sure dividend€¦ · this is the first sure dividend newsletter with fair value estimates for each...

Sure Dividend

HIGH QUALITY DIVIDEND STOCKS, LONG-TERM PLAN

April 2016 Edition

By Ben Reynolds

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Table of Contents

Opening Thoughts -On Value- ..................................................................................................... 3

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

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

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

Johnson Controls (JCI) ............................................................................................................... 7

Flowers Foods (FLO) .................................................................................................................. 9

General Dynamics (GD) ........................................................................................................... 11

Deere & Company (DE) ........................................................................................................... 13

Wal-Mart (WMT) ..................................................................................................................... 15

Cummins (CMI) ........................................................................................................................ 17

Abbott Laboratories (ABT) ....................................................................................................... 19

Verizon (VZ) ............................................................................................................................. 21

Becton, Dickinson & Company (BDX) .................................................................................... 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 ........................................................................................................................ 34

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Opening Thoughts -On Value-

This is the first Sure Dividend newsletter with fair value estimates for each of the Top

10 stocks.

It is my hope that readers of the Sure Dividend newsletter will use these estimates as

further proof they are buying into great businesses at fair or better prices. The fair

value estimates in this newsletter are not intended for short-term trading.

I believe in long-term investing. This is different from value investing. Value

investors typically have shorter time frames. The goal is to buy an undervalued

security and hold it until it reaches its fair value. Benjamin Graham advised to sell a

stock after 2 years if it had not reached fair value.

Value investing takes advantage of overreactions. When people undervalue a security

due to undue pessimism, a value investor will buy shares at a discount. When these

shares revert to fair value, the value investor will sell shares. The sooner the stock

price rebounds, the better.

Long-term investing takes a different approach. Rather than profit from mispricings

in securities, one profits from the underlying business growth. Take McDonald’s as

an example. You could have purchased shares of McDonald’s between $34 and $44

in 2006 at forward P/E ratios between 15 and 19. Today those shares are worth $127

each (not including dividends). McDonald’s was not a deep value play or a bargain at

those prices. If you would have bought in at a P/E ratio of 15 and sold as soon as

McDonald’s a forward P/E ratio rose to 20 (assuming that’s what you thought fair

value was), you would have sold McDonald’s stock in 2007 and missed out on much

of the businesses’ growth over the next several years.

The investing focus of Sure Dividend remains primarily on identifying high quality

businesses. That’s why we exclusively invest in businesses with 25+ years of

dividend payments without a reduction. A business with that long of a history of

rewarding shareholders has to have (or at least very recently had) a strong and durable

competitive advantage.

The price you pay does matter when investing in great businesses. Buying

McDonald’s at a P/E ratio of 50 (if it had reached that high) would have been a poor

idea. Lower prices mean higher dividend yields for a given security – which means

more income today. That’s why the estimated fair value calculations are included.

They are estimates only – no one knows with any certainty the true fair value of a

business. Regardless, your focus should be on buying high quality businesses first,

and then on buying them at fair or better prices second.

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The Top 10 List – April 2016

Ticker Name Price $ Score Months Yield Payout Growth Beta Volatility ADM Arch.-Dan.-Mid. 36.47 1.00 4 3.3% 40% 10.0% 1.02 33.8%

JCI Johnson Controls 39.15 0.99 4 3.0% 33% 10.7% 1.27 36.7%

FLO Flowers Foods 18.22 0.97 2 3.2% 62% 13.3% 0.57 26.5% GD General Dynami. 132.34 0.97 2 2.3% 33% 9.0% 0.83 24.7%

DE Deere & Co. 76.50 0.97 1 3.1% 44% 13.3% 1.21 35.1% WMT Wal-Mart 69.06 0.97 25 2.9% 43% 6.5% 0.53 19.5%

CMI Cummins 110.12 0.96 6 3.5% 44% 14.0% 1.58 44.5%

ABT Abbott Labs 42.19 0.96 8 2.5% 48% 10.0% 0.56 20.1% VZ Verizon Wireless 54.01 0.94 5 4.2% 57% 6.0% 0.71 21.9%

BDX Becton Dickins. 153.49 0.93 3 1.7% 35% 10.0% 0.56 20.0%

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.

Deere & Company replaces W.W. Grainger 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: 3.0% 2.1%

Payout Ratio: 44.0% 47.8%

Growth Rate: 10.3% 7.4%

PE Ratio: 15.2 22.9

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Analysis of Top 10 Stocks

Archer-Daniels-Midland (ADM)

Overview & Current Events

ADM is one of the largest agricultural businesses in the world based on its $22 billion market cap. The

company is a global agricultural sourcing, production and transportation business.

