Where to scout for dividend growth stocks?

Usually when talking about dividend growth stocks (DGS) people talk about US stocks. It’s clear that the US is the market with most DGS. You can get diversification by buying companies with global businesses, but I still believe it’s important to look for stocks outside the US to get a properly diversified portfolio. Here I have gathered some places to scout for dividend growth stocks:

USA:
There are a lot of places you can look to find DGS from the US, but I think this is definitely the most thorough list there is.
http://dripinvesting.org/Tools/Tools.asp
This is also a good site, but it shows only companies with at least 25 consecutive years of raising dividend.
http://www.buyupside.com/dividendaristocrats/displayalldividendaristocrats.php

Canada:
These lists of Canadian DGS consist of companies with at least 5 consecutive years of raising dividend.
http://www.dividendgrowthinvestingandretirement.com/canadian-dividend-all-star-list/
http://www.buyupside.com/globalarticles/canadaaristocrats.php

Europe:
I haven’t found so detailed list of European DGS, but S&P maintains a list of European companies with at least 10 consecutive years of raising dividend. You can download the full constituents list from there.
http://us.spindices.com/indices/strategy/sp-europe-350-dividend-aristocrats-index
Here is also a list of European DGS, that have a listing on US stock exchange or a liquid ADR. This article was published in June 2012, so the valuation data is not valid anymore.
http://seekingalpha.com/article/692531-european-dividend-aristocrats-the-comprehensive-list

I hope these links are useful when seeking for new investments. Feel free to comment if you have some additions to those.

McDonald’s (MCD) stock analysis

Overview

McDonald’s (MCD) was founded in 1940 and has grown quite a bit since that. Currently it’s the world’s largest hamburger fast food restaurant and second largest fast food restaurant right after Subway. It serves almost 70 million customers in more than 100 countries every day. MCD has the 6^th most valuable brand in the world according to Forbes.

Distribution of revenue:

USA: 32 %

Europe: 39 %

APMEA (Asia Pacific/Middle East/Africa): 23 %

Others: 6 %

Financials

I’m using Compounded annual growth rate (CAGR), which describes the rate at which the number would have grown if it grew at a steady rate.

5 year CAGR of revenue: 4.32 %

5 year CAGR of EPS: 6.19 %

5 year CAGR of dividend: 8.76 %

Current payout ratio: 56 %

McDonald’s seems to be in good financial condition. Although dividend has grown faster than EPS in last 5 years, the payout ratio is still good at 56 %. What’s most important thing about their dividend is that they have raised it every year since 1976, which equals to 38 consecutive years! The revenue growth rate also seems very good considering that we are talking about the second largest fast food restaurant in the world.

MCD has a debt/equity ratio of 0.89, which is strong. If you take goodwill out of calculations, the debt/equity ratio is 1.09, which I find still very good.

Risks

McDonald’s operates in fast food industry, which makes it dependent on people’s consumption of fast food. People in developed countries are becoming more and more aware of the risks of fast food. However, I don’t really see this as a major threat. MCD can adjust its product portfolio if there really would happen a big decrease in the sales of their current products, which I see highly unlikely.

McDonald’s faces the same risks as all the global companies: currency risks, legislation, geographical disasters etc. However I think that the benefits and possibilities of such exposure are far greater than the risks.

Valuation

MCD currently trades at around $95.5. They pay $0.81 quarterly dividend, which results in annual yield of 3.39 %. I think this is quite an attractive yield for a company with such fast growth in the past and 38 years of raising dividend. The PE ratio is at 17.2, which is just a little over the 5-year average. I bought my shares at little below $100, so I definitely think MCD is currently attractively valued.

Full disclosure: Long MCD

Xinyuan Real Estate (XIN) stock analysis

Xinyuan Real Estate (XIN) stock analysis

Overview

Xinyuan Real Estate is a Chinese real estate company listed in NYSE, which focuses on developing residential real estates in Chinese Tier II cities. These Tier II cities are larger and more developed with above average GDP and population growth rates. The company was founded in 1997 by Yong Zhang, who is still the company’s chairman and CEO. In 2007 the company committed an IPO to NYSE and became the first Chinese real estate company listed in NYSE. In 2012 they entered the US markets with three projects.

