The company’s strong assets have fueled excellent financial results in the past several quarters. In the 2018 fourth quarter, revenue of $9.2 billion increased 9% from the year-ago quarter, primarily due to strong volume growth. In 2018, liquid pipeline volumes increased 9%, natural gas pipeline volumes increased 12%, marine terminal volumes increased 12%, NGL fractionation volumes increased 14%, and propylene plant production volumes increased 23%. Distributable cash flow increased 29% for the fourth quarter and 33% for the full year.
Last year was a record-setter for Enterprise Products in many ways. The partnership established 23 operational and financial records in 2018. The company got off to an equally strong start in the 2019 first quarter. Distributable cash flow increased 18% in the first quarter to another company record of $1.6 billion, while EBITDA also surged by 17% to $1.63 billion. Meanwhile, gross operating margin overcame headwinds from the temporary closure of the Houston Ship Channel to gain 35% year-over-year. These strong results were largely driven by record volumes in its crude marine terminals and continued robust growth in crude volumes from the Permian Basin (expected to reach 700k bbl/day in 2019).
As an oil and gas transportation and storage company, Enterprise Products’ growth relies upon higher demand for its existing assets, as well as new projects. The company has a large project portfolio to fuel the future including the Mentone cryogenic natural gas processing plant in Texas, which will have the capacity to process 300 million cubic feet per day of natural gas and extract more than 40,000 barrels per day of natural gas liquids. The facility is expected to begin service in the first quarter of 2020. Another important project expected to begin service that year is the Shin Oak NGL Pipeline, which will have total capacity of 600,000 barrels per day.
Separately, Enterprise Products will benefit immensely from exports of natural resources to other countries, particularly in high-growth emerging markets in Asia. Demand for liquefied petroleum gas and liquefied natural gas is growing across the world, particularly in the emerging markets where populations are rising and economies are expanding rapidly. Enterprise Products’ total crude oil, NGL, petrochemical, and refined products exports currently exceed 1.5 million barrels per day, with additional capacity to ramp up in the near future.
High Yield And A Secure Payout
Perhaps the most attractive aspect of investing in Enterprise Products is the high dividend yield of 6%. And just as importantly, the payout appears secure. Enterprise Products is in strong financial condition with a manageable level of debt. Investors should pay close attention to balance sheets and leverage ratios in the MLP space, as the industry typically carries a high level of debt which is used to finance growth projects. When commodity prices are high, this is usually not a problem. But the sudden crash of oil and gas prices in 2014 and 2015 caused many overleveraged MLPs to cut their dividends. Some even went bankrupt as a result.
Investors should note Enterprise Product’s investment-grade credit rating of BBB+ from Standard & Poor’s and Baa1 from Moody’s, a relatively high credit rating among MLPs. In addition, Enterprise Products has excellent distribution coverage. The partnership reported a distribution coverage ratio of 1.5x in 2018, and 1.7x distribution coverage in the 2019 first quarter. This meant Enterprise Products generated approximately 70% more distributable cash flow than it needed to pay its distribution in the first quarter. A high payout ratio bodes well for the future, as it provides some valuable cover in case the industry enters a downturn. It also allows the company to raise its distribution each year, as it has done for 59 consecutive quarters.
On April 8th, Enterprise Products declared a quarterly distribution of $0.4375, for an annualized distribution rate of $1.75 per unit. Based on the recent share price, Enterprise Products yields 6%, a very high yield considering the S&P 500 Index, on average, yields just 2% right now.
Investing in MLPs carries unique risk factors and considerations for investors. But for those willing to accept the various risks, the rewards could be impressive for high-quality MLPs like Enterprise Products. Not only does Enterprise Products offer a high yield above 6%, it has a strong business model with industry-leading assets. The company generates more than enough cash flow to invest in growth and pay a high dividend, making Enterprise Products an attractive high dividend stock.
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The Dividend Aristocrats are widely considered to be the best-of-the-best when it comes to dividend growth stocks. Indeed, the Dividend Aristocrats are an exclusive group of 57 stocks in the S&P 500 Index with at least 25 years of annual dividend increases. The Dividend Aristocrats have long-lasting brand power, competitive advantages, and shareholder-friendly management teams that are committed to growing profits and dividends over the long-term.
But on occasion, even the Dividend Aristocrats experience downturns. Leggett & Platt (LEG) is a Dividend Aristocrat, having raised its dividend for 48 years in a row. But the stock has declined 12% in the past three months, and has underperformed the broader S&P 500 Index by a wide margin to start 2019.
However, Leggett & Platt has a plan to overcome the recent challenges and continue to grow for the long-term. The stock has an attractive valuation, and a high dividend yield above 4%. Therefore, Leggett & Platt is one of the best dividend stocks for long-term dividend growth investors.
Business Overview & Recent Events
Leggett & Platt is a diversified manufacturing company. It designs and manufactures a wide range of products, including bedding components, bedding industry machinery, steel wire, adjustable beds, carpet cushioning, and vehicle seat support systems. The company has a large and diverse product portfolio.
Leggett & Platt reported its first quarter earnings results on April 30. The company reported revenues of $1.16 billion for the first quarter, which represents a 12.6% growth rate compared to the prior year’s quarter. Revenues nevertheless missed the consensus analyst estimate. The company’s revenue growth was based on a 13% sales gain thanks to the impact of acquisitions, while organic revenues declined by 1% year over year. Sales volumes were down 3% when acquisitions are backed out, but improved pricing offset those volume declines partially. Leggett & Platt generated earnings-per-share of $0.49 during the first quarter, which represents a decline versus earnings-per-share of $0.57 during the previous year’s first quarter. Leggett & Platt’s earnings-per-share for the first quarter also missed the analyst consensus estimate by $0.03, or roughly 5%.