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: Mid April 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 10.3% to 13.3% a year from the stock’s 3.3% 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 12.2; 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 ~$36.50/share)

Dividend Yield: 3.3%

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

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%.

Johnson Controls continues to post excellent results (1/28/16). The company saw adjusted EPS

increase 11% in its most recent quarter due to revenue growth, rising margins, and share repurchases.

The company also (1/25/16) plans to merge with Tyco (TYC) in a deal that will reshape the company.

Next Dividend Record Date: Early June 2016 Next Earnings Release: Late April, 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 spun-off business 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 take advantage of 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.

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

Johnson Controls is expecting 8% to 14% EPS 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

3% dividend yield gives investors expected returns of 10% to 12% a year.

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

ratio of 10.9. Shares of the company are trading for ~$39; 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 $39.15/share)


10 Year EPS Growth Rate: 7.7% per year



Dividend History: 38 years without a reduction

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Flowers Foods (FLO)


Flowers Foods is the second largest bakery corporation in North America (behind only Grupo Bimbo).

The company owns the: Nature’s Own, Wonder Bread, Dave’s Killer Breads, and TastyKake brands.

Flowers Foods full fiscal 2015 results (released 2/10/16) showed EPS growth of 2.2% and raised its

dividend payments 9.4%. The company’s stock price fell 25% in 2 days following the recent earnings

release. EPS in the 4th quarter declined 20% due to a 2.2% sales decline which was magnified due to

the company overspending in relation to sales.

The growth decline is very likely temporary. The company is expecting EPS growth of 6.5% to 13.0%

in fiscal 2016 and has grown EPS at a compound rate of 13.8% a year over the last decade.

Flowers Foods’ management is taking full advantage of the share price decline. The company

announced (3/16/16) it will repurchase ~3% of shares outstanding in the next quarter alone.

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


Flowers Foods competitive advantage comes from its well-known bread brands. The company

operates in the glacially slow changing baking industry. As the 2nd largest baker in North America,

Flowers Foods also has a scale based competitive advantage over smaller competitors.

Bread is a staple food product that is in demand regardless of the economic environment. As a result,

Flowers Foods earnings-per-share grew each year through the Great Recession.


Flowers Foods has grown EPS at 13.8% a year over the last decade. The company’s management is

targeting continued growth going forward. Flowers Foods has significant growth opportunities. The

company plans to achieve double-digit growth through organic growth of 3% to 5% a year, acquisition

growth of 2% to 5% a year, and margin increases from improving economies of scale.

The company is a leader in a highly fragmented industry and currently serves just 85% of the US

population. Geographic expansion will lead to growth, as will growing out underserved areas

geographically. The organic bread category is still in its infancy. Flowers Foods is well positioned to

capitalize on this growth through the Dave’s Killer Breads and Alpine Valley Bread brands.

Flowers Foods has traded for a P/E ratio above 20 for much of the past 5 years. The company is

currently trading for a P/E ratio of 19.6. A fair P/E ratio for the company is likely 20.

Maximum Drawdown (starting in year 2000): -42% in January 2003 and February 2016

Estimated Fair Value $19/share (currently trading around fair value)


10 Year EPS Growth Rate: 13.4%

10 Year Dividend Growth Rate: 16.2%


Dividend History: 29 consecutive years without a reduction

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General Dynamics (GD)


General Dynamics is the 4th largest publicly traded aerospace and defense corporation based on its

market cap of $41 billion. The company was founded in 1952. The US Government accounts for

~60% of the company’s sales. General Dynamics has been awarded contracts with values totaling

around $4 billion since the last newsletter was published.

General Dynamics reported (1/27/16) EPS growth of 16% in fiscal 2015. The company’s performance

was driven by significant margin gains and large share repurchases. Sales grew just 2%. Despite

excellent EPS growth, General Dynamics stock is down ~10% from highs set in June of 2015. The

company’s stock price stagnation appears to be a result of investors expecting the company to see

growth slow, which has not occurred.

Next Dividend Record Date: April 8th, 2016 Next Earnings Release: Mid April, 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 14.6. The company’s historical

price-to-earnings ratio has ranged from ~10 to 17 for much of the last 20 years. The company is

unlikely to see its P/E ratio rise, though it does have very good total return potential.


Estimated Fair Value: $130/share (currently trading around fair value)






13

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. 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 over 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 13.5. Based on this, Deere & Company has ~40% upside at its

current share price of $76.50.


Estimated Fair Value: $108/share (currently trading for $76.50/share)


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


Most Recent Dividend Increase: No Increase in last 12 months


15

Wal-Mart (WMT)


Wal-Mart’s short-term prospects remain mediocre. The company will likely see earnings-per-share fall

in calendar year 2016 due to lower margins. Lower margins are primarily a result of increased wages.