Financials

XIN has had some great growth. The revenue has tripled from 2007 to 2012 and earnings have increased steadily as well. In 2013 they made $1.63 profit per share of which they paid $0.2 as dividends, which gives a payout ratio of 12 %, which leaves a lot of room for growth. The company is still growing very fast so it makes sense to use the capital to growth rather than paying it as dividends. They paid their first dividends in 2011 and it has increased every year after that. This short time-scale doesn’t tell anything about company’s dividend policy, but at least according to Mr. Zhang they are committed to paying dividends:

“Finally, we are pleased with the continuation of our dividend program, announcing our fourth quarter dividend. We remain committed to this program as we progress through 2014,” concluded Mr. Zhang.

Risks

XIN definitely has some risks. There are a lot of examples of frauds committed by Chinese companies. Early this year the auditor of XIN, Ernst & Young Hua Ming, was suspended along with other auditors by the SEC, because they did not comply with SEC investigations of Chinese companies. This means that XIN probably has to find a new auditor for this year. This didn’t hit only Chinese companies, but also General Motors and Yum! Brands Inc. have to find new auditors.

Also exchange rates pose a great threat, since all of XIN’s profits are denominated in Chinese currency Renminbi (RMB). In future the role of USD will increase when XIN starts to make profit in the US.

The geographical threat is also obvious. Any changes in Chinese housing markets or economy could have big effects on the performance of XIN.

Valuation

XIN currently trades at about $4.95. Last year the EPS was $1.63, which gives for today’s price a PE-ratio of 3. The P/B ratio for XIN is currently 0.36. Both of these ratios are insanely low and it seems that the worst case scenario is already in the price. The dividend offers a 4 % yield, which seems quite low comparing to the risks. However I believe the company has a huge potential and the valuation level is way too low. Of course there is a risk that investors will never value the stock to its correct value but I’m not concerned because I think company will reward the shareholders with dividends anyway. That’s why I wouldn’t worry about the somewhat low dividend yield, because the company is still growing and the dividend has a great growth potential as well.

Full disclosure: Long XIN

General Electric (GE) stock analysis

General Electric (GE) stock analysis

Overview

General Electric is an American multinational conglomerate corporation and has currently 6^th largest market value and 7^th most valuable brand in the world (Forbes). GE has 8 different operational segments: Power & Water, Oil & Gas, Energy Management, Aviation, Healthcare, Transportation, Appliances & Lightning and GE Capital.

Geographical distribution of revenue:

US: 47.0 %

Europe: 17.3 %

Pacific Basin: 17.5 %

Americas: 9.0%

Middle East & Africa: 9.2 %

Financial situation

I’m using Compounded annual growth rate (CAGR), which describes the rate at which the number would have grown if it grew at a steady rate.

5 year CAGR of revenue: -1.41 %

5 year CAGR of EPS: 4.69 %

5 year CAGR of dividend: 5.31 %

Current payout ratio: 62.2 %

These numbers from the past 5 years show good growth both in EPS and dividend. The decline of the revenue is of course not a good thing, but this is mostly due to the decline in 2010. Everything was going just fine until 2009 came with the Great Recession. That year GE had to cut their dividend ending a streak of 32 consecutive years of raising dividends. The banking sector of GE was the one causing the troubles. After that GE has announced that it will focus more on its core assets, decreasing the size of GE Capital. It also sold the NBC Universal for $18 billion in 2013.

After decreasing the dividend GE has been very eager to raise it again and gain shareowners’ trust back. The dividend has been raised 6 times after the cut, increasing the quarterly dividend from $0.1 to current $0.22 per share. This is very aggressive growth and I believe we can expect steady and sustainable growth for years to come. I’m sure GE wants back to the club of Dividend Aristocrats. Currently the payout ratio is at 62 %, but if you take the loss from discontinued operations out of calculations the payout ratio is 54 %, which gives a lot of room for future growth.

Using all liabilities as debt, GE has debt/equity ratio of 3.98, which seems quite high. However I wouldn’t be worried about this. In 2010 the ratio was 5.3 and it has steadily decreased every year. Also GE is a large company that can get cheap debt which makes it little easier to accept so high ratio.

Risks

General Electric is a global company with the risks of a global company and I don’t see any unusual threats that GE would face. Earlier GE Capital presented a risk – which then became reality – with its huge portion of the business. Now that GE is more focused on its core businesses and the role of GE Capital has decreased, I think it no longer presents a major risk to GE.

Valuation

GE trades currently at $25.4 with a PE ratio of 20. The PE is a lot above its average in the last 5 years. However if you think what has happened in the past 5 years, that doesn’t tell much. Currently GE provides a dividend yield of 3.46 %, which is very good. Considering these numbers I’d say GE is fairly valued, which is why I initiated a position in this company this month.

Full Disclosure: Long GE