sure dividend€¦ · may 2016 edition by ben reynolds . 2 ... the ‘price’ column shows the...

Sure Dividend

HIGH QUALITY DIVIDEND STOCKS, LONG-TERM PLAN

May 2016 Edition

By Ben Reynolds

2

Table of Contents

Opening Thoughts -There Are No Short Cuts- .......................................................................... 3

The Top 10 List – May 2016......................................................................................................... 4

Analysis of Top 10 Stocks ............................................................................................................. 5

Archer-Daniels-Midland (ADM) ................................................................................................ 5

Abbott Laboratories (ABT) ......................................................................................................... 7

Wal-Mart (WMT) ....................................................................................................................... 9

Johnson Controls (JCI) ............................................................................................................. 11

Verizon (VZ) ............................................................................................................................. 13

General Dynamics (GD) ........................................................................................................... 15

Cardinal Health (CAH) ............................................................................................................. 17

Cummins (CMI) ........................................................................................................................ 19

W.W. Grainger (GWW) ............................................................................................................ 21

Deere & Company (DE) ........................................................................................................... 23

Analysis of International Stocks ................................................................................................ 25

List of Past International Recommendations ........................................................................... 25

List of Stocks by Sector .............................................................................................................. 26

List of Stocks by Rank ................................................................................................................ 29

Portfolio Building Guide ............................................................................................................ 32

Examples ................................................................................................................................... 32

List of Past Recommendations ................................................................................................... 33

Closing Thoughts - Not All Businesses Are Created Equally – .............................................. 34

3

Opening Thoughts -There Are No Short Cuts-

Several past Sure Dividend recommendations have performed very well recently:

Cummins (CMI) up 31% over the last quarter

Caterpillar (CAT) up 26% over the last quarter

Eaton (ETN) up 26% over the last quarter

United Technologies (UTX) up 20% over the last quarter

Johnson Controls (JCI) up 16% over the last quarter

All 5 of the businesses above are manufacturing companies. The market has

reappraised the value of these companies. I believe several of them to still be

attractive purchases at current prices – especially Johnson Controls & Cummins.

It’s always exciting to see investments gain in value. In the short-run (like the

quarterly results above), the market is similar to a casino. Investor sentiment rules the

day – and it’s virtually impossible to tell how people’s sentiments will change a few

months from now. I attribute the gains above purely to chance. Similarly, large

declines (related to 1 time events or investor sentiment) are also due to chance.

Sometimes we will get lucky, sometimes we won’t in the short-run.

There are no shortcuts to long-term success. If I had some sort of ability to find

stocks that would go up 30% in value every quarter, I would be retired on my own

private Hawaiian island right now.

There are no shortcuts – but there is a tried and true formula for generating long-term

success (and growing passive dividend income): Invest in dividend paying businesses

with strong and durable competitive advantages trading at fair or better prices for the

long-run.

You should judge your performance in the market (and Sure Dividend’s) over long-

periods of time. Who knows what will happen in any given year. If I’ve done my job

well (using the system outlined in The 8 Rules of Dividend Investing), we will have a

portfolio full of high quality businesses that have compounded shareholder wealth by

growing year-after-year. If a business pays a 3% dividend and grows at 7% a year –

and you purchase it at fair or better prices – over the long run you can’t help but

generate 10% total returns a year (which is better than historical market returns) no

matter what investor sentiment does in the short-run.

4

The Top 10 List – May 2016

Ticker Name Price $ Score Months Yield Payout Growth Beta Volatility

ADM Arch.-Dan.-Mid. 39.94 1.00 5 3.0% 40% 10.0% 1.02 33.8%

ABT Abbott Labs 38.90 1.00 9 2.7% 50% 10.0% 0.56 20.1%

WMT Wal-Mart 66.87 0.99 26 3.0% 43% 6.5% 0.53 19.5%

JCI Johnson Controls 41.40 0.98 5 2.8% 32% 10.7% 1.27 36.7%

VZ Verizon 50.94 0.98 6 4.4% 56% 6.0% 0.71 21.9%

GD General Dynami. 140.52 0.97 3 2.2% 33% 9.0% 0.83 24.7%

CAH Cardinal Health 78.46 0.94 1 2.0% 30% 10.5% 0.77 34.1%

CMI Cummins 117.03 0.93 7 3.3% 44% 14.0% 1.58 44.5%

GWW W.W. Grainger 234.52 0.91 1 2.0% 39% 12.5% 0.87 25.8%

DE Deere & Co. 84.11 0.91 2 2.9% 44% 13.3% 1.21 35.1%

Notes: The ‘Score’ column shows how close the composite rankings are between the

top 10. The highest ranked stock will always have a score of 1. The closer the score

is to 1, the better. Stocks are ranked using the criteria in The 8 Rules of Dividend

Investing. The ‘Months’ column shows the number of consecutive months a stock has

been in the Top 10. The ‘Price’ column shows the price as of the date the newsletter

was published.

W.W. Grainger & Cardinal Health replace BDX and Flowers Foods in the Top 10 this

month. The stability of the top 10 list shows the ranking method is consistent, not

based on rapid swings.

An equally weighted portfolio of the top 10 has the following characteristics:

Top 10 S&P500

Dividend Yield: 2.8% 2.1%

Payout Ratio: 41.0% 47.8%

Growth Rate: 10.3% 7.4%

PE Ratio: 14.9 23.4

5

Analysis of Top 10 Stocks

Archer-Daniels-Midland (ADM)

Overview & Current Events

ADM employees over 32,000 people and serves customers in more than 160 countries. ADM is one

of the largest agricultural businesses in the world based on its $23 billion market cap.

ADM realized adjusted earnings-per-share of $0.61 in its most recent quarter (2/2/16) versus $1.00 in

the same quarter a year ago. ADM’s business is cyclical and is currently in a downturn. The

company’s dividend is very safe despite the downturn. Management announced a ~7% dividend

increase, bringing the company’s quarterly dividend to $0.30/share for a payout ratio of ~50%.

Next Dividend Record Date: Mid May, 2016 Next Earnings Release: May 3rd, 2016

Competitive Advantage & Recession Performance

ADM’s competitive advantage comes from its excellent global distribution network which consists of:

280 processing plants, 420 procurement facilities, ~250 warehouses, and many rail cars, trucks, and

ocean vessels for transportation. It would take an enormous upfront capital investment for a competitor

to come close to matching the scale and distribution network of ADM.

ADM is not subject to normal economic cycles. Grains still need to be processed and transported, even

during recessions. The company’s results are correlated with grain and oil prices; not with overall

economic activity. As a result, ADM tends to do well during recessions. The company saw earnings-

per-share rise each year through the Great Recession as demand for ethanol increased.

Growth Prospects, Valuation, & Catalyst

ADM has compounded EPS at 13.6% a year from 1999 through 2015. Investors should expect total

returns of 10% to 13% a year from the stock’s 3% dividend yield and expected EPS growth of 7% to

10% a year. The long-term growth driver for ADM is increased food consumption from growing

global populations. ADM’s management is shedding low margin businesses and acquiring higher

margin businesses. Recent acquisitions include: WILD Flavors (flavorings and additives) and Harvest

Innovations (Non-GMO, organic, and gluten-free ingredients).

