In This Issue Refilling the DI Portfolio With a Healthy ...

TM

June 2019

Volume VIII Issue 6



In This Issue

DI Tables

Portfolio Alerts This Month

2

Portfolio Holdings

3

Performance of DI Portfolio

4

Recent Earnings Announcements 5

Dividend Payments

6

Dividend Analysis

7

In-Depth Stock Reports

Amgen, Inc. (AMGN)

8

Biotech company fills prescription

with attractive dividend coupled

with double-digit dividend growth.

Comerica Inc. (CMA)

10

Banking stock is cheap and continues

to grow its dividend strongly.

Occidental Petroleum (OXY)

12

Integrated oil and gas company

seeks larger scale through

acquisition.

Walgreen Boots Alliance (WBA) 14

Reboot with pharmacy-led health

and well-being company with strong

dividend growth trading at an

attractive valuation relative to its

historical levels.

DI Article

Which Stocks Are Preferred During

Market Downturns?

16

Dividend-paying stocks may not

offer as much capital appreciation

potential as higher-growth, non-

dividend payers, but they tend to

offer some downside protection

when the market swoons.

Next Publication Date: July 3, 2019

AAII Dividend Investing is produced by AAII. "The American Association of Individual Investors is an independent nonprofit corporation formed in 1978 for the purpose of assisting individuals in becoming effective managers of their own assets through programs of education, information and research."

Refilling the DI Portfolio With a Healthy Dose

of Dividend Income

After their best four-month start to a year going back at least 20 years, the

major domestic stock indexes pared back some of their gains in May as volatility increased significantly. The Dow Jones U.S. Index ETF (IYY) declined 6.4% during May and is now up 13.9% for the year through June 5. The Dividend Investing (DI) tracking portfolio lost 7.2% for the month of May and is up 12.8% for the year through June 5.

The DI tracking portfolio's monthly loss was composed of a 7.3% price decline and 0.1% in income return. The Dow Jones U.S. Index ETF's loss was composed of a 6.4% price decrease and no distributed income return.

Over the life of the DI portfolio, it has provided a total return of 124.7%, with dividend income contributing 44.7% to the total return. The Dow Jones U.S. Index ETF has a total return of 152.3% over the same time period, with income contributing 31.2% to the total return.

AAII's Dividend Investing portfolio follows a total return strategy. The portfolio invests in stocks that have the potential to rise in price and make larger dividend payments in the future. Rising prices provide the opportunity to realize capital appreciation, which is one part of a stock's total return. Dividends provide an income component, adding a second part to a stock's total return. Price appreciation and dividend payments combined make up the total realized return on an investment, and each part can contribute to increasing it.

The average dividend yield of the stocks in the DI portfolio is 3.2%, unchanged from the prior month. The Dow Jones U.S. Index fund has a dividend yield of 1.8%, up from 1.7% the previous month.

Portfolio Alerts

There is one portfolio deletion and one portfolio addition for June. Invesco Ltd. (IVZ) is being removed from the portfolio, and Walgreens Boots Alliance (WBA) is being added.

The three pillars of AAII's DI portfolio are a firm's financial strength, dividend consistency/growth and valuation. Careful consideration is given to the three pillars when making portfolio deletion and addition decisions for the DI portfolio.

Portfolio Deletion: Invesco Ltd. (IVZ) Invesco is a global asset management company offering mutual funds, ex-

change-traded funds (ETFs), closed-end funds, separately managed accounts, variable insurance products and unit investment trusts (UITs).

Despite a string of acquisitions, the company's size and cost structure of funds are disadvantages against larger competitors' lower-cost offerings. To become more competitive, it is likely that Invesco will need to continue to acquire other asset management firms, leaving less capital for dividends.

Invesco's performance is tied to the state of the stock market. Downward market moves, including any market corrections or bear markets, will likely lead to asset outflows, potentially causing the stock to fall even further than the broad market.

Portfolio Alerts This Month

June Portfolio Deletion:

Company (Ticker) Invesco Ltd. (IVZ)

Portfolio Deletion Alert

Date

Price*

6/7/2019 $20.70

Portfolio Addition Alert Date

6/6/2014

Stock Total Return Since

Purchase*

-33.6%

Index Total Return Since

Purchase*

55.5%

HealthCare. From the first store on

the South Side of Chicago in 1909, the company now operates or has an equity interest in 18,500

June Portfolio Addition:

stores and is the largest

Company (Ticker) Walgreens Boots Alliance (WBA) *Data as of 6/4/2019.

