Boring Terms We Need To Know: PEG Ratio

In our last "boring terms" post we analyzed the common P/E ratio.  Another ratio that ties into P/E that we use in our dividend growth stock analysis is PEG Ratio.  PEG stands for Price/Earnings to Growth.  This ratio demonstrates a stocks current P/E to its expected earnings growth - typically its estimated 5 year growth.

This term was popularized by Peter Lynch, a very successful investor that works for Fidelity Investments. Peter stated in his 1989 book One Up on Wall Street that "The P/E ratio of any company that's fairly priced will equal its growth rate".  So a fairly valued company will have its PEG equal to 1.  The lower the PEG the more undervalued a stock is based on future estimated growth.

Why Smart Investors Buy Dividend Stocks

Let's get a few things straight. Dividend stocks are not cool. They are not exciting. And they do not make for good conversation topics at parties. They're like the trombone player from high school who never had a date to prom. In fact, come to think of it, the only thing dividend stocks are good for is making money. And potentially lots of it. So if you're not interested in making money, then proceed no further.  READ MORE

Dividend Growth Stock Analysis: AFLAC

Supplemental insurance is a boring topic to talk about. Many people have it through their work, but most probably couldn't tell you who their provider is... unless its Aflac (AFL).  Its amazing what a good advertising campaign can do for a company. The Aflac duck has become the face (and sound) for the company and has made Aflac a easily recognized name.  But its not just advertising that Aflac does well, they also dominate their niche insurance business.  I was lucky enough to buy stock in Aflac in 2009 when there were fears of them holding too much toxic European debt.  Those fears have been calmed since then and the future is looking brighter now.  So let's take a look at how Aflac rates in this week's dividend growth analysis*.  READ MORE


* Based on my experience using this analysis model I have decided to make a small change to consecutive dividends paid and consecutive dividend raises. Previously I used > 30 years = 2 points but have changed this to > 25 years. This will be reflected from this analysis forward.

Boring Terms We Need To Know: P/E Ratio

Price-to-earnings ratio (P/E) is one of the first stock analysis terms people learn about.  It's a very simple calculation that gives you an idea of the current valuation of a company based on its earnings.  Although it is a simple metric and one most people will say they understand, there is more to just knowing that the lower the P/E ratio the cheaper the valuation of the stock.

For those of you who are beginners lets take a quick look at the calculation.  P/E is just as it appears, price divided by earnings.  Typically you will see (TTM) when viewing a P/E ratio, this stands for Trailing Twelve Months.  In other words, it is using the stock's earnings for the most recently reported 12 months.

Dividend Growth Stock Analysis: Wal-mart

Since I live in the city I'm not able to go to Wal-mart (WMT) to do my shopping very often. Of course there are several in the surrounding metropolitan area so I get the opportunity from time-to-time. Honestly I don't like the idea of going to them because the store is always crowded (no matter what time it is) but once I'm inside I'm amazed at the time and money I end up spending. I don't think I've ever come out of a Wal-mart store with only what I went there looking for. When something like that happens you know it's a good business and one that should be around for a very long time. I had this realization a few years back and was lucky enough to purchase shares of Wal-mart for under $50 / share. Let's take a look and see if the company still rates as a good dividend growth buy today:  READ MORE

Searching for Future Dividend Stars

I was an avid baseball card collector when I was a kid. It was one of the few things that would tempt me to spend my allowance. I loved the smell of a newly opened pack of cards and even the cardboard crunch gum that was in the earlier packs... well at least for the two minutes that it had flavor. Although I loved the game of baseball and reading stats about players, what I really cared most about was the value of the card. Getting a card of my favorite player (Ozzie Smith) was great, but what I most wanted was a rookie card of a potential up-and-coming star because that's where the greatest potential for increased value was.

I remember when Topps brand would release "Future Stars" cards for players they thought were going to be, well, future stars. Of course they were basing this tag on a small sample set of the player's stats. So for every Bo Jackson, there was a Tim Pyznarski. Although I have moved on from collecting baseball cards to "collecting" dividend growth stocks, I'm still in search of those future stars so I can own an earlier and more valuable version of an asset.   READ MORE

Aristocrats, Champions, and Achievers

I have to apologize, this post should have been one of my first ones but I got wrapped up in talking about other things and analyzing specific stocks. Hopefully many of you knew of the following lists, but for those of you just starting in dividend growth investing the following links are a valuable research tool.

Our main goal is to find stocks that not only pay a dividend every year, but also raise their dividend each year.  There are a few official lists that keep track of this information for us.  Each of these is a great place to start looking for potential investment ideas.  Of course, just because a stock is on one of these lists does not mean its a good buy.

Dividend Stock Analysis: Altria (MO)

I'm not sure there is a company that has created more wealth for investors over the past 40 years than Altria Group (formerly known as Philip Morris).  Between the dividends they collectively paid and companies that they've spun-off (Miller Brewing Company, Kraft Foods, and Philip Morris International) you would have made a great deal of money being a long-term shareholder.  Of course in hindsight investing we're all millionaires.  What we're concerned about is can Altria continue creating that type of wealth for its investors, or has its heyday passed by.  Altria is the latest stock I put through my analysis that was recently posted on SeekingAlpha.com.

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Side note:  When a stock like Altria creates so much wealth for shareholders it also can create a lot of loyalty.  As you will see in some of the comments on my post, these loyal shareholders don't take to kindly to my analysis of Altria as a future dividend growth stock.

Boring Terms We Need To Know: Cash Flow

You've probably noticed in my stock analysis that I like to use cash flow.  This is essentially net income for a company, but I feel cash flow is a much better gauge for measuring a company's financial health.  Net income (or earnings) can be more easily manipulated by accounting measures and does not always reflect the actual amount of money made for a period of time. So earnings does not always equal cash.  As dividend growth investors we care about cash first and foremost as a dividend payment is simply cash going from the company to the shareholder.

The Key to Smart Dividend Investing

Ask most income-seeking investors what they like best about dividend stocks, and they'll tell you the obvious answer: their current yield. But if you want to be a smarter long-term dividend investor, you have to go beyond current yields to learn the secret of dividend longevity -- in order to make sure those payouts will keep coming year after year, decade after decade.

It's easy to understand, though, why so many investors look first at how much income a stock will pay them right now. It's really difficult to find good sources of investment income outside the dividend-stock arena, as interest rates on bonds and other fixed-income investments are near rock-bottom levels.   Read More