ADM’s cyclical downturn has made the stock a bargain. ADM is currently trading for an adjusted P/E

ratio of 13.4; its historical median P/E ratio over the last decade is ~13.5. Earnings are depressed at

$2.98/share. Earnings under normal conditions would be around $3.50/share. $3.50 Normalized EPS x

13.5 Historical P/E ratio = a fair value of $47/share.

Maximum Drawdown (starting in year 2000): -68% in October of 2008

Estimated Fair Value Price: $47/share (currently at ~$40/share)

Dividend Yield: 3.0%

10 Year EPS Growth Rate: 4.5% per year (low due to current downturn)

10 Year Dividend Growth Rate: 11.2% per year

Most Recent Dividend Increase: 7.1%

Dividend History: 41 consecutive years of dividend increases

7

Abbott Laboratories (ABT)


Abbott Laboratories is a diversified health care company that manufactures and sells nutrition products,

medical and diagnostic devices, and pharmaceuticals.

In February, Abbott Laboratories recently announced it will acquire Alere (ALR) for $5.8 billion at a

P/E ratio of 29 to bolster its diagnostics division. The company’s management recently (4/28/16)

announced it will acquire St. Jude Medical (STJ) for $25 billion at a forward P/E ratio of around 21.

Abbott’s P/E ratio just prior to the announcement was also around 21. The St. Jude acquisition will

enhance Abbott’s medical devices capabilities. Both acquisitions are expected to be accretive to

earnings within the first full fiscal year after closing.

Abbott is using a mix of cash and new share issuances to fund the St. Jude acquisition. The acquisition

will likely be beneficial for shareholders as it is expected to add to earnings in the first full year after

closing. After the first year, additional growth will be realized through cost synergies and leveraging

both companies global portfolios.

Abbott also recently (4/20/16) released Q1 2016 results. The company realized revenue growth of

5.1% on a constant-currency basis and raised its EPS guidance for 2016 around 2%.

Next Dividend Record Date: Mid July, 2016 Next Earnings Release: Mid July, 2016


Abbott Laboratories has invested heavily in emerging markets. The company emphasizes

manufacturing its products in the same country in which the products are sold. This builds connections

with communities, companies, and governments. The company also owns many of the most trusted

global brands in infant, child, and elderly nutrition.

Abbott Laboratories managed to grow earnings each year through the Great Recession. Consumers and

governments typically do not cut back on health care expenditures regardless of the economic climate.

Abbott Laboratories’ stock fell just 4.95% in 2008 while the S&P 500 declined 38%.


Abbott Laboratories generates 70% of its revenue in international markets. This international exposure

gives Abbott excellent long-term growth prospects as it benefits from faster emerging market growth

and global aging populations.

Abbott’s historical average P/E since the AbbVie spin-off is 19.1. Fair value P/E is likely around 20

given Abbott’s long-term growth prospects. Abbott’s P/E is currently at 18.6

Maximum Drawdown (starting in year 2000): -46% in July of 2002

Estimated Fair Value $42/share (currently trading for $38.90/share)


10 Year EPS Growth Rate: N/A (due to ABBV spin-off)

10 Year Dividend Growth Rate: N/A (due to ABBV spin-off)


Dividend History: 44 consecutive years of dividend increases (excludes spin-off reductions)

Note: Yield history below is skewed due to 2012 spin-off of AbbVie.

9

Wal-Mart (WMT)


Wal-Mart generates revenues of $482 billion in its last fiscal year. Excluding currency fluctuations, the

company would have realized revenues of nearly $500 billion. Wal-Mart is the largest corporation in

the world based on revenue (PetroChina is 2nd with $310 billion in revenue over the last 12 months).

Wal-Mart recently (April 2016) released its 2016 annual report (Wal-Mart’s corporate year ends in

January). The company is in transition – as is the retail industry. The industry is moving toward low

prices (which Wal-Mart excels at) and convenience through a seamless online/storefront experience.

Wal-Mart’s global e-commerce revenue has grown 107% in the last 4 years (for comparison Amazon’s

revenue has grown at 123% over the same period). The company is investing in its employees and has

realized 6 consecutive quarters of comparable store sales growth in the United States.

Next Dividend Record Date: May 13th, 2016 Next Earnings Release: Late May, 2016


Wal-Mart’s competitive advantage comes from its scale and operating efficiency. Its size allows it to

command the best prices from its suppliers. The company pressures suppliers to lower their prices and

then passes savings on to consumers, resulting in a positive feedback loop.

The Great Recession of 2007 to 2009 did not impede operations. Wal-Mart grew revenue and earnings

year through the recession. When the S&P 500 fell 38% in 2008 Wal-Mart gained 18%.


Wal-Mart’s short-term EPS growth is expected to be negative in fiscal 2017 (the company’s fiscal year

ends January 31st) as the company continues to invest heavily in wages and digital sales. Over the

long-run, Investors should expect total returns before valuation multiple gains of 8% to 10% a year

from Wal-Mart. Total returns will come from: 3% to 4% sales growth a year, 2% to 3% share

repurchases a year, and a dividend yield of ~3%.

From 1999 through 2002 Wal-Mart’s P/E ratio averaged above 30. From 2009 through 2012 it

averaged under 13. Fair value for Wal-Mart stock is likely a P/E ratio around 85% to 90% of the

markets’ to account for recent weakness. The S&P 500 currently has a P/E ratio of 23.4. Wal-Mart’s

expected earnings are $4.00 to $4.30 in its current fiscal year. This implies a fair value of around $80

at the low end for Wal-Mart stock. The company’s stock price is currently $66.87.

Maximum Drawdown (starting in year 2000): -37% in October of 2000 (hit 36% in November 2015)

Estimated Fair Value Price: $80/share (currently trading at $66.87/share)


10 Year EPS Growth Rate: 7.6% per year



Dividend History: 43 Consecutive years of dividend increase

11

Johnson Controls (JCI)


Johnson Controls manufactures car interiors and components, building control systems and power

solutions, and battery systems. Johnson Controls has the following automotive market shares by

region: China – 44%, North & South America – 36%, Europe – 38%, SE Asia, Japan, Korea – 13%.

The company’s stock gained 6% over the last month due in part to favorable 2nd quarter earnings

(4/21/16). The company saw excellent adjusted EPS growth of 18% in its most recent quarter. The

growth was primarily from excellent results from the Johnson Controls-Hitachi joint venture in the

company’s Building Efficiency segment.

Next Dividend Record Date: Early June 2016 Next Earnings Release: Late July, 2016


Johnson Controls’ history and size give it a competitive advantage in the automotive manufacturing

market. The company’s global reach and large market share in China make it difficult for new entrants

to compete with Johnson Controls.

Johnson Controls is not recession resistant. The company saw EPS plummet from $2.33 per share to

$0.47 per share during the Great Recession. Johnson Controls serves the automobile and construction

industries, both of which are highly sensitive to downturns in the global economy. The company’s low

payout ratio and commitment to steady or rising dividends helped the company to continue paying

dividends through the Great Recession, when other automotive companies eliminated dividends.


Johnson Controls is in flux. The company plans to spin off its automotive business in October of 2016.

The spin-off will be named Adient. In addition, Johnson Controls is merging with Tyco in a tax

inversion. The deal will be completed at the end of 2016 and will relocate Johnson Controls to Ireland

to benefit from lower tax rates. Johnson Controls shareholders will own 56% of the new company.