Leggett & Platt’s guidance ranges for sales as well as for earnings-per-share were maintained at the previous level. The company forecasts revenues of $4.95 billion to $5.10 billion during fiscal 2019, which represents a revenue growth rate of 16% to 19% compared to the revenues that the company generated during fiscal 2018. Revenue growth will be positively impacted by the acquisition of Elite Comfort Solutions that closed earlier this year, and that has already positively impacted Q1’s reported revenues. This takeover should generate additional revenues of about $675 million during fiscal 2019, which means that organic revenues will likely grow by 0%-3% during the current year. Leggett & Platt guides for earnings-per-share in a range of $2.45 to $2.65 for fiscal 2019.
Leggett & Platt has maintained a long history of steady growth, thanks in large part to the company’s durable competitive advantages. Coming into 2019, Leggett & Platt held an expansive intellectual property portfolio, consisting of 1,500 issued patents and nearly 1,000 registered trademarks. These competitive advantages separate Leggett & Platt’s various brands from the competition, and allow the company to be category leader across its product portfolio.
Using the midpoint of management guidance, Leggett & Platt is expected to generate earnings-per-share of $2.55 for 2019. Based on this, the stock trades for a price-to-earnings ratio of 14.8. Over the past 10 years, the stock had an average P/E ratio of 18.8; a reasonable target P/E ratio could be 18, based on the company’s strong profitability and steady EPS growth. As a result, a higher valuation is warranted, due to the company’s steady growth over many years, and long dividend history. If the P/E ratio expands from the current level of 14.8 to 18, the expansion of the valuation would add approximately 4% to annual shareholder returns.
In addition, Leggett & Platt’s dividend will add to shareholder returns. Leggett & Platt recently increased its dividend by 5%, to a new quarterly rate of $0.40 per share. The new annual payout of $1.60 per share represents a hefty 4.2% dividend yield. This makes Leggett & Platt a high-yield stock, as the S&P 500 Index on average yields just 2% right now.
Leggett & Platt should have little trouble continuing to raise its dividend each year going forward, as it has done for nearly five decades. Based on expected EPS of $2.55, the forward annual dividend payout of $1.60 per share represents an expected payout ratio of 63% for 2019. This is a manageable payout for Leggett & Platt. In other words, the company is projected to distribute less than two-thirds of its EPS this year, which leaves enough cash flow left over to pay down debt and invest in growth. As a result, Leggett & Platt’s dividend appears secure.
Combining valuation changes with 6.0% annual earnings growth and the 4.2% dividend yield results in total expected returns of more than 14% per year over the next five years. This is a high expected rate of return that indicates Leggett & Platt is an undervalued dividend growth stock.
Leggett & Platt has had a difficult year. Rising cost inflation has put pressure on the company’s margins, while the threat of geopolitical conflict and escalating trade tensions threatens its growth in the international markets. However, Leggett & Platt has experienced even worse periods before, such as the Great Recession. Even in very difficult economic climates, Leggett & Platt has generated enough cash flow to continue raising its dividend each year.
Leggett & Platt is a beaten-down Dividend Aristocrat, but the company has a positive long-term growth outlook. Acquisitions, international growth, and share repurchases should allow Leggett & Platt to reach its revenue growth targets in the years ahead. In the meantime, an attractive valuation and compelling 4.2% dividend yield make Leggett & Platt a top dividend stock to buy today.
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Hey everyone, thanks for joining me for this week’s review! In true Modest Money review fashion, we’re bringing it back to investment platforms with an inside look at Ally Invest. I’ve noticed several bloggers around the personal finance blogosphere talking about it, so I figured why not take a look myself? Here’s what I’ve found out!
Ally Invest Pros – Ally Invest is incredibly competitive when it comes to pricing of online brokerages. With trades under five bucks, you don’t have to spend half of your investment in fees to get started! There’s no account balance minimum either which is a big positive for new investors. Ally Invest has great customer service as well. One of my favorite things about Ally Invest is that through the use of forums and groups, they have created a community of investors that are really willing to help each other out.
Ally Invest Cons – With the low cost of trades at Ally Invest comes one thing that I really don’t like. They don’t have very intuitive research and analysis tools. Although they do have some tools, they definitely aren’t on top when it comes to the world of technology in finance!
Ally Invest Overall – Ally Invest is a great option for the starting investor that doesn’t have a lot to start with. The low cost, friendly customer service and community they have come up with provides one of the best experiences a beginner would have. However, as you get more advanced, and decide there is need for more intuitive tools, you will want to look to other companies.
Ally Invest Long Review
Alright, now we get into the details. What are the pros and cons when it comes to looking at Ally Invest as an online trading platform.
When it comes to Ally Invest pricing, you already know it! $4.95 per trade, bottom line, flat fee pricing. That’s incredibly competitive in a market where you could easily spend double that per trade. There’s also a mutual fund transaction fee of $9.95 per purchase which is one of the lowest around.
Active investors can find the pricing at Ally Invest to be especially beneficial. They can qualify for a discount ($3.95 per equity trade). To get this discount, investors need to make 30 or more trades every quarter or have an account balance of $100,000 or more.
Mutual funds and ETFs
The good news is that Ally Invest offers the option for ETF trades for its customers. Anyone who has an Ally Invest account can access more than 100 commission-free ETFs. The choice includes the WisdomTree ETFs that are so popular right now.
