Wednesday, April 16, 2014

Is Family Dollar Stores, Inc. A Bargain?

I'm always on the lookout for new to me dividend growth companies and recently received a request to do a full analysis on Family Dollar Stores, Inc. (FDO). What was really surprising is that Family Dollar Stores has a 38 year history of increasing the dividend to shareholders. Family Dollar Stores is a major player in the discount retail space operating over 8,000 stores throughout the United States. Shares of Family Dollar Stores closed trading on Friday, April 11th at $56.10 giving a current yield of 2.21%. 

Discounted Earnings: 

 Analysts followed by Yahoo!Finance expect Family Dollar Stores to grow earnings 3.15% per year over the next 5 years and I've assumed they can grow at 2.75% in perpetuity. Running these numbers through a discounted earnings analysis with a 10% discount rate and summing over 30 years yields a fair value price of $44.62. This means the shares are trading at a 25.7% premium to the discounted earnings analysis.

Click here to read the rest of the analysis over on Seeking Alpha.

I've updated my Stock Analysis page to include this analysis.

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Monday, April 14, 2014

Recent Buy

Whenever I buy or sell a position in my portfolio I try to get a post up shortly thereafter discussing the reasons for the purchase and all of the juicy details.  I'll usually tweet about the purchase within an hour of the purchase but I'm not always free to get a post written.  If you want to find out about my purchases as quick as possible, make sure to follow me on Twitter @JC_PIP.

I'm in a great place right now as I routinely get to save a large portion of my income each and every month.  The negative to that is that after the huge increase in share prices through 2013 a lot of the value has been sucked out of the market.  It's a delicate balance between building up cash for better valuations in the hopes they come relatively soon and investing my savings to try and reach financial independence as quickly as possible.  The solution I've settled on is to do a little of both by building my cash and simultaneously investing in some of the highest quality companies at reasonable valuations.  The solution is largely predicated upon my high income/savings rate and a problem I'm glad to have to deal with.  If I had less capital to invest on a regular basis I'd lean more towards building cash right now and doing as much research as possible on the best companies I can find.  This past Thursday I went ahead and put some capital to work by adding to my position in Johnson & Johnson (JNJ).

Saturday, April 12, 2014

Weekly Roundup - April 12, 2014

Image sourced from DigitalOperative.com

Well Mr. Market decided to show up this past week and he broke down some walls like the "Kool-Aid Man", especially so for the biotech stocks and Nasdaq.  The S&P 500 shed 2.09% on Thursday and another 0.95% on Friday.  I've been hoping the markets would finally cool off some and start to retreat to give us all some better entry prices.  As a dividend growth investor in the accumulation phase, lower prices now lets me buy more shares with the same amount of capital which just boosts my dividends even faster.  I welcome these opportunities and you should too.

What's always funny to me is whenever we get large negative moves in the stock market the front page of Yahoo!Finance, and just about any other financial outlet, is littered with articles touting the upcoming doom and how this is just barely the beginning of the pain that's about to come.  One article I read through on Friday talked about how there will be a much larger decline to come.  On the order of 5-7%.  Umm...do these guys not study the markets at all?  Inter-year pullbacks of 5% are fairly normal and regular and actually healthy for the markets.  It's years like 2013 that are the anomaly where we get no really pronounced declines.  What's even funnier is that in that same article they talked to another market prognosticator that had a different view.  His take was that the markets would decline 6-8%.  Is there really a big difference between 5-7% and 6-8%?  Personally I'm hoping for 8-10% but who knows what's in store.

Friday, April 11, 2014

Net Worth Update - March 2014

While cash flow is more important when it comes to financial independence, it's still good to look at the balance sheet too, which is why I provide these net worth updates.  The S&P 500 was essentially flat for the month with just a 0.6% increase.  Since more and more of my net worth is tied to the markets, there's a larger between my net worth and the markets.  As a dividend growth investor I'm not overly concerned with the short-term gyrations as long as the dividend stream remains in tact, but the markets' effect is noticeable.  I had just over $7,000 in after-tax savings from my paycheck (although only $5k is directly earmarked for savings), around $1,100 in ESPP contributions, and just over $800 in 401k contributions counting the employer match.  The rest of the changes were due to dividends received and changes in the stock market.  All in all March saw a $9,537.14 increase in my net worth.