These two moves will refocus Johnson Controls as a diversified manufacturer of building solutions.

Note that the company is currently seeing excellent growth in its business solutions segment. The

company’s greater focus and synergy opportunities should invigorate growth.

Johnson Controls is expecting ~15% growth in 2016. Over the long-run I expect EPS growth of

between 7% and 9%, in line with historical averages. This growth combined with the company’s 2.8%

dividend yield gives investors expected returns of 9.8% to 11.8% a year.

The company’s historical average P/E ratio is ~13.5. Johnson Controls is currently trading for a P/E

ratio of 11.4. Fair value is likely around $46 per share.

Maximum Drawdown (starting in year 2000): -80% in March of 2009

Estimated Fair Value Price: $46/share (currently trading at $41.40/share)





Dividend History: 38 years without a reduction

13

Verizon (VZ)


Verizon is one of the two largest wireless providers in the United States – and one of the 20 largest

publicly traded corporations in the world based on its market cap of $206 billion.

Verizon realized 3.9% adjusted earnings-per-share growth in its most recent quarter (4/21/16). The

company’s latest growth is a bit behind its 10 year historical average EPS growth rate of 5%, but still

solid considering Verizon’s high dividend yield of 4.4%.

Verizon bolstered its online and mobile media portfolio in recent months. In March, the company

entered into a partnership with Hearst Media to this end. The joint venture announced (4/18/16) it will

acquire millennial-male-targeted content provider Complex. The Verizon-Hearst joint venture also

announced (4/6/16) it will acquire 49% of Awesomeness TV (valued at $650 million). Both moves add

to Verizon’s mobile media capabilities.

Next Dividend Record Date: Early July, 2016 Next Earnings Release: July 2016


Verizon and AT&T together control over 80% of the wireless market in the United States. The

telecommunications market has high barriers to entry which inhibit competition due to the large up-

front costs of building a network. Additionally, spectrum auctions prohibit competition. Verizon spent

$10 billion in the latest spectrum auction (which raised $44 billion total for the US government).

Verizon performs well during recessions. The company’s wireless network provides a vital service that

its customers (in general) do not cut back on – even during difficult economic times. Verizon carries a

large debt load, but its consistent stable cash flows make the company’s debt burden sustainable.


Verizon offers investors total returns of around 10.4% a year from its large dividend yield of 4.4% and

expected 6% earnings-per-share growth rate.

Verizon recently acquired AOL to build a digital and video growth platform centered on mobile users

which will be monetized through advertising. The company is in the early stage of monetizing its

content platform through its Go90 app. Verizon continues to make smaller acquisitions to further boost

its mobile media presence.

Verizon is currently trading for a price-to-earnings ratio of 12.6. The company’s average price-to-

earnings ratio over the last decade is 14.6. Fair value based on its historical P/E ratio is ~$58/share.

Maximum Drawdown (starting in year 2000): -55% in July of 2002 Estimated Fair Value $58 (currently trading at $50.94/share)


10 Year EPS Growth Rate: 5.0%

10 Year Dividend Growth Rate: 5.0%


Dividend History: 32 consecutive years without a reduction

15

General Dynamics (GD)


General Dynamics was founded in 1952 and is the 4th largest publicly traded aerospace and defense

corporation based on its market cap of $41 billion. The US Government accounts for ~60% of sales.

General Dynamics reported (4/27/16) earnings-per-share growth from continuing operations of 9.3% in

its most recent quarter. 6.7 percentage points of this growth is the result of massive share repurchases.

General Dynamics management continues to return cash to shareholders through its 2.2% dividend

yield and share repurchases.

Next Dividend Record Date: July, 2016 Next Earnings Release: Late July, 2016


General Dynamics primary competitive advantage is its excellent research and development

department and manufacturing capabilities. The company receives funds from the United States

government for research and development, but also spends around $300 million a year in excess of this

on research and development. A large part of General Dynamics competitive advantage is its

connections and favorable relationship with the largest entity in the world – the US government.

General Dynamics performed well through the Great Recession. The company saw EPS increase each

year during the Great Recession. The company’s business is much more correlated with US military

expenditures than with the economic environment.


I expect General Dynamics to provide total returns of 9% to 12% a year from: 3% share count

reductions, 2% to 4% revenue growth, 2% to 3% margin growth, and ~2% dividend yield.

The company’s growth is a function of intelligent capital allocation. Management distributes the bulk

of earnings to shareholders through dividends and share repurchases. Organic growth will come

primarily through continued government military contracts.

General Dynamics is currently trading for a price-to-earnings ratio of 15.1. The company’s historical

price-to-earnings ratio has ranged from ~10 to 17 for much of the last 20 years. Investors are unlikely

to realize long-term gains from P/E ratio expansion, but General Dynamics does have good total return

potential due primarily to its earnings-per-share growth prospects.


Estimated Fair Value: $130 to $140/share (currently trading for $140.52/share)






17

Cardinal Health (CAH)


Cardinal Health is one of the largest name-brand and generic drug distributors in the United States.

The company is headquarted in Dublin, Ohio, and was founded in 1971.

Cardinal Health realized 20% adjusted earnings-per-share growth in its latest quarter (4/28/16). The

stock market responded by sending the company’s stock down nearly 10% in the last week. The

decline is likely due to the company reducing its expected 2016 earnings-per-share growth guidance

from 19.9% to 19.2%. 19%+ growth in a year is excellent for an established company. The market

appears to be unfairly punishing Cardinal Health, which creates an opportunity for long-term investors.

Next Dividend Record Date: Late June, 2016 Next Earnings Release: Late July, 2016


Cardinal Health has a scale based competitive advantage over smaller competitors. The company

serves over 100,000 health care locations daily and has revenue of over $110 billion in the last year.

Low margins (Cardinal Health has a razor thin 5.4% gross margin) in the prescription medicine

distribution industry also limit competition and make the company’s scale based competitive advantage

more powerful.

Cardinal Health operates in the health care industry which has traditionally done well through

recessions. The company managed to grow revenue-per-share and dividends-per-share each year

through the Great Recession, though earnings did fall. The company is insulated from the worst effects

of recessions because pharmaceutical drugs are in demand regardless of the economic climate.


Cardinal Health will benefit from excellent tailwinds in the health care industry. Prescription

medication usage and number of prescriptions per person continues to rise in the United States. An

aging population will likely cause this trend to continue. This will bolster Cardinal Health’s results. In

addition, the company regularly repurchases shares and allocates its capital very well. I expect EPS

growth of 10.5% a year from Cardinal Health going forward. This growth combined with the

company’s current 2% dividend yield gives investors expected total returns of around 12.5% a year.

Cardinal Health is currently trading for a P/E ratio of 15.1. The company has an average P/E ratio of

20 over the last 2 years, which reflects its growth prospects. Using a P/E ratio of 20, Cardinal Health’s

fair value is around $104/share. The stock is currently trading under $80/share.

Maximum Drawdown (starting in year 2000): -27% in September of 2009

Estimated Fair Value: $104/share (currently trading at $78.46).


10 Year EPS Growth Rate: 1.7% per year (recent & future growth is far better)



Dividend History: 31 years of consecutive dividend increases

19

Cummins (CMI)


Cummins is the world’s largest manufacturer of diesel engines. The company has 78% market share in

mid-duty (MD) diesel truck engines in North America, and sizeable market shares globally. Cummins

was founded in 1919 and now has a $21 billion market cap.