Ally Invest customers also have access to in excess of 8,000 mutual funds. Although, it has to be said that all of these funds require either a load to buy them or have a transaction fee attached to them.
Ally invest is one of the better discount brokers that provide a more affordable option to brokers such as TD Ameritrade. But, how does its trading platform perform in comparison?
The trading platform at Ally Invest may not have as many bells and whistles as those of some online brokers but it does offer quick trading capabilities. This is because you don’t need to download. It’s a web based trading platform that you can access using any device. The mobile app is especially useful if you like to carry out options trading, or other account activity, on the move. Using the trading platform, you get access to:
Streaming quotes and data that is real time.
A dashboard you can customize.
Brokers tools that are easy to use but are not extensive.
Now, that we got that out of the way, let’s talk a bit about customer service. Although Ally Invest customer service is not open 24 hours like some online investing companies, where they lack in hours, they make up for in ability. From what I’ve read in reviews written by consumers, Ally Invest customer service reps are not only friendly, but they value your time and try to find the root to the call and provide a solution in as little time as necessary. That way, you don’t find yourself dealing with long hold times and incompetent customer service reps!
One tiny point that may be an issue, for those who are new to investment accounts and brokerage accounts, is that there are no physical branches for Ally Invest. This isn’t unusual in a world where online training trading and robo advisors are the norm. However, it’s still worth mentioning as I know some people prefer to have the option of getting face-to-face advice from a brokerage.
One of the most impressive things that Ally Invest offers though is a community. There aren’t very many investing platforms that build communities around their products, but Ally Invest has. They’ve created very easy to use forums and groups to allow investors to answer questions for other, newer investors. This unique concept gives you a slew of people who have been there and done that at your finger tips! All you need to do is ask the questions you need answered.
Let’s get into the tools offered by Ally Invest. As I said above in the short review, the tools for research and analysis that they provide are far from top of the line. However, they are very easy to understand, basic instruments that are great for the novice investor.
One of these tools is called Trading Activity & Trade Notes. Using this tool you can trade using virtual money to see how your decisions would react in the real world. This can definitely help you to come up with a plan! Ally Invest also provides simple tax trackers, research tools and technical analysis tools. These tools include:
Snapshots and insights of industry and company information.
Customizable watch lists.
Access to market data.
Don’t get too excited about these because they’re definitely not top of the line. If you’re looking for technology, you may want to look elsewhere!
Bank and brokerage combination
One of the things that I really like about Ally Invest is that it is partnered with Ally Bank to be a pretty good bank and brokerage combination.
The bank is registered as a member of the Federal Deposit Insurance Corporation and it offers a high yield savings account that is pretty simple to use. The annual yield offered is more than 2%.
People who use Ally Invest and Ally Bank have the benefit of universal account access. This really takes some of the strain out of banking and investing as each account can be managed in the same place.
My Final Thoughts Of Ally Invest
OK, so, for the money, you can’t beat ‘em. Ally Invest has got really got great prices. When it comes to customer service, they’re on top of their game too! However when it comes to tools, they’ve got quite a bit of work to do. That being said, if you’re looking for the most technologically advanced trading platform, this may not be the best platform for you. However, if you’re looking for an inexpensive option that’s great for the novice investor, you’ve found it!
Trading in foreign currencies on the foreign exchange (Forex) market is popular with many people who are looking for low capital trading. There is no need to have a massive investment to get started. It’s also convenient to trade Forex (FX) because 24-hour trading is available.
The question that any new FX Trader will ask is “How much money will I make from Forex trading?” The quote is often said that the easiest way to get $1,000 in Forex is to start with $5,000. This is obviously a humorous quote, but points to a large issue that is not a joke. More than half of Forex traders lose money. Many of them lost significant amounts of money.
I am not saying that it isn’t possible to make money trading Forex. In fact, plenty of people manage to make a consistent income trading Forex on a daily basis, especially if they have an effective Forex day trading strategy in place.
The fallacy is that it is easy money. Typically, when someone signs up to start trading Forex they do so under the false illusion that it is an easy way to make money. They are sold on expensive courses that feature rich millionaires in their yachts talking about how they do no work but make lots of money.
That very well may be so. But it is highly doubtful that those same rich millionaires weren’t working their butts off at some point in their life. It is also highly likely that those millionaires have lost huge amounts of money when starting trading Forex and learning how to succeed in what they do. That is the nature of the game.
So back to the original point. The lifecycle of a typical Forex beginner looks something like these steps.
Get excited by a course that promises quick money and easy living.
Sign up for a Forex broker without ever doing any further research
Blow through a large amount of money in a short amount of days
Meanwhile the top Forex traders are using tried and true systems that they slowly developed or learned through much trial and error, and are making consistent profits every single day.
Even these top Forex traders experience slippage at some point. It’s a common problem when markets are fast-moving. Slippage happens when losses are larger than expected. To account for this successful Forex traders reduce calculated net profits by 10%.
The difference between these successful traders and those that don’t succeed is really the difference between any successful and unsuccessful person. Those people that are ultimately successful have typically tried a million things and lost a lot of money and time in the process. The only way they were able to discover something profitable that worked for them was by trying things over and over again that didn’t work until they found something that did.
Sure, they aren’t out there preaching about all of their failed systems and all the times they lost money, but who would be?
If I were to start over trading in financial markets with no knowledge there are a few key places I would start.
First I would start reading books. Books give the theory behind trading in financial markets, and understanding the theory is key to successful long-term trading.