The wage investments have already begun to pay off. Wal-Mart has seen 6 consecutive quarters of

comparable store sales increases in the United States. The company realized constant-currency revenue

growth of 3% to 4% in its last fiscal year, excluding store closures.

In the short-run, Wal-Mart is a poor investment because of declining operating income. Over the long-

run, the company is an excellent investment because operating income will rebound. Wal-Mart will

not keep up its rapid employee compensation increases indefinitely, nor will digital sales investments

continue at their current clip forever. The company is repositioning itself for better long-term growth.

Investors who will hold for years instead of months will very likely do well by investing in Wal-Mart.

Next Dividend Record Date: June, 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%.


As discussed above, Wal-Mart’s short-term EPS growth is expected to be negative in fiscal 2017 (the

company’s fiscal year ends January 31st). 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%.

Valuing Wal-Mart is difficult. From 1999 through 2002 the company’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 90% of the markets’ to account for recent weakness. The S&P 500 currently has a P/E ratio of

22.9. 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 $69.06.

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 $69.06/share)





Dividend History: 43 Consecutive years of dividend increase

17

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, 34% in heavy-duty (HD) diesel truck engines in

North America, 42% MD & HD market share in truck diesel engines in India, and 17% MD & HD

market share in truck diesel engines in China.

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: Late April, 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 12.4, 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 ~$110.

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

Estimated Fair Value: $150/share (shares currently trade for $110.12)





Dividend History: 25 years without a reduction

19

Abbott Laboratories (ABT)


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

medical devices, diagnostic equipment, and pharmaceuticals.

Abbott Laboratories recently announced (2/1/16) it will acquire Alere (ALR) for $5.8 billion. Abbott is

acquiring Alere at a P/E ratio of 29. The acquisition will bolster Abbott’s diagnostic equipment

division and make the company the global leader in point of care testing. Abbott is likely overpaying

somewhat for Alere, but the company expects the acquisition to be immediately accretive to EPS.

Abbott Laboratories full fiscal 2015 results (1/28/16) showed adjusted EPS of $2.15 for the full year,

growth of 8.6% versus the previous year. The company is expecting adjusted EPS of $2.10 to $2.20 in

fiscal 2016. Excluding issues in Venezuela from the company’s currency and negative currency effects

from the strong United States dollar, Abbott Laboratories is projecting 10% Adjusted EPS growth.

Next Dividend Record Date: April 15th, 2016 Next Earnings Release: April 20th, 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 reduces currency

fluctuation risks and 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 revenue, earnings, and dividends each year through the Great

Recession of 2007 to 2009. 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. The company has large

operations in several key emerging markets. This international exposure gives Abbott excellent long-

term growth prospects as it benefits from faster emerging market growth and global aging populations.

The company stands to benefit from China’s lifting of the ‘one child policy’; this should boost formula

sales for Abbott Laboratories over the next several years.

Abbott Laboratories historical average P/E ratio since the AbbVie spin-off is 19.1. The company is

currently trading at a P/E ratio (using adjusted earnings in both cases) of 19.6. Abbott is likely trading

around fair value at this time.

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

Estimated Fair Value $42/share (currently trading around fair value)


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 reductions from ABBV spin-off in 2012)

Note: Dividend yield history is skewed due to 2012 spin-off of AbbVie.

21

Verizon (VZ)


Verizon’s $220 billion market cap makes it one of the 20 largest publicly traded companies.

Verizon posted favorable full year results (1/21/16). The company saw adjusted earnings-per-share

grow 19.1% in 2015 versus 2014. For the year, EBITDA margins grew 1.3 percentage points to 35.4%

and revenue grew 2.6%. Rising margins combined with rising revenue shows that Verizon’s

competitive advantage is strengthening.

The company announced (2/22/16) it will purchase XO Communications’ (which is owned by Carl

Icahn) fiber optics business for $1.8 billion. The deal is expected to close in the first half of 2017.

Verizon is acquiring XO’s fiber optics business to provide faster internet speeds to enterprise level

customers and to more quickly shuttle data to and from wireless cell phone towers. Verizon also

recently (3/16/16) acquired Volicon to enhance its video streaming capabilities. Terms of the small

(based on Verizon’s scale) acquisition were not released.

Next Dividend Record Date: April 8th, 2016 Next Earnings Release: April 21st, 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 10.2% a year from its large dividend yield of 4.2% 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 is currently trading for a price-to-earnings ratio of 13.5. 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 $54.01/share)


10 Year EPS Growth Rate: 5.0%




23

Becton, Dickinson & Company (BDX)


BDX is a global producer of medical, diagnostic, and bioscience products. The company was founded

in 1897 and now has a market cap of $32.5 billion.

