Thursday, January 11, 2018

First Dividend Stock for 2018 XOM

Good New Year everyone.  I can report to you that I bought my first Dividend Stock for 2018 and it is Exxon, symbol XOM.








  • Low Debt to Equity Ratio (D/E) of a dividend stock is downside risk protection for the income investor 
  • Emerging from EPS weakness when dividends were maintained or even increased is another measure of strength
  • Long term dividend growth is important in a mature stock 
  • Adjusting your strategy to the new normal can help participate in gains but good fundamentals limit risk


I am changing my approach a bit this year.  I built seven pretty successful portfolios using my Dividend Machine Criteria; my 2011 portfolio is up over 130% or 18% per year.   I still want to make sure I am buying solid stocks but I am not going to restrict my buys quite as much.  I am going to deviate from my strategy to adapt to the new normal.

We need to pick stocks for income but limit our risk by using solid fundamental analysis yet this year I want to look at participating in gains by adding to those stocks I trust to deliver income when the new normal breaks down and becomes the same old boom and bust cycle of stocks.

I think we need to be very facile in our investing for 2018.  Our job as income investors is much easier than the investor who needs to create the wealth off of which they live.  We just need to invest our savings in instruments that deliver income and make sure those investments are safe.

The value of these income investments can vary but as long as they continue to deliver income when times are not so good and increase our income when times are good, we can stick with these stocks.

When I look at a stocks, I  must have income in the form of dividends and I really like covered calls where possible.

RISK CONTROL WITH D/E RATIO AND EPS


Debt to equity ratio (D/E) ratio is one of the most available and easiest measures of a company's fundamentals. I will not compromise on this metric.

Readers know I used earnings per share being great than dividend pay out as another measure of safety.  This year I am not going to be so severe a critic of EPS.  If the earnings per share of a stock only barely cover the dividend I won't immediately eliminate it.

For instance in the case of XOM, my first Dividend stock of 2018, this stock continued to pay dividends during some difficult times.   When oil prices collapsed, earnings were not covering the dividend.  Because of the strength of the balance sheet, XOM was able to continue to pay us dividends.  Now earnings are turning around and are equal to dividends paid out.

We cannot be sure that oil prices will stay strong.  However, I am hoping that during the bad times, Exxon used it talent to develop technologies that will improve performance.  They have diversified to include multiple energy sources.  I believe they are a solid company and will maintain and improve the ratio of dividends paid/earnings.

Exxon XOM DIVIDEND FUNDAMENTALS


I have summarized the fundamentals I track on my dividend stocks.  I bought XOM on January 3 at $86.78 right about where it is today (1/10/2018.)  The table below summarizes the metrics I track on my dividend stocks and provides the detail for XOM.

         
  Exxon Mobil Corporation   
  XOM 1/3/2018 $86.78  
         
  D/E Ratio 0.14    
  E.P.S   $3.07  
  Dividend   $0.31  
         
  Dividend 3yr Growth 3.86%  
         


XOM would not have been in my previous portfolios because their revenue growth is negative.  This is mostly due to the price of oil.  However, times have changed and XOM has a better diversified revenue base and oil prices have improved.  In fact in their most recent quarter (9/30/2017) revenue grew by 5.9%.

UPSIDE POTENTIAL IS DIVIDEND GROWTH and STOCK PRICE


Based on XOM's current dividend stock fundaments, I think the dividend will be safe when the next bust cycle confronts us.  Stock price may go down if markets suffer a major disruption but XOM will stay in business and it is highly likely they will continue to pay their dividend.

Based on improving management fundamentals, and the sheer size of XOM operations, they have the potential for stock price gains.  With a price/earnings (P/E) ratio of only 22 as compared with Chevron, symbol CVX, of 30, Exxon is going into my portfolio.


M* MoneyMadam

Disclosure:  Long XOM

2011 Portfolio up over 130% or 18.% per year



Saturday, December 30, 2017

Year End Results for M* Model Dividend Machine Portfolios

The table below presents the results for each of my Portfolios 2011 - 2017.





Thank you for reading.  I wish you all a happy, healthy and prosperous New Year and every year thereafter.

M* MoneyMadam

Wednesday, December 27, 2017

DKS DIcks Sporting Goods a compelling buy

I expected to be on vacation but I checked my messages on Seeking Alpha about my post about Foot Locker.    One of readers was equivocating about FL and suggested Dicks Sporting Goods, symbol DKS.

  • Solid Balance Sheet
  • Revenue Growth of over 9% annually
  • Dividend Growth averaging 12% annually
  • Covered call options with a potential 14% return

DKS is not a perfect parallel to FL but for an income investor, however, it is a compelling buy based on my fundamentals.

Yield is a touch low at 2.29% but dividend growth has been consistently in the 12% range annually.  As an income investor I love that metric.  Quarterly dividend in 2017 is $.17 versus .125 three years ago.

Revenue is growing as well and that is hard to find in a retailer.   Over the past three years revenue growth has been a solid 9.4% annually.   Most recent 4 quarters $8,409 versus three years ago $6,599.   With virtually no debt (D/E ratio is .0028) and a P/E ratio (price to earnings) around 12, I see value and income.

Clearly this stock has suffered as the 52 week high is $56.25 and 15 months ago DKS hit $62.88.  Stock holders have really taken it on the chin with DKS.   

The icing on this cake is the covered call I sold as soon as my buy executed.  See the table below.






DKS has not yet announced their next ex-dividend date, but if history repeats that should be about March 8, 2018 which is before the call expires.   Nice 14% upside potential 

I don't have time to flesh out all the details of DKS with all the graphs that make a post pretty but you can look up the key elements.

Good income investing.

M* MoneyMadam

Disclosure:  Long DKS with calls

Friday, December 22, 2017

Foot Locker FL my last 2017 stock

I completed my 2017 portfolio of stocks I call Dividend Machines today by adding Foot Locker, symbol FL.

  • Foot Locker has virtually no debt
  • Revenue Growth is robust
  • Dividend Growth is solid
  • Covered Calls show potential

I went a touch over my budget of investing $100,000 in 2017.  With the addition of Foot Locker, my basis is  $101,248.20.   Foot Locker stock fundamentals are good as you can see in the table below.




I like their revenue growth and I like the dividend growth.  This area of retail has been challenging but athletic/leisure footwear is making a come back.   In spite of retail challenges, FL has demonstrated steady revenue growth.




Moreover, a few calls are encouraging. Although I am not selling calls against my position today, I find the trend encouraging.   See the February $52.50 and January $50 calls below.

 February $52.50 note there are a low volume of contracts trading today.




January $50 contract volume is much higher.




FL has virtually no debt which is comforting as we enter 2018 and the specter of increasing interest rates. 

Adding Foot Locker makes this very small portfolio a bit heavy in retail but when you are investing with rules, these irregularities are sometimes inevitable. 

This will complete my posting for 2017.  I will be on vacation until mid January.  During this time, I work on analyzing what has gone on in 2017 and determine how I will invest in 2018.

I thank you for reading and encourage you to stay invested using a disciplined strategy.

M* MoneyMadam


Disclosure:  Long FL