Sure Dividend

Sure Dividend

LONG-TERM INVESTING IN HIGH-QUALITY DIVIDEND STOCKS

January 2019 Edition

By Ben Reynolds, Nick McCullum, & Bob Ciura Edited by Brad Beams

Published on January 6th, 2019

2

Table of Contents

Opening Thoughts - Announcing The Real Money Portfolio And Other Improvements - ... 3 Sell Recommendation: Hormel Foods (HRL) ........................................................................... 4 Sell Recommendation: Abbott Labs (ABT)............................................................................... 5 The Sure Dividend Top 10 ? January 2019 ................................................................................ 6 Analysis of Top 10 Stocks............................................................................................................. 7

Eaton Vance Corp. (EV) ............................................................................................................. 7 Walgreens Boots Alliance Inc. (WBA) .................................................................................... 12 Bank OZK (OZK) ..................................................................................................................... 17 Invesco Ltd (IVZ) ..................................................................................................................... 22 Newell Brands Inc. (NWL)....................................................................................................... 27 Whirlpool Corp. (WHR) ........................................................................................................... 32 AT&T Inc. (T) .......................................................................................................................... 37 Hanesbrands Inc. (HBI) ............................................................................................................ 42 Cardinal Health Inc. (CAH) ...................................................................................................... 47 Cummins Inc. (CMI)................................................................................................................. 52 Closing Thoughts - To DRIP, or Not to DRIP, That is the Question -................................... 57 Real Money Portfolio .................................................................................................................. 58 Portfolio Building Guide ............................................................................................................ 59 Examples................................................................................................................................... 59 Past Recommendations & Sells.................................................................................................. 60 Sell Rules .................................................................................................................................. 60 Current Holds............................................................................................................................ 60 Pending Sells............................................................................................................................. 63 Sold Positions............................................................................................................................ 63 List of Stocks by Dividend Risk Score ...................................................................................... 64

3

Opening Thoughts - Announcing The Real Money Portfolio And

Other Improvements -

Market volatility picked up in December of 2018. The S&P 500 generated negative total returns in a calendar year for the first time since 2008. Our time-tested strategy of investing in high-quality dividend growth stocks trading at or below fair value will not change, regardless of market movement.

As a reminder, we updated our sell rules last month. We will slowly sell past recommendations with expected total returns less than those of the S&P 500. To that end, we have two new sells for this month: Hormel Foods (HRL) and Abbott Labs (ABT). Both are high quality businesses that no longer offer compelling total returns due to elevated values. The full sell analysis is further in this newsletter; proceeds of these sells should be invested into stocks with more favorable return profiles (like those in the Top 10 of this newsletter).

We are excited to announce the opening of our Real Money portfolio! We will systematically build and maintain a high-quality dividend growth portfolio based on the recommendations in The Sure Dividend Newsletter. Each month we will invest an additional $1,000 to show the validity of our approach (Note: this is in addition to our personal investments. All of my (Ben Reynolds) personal stock investments are in Sure Dividend, Sure Retirement, and high-ranking Sure Analysis securities).

You can see our Real Money Portfolio page in this newsletter for more on this. Our first buy for the portfolio is Eaton Vance (EV). We will include images from our actual trading account with Interactive Brokers starting with the next edition of The Sure Dividend Newsletter.

In other Sure Dividend news, the January 2019 edition of The Sure Dividend Newsletter is the first in which our rankings are made with data from The Sure Analysis Research Database. Our ranking procedure is as follows:

1. Filter for U.S. stocks with yields equal to or greater than the S&P 500, with Dividend Risk scores of A or B, and with expected total returns greater than 10%.

2. Rank by expected total return (the higher the rank, the better the stock). 3. No more than 3 securities from any sector in each newsletter.

Relying on Sure Analysis data allows us to significantly improve our ranking procedures. Sure Analysis information is both quantitative and qualitative. The end result is greater risk controls and stronger overall recommendations for our readers.

We have made several changes to The Sure Dividend Newsletter over the past 3 months. These changes are now complete. We are excited to move into 2019 with The Sure Dividend Newsletter running on Sure Analysis data, with improved sell rules based on dividend risk and expected total returns, and with a real money portfolio tracking the journey of building a dividend growth portfolio.

What hasn't changed is our focus on high-quality dividend growth stocks for the long-run. The core of Sure Dividend is the idea that successful investors invest in businesses, not stock tickers, and that highquality businesses which reward shareholders with income through dividends are likely to perform well over time. Their stocks should be purchased at fair or better prices.

4

Sell Recommendation: Hormel Foods (HRL)

We first recommended Hormel Foods back in the December 2016 edition of The Sure Dividend Newsletter, where it was ranked 9th out of 10.

Make no mistake, Hormel is a high-quality dividend growth stock. It is a Dividend King with 53 consecutive years of dividend increases. Hormel has an "A" Dividend Risk score and a payout ratio under 50%. It's very likely the company continues to pay rising dividends for years to come.

We recommend selling Hormel Foods now because it is set to deliver only mediocre total returns in the years ahead. Our total return estimates are based on growth, yield, and valuation.