BDX saw earnings-per-share grow 28% in its most recent quarter (2/3/16) as the company continues to

realize cost synergies from its CareFusion acquisition. BDX also released its full year 2016 outlook.

The company is expecting robust EPS growth of around 17% in fiscal 2016 resulting from organic

business growth and margin improvements from cost synergies related to the CareFusion acquisition.

Next Dividend Record Date: June, 2016 Next Earnings Release: Early May, 2016


BDX’ competitive advantage comes from its global reach, strong supply lines, and well established

relationships with customers and governments. New entrants to the medical supplies industry would

find it costly and difficult to recreate BDX’s global supply chain and relationships with customers.

BDX operates in the health care industry which has traditionally done well through recessions. BDX

grew revenue, earnings, and dividends from 2007 through 2009, throughout the Great Recession. The

company is only minimally affected by economic downturns.


BDX’s long-term growth potential comes from rising health care spending as a percentage of GDP

across the globe coupled with population growth in emerging markets. BDX currently generates

approximately 20% of its revenues in emerging markets. I expect this number to rise over time.

Over the last decade BDX has compounded earnings-per-share at 9.7% per year. I expect an earnings-

per-share growth rate of 9% to 11% a year over the next decade as the company benefits from cost

reductions, margin improvements, and scale advantages from its CareFusion acquisition. This growth

combined with the company’s current 1.7% dividend yield gives investors expected total returns of

10.7% to 12.7% a year going forward.

BDX has a P/E ratio of 20.3. The company should likely trade for a price-to-earnings ratio about in

line with the S&P 500 given its quality and growth prospects.

Maximum Drawdown (starting in year 2000): -35% in July of 2002

Estimated Fair Value: $155/share (currently trading around fair value).





Dividend History: 43 years of consecutive dividend increases

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)

Cobham LON:COB 8.4% 5.3% 10.7 2 (after ADM, before JCI)

Empire Company TSE:EMP.A 7.3% 1.8% 6.3 7 (after WMT, before CMI)

Fortis TSE:FTS 8.8% 3.7% 19.3 9 (after ABT, before VZ)

Munich Re BIT:MUV2 4.4% 4.7% 9.3 9 (after ABT, before VZ)