Second I would join every Facebook group or Reddit thread that talked about Forex. Then I would ask questions constantly in those groups. I would be respectful and try to help out answering any questions that I could to those that knew even less than me.
Next I would understand that leverage can be a double-edged sword. Using excessive leverage can seriously damage what could otherwise be a successful Forex trading strategy. A big part of not using excessive leverage is being realistic about expectations of the return on investment.
Finally, I would find people I trust and ask them for reputable brokers and courses that I could take. This one is probably the biggest key. There are probably hundreds of Forex courses online that guarantee you a system that will make you money from day one. As with anything of that nature, a lot of them are scams. They are taught by people that learned how to trade Firex, couldn’t succeed at it, and ended up just selling courses to make money.
Other courses are taught by legitimate traders with great systems for making money and willingness to help out those that aren’t as far a long as they are. Finding these courses requires finding people you trust who have no ulterior motives and learning from them.
So in conclusion, yes people make money on Forex. People also lose money on Forex. The difference is a mindset. People that make money understand Forex is a business and a hard one at that. They don’t have an easy money mentality. They overcome failures and eventually win.
Advanced Micro Devices, Inc. (AMD) has surprised PC enthusiasts and investors alike with its upcoming new line of microprocessors. AMD is an American multinational semiconductor company based in Austin, Texas and Santa Clara, California that develops computer processors and related technologies for business and consumer markets. The majority of AMD’s sales are in the computer market via CPUs and GPUs. AMD ac-quired graphics processor and chipset maker ATI in 2006 in an effort to improve its positioning in the PC food chain. In late 2018 the company unveiled its next generation 7 nanometer server chip it called “Rome,” which it plans to ship in mid 2019. Analysts were told these would be incredibly fast processors. Meanwhile its largest competitor, Intel, is still on 10 nanometer technology in 2019. In the semiconductor world, the smaller the nanometer the better and more efficient the parts are.
Fast forward to today and AMD has delivered on its product. Announced earlier this week by AMD CEO Lisa Su at her keynote at E3 in Los Angeles, the company claims that its new stack of “7nm-based Ryzen 3000 chips are competitive with Intel’s higher-clocked CPUs in games, and dominant in multi-tasking chores.” The stock rallied 10% following a highly favorable reception for the new products. Furthermore, Microsoft announced that AMD’s processor and graphics chips would be used in Project Scarlett, which is Microsoft’s new video game console releasing next year. So AMD stock is having a great run recently. The stock price is up about 100% over the past year.
But does it still have room to grow? Maybe the not so much according to street sentiment. Out of 26 analysts covering the stock, not a single one has given the stock a Strong Buy rating. Currently there are 14 Buy Ratings, 11 Hold Ratings, and 1 Sell Rating. Of course that means there’s still a lot of confidence in this stock, but analysts don’t seem to be overly bullish right now.
Last month Jim Kelleher, CFA, Director of Research and Senior Analyst, Argus Investors’ Counsel, Inc reiterated his Buy recommendation for AMD. He mentions that the new ‘Zen 2’-based Ryzen CPUs and Radeon GPUs, both in 7 nm process node, are slated to be widely available this year before the holiday season. Although the first quarter of 2019 revenue “declined sharply year-over-year amid a clogged channel for CPUs, AMD guided sequentially higher for 2Q2019.” Explains Kelleher in a paper to investors. “We have boosted our EPS expectations for 2019 and 2020. Current prices do not fully discount AMD’s revenue growth and margin expansion potential, in our view. We are reiterating our BUY rating and 12-month target price of $35.”
But not everyone sees the stock favorably at this time. According to Reuters, although some bullish analysts are calling for a 12 month price target as high as $43, per share, the bearish analysts have set a low of just 7$ per share. Advanced Micro Devices Inc has strong price momentum right now, and is significantly higher than the semiconductors industry average. But with technology stocks the price momentum can turn ugly really quick. If we look at the fundamentals of the stock, the annual EPS trend is looking at about $1.01 per share by 2020. Since the current price of AMD stock is about $32 per share, this is not a cheap stock to buy today. Plus there seems to be a strong resistance at $33. Even though Bank of America raised its price target on AMD, yesterday to $40.00 per share, it’s hard to recommend this stock when it’s this relatively expensive, and does not have a good technical basis.
This author has 50 shares of AMD as of writing this article.
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Target (TGT) was founded in 1902 and after a failed bid to expand into Canada, has operations solely in the U.S. market. Its business consists of about 1,850 big box stores, which offer general merchandise and food. Target has a market capitalization of $43.8 billion and should produce about $78 billion in total revenue this year.
The company has been able to withstand the ongoing price war in the grocery sector. The acquisition of Whole Foods by Amazon caused shockwaves for traditional grocers, but the dire forecasts on pricing and market share have not materialized. Moreover, Target has moved in the right direction to address its challenges. It has invested heavily in the remodeling of its stores and has expanded the same-day delivery option to about 65% of U.S. households.
TGT is one of five grocery stocks that is weathering the competition within the sector well and look attractively priced today with the ability to deliver strong total annual returns over the next five years.
Target reported very strong Q1 results, sending the stock up 8% on the day as investors cheered the report:
Total revenue was up 5% year-over-year
Comparable sales growth of 4.8%
Digital sales soared 42%
Operating income rose 9%
Operating margin improved by 20 basis points
SG&A costs were down 30 basis points, reflecting the savings in technology and lower market expenses
Target continues to expect low to mid-single digit gains in comparable sales for this year and an earnings-per-share range of $5.75 to $6.05. Separately, Target returned $608 million to shareholders in Q1, including dividends of $330 million and share repurchases of $278 million in repurchases. The company has $1 billion left on its current buyback authorization.
