NEW LOW OBSERVER

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 →