Latest Price*

$51.50

Dividend Yield* Sector: Industry

3.4% Non-Cyclicals: Retailers - Drug

retail pharmacy, health and daily living destination across the U.S. and Europe.

Walgreens has dem-

The company's five-year dividend

the stock's yield to fall to 1.8%, in line onstrated solid growth due to its scale,

growth rate is 7.0%. Invesco has raised with its five-year low and below its

transformational acquisitions and stra-

its dividend for 15 consecutive years. five-year average at the time of 2.2%. tegic partnerships focused on increasing

Though these numbers are good, they In addition to the low yield, the stock's store utilization with clinical partners.

mask more recent trends. The company price-earnings ratio was high. At the

Revenue for Walgreens has increased

has limited annual increases for its

time of the sale, Walgreens had a price- at a 12.7% annual rate of growth over

quarterly dividend to $0.01 per share earnings ratio of 35.5 and a forward

the last five years but has slowed to

during each of the past four years. In price-earnings ratio of 20.7, both of

8.3% over the last three years. While

percentage terms, the growth rate has which were above its five-year average the industry is hyper-competitive,

fallen for seven consecutive years. This of 18.9. As you know, a high valuation Walgreens has maintained an edge

year's increase was just 3.3%.

is the DI strategy's favored reason to

through two transformational acquisi-

I/B/E/S analyst consensus estimates remove a stock because it means the tions that expanded its global footprint:

project a 1.9% earnings per share

stock price has climbed.

the U.K.'s Boots Alliance in 2014 and

decline for this year; the long-term

Fast forward to today: The company 1,932 Rite Aid stores in 2018.

forecasted growth rate is 2.7%.

and industry have undergone signifi-

Due to reimbursement pricing

The stock continues to offer an attrac- cant changes, but based on its current pressure and increased competition,

tive dividend yield and the company

dividend yield and price-earnings ratio, Walgreens' gross profit margins have

is committed to paying its dividend,

the stock is trading at historically low

decreased over the last five years from

but the slow pace of dividend growth valuation levels.

28.2% to 22.6%; the industry's average

dictates that the stock be removed from Walgreens Boots Alliance is a global is 22.4%. However, the company's net

the DI portfolio.

pharmacy-led health and well-being

margins (operating margins less interest

company with fiscal-2018 sales of

and taxes) of 3.8% are greater than its

Portfolio Addition: Walgreens Boots

$131.5 billion. The company operates five-year average of 3.5%.

Alliance (WBA)

through three segments: retail pharma- The I/B/E/S consensus estimate

The search for candidates with a

cy USA (75% of sales), retail pharmacy calls for earnings per share to grow

record of dividend consistency, financial international (9%) and pharmaceutical 5.1% over the next three to five years.

strength, growth and attractive valua- wholesale (16%). Its operations consist Analysts expect earnings to decline 0.5%

tion led to the addition of Walgreens. of retail drugstores, care clinics, special- to $5.99 per share for the current fiscal

Long time DI members will recognize ty pharmacy services, optical practices year then flatten out in 2020 before

Walgreens, as it was a successful posi- and related contract manufacturing.

resuming growth of 6.6% to $6.42 per

tion in the portfolio for two years from

The company's portfolio of retail and share for 2021.

2013 to 2015. The company was sold business brands includes Walgreens,

Walgreens has been paying a dividend

because its price appreciation caused Duane Reade, Boots and Alliance

since 1933 and has increased its annual

Published monthly by the American Association of Individual Investors 625 N. Michigan Ave., Chicago, IL 60611 312-280-0170, . Annual DI subscription, $199.

AAII Dividend InvestingTM (DI) is not a registered investment adviser or a broker/dealer. This report is issued solely for informational purposes and should not be construed as an offer to sell or the solicitation of an offer to buy securities. The opinions and analyses included herein are based on sources believed to be reliable and written in good faith, but no representation or warranty, expressed or implied, is made as to their accuracy, completeness, timeliness, or correctness. Neither we nor our information providers shall be liable for any errors or inaccuracies, regardless of cause,

or the lack of timeliness of, or any delay or interruptions in, the transmission thereof to the users. All information contained in this report should be independently verified with the companies mentioned.