Wednesday, April 9, 2014

Income Update - March 2014

I'm a big proponent of tracking every single penny that comes into your hands if you're really wanting to make a change to your finances.  Mental accounting is too difficult to keep track of and the mundane everyday expenses get forgotten.  Once you keep a detailed history you can see that you're really spending $400 per month on restaurants or $100 on coffee or whatever little expenses that are fine by themselves but add up quickly to destroy a budget.  This is why I like to keep track of all of my expenses to help keep myself accountable and looking to see what areas I'm just plain doing poor in.  If you want to improve your finances, then please track everything for a 3 month span and then take action to make positive changes.

Friday, April 4, 2014

The Roots of a Wallet Engineer

Dividend growth investing really resonated with me.  But I wasn't always a dividend growth investor.  Luckily I never went through the early phase of just being an "investor" - buying a hot stock tip from a friend sort of experiment phase.

While still studying at University I bought my first shares as a cash-strapped 4th year.  The lucky pick was $100 worth of KO - Coca-Cola.  Truly an excellent pick if you follow along with dividend growth investing or you're just starting.  Coca-Cola wasn't a calculated purchase, though - I wasn't born a stock investing star - my first pick was a lucky pick.  Maybe it was a foreshadow of the kind of investor I would become.

Thursday, April 3, 2014

How Yummy is Yum Brands' Valuation?

Last week I updated my valuation of McDonald's Corporation (MCD) and the price appears to offer a decent value.  You can read the full analysis here.  As more of a growth play I wanted to take a look at its largest competitor YUM! Brands, Inc. (YUM).  YUM! Brands is heavily focused on international expansion which could lead to a long growth curve.  Shares of YUM! Brands closed trading on Friday, March 28th at $74.20 giving a current yield of 1.99%.

Discounted Earnings:

Analysts followed by Yahoo!Finance expect YUM! Brands, Inc. to grow earnings 12.32% per year over the next 5 years and I've assumed they can grow at 9.24% (75% of 12.32%) for the next three years and 4.50% in perpetuity.  Running these numbers through a discounted earnings analysis with a 10% discount rate and summing over 30 years yields a fair value price of $84.41.  This means the shares are trading at a 12.1% discount to the discounted earnings analysis.

Graham Number:

The Graham Number valuation method was conceived of by Benjamin Graham, the father of value investing, and calculates the maximum price one should pay for a company given the earnings and book value. YUM! Brands earned $2.36 per share in fiscal year 2013 and ended with a book value per share of $4.89. The Graham Number is calculated to be $16.11, suggesting that it's overvalued by 360.5%. Since we invest for the future, let's replace the earnings per share with forward looking earnings of $3.63 for FY 2014.

Click here to read the rest of the analysis.

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Wednesday, April 2, 2014

Position Closed - Intel Corporation (INTC)


Yep, Intel announced yet another quarterly dividend payment of $0.225 per share.  That would be 8 straight payments of $0.225.  For a position that had the promise of being a solid dividend growth investment, I’m very disappointed in this.  I’ve been rather disappointed that Intel couldn’t even give a token increase of $0.01 at least once since the September 2012 payout.  As a dividend growth investor that’s trying to reach financial independence through dividends, a dividends safety is priority 1A and its growth is priority 1B.  Towards the end of 2013 I wasn’t completely fed up but I was getting there and wouldn’t have minded closing out my position.  So I let Mr. Market make the decision for me and decided to sell call options on Intel until the shares were called away from me.  I mentioned in my March dividend update post yesterday about a call option for Intel executing so let's go over the details.

Tuesday, April 1, 2014

Dividend Update - March 2014

March certainly was a great month for dividends in my portfolio and everyone else's as well I'm sure.  The majority of the dividend growth stocks that investors love pay out on the March, June, September, December schedule so the end of each quarter usually comes with a bang.  These dividend updates reflect all dividends that I receive through my investing pursuits and I hope can help inspire you to take control of your own finances and invest to build a passive income stream.  What you use that stream for is up to you, whether it's to fund early retirement, just provide some FI/FU money, or even to provide for an annual vacation; the key is that it can provide options and opens up all sorts of possibilities.  You can check my dividend income or progress page to see what dedication to an investment plan can give you.  I was able to set a personal best in dividends received during March which is great motivation and helps to keep me on track.