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) - 2.6%

2. Enbridge, Inc. (ENB) - 3.7%

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

4. Valspar Corp. (VAL) - 1.2%

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

6. Praxair (PX) - 2.6%

7. Phillips 66 Partners LP (PSXP) - 2.9%

8. Air Products & Chem. (APD) - 2.2%

9. ExxonMobil Corp. (XOM) - 3.5%

10. RPM International Inc. (RPM) - 2.3%

11. Helmerich & Payne Inc. (HP) - 4.9%

12. Chevron Corp. (CVX) - 4.5%

13. Air Liquide (AI.E) - 2.7%

14. H.B. Fuller Company (FUL) - 1.2%

15. NACCO Industries (NC) - 1.8%

16. Nucor Corp. (NUE) - 3.2%

17. Imperial Oil (IMO) - 1.3%

18. National Fuel Gas (NFG) - 3.1%

19. Murphy Oil (MUR) - 5.8%

Technology 1. Verizon Wireless (VZ) - 4.2%

2. Computer Services Inc. (CSVI) - 2.6%

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

4. BCE, Inc. (BCE) - 3.9%

5. Diebold Inc. (DBD) - 4%

6. Linear Technologies (LLTC) - 2.8%

7. Automatic Data Proc. (ADP) - 2.3%

8. Telephone & Data Sys. (TDS) - 1.9%

9. Vodafone Group plc (VOD) - 5.1%

10. Brady Corp. (BRC) - 2.9%

Financial 1. Munich Re (MUV2.B) - 4.7%

2. Waddell & Reed (WDR) - 7.8%

3. Eagle Financial Services (EFSI) - 3.5%

4. Franklin Resources (BEN) - 1.8%

5. American Express (AXP) - 1.9%

6. AFLAC Inc. (AFL) - 2.6%

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

8. Farmers & Merchants Banc. (FMCB) - 2.3%

9. Harleysville Savings (HARL) - 4.4%

10. McGraw Hill Financial Inc. (MHFI) - 1.5%

11. Cincinnati Financial (CINF) - 2.9%

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

13. HCP Inc. (HCP) - 7.1%

14. Torchmark Insurance (TMK) - 1%

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

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

17. Commerce Bancshares (CBSH) - 2%

18. First Financial Bankshares (FFIN) - 2.2%

19. Old Republic International (ORI) - 4.1%

20. 1st Source Corp. (SRCE) - 2.3%

21. M&T Bank Corporation (MTB) - 2.5%

22. First Financial Corp. (THFF) - 2.9%

23. Northern Trust (NTRS) - 2.2%

24. Universal Health Realty Trust (UHT) - 4.6%

25. Arthur J Gallagher (AJG) - 3.4%

26. RLI Corp. (RLI) - 1.1%

27. National Retail Properties (NNN) - 3.8%

28. Realty Income (O) - 3.8%

29. United Bankshares Inc. (UBSI) - 3.6%

30. Public Storage (PSA) - 2.5%

31. Mercury General Corp. (MCY) - 4.5%

32. Federal Realty Inv. Trust (FRT) - 2.4%

27

Consumer Goods 1. Archer Daniels Midland (ADM) - 3.3%

2. Flowers Foods (FLO) - 3.2%

3. Procter & Gamble Co. (PG) - 3.2%

4. General Mills (GIS) - 2.8%

5. Diageo plc (DEO) - 2.4%

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

7. Church & Dwight (CHD) - 1.5%

8. PepsiCo Inc. (PEP) - 2.7%

9. VF Corp. (VFC) - 2.3%

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

11. Philip Morris (PM) - 4.1%

12. Carlisle Companies (CSL) - 1.2%

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

14. Coca-Cola Company (KO) - 3%

15. Mondelez (MDLZ) - 1.6%

16. Nike (NKE) - 1%

17. Hormel Foods Corp. (HRL) - 1.3%

18. Home Depot (HD) - 2%

19. The J.M. Smucker Co. (SJM) - 2%

20. Universal Corp. (UVV) - 3.7%

21. Kellogg (K) - 2.6%

22. PZ Cussons plc (PZC.L) - 2.7%

23. McCormick & Co. (MKC) - 1.7%

24. Brown-Forman Class B (BF-B) - 1.4%

25. Kimberly-Clark Corp. (KMB) - 2.7%

26. Clorox Company (CLX) - 2.4%

27. Young & Co's Brewery (YNGA.L) - 1.5%

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

29. Henkel (HEN3.E) - 1.5%

30. Unilever (UL) - 2.9%

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

