Category Archives: Dividend Watch List

Previous Year Performance Review

In our ongoing review of the NLO Dividend Watch List, we have taken the top five stocks on our list from July 24, 2015 and have checked the performance one year later. The top five companies on that list can be seen in the table below.

The average gain of the top five companies was exceptional. Average price gained 17.8% with Airgas (ARG) leading the way with 44.6%. Air Liquide announced an acquisition of Air Gas in mid November. We didn't elaborate more on Airgas and in many ways, we wished we did. However, we did touched upon Intel (INTC) and Lincoln Electric (LECO). Below are excerpt from prior year list.

If we look at the current fundamental figure, Intel (INTC) fell to $28 and has dividend of 3.4% which the company has no problem sustaining. Multiple of 12 appears to be low but one should expect the analysts to revise their projection down and bring 2016 EPS estimate down. We guess that F P/E would sit at 15 by the end of next year. As such, shares accumulation at current level is very enticing but with expectation that another 15-20% downside risk is highly likely and a second or third purchase will be needed.

The company (Lincoln Electric) has relatively high profit margin at 10%, return of equity of nearly 20%. Lincoln has $290M in cash, total debt of $170M, and leverage free cash flow of $375M. Based on this information, it's fair to say that the company has strong balance sheet and one shouldn't worry about the debt payment. Dividend payment of $1.16 equate to 2% yield and 30% payout ensure that dividend payout will remain certain. Back in late 2014, the company increase its payout by 26%. While that level of increase will not be likely in the year to come, we speculate that a double growth in dividend would still be likely. Income investor willing to build position now, may want to start researching the story of Lincoln and get comfortable with its tie to China.

We hope that our ongoing review of our prior work serve to benefit us and our readers.

U.S. Dividend Watch List: July 22, 2016

It was another good week for the bull as equity continued to progress higher. The S&P reached another all-time high and ended the week up 0.6%. As our name suggested, we are not one to recommend adding new capital when equity is at the high. The mantra of "buy high and sell higher" does not fit our risk profile so be advice when putting new capital to work at this level. Below are 7 companies appearing on our dividend watch list. Continue reading →

Previous Year Performance Review

In our ongoing review of the NLO Dividend Watch List, we have taken the top five stocks on our list from July 10, 2015 and have checked the performance one year later. The top five companies on that list can be seen in the table below.

The average return of the top five companies was below our expectation with a loss of 3.2%. The market on the opposite end gained more than 2%. Largest decline came from Murphy Oil (MUR)

which was hit hard by the decline in oil price. Back in 2014, Murphy earned more than $900M in net income but saw that figured sink to nearly $2.4B in losses. The best performer was McGrath RentCorp (MGRC) which provide modular buildings for rent. While net earning declined year-over-year, investor paid more for the company and pushed the earning multiple from 16 to 19. As such, the stock rose by 8%. Continue reading →

Previous Year Performance Review

In our ongoing review of the NLO Dividend Watch List, we have taken the top five stocks on our list from June 26, 2015 and have checked the performance one year later. The top five companies on that list can be seen in the table below.

The average return of our the top five companies exceeded the market's performance by a good margin. The best price performance came from a utility company, PP&L (PPL). The search for safety and income was likely the main driver. The worst performer was Norfolk Southern (NSC) which lost 7% of its value.

We touched on Wal-Mart (WMT) briefly in our review. The stock was trading at $72 but dropped as low as $56. We didn't provide any downside target which could have been beneficial because the stock has traded back to $72, a +28% gain from the low. While we mentioned that a rise to $90 isn't likely anytime soon, a rise from the mid-$50s to $70s isn't far fetched. Technically speaking, the stock may have put in the low at $56. Any buying from this point may use the 150 or 200 day moving average as a stop loss.

U.S. Dividend Watch List: June 24, 2016

It was a wild week for the market as Brexit became a reality. The market fell -3.6% on Friday and closed the week -1.6% lower. Our team believes Brexit is a non-event for long-term equity holders. The world will not end so one should use this as an opportunity to build a basket of companies for the long run.  As an example, we are not aware of Nordstrom (JWN) having business any presence in England. Yet the stock was lowered by nearly 3% on Friday. Below are 29 companies on our watch list. Continue reading →

Previous Year Performance Review

In our ongoing review of the NLO Dividend Watch List, we have taken the top five stocks on our list from May 29, 2015 and have checked the performance one year later. The top five companies on that list can be seen in the table below.