Cummins full year 2015 (2/4/16) results showed adjusted earnings-per-share of $8.93, down from

$9.13 the previous year. The company is expecting further earnings-per-share declines of between 2%

and 10% in 2016 due to general weakness in the diesel engine industry brought about by the global

growth slow down and the strong United States dollar. While declines are never good, results are

better than what the market was expecting; Cummins stock rose 7.7% on the day of its earnings release.

Next Dividend Record Date: Mid May, 2016 Next Earnings Release: May 3rd, 2016


Cummins’ primary competitors are Navistar (NAV), Detroit Diesel, and Caterpillar (CAT). Navistar

has a market cap of just $1 billion (small versus Cummins $17 billion market cap). Detroit Diesel is a

private company, but is also much smaller than Cummins. Diesel engine manufacturing is not

Caterpillar’s primary business, unlike Cummins. Cummins has a well-deserved reputation for

designing and manufacturing better diesel engines than its competitors.

Cummins’ Earnings-per-share fell about 40% during the Great Recession. Still, the company remains

profitable during recessions and its low payout ratio allows continued dividends through recessions.


Cummins grew earnings-per-share at 11.3% a year over the last decade. The company will likely

manage double-digit earnings-per-share growth over the long-run through further international

expansion, purchasing and consolidating its independent distributors, and share repurchases.

The company plans to return 75% of operating cash flows to shareholders through share repurchases

and dividends in 2016, and recently announced it will repurchase around ~3% of shares outstanding

over the next quarter alone. The company’s management believes the stock to be deeply undervalued.

Cummins’ P/E ratio has averaged 15 over the last 3 years. The company is currently trading for a P/E

ratio (using adjusted earnings) of 13.1, and earnings are depressed. When the company’s operating

environment improves and margins normalize, the company will have earnings-per-share of ~$10.

EPS of $10 x P/E of 15 = a share price of $150. The company’s stock is currently trading for ~$117.

Maximum Drawdown (starting in year 2000): -76% in November of 2008

Estimated Fair Value: $150/share (shares currently trade for $117.03)





Dividend History: 25 years without a reduction

21

W.W. Grainger (GWW)


W.W Grainger is the market leader in the United States maintenance, repair, and operations

(abbreviated MRO) supply industry. The company was founded in 1927 and now generates revenues

of around $10 billion a year – with 40% of that being e-commerce.

W.W. Grainger recently released its 1st quarter 2016 results (4/18/16). The company realized adjusted

earnings-per-share growth of 3%. Sales also increased 3% (4% on a constant-currency basis). W.W.

Grainger showed positive growth in an extremely difficult environment. The company’s margins and

sales have been under pressure due to low oil prices and weakness from many of its customers which

reduces their expenditures.

Next Dividend Record Date: May 9th, 2016 Next Earnings Release: July , 2016


W.W. Grainger’s competitive advantage comes from its excellent supply chain. The company is the

largest company in the fragmented North America MRO. As a result, W.W. Grainger is able to realize

economies of scale in its operations – a distinct advantage the company has over smaller competitors.

W.W Grainger performed well during the Great Recession of 2007 to 2009. The company’s earnings-

per-share fell 14% in 2009 during the worst of the recession but quickly recovered to new all-time

highs the following year. I expect a similar recover from current earnings-per-share declines.


W.W. Grainger has compounded EPS at 12.6% a year over the last decade. The company has grown

dividends at 14.9% a year over the same time period.

W.W. Grainger is expecting 7% to 12% revenue growth over the next 5 years – once oil prices recover.

The company will accomplish this by growing e-commerce operations in Japan, Western Europe,

North America, and Great Britain. The company also plans to repurchase ~$1.5 billion in shares over

the next year and a half – which comes to ~5.5% share count reductions a year.

From 2012 through 2014 W.W. Grainger had an average price-to-earnings ratio above 20. The

company currently has an adjusted price-to-earnings ratio of 19.6. Given its excellent growth potential

and shareholder friendly management, the company should have a price-to-earnings ratio of at least 20.

This implies a fair value of around $240 or more. W.W. Grainger stock is currently trading for ~$234.

Maximum Drawdown (starting in year 2000): -56% in October of 2000

Estimated Fair Value: $240/share (currently at $234.52)





Dividend History: 45 consecutive years of dividend increases

23

Deere & Company (DE)


Deere & Company is the world’s largest farming equipment manufacturer. The company has large

operations in the United States, Brazil, Russia, India, China, and Europe. Deere & Company operates

in 3 segments: Agriculture & Turf, Construction & Forestry, and Financial Services.

Deere & Company saw earnings-per-share decline 29% in its 1st fiscal quarter of 2016 (2/19/16) versus

the same period a year ago. The company has done well reducing costs to increase profits during the

current down cycle in the agriculture industry. The company announced (3/10/16) further permanent

layoffs of 125 workers in 2 factories in Iowa to this end. Deere & Company expects revenue to decline

10% in 2016 and earnings (before share repurchases) to decline around 7% on the year.

Despite weakness in the industry, Deere & Company remains a safe long-term investment. The

company pays out about $800 million a year in dividends. Even during industry lows, the company

expects to make around $1.3 billion in profits in 2016 for a dividend payout ratio of 62%.

Next Dividend Record Date: June 30th, 2016 Next Earnings Release: Late May, 2016


Deere & Company’s competitive advantage comes from its brand recognition and reputation for quality

in the farming machinery industry. Deere & Company’s competitive advantage has given it a 60%

market share of the farming equipment industry in the US and Canada.

Recessions and falling grain prices hamper Deere & Company’s earnings. The company saw EPS fall

from a high of $4.70 in 2008 to a low of $2.82 during the depths of the Great Recession in 2009. Deere

& Company’s earnings are cyclical and depend upon grain prices. Farmers hold off on large capital

investments when their cash flows diminish due to low grain prices.


Deere & Company has averaged earnings-per-share growth of 12.8% a year from earnings lows in

2009 to earnings lows in fiscal 2015. Peak-to-peak (2008 to 2013) earnings-per-share grew at 14.1% a

year for the company. When the agricultural industry grows, Deere & Company will see its earnings

surge. I expect the company to continue to deliver 10%+ EPS growth over full economic cycles. This

growth combined with the company’s current ~3% dividend yield gives Deere & Company investors

expected total returns of 13+%.

Deere & Company’s PE10 ratio (average of last 10 year’s earnings) over the last 7 years is 19.1. The

company’s current PE 10 ratio is 14.8. Based on its historical PE10 ratio, fair value for the company is

around $108 per share.


Estimated Fair Value: $108/share (currently trading for $84.11/share)


10 Year EPS Growth Rate: 12.8% (used trough-to-trough growth)


Most Recent Dividend Increase: No Increase in last 12 months


25

Analysis of International Stocks

Three international stock currently ranks in the top 10 using The 8 Rules of Dividend Investing. International stocks are removed from the top

10 list above to simplify investing for US investors who do not wish to invest in international stocks.

Two of the international stocks in the top 10 are based in Canada, 1in United Kingdom, and one in Germany. The United Kingdom does not

impose a dividend withholding tax on U.S. investors. Canada does have a 15% dividend withholding tax for United States investors, but does

not impose a dividend withholding tax on IRA or 401k accounts of United States investors. Germany imposes a 26.375% withholding tax.

