Sunday, June 7, 2015

Five Years of Dividend Investing

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Wednesday, June 3, 2015

2015 Dividend Machine Portfolio Update

6/3/2015   Table below presents the 2015 Dividend Machine Portfolio updated with the most recent holding LHO.



TheMoneyMadam
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Monday, June 1, 2015

LaSalle Hotel Properties - Next 2015 Dividend Machine



During my vacation I ran into Alfred Ferol.  I had just found my newest 2015 Dividend Machine stock.   When I reviewed the Dividend Machine fundamentals with him, he was amazed that I had not found this stock sooner.   His response was sort of like “what have you been doing.”




I am always amazed when I find a stock using my four criteria that also seems to be a good fit for a portfolio.   Below are the Dividend Machine Fundamentals of my newest 2015 Dividend Machine portfolio holding.

LaSalle Hotel Properties, symbol LHO

LaSalle hotel properties operates hotels and resorts and outsources their management skills to other brands.   Dividends date back to 1998.  

My four Dividend Machine criteria

LHO must have EPS over the past four quarters that exceed the dividend paid out during the past four quarters.  LHO EPS were $1.97 with dividends paid out of $1.50 and it passes that test.

Dividend yield required to be part of the 2015 portfolio is 3.5%.  LHO is ex-dividend on June 26, 2015.  Shareholders will receive $.45.  At Friday’s closing price of $36.46, the current forward, annualized dividend yield is 4.94%.   This yield is a very nice premium to our goal.

Once a stock fulfills these two criteria, I look at the dividend growth rate.  In 2015 inflation is difficult to measure.  We all know how much more everything costs even if the experts tell us there is no inflation.  With that bias in mind, I want a stock that delivers at least 4% dividend growth per year over the past five years.

In 2009 LHO changed their dividend payouts from monthly to quarterly.  June of 2010’s quarterly dividend was $.01.  Today the dividend is $.45.  This dividend growth rate is huge and it is unrealistic to think it will be repeated over the next five years. 

How should we evaluate the dividend history?  We don’t have 56 consecutive years of dividend increases.   What I expect from this stock, as I told Alfred Ferol is that it will be a Dividend Machine while I own it.   Will I get four percent dividend growth per year over the next five years?   That would mean the dividend will be at least $2.106 in 2020.  I think that is realistic.  

Last on the list is to look at the D/E ratio.   If a company has EPS greater than Dividends, and has increased the dividend every year for at least five years, I can accept a D/E ratio of 1 or less or within industry standard.   LHO has a D/E ratio of .57; very respectable.  Looking at the company’s history of D/E ratio suggests it has learned how to manage their debt.

See the Table below to review LHO’s Dividend Machine Fundamentals


LHO is a REIT

I rarely include REIT’s in my model portfolios and I rarely buy them for my own portfolio.  My personal reason is that I own enough real estate now.   However, for the ordinary investor like Alfred Ferol, REIT’s can be an important portion of an income portfolio.   As a REIT, LHO pays out 90% of their income.   Other requirements for a stock with this structure exist.   A quick review is available at this Morning Star link.   http://news.morningstar.com/classroom2/course.asp?docId=145579&page=2.


As I continue to consider using Dividend Machine criteria to pick my income stocks, I always worry about accomplishing my goal of investing in a group of stocks that will pay me a dividend well above what I can get from a really safe investment like the 10 year U.S. Treasury.  My portfolio needs to increase my income over time with dividend growth.

Wise people warn us that history is not a guarantee of future performance, yet history is all we have to go on.   At least with Dividend Machine stocks, you have history to use so let’s use it wisely.

Consider LaSalle Hotel properties, symbol LHO, for the income producing portion of your portfolio; I added it last Friday.  I will use the closing price today, Monday June 1, 2015 as the cost basis in the 2015 model portfolio

TheMoneyMadam

Disclosure:  Long LHO
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