The average gain for the top 5 companies slightly exceeded the market. The best performer was Questar (STR) and the largest decline came from Murphy Oil (MUR). We started our review with Procter & Gamble (PG) which gained +6.5% excluding the dividend. It's no secret that Procter & Gamble is a blue-chip name. Our commentary stated that downside risk was limited and research should be initiated at currently level. It's too bad that we didn't heed our own advice on this one.

Last year, Murphy Oil (MUR) was trading at its yearly low with a 3.30% dividend yield. When we wrote about Murphy last year, oil was trading around $60. However, the price tanked and hit a low at $26. The recent rebound brought the price back to $48 but remains more than -20% below where we were a year ago. Our assessment that oil price were closer to the bottom at the time was extremely wrong. One key thing to note is that Murphy didn't cut their dividend payout and as such, their current dividend yield is north of 5%. Despite the fact that Murphy can sustain their dividend, shares should be view as speculative given the negative net income outlook.

Wal-Mart (WMT) was trading just north of $73 and our team believed that if shares could hold above this level AND continue to raise thier dividend, it would be worth considering. One of the two criteria came to fruition when board of director approved a dividend hike from $0.49 to $0.50. Despite that, the company reported a dismal third quarter last year and the techinicals broke down which took the shares down as low as $56.30.

U.S. Dividend Watch List: June 3, 2016

The conventional wisdom of sell in May and go away didn't quite pan out. S&P 500 rose more than +2%. At the end of the week, our watch list contains 15 companies. Continue reading →

Performance Review

In our ongoing review of the NLO Dividend Watch List, we have taken the top five stocks on our list from May 15, 2015 and have checked the performance one year later. The top five companies on that list can be seen in the table below.

Watch List Review

The average gain from the top five companies was satisfactory. The average gain of 6.6% far exceed the decline in the Dow Jones Industrial and S&P 500. Black Hills (BKH) was the biggest contributor to the success. The South Dakota utility company earning was virtually flat for the year. We are not quite sure what driver pushed the stock higher by more than 25%. The only thing we can think of is the search for yield. Similarly, Otter Tail (OTTR), experienced similar rise in share price. As negative yield spread and the search for income continue, utility sector will be the sector which institutions turn to. This is only our thesis but one can look at Dow Jones Utility Average for confirmation. The index rose 14% while the Industrial fell 3.6%.

The biggest drag to the top five came from Norfolk Southern (NSC) which lost nearly 12% for the year. When shares were trading at $97 last year, we pointed that Value Line estimated fair value of $90 which turned out to be a wise call. Operating in rail industry can be profitable because of the oligopoly nature in the industry. However, it is capital intensive and can be very cyclical. The slow down in the energy sector has a large affect on the rail business.

Tiffany Co. (TIF) was one name we highlighted and took position. The purchase didn't pan out as well as we'd hope for. Originally when we purchased the stock in late April of 2015, shares were trading in the mid 80s. It quickly rose to $95 at the end of July before plunging to the current level. The thesis for this purchase is the brand value and double digit return on equity. Those factors remain in tact and we are evaluating whether additional position should be taken at this level.

U.S. Dividend Watch List: May 13, 2016

It was another volatile week with the S&P rose above 2,080 but closed the week below 2,050. The index lost 0.5% for the week and is virtually flat for the year. Weakness in the market is providing long term investor with more companies to comb through. Below are 24 companies on our dividend watch list for the week. Continue reading →

Performance Review

In our ongoing review of the NLO Dividend Watch List, we have taken the top five stocks on our list from April 24, 2015 and have checked the performance one year later. The top five companies on that list can be seen in the table below.

Watch List Review

The biggest gain came from a company unfamiliar to us, Sanderson Farms (SAFM). A year ago we said that this is a new company which we had no exposure to prior to the watch list. This small cap producer of poultry products had net earnings fall by -42% and yet the stock gained +15%! While one may view this as a disconnect in the fundamentals, another could argue that such expectations were baked into the price. When we published the list last year, shares were trading at $76 with projected net income of $7.05 which brings forward P/E to just 10x. Such low multiple imply that any miscalculation in the analysts' estimate (to the downside) would result in a strong recovery in share price. We believe this was the case with Sanderson Farms.