Target has grown its earnings-per-share at an average annual rate of 6.5% during the last decade in part fueled by its aggressive share buyback program, which has reduced total shares outstanding by 4% per year in the last half decade and is likely to remain a tailwind for the foreseeable future. Combining a 3%-4% annual tailwind from the buyback program with low single-digit same-store sales growth and slight margin expansion, it is reasonable to expect about 6% annualized earnings per share growth over the next half decade.
Management has been able to keep the company competitive in the face of growing competition from online retailers such as Amazon as well as continued pressure from industry giant Walmart by innovating extensively. These include new stores with smaller formats, investments into its employees, and the expansion of services such as online shopping, shipping, and home deliveries. Online shopping has proven to be particularly effective, with sales growing by 42% year-over-year in its latest quarter. Another innovation that was initiated by fellow retailer Best Buy was to partner with suppliers in effectively marketing popular products. Perhaps its most effective example of late is its partnership with Vineyard Vines, which has earned rave reviews from Target executives.
Target is a Dividend Aristocrat that has grown its dividend for 49 consecutive years, very nearly making it a Dividend King. Both of these elite groups of dividend growers are full of companies with very resilient business models that enable them to consistently fund and grow dividend payouts for so long. For our complete list of Dividend Aristocrats, click here and for our complete list of Dividend Kings, click here. However, as it has grown its dividend much more quickly than its earnings, the company has markedly increased its payout ratio, from 20% in 2009 to 43% this year. Moreover, the company is heavily investing in its business in order to navigate through the changing landscape in the retail sector. Therefore, Target is likely to raise its dividend at a slower pace in the upcoming years.
Despite the elevated payout ratio and the slower dividend growth outlook, we believe that the company’s dividend still remains safe given that 43% is still a very low payout ratio and the company’s earnings only fell by 14% during the last recession. This still leaves it plenty of room to sustain and even grow its dividend from current levels should such a scenario happen again.
Despite a recent surge in price, shares still remain fairly attractive in our view. Trading at around 15 times earnings, shares are hovering right around their 10-year average price to earnings multiple, which is also our fair value estimate. The dividend yields around 3% and should continue to grow steadily and combine with earnings per share growth as previously discussed to generate close to 10% annualized total returns for the foreseeable future.
As with all bricks-and-mortar retailers, Target’s number one challenge is the rapid gains being made by e-commerce. Not only does this increased competition take market share away from Target and reduce its revenue growth outlook, but it also forces Target to enter the online retailing business, which, when combined with quick home delivery and dealing with expensive clothing item returns, is a much lower margin business.
On top of that, Target’s better-financed and much larger rival Walmart continues to pressure Target from a pricing and selection standpoint. The company will need to continue to appeal to its niche of loyal followers while also drawing enough general consumer interest by creatively partnering with suppliers, growing its loyalty program, and emphasizing the superior convenience and quality of its shopping experience.
Ultimately, the company will need to continue to build out and optimize its omnichannel business model and supply chain network in order to keep costs to a minimum while also satisfying customers in an ever-intensifying competitive environment.
While Target is no longer the bargain it was just a few months ago, it still remains an attractively priced dividend growth stock that is nearing the prestigious status of Dividend King. Given the low payout ratio, solid growth prospects, and the company’s relative recession resiliency, we have little doubt that it will soon join the ranks of that elite group and will reward investors with solid total returns for the foreseeable future.
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Taking your first steps into the world of investing can be scary, confusing, and overall intimidating, so one of the first places many people will turn to is a good book on the subject. The only problem is that “Good” books on investing can be challenging to find, and most are written with information so dense that it’s nearly incomprehensible to the neophyte reader. For the experienced reader, it’s far too common for the data provided to just being rehashed ideas from a million investing pundits without delivering anything valuable or insightful. You can imagine my joy and surprise when I stumbled upon A Beginner’s Guide to Investing: How to Grow Your Money the Smart and Easy Way by Alex Frey and discovered it was an easy read full of great information.
An Introduction To Investing In Clear, Easy Language
The first issue I mentioned above that of being so densely packed with buzzwords that the text is hard to read isn’t an issue with A Beginner’s Guide To Investing. Frey has an engaging approach that introduces basic investment concepts to the reader along with a few strategies to compare and contrast in the interest of providing context, and he does so without bogging the reader down in jargon. Whether you’re a seasoned veteran of the investing game or someone just getting their feet wet, this book is going to ensure you have a firm grounding in the latest terms and trends in the industry.
Solid Strategies, Long-Term Plans
One of the major concerns of those building up an investment portfolio is whether or not they’re going to be able to retire in comfort, and that’s why this is one of the significant topics Frey discusses in A Beginner’s Guide to Investing. By providing robust strategies that involve diversified portfolios, discussion of the different classes of assets and how much to invest in each one, and a clear guide to setting up a retirement plan to reach your goals Frey has established a ground-work anyone can work from.
A Concise Coverage of The Topic
As I went through this relatively short text, I discovered that for all its brevity, it introduced a reasonably comprehensive coverage of the subject that was clearly aimed at giving building blocks to the reader. Many beginning investors are intimidated by the sheer range of terms and concepts they have to grasp to start investing, but A Beginner’s Guide makes them simple to understand without overstaying its welcome. Frey accomplishes this by using easy to comprehend farming metaphors that help to both increase understanding and to create the right mindset for the investor looking for secure, consistent gains.
