Tag Archives: dividend

The Market Doesn’t Matter: Vanguard Dividend Appreciation ETF

Summary Investors need to avoid decision risk. While many individual stocks can be attractive, I’ve seen to many people feel handcuffed (or married) to particular companies. Investors that held VIG and didn’t watch TV could have ignored the financial crisis. If there is one thing investors often struggle with, it is being able to pick a winner and stick with it. While picking winners in the stock market can be very difficult, I believe picking winners in the ETF market is easier. Rather than understanding every business, the fundamentals of the ETF can be used to determine the risk level and risk factors. In my opinion, there are a few ETFs that are simply born winners. It isn’t a case of looking at their performance of an arbitrary time period; it is a matter of some ETFs being designed to serve investors while other ETFs are designed to serve managers. In my opinion, the Vanguard Dividend Appreciation ETF (NYSEARCA: VIG ) is one of those born winners. The very nature of the Vanguard Dividend Appreciation ETF is what makes it such a solid choice. I’ve been asked on occasion: “If you could only invest in one ticker and had to hold it for 50 years, which ticker would you buy?” While I haven’t nailed down the answer to that question, because the premise is mildly absurd, I do believe it is important for investors to know their long term goals and to find investments that match those goals. VIG is an ETF that matches my long term goals, so it would be an extremely strong contender for that question. What does VIG do? VIG attempts to track the investment results of the NASDAQ US Dividend Achievers Select Index. The general methodology is to focus on stocks that have a history of increasing dividends over time. The ETF falls under the category of “Large Blend” and has a very high correlation with the SPDR S&P 500 Trust ETF (NYSEARCA: SPY ). Overall the ETF has been slightly less volatile than SPY and performed slightly better during the last crash as demonstrated in the following chart: (click to enlarge) Getting married I often cover Freeport-McMoRan (NYSE: FCX ) and one of the common themes I hear from investors is that they don’t like the company anymore but after holding it while it fell so far, they feel “married” to it. They resent the investment in which they lost so much money, but they don’t want to just walk away either. That isn’t the way I like to think of marriage, but I can understand how they feel. As investors we may become attached to the investments we have selected and that emotional attachment can complicate our decision making. Since it is very difficult to mitigate emotional biases through training clients, I would rather see people select an investment that will work to protect them. While I am long FCX, I certainly don’t think that it belongs in every investor’s portfolio. On the other hand, there are very few investors that wouldn’t be well served to hold VIG over the next several decades. The risk VIG solves for investors One of the major issues investors face is decision risk. While there are plenty of other kinds of risk in the market, decision risk is one of the nastiest ones. One reason that the S&P 500 regularly beats out most investors (and even money managers) is that a comparison of SPY to actual performance is that money simply stays in SPY while people trade at the wrong time, pay more commissions because of the trading, and cross the bid-ask spread. These issues all add up and stack the deck against many investors. VIG solves a substantial portion of the decision risk problem by offering investors a different way to look at part of their portfolio. Instead of deciding what they should do with their holdings in VIG, investors need simply to turn off dividend reinvestment when they are ready for an income stream. After that, there is no need to touch the investment again. My suggestion on this would be to hold VIG in a different brokerage from other holdings. Hold VIG in an account you never log into, that way there is no temptation to kill the goose that lays the golden egg. If you were holding VIG during the financial crisis As all readers should know, we had a bit of an issue in the financial markets. We saw the economy tank, stock prices plummet, and interest rates go to 0%. On the other hand, if an investor was simply holding VIG and enjoying a nice beach, they had no need to know or care. Their dividends didn’t go away. They still had a similar payment to live on. Just look at the chart below: Investors should know about a couple issues I came across preparing the chart. The fund inception date was in April of 2006, so there are only 3 dividends included for the year. It is only may of 2015, there is only one dividend included for 2015. Yahoo Finance has incorrect information on dividend history. I verified the dividend payouts through Google and Schwab. Yahoo was missing the December 2014 payout. Holdings I put together the following chart showing the top 10 holdings in VIG: (click to enlarge) Conclusion If an investor was only picking one investment, VIG should be a strong contender. If the investor wants to build a more diversified portfolio, it makes sense to put VIG in a separate account and just leave it alone. While rebalancing accounts is very useful in maintaining the optimal risk exposures, the decision risk of accessing the golden goose offsets the benefits of rebalancing. I’m not currently holding any VIG, but my long term plan will have me buying into VIG or the very similar Schwab U.S. Dividend Equity ETF (NYSEARCA: SCHD ). I’ll probably start acquiring the position later this year or early next year. Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. (More…) The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article. Additional disclosure: Information in this article represents the opinion of the analyst. All statements are represented as opinions, rather than facts, and should not be construed as advice to buy or sell a security. Ratings of “outperform” and “underperform” reflect the analyst’s estimation of a divergence between the market value for a security and the price that would be appropriate given the potential for risks and returns relative to other securities. The analyst does not know your particular objectives for returns or constraints upon investing. All investors are encouraged to do their own research before making any investment decision. Information is regularly obtained from Yahoo Finance, Google Finance, and SEC Database. If Yahoo, Google, or the SEC database contained faulty or old information it could be incorporated into my analysis.