? American Association of Individual Investors, 2019. AAII Dividend Investing is a trademark and service mark of the American Association of Individual Investors--All rights reserved. This publication may not be reproduced in whole or in part by any means without prior written consent.

"The American Association of Individual Investors is an independent nonprofit corporation formed in 1978 for the purpose of assisting individuals in becoming effective managers of their own assets through programs of education, information and research."

Printed in the U.S.A.

2

June 2019

AAII Dividend Investing

Portfolio Holdings

DI Pur- Latest May

Total Return

Ticker Company

Portfolio Alert chase Price Gain/ Since Purchase Div Date Price Price (6/4/19) (Loss) Stock Index Yield

AMGN Amgen, Inc.

10/27/17 $175.28 $174.93 $174.73 (7.0%) 5.2% 15.0% 3.3%

BLK BlackRock, Inc.

10/5/18 $470.86 $463.47 $434.53 (14.4%) (4.8%) (1.4%) 3.0%

CMA Comerica Inc.

12/7/18 $74.03 $73.13 $72.05 (12.4%) 0.2% 6.2% 3.7%

CBRL Cracker Barrel

2/3/17 $158.50 $158.80 $166.88 (6.9%) 15.2% 28.1% 3.1%

CMI Cummins Inc.

10/3/14 $135.10 $136.18 $156.34 (9.3%) 31.9% 54.2% 2.9%

EMN Eastman Chemical Co.

2/6/15 $73.20 $74.67 $71.29 (17.7%) 6.3% 46.7% 3.5%

ETN Eaton Corporation

12/31/11 $43.53 $45.52 $77.77 (10.1%) 118.9% 135.9% 3.7%

HD Home Depot Inc.

9/1/17 $150.78 $152.88 $195.25 (6.8%) 32.2% 17.3% 2.8%

HBAN Huntington Bancshares 1/12/18 $15.85 $15.86 $13.37 (9.1%) (11.8%) 3.4% 4.2%

IBM IBM Corp.

10/2/15 $144.58 $149.54 $132.69 (9.5%) 3.3% 48.9% 4.9%

IP

International Paper Co.

4/4/14 $45.81 $45.69 $43.89 (11.4%) 16.6% 64.4% 4.6%

MDT Medtronic PLC

1/6/17 $72.87 $75.05 $94.41 4.2% 33.0% 28.1% 2.1%

OXY Occidental Petroleum

1/9/15 $77.54 $75.96 $49.69 (15.5%) (21.3%) 48.4% 6.3%

PEP PepsiCo, Inc.

12/31/11 $66.35 $66.66 $129.07 (0.0%) 139.5% 135.9% 3.0%

PII Polaris Industries Inc.

12/9/16 $85.84 $86.34 $84.00 (17.1%) 3.4% 28.1% 2.9%

PFG Principal Financial

12/9/16 $60.30 $59.55 $54.80 (9.8%) 0.3% 28.1% 3.9%

PG Procter & Gamble Co.

12/7/12 $70.29 $70.89 $104.68 (3.4%) 81.7% 119.1% 2.9%

SNA Snap-on Incorporated

9/7/18 $180.60 $183.36 $159.80 (7.3%) (11.3%) (2.0%) 2.4%

TXN Texas Instruments

4/5/13 $34.20 $34.80 $109.12 (11.5%) 270.1% 98.3% 2.8%

TSN Tyson Foods, Inc.

3/8/19 $62.78 $64.74 $79.33 1.2% 22.5% 0.1% 1.9%

UNP Union Pacific Corp.

7/2/15 $96.66 $97.23 $170.41 (5.8%) 92.2% 43.7% 2.1%

WBA Walgreens Boots Alliance 6/7/19

na

na $51.50 (7.9%) na

na

3.4%

WEC WEC Energy Group

12/31/11 $34.96 $34.68 $81.29 2.7% 233.7% 135.9% 2.9%

WSM Williams-Sonoma, Inc.

6/3/16 $53.25 $54.00 $59.44 2.3% 20.8% 39.9% 3.2%

Data as of 6/4/2019.

Sources: AAII Stock Investor Pro, Thomson Reuters, I/B/E/S and company releases.