Exactly What It Promises
When Frey set out to write this book it was clear he wanted the title to reflect the contents, so what you get is written right there on the tin. It’s a guide for beginners that will introduce a simple and easy to approach method of using conservative and intelligent techniques to grow your money over time. There are no promises that you’ll make a fortune in the stock market overnight, no unnecessary hype, just a sane and level-headed approach to building a good foundation in the stock market.
If you’re one of the millions of people thinking about getting into investing in building a secure future, I can’t recommend A Beginner’s Guide To Investing enough. Investing has been a topic that has been poorly explained by experts who are too far from their early days to write at a layman’s level or has only been written from an academic approach using complex terms and buzzwords. Alex Frey’s book overcomes all of that to provide a book that can help the every-man get started in investing with confidence.
Johnson & Johnson (JNJ) has raised its dividend for 57 consecutive years and thus it is a Dividend King. Thanks to the strength of its brands and its solid growth trajectory, it has always been a slow-moving stock. However, the stock has been facing a series of litigation issues since December and hence it has entered a remarkably volatile period. As a result, it has shed 6% in the last week and is now trading 12% lower off its peak, in December. The big question is whether the stock has become a bargain.
Johnson & Johnson is an outstanding company. It has grown its operational earnings for 35 consecutive years and its dividend for 57 years in a row. The company has 26 brands/platforms that generate more than $1 billion in annual sales, with 14 of them generating more than $2 billion in annual sales.
Johnson & Johnson generates approximately 70% of its sales from the Nr 1 or 2 position. It is also the Nr 5 in the U.S. and Nr 8 globally in R&D investment. Thanks to this leading position, it currently generates about 25% of its sales from products that were introduced in the last five years. This is an impressive accomplishment for a mature company that has a market capitalization of $348 billion, which reassures investors that management never rests on its laurels; instead it continuously tries to keep the company in its enviable, multi-decade growth trajectory.
Johnson & Johnson is well-known for its consumer products but the main growth driver of the company is its pharmaceutical segment, which generates about half of the total revenues. The consumer segment has stumbled in the last two years, as it has become very easy to launch a new product online and market it at a minimum cost via social media. This is reflected in the performance of this division, which grew its revenue by only 2% last year. Moreover, the medical device segment grew its revenue by only 1% last year whereas the pharmaceutical segment achieved 12% revenue growth. A similar trend was observed in the first quarter of this year as well.
It is thus evident that Johnson & Johnson relies primarily on its pharmaceutical business to keep growing its earnings at a meaningful pace. Indeed this segment has exciting growth prospects ahead. In the first quarter, it posted 8% revenue growth mostly thanks to strong uptake of Stelara in Crohn’s disease and market share gain of Darzalex in the U.S., Europe, Japan and Latin America, as well as strong momentum of Imbruvica. These brands will continue to drive growth in the upcoming years thanks to increased penetration.
Moreover, Johnson & Johnson expects up to 10 major launches over the next three years. Each of these launches is expected to generate more than $1 billion in annual revenues. Furthermore, the acquisition of Actellion, which cost $30 billion, is likely to provide another source of growth. Thanks to all these growth drivers, management expects to grow the operational earnings per share by 5.7%-7.6% this year and will continue growing them at a significant rate in the upcoming years.
Johnson & Johnson has raised its dividend for 57 consecutive years and thus it is a dividend king. It has been able to achieve such an impressive dividend growth streak thanks to its consistent earnings growth record. The company has grown its operational earnings for 35 consecutive years. These growth streaks are impressive, particularly given the intense competition in the pharmaceutical business and the shocks in the cash flows that are sometimes caused by the expiration of patents.
Moreover, the company has a low dividend payout ratio, which stands at 42%, and a pristine balance sheet. Given also its promising growth prospects, Johnson & Johnson is likely to continue raising its dividend for several more years. Therefore, investors can purchase the stock at its current 2.9% dividend yield and rest assured that the dividend will keep rising for the foreseeable future.
Johnson & Johnson has been facing a series of litigation issues in the last six months. Last week, the stock plunged 6% on a single day, as it was found to have a role in the opioid epidemic in Oklahoma. In addition, in early May, Johnson & Johnson agreed to pay approximately $1 billion to settle a group of lawsuits that accused the company of selling defective metal-on-metal hips that eventually failed. The settlement cleared 95% of the ~6,000 cases but there are still ~4,500 lawsuits from patients who received artificial hips that were not made entirely of metal. Nevertheless, if these pending lawsuits are eventually settled at a similar price to the above, they will not have a significant effect on Johnson & Johnson.
The greatest risk facing Johnson & Johnson is the issue with its baby power (Talc). In December, the company was reported to have been aware that its baby powder contained asbestos, which is carcinogenic. According to the report, an external lab notified the company of this issue as early as 1957. Johnson & Johnson has rejected the allegations, stating that studies of more than 100,000 people have shown that its baby powder is not carcinogenic. Moreover, the company resumed its talc production in many Asian countries early this year, when its product was analyzed and no asbestos was found in the product.
Nevertheless, while the company will do its best to defend its product, the risk has not disappeared. In fact, as there are about 12,000 pending lawsuits related to the presence of asbestos in the baby powder, the financial impact on the company could be huge. To provide a perspective, a jury in California awarded $29 million to a woman who claimed that talc caused her cancer. If all the pending lawsuits had a similar fate, Johnson & Johnson would have to pay $348 billion (12,000 times 29 million) and thus its entire market capitalization would evaporate. Of course this is an extreme scenario, only for indication purpose. If the company ended up paying 10% of the above amount ($35 billion), its stock would temporarily plunge but the company would easily pay that amount within a few years thanks to its AAA credit rating, its $33.8 billion of cash and receivables and its ~22 billion of earnings per year.