Dividend Growth Stock Overview: WGL Holdings, Inc.

Summary WGL Holdings provides over 1 million customers in the mid-Atlantic region with energy services. The company has paid dividends for over 160 years and raised them for nearly 40 years. The company sees gains in earnings of 8-16% in 2015; long-term objectives are to increase earnings by 5-7% a year. WGL Holdings has grown dividends by an average of 4% annually over the last 5 years and 2.5% over the last two decades. About WGL Holdings, Inc. WGL Holdings, Inc. (NYSE: WGL ) is a utility holding company with multiple subsidiaries serving Washington, D.C. and the surrounding areas. The company operates multiple subsidiaries, but its largest subsidiary is Washington Gas, which provides natural gas service to more than 1.1 million customers in D.C., Maryland and Virginia. WGL Holdings has more than 1400 employees and is headquartered in Washington, D.C. WGL Holdings’ operations include: Distribution/Regulated Utility: This operation distributes natural gas to Washington Gas customers and other regulated energy markets. Distributed Generation: This operation is responsible for designing, building and operating on-site energy systems. Included in this is the WGL Energy Systems subsidiary, which is responsible for WGL’s green energy solutions. Retail Supply/Energy: This operation markets and distributes energy to competitive and unregulated markets. Midstream: The midstream operation is run by the WGL Midstream subsidiary, which invests in and owns natural gas pipelines and storage facilities in the Midwest and Eastern U.S. and is responsible for supplying the wholesale market customers – including Washington Gas – with natural gas. In the 2014 fiscal year, which ended September 30, 2014, WGL Holdings reported net income of $105.9 million, up 31.9% from $80.3 million in the prior year (all figures are GAAP numbers). Earnings per share in 2014 were $2.05, up 32.3% from $1.55 per share in the prior year. The year-over-year growth can be attributed to an increase in earnings in the regulated utility and midstream energy services operating segments. Regulated Utility earnings increased 36% to $1.89 per share while Midstream Energy services earnings swung to a gain of 12 cents per share from a loss of 36 cents per share in 2013. This more than offset the 75% drop in earnings from Retail Energy operations. The WGL board expects that the 2015 fiscal year will see earnings grow by 8-16%, which exceeds the company’s long-term earnings growth objectives of 5-7%. The company is a member of the S&P Mid Cap 400 index and S&P’s High Yield Dividend Aristocrats index, and trades under the ticker symbol WGL. WGL Holdings’ Dividend and Stock Split History (click to enlarge) WGL Holdings has paid dividends for over 160 years and increased them since 1977. The company usually announces dividend increases at the beginning of February, with the stock going ex-dividend in April. In February 2015, WGL Holdings announced a 5.1% increase in its dividend to an annualized rate of $1.85. I expect WGL to announce its 40th annual dividend increase in February 2016. Like most mature utility companies, WGL Holdings has a record of very slow dividend growth. The recent dividend increase of 5.1% is the largest in over 25 years. The company has a 5-year compounded annual dividend growth rate (CADGR) of 4.03%, and a 10-year CADGR of 3.29%. Longer term, the dividend growth rates are even lower, with 20-year and 25-year CADGRs of 2.49% and 2.40%. WGL Holdings has split its stock twice 2-for-1 since beginning its record of dividend growth in 1977. The most recent split was in May 1995. Prior to that, the company split the stock in November 1984. For each share of WGL stock that you owned in the early 1980s, you would now have 4 shares of stock. Over the 5 years ending on December 31, 2014, WGL Holdings stock appreciated at an annualized rate of 14.84%, from a split adjusted $27.12 to $54.17. This outperformed the 13.0% annualized return of the S&P 500 and roughly matched the 14.9% annualized return of the S&P Mid Cap 400 index during this time. WGL Holdings’ Direct Purchase and Dividend Reinvestment Plans WGL Holdings, Inc. has both direct purchase and dividend reinvestment plans. The plans’ fees are not too onerous. You do not need to be an existing shareholder to participate. As a new investor, you’ll pay a one-time enrollment fee of $15. There are no fees associated with purchasing shares, either directly or through dividend reinvestment. For new investors, the minimum purchase amount is $250. Once you begin participating in the plan, the minimum purchase amount is $50. When you sell your shares in the plan, you’ll pay a fee of either $15 or $25 plus a transaction fee of 12 cents per share sold. You’ll also be charged an additional $15 if you request help from a customer service representative in placing a sales order. All the fees will be deducted from the sales proceeds. Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. (More…) The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it. The author has no business relationship with any company whose stock is mentioned in this article.