Industry Pharmaceuticals Investment Mgmt & Fund Operators Banks Restaurants & Bars Auto, Truck & Motorcycle Parts Chemicals - Commodity Electrical Components & Equipment Retailers - Home Improve Prods & Servs Banks IT Services & Consulting Paper Packaging Medical Equip, Supplies & Distribution Oil & Gas - Exploration and Production Non-Alcoholic Beverages Recreational Products Insurance - Life & Health Personal Products Industrial Machinery & Equipment Semiconductors Food Processing Freight & Logistics - Ground Retailers - Drug Utilities - Electric Retailers - Home Furnishings

dividend for 43 consecutive years. In June 2018, the company announced a 10.0% increase in its quarterly dividend. Over the last five years, the dividend has increased at an annualized rate of 7.8%. Based on historical precedent, there is potential for an increase tied to the third-quarter earnings announcement on June 27.

The ratio of total liabilities to total assets has increased over the last five years from 44.9% to 64.8% but is well below the industry median of 84.4%.

The company's ability to pay interest is solid as measured by the times interest earned ratio of 9.7.

Walgreens' current earnings payout ratio is 31.5% and its free-cash-flow payout ratio is 32.8%; the latter is above its five-year average of 29.8%.

The company's long-term capital policy is to maintain a strong balance sheet and financial flexibility, including returning surplus cash flow to stockholders in the form of dividends and share repurchases over the long term.

In the first six months of fiscal 2019, Walgreens returned $3.1 billion to shareholders through stock repurchases and $841 million in dividends paid.

Walgreens shares currently yield 3.4%, based on an indicated dividend of $1.76 per share, above the five-year average yield of 1.9%.

The stock is trading with a trailing price-earnings ratio of 10.3, below the five-year average of 22.1, and well below the industry median of 15.4. The forward price-earnings ratio is 8.6 times consensus earnings estimates for both 2019 and 2020. Shares of Walgreens are trading at historically low valuation levels.

The landscape across retail (drugs) is very competitive, and Walgreens faces significant headwinds from mass merchants and internet retailers for consumer commodity products.

Regulatory and reimbursement changes will likely continue to impact gross margins, but Walgreens should be able to offset this decline as the company improves its cost structure and accelerates cost savings initiatives. The company is focused on a multi-faceted cost management program that is expected to deliver in excess of $1.5 billion of annual cost savings by fiscal 2022.

Walgreens is trading at historically low valuation levels and is extremely

attractive, with a dividend yield above its historical average high.

Dividend News

Eight stocks in the DI portfolio declared dividends during May: BlackRock Inc. (BLK), Cummins Inc. (CMI), Eastman Chemical Co. (EMN), Home Depot Inc. (HD), International Paper Co. (IP), Occidental Petroleum (OXY), Tyson Foods Inc. (TSN) and Union Pacific Corp. (UNP). Half of the 24 stocks in the portfolio have announced dividend increases this year, with the increases averaging 8.4%.

BlackRock declared a regular quarterly dividend of $3.30 per share, in line with the previous declaration in January, which was a 5.4% increase at that time. BlackRock's dividend yield is 3.0%, above its five-year average of 2.5%. The dividend will be paid on June 20 to shareholders of record as of the close on June 6. The stock traded ex-dividend on Wednesday, June 5.

Cummins declared a regular quarterly dividend of $1.14 per share, in line with the previous declaration in February, which was a 5.6% increase at that time. Cummins' dividend yield is 2.9%, slightly

June 2019

3

Performance of DI Portfolio

2012

2013

Growth of $100,000

AAII Dividend Investing Portfolio

2014 2015 2016 2017 2018 2019

$250,000 $240,000 $230,000 $220,000 $210,000 $200,000 $190,000 $180,000 $170,000 $160,000 $150,000 $140,000 $130,000 $120,000 $110,000 $100,000 $90,000

Performance

Dividend Yield

Dividend Investing Portfolio 3.2%

Dow Jones U.S. Index (IYY) 1.8%

Dividend Investing Portfolio*

Total Income Capital

Return Return Gain/(Loss)

May

(7.2%) 0.1%

(7.3%)

2019 YTD

12.8%

1.4%

11.4%

2018

(11.5%) 2.6%

(14.1%)

2017

22.3%

3.4%

18.9%

2016

18.2%

3.9%

14.3%

2015

(7.7%) 2.9%

(10.6%)

2014

12.2%

3.0%

9.2%

2013

36.5%

3.6%

32.9%

2012*

10.2%

3.5%

6.7%

From Inception 124.7% 44.7%

80.0%

Performance as of 6/5/2019.