Saturday, March 29, 2014

Weekly Roundup - March 29, 2014

I've been a bit absent the past week or so and even missed my normal weekly roundup post last weekend.  Never fear though I'm back and have a new installment of the roundup.  My FI Portfolio has been performing great the last two weeks and I even found some opportunities to invest a bit more capital in an otherwise very heated market.  First I purchased some more shares of Kinder Morgan, Inc.  In short, there was a big stink about maintenance capex but a lot of the claims were pretty much unfounded.  No worries though for the long-term investor as short term bad news provides great buying opportunities.  And then this past week I purchased some more shares of General Electric.  I've been eyeing opportunities to average down since I purchased shares but they just haven't shown up so I went ahead an averaged up my cost basis by a little bit.  General Electric is a huge industrial powerhouse so I was glad to get a bit more exposure there.

Since my main goal is to retire through dividend growth investing, what really gets my heart aflutter is dividend increase announcements.  And March was great for that with 6 of my holdings announcing increases including the much awaited increase from the token $0.01 that Bank of America has been paying since the Great Recession.  The new quarterly dividend is $0.05 which still isn't spectacular but it's back on the right track.  Management tried to give a higher dividend than $0.05 but was turned down by the Fed.  This is probably for the better as there's still more litigation issues to settle from the financial crisis/housing bubble.  Either way I'm excited about all the dividend increases!  With the purchases and increases I'm now well over $4,100 in forward 12-month dividends which is awesome.  That's over $340 every month!

Friday, March 28, 2014

Recent Buy

I try to make at least one purchase a month and usually two just because of the amount of capital I usually have to work with from my savings.  Since I'm trying to reach financial independence as quickly as possible I don't feel that's it's to important to build up a large cash savings to deploy at the most opportune time in the markets.  I made another purchase of Kinder Morgan earlier this month and decided to put a little bit more capital to work by adding to another small position of mine, General Electric (GE).  General Electric is a huge industrial powerhouse with operations covering just about every facet of the economy, unfortunately that also included banking services which nearly brought down the company during the depths of the Great Recession.

Management has been working towards decreasing the role that the financing arm plays on their results and get back to their industrial roots.  Earlier this month they filed an IPO to spinoff the retail financial unit which will further reduce the lending portion of the company and let GE focus on what it does best which is supply solutions to the industrial needs of companies worldwide.  The spinoff is expected to finalize in 2015.

Wednesday, March 26, 2014

Should You Be Loving McDonald's Corporation?

Another year completed and another annual report to go through. Back in late January, McDonald's Corporation (MCD) announced 4Q 2013 and full year earnings so what better time than the present to input the new data and update my valuation analysis. McDonald's Corporation closed trading at $96.18 on Monday, March 24th giving a current yield of 3.37%.

DCF Valuation: 

Analysts followed by Yahoo! Finance expect McDonald's Corp. to grow earnings 7.78% per year over the next five years and I've assumed they can grow at 5.84% (75% of 7.78%) for the next 3 years and at 4.50% per year thereafter. Running these numbers through a three-stage DCF analysis with a 10% discount rate and summing over 30 years yields a fair value price of $106.50. This means the shares are trading at a 9.7% discount to the discounted cash flow analysis.

Click here to read the rest of the analysis.

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Friday, March 21, 2014

Recent Buy

On Wednesday of this week I made another purchase.  It was actually the first purchase I'd made in almost a month which is a bit longer than I prefer my purchases to be.  Shares of Kinder Morgan, Inc. (KMI) have been under fire over the last month or so after a scathing article by Barron's questioning Kinder Morgan's calculation of distributable cash flow, the life blood of the dividend.  Essentially, the question is how much of Kinder Morgan's capital expenditures are for maintenance versus expansion.

The attacks by the Hedgeye energy analyst seem to be largely unfounded and given the criticism and struggling share price, CEO Richard Kinder responded to the claims and even purchased 200k more share of KMI.  You can read Kinder Morgan's full response to the claims here.  I love finding companies where the CEO is heavily invested in the company's performance.  Notably, CEO Richard Kinder's salary is a minuscule $1 per year which is much less than the average CEO compensation package.  Seeing as how he owns over 240 million shares of KMI and has the majority of his net worth invested in the partnership, I imagine he'll do everything in his power to run the companies as responsibly as possible to insure that the distributions/dividends continue to increase each and every year.