Name Ticker (Foreign) Growth Rate Dividend Yield P/E Ratio Rank (If in Top 10)

Fortis TSE:FTS 8.8% 3.8% 18.9 6 (after VZ, before GD)

Munich Re BIT:MUV2 4.0% 5.1% 8.7 7 (after GD, before CAH)

Empire Company TSE:EMP.A 7.3% 1.9% 12.7 7 (after GD, before CAH)

Cobham LON:COB 8.4% 5.5% 12.7 9 (after CMI, before GWW)

Cobham is a diversified manufacturer that focuses primarily on aviation, satellite, and naval communication equipment and electronics. The

company’s revenues are split fairly evenly between commercial, US defense, and other defense categories. The company has increased its

dividend payments for 28 consecutive years.

Fortis is a North American electric & gas utility corporation. The company offers investors solid growth and an above average dividend yield

with a reasonable P/E ratio and below average stock price volatility. The company has paid increasing dividends for 43 consecutive years.

Empire Company is primarily a Canadian grocery store chain. The company’s flagship brand is Sobey’s. Empire Company has paid

increasing dividends for 31 consecutive years.

Munich Re is a large shareholder friendly insurer. The company specializes in reinsurance. Munich Re was founded in 1880 and is

headquartered in Munich, Germany.

List of Past International Recommendations

All pas international recommendations are currently holds. The name, ticker, and date 1st recommended are listed below:

Canadian Utilities (TSE:CU) in April 2015 Weir Group (LON:WEIR) in August 2015 Rotork (LON:ROR) in August 2015

Cranswick (LON:CWK) in August 2015 Spectris (LON:SXS) in November 2015 PZ Cussons (LON:PCZ) in Jan. 2016

26

List of Stocks by Sector

Each of the 181 stocks with 25 or more years of dividend payments without a reduction is sorted by

sector below in order based on The 8 Rules of Dividend Investing (highest to lowest). Dividend

yield is included next to each stock’s ticker symbol. International stocks are color-coded in blue.