Dow Jones U.S. Index (IYY)

Total Income Capital

Return Return Gain/(Loss)

(6.4%) 0.0%

(6.4%)

13.9%

0.4%

13.5%

(5.2%) 1.7%

(6.9%)

21.3%

2.0%

19.3%

12.0%

2.1%

9.9%

0.4%

1.9%

(1.5%)

12.9%

2.0%

10.9%

32.6%

2.3%

30.3%

14.4%

2.3%

12.1%

152.3% 31.2%

121.1%

*The AAII Dividend Investing portfolio started on January 3, 2012. The portfolio is run as if managed by a subscriber and includes delays in reaction time to portfolio alerts, actual commissions and bid-ask spreads.

above its five-year average of 2.8%. The dividend was paid on June 5 to shareholders of record as of the close on May 24.

Eastman declared a regular quarterly dividend of $0.62 per share, in line with the previous declaration in February, which was a 10.7% increase at that time. Eastman's dividend yield is 3.5%, above its five-year average of 2.3%. The

dividend will be paid on July 5 to shareholders of record as of the close on June 17. The stock will trade ex-dividend on Friday, June 14.

Home Depot declared a quarterly dividend of $1.36 per share, in line with the previous declaration in February. Home Depot's dividend yield of 2.8% is above its five-year average of 2.2%. The dividend is payable June 20 to shareholders

of record as of June 6. The stock traded ex-dividend on Wednesday, June 5.

International Paper declared a quarterly dividend of $0.50 per share, in line with the previous declaration in January. International Paper's dividend yield of 4.6% is above its five-year average of 3.5%. The dividend is payable June 14 to shareholders of record as of May 28.

Occidental declared a quarterly dividend of $0.78 per share, in line with the previous declaration in February. Occidental's dividend yield of 6.3% is above its five-year average of 4.1%. The dividend is payable July 15 to shareholders of record as of June 10. The stock traded ex-dividend on Friday, June 7.

Tyson declared a quarterly dividend of $0.375 per share, in line with the previous declaration in February. Tyson's dividend yield of 1.9% is above its five-year average of 1.1%. The dividend is payable September 13 to shareholders of record as of August 30. The stock will trade exdividend on Thursday, August 29.

Union Pacific declared a quarterly dividend of $0.88 per share on May 16, in line with the previous declaration in February. Union Pacific's dividend yield of 2.1% is at its five-year average. The dividend is payable June 28 to shareholders of record as of May 31.

Portfolio News

Strongest Stocks During May

Medtronic PLC (MDT) was the top performer in the DI portfolio for the month, up 4.2% in May. Medtronic reported fourth-quarter results for its fiscal 2019 that beat analyst expectations. The company also said that it expects revenue growth to accelerate in fiscal 2020 and carry into 2021 as pipeline products come to market and certain headwinds phase out of year-over-year comparisons.

Total fourth-quarter revenue for the company was $8.15 billion, flat year over year but up 3.6% organically when adjusted for the negative impact of foreign currency. Medtronic saw outperformance in its restorative therapies group (RTG) and minimally invasive therapies

4

June 2019

AAII Dividend Investing

group (MITG) that offset challenges in the cardiac and vascular group (CVG) and difficult year-over-year comparisons in the diabetes group. Revenue from emerging markets grew 12%, with strength diversified across all four of Medtronic's groups and across multiple geographies.

Adjusted net income of $2.08 billion was up 7% year over year and adjusted diluted earnings per share of $1.54 were up 8%. Nineteen analysts polled by I/B/E/S were expecting earnings per share of $1.47, leading to a 5% surprise from Medtronic for the fourth quarter.

Medtronic is expecting the first quarter of fiscal 2020 to have an organic revenue growth rate in the range of 2.0% to 2.5%--lower than normal following its better-than-expected fourth quarter. The lower first-quarter projected revenue growth is attributable to transitory headwinds from the shutdown of a major sterilization supplier's facility and a slowdown in the company's peripheral business from paclitaxel-coated balloons.

