The Dividend Growth Index – Q2 2012

For those readers who are new to the Dividend Ninja, this is a regular series on the Dividend Growth Index (DGI). Rather than a stock picking contest, the DGI is a collaborative effort among eight dividend investors choosing three stocks each, and following these companies over the long term.

Dividend Growth IndexFor those who are already following, this is the third quarterly update for the 9 month period, since the project was launched last September.

If you’re unfamiliar with the DGI, then these two introductory posts as well as my quarterly updates, will give you an excellent background to the project:

 

 

Benchmarking: How Are We Doing?

Since the Canadian and U.S. dollar spread is within 2% for the year, I’ve given the following returns in local currency. Since inception (9 months), the Dividend Growth Index has returned 18.09% total return and a 2.15% year to date (YTD) return.  For year to date returns, this pummelled the dividend ETFs, XIU with a YTD return of -1.18% and XDV with a YTD return of 0.46%. However YTD, the index ETFs pummelled the Dividend Growth Index. Year to date, SPY returned 9.47% and VIG returned 4.8%. For the second straight quarter SPY has outperformed the Dividend Growth Index. Does that mean I’m selling all my dividend stocks to buy SPY? Hardly, a 6 month return is but a mere snapshot for an investing horizon.

My Three Stock Picks

My three picks for the Dividend Growth Index were: Husky Energy (HSE-T), PepsiCo Inc. (PEP-N), and Staples (SPLS-Q). These three stocks have returned a combined average of 12.23% since inception (9 months) and a combined average return YTD of 2.06%. Husky and PepsiCo performed well this year, but Staples declined -6.8% YTD.

Here are my quarterly updates on these companies:

Husky Energy (HSE-T)

Although Husky was hit hard in the overall decline in oil and gas producers, following the economic slowdown in China this quarter, it’s fared pretty well. Husky hit a low of $22.46 on June 3rd, but has rebounded and currently trades at $25.61 per share. It’s currently trading higher than it was from the previous update.

Husky is a 24.7 billion dollar diversified oil and gas producer, with global interests throughout Canada, the U.S. and Asia. It has over $24.3 billion in annual revenue, and a profit margin of 9.00%. It has its debt well under control with a debt-to-equity ratio of 24.83. Husky has a generous dividend yield of 4.68%. The annual dividend is $1.20 per share, with earnings per share of $2.31, which gives Husky a 52% dividend-payout-ratio. The fundamentals for Husky continue to remain strong. I currently maintain a positive hold position for Husky. Rising oil prices would certainly lead to future capital growth.

PepsiCo Inc. (PEP-N)

Pepsi needs no introduction, as it is one of the most recognizable blue-chip brands on store shelves. PepsiCo is a $109.8 billion dollar company (USD), with over $67 billion in annual revenue, and a profit margin of 9.59%. Pepsi’s dividend yield is 3.06%. The annual dividend is $2.15 per share, with earnings per share of $3.96, which gives PepsiCo a dividend payout ratio of 54.3%.

PepsiCo has experienced phenomenal growth. Its share price has increased from a low of $62.28 per share at the beginning of March, to close at the end of June at $70.66 per share – a whopping 13.45% increase in four months. In my previous Dividend Growth Index update, I had set a red flag on Pepsi, as its debt-to-equity ratio was substantially increasing by the quarter.  Currently the debt-to-equity ratio for Pepsi is still very high at 120. However this is a 6.25% decrease from the previous quarterly update, where the ratio was over 128. A couple more quarters of debt reduction, may indicate Pepsi is moving in the right direction. I maintain a hold for PepsiCo with a watch on the debt-to-equity ratio.

Staples Inc. (SPLS-Q)

Staples Inc. is the underdog of my three picks, and is a pure value play. I’ve discussed Staples in depth in my previous posts:  Staples Inc. Value in Office Supplies? , and Why I Bought Staples Inc.