Thursday, March 20, 2014

U.S. Beverage Valuation Wrap Up

Throughout February we had fourth quarter and full year earnings releases from the three major players in the non-alcoholic beverage industry. As the new data points rolled in I figured it was time to update the valuations on the Coca-Cola Company (KO), Dr. Pepper Snapple Group, Inc. (DPS) and PepsiCo. Inc. (PEP). Each company struggled during 2013 with declining sales volumes in the United States, but were also able to give owners a dividend increase. I want to take a look at a few metrics to see which company might have the best relative valuation out of the three.

As part of my quantitative analysis for any company that I want to invest in, I calculate a target entry price. The target entry price is based off several valuation methods including discounted earnings, Graham Number, high dividend yield, low P/E ratio, low P/S ratio, Gordon Growth model and the dividend discount model. The idea is to try and come up with a target entry price as well as fair value and overvalue price points. My partner and I are currently developing analysis tools and we hope to get the first set of tools out over the next month.

Click here to read the rest of the article.

Monday, March 17, 2014

3 Dividend Stocks With Growth Potential

This post was written by Zach from DividendLadder.com

Dividend investing has been a part of my life for almost 15  years.  Initially I was drawn to the high yielding stocks and quarterly paychecks but over time I have matured as an investor.  Now I invest in these stocks because I want my capital deployed to companies that grow and return profits to shareholders.  That is why 95% of my investments are currently in dividend-paying stocks. 

I enjoy doing investment research which I believe is key to being a successful stock picker.  As Warren Buffet and many other wise investors have said you do not have to be an expert to win at investing.  Investing in companies I understand and expect to grow is the foundation for my strategy.  But still I enjoy making lists to help narrow down which companies I might put on my watch list.  This helps me stay focused and aware of what is happening with the general dividend market.

Today I thought I’d highlight 3 of my more interesting holdings and explain why I like each of them.  They are a bit off the beaten path for some investors but I believe they represent value and growth at a time when we need both badly. 

Saturday, March 15, 2014

Weekly Roundup - March 15, 2014

As usual it's been a really busy week.  Of course who's isn't?  I could really use some extended time off to just relax, regroup and make some progress on some things I'm working on for the blog.  I'm excited to start working on a monthly newsletter and I hope to get some other things going as well.  For now you can sign up here to receive new posts straight to your email and hopefully come April I'll have a newsletter that I feel good enough about to send out.  I'm also working on some other ideas but those will have to stay secret for now.  If you sign up for the posts/newsletter then you'll be the first to hear about what's going on.

Thursday, March 13, 2014

Take a Risk

Hello!  I am Bryan, the founder of IncomeSurfer.com.  On Income Surfer you will read about techniques and strategies to live a fulfilling and balanced life, both financially and relationally.  I offer a monthly newsletter that includes changes in my family's portfolio, assets we are looking at buying/selling, and interesting articles that give a historical perspective to the capital markets.  You will also read articles about my family's quest for balance, our travels, and how we have changed our lives to be more fulfilling.  My business partner and I currently have three outstanding valuation tools under development.  Income Surfer is also on Twitter, @IncomeSurf.

Long time readers of Passive-Income-Pursuit know just how far JC and his wife have come in their journey toward financial independence.  They took a risk and that risk has really paid off for them.  It has taken hard work and fiscal restraint, but they have made tremendous progress.  If you are a new reader of Passive-Income-Pursuit, you may be wondering what risk I'm talking about.  I'm talking about saving and investing of course, and today I am going to discuss taking risks.

I believe saving and investing is hard work, a risk, and involves a certain level of trust
Hard work because you have to be diligent to save your money instead of spending it.  It's far easier to  spend every cent you make.  Don't believe me?  Look no further than a child's instant gratification upon receiving an allowance.  If we let ourselves, we're all just big kids in a toy store.

A Risk because your investment could lose money.  If it does decline in value you will be out that money and not have the toy (the tech gadget, new car, or fancy clothes you would have otherwise bought) to console you in your loss.  That would be sad!