Overall, the pending lawsuits have increased the stock price volatility of Johnson & Johnson and may cause a plunge of the stock in the future, in the event of negative developments. However, we are confident that these headwinds will not affect the long-term growth trajectory of the company. We thus view the recent correction as an investing opportunity.
Johnson & Johnson is currently trading at a price-to-earnings ratio of 15.3, which is slightly lower than its 10-year average of 15.8. The cheap valuation has partly resulted from the litigation risk facing the stock. It is remarkable that the stock has a much cheaper valuation than the other well-known dividend aristocrats, such as Procter & Gamble (PG) and Colgate-Palmolive (CL), mostly due to its reliance on its pharmaceutical business, which is perceived as risky by the market. However, given the consistent growth record of Johnson & Johnson and its exciting growth prospects, we find its current valuation attractive, particularly given the rich valuation of the broad market after a decade-long bull market.
Johnson & Johnson has incurred a correction in the last six months, mostly due to its pending litigation risks. However, while these risks are material, we view them as temporary headwinds. The pharmaceutical giant has an enviably consistent growth record and ample room to keep growing for many more years. As a result, investors focused on high-quality dividend stocks will find Johnson & Johnson stock to be a strong holding.
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The US stock market offers a vast amount of stocks investors can purchase, from a diverse set of industries, spanning all sizes, from micro caps to mega caps. It can still be a good idea to take a look at stock markets from other countries, as they do offer highly attractive stocks from well-performing companies as well.
High-yield Canadian banks widely offer higher dividend yields than their US-based peers, and their recession performance during the last financial crisis was stronger as well – many of them, including Toronto-Dominion, did not have to cut their dividend payouts during those troubled times, unlike most US-based large banks.
Toronto-Dominion offers a combination of relatively safe, above-average yielding dividend payments, while shares are also inexpensive and offer some share price growth potential over the coming years. This makes Toronto-Dominion one of the most attractive large Canadian banking stocks right now.
Business Overview & Growth Outlook
Toronto-Dominion Bank is, by market capitalization, the second largest bank in Canada. Toronto-Dominion was founded more than 150 years ago, in 1855, and has since grown into a global organization that offers all kinds of banking services to its customers. Toronto-Dominion has more than $1.3 trillion in assets, and is currently trading with a market capitalization of $102 billion.
Toronto-Dominion Bank reported its most recent quarterly results, for Q2 of fiscal 2019, on May 23. The company achieved a revenue growth rate of 7.9% year over year, which is relatively attractive, and which was better than what the analyst community had expected.
Source: Toronto-Dominion Bank investor presentation
Toronto-Dominion’s revenue growth was possible thanks to a combination of a growing loan portfolio and rising interest margins. Toronto-Dominion’s Canadian Retail segment grew its total loans by 5% year over year, combined with a net interest margin that grew to 2.99%, an increase of 8 base points year over year, this allowed for strong net interest income growth. Other segments, such as Toronto-Dominion’s wealth management business, continued to grow as well, with assets under management growing at a highly attractive pace of 21% over the last year.
Revenue growth allows for rising profits, all else equal, but if a company manages to increase its margins, the net profit growth rate can be even higher. This has been the case for Toronto-Dominion, which was able to grow its earnings-per-share by 10% year over year. A slightly lower share count has been a tailwind for earnings-per-share growth as well.
Going forward, it looks like recent trends should remain in place: The bank’s loan portfolio should continue to grow going forward, with Toronto-Dominion’s strong brand in the Canadian and US retail market being key factors that differentiate the company from peers. A large distribution network should also be helpful in assuring further expansion of Toronto-Dominion’s loan book. Combined with some expansion of its net interest margin, some tailwinds from operating leverage that allows for declining expenses, and some share repurchases, Toronto-Dominion looks like it is poised to deliver solid earnings-per-share growth over the coming years. We believe that a 7% annual earnings-per-share growth rate is realistic going forward.
An economic crisis or meaningful downturn in Canada and/or the United States would be a headwind, but it does not look like a recession is on the horizon in either of these markets right now. Credit quality across Toronto-Dominion’s portfolio remains high for now, gross impaired loans made up just 0.2% of Toronto-Dominion’s total loans during the most recent quarter.
Valuation, Dividend, And Total Return Outlook
When it comes to picking attractive investments, investors should look for quality names, but valuation plays a large role as well – overpaying for quality stocks can dampen total returns drastically. In the case of Toronto-Dominion, investors don’t need to worry about this right now. Shares are trading for $55 right now, which equates to 11.7 times our forecast for this year’s earnings-per-share of $4.70. This is not a high valuation in absolute terms, and it also is not a high valuation relative to how Toronto-Dominion’s shares were valued in the past.
We believe that Toronto-Dominion would be fairly valued at 12 times annual net profits, which results in a small forecasted tailwind for Toronto-Dominion’s total returns over the coming five years, at roughly half a percentage point annually.
Toronto-Dominion pays out dividends of CAD$2.96 a year right now, which equates to $2.19. At current prices, this results in a dividend yield of 4.0%. This is not only more than twice the broad market’s dividend yield, it is also a higher dividend yield than what investors can get from any of the US-based mega banks. For income investors, Toronto-Dominion therefore looks like an attractive pick. This is especially true when we factor in the consistent dividend growth track record – Toronto-Dominion has raised its payout by 9% annually over the last decade – and the strong recession performance relative to most other financial corporations. With a payout ratio of ~47%, investors don’t need to worry about a dividend cut from Toronto-Dominion, we believe.