Avista Corp.: A 4% Yield With 4% Dividend Growth

Currently, the shares sport a yield of 3.97%. For the last 13 years, the company has increased its dividend. Avista anticipates continuing to grow its dividend by 4-5% annually. My search for safe high-yield plays continues, and has brought me upon Avista Corp. (NYSE: AVA ). The diversified utilities player is in a solid spot right now, and boy, does its dividend look attractive. Avista’s operations consist of generation, transmission, and distribution of electricity in the Northwest US and Alaska. It’s common knowledge that utilities are a fairly stable sector, and this is one of the main things that drew me to Avista. A stable and safe industry is something I always look for in my search. The utilities sector, in particular, is my favorite place to search for good dividends, and with Avista, I believe I have found just that. AVA Dividend data by YCharts The company currently pays out a quarterly dividend of 33 cents a share. That gives the shares a yield of 3.97% at current levels. As can be seen from the chart above, Avista has seen 13 years of dividend growth, most recently raising it about 4% on February 6th. The payout ratio sits at about 68%, which, by my standards, is more than acceptable. Most of the time, I look for anything under 70%, and depending on the industry, up to 80% may be acceptable. 2014 was somewhat of a transitional year for the company. It sold off its indirect subsidiary Ecova, Inc. to Cofely USA for $335 million. On the other side of the spectrum, Avista closed a deal during the year to acquire Alaska Electric Light and Power Company. Both of these threw a twist on earnings for 2014. In total, the company actually reported earnings per share of $3.10 for the year. However, earnings for the year were actually $1.93 from continuing ops. The earnings from the continuing ops is what is important here, as that will be the comparison for this year. The company reported FY 14 and Q4 results on February 25th that missed the mark by a little. EPS came in at 51 cents versus the consensus of 55 cents. This was mostly due to the mild winter. In the release, CEO Scott Morris blamed the Q4 miss on the weather being warmer than last year and warmer than it typically is. Clearly, the weather is a factor for the company, but it can be seen from the slight miss that it does not effect earnings drastically. Going forward, the acquisition of Alaska ELP should be a near-term growth catalyst. The company only realized earnings from it for the second half of 2014, so it should be a nice boost already to 2015 results. Guidance has the segment contributing 8 to 12 cents to earnings this year. The company sees this segment as a opportune area of growth in the future, and I expect over the next few years, the results from this segment will improve greatly. The guidance the company has set for 2015 calls for EPS between $1.86 and $2.06. This is pretty broad, but the mid-point of $1.96 points to modest earnings growth of 1.55%. However, estimates from analysts have the company positing EPS of $1.98. A slow growth year is not a concern, as the long-term growth of earnings looks headed in the right direction. According to the company’s long-term plan, it seeing earnings and dividend growth of between 4-5% in the future. Finviz also estimates the 5-year long-term annual growth rate of earnings to be 5%. (Source: Avista Update ) Even with a fairly weak 2015, I would not be concerned in the slightest about dividend growth. Earnings over the next few years are still anticipated to grow nicely, and the dividend has plenty of room to grow with it. Another thing is that the shares look fairly attractive at these levels as well. The company is trading at just about 17 times earnings, which is a good bit lower than its peers. Excluding the outliers, the average among domestic diversified utilities is about 20 times earnings. Looking at this year, if Avista were to meet estimates, it will be trading at less than 17 times earnings. While it may not be grossly undervalued, compared with peers based on earnings the shares do appear a little undervalued. The shares are currently trading about 12% off their 52-week highs as well. In conclusion, I like Avista’s dividend a lot. It is somewhat of a less covered name, and it is important to note a good recent history of dividend increases. The company seems committed to this dividend growth, and the dividend should see about 4% annual growth over at least the next few years. Anyone looking for a safer high-yielding dividend growth play should definitely take Avista into consideration. Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. (More…) The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article. Additional disclosure: Always do your own research before investing.