Wednesday, March 12, 2014

Net Worth Update - February 2014

While cash flow is more important when it comes to financial independence, it's still good to look at the balance sheet too, which is why I provide these net worth updates.  What a difference a month makes.  The S&P 500 rebounded from January's decline to give a 4.3% increase during February.  Since more and more of my net worth is tied to the movements of the markets I see larger swings in my net worth based on how the markets perform.  As a dividend growth investor I'm not overly concerned with the short-term gyrations as long as the dividend stream remains in tact, but the markets' effect is noticeable.  January was a bit disappointing for my net worth with a decline of $1,000, but February helped to make up for the slow start to the year.  I had just over  Well the markets decided to take a bit of a breather and pull back some during late January.  I had just over $7,100 in after-tax savings from my paycheck, around $950 in ESPP contributions, $1,300 in 401k contributions counting the employer match, and like every February my employer's profit sharing 401k contribution goes through which provided another $5,600.  The rest of the changes were due to dividends received and changes in the stock market.  All in all February saw a $25,657.26 increase in my net worth.

Monday, March 10, 2014

Income Update - February 2014

 I'm a big proponent of tracking every single penny that comes into your hands if you're really wanting to make a change to your finances.  Mental accounting is too difficult to keep track of and the mundane everyday expenses get forgotten.  Once you keep a detailed history you can see that you're really spending $400 per month on restaurants or $100 on coffee or whatever little expenses that are fine by themselves but add up quickly to destroy a budget.  This is why I like to keep track of all of my expenses to help keep myself accountable and looking to see what areas I'm just plain doing poor in.  If you want to improve your finances, then please track everything for a 3 month span and then take action to make positive changes.

Saturday, March 8, 2014

Weekly Roundup - March 8, 2014

What a busy last week.  Finished one job, had an awesome time at home with my wife, friends, and family, but all good things must come to an end and it was time to head back to work.  A bummer, I know, but the wonderful thing is that while I was off in my own world and busy with other things in life the wonderful companies that I own just continued to work for me 24/7 and earn profits and of course paying me dividends.  February wasn't the best of months, but it was a personal best for a February and the snowball just continues to grow larger.

Friday, March 7, 2014

Interview by Kanwal from Simply Investing

The following is an excerpt from the interview that I had with Kanwal.  The full interview can be found at the Simply Investing website.

I recently had the honour of interviewing the blogger behind the awesome blog Passive-Income-Pursuit!

Passive Income Pursuit has been blogging since 2011 and his blog covers my favorite topic, dividend investing!  So I invited him to share his investing knowledge and experience with us.

Kanwal:  Tell me a little bit about yourself and your blog.

Passive Income Pursuit:  I was laid off in January 2009, and while it was frustrating at the time, as my unemployment period continued on I realized there's so much more to go after in life than being stuck in an office.  I used that time to improve my relationships, my body, and continue to learn.  Before then the thought of retiring at sometime other than the traditional retirement age never crossed my mind.  I just didn't think it was possible until I started reading and learning about investing and luckily came across dividend growth investing.  I now feel so much more in control of my finances and the end game of financial independence is in sight.

Passive-Income-Pursuit.com serves two purposes.  One is to be a live journal chronicling my investing strategy.  I think the best part about this is that it allows me to look back and see why it is I made a purchase or sell.  One of the biggest factors with investment success is to avoid the big mistakes.  I've made my fair share, but my blog lets me go back in time to see why I made the decision and correct the errors in my thinking.  The second purpose for my blog is to help teach and motivate others.  I've met several people that have started to take control of their own investing because of my blog and I just hope to continue helping others.  The funny thing is I get inspired by my readers probably more than they do from me.

Click here to read the rest of the interview!


Wednesday, March 5, 2014

Dividend Update - February 2014

February has come and gone and now it's time for again for my favorite monthly update, my dividend update.  These dividend updates reflect all dividends that I receive through my investing pursuits and I hope can help inspire you to take control of your own finances and to invest to build a passive income stream.  What you use that stream for is up to you, whether it's to fund early retirement, just provide some FI/FU money, or even to provide for an annual vacation; the key is that it can provide options and opens up all sorts of possibilities.  February treated me quite well on the dividend front, as it was a big increase from November.  You can check my dividend income or progress page to see what dedication to an investment plan can give you.  The beauty of investing in dividend growth stocks is that you don't have to spend 40 hours a week earning that money.  The companies do the work for you and cut you a check.