32. HNI Corp (HNI) - 2.7%

33. Sonoco Products Co. (SON) - 2.9%

34. Hershey (HSY) - 2.5%

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

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

37. Bemis Company (BMS) - 2.2%

38. Stepan Company (SCL) - 1.4%

39. Weyco Group Inc. (WEYS) - 3%

40. Nestle (NESN.V) - 3.1%

41. Tootsie Roll Industries (TR) - 3.8%

42. Lancaster Colony Corp. (LANC) - 1.8%

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

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

Utilities 1. Fortis (FTS.TO) - 3.7%

2. SCANA Corp. (SCG) - 3.2%

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

4. Consolidated Edison (ED) - 3.5%

5. Southern Company (SO) - 4.2%

6. California Water Service (CWT) - 2.6%

7. American States Water (AWR) - 2.3%

8. Vectren Corp. (VVC) - 3.1%

9. UGI Corp. (UGI) - 2.2%

10. Conn. Water Service (CTWS) - 2.4%

11. Questar Corp. (STR) - 3.5%

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

13. WGL Holdings Inc. (WGL) - 2.7%

14. Otter Tail (OTTR) - 4.2%

15. Atmos Energy (ATO) - 2.3%

16. SJW Corp. (SJW) - 2.2%

17. Northwest Natural Gas (NWN) - 3.5%

18. Middlesex Water Co. (MSEX) - 2.5%

19. MGE Energy (MGEE) - 2.3%

20. Piedmont Natural Gas (PNY) - 2.3%

28

Industrial Goods 1. Cobham plc (COB.L) - 5.3%

2. Johnson Controls (JCI) - 3%

3. General Dynamics (GD) - 2.3%

4. Deere & Co. (DE) - 3.1%

5. Cummins (CMI) - 3.5%

6. United Technologies (UTX) - 2.6%

7. Rotork plc (ROR.L) - 2.8%

8. Pentair Ltd. (PNR) - 2.5%

9. Weir Group plc (WEIR.L) - 4.1%

10. Parker-Hannifin Corp. (PH) - 2.3%

11. Caterpillar (CAT) - 4%

12. Emerson Electric (EMR) - 3.5%

13. 3M Company (MMM) - 2.6%

14. Tennant Company (TNC) - 1.6%

15. Illinois Tool Works (ITW) - 2.1%

16. Stanley Black & Decker (SWK) - 2.1%

17. Eaton (ETN) - 3.6%

18. Spirax-Sarco Engineering (SPX.L) - 1.9%

19. Dover Corp. (DOV) - 2.6%

20. Nordson Corp. (NDSN) - 1.3%

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

22. Donaldson Company (DCI) - 2.1%

23. Roper Technologies (ROP) - 0.6%

24. Clarcor Inc. (CLC) - 1.5%

25. Gorman-Rupp Company (GRC) - 1.6%

26. Raven Industries (RAVN) - 3.3%

Services 1. Wal-Mart Stores Inc. (WMT) - 2.9%

2. Empire Co. (EMP.A.TO) - 1.8%

3. Disney (DIS) - 1.4%

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

5. Walgreens Boots Alliance (WBA) - 1.7%

6. Target Corp. (TGT) - 2.7%

7. United Parcel Service (UPS) - 3%

8. Cardinal Health (CAH) - 1.9%

9. Genuine Parts Co. (GPC) - 2.6%

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

11. RR Donnelley (RRD) - 6.3%

12. Sysco Corp. (SYY) - 2.6%

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

14. Wolters Kluwer NV (WKL.A) - 2.2%

15. Cintas Corp. (CTAS) - 1.2%

16. Mine Safety Appliances (MSA) - 2.6%

17. Bowl America (BWL.A) - 4.9%

Health Care 1. Abbott Laboratories (ABT) - 2.5%

2. Becton Dickinson & Co. (BDX) - 1.7%

3. AbbVie (ABBV) - 4%

4. Johnson & Johnson (JNJ) - 2.7%

5. Medtronic Inc. (MDT) - 2%

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

7. Novo Nordisk (NVO) - 1.7%

8. United Health Group (UNH) - 1.5%

9. Baxalta (BXLT) - 0.7%

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

11. Roche (ROG.V) - 3.5%

12. Eli Lilly & Company (LLY) - 2.8%

13. Baxter International (BAX) - 1.1%

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 ‘Score’ of each stock is listed as well. The top ranked stock has a score

of 1. The closer to 1, the better. International stocks are color-coded in blue.

