Tuesday, April 14, 2015

CSCO a hold.

Cisco systems, symbol CSCO is in so many technology portfolios including mine. Those of us who are long are eternal optimists.   It is a quality company however, the stock is not quite a Dividend Machine and one could think of it as dead money.   I have several reasons to hold this stock and they are outlined below.

Paid to wait:

CSCO has paid dividends for the past four years.   Their most recent dividend was $.21 in March of 2015 for a forward yield of 3.032%.   I have been waiting a long time for CSCO to perform and there is no question that I have a gain of over 20% but I sure would like a lot more.    Since technology is gradually inching the way back from the debacle of the dot com bust in 2001, I can hold onto CSCO because of the dividend.

Increasing Income:

Once CSCO decided to pay dividends, it has increased the payout with gusto.   They paid their first dividend four years ago at the rate of $.06 per share per quarter.   Their most recent dividend was $.21 and that is an average annual increase of 6.25% per year.  This is very a respectable dividend growth history. 

Solid Fundamentals:

CSCO is not a Dividend Machine because I require at least a 3.5% dividend yield and a five year average dividend growth rate of 4% or more for a stock to qualify as a 2015 Dividend Machine.    CSCO’s current yield is only just above 3% and their dividend history spans only four years.

Yet as you can see by the data presented in the table below, CSCO is a solid stock.  Earnings per share are $1.66 and D/E ratio is .34.

Covered Calls:

CSCO has not had great covered calls over recent years but today I was able to sell a July $30 for $.35.  My cost basis is $23 but even if you bought CSCO today, the call makes sense.   See the table below.

I am holding CSCO for a while longer and these four reasons are why.


Disclosure:  Long CSCO with calls
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Friday, April 10, 2015

Small Cap Bank CHCO a 2015 Dividend Machine

CHCO, City Holding Company, is a bank holding company.  The bank does business in West Virginia as City National Bank of West Virginia.  CHCO meets all criteria for inclusion in the 2015 Dividend Machine model portfolio.

Small banks have done well lately although many experts think they have a more difficult time than the larger banks due to regulation.   CHCO provides commercial banking, consumer banking, mortgage lending, and wealth management through its 82 offices.  

Let’s look at CHCO’s Dividend Machine Fundamentals to see if it is worthy of consideration.  To be a Dividend Machine we need more EPS than dividends paid out.   CHCO’s last four quarters of earnings came in at $3.37.   Dividends paid out during that period were $1.60.  They just raised the dividend from $.40 to $.42; a five percent increase.    CHCO goes ex dividend on April 13.    Their five year average dividend increase is 4.7%.   This dividend growth rate is within our Dividend Machine criteria of 4%.    CHCO’s debt to equity (D/E) ratio is .04 which is well below our maximum threshold of 1 or less or equal to industry standard.

The table below presents CHCO’s Dividend Machine fundamentals

Followers of this blog know that I do not provide investment advice.   My purpose of writing about a particular stock is to determine if that stock meets the criteria I set out at the beginning of the year to be a Dividend Machine.   Stocks that meet these criteria become part of that year’s model portfolio.

I do not sell or buy or reinvest in these portfolios.   I develop them to be able to track how this very strict and disciplined strategy performs.  

In your personal investing you may use different or more criteria to decide which stocks to buy for income.    Some will use sector diversification to determine if a given stock is a good fit.   I appreciate that approach.   Others will use free cash flow instead of EPS to determine if, indeed, a stock is a good fit.

My Dividend Machine strategy is a simple way for ordinary investors to screen for dividend stocks.   At the beginning of each year, I set the Dividend Machine criteria based on what I think I need for income, for future income increases, and for safety.   It is interesting that the year I profiled 52 stocks (2011) using these four Dividend Machine criteria, the portfolio ended up being well diversified by industry and market cap.   Plus, it has done very well over the past 4 years.      

Today, I am adding CHCO to the 2015 Dividend Machine portfolio and perhaps you will consider this regional bank for the income producing portion of your portfolio.


Disclosure; No position but may add.
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Monday, April 6, 2015

Go gas WPZ

This former Dividend Machine could use a little more gas to keep up the robust dividend.  MM

Williams Partners to buy another 21% stake in UEO for $575M http://seekingalpha.com/currents/post/2410316?source=ansh-d $WPZ, $WMB, $EVEP

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