Basic Materials 1. Phillips 66 (PSX) - 2.7%

2. PPG Industries Inc. (PPG) - 1.3%

3. Enbridge, Inc. (ENB) - 3.5%

4. Phillips 66 Partners LP (PSXP) - 3.2%

5. Valspar Corp. (VAL) - 1.2%

6. Sherwin-Williams Co. (SHW) - 1.2%

7. Air Products & Chem. (APD) - 2.4%

8. Praxair (PX) - 2.6%

9. RPM International Inc. (RPM) - 2.2%

10. Helmerich & Payne Inc. (HP) - 4.2%

11. Chevron Corp. (CVX) - 4.2%

12. ExxonMobil Corp. (XOM) - 3.3%

13. H.B. Fuller Company (FUL) - 1.3%

14. Air Liquide (AI.E) - 2.6%

15. NACCO Industries (NC) - 1.8%

16. Imperial Oil (IMO) - 1.7%

17. National Fuel Gas (NFG) - 2.8%

18. Nucor Corp. (NUE) - 3%

19. Murphy Oil (MUR) - 3.9%

Technology 1. Verizon Wireless (VZ) - 4.4%

2. Computer Services Inc. (CSVI) - 2.7%

3. AT&T Inc. (T) - 4.9%

4. BCE, Inc. (BCE) - 4.9%

5. Diebold Inc. (DBD) - 4.4%

6. Automatic Data Proc. (ADP) - 2.4%

7. Linear Technologies (LLTC) - 2.9%

8. Telephone & Data Sys. (TDS) - 2%

9. Brady Corp. (BRC) - 3.1%

10. Vodafone Group plc (VOD) - 3.2%

Financial 1. Munich Re (MUV2.B) - 5.1%

2. Eagle Financial Services (EFSI) - 3.4%

3. Franklin Resources (BEN) - 1.9%

4. Waddell & Reed (WDR) - 9%

5. American Express (AXP) - 1.8%

6. AFLAC Inc. (AFL) - 2.4%

7. Cincinnati Financial (CINF) - 2.9%

8. Farmers & Merchants Banc. (FMCB) - 2.4%

9. Torchmark Insurance (TMK) - 1%

10. Harleysville Savings (HARL) - 4.5%

11. T. Rowe Price Group (TROW) - 2.9%

12. Eaton Vance Corp. (EV) - 3.1%

13. HCP Inc. (HCP) - 6.8%

14. McGraw Hill Financial Inc. (MHFI) - 1.3%

15. Tompkins Financial Corp. (TMP) - 2.7%

16. Community Trust Banc. (CTBI) - 3.5%

17. Old Republic International (ORI) - 4.1%

18. Commerce Bancshares (CBSH) - 1.9%

19. First Financial Corp. (THFF) - 2.8%

20. M&T Bank Corporation (MTB) - 2.4%

21. Universal Health Realty Trust (UHT) - 4.7%

22. 1st Source Corp. (SRCE) - 2.1%

23. First Financial Bankshares (FFIN) - 2%

24. National Retail Properties (NNN) - 4%

25. RLI Corp. (RLI) - 1.2%

26. Realty Income (O) - 4%

27. Public Storage (PSA) - 2.8%

28. Arthur J Gallagher (AJG) - 3.3%

29. Northern Trust (NTRS) - 2%

30. United Bankshares Inc. (UBSI) - 3.4%

31. Mercury General Corp. (MCY) - 4.7% 32. Federal Realty Inv. Trust (FRT) - 2.5%

27

Consumer Goods 1. Archer Daniels Midland (ADM) - 3%

2. General Mills (GIS) - 3%

3. Procter & Gamble Co. (PG) - 3.3%

4. Flowers Foods (FLO) - 3%

5. Altria Group Inc. (MO) - 3.6%

6. Mondelez (MDLZ) - 1.6%

7. Church & Dwight (CHD) - 1.5%

8. Carlisle Companies (CSL) - 1.2%

9. PepsiCo Inc. (PEP) - 2.7%

10. VF Corp. (VFC) - 2.3%

11. Coca-Cola Company (KO) - 3.1%

12. Ecolab, Inc. (ECL) - 1.2%

13. Hormel Foods Corp. (HRL) - 1.5%

14. Philip Morris (PM) - 4.2%

15. Kerry Group (KYGA.L) - 0.6%

16. Nike (NKE) - 1.1%

17. Universal Corp. (UVV) - 3.9%

18. Home Depot (HD) - 2.1%

19. The J.M. Smucker Co. (SJM) - 2.1%

20. Diageo plc (DEO) - 2.3%

21. Kellogg (K) - 2.6%

22. Kimberly-Clark Corp. (KMB) - 2.9%

23. Hershey (HSY) - 2.5%

24. Young & Co's Brewery (YNGA.L) - 1.4%

25. McCormick & Co. (MKC) - 1.8%

26. Stepan Company (SCL) - 1.2%

27. PZ Cussons plc (PZC.L) - 2.5%

28. Brown-Forman Class B (BF-B) - 1.5%

29. Clorox Company (CLX) - 2.5%

30. Colgate-Palmolive Co. (CL) - 2.2%

31. Unilever (UL) - 3.3%

32. Sonoco Products Co. (SON) - 3%

33. Tootsie Roll Industries (TR) - 3.8%

34. Lowe's Companies (LOW) - 1.5%

35. Bemis Company (BMS) - 2.3%

36. Henkel (HEN3.E) - 1.5%

37. Lancaster Colony Corp. (LANC) - 1.7%

38. L'Oreal (OR.E) - 2%

39. Cranswick plc (CWK.L) - 1.5%

40. HNI Corp (HNI) - 2.4%

41. Leggett & Platt Inc. (LEG) - 2.6%

42. Nestle (NESN.V) - 3.1%

43. Weyco Group Inc. (WEYS) - 2.9%

44. Kraft-Heinz Company (KHC) - 2.9%

Utilities 1. Fortis (FTS.TO) - 3.8%

2. SCANA Corp. (SCG) - 3.3%

3. Canadian Utilities (CU.TO) - 3.5%

4. Consolidated Edison (ED) - 3.6%

5. Southern Company (SO) - 4.3%

6. Black Hills Corp. (BKH) - 2.8%

7. Vectren Corp. (VVC) - 3.3%

8. UGI Corp. (UGI) - 2.3%

9. WGL Holdings Inc. (WGL) - 2.9%

10. SJW Corp. (SJW) - 2.4%

11. Northwest Natural Gas (NWN) - 3.6%

12. Questar Corp. (STR) - 3.5%

13. Otter Tail (OTTR) - 4.3%

14. Atmos Energy (ATO) - 2.3%

15. Conn. Water Service (CTWS) - 2.3%

16. American States Water (AWR) - 2.2%

17. MGE Energy (MGEE) - 2.4%

18. California Water Service (CWT) - 2.5%

19. Middlesex Water Co. (MSEX) - 2.2%

20. Piedmont Natural Gas (PNY) - 2.3%

28

Industrial Goods 1. Johnson Controls (JCI) - 2.8%

2. General Dynamics (GD) - 2.2%

3. Cummins (CMI) - 3.3%

4. Cobham plc (COB.L) - 5.5%

5. Deere & Co. (DE) - 2.9%

6. United Technologies (UTX) - 2.5%

7. Pentair Ltd. (PNR) - 2.3%

8. Weir Group plc (WEIR.L) - 3.6%

9. Emerson Electric (EMR) - 3.5%

10. 3M Company (MMM) - 2.7%

11. Illinois Tool Works (ITW) - 2.1%

12. Spirax-Sarco Engineering (SPX.L) - 2%

13. Eaton (ETN) - 3.6%

14. Stanley Black & Decker (SWK) - 2%

15. Rotork plc (ROR.L) - 2.6%

16. Caterpillar (CAT) - 4%

17. Tennant Company (TNC) - 1.5%

18. Spectris Group plc (SXS.L) - 3.8%

19. Parker-Hannifin Corp. (PH) - 2.2%

20. Roper Technologies (ROP) - 0.7%

21. Dover Corp. (DOV) - 2.6%

22. Clarcor Inc. (CLC) - 1.5%

23. Nordson Corp. (NDSN) - 1.3%

24. Donaldson Company (DCI) - 2.1%

25. Gorman-Rupp Company (GRC) - 1.5%

26. Raven Industries (RAVN) - 3.2%

Services 1. Wal-Mart Stores Inc. (WMT) - 3%

2. Empire Co. (EMP.A.TO) - 1.9%

3. Cardinal Health (CAH) - 2%

4. W.W. Grainger Inc. (GWW) - 2%

5. Disney (DIS) - 1.4%

6. Walgreens Boots Alliance (WBA) - 1.8%

7. Target Corp. (TGT) - 2.8%

8. United Parcel Service (UPS) - 3%

9. Genuine Parts Co. (GPC) - 2.7%

10. McDonald's Corp. (MCD) - 2.8%

11. RR Donnelley (RRD) - 6%

12. Sysco Corp. (SYY) - 2.7%

13. Wolters Kluwer NV (WKL.A) - 2.3%

14. ABM Industries Inc. (ABM) - 2.1%

15. Cintas Corp. (CTAS) - 1.2%

16. Mine Safety Appliances (MSA) - 2.7%

17. Bowl America (BWL.A) - 4.7%

Health Care 1. Abbott Laboratories (ABT) - 2.7%

2. Becton Dickinson & Co. (BDX) - 1.6%

3. AbbVie (ABBV) - 3.7%

4. Medtronic Inc. (MDT) - 1.9%

5. Johnson & Johnson (JNJ) - 2.7%

6. C.R. Bard Inc. (BCR) - 0.5%

7. United Health Group (UNH) - 1.5%

8. Novo Nordisk (NVO) - 1.7%

9. Baxalta (BXLT) - 0.7%

10. Merck & Co. (MRK) - 3.4%

11. Roche (ROG.V) - 3.3%

12. Eli Lilly & Company (LLY) - 2.7%

13. Baxter International (BAX) - 1%

29

This information is not personalized advice. It is for informational purposes only. Please see disclaimer at end of newsletter for more.

List of Stocks by Rank

Each of the 181 stocks with 25 or more years of dividend payments without a

reduction is listed below order based on The 8 Rules of Dividend Investing (highest to

lowest). The 8 Rules score of each stock is listed as well. International stocks are

color-coded in blue.