We wrote a quick note on Gorman-Rupp (GRC), which etched out a modest gain of +3%. However, that gain wasn't without some volatility. When we published the list, the stock was trading at $28. The shares traded below $20 in August (hit the low of $18.14 on August 22 but closed above $22). The reversal came the same day and shares traded as high as $32. We stated that shares were worth considering at such level but didn't have complete conviction over the name. However, if one was able to pick up shares on a two part trade, one would have done quite well within one year.

U.S Dividend Watch List: April 8, 2016

It was another strong week for the market as the S&P 500 rose +0.53% pushing the YTD gain at +2.3%. Because of that, there are only 9 companies on our watch list this week. We are not inclined to put new money to work at this point. However, the financial sector is appealing at the moment and any new money needs to be able to generate relatively safe income. Continue reading →

Performance Review

In our ongoing review of the NLO Dividend Watch List, we have taken the top five stocks on our list from April 10, 2015 and have checked the performance one year later. The top five companies on that list can be seen in the table below.

Watch List Review

The average gain from our top five companies was reasonable given the overall environment. A gain of +1.70% was superior to a loss of -2.60% for the general market. The gain and loss ranged from +17.80% to -9.90%. The best performer with gain of +17.8% was Fasternal (FAST). The exceptional gain can be attributed to two factors, earnings growth and multiple expansion. Net income rose by +7%, from $1.66 to $1.77 over the past year. Earning multiples rose to 26 from 24. As icing on the cake, the dividend was increased by +7%, from $0.28 to $0.30. One outstanding statistic which highlighted the strong economic mode is Return on Equity (ROE). Below is what we said about Fasternal one year ago:

"Fasternal (FAST) currently yield 2.8% with P/E of 24. The stock is trading just 1.4% above its yearly low. For the last twelve months the company earn $1.66 per share and the consensus expects the net income to rise to $2.07 in 2016. The one fundamental number that attracts us is the return on equity. If the company earning $2.07 next year on $6.00 of book value, that equate to 34.5% ROE."

The worst performer was Lindsay (LNN). We all know that the agricultural sector was dragged down by deflationary forces and it clearly shown in the stock price. One year ago, LNN was trading at $75 and Value Line Investment Survey placed a fair value estimate at $77. However, the latest Value Line report has a price of $68, slightly below fair value of $69. Our valuation model suggests an extreme downside of $45 but long-term investors should start paying attention to Lindsay at the current price. Below is a highlight of our commentary on Lindsay.

Lindsay (LNN) provides agricultural equipment. While income investor may not be excited over 1.4% dividend yield, payout ratio of 30% ensure that income is relatively safe. Profit is expected to fall in 2015 from the last 12 months by 24% but is expected to recover in 2016. Value Line projects that the company trades at 16x cash flow with estimated fair value at $77.

U.S Dividend Watch List: April 8, 2016

The market gave ground this week and fell -1.2%. However, the correction wasn't big enough to make a substantial change in the watch list. Continue reading →

Prior Year Top Five Performance Review

In our ongoing review of the NLO Dividend Watch List, we have taken the top five stocks on our list from March 27, 2015 and have checked the performance one year later. The top five companies on that list can be seen in the table below.

Watch List Review

The average gain for the top five companies was +4% which was better than the market. The best performer may be of a surprise to many, Philip Morris (PM) gained +27% in the year. Of the five companies, the largest decline of -7% came from Praxair (PX). We highlighted three companies and would like to bring to light what we said about Exxon Mobile (XOM). Below is an excerpt from that post.

As one look beyond the short term and see what the market has offered us, the investment opportunity looks even more compelling even in the mist of the bad news. Valueline placed a fair value at $75 for 2016 which is roughly 10% below the current level. Although Valueline estimated earning and cash flow per share to fall, dividend is projected to rise 5% and 4% from 2015 and 2016 respectively (head to Valueline for complimentary research report on Exxon). IQTrend estimated that the company is undervalued at 3.2% yield and current yield of 3.3% suggests that we are much closer to the bottom than the top. Don't expect the stock to pop in the short term and may have more downside to go. Multiple purchases is likely the best approach for long-term investor.

U.S Dividend Watch List: March 25, 2016

Below are 26 companies appearing on our dividend watch list for the week. Continue reading →