Hormel's Growth Back in December of 2016, the company had compounded its earnings-per-share at 12% a year over the previous decade. But earnings-per-share declined in 2017. Earnings-per-share were 13% higher in 2018 than 2016, but all of that gain was due to the company's tax rate falling from 34% to 14%. The company's earnings before taxes fell 7.6% in fiscal 2018 versus fiscal 2017. Hormel Foods is struggling to grow meaningfully in a difficult environment for food companies. We now project fiscal 2019 earnings-per-share to be down slightly from 2018 levels, and for earnings-per-share growth beyond that of around 5% annually.

Hormel's Yield & Valuation Hormel is currently yielding 2.0%. Based on its growth and yield alone, we expect total returns of 7.0% annually for Hormel ahead. This in itself is no reason to sell.

Valuation is where Hormel stock lags. The company is currently trading for a price-to-earnings ratio of 22.7 using its current share price of $41.68 and expected fiscal 2019 earnings-per-share of $1.84. The company's historical average price-to-earnings ratio over the last decade is 18.4 for comparison. Based on mediocre recent performance, we feel a fair price-to-earnings ratio of 18.4 (its historical average) is appropriate, if not a bit generous.

If Hormel reverts to its historical average price-to-earnings ratio over the next 5 years, its total returns will be reduced by 4.1% annually.

When valuation is factored in, Hormel's expected total returns over the next 5 years are just 2.9% annually. This is likely to barely exceed inflation and does not compensate investors for the risks of holding any stock (even a high-quality stock like Hormel).

Performance, Recommendation, & Review Despite middling business performance, the company's stock has generated total returns of 28.5%1 since we first recommended it versus 17.0% for the S&P 500 (using the ETF SPY).

We recommend selling Hormel now and reinvesting into a company with better total return potential. Any of this month's Top 10 are certainly candidates.

Since our initial recommendation, Hormel retained its business strength and safety, but has failed to deliver meaningful growth. Fortunately for us the market bid up the company's valuation multiple, giving investors a prime opportunity to take advantage of mispricing and reinvest elsewhere.

1 Return data from before market open, 1/4/19.

5

Sell Recommendation: Abbott Labs (ABT)

We first recommended Abbott Labs back in the July 2014 edition of The Sure Dividend Newsletter (our 4th issue), where it was ranked 3rd out of 10.

Like Hormel, Abbott is truly a high-quality dividend growth stock. Abbott has increased its dividend for 47 consecutive years (excluding spin-off effects ? namely AbbVie). Abbott has an "A" Dividend Risk score and a payout ratio under 50%. It's very likely the company continues to pay rising dividends for years.

We recommend selling Abbott Labs now because it is set to deliver mediocre total returns ahead. Our total return estimates are based on growth, yield, and valuation.

Abbott's Growth When we first recommended Abbott back in 2014, we expected annual adjusted-earnings-per-share growth of 8%. The company has compounded earnings-per-share at 6.0% annually from 2014 through 2018 (using expected adjusted earnings-per-share of $2.88 in fiscal 2018). Fiscal 2014 was a strong year for Abbott; using 2015 as the starting base the company has compounded its adjusted earningsper-share at 10.2%. Overall, we are happy with the growth the company has exhibited in recent years. We expect solid-if-unspectacular growth of around 6.5% annually over the next several years.

Abbott's Yield & Valuation Abbott is currently yielding 1.8%, a bit below the S&P 500's yield of 2.1%. Based on its growth and yield, we expect total returns slightly above 8% annually from Abbott. These are nice expected returns, but not outstanding.

Valuation is the reason to sell Abbott shares. The company is currently trading for a price-to-earnings ratio of 23.9 using its current share price of $66.80 and expected fiscal 2019 earnings-per-share of $2.88. The company's historical average price-to-earnings ratio since spinning off AbbVie (ABBV) in 2013 is 19.0; we believe that's a reasonable fair value price-to-earnings ratio for Abbott.

If Abbott reverts to its historical average price-to-earnings ratio over the next 5 years, its total returns will be reduced by 4.5% annually.

When valuation is factored in, Abbott's expected total returns over the next 5 years are just 3.8% annually ? not high enough to justify holding Abbott shares.

Performance, Recommendation, & Review Abbott has returned 75.9%2 since we first recommended it in 2014, trouncing the S&P 500's (measured using the ETF SPY) total returns of 37.1% over the same period.

We recommend selling Abbott now and reinvesting into a company with better total return potential. Its sister company AbbVie (ABBV) is a potential choice for investors looking for a large pharmaceutical company with (much) better total return potential (not to mention a higher yield). Alternatively, any of this month's Top 10 are preferable as well.

Since our initial recommendation, Abbott has grown its intrinsic per share value and seen its valuation multiple expand. This has resulted in strong, market-beating returns for investors. The stock now appears significantly overvalued. Now is a good time to harvest gains and reinvest into better opportunities.

2 Return data from before market open, 1/4/19.

 ................
................

In order to avoid copyright disputes, this page is only a partial summary.

Google Online Preview   Download