Thursday, September 21, 2017

NHI a Dividend Machine for 2017 and beyond

What a difficult market to make sense of.  I need to invest some money, I am way behind in my quest to invest $100,000 in my 2017 portfolio.  Moreover, my cash position has increased due to calls that were exercised last week.   Where to turn from here.

  • Patience pays off when the stock you pick has good fundamentals but suffers a setback.
  • NHI is a good investment for income investors based on fundamentals
  • Aging baby boomers and extended life spans are catalysts to pump continued income growth from NHI

I can't make the market go down although like many other investors, it seems whenever I am anxious to invest and actually pull the trigger that is a sure sign my stock will go down.  However, most well researched stocks come back; not all but most.   Just look at my CAT buy in 2014. CAT when down from my buys at $79.94 and $85.30 to $56.36.  Yet within the last two years it has roared back to $124.70.  Or my 2017 KSS buy at $41.88.  KSS sunk to $35.16 but has returned to $44.71.   A review of all my portfolios reveals my strategy is not perfect, it is just good.

NHI 2017 Dividend Machine

Today I added to National Health Investors and will include NHI in my 2017 portfolio and the reason is NHI meets all my criteria.

I don't include very many REIT's as I have a lot of real estate through other alternative investments.  I don't cover real estate investments per se in this blog but since NHI is a publicly traded stock and it has been such a good income stock, I am including in the 2017 portfolio.

National Health Investors owns senior living facilities, assisted care facilities and a few other types of health care oriented properties.  Compared with Welltower (HCN), National Health Investors is the smaller player on the block but I prefer NHI to HCN.   My reasons are mostly based on dividend growth.  HCN has averaged only 3.144% dividend growth over the past 3 years.  

In chart below from NASDAQ, you can see NHI is not a momentum stock.  It is not going to generate 10% call premiums.  You will earn your income from NHI's over 4% dividend yield.  Moreover, your income will grow as NHI increases the dividend.

stock chart

Baby boomers are aging and we are all living longer and this is a catalyst for growth in this sector.  I have seen estimates that our aged population (over 85 years) will double by 2036.   (Welltower presentation.)

NHI Revenue Growth

I bought NHI today at $79.75.  Their current quarterly dividend is $.95 for an annual payout of $ 3.80 or a yield of 4.76%.   All REITS by law must payout nearly all of their earnings.  NHI's earnings per share are $3.89.   They can easily afford to continue pay their ever increasing dividend.

I like a stock that has growing revenues.   This supports the dividend growth.  NHI is an active player in this space and has worked to add revenue streams while maintaining a solid balance sheet.  The chart below sourced from NASDAQ shows the revenue growth at NHI.  Note the 2017 value is for two quarters only.

NHI Dividend Machine Fundamentals

I mentioned NHI's strong balance sheet.  This is important.  A strong balance sheet provides cushion during times of duress.   During the major credit disruptions of 2008/2009, NHI was able to not only maintain their dividend, they provided additional income through special dividends.  I use D/E (debt to equity ratio) as my measure for a strong balance sheet.  I like D/E to be 1 or less or within industry standard;  NHI carries a D/E ratio of .8901.

The table below summarizes the criteria I use for inclusion as a Dividend Machine:  dividend yield greater than 10 year U.S. treasury,  EPS that cover the dividend, dividend growth of 4% or more over the past 3 years, and a D/E ratio of less than 1.  

It is significant to note that with REITS investors often use FFO (fund flows from operations) rather than Earnings per share (EPS) when making their decision about a stock.  The chart below comes from a recent presentation by NHI and includes FFO information.

Although I do not use P/E  as part of my screening criteria, I am always sensitive to value.  Value is a tough measure and P/E ratio only one of many measures.  NHI's current P/E (price to earnings ratio) is 20.48.   Future growth expectations peg their future P/E ratio at 15.13.   This P/E ratio is not extravagant like a momentum stock such as Nvidia whose P/E ratio is greater than 50.  Nor does NHI's P/E ratio suggest it is cheap.   By the way, HCN's P/E ratio is 22.81 with their forward ratio expected to be 17.30. 


All in all, based on the catalyst of aging baby boomers, solid balance sheet, history of revenue growth and dividend growth.  I feel confident adding to my NHI position and naming it as my next 2017 Dividend Machine.

M* MoneyMadam

Disclosure:  Long NHI

Wednesday, September 13, 2017

IRMA and a Briggs & Stratton Update

Alfred is watching his BGG (Briggs and Stratton) trade carefully.  Although I am an IRMA refugee I helped him out with this trade.  He decided to take an October 20, 2017 $22.50 call on his BGG shares.

He will get the quarterly dividend of $.14 as BGG goes ex-dividend tomorrow September 14, 2017.  He will pocket the call premium of $.40.

BGG short term trade to take advantage of hurricane season:

Let's see how he does.

M* MoneyMadam
Disclosure No Position

Monday, September 4, 2017

BGG for A Hurricane Play - Generators

Alfred Ferol and I chatted recently.  Long time readers know of his contributions to this blog.  Alfred is a conservative investor with a bit of a trader's mentality.  He thinks Hurricane Harvey (and perhaps IRMA) will cause an increased need for generators.

I do not totally share his assessment as I think in preparation for a storm, people buy generators.  He has less faith in the masses being well prepared.   And, he suggests, no one predicted West Houston would be as affected as it is and therefore, these people are going to need generators.

Alfred wants a play that is a short term gain.  His idea of short term is about 6 months.  His conservative self likes to get a dividend while he waits for earnings to increase enough that the stock price also goes up.   In addition, he might have a chance to sell a covered call during those 6 months; juicing his income and total return even more. 

The covered call opportunity, of course, will only materialized if he is right and the need for generators translates into increased sales and earnings.  When the market sees growth potential, they use calls to get in cheap and benefit from price momentum.

Briggs & Stratton Corporation LogoI suggested he add to Home Depot (HD.)  HD will be the final seller of all items needed for hurricane recovery.   Since, he already owns HD, he will benefit from that move but he wants to invest in a stock that builds the generators.  We looked at several and decided on Briggs and Stratton.

Everything you ever wanted to know about generators is available with this link to the Briggs and Stratton site:

Briggs and Stratton symbol BGG, is selling at $20.92.   BGG's price is just about in the middle of the 52 week high of $25.92 and low of $17.90.  At $20.92 BGG's price has corrected just over 19%.

BGG annual earnings are $1.30 with an annual dividend of $.56 for a yield of 2.67%.  Dividend payout ratio is 43.1%.   Dividend growth over the past 4 years has averaged 5.56% and their D/E ratio is a very respectable .553.    P/E ratio (price earnings ratio) at 16.09 is unremarkable. 

All of this data is presented in the table below.

BGG sounds like a good stock.  For me, I don't like the negative slide of revenues -4% over the past 4 years.  This could improve if Alfred is right and demand for generators is strong and Home Depot sells a lot of them.

I will not be adding BGG to the 2017 portfolio but I will track his trade for you and report back when he closes it out.  Stay tuned.

M* MoneyMadam

Disclosure:  No position in BGG, long HD

Friday, September 1, 2017

HCI - Insurer

Poorest performer so far in my M* 2017 Dividend Machine Portfolio is HCI.  More than a 10% correction since I added it April 3, 2017. 

With a low P/E ratio (Price to earnings ratio = 10.6 ), a low dividend payout ratio = 38.35%, and D/E ratio of .98, I am going to add to my position. 

M* MoneyMadam 

Disclosure:  Long HCI