1. Archer-Daniels-Midla. (ADM) - 3.3%

2. Cobham plc (COB.L) - 5.3%

3. Johnson Controls (JCI) - 3%

4. Flowers Foods (FLO) - 3.2%

5. General Dynamics (GD) - 2.3%

6. Deere & Co. (DE) - 3.1%

7. Wal-Mart Stores Inc. (WMT) - 2.9%

8. Empire Co. (EMP.A.TO) - 1.8%

9. Cummins (CMI) - 3.5%

10. Abbott Laboratories (ABT) - 2.5%

11. Fortis (FTS.TO) - 3.7%

12. Munich Re (MUV2.B) - 4.7%

13. Verizon Wireless (VZ) - 4.2%

14. Becton Dickinson (BDX) - 1.7%

15. United Technologies (UTX) - 2.6%

16. Disney (DIS) - 1.4%

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

18. AbbVie (ABBV) - 4%

19. Phillips 66 (PSX) - 2.6%

20. Procter & Gamble Co. (PG) - 3.2%

21. Rotork plc (ROR.L) - 2.8%

22. Pentair Ltd. (PNR) - 2.5%

23. Johnson & Johnson (JNJ) - 2.7%

24. Weir Group plc (WEIR.L) - 4.1%

25. General Mills (GIS) - 2.8%

26. Medtronic Inc. (MDT) - 2%

27. Computer Services (CSVI) - 2.6%

28. Waddell & Reed (WDR) - 7.8%

29. SCANA Corp. (SCG) - 3.2%

30. Diageo plc (DEO) - 2.4%

31. Eagle Financial (EFSI) - 3.5%

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

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

34. Enbridge, Inc. (ENB) - 3.7%

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

36. Franklin Resources (BEN) - 1.8%

37. Parker-Hannifin Corp. (PH) - 2.3%

38. Walgreens Boots (WBA) - 1.7%

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

40. Church & Dwight (CHD) - 1.5%

41. Caterpillar (CAT) - 4%

42. PepsiCo Inc. (PEP) - 2.7%

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

44. Emerson Electric (EMR) - 3.5%

45. VF Corp. (VFC) - 2.3%

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

47. Philip Morris (PM) - 4.1%

48. American Express (AXP) - 1.9%

49. Carlisle Companies (CSL) - 1.2%

50. 3M Company (MMM) - 2.6%

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

52. Coca-Cola Company (KO) - 3%

53. Novo Nordisk (NVO) - 1.7%

54. AFLAC Inc. (AFL) - 2.6%

55. Consolidated Edison (ED) - 3.5%

56. Mondelez (MDLZ) - 1.6%

57. United Health Group (UNH) - 1.5%

58. Tennant Company (TNC) - 1.6%

59. Nike (NKE) - 1%

60. Illinois Tool Works (ITW) - 2.1%

61. Valspar Corp. (VAL) - 1.2%

62. Target Corp. (TGT) - 2.7%

63. Hormel Foods Corp. (HRL) - 1.3%

64. United Parcel Service (UPS) - 3%

65. Southern Company (SO) - 4.2%

66. Home Depot (HD) - 2%

30


67. Cardinal Health (CAH) - 1.9%

68. Stanley Black & Dec. (SWK) - 2.1%

69. Eaton (ETN) - 3.6%

70. Baxalta (BXLT) - 0.7%

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

72. Farmers & Merchants (FMCB) - 2.3%

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

74. Spirax-Sarco Engine. (SPX.L) - 1.9%

75. The J.M. Smucker Co. (SJM) - 2%

76. Genuine Parts Co. (GPC) - 2.6%

77. Universal Corp. (UVV) - 3.7%

78. Kellogg (K) - 2.6%

79. Harleysville Savings (HARL) - 4.4%

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

81. Praxair (PX) - 2.6%

82. Dover Corp. (DOV) - 2.6%

83. McGraw Hill Financi. (MHFI) - 1.5%

84. Cincinnati Financial (CINF) - 2.9%

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

86. BCE, Inc. (BCE) - 3.9%

87. Nordson Corp. (NDSN) - 1.3%

88. Phillips 66 Partners (PSXP) - 2.9%

89. PZ Cussons plc (PZC.L) - 2.7%

90. HCP Inc. (HCP) - 7.1%

91. Torchmark Insurance (TMK) - 1%

92. Air Products & Chem. (APD) - 2.2%

93. Tompkins Financial (TMP) - 2.7%

94. Roche (ROG.V) - 3.5%

95. McCormick & Co. (MKC) - 1.7%

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

97. Brown-Forman (BF-B) - 1.4%

98. RR Donnelley (RRD) - 6.3%

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

100. California Water Servi. (CWT) - 2.6%

101. Kimberly-Clark Corp. (KMB) - 2.7%

102. Community Trust Ban. (CTBI) - 3.5%

103. Sysco Corp. (SYY) - 2.6%

104. Eli Lilly & Company (LLY) - 2.8%

105. Clorox Company (CLX) - 2.4%

106. ExxonMobil Corp. (XOM) - 3.5%

107. Young & Co's Bre. (YNGA.L) - 1.5%

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

109. Baxter International (BAX) - 1.1%

110. Commerce Bancshares (CBSH) - 2%

111. American States Water (AWR) - 2.3%

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

113. Wolters Kluwer NV (WKL.A) - 2.2%

114. First Financial Banks. (FFIN) - 2.2%

115. Old Republic Internati. (ORI) - 4.1%

116. Henkel (HEN3.E) - 1.5%

117. Unilever (UL) - 2.9%

118. RPM International Inc. (RPM) - 2.3%

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

120. Helmerich & Payne Inc. (HP) - 4.9%

121. Cintas Corp. (CTAS) - 1.2%

122. Diebold Inc. (DBD) - 4%

123. 1st Source Corp. (SRCE) - 2.3%

124. Vectren Corp. (VVC) - 3.1%

125. Donaldson Company (DCI) - 2.1%

126. HNI Corp (HNI) - 2.7%

127. Sonoco Products Co. (SON) - 2.9%

128. Roper Technologies (ROP) - 0.6%

129. Hershey (HSY) - 2.5%

130. UGI Corp. (UGI) - 2.2%

131. Clarcor Inc. (CLC) - 1.5%

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

133. Linear Technologies (LLTC) - 2.8%

134. Chevron Corp. (CVX) - 4.5%

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

136. M&T Bank (MTB) - 2.5%

137. First Financial Corp. (THFF) - 2.9%

138. Automatic Data Proc. (ADP) - 2.3%

139. Air Liquide (AI.E) - 2.7%

140. Bemis Company (BMS) - 2.2%

141. Stepan Company (SCL) - 1.4%