All in all, it looks like Toronto-Dominion should be able to deliver annual total returns of 11%-12% going forward, thanks to a combination of earnings-per-share growth of 7% a year, its dividend yielding 4%, and some multiple expansion, which will, according to our estimates, result in a 0.5% annual tailwind.
Toronto-Dominion is one of the largest banks in Canada, and the company has established a large global presence on top of that. Toronto-Dominion performed well during the most recent quarter, and we believe that the outlook over the coming years is positive as well.
Thanks to its solid recession performance, strong dividend growth track record, and above-average dividend yield, Toronto-Dominion looks like a good pick for risk-averse income investors that seek exposure to the banking industry, but thanks to its compelling total return outlook, Toronto-Dominion could be worthy of consideration for other investors as well.
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The retail industry is subject to rapid change, thanks to the growing market share for online retailers such as Amazon (AMZN). Some brick and mortar retailers are adapting to this change better than others. Retail stocks often trade at inexpensive valuations, as the market is selling off shares of retailers all the same.
Target (TGT) is one of the retailers that has found a successful way to attract customers to its stores in a changing retail environment, while also having found a way to expand its own e-commerce business at the same time.
Target’s solid growth outlook and inexpensive valuation provide some share price growth potential, but the company’s shares offer an above-average dividend yield on top of that. When we factor in a consistent dividend growth track record and a low dividend payout ratio, Target looks like one of the best dividend stocks right now.
Target is a brick and mortar retailer that sells a wide range of merchandise, including apparel, beauty products, home products, but also food and beverages. The company’s stores are focused on the US.
Target has turned to e-commerce as well, the company has established itself as one of the leaders among brick and mortar retailers that expanded to e-commerce. The company has grown its online sales at a 25% plus rate for five years in a row.
Target is currently trading with a market capitalization of $41 billion, making it one of the more valuable brick and mortar retail companies. Target’s history dates back to 1902.
Recent Earnings Results And Growth Outlook
Target reported its first quarter earnings results in late May. The company was able to deliver a highly compelling growth rates for both its revenues, as well as for its profits. Revenue growth was driven by an increasing pace of comparable store sales. This isolates Target from other brick and mortar retailers, as peers, especially those from the apparel-focused department store sector, have had a much harder time growing sales at existing locations in recent quarters. Target’s comparable store sales rose by 4.8% during the first quarter, while revenues rose by a marginally higher pace of 5.1%.
Target is not opening a large amount of new stores, but the company continues to expand its store fleet continuously. In recent quarters, Target has been targeting urban spaces, where smaller-scale stores are opened. On top of that, Target continues to invest into existing stores in order to upgrade the shopping experience of its customers. This is a somewhat unique approach relative to peers, which are more focused on closing down under-performing stores. Target’s investments into its stores, that result in a modern and welcoming shopping experience, are one of the key factors for Target’s strong comparable store sales growth rates. The rollout of new brands plays a role as well, and Target has also started to work together with well-performing fashion brands in the recent past, which allowed the company to gain some market share from department stores in the apparel, footwear, and beauty segments.
Target should be able to grow its comparable store sales in the future as well, and thanks to operating leverage its profit margin should continue to expand going forward. On top of that, Target’s share repurchases allow for some additional earnings-per-share growth, as its company-wide net earnings are distributed over a lower amount of shareholders.
Companies that generate growth rates that are higher than those of their industry oftentimes do not provide overly high dividend yields, as cash flows are diverted towards the expansion of the company’s operations. Target has, despite generating better growth rates than most brick and mortar retailers, delivered a solid pace of dividend increases in the past, though.
Target’s dividend payments come in at $2.56 a year right now, which is roughly four times as much as the $0.66 that the company has paid out in 2009. Target has, therefore, increased its dividend at an annual pace of 14.5% throughout the last decade.
More recently, Target’s dividend growth rate has declined to a lower level, but the company continued to increase its payout during every single year, despite the market’s worries about the future of brick and mortar retail. At the current share price of $80, Target’s shares offer a dividend yield of 3.2%, which is attractive relative to what investors can get from the S&P 500 index right now.
Due to the fact that Target pays out just above 40% of this year’s expected net profits, the dividend looks quite safe on top of that, which is why we deem Target one of the most attractive income stocks at the current price. Since Target does not only offer discretionary consumer goods such as apparel, but also consumer staples such as food and beverages, its recession performance is relatively strong – customers shop at Target even during times when the economy is not doing well. The dividend should thus be safe during a recession as well.
Target has managed to adapt to a changing retail environment in an exceptional manner: Through store upgrades, the introduction of a new store format, and attractive offerings such as home deliveries, Target has managed to provide a shopping experience that is well-received by its target demographic, which has resulted in above-average growth rates for Target’s store sales, as well as for its online sales.
Target is one of few brick and mortar retailers that forecasts strong earnings-per-share growth for 2019, and thanks to its strong business model the outlook beyond 2019 is not bad at all, either.
Target offers a lot to income investors as well, including consistent dividend growth, an above-average dividend yield, a safe payout ratio, and recession-resilience. Since shares are trading for just above 13 times this year’s net profits, which is not a high valuation for a quality stock such as Target, we believe that Target’s shares are attractively priced right now. It could thus make sense to take a closer look for income investors, as well as for those that seek total returns.