This after Christmas Sale on stocks provides opportunity. Volatility benefits the disciplined income
investor who always has extra cash on hand because we like to have a couple a
years of expenses in cash and can jump on an opportunity. Disciplined investors reduce the emotional
impulses that can lead to poor investment returns.
I continue to emphasize how important it is to secure a
growing source of income. Dividend
stocks play a big part of that goal for me.
With that in mind, I am going to begin my 2016 portfolio with Watsco,
symbol WSO.
Watsco WSO
Watsco is a very large HVAC company. Much, but not all of
its business is in the US. They also
serve markets in Canada, Mexico and the Caribbean. Note here that WSO should not suffer from
Asian and European slow growth problems.
2016 Portfolio Fundamentals
This morning Wednesday 1/6/2016 WSO is trading around
$115 which is well below the 52 week high of 133 but up from the low of $103. WSO just declared their next quarterly
dividend of $.85 and will be ex dividend on January 13. Forward annualized dividend yield is 2.95%
at $115. This yield meets one of my 2016
criteria. My first post this year
defined the criteria I will use for stocks that go into the 2016 model
portfolio; the minimum yield is to be 2.75%.
WSO Income Stock
Watsco is an interesting income stock. WSO paid a regular, and increasing dividend
and when in 2012 it appeared tax on dividends would be lower in 2012 than in
2013, WSO paid out a whopping $5.00 per share in addition to its quarterly
dividend of $.62 per share in 2012. They
paid several quarters ahead and then resumed regular dividends at $.25. Since then, dividend growth has been stellar
with a recently announced increase to $.85 per share that averages out to 8.9%
per year average dividend growth. Clearly WSO meets my primary goal of “retiring
with income that grows.” Dividend growth
minimum is 4% per year for 5 years.
WSO Revenue Growth
Revenue growth has exceeded expectations growing over 30%
per year over the past four years which settles a third criteria which is a
minimum revenue growth of 4% per year for at least three years. I think you need revenue growth to feel
comfortable about dividend growth.
WSO Debt to Equity Ratio
Debt to equity ratio is probably more important than income
growth as we always want to be as risk averse as we can while securing a solid
source of growing income. D/E ratio is
the measure I use. WSO sports a low D/E
ratio of .32 which is well below the maximum of 1 that is part of my 2016
criteria.
WSO Covered Call Options
WSO has no covered calls as of this writing. However, WSO has in the past had some very
good calls and I am hoping that during 2016 I will be able sell at least one
call to add at least 1% additional income from the call premium.
History is on my side.
WSO was a 2011 and 2012 Money Madam Dividend Machine. I bought at that time. I held WSO from October 4, 2012 through
August 18, 2013. The table below shows
you how I did. During the time I was
long WSO I received a special dividend of $5.00 as well as three quarterly
dividends and a whopping $3.32 premium from a covered call.
If revenues continue to grow, I believe a call opportunity
may emerge. If not, I am stuck with a
good income stock with little risk.
I think it is time to reestablish a position in WSO. The strengths of serious devotion to dividend
distributions to the shareholders, vigorous revenue growth and low D/E ratio outweigh,
in my mind, the slightly hi PE ratio (price to earnings ratio) of 20.
M* TheMoneyMadam