For the full fiscal 2020 year, Medtronic is expecting organic revenue growth to be about 4%, with the revenue growth building as the year proceeds.

WEC Energy Group (WEC) was the second-best-performing stock in the DI portfolio for the month of May with a gain of 2.7%. There was no companyspecific news attributed to the price appreciation.

Given all the uncertainty surrounding trade-related news, the month of May was challenging for the market. As trade tensions continue to rise, WEC Energy will likely be a beneficiary as investors seek defensive stocks that provide safety and a steady dividend.

Beta measures the correlated price volatility of an investment compared to a benchmark; it compares the relative market risk of a security and the overall portfolio. For instance, WEC Energy has a beta of 0.12, meaning it is less volatile than the market, which has a beta of 1.00. With a beta of 0.12, if the benchmark appreciates by 10%, the stock should rise by 1.2%. The same would hold true during a market downturn.

Recent Earnings Announcements

Ticker Company

Date Reported Expected Surprise

Reported Earnings Earnings

%

HD Home Depot Inc. MDT Medtronic PLC OXY Occidental Petroleum TSN Tyson Foods, Inc. WSM Williams-Sonoma, Inc. Data as of 6/4/2019.

May 21 $2.270 $2.179

4.2%

May 23 $1.540 $1.465

5.1%

May 6 $0.840 $0.768

9.4%

May 6 $1.200 $1.137

5.5%

May 30 $0.810 $0.692 17.1%

Sources: I/B/E/S and company releases.

A benchmark decline of 15% would be expected to be accompanied by a 1.8% drop for WEC Energy. Utilities are often a safer option that investors flock to during market downturns.

WEC Energy's current dividend yield is 2.9%, which is in line with the five-year low of 2.9%. The stock is at risk of falling out of its high-low dividend valuation range and will be monitored. The company has paid a dividend since 1939 and increased its dividend consecutively for 16 years.

Williams-Sonoma Inc. (WSM) was the DI portfolio's third-best-performing stock in May, up 2.3%. The company reported results for the first quarter of 2019 that beat analyst expectations and raised its full-year guidance--a signal of confidence despite turbulence in retail markets.

Net revenues of $1.2 billion grew 3.2% year over year, with comparablebrand revenues up 3.5% and doubledigit comparable-sales growth for the West Elm brand. Adjusted net income was $64.7 million, or $0.81 per diluted share, up 14.7% and 20.9% year over year. Adjusted earnings per share beat the I/B/E/S analyst consensus estimate for earnings per share of $0.69 by 17.1%.

Williams-Sonoma said it has been aggressively executing its plan to offset the financial impact of the U.S. and China trade tariffs. The company has moved a substantial amount of production out of China and is offsetting most tariff impacts through cost renegotiations and selective price increases.

Given Williams-Sonoma's strong start to the year and the early strength in the second quarter, it raised its full-year earnings per share guidance by $0.05.

The company expects total net revenue for the year between $5.67 billion and $5.84 billion, with comparable-brand revenue growth between 2% and 5%. Adjusted earnings per share are now expected to be in the range of $4.55 to $4.75, up from $4.50 to $4.70.

Weakest Stocks During May

Eastman Chemical Co. (EMN) was the worst-performing stock in the DI portfolio for the month, losing 17.7% in May. Eastman has been significantly impacted by the ongoing trade conflict between the U.S. and China.

Eastman has stated that it is experiencing weak demand from both China and Europe. The company is taking additional cost-reduction actions due to a challenging business environment; however, it expects the global economy to strengthen in the second half of 2019. On May 2, Eastman declared a dividend of $0.62 per share, consistent with its previous dividend payment. The company currently has a dividend yield of 3.5%, which is above its five-year average high of 2.8%. Through share repurchases and dividends, Eastman returned $212 million to shareholders during the first quarter of 2019. The company has paid a dividend since 1994 and has consecutively increased its dividend for the past nine years.

Polaris Industries Inc. (PII) was among the worst-performing stocks in the DI portfolio during the month, down 17.1%. The ongoing trade spat between the U.S and China has created significant headwinds for Polaris.

The U.S Trade Representative's office set a June 1 deadline before tariffs were to be increased. As that deadline expired, the U.S began collecting 25%

June 2019

5

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