Staples Inc. is currently trading at $13.22 USD per share, down from the previous Q1 update of $16.12 USD per share.  It’s not surprising that retail companies have been hit hard with the recent market decline over economic woes in Europe, and fears of a slowing economy in China. However, the decline in Staples may be more the result of exactly that, a sell-off instead of fundamentals.

Although profit margins are razor thin in office retail, Staples is still the dominant player in this sector. The fundaments for Staples remain intact.  The dividend yield is currently 3.32%. The annual dividend is 0.44 cents per share, with earnings per share (EPS) of $1.37, giving Staples a low dividend-payout-ratio of 32.11%. Staples profit margin still remains at 3.9% with a low debt-equity-ratio of 28.33%.  I maintain a hold for Staples.

The Other DGI Amigos (2012 Q2 Updates)

Susan Bruner is the newest Dividend Growth Index member, replacing The Wealthy Canadian. Susan has over 40 years of investment experience, primarily with dividend stocks, and I’m quite interested to see what her three picks are for the Dividend Growth Index. I had the opportunity to interview Susan back in June 2011, and I’m delighted to see her onboard!

Here are the other seven bloggers making up the Dividend Growth Index, and a summary of
their 2012 Q2 updates:

Readers, what’s your take on the Dividend Growth Index? What do you think of the Ninja’s picks?

Disclaimer

I am long on Husky Energy (HSE-T) and Staples Inc. (SPLS-Q).  This article is not intended as professional financial advice or a buy recommendation, and is intended for educational and general purposes only. For more information you can read the Ninja’s full disclaimer and privacy policy.

8 Responses to “The Dividend Growth Index – Q2 2012”

  1. My Own Advisor

    Jul 09. 2012

    Great update! Glad to be part of the fun!

    Mark

  2. farcodev

    Jul 09. 2012

    I received my first dividends from HSE this July 1st and I’m very happy of it. As you said, even if it’s has been hit hard, I’ll continue to support it as well as the management is good and the financial sheets are too.

    Even in this morose pre-global-crisis market HSE did well since the start of this year.

    By the way the DGI is a pretty neat idea, keep it up community ! :D

    • The Dividend Ninja

      Jul 10. 2012

      Farcodev, Husky is a good long term hold IMO.

      Cheers!

      • farcodev

        Jul 11. 2012

        Yes exactly, it’s very motivating to put our money in such companies, it gives the feeling to really participate to the economy than gambling with the future, even by investing tiny amount of cash.

  3. TM @ Young and Thrifty

    Jul 13. 2012

    Like I just commented over on Mark’s site, I am following this with great interest. Since I am completely assured that this group is some of the smartest personal investors I know (granted, I don’t know all that many smart personal investors, but still), if they can’t beat their benchmarks over a longer time horizon, I will be completely convinced that no one can. Great job with the total transparency and direct comparison to relevant ETFs.

    • The Dividend Ninja

      Jul 13. 2012

      Hey TM this is a great comment! Always enjoy you dropping by and shaking up the dividend money-tree. I see 2 valuable lessons here (1) Indeed following a stock index over the lon term, instead of a short-term stock-picking contest, and (2) whether we can indeed beat the benchmarks. That would be nice. :)

      At the end of the day, as I’ve mentioned so many times before, I’m really not out to beat the index. There are times when I will and times when I won’t, but what I will have is a nice income producing long-term portfolio with some nice bond ETFs thrown in for good measure. In fact I already do. ;)

      btw are you going to be at FinCon12?

      Cheers!

Trackbacks/Pingbacks

  1. Dividend Growth Index - 2012 Q2 Results « The Passive Income Earner - July 9th, 2012

    […] Dividend Ninja […]

  2. Dividend Growth Index Update Q2 - July 9th, 2012

    […] Dividend Guy My Own Advisor Dividend Mantra The Passive Income Earner Dividend Ninja Dividend Growth Investor Susan […]