1. Archer-Daniels-Midla. (ADM) – 1.00

2. Abbott Laboratories (ABT) – 1.00

3. Wal-Mart Stores Inc. (WMT) - 0.99

4. Johnson Controls (JCI) - 0.98

5. Verizon Wireless (VZ) - 0.98

6. Fortis (FTS.TO) - 0.97

7. General Dynamics (GD) - 0.97

8. Munich Re (MUV2.B) - 0.96

9. Empire Co. (EMP.A.TO) - 0.94

10. Cardinal Health (CAH) - 0.94

11. Cummins (CMI) - 0.93

12. Cobham plc (COB.L) - 0.92

13. W.W. Grainger Inc. (GWW) - 0.91

14. Deere & Co. (DE) - 0.91

15. United Technologies (UTX) - 0.90

16. General Mills (GIS) - 0.90

17. Computer Services Inc. (CSVI) - 0.89

18. Disney (DIS) - 0.89

19. Becton Dickinson (BDX) - 0.89

20. AbbVie (ABBV) - 0.89

21. Procter & Gamble Co. (PG) - 0.87

22. Walgreens Boots Allia. (WBA) - 0.87

23. Flowers Foods (FLO) - 0.86

24. Phillips 66 (PSX) - 0.86

25. Altria Group Inc. (MO) - 0.84

26. SCANA Corp. (SCG) - 0.83

27. AT&T Inc. (T) - 0.82

28. Canadian Utilities (CU.TO) - 0.81

29. Pentair Ltd. (PNR) - 0.81

30. Medtronic Inc. (MDT) - 0.80

31. Mondelez (MDLZ) - 0.80

32. Eagle Financial Services (EFSI) - 0.80

33. Johnson & Johnson (JNJ) - 0.8

34. Church & Dwight (CHD) - 0.79

35. Carlisle Companies (CSL) - 0.79

36. C.R. Bard Inc. (BCR) - 0.79

37. Weir Group plc (WEIR.L) - 0.78

38. PepsiCo Inc. (PEP) - 0.78

39. Franklin Resources (BEN) - 0.77

40. PPG Industries Inc. (PPG) - 0.77

41. Enbridge, Inc. (ENB) - 0.77

42. VF Corp. (VFC) - 0.76

43. Emerson Electric (EMR) - 0.76

44. 3M Company (MMM) - 0.75

45. Coca-Cola Company (KO) - 0.75

46. Ecolab, Inc. (ECL) - 0.74

47. United Health Group (UNH) - 0.73

48. Waddell & Reed (WDR) - 0.73

49. BCE, Inc. (BCE) - 0.73

50. American Express (AXP) - 0.72

51. Consolidated Edison (ED) - 0.72

52. Hormel Foods Corp. (HRL) - 0.72

53. Philip Morris (PM) - 0.71

54. Kerry Group (KYGA.L) - 0.71

55. Target Corp. (TGT) - 0.70

56. AFLAC Inc. (AFL) - 0.70

57. Novo Nordisk (NVO) - 0.69

58. Cincinnati Financial (CINF) - 0.69

59. Nike (NKE) - 0.69

60. United Parcel Service (UPS) - 0.69

61. Illinois Tool Works (ITW) - 0.67

62. Southern Company (SO) - 0.67

63. Universal Corp. (UVV) - 0.66

64. Spirax-Sarco Enginee. (SPX.L) - 0.66

65. Phillips 66 Partners LP (PSXP) - 0.65

66. Genuine Parts Co. (GPC) - 0.65

30


67. Valspar Corp. (VAL) - 0.64

68. Home Depot (HD) - 0.64

69. The J.M. Smucker Co. (SJM) - 0.64

70. Farmers & Merchants (FMCB) - 0.63

71. Eaton (ETN) - 0.63

72. Sherwin-Williams Co. (SHW) - 0.62

73. Baxalta (BXLT) - 0.62

74. Torchmark Insurance (TMK) - 0.61

75. Stanley Black & Deck. (SWK) - 0.61

76. Harleysville Savings (HARL) - 0.61

77. Diageo plc (DEO) - 0.61

78. Kellogg (K) - 0.60

79. T. Rowe Price Group (TROW) - 0.60

80. Kimberly-Clark Corp. (KMB) - 0.59

81. Rotork plc (ROR.L) - 0.59

82. Eaton Vance Corp. (EV) - 0.58

83. Air Products & Chem. (APD) - 0.57

84. McDonald's Corp. (MCD) - 0.56

85. Hershey (HSY) - 0.55

86. Young & Co's Bre. (YNGA.L) - 0.54

87. Merck & Co. (MRK) - 0.54

88. HCP Inc. (HCP) - 0.54

89. McCormick & Co. (MKC) - 0.54

90. Caterpillar (CAT) - 0.52

91. Stepan Company (SCL) - 0.52

92. McGraw Hill Financial (MHFI) - 0.52

93. Praxair (PX) - 0.52

94. Tompkins Financial (TMP) - 0.51

95. Tennant Company (TNC) - 0.49

96. Roche (ROG.V) - 0.49

97. Spectris Group plc (SXS.L) - 0.49

98. Community Trust Ba. (CTBI) - 0.48

99. RR Donnelley (RRD) - 0.48

100. PZ Cussons plc (PZC.L) - 0.48

101. Brown-Forman Class B (BF-B) - 0.48

102. Sysco Corp. (SYY) - 0.47

103. Clorox Company (CLX) - 0.46

104. Colgate-Palmolive Co. (CL) - 0.46

105. Parker-Hannifin Corp. (PH) - 0.46

106. Wolters Kluwer NV (WKL.A) - 0.44

107. Unilever (UL) - 0.43

108. Eli Lilly & Company (LLY) - 0.42

109. Old Republic Intern. (ORI) - 0.42

110. Diebold Inc. (DBD) - 0.42

111. Commerce Bancshares (CBSH) - 0.42

112. Black Hills Corp. (BKH) - 0.42

113. ABM Industries Inc. (ABM) - 0.41

114. Baxter International (BAX) - 0.40

115. RPM International Inc. (RPM) - 0.40

116. Cintas Corp. (CTAS) - 0.39

117. Vectren Corp. (VVC) - 0.39

118. Sonoco Products Co. (SON) - 0.39

119. Roper Technologies (ROP) - 0.35

120. Tootsie Roll Industries (TR) - 0.35

121. Lowe's Companies (LOW) - 0.35

122. UGI Corp. (UGI) - 0.34

123. Bemis Company (BMS) - 0.34

124. Henkel (HEN3.E) - 0.33

125. Automatic Data Proc. (ADP) - 0.33

126. Lancaster Colony (LANC) - 0.32

127. Linear Technologies (LLTC) - 0.32

128. L'Oreal (OR.E) - 0.32

129. Dover Corp. (DOV) - 0.31

130. Helmerich & Payne Inc. (HP) - 0.31

131. Chevron Corp. (CVX) - 0.31

132. Cranswick plc (CWK.L) - 0.30

133. WGL Holdings Inc. (WGL) - 0.30

134. First Financial Corp. (THFF) - 0.30

135. M&T Bank Corporation (MTB) - 0.29

136. Universal Health Realty (UHT) - 0.28

137. 1st Source Corp. (SRCE) - 0.28

138. Telephone & Data Sys. (TDS) - 0.27

139. Clarcor Inc. (CLC) - 0.27

140. SJW Corp. (SJW) - 0.26

141. ExxonMobil Corp. (XOM) - 0.26

142. First Financial Banksha. (FFIN) - 0.25

143. HNI Corp (HNI) - 0.25

144. Mine Safety Appliances (MSA) - 0.24

145. Nordson Corp. (NDSN) - 0.24

146. Leggett & Platt Inc. (LEG) - 0.24

147. National Retail Proper. (NNN) - 0.23

148. Northwest Natural Gas (NWN) - 0.23

31


149. H.B. Fuller Company (FUL) - 0.23

150. Nestle (NESN.V) - 0.23

151. RLI Corp. (RLI) - 0.23

152. Questar Corp. (STR) - 0.23

153. Air Liquide (AI.E) - 0.22

154. Otter Tail (OTTR) - 0.22

155. Atmos Energy (ATO) - 0.21

156. Conn. Water Service (CTWS) - 0.21

157. Realty Income (O) - 0.20

158. Public Storage (PSA) - 0.20

159. American States Water (AWR) - 0.20

160. Arthur J Gallagher (AJG) - 0.20

161. Weyco Group Inc. (WEYS) - 0.20

162. Northern Trust (NTRS) - 0.19

163. MGE Energy (MGEE) - 0.19

164. Brady Corp. (BRC) - 0.18

165. California Water Serv. (CWT) - 0.17

166. Kraft-Heinz Company (KHC) - 0.16

167. Donaldson Company (DCI) - 0.11

168. NACCO Industries (NC) - 0.11

169. Bowl America (BWL.A) - 0.11

170. Imperial Oil (IMO) - 0.1

171. National Fuel Gas (NFG) - 0.1

172. United Bankshares Inc. (UBSI) - 0.09

173. Mercury General Corp. (MCY) - 0.08

174. Middlesex Water Co. (MSEX) - 0.06

175. Piedmont Natural Gas (PNY) - 0.05

176. Nucor Corp. (NUE) - 0.04

177. Gorman-Rupp (GRC) - 0.04

178. Federal Realty Inv. Trust (FRT) - 0.04

179. Vodafone Group plc (VOD) - 0.03

180. Murphy Oil (MUR) - 0

181. Raven Industries (RAVN) - 0%

32


Portfolio Building Guide

The process of building a high quality dividend growth portfolio is not complicated: Each

month invest in the top ranked stock in which you own the smallest dollar amount out of

the Top 10. Over time, you will build a well-diversified portfolio of great businesses purchased

at attractive prices. Alternatively, the top 10 list is also useful as an idea generation tool for

those with a different portfolio allocation plan.

