Sunday, March 30, 2014

Dividends & Income Conoco Phillips COP 9.6% average dividend growth.



I have found my next 2014 Dividend Machine.

This stock’s average annual dividend increase over the past five years was 9.36%.   Since it also sports a current dividend yield of 3.98%, has earnings that far exceed the dividend payout and a debt to equity ratio of .4159, this stock is a 2014 dividend machine.


Conoco Phillips, (COP) Dividend Machine Fundamentals


COP closed at $70.35 on Friday, March 28.  COP paid a $.69 dividend on March 3, 2014.   That is a yield of 3.98%.    This year I need more income and I am looking for at least 3.5% yield.   COP definitely exceeds that hurdle.


Since 2008, COP’s earnings per share have been consistently higher than the dividend paid out.   During the most recent four quarters. COP’s earnings outpaced dividends by $7.38 to $2.73.


In addition to increasing the minimum yield I receive, I also want to invest for income growth.   2014 Dividend Machines must, therefore, show me that over the past five years dividend increases were at least 4% per year.   


COP on average has increased the dividend an average of 9.36% per year.  In 2009 the quarterly dividend was $.47 and five years later it is $.69.    Usually, a stock that qualifies as a Dividend Machine will have increased the dividend every year.   This is not true for COP.   During 2011 and 2012 the dividend held steady but then increased enough to deliver more than 9% per year. 


The table below presents COP’s dividend machine fundamentals.


 

My Concerns about COP


Judicious execution of my dividend machine strategy requires that I ignore that COP is trading just off the 52 week high.   Actually, COP is trading just off the 5 year high.  But I must stick with my strategy because so far the past three years of picking dividend machines using my four criteria while I ignored other factors like 52 week highs has worked out well.   Therefore, COP will be a 2014 Dividend Machine.


TheMoneyMadam

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Monday, March 24, 2014

Dividends & Income Merck and Bristol-Myers money to be made.

Options expired this weekend.   I had some stocks called away and now I have money to put to work.   I would prefer buying a Dividend Machine stock but they are not cheap.    So I am going to consider two large pharmaceuticals that are almost dividend machines




All Money in Dividend Machines

I don’t invest all my money in Dividend Machines.   When I deviate from that path, I use my four dividend machine criteria to guide me in my stock selection process.

This post outlines the process I use to select a stock for investment.  Merck, (MRK) and Bristol-Myers, (BMY) are two stocks I will evaluate.

Each one of these companies is involved in developing a medical treatment for advanced, malignant skin cancer.    The point of this post is not to determine which company has the best treatment.  The point of this post is to determine which company is the better buy using my Dividend Machine fundamental analysis.

Merck – MRK

Merck’s dividend yield is 3.22%.   That is very close to the minimal yield of 3.5% that I require for a stock to be considered a Dividend Machine.   Moreover, Merck has increased the dividend 5.2.6% per year over the last three years.   I like dividends to increase at least four percent per year.    Merck’s dividend increase history looks good.  

Merck earned $1.46 during the past four quarters and paid out $1.76 in dividends during the same time period.   This is not good.   I dug a little deeper; in 2011 and 2012 MRK earned more than it paid out in dividends.  However, in 2010 it did not. 

We don’t have a dividend machine but we might have a good income stock if it is financially solid.  My measure of financial safety is debt to equity ratio, D/E.   MRK sports a very reasonable D/E of .5036.

Merck’s fundamentals are presented in the table below.

Merck (MRK)
3/24/2014
Price when profiled
$53.78
Last 4 Qtrs Earnings
$1.46
Last 4 Qtrs Dividend
$1.76
Current Dividend Yld
3.27%
Yrly Div Inc. last 3 yrs.*
5.26%
Debt/Equity ratio
0.5036
* Dividends held steady from 2004 - 2011



Bristol-Myers – BMY


Bristol-Myers' dividend yield is only 2.77% and the dividend increases over the past five years have been only .08%.    Less yield and less yield growth might make you want to give up and buy MRK but let’s have a closer look.

BMY earns $1.56 and pays out $1.44.   This is good. Although in 2009 BMY also paid out more than it earned but that was the only year in the last 6.   Debt to equity ratio is .5503.

Bristol-Myers' fundamentals are presented in the table below.


Bristol Myers (BMY)
3/24/2014
Price when profiled
$51.04
Last 4 Qtrs Earnings
$1.56
Last 4 Qtrs Dividend
$1.44
Current Dividend Yld
2.82%
Div. Inc. last 5 years*
0.08%
Debt/Equity ratio
55.03%
* Dividends held steady for 8 quarters in 2008/2009









 

 Covered Calls

Both stocks had covered calls available on Monday.  June calls are 89 days out.  I like 89 days because you get both the call premium and the next dividend.     The tables below present the income and gain potential for each stock.   MRK is first then BMY.


Merck (MRK)
June $57.50
Cost Basis
$53.78
Strike Price
$57.50
Call Premium
$0.74
Call Yield
1.38%
Gain in $ if assigned
$4.90
Percent Capital Gain
9.11%
Quarterly  Dividend
$0.44
Percent Total Return  if assigned
11.31%


Bristol-Myers (BMY)
June $55
Cost Basis
$51.04
Strike Price
$55.00
Call Premium
$1.25
Call Yield
2.45%
Gain in $ if assigned
$5.57
Percent Capital Gain
10.91%
Quarterly  Dividend
$0.36
Percent Total Return  if assigned
14.07%


My decision is to buy both of these stocks.   I will buy more BMY than MRK.   I will sell calls on one half of my BMY position.     

I will let you know how we do.

TheMoneyMadam