The Disciplined Dividend Investor

Wednesday, October 31, 2007

10/31/07

Economics

The Case-Shiller Housing Price Index (released yesterday) for 20 cities:

http://bigpicture.typepad.com/comments/2007/10/a-tale-of-20-ci.html

More info:

http://bigpicture.typepad.com/comments/2007/10/loan-performanc.html

Politics

Domestic

I try to avoid pure political discussions, but the debate over the confirmation of Judge Mulkasey as Attorney General is dominating the headlines and I thought this point of view from a legal scholar who attempts to separate law and politics was enlightening.

http://author.nationalreview.com/latest/?q=MjE5MQ==

International War Against Radical Islam

The Market

Technical

Fundamental

News on Stocks in Our Portfolios

Proctor and Gamble’s stock got clocked yesterday over investor concern about the impact of a potential weakening in consumer spending and rising commodity prices on the company’s margins (both of which incidentally I would have thought investors already knew unless they are blind, deaf and dumb), despite it (1) reporting better than expected earnings, (2) raising its full year earnings estimate and (3) having an exceptional record managing its costs. While I am not suggesting PG stock as a Buy (Buy Value Range $59-67), the company has all the characteristics that I want to own long term in the Dividend Growth Portfolio and short term in an uncertain economic environment.

Proctor and Gamble is a major household products and cosmetics company with three divisions:

(1) Beauty and Health products: Cover Girl, Max Factor, Olay, Old Spice, Clariol Nice ‘n Easy, Pantene, Head and Shoulders, Wella, Pert, Ivory, Safeguard, Zest, Secret, Right Guard, Always, Whisper, Tampax, Actonel, Prilosec OTC, Vicks, Scope, Pepto-Bismol, Therm-Care, Metamucil, NyQuil and Oral B,

(2) Household Care: Tide, Gain, Dash, Ariel, Downy, Frebreze, Dial, Joy, Cascade, Swiffer, Mr. Clean, Crest, Iams, Eukanuba, Papmers, Luvs, Charmin, Bounty, Puffs, Pringles, Folgers, and Sunny Delight,

(3) Gillette: Gillette, Mach 3, Venus, Braun, Duracell.

Management’s objective is to consistently grow its sales and earnings through both the internal development and by acquisition of its portfolio of brand names. Its strategy to accomplish this is to:

(1) aggressively develop product innovations

(2) finance a strong marketing effort,

(3) expand rapidly into faster growing developing countries,

(4) emphasize a faster growing, higher margin product mix and divest lower margin/non core operations,

(5) leverage core strengths through acquisitions.

The company should be successful in its objectives because it generates strong cash flow to not only finance the strategy described above but to also conduct a huge stock buy back program as well as raise its dividend every year. Earnings and dividends have grown 10-11% for the last 10 years on a 15%+ return on equity and a reasonable debt/equity ratio around 26%.

EPS: 2006 $2.64, 2007 $3.04, 2008 $3.45; DVD: $1.28, YLD 2.0%

http://finance.yahoo.com/q?s=PG

Verizon (High Yield Portfolio) is in talks with Google to market phones on Verizon’s network that contain Google’s operating system software and applications.

EPS: 2006 $2.54, 2007 $2.35, 2008 $2.65; DVD: $1.62 YLD 4.0%

http://finance.yahoo.com/q?s=VZ

A positive write up on Donaldson (Aggressive Growth Portfolio):

http://www.bloggingstocks.com/2007/10/30/donaldson-dci-glamorous-no-profitable-yes/

Rockwell Collins (Aggressive growth Portfolio) reported its 2007 fiscal year earnings per share of $3.45 versus $2.73 in FY 2006. Management attributed these above average results to 13% internal growth plus accretive acquisitions. During the year the company also bought back 16 million shares and raised its dividend 14%.

EPS: 2006 $273, 2007 $3.45, 2008 $3.85; DVD: $.72 YLD 1.1%

http://finance.yahoo.com/q?s=COL

UnitedHealth Group (Aggressive Growth Buy List) is buying back 210 million shares of stock.

