Online Broker Review 2012

Company Analysis -- Procter & Gamble update

In Feb, I wrote this article for Proctor & Gamble.  I mentioned that When the next quarter result comes out, the market might be leak out a chance for patient buyers to go in. I still think $63 or lower is a good entry point.  Currently, the market price is lower than $63, which render a very good opportunity for long term investors.  


The reason for current price drop is mainly as following:-


"Wednesday, June 20, 5:21 AM P&G cuts FQ4 guidance, citing slower-than-expected growth in developed markets and forex fluctuations. P&G forecasts adjusted EPS of $0.75-$0.79, vs. prior guidance of $0.79-$0.85 and consensus of $0.82. Net sales to fall 1%-2% vs. +1%-2% prior. For FY 2013, P&G predicts a percentage increase in profits of flat to mid-single-digits. (PR)" 


This article provided very good analysis for PG.


Disclosure: I am long PG.

My goal in the dividend growth account

Basically, my goal is to achieve yield on cost 10% in 10 years.

At the first glance, this goal seems very ambitious.  However, when looking into it a little deeper, I should say that this is a very reasonable and achievable goal.

Firstly, the 10% return is based on cost, the purchase price, not on market price.  If I invest in stocks with solid fundamental financials, I will be very confident to predict an uprising stock market price trend in the long run, reflecting the companies' ongoing growth.  Of course, there are ups and downs in the process, the long-term trend should be upwards.  In the meanwhile, the purchase price is very important.  I should be very patient to wait for a good reasonable entry point, because the purchase price will largely affect my initial yield rate.

Secondly, I only look at those companies that have a consistent dividend growth history in the past 10 years.  With such good record on hand, I believe they will tend to put stakeholders' benefit in a higher priority.  In the future, they will continue to endeavor to increase annual dividend.

Thirdly, here is the guideline to achieve 10% return in 10 years.

In order to achieve this goal, I only look at the gray area, which means the initial yield should be higher than 3%, and the annual dividend growth rate should be 13% or higher.  In this chart, we haven't considered dividend re-investment.  If dividend re-investment is considered, the goal will be achieved faster because of the compounding effect.  Of course, since I plan to put in additional money from my paycheck each month, I'll expect the average yield to cost will be lower than 10% in 10 years.  However, when considering each individual investment, the 10% in 10 years should be guaranteed.

Let's take Walgreen as an example in order to strengthen my analysis:-

Why do I choose to be a dividend growth investor

I used to be a self-claimed value investor.  I input a lot of time and effort to do stock analysis.  I did achieve some good return.  However, I found that I don't always have adequate time to do all those analysis.  I was quite active in year 2009.  However, due to some personal issues, I didn't participate in stock market at all in year 2010 the whole year and the first half of 2011.  When I did have time to take a look at my portfolio, I ran some performance benchmarking my portfolio versus SPY in the same period.  I was disappointed with the result.  Although there were several outstanding stocks I own with very satisfactory performance, 80% of my portfolio had performance worse than the no-brainer SPY.

I learned several lessons from this experience: 1. to be a sensible long-term investor is much better than to be a short-term impulsive one.  2. having a long-term investment strategy to follow is very essential.  3. for a person like me, to purchase a stock with solid fundamental financials and then to "forget" all it after purchase is much suitable for my character.  Capital gain is one of my goals, and long run dividend yield to cost return is much more attractive.  4. I always want to invest in real estate market which I believe can provide me more stable and more potential returns.  However, currently I don't have enough money to invest in housing market, so I decided to set up two pillars for my retirement income account: dividend growth account to begin with, and real estate investment account later when enough money is accumulated.

My goal in dividend growth is to achieve 10% yield to cost in 10 years.  This goal makes sense after analyzing several stocks initial yield and annual dividend growth rate.

WAG dividend analysis

Annual dividends and growth data

How to find proxy statement in SEC files

On this EDGAR page, input company name and form type DEF 14A in the search area.

You will get below result:-

The speech marks ” ” is used just in case the company name has a space in it and the asterisk * is used to display any filing beginning with 10-Q.  By using the asterisk you can search for amended filings that have the code 10-Q/A. If you just did FORM-TYPE=(10-Q OR 10-K), you wouldn’t see any of the amended filings.

For a list of all the other forms, this is the pdf you want.

Here is an excellent article for more detailed info about the SEC search.

When you check a company's inventory...

• You'll have to evaluate the different kinds of inventory: raw materials, work-in-progress inventory, and finished goods. (Some companies report the first two types as a single category.)

 1) A company ramping up for increased demand may increase raw materials and work-in-progress inventory at a faster rate when it expects robust future growth. As such, we might consider oversized growth in those categories to offer a clue to a brighter future, and a clue that most other investors will miss. We call it "positive inventory divergence."

2) On the other hand, if we see a big increase in finished goods, that often means product isn't moving as well as expected, and it's time to hunker down with the filings and conference calls to find out why.

•  Compare inventory turnover days among the competitors.

• Compare the company's inventory growth to sales revenue growth.