Showing posts with label Diversification. Show all posts
Showing posts with label Diversification. Show all posts

Wednesday, September 11, 2013

Dividends & Income from Small Cap. Stocks



When I started writing about dividends and income, I wanted to be able to measure the results of my dividend machine strategy.   


To make this easier, I created a portfolio of dividend stocks by selecting one stock per week for fifty two weeks.   I used only the four dividend machine criteria noted here to pick the stocks.  


The portfolio is long only and I do no trading; I only hold these stocks.   You can see this portfolio by clicking on the 2011 DIVIDEND PORTFOLIO page at the top of this blog.                                                                                                                                                         .

Diversification?

I was curious to find out how well diversified a portfolio would evolve from implementing this strategy.  Would I end up with only big pharma. or utilities?   


The portfolio is not only big pharma or utilities.  I ended up with a well diversified portfolio by industry as well as by market capitalization. 


Today, I am looking at how the small capitalization stocks performed.   I define small capitalization stocks as those with a capitalization of less than one billion dollars.


Eight Small Caps Stocks from 2011. 


Two small caps, Harleysville Group (HGIC) and Met-Pro (MPR) were bought out.  HGIC was bought by Nationwide Insurance and produced a 91.88% gain in just four months.   The proceeds are included in the portfolio value.   MPR was bought by CECO Company and produced a 48.32% gain in twenty two months.    Proceeds from that sale are included in the portfolio value. 

 

Six other small cap stocks remain part of the 2011 DIVIDEND PORTFOLIO.  They are:  YORW, WHG, UTMD, MGRC, LDR, and ESP.   



Do they currently meet all four criteria to qualify as Dividend Machines?



The tables below present the dividend fundamentals of these six stocks.   



 

 

Landauer (LDR) is the only stock of concern.    It has increased debt and lower earnings.   While LDR continues to pay a healthy dividend, they have not increased the dividend for a while and that makes sense as LDR has negative earnings.     I do not buy or sell in this portfolio, but if I owned the stock, I would sell it for a tiny gain of 3.94%.    LDR is not exactly a total failure but it no longer qualifies as a dividend machine.



YORW, MGRC, and UTMD have significant price appreciation.   While the dividend has consistently increased for each company, the yield is less than three percent and therefore, I would not buy them now.    However, as you can see they are quality, small cap. companies.


WHG and ESP also have price appreciation but are dividend machines on every measure and I would consider adding to my position.



What does it mean for the ordinary investor?



As you save for retirement and begin to develop your own dividends and income portfolio, you have to decide how to invest.   This analysis illustrates that you do not have to have millions of dollars to invest to create a successful dividend portfolio.    You do not have to invest $10,000 or more every time you buy 100 shares of a stock.     You can find small cap stocks that perform well if you use a disciplined approach.    Even if it is not my approach, a disciplined investment strategy is the best way to attain your dividend and income goals;  otherwise, you are throwing darts at the market hoping to catch a company that will meet your income needs when you retire.

The Money Madam



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Wednesday, March 20, 2013

McGrath Rents - MGRC Dividend Machine 3/21/2013


I promised to find a company that can serve as an example of a dividend machine; one that if added to a portfolio will provide increasing dividend income, capital preservation and diversification.  Here it is!

DIVIDEND MACHINE
3/21/2013
McGrath Rents
MGRC
Price when profiled
$31.21
Last 4 Qtrs Earnings
$1.78
Last 4 Qtrs Dividends
$0.94
Current Qtr Dividend
$0.235
Annualized Div Yield
3.012%
No. Years Div Increas
since1991
Debt/Equity ratio
0.83%
McGrath Rents, symbol MGRC.

Dividends come from the most interesting stocks.  I am always surprised at what I find when I commit to finding a dividend company that meets all four of my dividend machine criteria. 

I loved Wednesday’s Wall Street Journal article on General Mills (GIS) but GIS does not meet the three percent threshold for income.  I found an interesting microcap company named Frischs but when you go back to 2007, it had a stretch of 6 quarters where it kept the dividend level which violates my rule of a dividend increase every year since at least 2007.

I thought about Kimberly-Clark; KMB is an exceptional company but it is expensive at over $90 per share and it does carry a debt load greater than one and greater than its competitor Proctor and Gamble.   What is a Madam to do? 

I persist in the quest for ever increasing dividend income with an eye toward capital preservation, growth and diversification until I find one.  Unless you read this blog consistently, I would be willing to bet you have not heard of McGrath Rents, symbol MGRC. McGrath was in my 2011 dividend machine portfolio and it appears again in 2013.

McGrath Rents, MGRC Fundamentals:

McGrath is a small company.  MGRC closed at $31.21 yesterday.  It pays just over a three percent dividend yield and it has increased that yield every year since at least 1991.  They make more money than they pay in dividends and have a very manageable amount of debt as measured by D/E ratio which is .83.  See the table at the top of this post for a summary of MGRC’s fundamentals.

Income & Income Increases:

This company provides income that is 50 percent greater than you can get from a US Treasury.  Income increases have been consistent through thick and thin.  Like all stocks during the market meltdown of 2008, MGRC lost money, but your income would have consistently increased. 

Capital Preservation:

In 2011 when MGRC appeared on my screen, (see the post McGrath, symbol MGRC See Original Post on June 27, 2011) MGRC traded at about $27.  Today it trades at over a ten percent premium.

Diversification:

Diversification is important.  Most portfolios of income stocks concentrate on big pharma or utilities.   Moreover, most income portfolios include mostly large cap. stocks.  MGRC provides diversification by industry and by size.


Consider using this technique for finding stocks to invest in for income.

TheMoneyMadam
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