EPS: 2006 $2.65, 2007 $3.05, 2008 $3.45; DVD: $.32 YLD 0.6%

http://finance.yahoo.com/q?s=UNH

Clorox (Dividend Growth Portfolio) reported its first fiscal quarter earnings per share of $.76 versus $.73 recorded in the comparable 2007 fiscal quarter. Management guided FY2008 estimates to $3.33-3.50. The company also announced the purchase of Burt’s Bees, a personal care products company, for $925 million.

EPS: 2006 $2.89, 2007 3.23, 2008 $3.40; DVD: $1.31 YLD 2.7%

http://finance.yahoo.com/q?s=CLX

UPS (Dividend Growth Portfolio) announced (1) a $2 billion stock buy back and (2) the launch of a co-branded store in China with Staples (Aggressive Growth Portfolio) which will combine office supplies and document processing with packaging and shipping.

EPS: 2006 $3.86, 2007 $4.15, 2008 $4.50; DVD: $1.68 YLD 2.2%

http://finance.yahoo.com/q?s=UPS

EPS: 2006 $1.29, 2007 $1.45, 2008 $1.68; DVD: $.29 YLD 1.7%

http://finance.yahoo.com/q?s=SPLS

More Cash in Investors’ Hands

Tuesday, October 30, 2007

10/30/07

Economics

Politics

Domestic

International War Against Radical Islam

The Market

Technical

Fundamental

The Dividend Growth Portfolio bought a position in Canon Inc last week. Canon is one of the world’s leading designers, manufacturers and marketers of office equipment (office, personal and full color copying machines, office and network digital multifunction devices, laser and inkjet printers, scanners), cameras (digital and film cameras, digital video camcorders and camera accessories) and optical products (semiconductor production equipment, broadcasting lenses, medical equipment and electronic components).

The company’s corporate mission is to achieve the number one position in each of its core businesses. Its strategy is to focus on:

(1) research and development, the company:

(a) completed a technology center in 2005. Its task is to focus on the development of next generation products,

(b) acquired ANELVA to assist in the development of in-house production equipment to differentiate Canon products from competition.

(2) maintaining state of the art production facilities, the company:

(a) acquired NEC Machinery to advance the automation of Canon’s production processes,

(b) acquired Argo 21 to improve the management and servicing of its information systems,

The company has achieved a 15-17% return on equity and Value Line projects that it will continue to do so. Earnings and dividends have grown 20-30% over the last 10 years. While increasing competition will likely reduce that rate, they are still likely to attain a 12-15% level over the next 2-3 years. The company has a solid balance sheet (1% debt), improving operating and net profit margins and an ongoing stock buy back program.

EPS: 2006 $2.94, 2007 $3.35, 2008 $3.60; DVD: $.90 YLD 1.5%

http://finance.yahoo.com/q?s=CAJ

As a note, the above is my first attempt to expand the narrative on each of the companies whose stocks our Portfolios own in order to give subscribers more detail on the fundamental reasons for owning them. It will take a while to write the more detailed reports, so your patience is appreciated.

News on Stocks in Our Portfolios

Automatic Data Processing (Dividend Growth Portfolio) reported its first fiscal quarter operating earnings per share of $.45 versus expectations of $.43 and $.39 recorded in the comparable 2007 fiscal quarter.

EPS: 2006 $1.85, 2007 $1.83, 2008 $2.15; DVD: $.83 YLD 1.9%

http://finance.yahoo.com/q?s=ADP

Proctor and Gamble (Dividend Growth Portfolio) reported its first fiscal quarter earnings per share of $.92 versus expectations of $.89 and $.79 recorded in the comparable 2007 fiscal quarter. The company also raised per share guidance for the full year by $.02.

EPS: 2006 $2.64, 2007 $3.04, 2008 $3.47; DVD: $1.28 YLD 2.0%

http://finance.yahoo.com/q?s=PG

More Cash in Investors’ Hands