142. Conn. Water Service (CTWS) - 2.4%

143. Questar Corp. (STR) - 3.5%

144. Mine Safety Applianc. (MSA) - 2.6%

145. Telephone & Data Sys. (TDS) - 1.9%

146. Weyco Group Inc. (WEYS) - 3%

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

148. WGL Holdings Inc. (WGL) - 2.7%

31


149. Nestle (NESN.V) - 3.1%

150. Northern Trust (NTRS) - 2.2%

151. Tootsie Roll Industries (TR) - 3.8%

152. Otter Tail (OTTR) - 4.2%

153. Lancaster Colony (LANC) - 1.8%

154. H.B. Fuller Company (FUL) - 1.2%

155. Universal Health Real. (UHT) - 4.6%

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

157. Arthur J Gallagher (AJG) - 3.4%

158. Atmos Energy (ATO) - 2.3%

159. SJW Corp. (SJW) - 2.2%

160. Northwest Natural Gas (NWN) - 3.5%

161. RLI Corp. (RLI) - 1.1%

162. Middlesex Water Co. (MSEX) - 2.5%

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

164. National Retail Proper. (NNN) - 3.8%

165. MGE Energy (MGEE) - 2.3%

166. Realty Income (O) - 3.8%

167. NACCO Industries (NC) - 1.8%

168. United Bankshares (UBSI) - 3.6%

169. Bowl America (BWL.A) - 4.9%

170. Vodafone Group plc (VOD) - 5.1%

171. Public Storage (PSA) - 2.5%

172. Brady Corp. (BRC) - 2.9%

173. Mercury General (MCY) - 4.5%

174. Piedmont Natural Gas (PNY) - 2.3%

175. Gorman-Rupp (GRC) - 1.6%

176. Nucor Corp. (NUE) - 3.2%

177. Imperial Oil (IMO) - 1.3%

178. National Fuel Gas (NFG) - 3.1%

179. Federal Realty Inv. (FRT) - 2.4%

180. Murphy Oil (MUR) - 5.8%

181. Raven Industries (RAVN) - 3.3%

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. Over time, you will build a well-diversified portfolio of great businesses

purchased at attractive prices.

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 a period of 20 months. Each month, take 1/20 of your initial

portfolio value, and buy the top ranked stock you own the least (as per the examples

above).

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.

Alternatively, the top 10 list is also useful as an idea generation tool for those with a

different portfolio allocation plan.

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) 105 Hold April 2014 N/A

Target (TGT) 62 Hold April 2014 N/A

Kimb.-Clark (KMB) 101 Hold April 2014 N/A

ExxonMobil (XOM) 106 Hold April 2014 N/A

AFLAC (AFL) 54 Hold April 2014 N/A

PepsiCo (PEP) 42 Hold April 2014 N/A

McDonald’s (MCD) 96 Hold April 2014 N/A

Coca-Cola (KO) 52 Hold April 2014 N/A

Genuine Parts (GPC) 76 Hold May 2014 N/A

3M (MMM) 50 Hold May 2014 N/A

AT&T (T) 32 Hold June 2014 N/A

Philip Morris (PM) 47 Hold June 2014 N/A

General Mills (GIS) 25 Hold June 2014 N/A

J.M. Smucker (SJM) 75 Hold August 2014 N/A

EcoLab (ECL) 46 Hold October 2014 N/A

Kellogg (K) 78 Hold December 2014 N/A

Helmerich & Pa. (HP) 120 Hold February 2015 N/A

Altria (MO) 35 Hold April 2015 N/A

W.W. Grainger (GWW) 17 Hold July 2015 N/A

BCE, Inc. (BCE) 86 Hold August 2015 N/A

Caterpillar (CAT) 41 Hold August 2015 N/A

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

Eaton (ETN) 69 Hold September 2015 N/A

Johnson & Johnson (JNJ) 23 Hold November 2015 N/A

Computer Servic, (CSVI) 27 Hold November 2015 N/A

Procter & Gamble (PG) 20 Hold December 2015 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

The S&P 500 has averaged inflation adjusted compound annual returns (including

dividends) of 6.9% over its history. The last 30 years have been better than

average. The S&P 500 generated inflation adjusted compound total returns of

8.2% a year during this time period.

The greater returns are due to valuation multiple increases. The S&P 500 has

realized 2.4 percentage points a year of ‘extra’ growth over the last 30 years due to

an increase in the price-to-earnings multiple. The historical average price-to-

earnings multiple of the S&P 500 is 15.6. It currently sits at 22.9.

There is a very good reason why the S&P 500’s P/E multiple is higher than

average, and it has nothing to do with future growth prospects. The P/E ratio is

higher because interest rates are so low. 10 year US treasury yields have been

declining steadily for the last 30 years. This pushes up the value of all assets.

Investors should not expect this tailwind to continue. The Federal Reserve may

(modestly) raise rates. The real reason interest rates can’t continue to fall is

because they are already so low. The current yield on the 10 year treasury is 1.8%.

Its historical average is 4.6%.

Investors in the S&P 500 should expect to generate inflation adjusted returns of

under 6.9% a year going forward. To do better than this, one must invest in

businesses that have better total return profiles – namely businesses with faster

growth rates, higher dividend yields, lower price-to-earnings ratios, and less risk.

Take a look at the characteristics of an equally weighted portfolio of the current

Top 10 stocks in this newsletter versus the S&P 500 (on page 4). I believe the

stocks in this newsletter fit this profile well.

Thanks,

Ben Reynolds

Sure Dividend

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

The next newsletter publishes on Sunday May 1st, 2016

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