Examples

Portfolio 1 Portfolio 2

Ticker Name Amount Ticker Name Amount

ADM Archer-Daniels $ 1,002 ADM Archer-Daniels $ 4,374

JCI Johnson Controls $ - JCI Johnson Controls $ 4,878

FLO Flowers Foods $ - FLO Flowers Foods $ 4,353

GD General Dynamics $ - GD General Dynamics $ 2,952

DE Deere & Co. $ - DE Deere & Co. $ 3,309

WMT Wal-Mart Stores Inc. $ - WMT Wal-Mart Stores Inc. $ 4,864

CMI Cummins $ - CMI Cummins $ 6,660

ABT Abbott Laboratories $ - ABT Abbott Laboratories $ 2,367

VZ Verizon Wireless $ - VZ Verizon Wireless $ 2,818

BDX Becton Dickinson & Co. $ - BDX Becton Dickinson & Co. $ 6,243

- If you had portfolio 1, you would buy JCI, the top ranked stock you own least.

- If you had portfolio 2, you would buy ABT, the top ranked stock you own least.

If you have an existing portfolio or a large lump sum to invest, switch over to the Sure Dividend

strategy over 20 months. Each month, take 1/20 of your initial portfolio value, and buy the top

ranked stock you own the least out of the Top 10. When you sell a stock use the proceeds to

purchase the top ranked stock you own the least. Reinvest dividends in the same manner.

This simple investing process will build a diversified portfolio of high quality dividend stocks

over a period of less than 2 years. Further, higher ranked stocks will receive proportionately

more investment dollars as they will stay on the rankings longer. You will build up large

positions in the highest quality stocks over your investing career.

If your portfolio grows too large to manage comfortably (for example, you are not comfortable

holding 40+ stocks – which would happen after around 4 years of the Sure Dividend system),

you will need to sell holdings. I recommend eliminating positions that have the lowest yields if

you are in or near retirement. If you are not near retirement, eliminate positions that rank the

lowest in the newsletter until you are comfortable with the number of positions in your portfolio.

Reinvest proceeds into the highest ranked stocks you currently own, until your highest ranked

holding makes up 10% of your portfolio’s total value. Then add to the next highest ranked

holding, and so on.

33


List of Past Recommendations

The stocks below are all of the previous recommendations of Sure Dividend that are

no longer in the top 10 using The 8 Rules of Dividend Investing. The date each stock

was first recommended is also shown below.

Name Rank Now Status 1st Rec. Date Sell Date Clorox (CLX) 103 Hold April 2014 N/A

Target (TGT) 55 Hold April 2014 N/A

Kimb.-Clark (KMB) 80 Hold April 2014 N/A

ExxonMobil (XOM) 141 Hold April 2014 N/A

AFLAC (AFL) 56 Hold April 2014 N/A

PepsiCo (PEP) 38 Hold April 2014 N/A

McDonald’s (MCD) 84 Hold April 2014 N/A

Coca-Cola (KO) 45 Hold April 2014 N/A

Genuine Parts (GPC) 66 Hold May 2014 N/A

3M (MMM) 44 Hold May 2014 N/A

AT&T (T) 27 Hold June 2014 N/A

Becton, Dickinson (BDX) 19 Hold June 2014 N/A

Philip Morris (PM) 53 Hold June 2014 N/A

General Mills (GIS) 16 Hold June 2014 N/A

J.M. Smucker (SJM) 69 Hold August 2014 N/A

EcoLab (ECL) 46 Hold October 2014 N/A

Kellogg (K) 78 Hold December 2014 N/A

Helmerich & Pa. (HP) 130 Hold February 2015 N/A

Altria (MO) 25 Hold April 2015 N/A

W.W. Grainger (GWW) 13 Hold July 2015 N/A

BCE, Inc. (BCE) 49 Hold August 2015 N/A

Caterpillar (CAT) 90 Hold August 2015 N/A

United Tech. (UTX) 15 Hold August 2015 N/A

Eaton (ETN) 71 Hold September 2015 N/A

Johnson & Johnson (JNJ) 33 Hold November 2015 N/A

Computer Servic, (CSVI) 17 Hold November 2015 N/A

Procter & Gamble (PG) 21 Hold December 2015 N/A

Flowers Foods (FLO) 23 Hold March 2016 N/A

Chubb (CB) N/A Sold April 2014 July 2015

Baxalta (BXLT) N/A Sell July 2015 Feb. 2016

ConocoPhillips (COP) N/A To Be Sold December 2014 On Oil Rise

34

Disclaimer Nothing presented herein is, or is intended to constitute, specific investment advice. Nothing in this newsletter should be construed as a

recommendation to follow any investment strategy or allocation. Any forward looking statements or forecasts are based on assumptions and

actual results are expected to vary from any such statements or forecasts. No reliance should be placed on any such statements or forecasts when making any investment decision. While Sure Dividend has used reasonable efforts to obtain information from reliable sources, we make no

representations or warranties as to the accuracy, reliability or completeness of third-party information presented herein. No guarantee of

investment performance is being provided and no inference to the contrary should be made. There is a risk of loss from an investment in

securities. Past performance is not a guarantee of future performance.

Closing Thoughts - Not All Businesses Are Created Equally –

In the opening thoughts of this newsletter I discussed the importance of investing

in great businesses for the long-run. Not all businesses are equally suitable for

long-term investment. Some industries are more subject to rapid change than

others. Perhaps the best example of a slow changing business is Coca-Cola. The

company’s flagship product is virtually unchanged since the late 1890’s.

Can you imagine a technology company that is still making billions of dollars from

the same product it sold in 1892? The radio was invented in 1895. Now, there are

a few technology firms that are around 100 years old (or older) – IBM comes to

mind. The company has done well by constantly reinventing itself.

When you invest for the long-run, your focus shifts to investing in businesses that

have the highest probability of being around for long periods of time. This reduces

business obsolescence risk. There are very few businesses that have 25+ years of

dividend payments without a reduction in the technology sector. Most of those

that do make the cut are in the telecommunications industry – which has very

different characteristics than true ‘tech’ firms.

Stability from lack of change leads to superior long-term results. The consumer

staples sector as a whole has the highest long-term (since 1963) total returns and

the 2nd lowest volatility (only utilities were lower).

“Our approach is very much profiting from lack of change rather than from

change. With Wrigley chewing gum, it’s the lack of change that appeals to me.”

- Warren Buffett

Thanks,

Ben Reynolds

Sure Dividend

If you have any questions or comments, please email me at [email protected]

The next newsletter publishes on Sunday June 5th, 2016

sure dividend€¦ · may 2016 edition by ben reynolds . 2 ... the ‘price’ column shows the...

Documents